March 10, 2025 • 39 mins
Being in the heart of income tax time, Chris Boyd, Jeff Perry, and Russ Ball
remind listeners of key upcoming filing dates and related retirement account contribution
limits. Jeff and Russ discuss the differences between traditional IRAs and Roth IRAs.
Chris explains the use of a “back door” Roth IRA and Roth conversions. Chris also
advises listeners how 1099’s work with Qualified Charitable Distributions (QCDs).
Chris ends the episode with an offer for a complimentary Finance Fact Sheet to anyone
who emails the show.
For more information or to reach Chris Boyd or Jeff Perry, click the following link:
https://www.wealthenhancement.com/s/advisor-teams/amr
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Thanks for being with us, everybody, for another
episode of Something More.
I'm here with Jeff Perry and Russ Ball.
We're all of the AMR team with the
Wealth Enhancement Group and glad to have you
(00:43):
joining us.
You know, it's getting close to tax time,
so we figured we'd better talk about this.
Have you done your taxes yet?
Have you been planning for it?
There's some things to remember.
March 15th is actually a date you need
to know if you have a business and
you file a business return, as opposed to
(01:05):
being self-employed and filing through a Schedule
C on your own personal tax return.
That date, of course, is April 15th.
And this year, it actually is April 15th.
We've had years where, what is it, Patriot's
Day?
Is that what it is?
Patriot's Day, I think, was last year and
then a couple of years before.
(01:27):
It's been on the weekend, so you've had
a couple of extra days, but this year,
April 15th is actually tax day.
So don't delay.
Don't think you've got extra time padded in
there if you've gotten used to those extra
days, but there's still plenty of time.
I will say, if you're going to hire
(01:50):
someone and you haven't spoken with them yet,
you may end up on an extension.
Remember, if you file an extension, it does
give you time to get all the details
together, but it doesn't buy you time to
provide the money you owe.
If you ultimately owe money, you have to
(02:13):
have paid that by tax filing April 15th.
I think that's something that a lot of
people don't know.
And it's also confusing because how am I
supposed to know what I owe if I
haven't been able to get all my stuff
figured out?
My uncle Sam would be happy to take
more than you owe.
So essentially, that's what it is, right?
You have to make sure you've covered enough.
(02:33):
Otherwise, you'll be subject to penalties.
It's maybe not the end of the world,
some additional costs if you weren't able to
calculate it properly, but that is a risk
of underpaying by the April 15th deadline.
You know what's been happening in the last
few years is the 1099s have been getting
later and later.
(02:54):
So the tax season is compressed because people
don't sit there in January and say, it's
time to file my taxes, right?
They delay.
You don't have everything like you're saying.
Your wage stuff, what's that, a W-2?
(03:17):
That doesn't come in until February, really, right?
Isn't it?
It's supposed to be by the end of
January, but not always.
So around the end of the month, you
couldn't do it in January anyway, probably.
Right.
I'm just saying most people think by the
end of January, or it used to be,
by the end of January, I'll have everything.
(03:40):
And then I have February, March, and half
of April.
But now with the delay in a lot
of these 1099s from practically every brokerage there
is, they delay.
And if you have a K-1, forget
about it.
Oh, geez.
Well, let's come back to that.
On the 1099s, what used to happen, though,
(04:01):
is it didn't get delayed.
They'd issue you a 1099.
And then some fund would have some foreign
tax consequence that they'd have to reissue the
1099.
And then you'd end up with erroneous submission
if you've already filed your tax return.
Right.
So it could be just as frustrating if
(04:21):
they got it out in a timely manner,
but then had to recharacterize it or whatever
they called that, reissue it.
Right.
And you'd end up with having to, if
you did submit very quickly.
I think the lesson is, it's one thing
to get all your ducks in a row,
but you really should be reluctant to file
before March until you make sure you have
(04:42):
all the information in.
And really, sometimes even later, just to make
sure that there's no changes that might be
provided to you before the tax filing deadline,
because you don't have to do it again.
Right.
So that just makes the tax season shorter,
though.
Yeah, more compressed when it comes to the
tax service providers, the tax preparers.
(05:06):
To your point, if you engage a professional,
don't walk in on April 10th and say,
we've got five days to get this done.
Here's my shoebox.
Good luck.
Here's all my receipts.
I put them all in alphabetical order.
Yeah.
Thank you so much.
Yeah.
So you mentioned a K-1, though.
(05:28):
Let's not skip over that.
What's a K-1, Jeff, and when does
that come into play?
Well, it's used for a few things, but
generally it's used for a partnership.
Partnerships of some kind, or maybe it's some
business that you are a participant in, but
you could have an investment that's like an
investment partner.
Yes, a limited partnership.
(05:49):
And there's various instances like this where you
have an interest in some entity and they
don't have to file their taxes until April
15th.
So the K-1 doesn't get issued until
the time around the time you're expected to
be filing your tax return.
So oftentimes, if you have any kind of
(06:09):
an interest where a K-1 is issued,
you should expect to be going on extension
because it usually happens that you don't get
your K-1 until around tax filing date.
That's right.
A lot of these realty investment trusts and
things like that will have a K-1
sometimes.
(06:30):
And as you said, they can't issue the
K-1 until they do their own taxes.
So it's a flawed process.
It's not flawed, but it's challenging.
It's frustrating for people.
That's really what it is.
Hey, you know, one other thing, when we
talk about some of these deadlines, April 15th
coming up fast, one of the things I
(06:50):
think can be the most frustrating, particularly for
small business owners, is not only do they
have to make sure that they've, hey, let's
say you had a good year.
And they say, hey, great, you had profit.
Guess what?
You owe more money for taxes.
Oh, geez, I owe more money for taxes.
Where'd that money go, right?
(07:10):
And then you start off and go, well,
and by the way, we got to file
your estimated taxes for this year as well.
So you have like, you double hit with,
you know, you got to get your tax
paid for the prior year.
And you've got that estimated tax due for
the first quarter, which is really more than
(07:30):
the first quarter.
So things to keep in mind.
If you're on Cape Cod, you know, for
a lot of our listeners, a lot of
our clients, it's not the time to come
up with a big cash payment.
Very true.
Very true.
Well, before going too far down this path,
I thought maybe it would be worth talking
a little bit about some of the rules
(07:52):
and some of the occasions when, you know,
if you're participating in a retirement plan at
work, in most instances, you have to have
contributed during the calendar year for it to
be relevant for the tax return year.
But there are a few exceptions to that.
And where you could contribute to a retirement
(08:12):
plan and have it be relevant for your
filing for 2024.
Maybe we should talk about some of those
instances.
Either of you guys want to jump in
on that?
Well, specifically on like Roth and traditional IRAs?
Yeah.
Let's start with those.
So, I mean, I'm always telling my friends
who often forget about their IRA contributions that,
(08:37):
you know, now's a great time to lock
in your 2024 and try to max out
your 2024 contribution for your Roth or for
your traditional IRA, whatever it may be.
Because, you know, even though it's 2025, you
can count it for 2024 and then do
2025 as well later on in the year.
Whenever you have that.
That's right.
That's right.
So things to consider when you're thinking about
(08:58):
doing a traditional IRA, which can give you
a deduction, essentially reduce your income for the
year, is that it can be different if
you have a plan available to you at
work from whether you are eligible to participate
if you have no plan at work.
So if you have no plan at work,
(09:20):
correct me if I'm wrong, you can do
a tax deductible contribution to a traditional IRA,
right?
If there's no plan whatsoever.
But if you do have a plan at
work, you may not be able to take
that tax deduction if you make certain amounts
of income.
And the rules on that are different for
(09:40):
different, you know, if you're single versus married,
you know, what are the numbers?
But essentially, if both spouses are covered by
an employer plan, if you're married filing jointly
in 2024, if you made between $123,000
to $143,000, there's a phase out.
(10:02):
So really, if you make anything more than
$123,000, you've got to be mindful of
this fact that you're not going to be
able to do the whole amount in a
way that's deductible.
And that may not be appealing.
It may be preferable to think about a
Roth IRA.
Right.
Again, if you have a Roth IRA contribution,
(10:22):
there's still an income phase out.
And that starts around $230,000 for a
married couple.
By the way, for the traditional IRA, if
you're participating in a plan, the single person,
that phase out starts at $77,000, goes
to $87,000.
For the Roth IRA for a single person,
(10:42):
around $146,000 to $161,000.
These are details.
You might not know these and we're rattling
them off.
Just know, be conceptually.
There are times when there's different rules for
different circumstances.
Participating in a plan is a different kind
of rule than someone who doesn't have a
plan available to them.
(11:02):
So that being said, sometimes, let's maybe before
we go on, Jeff, Roth IRA, traditional IRA,
why one versus another?
Maybe explain how these differ.
Just a little review of some of these
kind of things.
Sure.
So the biggest pro of the traditional IRA,
(11:23):
if you are able to make it under
the income guidelines you mentioned, is you can
deduct your contribution off of your income taxes,
right?
So a lot of people think about, I'm
going to make a contribution through my employer
or through a traditional IRA and it's a
tax break for me.
That's the reason why.
I reduce my income in some form or
(11:43):
fashion, whether it's before or after compensation.
That's correct.
So with a Roth IRA, you have to
use money that's already in tax, the money
that's been through your employer or wherever you
get it from.
And you have to have earned income, by
the way, to make a Roth IRA.
Yeah, it has to be earned income.
However, the big benefit of a Roth IRA
is that when the money comes out, we
(12:06):
can talk about the five-year rule that
we were talking about before.
Yeah, we'll come back to that.
But assuming that it's in there for five
years, when the money comes out in your
retirement, hopefully, it all comes out tax-free.
All the contribution comes out tax-free, all
the earnings.
So if you think about the young person
that we're kind of alluding to here, they're
(12:27):
starting their first job or maybe they got
a job with an employer plan, et cetera,
and they're thinking about a Roth IRA, think
about 30 years of compounding gains and then
it all comes out tax-free at the
end.
So how beautiful is that?
It's a tough thing to think about when
you're, say, 30 years old.
(12:48):
Should I take the tax deduction now and
get some pay less taxes now?
Or should I forego that tax deduction and
put it in a Roth IRA for something
that's down the road a bit?
I mean, not a lot of people want
to give up something now for something that's
down the road.
It's a good thing.
Let's just come back to that in a
(13:10):
second.
I just want to reinforce this.
A traditional IRA is money that essentially is
treated before taxes.
So either I get a deduction if I
got it in my payroll and then I
put it in the IRA or, well, that's
going to be how it happens in this
case.
So I get to deduct it from my
(13:33):
taxable income and therefore what happens thereafter, it
grows in this environment of a tax-deferred
environment.
But later in life, when I go to
take it out, 59 and a half or
later, I will pay income tax on what
comes out.
(13:53):
All of it will be income tax in
that scenario when I get that deduction.
Just to add complexity, sometimes people add money
to an IRA and don't get the deduction,
but it creates complexities.
We're going to ignore that for this discussion.
So now the alternative is to say, I'm
(14:15):
going to pay the tax now, put it
into the Roth IRA, which grows free from
tax as well, deferred in this sense.
But when I take the money out, at
least five years or 59 and a half,
again, this same kind of notion, then I
get to take all that money free from
tax when I take it out.
(14:36):
It's grown compounded without tax consequence.
A really pretty attractive option.
You asked about this notion for guidance.
What should we tell people then?
Should they do a Roth or should they
do a traditional?
If they're eligible for both, but they're willing
to make some contribution and they're in a
(14:57):
relatively low tax bracket starting out in their
career, perhaps, which is better?
I mean, you can feel the immediate benefit
of that tax deduction, but I think we're
all in agreement.
If you're in a relatively low bracket, what
would you say, Jeff?
I'm going to go Roth.
And the younger you are, the more I'm
going to pound the table and say, do
(15:18):
the Roth.
Yeah, absolutely.
I think we're all in agreement here.
And why is that in part?
Because one, your tax bracket is low and
you're defining that tax bracket as that lower
tax bracket.
But two, the likelihood is that taxes will
be higher later in life.
One, because your income and your wealth and
(15:41):
all of that will change.
But two, because of this environment we're in,
taxes are historically relatively low right now.
And you're probably better served to pay that
tax at this historically relatively low level than
what you'd have later in life.
Now, if you're in a high tax bracket,
(16:01):
that could be worth further evaluation.
What we find is that it tends to
be that people who are in very high
or very low tax brackets are drawn to
the Roth IRA.
Because if you're in a very low tax
bracket, well, I may grow into higher tax
brackets.
I'll take advantage of it while I'm in
(16:21):
this low bracket.
But if you're in a very high tax
bracket, the notion is you're probably gonna stay
in a high tax bracket.
And will those tax brackets be higher or
lower later on in life because of Congress?
Well, I don't think it's likely to be
lower, right?
But so if you make a lot of
money and you're in a big tax bracket,
(16:42):
you're probably gonna continue to be in a
high tax bracket.
So the idea of Roth is very attractive
sometimes to just have the opportunity for some
of that money to be coming out to
you tax free later on.
And you can pay that while you can
afford it, really.
You've got plenty of income coming in, right?
Anyway, you want to comment?
The other beautiful thing about the Roth is
that you don't have to take RMDs.
(17:03):
So you have access to that money when
you want it.
You don't need to take anything out of
it.
Elaborate again.
Everyone probably knows what an RMD is.
We use the jargon stuff and sometimes don't
think to elaborate, but RMD.
So it's the required minimum distribution where if
you're born after 1960, I believe the age
is 73 that you have to- Before
(17:25):
1960, it's 73.
After 1960, it's 75.
Oh, 75.
That's right.
All right.
So 73, 75, you start taking your RMDs.
It's the percentage of the money that is
in your IRA accounts.
So that's based on the uniform lifetime table
I'm looking at in front of me right
here.
(17:45):
Yeah.
And you have to take a certain percentage
that grows each year from your IRA.
The government's been waiting all this time to
tax and they say, it's fine that you
have it, but come on, you got to
take some out.
So they're required a minimum distribution.
Doesn't mean you can't take out more.
They're always happy to have you take out
more once you get past the 59 and
(18:08):
a half, which is, this is intended as
a retirement savings vehicle.
And thinking long, long time down the road
here, your heirs would love to inherit a
Roth IRA.
Very true.
Very true.
Going back to one of the things we
didn't talk about, which was one of the
(18:28):
other ways you can have some contribution into
your plan.
If you're doing tax planning now in 2025
as you're preparing for your 24 tax return,
and that's for sometimes if you're self-employed,
you might have a SEP IRA, a self
(18:49):
-employed pension IRA, essentially is one of these
kind of IRAs that you can contribute a
significant amount to, potentially as much as $69
,000, I think in 2024.
If it's just you as an employer, it's
(19:09):
probably a little less than that.
But anyway, you get the point.
Or no, I think it's 69,000 if
it's 25% of wages, but if you're
sole employee, it's somewhere around 20, 21%.
I forget what the actual number is, but
it's a slightly different formula.
So in any case, the point being, there's
(19:30):
a lot of money you could put into
a retirement plan, get a reduced income for
2024 and have that money deferred for future
years.
The bigger question may be, should I, Jeff?
That question of what's going to happen with
taxes.
(19:50):
There's an article you were talking about where
there was an assumption that, should we assume
that taxes will be lower in our retirement?
Yeah, and I don't think we should assume
that taxes should be lower in our retirement.
It's a Kipling's article that I was referring
to, and it talks about how retirees have
a tendency to underestimate the amount of income
(20:14):
taxes that they're going to have to pay
in retirement.
And that comes from, sometimes it's the extreme
examples.
I'm not saying this is all retirees by
any means, but sometimes people aren't even aware
that they have taxes due when they take
money out of their retirement.
You have to pay these taxes.
(20:34):
If you're taking out $10,000 a month
and you're in the 24% tax bracket,
you're not getting $10,000 in your checking
account.
And if you live in a state that
has income tax, maybe another 5%, round numbers,
you could see 30% off the top
of your withdrawal from your IRA.
(20:56):
So that's where it starts.
And then people don't realize that they're going
to have to build a portfolio of income,
if you will.
Where is the money coming from?
Is social security taxed?
Are you working?
And so all these things, a lot of
retirees don't assume that it's going to rise
to the level of taxes, income taxes.
(21:19):
Yeah, that's a good point.
I mean, I think a lot of times
historically we've said, oh, the reason you deduct
now is because you'll be in a lower
tax bracket later.
And sometimes that's true.
Your social security, depending on the level of
income, is taxed at different rates, right?
(21:41):
Or different amounts of it are taxed.
So let's say, for example, if you make
a certain amount, anyone have those numbers offhand?
Where is it?
Social security in last year, if you're filing
jointly, if you made under $32,000, you
don't get taxed on your social security.
If you made...
Is that last year?
(22:01):
Am I looking at the right year?
Yeah.
And if you made $32,000 to $44
,000, only half of your social security is
subject to tax.
But if you make more than $34,000
as a filing joint couple, 85%, sorry, more
than $44,000, 85% is subject to
tax.
(22:24):
So different thresholds, you can say, oh, well,
maybe I will, maybe I won't, right?
What other income do you have?
Well, distributions from retirement plan.
You mentioned the idea, you want to buy
a car and that's where you're taking it
from.
You're taking $50,000 to buy that car.
Sorry, you don't have $50,000.
You've got $35,000 or whatever after you
pay taxes.
(22:45):
So, you know, whatever.
So you have to take out more if
you're...
Or whatever, you know, depends on how much
you spend on the car.
But you follow...
Oh, buy less.
Yeah, yeah.
Or buy a smaller car.
Yeah, a lesser car.
But so when it comes to taxes, it's
historically, I think, been presumed that people will
(23:07):
be in a lower tax bracket when they
take their retirement money, you know?
And that is often not the case.
It does not say it's never the case,
often not the case.
So the appeal of having some Roth IRA
money in the mix and enhance the opportunity
(23:29):
to have some resources that I can get
out without tax consequence or like an RMD
pushes my income tax up and creates more
tax on my social security as an example.
So if I don't have as much of
that or don't have that, it's a tax
advantage in retirement.
So taxes often are as high or higher
(23:53):
in retirement because those RMDs are pushing more
and more money out over time, more higher
rates over time.
It can push us into higher brackets than
we really might have expected later in retirement.
This is really analogous to our conversation a
week or two ago when we were talking
about income levels and how much you need
(24:15):
in retirement.
I think it all starts with people underestimate
the income level that they're going to need
in retirement.
There was, some advisors suggest that you need
less money in retirement, less income in retirement.
And typically that's not the case that we
(24:36):
find with our clients.
I think that's true.
It's a good point.
Oftentimes people think that they'll need less but
you really want to give thought to that.
What in your lifestyle is going to change?
What in your expenses is materially going to
be different?
And do you want to be planning on
(24:59):
living on less?
Yeah, I think people count.
No, I can go through a few things
that I would say.
How are my expenses going to be less?
I'm not going to drive as much.
I'm not going to do dry cleaning.
I may not have business lunches.
I made some of my expenses were related
to my work.
I may have, et cetera, things that you
(25:20):
think about related to your work.
But then how about, what are you going
to do instead?
Oh, I'm going to have some hobby that
has a cost to it.
I'm going to whatever it is.
It's kind of out of one pocket and
it transitions.
But typically people I see, I think we've
(25:41):
talked about this before.
Typically people spend about the same amount of
money.
And this is maybe in different things, but
it tends to be they have a comfort
zone for spending.
One thing that's been kind of funny, just
a digression lately, we've had some conversations with
clients and they've been like, yeah, this is
the last car I'm ever buying.
It seems like it's come up a lot
this week, hasn't it?
(26:02):
Just people thinking, well, and the notion that
they don't drive as much in retirement as
they might have pre-retirement.
So they expect their cars will last longer
and that sort of thing.
But anyway, it seems like that had come
up a lot lately.
Russ, one of the other things we wanted
to talk about when talking about tax planning
(26:23):
and the idea of using Roth IRAs, perhaps
this time of year is the kind of,
I think when people are most focused on
should they contribute is the clock.
Let's talk about the benefit of getting started
with a Roth IRA.
Russ Becker So let's say you're in your
(26:43):
60s and you've just been contributing to your
401k for years.
Never really thought about a Roth IRA.
That could be a good time to start
creating a more diversified bucket of allocation.
Tax diversification.
Tax diversification, thank you.
Tax diversification with your different accounts.
(27:04):
So you can have your taxable account, your
deferred account, and then your tax free account,
which would be the Roth vehicle.
So if you open up a Roth IRA,
let's say if you're 60 years old, you
do have to wait five years.
That Roth has to be in existence for
five years before you can start dipping into
that Roth to get the earnings on the
(27:26):
growth on those contributions.
So another advantageous thing, if you start, if
you open up a Roth today, for 2024,
you get that year free.
So that's one year down and you're already
in 2025.
So that's one year towards your five-year
limit.
And then after those five years are up,
you can start taking earnings out tax free.
(27:49):
So the sooner you start, the better.
And in this case, if you make a
contribution for a 2024 contribution, January 1st, 2024,
is when that five-year clock has started.
And so again, not just for an older
person, in this case, a younger person may
say, hey, if I had an unexpected need,
we wouldn't encourage you to do this, but
(28:10):
you'd be able potentially to pull principal without
a problem.
But you're, again, starting that clock for the,
I guess it's really more when you get
closer to retirement that it's more relevant, but
you do have access to principal.
Sometimes it's good for all these reasons to
get your Roth IRA moving, get it started.
(28:34):
That's a point of clarification on what you
guys talked about.
You can also make a traditional IRA contribution
for the last year if you haven't filed
your taxes yet for 2024.
Good point, yes.
And take the deduction.
Which could help your tax return this year.
That's right.
Again, given the notion that you have eligibility,
(28:55):
we talked about some of these thresholds.
There is a technique, I'm just gonna make
quick reference to, it's called a backdoor Roth
IRA contribution.
For someone who doesn't have the eligibility to
contribute to a Roth IRA because they make
too much, there's a possibility of putting money
into a non-deductible contribution to an IRA
(29:16):
and subsequently making a conversion of that non
-deductible IRA into the Roth IRA.
Big thing to be focused on is that
if you have an existing IRA, it doesn't
work as well for you because you can't
select, oh, I only want that IRA to
(29:36):
be converted.
It'd be proportionate.
So if you have an existing IRA, the
backdoor Roth IRA doesn't really work too well
for you.
It's ideal for people who don't have an
existing IRA and wanna find a way to
get money into their Roth IRA.
But it's relatively limited in terms of the
(29:56):
scope.
Better served for people who have an option
with a retirement plan at work that you
could do a Roth 401k contribution, you can
do a lot more.
And that leads us to the topic of
contribution limits, which might be worth talking about
for a minute.
In 2024 and 2025, the 401k limits are
(30:20):
slightly different.
So 2024, you could contribute $23,000 to
max out your 401k, 403b, 457, et cetera
type plan.
And this year it's 23,500.
So if you haven't updated your contributions, you
(30:40):
may wanna do that.
If you're over 50 and over, you can
do an additional $7,500 to that number.
For people who don't have a 401k option
or similar, and you are participating in a
simple retirement plan, a simple IRA, here again,
there've been an increase of about 500 bucks.
(31:02):
So last year, 2024, you could do 16
,000 plus $3,500 if you were 50
and over.
Now you can do 16,500 plus the
$3,500 if you're 50 and over.
So just a quick note, remember to update
things if you want to be trying to
max out your contributions.
(31:24):
Not everyone can do that.
We encourage you to do as much as
you can.
Certainly as much as you get a match,
because you're leaving money on the table if
you don't.
But try to do a little bit more
every year when you get pay increases, up
it.
And that'll help.
One additional note that seems to have gone
(31:46):
under the radar a little bit, but I
think it's part of Secure 2.0. There's
this super catch-up for 401k.
Oh, for 60s.
For ages 60 to 63, rather than the
$7,500 catch-up.
And that's just sort of this year, right?
That's just for starting 2025.
So that doesn't apply to last year.
But for this year, if you fall into
(32:08):
those ages at year end, that you will
be 60, what was it again?
60 to 63.
60 to 63.
So it's at year end, if you're in
those age ranges, then these limits give you
a super catch-up option.
For 2025, it's $11,250.
(32:30):
And that's going to be changing each year,
depending on, I guess, similar to- Inflation
adjustment, that kind of thing.
So how much was that number again?
$11,250.
So instead of the $3,500 that we
were just talking about, you could do this
much more contribution.
That's great.
(32:50):
That's great.
But it only applies to those three years.
Yeah.
Really weird.
After it goes back to the typical catch
-up of 50 plus.
So it would be $7,500.
Okay.
After that three-year window, it goes back
down.
Okay.
So just an interesting note to add.
Did I say the wrong number?
Yeah.
Yes.
Oh, it depends on if it's Simple IRA
(33:11):
or the 401k.
Sorry.
Yeah.
Okay.
So very good.
That's a good catch.
Good comment.
This year, that's a new one for people
to remember as a consequence of the Secure
Act 2.0. Our listeners might be wishing
they had a scorecard for all this.
Yeah.
(33:31):
There's a lot here.
What was that?
What were we going to say, Jeff?
I was going to say, if you want
a scorecard, we have one.
Yeah.
Well, it would be free to give it.
Be happy to give it to you, right?
It's a great resource.
I call it the cheat sheet.
It's got so much on it.
But there's a 2025 personal finance fact sheet.
(33:52):
If you're interested in getting that, happy to
share it.
I give it out at client meetings all
the time.
I think clients love this.
Very useful.
It's just, I mean, it's packed full of
insights.
Not everything applies to everyone, but a good
tool to have available.
Yeah.
And how should people reach out if they
want to get that, Jeff?
(34:13):
I think the best way is just to
send us an email, and we'll send it
right back to you.
So you can email us at amr-info
at wealthenhancement.com.
amr-info, or hyphen if you prefer, info
at wealthenhancement.com.
Did we also have an interesting fact sheet,
(34:34):
a tax preparation guide at one point?
There's something else we had.
Yeah, we have a checklist to help with
your tax preparation.
And if you want that one, just send
us an email.
Just a couple of tidbits to be like,
hey, don't forget about some of these things.
So feel free to reach out for that
as well.
One last thing before we wrap up, Jeff,
(34:55):
and I wanted to talk about this because
it came up recently with clients who had
done a qualified charitable distribution last year, a
QCD.
If you are age 70 and a half
or older, you're eligible to, because remember, once
upon a time, that was the start date
for RMDs.
(35:16):
And they've changed it over the years to
72, then to 73, eventually 75.
But they've kept this threshold for, if you
want to give money to charity, using pre
-tax money, not yet taxed money, IRA money,
through a qualified charitable distribution is a great
(35:37):
way to give money that's not been taxed
to a charity that doesn't pay tax.
You get to give money that avoids the
whole tax scheme, right?
So sounds good, right?
But so if you're 70 and a half
or older, you have the opportunity to take
IRA money to give to charitable intentions.
This process is called a qualified charitable distribution.
(35:58):
When you are subject to distribution requirements, the
RMD that we were talking about earlier, it
will reduce if you said, oh, I'm going
to give $1,000 to charity.
It'll reduce your RMD by $1,000.
You want to make sure you do this
stuff earlier in the year before you take
your RMD.
So you have the opportunity not to take
(36:19):
out as much.
But in any case, it turns out that
when investment companies or brokerage firms, uh, they,
they will send the money through this qualified
charitable distribution process to the charity of choice,
but they don't make a special notation on
(36:40):
the 1099 that this was, um, not a
taxable distribution.
It's a tax-free distribution.
And the, the reason I'm sure is they
don't want to be bothered trying to figure
out, is this a qualified recipient for the,
it's up to you and the IRS to
figure that out, right?
So they don't have a special notation on
(37:01):
the 1099.
So I had a client call me and
said, Hey, wait a second.
I made that, you know, uh, qualified charitable
distribution, but it looks like it's taxable on
my, my 1099.
It will come to you that way.
You're going to have to, uh, file as
part of your tax return.
Talk to your taxpayers for the specifics.
I'm not sure exactly, but essentially you have
(37:21):
to make notation in your tax return that
these funds, I'm sure you have to include,
you know, the, the letter that comes with
it to say these funds came from this
qualified charitable distribution and should not be subject
to tax kind of thing.
Uh, there's probably a form.
I don't know it offhand, but just want
people to be mindful, something to be aware
(37:42):
of.
You want to make sure you get credit.
You're not paying tax on that as the
way you had planned not to get taxed
on that.
All right.
I don't know.
What do you think?
Could we cover enough?
I think so.
I think so too.
It seems like we covered a lot there.
I hope that was helpful to everybody.
Listen, if you want that tax sheet, the
cheat sheet might, as I call it the
(38:03):
2025, or if you need the 2024 personal
finance facts, we've got them for you.
Happy to share them.
I'll just reach out.
You can call us at 508-771-8900
or amr-info at wealthenhancement.com.
Okay, everybody.
(38:24):
Thanks for both of you guys.
Until next time, everybody keeps driving for something
more.
Thank you for listening to Something More with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
Whatever's on your mind, visit us at somethingmorewithchrisboyd
(38:46):
.com or call us toll-free at 866
-771-8901 or send us your questions to
amr-info at wealthenhancement.com.
You're listening to Something More with Chris Boyd
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
(39:06):
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Thanks for being with us, everybody, for another
episode of Something More.
I'm here with Jeff Perry and Russ Ball.
We're all of the AMR team with the
Wealth Enhancement Group and glad to have you
(00:43):
joining us.
You know, it's getting close to tax time,
so we figured we'd better talk about this.
Have you done your taxes yet?
Have you been planning for it?
There's some things to remember.
March 15th is actually a date you need
to know if you have a business and
you file a business return, as opposed to
(01:05):
being self-employed and filing through a Schedule
C on your own personal tax return.
That date, of course, is April 15th.
And this year, it actually is April 15th.
We've had years where, what is it, Patriot's
Day?
Is that what it is?
Patriot's Day, I think, was last year and
then a couple of years before.
(01:27):
It's been on the weekend, so you've had
a couple of extra days, but this year,
April 15th is actually tax day.
So don't delay.
Don't think you've got extra time padded in
there if you've gotten used to those extra
days, but there's still plenty of time.
I will say, if you're going to hire
(01:50):
someone and you haven't spoken with them yet,
you may end up on an extension.
Remember, if you file an extension, it does
give you time to get all the details
together, but it doesn't buy you time to
provide the money you owe.
If you ultimately owe money, you have to
(02:13):
have paid that by tax filing April 15th.
I think that's something that a lot of
people don't know.
And it's also confusing because how am I
supposed to know what I owe if I
haven't been able to get all my stuff
figured out?
My uncle Sam would be happy to take
more than you owe.
So essentially, that's what it is, right?
You have to make sure you've covered enough.
(02:33):
Otherwise, you'll be subject to penalties.
It's maybe not the end of the world,
some additional costs if you weren't able to
calculate it properly, but that is a risk
of underpaying by the April 15th deadline.
You know what's been happening in the last
few years is the 1099s have been getting
later and later.
(02:54):
So the tax season is compressed because people
don't sit there in January and say, it's
time to file my taxes, right?
They delay.
You don't have everything like you're saying.
Your wage stuff, what's that, a W-2?
(03:17):
That doesn't come in until February, really, right?
Isn't it?
It's supposed to be by the end of
January, but not always.
So around the end of the month, you
couldn't do it in January anyway, probably.
Right.
I'm just saying most people think by the
end of January, or it used to be,
by the end of January, I'll have everything.
(03:40):
And then I have February, March, and half
of April.
But now with the delay in a lot
of these 1099s from practically every brokerage there
is, they delay.
And if you have a K-1, forget
about it.
Oh, geez.
Well, let's come back to that.
On the 1099s, what used to happen, though,
(04:01):
is it didn't get delayed.
They'd issue you a 1099.
And then some fund would have some foreign
tax consequence that they'd have to reissue the
1099.
And then you'd end up with erroneous submission
if you've already filed your tax return.
Right.
So it could be just as frustrating if
(04:21):
they got it out in a timely manner,
but then had to recharacterize it or whatever
they called that, reissue it.
Right.
And you'd end up with having to, if
you did submit very quickly.
I think the lesson is, it's one thing
to get all your ducks in a row,
but you really should be reluctant to file
before March until you make sure you have
(04:42):
all the information in.
And really, sometimes even later, just to make
sure that there's no changes that might be
provided to you before the tax filing deadline,
because you don't have to do it again.
Right.
So that just makes the tax season shorter,
though.
Yeah, more compressed when it comes to the
tax service providers, the tax preparers.
(05:06):
To your point, if you engage a professional,
don't walk in on April 10th and say,
we've got five days to get this done.
Here's my shoebox.
Good luck.
Here's all my receipts.
I put them all in alphabetical order.
Yeah.
Thank you so much.
Yeah.
So you mentioned a K-1, though.
(05:28):
Let's not skip over that.
What's a K-1, Jeff, and when does
that come into play?
Well, it's used for a few things, but
generally it's used for a partnership.
Partnerships of some kind, or maybe it's some
business that you are a participant in, but
you could have an investment that's like an
investment partner.
Yes, a limited partnership.
(05:49):
And there's various instances like this where you
have an interest in some entity and they
don't have to file their taxes until April
15th.
So the K-1 doesn't get issued until
the time around the time you're expected to
be filing your tax return.
So oftentimes, if you have any kind of
(06:09):
an interest where a K-1 is issued,
you should expect to be going on extension
because it usually happens that you don't get
your K-1 until around tax filing date.
That's right.
A lot of these realty investment trusts and
things like that will have a K-1
sometimes.
(06:30):
And as you said, they can't issue the
K-1 until they do their own taxes.
So it's a flawed process.
It's not flawed, but it's challenging.
It's frustrating for people.
That's really what it is.
Hey, you know, one other thing, when we
talk about some of these deadlines, April 15th
coming up fast, one of the things I
(06:50):
think can be the most frustrating, particularly for
small business owners, is not only do they
have to make sure that they've, hey, let's
say you had a good year.
And they say, hey, great, you had profit.
Guess what?
You owe more money for taxes.
Oh, geez, I owe more money for taxes.
Where'd that money go, right?
(07:10):
And then you start off and go, well,
and by the way, we got to file
your estimated taxes for this year as well.
So you have like, you double hit with,
you know, you got to get your tax
paid for the prior year.
And you've got that estimated tax due for
the first quarter, which is really more than
(07:30):
the first quarter.
So things to keep in mind.
If you're on Cape Cod, you know, for
a lot of our listeners, a lot of
our clients, it's not the time to come
up with a big cash payment.
Very true.
Very true.
Well, before going too far down this path,
I thought maybe it would be worth talking
a little bit about some of the rules
(07:52):
and some of the occasions when, you know,
if you're participating in a retirement plan at
work, in most instances, you have to have
contributed during the calendar year for it to
be relevant for the tax return year.
But there are a few exceptions to that.
And where you could contribute to a retirement
(08:12):
plan and have it be relevant for your
filing for 2024.
Maybe we should talk about some of those
instances.
Either of you guys want to jump in
on that?
Well, specifically on like Roth and traditional IRAs?
Yeah.
Let's start with those.
So, I mean, I'm always telling my friends
who often forget about their IRA contributions that,
(08:37):
you know, now's a great time to lock
in your 2024 and try to max out
your 2024 contribution for your Roth or for
your traditional IRA, whatever it may be.
Because, you know, even though it's 2025, you
can count it for 2024 and then do
2025 as well later on in the year.
Whenever you have that.
That's right.
That's right.
So things to consider when you're thinking about
(08:58):
doing a traditional IRA, which can give you
a deduction, essentially reduce your income for the
year, is that it can be different if
you have a plan available to you at
work from whether you are eligible to participate
if you have no plan at work.
So if you have no plan at work,
(09:20):
correct me if I'm wrong, you can do
a tax deductible contribution to a traditional IRA,
right?
If there's no plan whatsoever.
But if you do have a plan at
work, you may not be able to take
that tax deduction if you make certain amounts
of income.
And the rules on that are different for
(09:40):
different, you know, if you're single versus married,
you know, what are the numbers?
But essentially, if both spouses are covered by
an employer plan, if you're married filing jointly
in 2024, if you made between $123,000
to $143,000, there's a phase out.
(10:02):
So really, if you make anything more than
$123,000, you've got to be mindful of
this fact that you're not going to be
able to do the whole amount in a
way that's deductible.
And that may not be appealing.
It may be preferable to think about a
Roth IRA.
Right.
Again, if you have a Roth IRA contribution,
(10:22):
there's still an income phase out.
And that starts around $230,000 for a
married couple.
By the way, for the traditional IRA, if
you're participating in a plan, the single person,
that phase out starts at $77,000, goes
to $87,000.
For the Roth IRA for a single person,
(10:42):
around $146,000 to $161,000.
These are details.
You might not know these and we're rattling
them off.
Just know, be conceptually.
There are times when there's different rules for
different circumstances.
Participating in a plan is a different kind
of rule than someone who doesn't have a
plan available to them.
(11:02):
So that being said, sometimes, let's maybe before
we go on, Jeff, Roth IRA, traditional IRA,
why one versus another?
Maybe explain how these differ.
Just a little review of some of these
kind of things.
Sure.
So the biggest pro of the traditional IRA,
(11:23):
if you are able to make it under
the income guidelines you mentioned, is you can
deduct your contribution off of your income taxes,
right?
So a lot of people think about, I'm
going to make a contribution through my employer
or through a traditional IRA and it's a
tax break for me.
That's the reason why.
I reduce my income in some form or
(11:43):
fashion, whether it's before or after compensation.
That's correct.
So with a Roth IRA, you have to
use money that's already in tax, the money
that's been through your employer or wherever you
get it from.
And you have to have earned income, by
the way, to make a Roth IRA.
Yeah, it has to be earned income.
However, the big benefit of a Roth IRA
is that when the money comes out, we
(12:06):
can talk about the five-year rule that
we were talking about before.
Yeah, we'll come back to that.
But assuming that it's in there for five
years, when the money comes out in your
retirement, hopefully, it all comes out tax-free.
All the contribution comes out tax-free, all
the earnings.
So if you think about the young person
that we're kind of alluding to here, they're
(12:27):
starting their first job or maybe they got
a job with an employer plan, et cetera,
and they're thinking about a Roth IRA, think
about 30 years of compounding gains and then
it all comes out tax-free at the
end.
So how beautiful is that?
It's a tough thing to think about when
you're, say, 30 years old.
(12:48):
Should I take the tax deduction now and
get some pay less taxes now?
Or should I forego that tax deduction and
put it in a Roth IRA for something
that's down the road a bit?
I mean, not a lot of people want
to give up something now for something that's
down the road.
It's a good thing.
Let's just come back to that in a
(13:10):
second.
I just want to reinforce this.
A traditional IRA is money that essentially is
treated before taxes.
So either I get a deduction if I
got it in my payroll and then I
put it in the IRA or, well, that's
going to be how it happens in this
case.
So I get to deduct it from my
(13:33):
taxable income and therefore what happens thereafter, it
grows in this environment of a tax-deferred
environment.
But later in life, when I go to
take it out, 59 and a half or
later, I will pay income tax on what
comes out.
(13:53):
All of it will be income tax in
that scenario when I get that deduction.
Just to add complexity, sometimes people add money
to an IRA and don't get the deduction,
but it creates complexities.
We're going to ignore that for this discussion.
So now the alternative is to say, I'm
(14:15):
going to pay the tax now, put it
into the Roth IRA, which grows free from
tax as well, deferred in this sense.
But when I take the money out, at
least five years or 59 and a half,
again, this same kind of notion, then I
get to take all that money free from
tax when I take it out.
(14:36):
It's grown compounded without tax consequence.
A really pretty attractive option.
You asked about this notion for guidance.
What should we tell people then?
Should they do a Roth or should they
do a traditional?
If they're eligible for both, but they're willing
to make some contribution and they're in a
(14:57):
relatively low tax bracket starting out in their
career, perhaps, which is better?
I mean, you can feel the immediate benefit
of that tax deduction, but I think we're
all in agreement.
If you're in a relatively low bracket, what
would you say, Jeff?
I'm going to go Roth.
And the younger you are, the more I'm
going to pound the table and say, do
(15:18):
the Roth.
Yeah, absolutely.
I think we're all in agreement here.
And why is that in part?
Because one, your tax bracket is low and
you're defining that tax bracket as that lower
tax bracket.
But two, the likelihood is that taxes will
be higher later in life.
One, because your income and your wealth and
(15:41):
all of that will change.
But two, because of this environment we're in,
taxes are historically relatively low right now.
And you're probably better served to pay that
tax at this historically relatively low level than
what you'd have later in life.
Now, if you're in a high tax bracket,
(16:01):
that could be worth further evaluation.
What we find is that it tends to
be that people who are in very high
or very low tax brackets are drawn to
the Roth IRA.
Because if you're in a very low tax
bracket, well, I may grow into higher tax
brackets.
I'll take advantage of it while I'm in
(16:21):
this low bracket.
But if you're in a very high tax
bracket, the notion is you're probably gonna stay
in a high tax bracket.
And will those tax brackets be higher or
lower later on in life because of Congress?
Well, I don't think it's likely to be
lower, right?
But so if you make a lot of
money and you're in a big tax bracket,
(16:42):
you're probably gonna continue to be in a
high tax bracket.
So the idea of Roth is very attractive
sometimes to just have the opportunity for some
of that money to be coming out to
you tax free later on.
And you can pay that while you can
afford it, really.
You've got plenty of income coming in, right?
Anyway, you want to comment?
The other beautiful thing about the Roth is
that you don't have to take RMDs.
(17:03):
So you have access to that money when
you want it.
You don't need to take anything out of
it.
Elaborate again.
Everyone probably knows what an RMD is.
We use the jargon stuff and sometimes don't
think to elaborate, but RMD.
So it's the required minimum distribution where if
you're born after 1960, I believe the age
is 73 that you have to- Before
(17:25):
1960, it's 73.
After 1960, it's 75.
Oh, 75.
That's right.
All right.
So 73, 75, you start taking your RMDs.
It's the percentage of the money that is
in your IRA accounts.
So that's based on the uniform lifetime table
I'm looking at in front of me right
here.
(17:45):
Yeah.
And you have to take a certain percentage
that grows each year from your IRA.
The government's been waiting all this time to
tax and they say, it's fine that you
have it, but come on, you got to
take some out.
So they're required a minimum distribution.
Doesn't mean you can't take out more.
They're always happy to have you take out
more once you get past the 59 and
(18:08):
a half, which is, this is intended as
a retirement savings vehicle.
And thinking long, long time down the road
here, your heirs would love to inherit a
Roth IRA.
Very true.
Very true.
Going back to one of the things we
didn't talk about, which was one of the
(18:28):
other ways you can have some contribution into
your plan.
If you're doing tax planning now in 2025
as you're preparing for your 24 tax return,
and that's for sometimes if you're self-employed,
you might have a SEP IRA, a self
(18:49):
-employed pension IRA, essentially is one of these
kind of IRAs that you can contribute a
significant amount to, potentially as much as $69
,000, I think in 2024.
If it's just you as an employer, it's
(19:09):
probably a little less than that.
But anyway, you get the point.
Or no, I think it's 69,000 if
it's 25% of wages, but if you're
sole employee, it's somewhere around 20, 21%.
I forget what the actual number is, but
it's a slightly different formula.
So in any case, the point being, there's
(19:30):
a lot of money you could put into
a retirement plan, get a reduced income for
2024 and have that money deferred for future
years.
The bigger question may be, should I, Jeff?
That question of what's going to happen with
taxes.
(19:50):
There's an article you were talking about where
there was an assumption that, should we assume
that taxes will be lower in our retirement?
Yeah, and I don't think we should assume
that taxes should be lower in our retirement.
It's a Kipling's article that I was referring
to, and it talks about how retirees have
a tendency to underestimate the amount of income
(20:14):
taxes that they're going to have to pay
in retirement.
And that comes from, sometimes it's the extreme
examples.
I'm not saying this is all retirees by
any means, but sometimes people aren't even aware
that they have taxes due when they take
money out of their retirement.
You have to pay these taxes.
(20:34):
If you're taking out $10,000 a month
and you're in the 24% tax bracket,
you're not getting $10,000 in your checking
account.
And if you live in a state that
has income tax, maybe another 5%, round numbers,
you could see 30% off the top
of your withdrawal from your IRA.
(20:56):
So that's where it starts.
And then people don't realize that they're going
to have to build a portfolio of income,
if you will.
Where is the money coming from?
Is social security taxed?
Are you working?
And so all these things, a lot of
retirees don't assume that it's going to rise
to the level of taxes, income taxes.
(21:19):
Yeah, that's a good point.
I mean, I think a lot of times
historically we've said, oh, the reason you deduct
now is because you'll be in a lower
tax bracket later.
And sometimes that's true.
Your social security, depending on the level of
income, is taxed at different rates, right?
(21:41):
Or different amounts of it are taxed.
So let's say, for example, if you make
a certain amount, anyone have those numbers offhand?
Where is it?
Social security in last year, if you're filing
jointly, if you made under $32,000, you
don't get taxed on your social security.
If you made...
Is that last year?
(22:01):
Am I looking at the right year?
Yeah.
And if you made $32,000 to $44
,000, only half of your social security is
subject to tax.
But if you make more than $34,000
as a filing joint couple, 85%, sorry, more
than $44,000, 85% is subject to
tax.
(22:24):
So different thresholds, you can say, oh, well,
maybe I will, maybe I won't, right?
What other income do you have?
Well, distributions from retirement plan.
You mentioned the idea, you want to buy
a car and that's where you're taking it
from.
You're taking $50,000 to buy that car.
Sorry, you don't have $50,000.
You've got $35,000 or whatever after you
pay taxes.
(22:45):
So, you know, whatever.
So you have to take out more if
you're...
Or whatever, you know, depends on how much
you spend on the car.
But you follow...
Oh, buy less.
Yeah, yeah.
Or buy a smaller car.
Yeah, a lesser car.
But so when it comes to taxes, it's
historically, I think, been presumed that people will
(23:07):
be in a lower tax bracket when they
take their retirement money, you know?
And that is often not the case.
It does not say it's never the case,
often not the case.
So the appeal of having some Roth IRA
money in the mix and enhance the opportunity
(23:29):
to have some resources that I can get
out without tax consequence or like an RMD
pushes my income tax up and creates more
tax on my social security as an example.
So if I don't have as much of
that or don't have that, it's a tax
advantage in retirement.
So taxes often are as high or higher
(23:53):
in retirement because those RMDs are pushing more
and more money out over time, more higher
rates over time.
It can push us into higher brackets than
we really might have expected later in retirement.
This is really analogous to our conversation a
week or two ago when we were talking
about income levels and how much you need
(24:15):
in retirement.
I think it all starts with people underestimate
the income level that they're going to need
in retirement.
There was, some advisors suggest that you need
less money in retirement, less income in retirement.
And typically that's not the case that we
(24:36):
find with our clients.
I think that's true.
It's a good point.
Oftentimes people think that they'll need less but
you really want to give thought to that.
What in your lifestyle is going to change?
What in your expenses is materially going to
be different?
And do you want to be planning on
(24:59):
living on less?
Yeah, I think people count.
No, I can go through a few things
that I would say.
How are my expenses going to be less?
I'm not going to drive as much.
I'm not going to do dry cleaning.
I may not have business lunches.
I made some of my expenses were related
to my work.
I may have, et cetera, things that you
(25:20):
think about related to your work.
But then how about, what are you going
to do instead?
Oh, I'm going to have some hobby that
has a cost to it.
I'm going to whatever it is.
It's kind of out of one pocket and
it transitions.
But typically people I see, I think we've
(25:41):
talked about this before.
Typically people spend about the same amount of
money.
And this is maybe in different things, but
it tends to be they have a comfort
zone for spending.
One thing that's been kind of funny, just
a digression lately, we've had some conversations with
clients and they've been like, yeah, this is
the last car I'm ever buying.
It seems like it's come up a lot
this week, hasn't it?
(26:02):
Just people thinking, well, and the notion that
they don't drive as much in retirement as
they might have pre-retirement.
So they expect their cars will last longer
and that sort of thing.
But anyway, it seems like that had come
up a lot lately.
Russ, one of the other things we wanted
to talk about when talking about tax planning
(26:23):
and the idea of using Roth IRAs, perhaps
this time of year is the kind of,
I think when people are most focused on
should they contribute is the clock.
Let's talk about the benefit of getting started
with a Roth IRA.
Russ Becker So let's say you're in your
(26:43):
60s and you've just been contributing to your
401k for years.
Never really thought about a Roth IRA.
That could be a good time to start
creating a more diversified bucket of allocation.
Tax diversification.
Tax diversification, thank you.
Tax diversification with your different accounts.
(27:04):
So you can have your taxable account, your
deferred account, and then your tax free account,
which would be the Roth vehicle.
So if you open up a Roth IRA,
let's say if you're 60 years old, you
do have to wait five years.
That Roth has to be in existence for
five years before you can start dipping into
that Roth to get the earnings on the
(27:26):
growth on those contributions.
So another advantageous thing, if you start, if
you open up a Roth today, for 2024,
you get that year free.
So that's one year down and you're already
in 2025.
So that's one year towards your five-year
limit.
And then after those five years are up,
you can start taking earnings out tax free.
(27:49):
So the sooner you start, the better.
And in this case, if you make a
contribution for a 2024 contribution, January 1st, 2024,
is when that five-year clock has started.
And so again, not just for an older
person, in this case, a younger person may
say, hey, if I had an unexpected need,
we wouldn't encourage you to do this, but
(28:10):
you'd be able potentially to pull principal without
a problem.
But you're, again, starting that clock for the,
I guess it's really more when you get
closer to retirement that it's more relevant, but
you do have access to principal.
Sometimes it's good for all these reasons to
get your Roth IRA moving, get it started.
(28:34):
That's a point of clarification on what you
guys talked about.
You can also make a traditional IRA contribution
for the last year if you haven't filed
your taxes yet for 2024.
Good point, yes.
And take the deduction.
Which could help your tax return this year.
That's right.
Again, given the notion that you have eligibility,
(28:55):
we talked about some of these thresholds.
There is a technique, I'm just gonna make
quick reference to, it's called a backdoor Roth
IRA contribution.
For someone who doesn't have the eligibility to
contribute to a Roth IRA because they make
too much, there's a possibility of putting money
into a non-deductible contribution to an IRA
(29:16):
and subsequently making a conversion of that non
-deductible IRA into the Roth IRA.
Big thing to be focused on is that
if you have an existing IRA, it doesn't
work as well for you because you can't
select, oh, I only want that IRA to
(29:36):
be converted.
It'd be proportionate.
So if you have an existing IRA, the
backdoor Roth IRA doesn't really work too well
for you.
It's ideal for people who don't have an
existing IRA and wanna find a way to
get money into their Roth IRA.
But it's relatively limited in terms of the
(29:56):
scope.
Better served for people who have an option
with a retirement plan at work that you
could do a Roth 401k contribution, you can
do a lot more.
And that leads us to the topic of
contribution limits, which might be worth talking about
for a minute.
In 2024 and 2025, the 401k limits are
(30:20):
slightly different.
So 2024, you could contribute $23,000 to
max out your 401k, 403b, 457, et cetera
type plan.
And this year it's 23,500.
So if you haven't updated your contributions, you
(30:40):
may wanna do that.
If you're over 50 and over, you can
do an additional $7,500 to that number.
For people who don't have a 401k option
or similar, and you are participating in a
simple retirement plan, a simple IRA, here again,
there've been an increase of about 500 bucks.
(31:02):
So last year, 2024, you could do 16
,000 plus $3,500 if you were 50
and over.
Now you can do 16,500 plus the
$3,500 if you're 50 and over.
So just a quick note, remember to update
things if you want to be trying to
max out your contributions.
(31:24):
Not everyone can do that.
We encourage you to do as much as
you can.
Certainly as much as you get a match,
because you're leaving money on the table if
you don't.
But try to do a little bit more
every year when you get pay increases, up
it.
And that'll help.
One additional note that seems to have gone
(31:46):
under the radar a little bit, but I
think it's part of Secure 2.0. There's
this super catch-up for 401k.
Oh, for 60s.
For ages 60 to 63, rather than the
$7,500 catch-up.
And that's just sort of this year, right?
That's just for starting 2025.
So that doesn't apply to last year.
But for this year, if you fall into
(32:08):
those ages at year end, that you will
be 60, what was it again?
60 to 63.
60 to 63.
So it's at year end, if you're in
those age ranges, then these limits give you
a super catch-up option.
For 2025, it's $11,250.
(32:30):
And that's going to be changing each year,
depending on, I guess, similar to- Inflation
adjustment, that kind of thing.
So how much was that number again?
$11,250.
So instead of the $3,500 that we
were just talking about, you could do this
much more contribution.
That's great.
(32:50):
That's great.
But it only applies to those three years.
Yeah.
Really weird.
After it goes back to the typical catch
-up of 50 plus.
So it would be $7,500.
Okay.
After that three-year window, it goes back
down.
Okay.
So just an interesting note to add.
Did I say the wrong number?
Yeah.
Yes.
Oh, it depends on if it's Simple IRA
(33:11):
or the 401k.
Sorry.
Yeah.
Okay.
So very good.
That's a good catch.
Good comment.
This year, that's a new one for people
to remember as a consequence of the Secure
Act 2.0. Our listeners might be wishing
they had a scorecard for all this.
Yeah.
(33:31):
There's a lot here.
What was that?
What were we going to say, Jeff?
I was going to say, if you want
a scorecard, we have one.
Yeah.
Well, it would be free to give it.
Be happy to give it to you, right?
It's a great resource.
I call it the cheat sheet.
It's got so much on it.
But there's a 2025 personal finance fact sheet.
(33:52):
If you're interested in getting that, happy to
share it.
I give it out at client meetings all
the time.
I think clients love this.
Very useful.
It's just, I mean, it's packed full of
insights.
Not everything applies to everyone, but a good
tool to have available.
Yeah.
And how should people reach out if they
want to get that, Jeff?
(34:13):
I think the best way is just to
send us an email, and we'll send it
right back to you.
So you can email us at amr-info
at wealthenhancement.com.
amr-info, or hyphen if you prefer, info
at wealthenhancement.com.
Did we also have an interesting fact sheet,
(34:34):
a tax preparation guide at one point?
There's something else we had.
Yeah, we have a checklist to help with
your tax preparation.
And if you want that one, just send
us an email.
Just a couple of tidbits to be like,
hey, don't forget about some of these things.
So feel free to reach out for that
as well.
One last thing before we wrap up, Jeff,
(34:55):
and I wanted to talk about this because
it came up recently with clients who had
done a qualified charitable distribution last year, a
QCD.
If you are age 70 and a half
or older, you're eligible to, because remember, once
upon a time, that was the start date
for RMDs.
(35:16):
And they've changed it over the years to
72, then to 73, eventually 75.
But they've kept this threshold for, if you
want to give money to charity, using pre
-tax money, not yet taxed money, IRA money,
through a qualified charitable distribution is a great
(35:37):
way to give money that's not been taxed
to a charity that doesn't pay tax.
You get to give money that avoids the
whole tax scheme, right?
So sounds good, right?
But so if you're 70 and a half
or older, you have the opportunity to take
IRA money to give to charitable intentions.
This process is called a qualified charitable distribution.
(35:58):
When you are subject to distribution requirements, the
RMD that we were talking about earlier, it
will reduce if you said, oh, I'm going
to give $1,000 to charity.
It'll reduce your RMD by $1,000.
You want to make sure you do this
stuff earlier in the year before you take
your RMD.
So you have the opportunity not to take
(36:19):
out as much.
But in any case, it turns out that
when investment companies or brokerage firms, uh, they,
they will send the money through this qualified
charitable distribution process to the charity of choice,
but they don't make a special notation on
(36:40):
the 1099 that this was, um, not a
taxable distribution.
It's a tax-free distribution.
And the, the reason I'm sure is they
don't want to be bothered trying to figure
out, is this a qualified recipient for the,
it's up to you and the IRS to
figure that out, right?
So they don't have a special notation on
(37:01):
the 1099.
So I had a client call me and
said, Hey, wait a second.
I made that, you know, uh, qualified charitable
distribution, but it looks like it's taxable on
my, my 1099.
It will come to you that way.
You're going to have to, uh, file as
part of your tax return.
Talk to your taxpayers for the specifics.
I'm not sure exactly, but essentially you have
(37:21):
to make notation in your tax return that
these funds, I'm sure you have to include,
you know, the, the letter that comes with
it to say these funds came from this
qualified charitable distribution and should not be subject
to tax kind of thing.
Uh, there's probably a form.
I don't know it offhand, but just want
people to be mindful, something to be aware
(37:42):
of.
You want to make sure you get credit.
You're not paying tax on that as the
way you had planned not to get taxed
on that.
All right.
I don't know.
What do you think?
Could we cover enough?
I think so.
I think so too.
It seems like we covered a lot there.
I hope that was helpful to everybody.
Listen, if you want that tax sheet, the
cheat sheet might, as I call it the
(38:03):
2025, or if you need the 2024 personal
finance facts, we've got them for you.
Happy to share them.
I'll just reach out.
You can call us at 508-771-8900
or amr-info at wealthenhancement.com.
Okay, everybody.
(38:24):
Thanks for both of you guys.
Until next time, everybody keeps driving for something
more.
Thank you for listening to Something More with
Chris Boyd.
Call us for help, whether it's for financial
planning or portfolio management, insurance concerns, or those
quality of life issues that make the money
matters matter.
Whatever's on your mind, visit us at somethingmorewithchrisboyd
(38:46):
.com or call us toll-free at 866
-771-8901 or send us your questions to
amr-info at wealthenhancement.com.
You're listening to Something More with Chris Boyd
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
(39:06):
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
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