Let's Talk Money

January 5th, 2025

Episode Transcript

Speaker 1 (00:06):
Good morning. This is Nicole Goebel coming to you this
morning with our show Let's Talk Money from Bouchet Financial Group.
I have with me my colleague Scott Strohecker, will introduce
himself in a moment, but thank you so much for
tuning in on this cold Sunday morning here up in
upstate New York in January. We appreciate you listening and

(00:26):
we would love to hear from you today. So if
you have any questions, please reach us at eight hundred
eight two five fifty nine forty nine or at our
email ask Bouche at Bouche dot com. That's ask b
O U C h e Y at Bouche dot com.
We'd love to hear from you. Scott. Would you like
to introduce yourself to the listening audience?

Speaker 2 (00:48):
Yes, thanks to Cole. Good morning everybody. As Nicole said,
I'm Scott Strohecker. I'm a certified financial Planner and an
Enrolled Agent or EA. An EA is simply an IRS
designation which authorizes me to represent taxpayers and a number
of tax related matters such as individual business tax preparation,

(01:12):
tax planning, and also tax representation if needed. Here at Bouche,
I'm one of the wealth advisors as well as a
member of our tax team along with Nicole and Vinnie Testa.
It's a pleasure to be on with everyone this morning.

Speaker 1 (01:30):
Thanks for joining us, Scott. As I mentioned, I'm Nicole
Globel So I'm the director of Financial Planning here at Bouchet.
I'm also a Certified Public Accountant and have another unique designation,
I'm a certified Divorce Financial Analyst. But I've been working
in financial services for over twenty five years, but as
an advisor for this will be my sixteenth year. So

(01:51):
really happy to be part of this team and part
of this community. I moved up to this area about
four years ago, specifically to join the Bouchet team, and we're,
as John mentioned yesterday on our show, really celebrating some
milestones with the company. So again proud to have been
a part of this team for close to four years now.
But we just hit Steve's thirty fifth anniversary as a firm,

(02:15):
so I know in the intro it says over thirty years,
but we just hit that thirty five year mark, or
Steve did this week, so we're really happy to celebrate that.
And also, as John mentioned yesterday, thirty years with this show,
So you know, this is a great part of our jobs, myself, Scott,
many of our other team members, because we love to
share the information we've learned throughout our careers and that

(02:37):
we help our clients with with a broader audience. So again,
if you have a question today, please feel free to
give us a call. That's eight hundred and eight two
five fifty nine forty nine. We'd really love to hear
from you if there's something we can help with. So
we have a great show set up today for you know,
a market outlook, economic updates, some of the numbers that
John talked about yesterday. But given that Scott and I

(02:59):
both have some tax background as well, we're going to
also share some to dos and some thoughts as to
how you can really prepare yourself going into this tax season,
meaning you know you're going to start getting documents and
what should you be doing to get organized and what
are the things to make sure that you're reporting correctly
or communicating with your tax prepare correctly. But again, to

(03:22):
get started, let's let's recap kind of where we ended
the year and started with this first, you know, partial
trading week of the week We've had, you know, two
again short weeks in the financial markets, given the holidays, personally,
I got to take some time off. So Scott, you know,
going into this year, before we start talking about numbers

(03:43):
and the market, you know, are you doing anything differently
for this year? I know it's a time when people
talk about New Year's resolutions. Is there anything kind of
on your agenda?

Speaker 2 (03:54):
I have set some New Year's resolutions, both myself and
my wife. We set some for ourselves, but also just
us as a couple. We set a few related to
our health, you know, related to working out, just really
sticking with our overall budget, and you know, as part
of our tagline of health and wealth for life, you know,
we want to focus on really both pieces of our

(04:18):
that for our lives. So really most of ours are
related to those two areas. You know, we have some
short term you know, just working out, but also just
eating well. So what about you, Nicole, Yeah, I actually.

Speaker 1 (04:32):
I haven't set any specific goals, but I think as
we were kind of talking about in our team meeting
this week, you know, it's it's the idea of you
always want to start the year trying to think about
what are the things I can do to improve my health.
I certainly still reach for that chocolate chip cookie unfortunately,
but again trying to think about you know, I do,
you know, try to exercise every day and at least

(04:54):
eat healthy food in addition to the bad things I eat, right,
But I know you have two little ones at home,
and I have a four year old and eight year old,
so you know, certainly don't get as much time as
I would like to focus on my health. But you know,
again just trying to find that balance. And thankfully, I
think with both of our careers right maybe the financial
side of things come easier to us because we're coaching

(05:15):
our clients on that all the time. You know, Scott,
did you want to mention a little bit about Ryan's
blog that he shared this past week.

Speaker 2 (05:25):
Yeah. Ryan Bouscha recently came out with a great blog
which is on our website of Bouchet dot com, where
he really looked at the our tagline and really dissecting
it and talking about this sort of wealth three point
zero and really making sure that you're planning for what's
up ahead as opposed to just reacting to the overall,

(05:47):
you know, situations that you may come across and it's
focusing on your health span as well, not your necessarily
your lifespan where you're looking at your number of years,
you're really focusing on making sure that the quality of
your life is what you're focusing on, just the overall
have a better experience. Again, when working with a professional

(06:09):
such as ourselves, you know we can help you with
the financial aspect, we also really want you to be
able to take the time to focus on your overall
health because, as Steve has says all the time, you know,
if you have your health, you have everything. So really
great blog that Ryan recently put out that you can
check out again on our website.

Speaker 1 (06:32):
Thanks Scott. And yeah, and I think that's the focus, right.
So while we're going to today obviously talk about some
short term numbers, you know, both for last year and
also you know what happened in the market this week,
also talk about some economic data, we really need to
focus on the long term and that's what we do
with our clients is really ensuring that we're setting them
up for long term success, but also again helping them

(06:54):
to determine what are the action steps to take towards
their you know, short term goals or maybe those rests, right,
So your resolution could be something as simple as I'm
going to save fifty dollars from every paycheck towards something,
you know, whether that's a new vehicle, whether it's a home,
whether it's a you know, great vacation. But again, you know,
just setting some goals and attainable goals, right, you don't

(07:17):
want to set it out there. I'm not going to
set my goal to lose twenty pounds, because you know
that's certainly going to be a long term goal. But
if I set my goal maybe to lose you know,
five pounds, you know during the spring, I think, you know,
that's much more attainable. But also it means that you know,
again it's something that maybe I can reach and then
it's going to motivate me to to do more. So again,

(07:39):
thinking that in that sense with your financial goals as
well as taking the small steps. I know, Sam talked
yesterday about, you know, saving for retirement, and we had
a caller call in about when should you start saving
for retirement? Again, doing that as early as possible, a
little bit goes a long way when you have many
years to grow. Sam and I met with a couple

(08:01):
of twenty year olds this week, the you know, sons
or grandsons of clients, you know, just to help them
with a how do they start a roth Ira and
a Brokeridge account with you know, some part time work.
So again, if they're twenty years old and that's a
forty year timeframe, that money has to grow. Even putting
one thousand dollars away today, that you know, again compounds

(08:21):
growth makes a huge difference later on. Great, So let's
talk about the market. So, you know, we had a
great year in twenty twenty four, a second great year.
So you know, the Dow was up about thirteen but
the S and P and nasdak twenty three and close
to thirty percent on the year. You know, international markets
still struggled, you know. So so that's something where you know,

(08:43):
did see a positive return about five percent, but still
struggled on the year. So and again that's where we've
continued to remain you know, invested directly in the US
versus invested in the international developed or emerging markets. And
again we realized that through all of the larger companies

(09:05):
in the US, we certainly have international exposure, you know,
but again from an economic perspective, we don't feel that
any other country is in the same position the US
is coming out of COVID certainly ten year treasuries, right,
so you know, you didn't see a huge amount of
movement from the beginning of the year where yields were
about four percent to four point six percent, but there

(09:26):
were ups and downs certainly, So again you know, the
ending value doesn't necessarily represent the volatility we've seen. A
bond market was only about one point three percent, so
underperformed cash for the third out of four years. But
again we saw some nice yields, especially out of treasuries

(09:46):
where we were investing our clients, and really oil ended
up pretty much flat. Same same story as treasuries where
you saw volatility, right, You saw, you know, things go
up last spring and then come back down in the fall,
and really ending kind of about where we started the
year at about seventy four dollars a barrel, so not
you know, a get a huge difference there. But the

(10:07):
good news right as we this was the as John
mentioned yesterday, the first time since nineteen ninety eight, we
had two twenty plus years in the s and P
five hundred in a row, so twenty four percent last
year and twenty three point three percent this year, so
you know, that's great. We also the S and P
set fifty seven record highs this past year, so that's

(10:29):
the fifth most of all time. The most ever was
seventy seven record highs back in nineteen ninety five, and
the most recent year in that you know, top five
years of record hiz was twenty twenty one. We had
seventy record highs. So again a great year overall, you know,
So what are we seeing going into this new year.

(10:50):
Let's take a short commercial break and then we'll talk
about kind of what the outlook is for this year. Hello,
and welcome back to Let's Talk Money. This is again
Nicole Global, director of Financial Planning here at Bouchet Financial Group.
Please give us a call with any questions eight hundred
eight two five fifty nine forty nine or myself or
Scott Strochecker would be happy to answer. So I was

(11:13):
just recapping this past year and talking about what's to
come for this year. What are the expectations. No one
has that crystal ball, but but you know, what are
you know, again the experts out there supposedly you know,
looking at so you know, we had another year where
you know, mega cap stocks, tech stocks still outperformed. Right
that mag seven is up over sixty percent compared to

(11:35):
as I talked about the broader market being up twenty
four you know, twenty three to thirty percent. And as
John also mentioned yesterday, the ten largest stops in the
market now make up close to forty percent of the
S and P five hundred, So that's the largest concentration
of those top ten names in the last thirty years.
So that says a lot as to the outperformance we've seen,

(11:57):
you know, continually from those big names. You know, we
do feel that you know, valuations though, while we're not
saying their companies are necessarily overvalued, we're going to need
to see some strong earnings to support valuations and see
continued growth in the market. So you know, we still
think positive year, but maybe not the stellar years we've

(12:19):
seen the last two years. So you know, we do
still see a lot more room for growth in small
and mid cap companies. Right they rallied coming out of
the election. However, again there's still you know, very inexpensive
compared to the large growth and technaus, value stocks, dividends stocks,
which we talk about all the time, we have some
exposure in our portfolio because we believe in a well

(12:42):
diversified portfolio. So you know, while we we do feel
that again growth stocks have benefited from you know, this
AI craze and and just you know the potential out there,
we do feel that other areas could benefit. You know,
So while not we don't want to make it political.
If there are pro growth policies and less regulation that

(13:05):
can affect markets such as financials and industrials, whereas growth stocks. Actually,
if we do see tariffs could be more affected that
value aims because more of their revenue comes from overseas,
you know. So that's again no reason we've kind of
stayed out of international markets at this point because tariffs
would certainly have a larger effect on you know, both

(13:27):
exporters as well as you know, international companies because we're
a huge market in the US. So, you know, when
we we kind of look at what analysts out there
from all the major financial institutions are predicting, the estimate
for where the S and P five hundred nine end
twenty twenty five is around sixty six hundred. That's about
an eleven percent increase, right, so that would be a

(13:49):
great year if we've got another eleven percent. In fact,
only one out of the major kind of strategists pulled,
you know, predicted it down. So again we do still
see a lot of optimism out there, but also with
the understanding that we're maybe not going to see you know,
the same numbers we saw last year. And it does

(14:09):
depend how AI now is you know, not only affecting
the names that started you know, kind of this this
rally around what the possibilities are, but how is AI
kind of applied across different markets, And I do think
we're going to see kind of a broader scope of
how it can be used in different businesses, different industries.

(14:32):
We still see it a strong tenure treasury, so you know,
certainly good for investors, but it's rough for mortgage rates,
right because longer term rates are tied to that ten years.
So if we're you know, still at around four point
six percent, we're still seeing again mortgage rates significantly higher
than they were a few years ago. So that is

(14:52):
you know, still causing really I think a shortage of
inventory in the housing market because people don't want to
move and you know, not be able to get that
three percent mortgage that they had a couple of years ago.
So as I mentioned, cash out performed bonds again this year.
But you know, again I think it's it's something that
we're going to continue to look at and we monitor

(15:13):
weekly for our clients. You know, we had good GDP.
So the year of about two point seven percent is
what's kind of predicted to two point nine depending on
again the estimates used for the fourth quarter. Consumer spending
is still strong and the labor markets still strong, and
you know, certainly again we've seen inflation come down, so
you know, those are things that we're looking at. But

(15:35):
you know, of course a really big part of this
is the Federal Reserve. So Scott, you want to just
do a quick recap of kind of where the Fed funds,
you know, rate has been and what we've seen. Yeah.

Speaker 2 (15:48):
Absolutely, So last year twenty twenty four, we did see
three rate cuts, the first in September of a half percent,
the next one coming in November which was a quarter percent,
and then our third and final one being again at
a quarter of a percent, happened in December, getting us
right to the target range of four and a quarter

(16:10):
to four and a half percent. So definitely has come
down from where we had seen and you know that
impacts you know, what you're getting on your cash or
money market funds. So going into this year, the Feds
predicting or projecting to rate cuts at this time, obviously
that can change. So we'll see rates to continue to

(16:33):
come down, and again that really impacts what you may
want to consider doing with your cash.

Speaker 1 (16:42):
And obviously that's our job. Stat So when you're working
with clients now and they're asking, you know, what to do,
as you know they have you know, money market funds,
they have CDs that are maturing, what are you telling
your clients?

Speaker 2 (16:55):
Yeah, it really depends. You know, they obviously want to
make sure that they have cash set aside for any
short term cash needs. You know, when they were able
to yield over you know, high fours around five percent
on this cash and money market, it was much more
attractive to again to just sit on it and to

(17:16):
reap the interest that you're earning. But again, as we
see rates come down, we may want to look for
other alternatives within your portfolio. Also, with equities having the
run up that they've had, it's really a great time
to overall look at your portfolio and see what sort
of rebalancing you may want to do, may make sense
now to shift some into you know, into the market,

(17:41):
whether that's equities or even fixed income. Just again with
not being able to get as much of a return
or interest on these you know, short term vehicles like
cash and money market funds.

Speaker 1 (17:56):
Perfect. Yeah, and again as you mentioned, it depends on
you know, what you need to cash for as well.
But certainly what we do here for our clients who
are receiving distributions from their portfolios, as we talk about,
you know, very regularly, as we set up to two
years worth of their cash needs aside and something you know, stable,
whether that's short term treasury, is money market funds, because

(18:20):
we want them to know that if we see volatility
in the market, that two years worth of what they
need to live on right their normal cash flow needs
is not risked in the market. So think about that
when you're doing that. But again, as Scott said, for
those of you out there that have been you know,
sitting on a bit too much cash because it made

(18:40):
sense and you were getting that five percent interest rate,
definitely take a hard look at what you need and
what should be invested in the longer term, and you know,
talking about kind of investing. You want to talk Scott
just about some of the contribution rates, you know, and
any changes we've seen now for the twenty two twenty
five contribution limits.

Speaker 2 (19:04):
Yeah, absolutely so we did see, you know, typically if
the contribution amounts to increase from year to year. So
for four oh one k's the twenty twenty four limit
for anybody fifty or or under the age of fifty
was twenty three thousand last year. This year we have
a five hundred dollars increase that you could max out

(19:25):
at twenty three thousand, five hundred for anybody between fifty
to fifty nine. Last year's max was twenty or thirty thousand,
five hundred. That's again just the regular contribution and then
the catchup contribution of seventy five hundred and again that's
gone up to buy five hundred dollars, so your max

(19:47):
between fifty and fifty nine is thirty one thousand, and
this year you'll actually see a special catchup contribution for
anybody between the ages of sixty to sixty three and
twenty twenty five, you can do an additional four thousand,
two hundred and fifty, so your max is slightly higher

(20:09):
of thirty four thousand, seven hundred and twenty thousand. Though
that again I want to highlight that it's really just
for anybody age sixty to sixty three during this calendar year,
because once you become age sixty four or older, you
do revert back to the lower contribution max of thirty

(20:31):
one thousand. So just a new thing that was written
into the tax code, So I want to make sure
that you are aware of these contribution limits. We did
see iras and raw iras. Their contribution limits remain the
same of seven thousand dollars, and then anybody older than

(20:53):
age fifty can do an additional thousand dollars, so their
max is eight thousand dollars. For IRA is traditional I
ras there is a amount of income where you know
if you contribute to it and you're above that threshold,
you can take it as you can no longer take
it as a deduction, So you really want to be

(21:15):
aware of that as you're looking to see where should
I park some my additional cash for rough iras. There's
also an income limit factor as to whether or not
you can contribute directly to your roth IRA, though there
are some strategies to do it as a backdoor rough contribution,
which is one thing that we'll be talking about when

(21:36):
we do our tax to do lists sort of as
you get ready for this upcoming tax season.

Speaker 1 (21:45):
Perfect and you know other things to consider, right, you know,
when you have a self employed individual, there are other
options that you can consider, right. So there's also for
smaller businesses we see simple iras, so those limits have
increased as well as well as the total limit. So
we have clients who use set by raise or solo

(22:07):
or individual for one case, so they're essentially putting in
money as an employer for themselves as well as any
employee contribution potentially. So again the total limit that both
you and your employer or again that can be you
if your self employed, can put in is up to
seventy thousand dollars for most individuals and for that group

(22:30):
that we talked about, you know, sixty to sixty three
all the way up to eighty one thousand and two fifty.
So you know, we'll talk more about some of these
items when we come back from the break, But thank
you again for tuning in. We'd love to hear from
you after the break. You're listening to us Talk Money
brought to you by Boushet Financial Group, where we help
our clients prioritize their health while we manage their wealth

(22:50):
for life. Hello and welcome back to Let's Talk Money.
I'm Nicole Gobel, director of Financial Planning Care at Bouchet
Financial Group, along with my colleague Scott s Johecker. So
we were talking about some of the contribution limits for
this year, and again we can't stress enough how important

(23:12):
it is to be planning, as Scott mentioned and Ryan's
blog The Wealth three point zero right, the planning for
the future. So even if you don't necessarily feel like
it's going to make a big difference, you know, starting
early and contributing early really makes a lot of sense.
I know Sam mentioned on the show yesterday. You know,

(23:32):
you know, first and foremost, making sure that you're putting
in enough to get any employer match that you might
be receiving, because if you're not, you're you're you know,
really leaving some free money on the table. But again, really,
you know, trying to target ten to fifteen percent of
your income if you're able to long term, really that

(23:52):
that makes the most sense because most of us are
not going to have unless you're working for, you know,
the government, the stately, you know, a teacher in the
public school system, you're going to be dependent pretty much
on your own savings for retirement. There's there's not a
lot of people that are going to have pensions in

(24:13):
the future, so it's really important to be setting aside
those funds for yourself for your future. So you know,
again we've talked about some of those limits and some
unique things for those who are turning age sixty to
sixty three this year, and has Goot noted, you know,
once you're sixty four, you revert back to kind of
the lower limits, but that age sixty to sixty three

(24:34):
was part of the Secure Act two point zero higher
contribution limits for that age range. So certainly something to
make sure you're talking to your advisor, talking to your
tax prepayer, making sure that your employer is aware of
those higher contribution limits for that age range, because I'm
sure that there is going to be a number of
retirement plans that are not being proactive and letting people

(24:57):
know that. So make sure that you're a and utilizing
the options available to you. So I know, Scott, you
dealt with kind of a unique situation too with one
of our clients where now employers you know, can put
their match in for via ROTH as well. Is that correct.

Speaker 2 (25:18):
Yes, it does require a plan document change, but your
employer does have the option again if they make the
change to have their employer match go in as a
RAFF as opposed to going into the traditional four oh
one K. There are a few things in note. If

(25:38):
that is done, you know the plan document's changed, and
you elect to have your employer match go into a ROFF,
you will receive a ten ninety nine R just showing
that as income because again this is after tax money.
Even though you may not be happiness, it is subject

(25:59):
in come taxes. So you receive a ten ninety nine R.
And then in the future years, you know when you
take a distribution from that money, you won't be taxed
on it. Again, so again new little caveat when it
comes to four oh one ks, it really depends on
your situation of whether you want it to go to
the WROTH or your traditional four oh one K your

(26:21):
employer match. And again that's something that we would be
more than happy to sit down with you and see
if it makes sense.

Speaker 1 (26:28):
Thanks Scott. And again that's certainly a unique situation, but
we do expect to see certainly more companies, more plans
having to add a WROTH component in general that don't
already because the catchup contribution, I know it was postponed
to twenty twenty six, but for those earning over one
hundred and forty five thousand, starting in twenty twenty six,

(26:51):
that ketchup contribution will be required to be wroth and
can't be pre tax anymore. So again, certainly some changes
coming down for many retirement plans out there. As my
understanding is, you can't make any catchup contributions if you
don't have that wrath available for those who are making
over that threshold. So talking about ten ninety nine hours,

(27:12):
I'm not sure if our whole listening audience knows what
that is. Can you talk, you know, as we go
into this, you know, twenty twenty five and we start
receiving our tax documents, can you maybe just coach our
listening audience on kind of what they should be receiving,
what to make sure to look out for, you know,
especially if maybe they're transitioning from you know, work to retirement,

(27:33):
maybe they're going to be receiving some different documents.

Speaker 2 (27:38):
Yeah, absolutely, So you know, every year there is a
set schedule of when you should expect to receive certain
tax documents. Often you'll first get your W two's, your
ten ninety nine i's for any interest that you receive,
and also ten ninety nine rs. And these ten ninety
nine rs are you know, report the distributions that you're

(28:02):
taking from qualified accounts, whether that's a four oh one
K pension IRA raw f IRA, so that may be
a new form for you. All of these you typically
will have received by January thirty first. Also, you'll receive
you other forms like you're ten ninety eight for any

(28:23):
mortgage interest and other documentation related to deductions, again by
the end of January. Typically the next round of documents
that you'll receive will come in about mid to late February,
and these are your ten ninety nine's that you get
for investments and brokerage accounts. These are consolidated ten ninety

(28:47):
nine so they bring together you're not only the interest
that you've earned on your account during the year, but
also your dividends reports, your capital gains, so it's called
a consolidated ten ninety nine. There is the possibility of
corrected ten ninety nine's for these accounts, so those will
be generated after your initial ten ninety nine is issued.

(29:11):
If you know a specific holding that you have, reclassifies
their income. You know whether it's going from a return
of principle to maybe dividends. Oftentimes you know with what
we're holding. Most of our client portfolios, which are ETFs,
you don't see this reclassification, and more so happens if
you're holding individual stocks within your broker's account. These companies

(29:36):
often will reclassify income or at least a handful of them,
depending on what the underlying stock is. Next, after you
receive your consolidated ten ninety nine you will typically it
may receive your form fifty four to ninety eight, which
is simply more of an informational sheet that comes out

(30:00):
related to your IRA. It'll often give you details such
as any rollover contributions that you made in addition to
any you know, direct contributions that you made to an
IRA raw IRA. It also give you the fair market
value of the account and also can indicate what your
RMD amount was for last year. Again, so the fifty

(30:24):
four ninety eight for twenty twenty four will be coming
out in May of twenty twenty five, you know, so
it is after the April fifteenth deadline. But it is
more of just an informational page for you. So when
you receive it, don't worry. It's not like you miss
something and need to provide it to your prepare It

(30:45):
is more of just a double check that everything was
caught that needed to be. And then typically the last
forms or tax documents that you'll receive are k ones,
which are a tax document that comes out if you
happen to hold any private investments or masted limited partnerships

(31:06):
or other partnerships. Again, these really range when they come out.
You know, occasionally they'll be available as early as the
end of February, but these typically have a later deadline
and can come out as late as you know, May June,
depending on what sort of fiscal year they're reporting, so

(31:28):
it's often delayed and requires a taxpayer to go on extension.
So that's again usually the last tax document you'll receive.

Speaker 1 (31:39):
Thanks Scott. So you know, one of the things that
we often see reported incorrectly or backdoor rocks. So Scott,
before I talk about more of the reporting side, can
you just explain in case some of our listeners don't
know what a backdoor roth contribution is. Yeah.

Speaker 2 (31:57):
Absolutely, So, as I talked about earlier, there are income
limits to be able to contribute to your raw fira.
So if you make over a certain threshold, and it
depends on what your filing status is, whether it's single
or married, filing joint, if you make above that threshold,
you can't directly contribute to your raw fira. So you

(32:18):
do have a possible option to get money into your
raw fira by first making a contribution to your ira
if you have a zero balance in that ira. So
let's use a quick easy example to understand. Let's say
you have you opened up a raw ira and also

(32:40):
a traditional ira, so started out with zero balances. You
have too high of an income. Let's say you make
three hundred thousand as a married couple. You want to
put some money into your raw fira, so you first
start by making the contribution of seven thousand dollars to
your traditional ira as a non deductible contribution, and then

(33:04):
you simply convert it over roll it over into your
rough ira, so again goes as a non deductible IRA contribution.
So you have seven thousand dollars of basis, you take
it out, so the full seven thousand dollars, you know,
because you have that seven thousand dollars of basis, is

(33:24):
able to go over into your roth IRA and you
don't pay any taxes. Again, the main caveat here is
that you can't have a balance in that traditional IRA.
Otherwise this strategy won't work because it does look at
a pro rata. So if you did have AE hundred
thousand dollars already, it would look at you know, that

(33:47):
seven thousand dollars, how much of it is going to
be taxable in relation to the overall balance of the account?

Speaker 1 (33:57):
Perfect And you know, this really makes sense to tically
works for people who have stayed in one job, you know,
for a longer period, so all of their funds are
still in you know, a four oh one K for example,
and they really haven't rolled over former retirement plans. Once
you start rolling over retirement plans to an IRA, which
is you know, certainly what we recommend for consolidating and

(34:19):
having the best investment options, you know, then again it
becomes more difficult because you have that basis. But we've
seen you know, some you know, very long term tax
prepairers not know how to report this and and do
it incorrectly, and we've had to go back to our
clients and say, hey, you really need to you know,
a mend your return or you need to get this corrected.

(34:42):
So the form that you report this on is eighty
six O six. But I'll take a pause there because
we have John from Delmar with a question.

Speaker 3 (34:50):
Good good morning, good morning, job a question, Good morning.
I have a question on contributing to h roth Ira.
I know there's income limits, and I also did some
large conversions. So is it true that conversions that you
do from your traditional accounts into the rock and it's

(35:12):
true that those cont that conversion that you do that
does not go into the equation for the maximum income
for the.

Speaker 1 (35:22):
No, Unfortunately, unfortunately it does in the year that you're
doing it, right, So you know, really you're looking at
an adjusted gross income number for that. So that really
includes everything. So it's going to be your you know,
your earned income, it's going to be distributions for a
retirement account, including conversions. It's going to be interest dividends,

(35:45):
capital gains. So really, when you know you look at
a row number, it's really going to be that higher
number even before deductions. Right, it's not taxable income, it's
adjust a gross income. So unfortunately that will count when
in that year. Obviously, you know, obviously anything you've done
in a previous year does not affect things.

Speaker 3 (36:05):
Okay, all right, Ben, thank you, thanks.

Speaker 1 (36:09):
So much for listening. John. So, yes, unfortunately, when you're
looking at that the threshold, as Scott mentioned, right, it's
not a taxable income number, it's an just a gross
income number. So that really does include any of the
income that's coming into your household from you know, whatever

(36:30):
the source that may be. So you know, that's that's
certainly something to consider. So if you're near that threshold,
it's really important to look at that and again plan
for that before you make a wrath contribution because it's
it's a kind of a pain of the butt process,
so to speak, to back it out of a roth
ira if you've made a contribution and then you discover

(36:51):
later that you're over the threshold. So for those clients
we know that maybe very close to that threshold, we
say hold off because you have until April fifteenth of
the following year to make that contribution. So you know,
again if in the event you're close to the threshold,
and you know, come December thirty, first you feel your

(37:11):
wages are under that threshold, you start getting the tax
documents that Scott mentioned for your interest and dividends and
capital gains and all of that looks to be in
line with being under the threshold, then go ahead and
make the contribution, but much better to wait and make
sure you see them. So let's take a quick commercial
break and then we'll come back to some of our
tax tips. Hello, and welcome back. So let's talk money.

(37:37):
And this is Nicole Goebel from Bouchet Financial Group, director
of financial Planning here with my colleague wealth advisor Scott Strohecker.
So we were just talking about some of the mistakes
that we see and you know, trying to make sure
to make our listening audience aware of that. And again,
even if you're working with a seasoned tax professional, we've
had to do some educating on our end to really

(37:59):
help our clients make sure that these things are reported correctly.
So one of them is the backdoor off. So again
this is an individual who is over the income limit
can't make a direct WROTH contribution. Instead they make a
non deductible contribution in Scott's example of seven thousand dollars
to a traditional IRA, but they don't have any other balance,

(38:20):
they convert it to their WROTH. There is seven thousand
dollars a basis, so that's being reported on what's called
Form eight six zero six eighty six oh six, and
then again it's flowing through that. You see that there
is that contribution and there is that conversion, but essentially

(38:40):
there is no tax consequence to doing that. So again
it works for people who don't have any traditional IRA bunce.
It's not to say you can't do it if you
do have an IRA balance. You know, I had a
client who had a small IRA balance, So let's just
say hypothetically, right, their total IRA balance was fourteen thousand dollars.
Seven thousand of it was a non deductible contribution for

(39:04):
the current year. Seven thousand was from a former retirement plan, right,
a part time job they had years ago. If you
convert seven thousand of that, right, then what happens is
that pro rata calculation. So it's not as if you
can take that full seven thousand and say, well, hey,
I put this in seven thousands, not you know, not taxable. Instead,

(39:27):
it's going to take fifty percent. Right, the seven thousand
dollars basis represents fifty percent of the total account value,
so thirty five hundred of that amount is going to
be taxable. If you convert the full amount, the full
fourteen thousand dollars, right, you're going to pay tax on
the seven thousand that was not basis. But sometimes that

(39:47):
makes sense. Right, if you again have a small traditional
IRA balance and you're younger, you have many years to grow,
and by doing this conversion and paying tax on a
small piece of that, it's going to alloe to do
backdoor conversions going contributions going forward. That might make sense.
So again, we did do that for one of my clients,
and now we can do those backdoor contributions each year

(40:11):
and we pay tax on maybe a five thousand dollars
amount that they had from a former retirement plan. Scott.
Another big one that we coach our clients on is
qualified charitable distributions. I know, you know that's something that's
also really difficult to report because there's really no tax document.
Can you talk a little bit about qcds?

Speaker 2 (40:32):
Yeah, absolutely, So let me just touch on what qcds
are in case the listeners aren't aware. So these are
a tax advantage way for individuals who are seventy and
a half or older to donate directly to charities from
their IRA. So if you do a QCD, really, as
Nicole said, need to make sure that you communicate that

(40:53):
information with your tax prepared so it's reported properly. When
you do a QCD, he'll receive a ten ninety nine R,
just like you would any sort of distribution that you
take from a qualified account. The ten ninety nine R
will show the full distribution amount with nothing you know
on the form noting that you made a QCD. So

(41:17):
you really need to again make sure that your preparer
knows the dollar amount that you did as a QCD
so that they can manually back it out on your
tax return. And then did know a QCD was made,
So if you just you know about getting two technical I'm.

Speaker 1 (41:38):
Here, Scott, I think we may have lost you, so
I'll just continue on. So you know, with the qualified
charitable distributions, as Scott was mentioning, basically, we do have
the ability again to back that out, but again there's
no tax document saying this, so it's really you know,
keeping that record. Obviously, there will be proof on your IRA,

(42:00):
your retirement account showing that these distributions went to different charities,
whether you have a checkbook attached to that IRA and
you're writing checks directly to that charity yourself, or you're
having the custodians such as Charles Schwab make that contribution
directly from your account. You know. So certainly there's you know,
some proof that you have on your end, but there

(42:21):
really isn't anything on a tax document to provide. So
again we coach our clients to say, here's your ten
ninety nine R but make sure that you know ABC
tax preparer knows that ten thousand dollars went to these
different charities and they have to again make that adjustment
on the return itself. So you know, in doing so,

(42:43):
you might ask, well, this sounds a bit complicated, why
would I do this? Well, this is a great solution
for people that first, you know, they may have a
required minimum distribution that they have to take. Right. So
again this starts as Scott mentioned at seventy and a half,
but we more likely see this happen when people have
to start taking rmds and they don't necessarily need the

(43:05):
funds for cash flow, but they have to pay tax
on it. So they're essentially if they took that money,
paid tax on it. Right, that's part of their adjust
a gross income. It's affecting their Medicare premiums, it's affecting
other deduction levels, and then they're giving that money to
charity anyway, Right, you're not getting that same benefit. And
certainly if you're not giving a way enough to itemize deductions,

(43:29):
you're really perceiving no benefit. You're paying tax on money
and you're not getting any deduction. A qualified charitable distribution
is better than even itemizing because it comes off the top.
So again, when you're reporting that IRA distribution, let's say
hypothetically you had to take fifty thousand dollars out of
your account and you sent ten thousand dollars of that

(43:49):
to charity. Right, ten thousand dollars charitable contribution is not
going to get you today to the level where you'd
be itemizing deductions because we have a very nice standard deduction.
So instead, now you're reporting forty thousand dollars of taxable
IRA distributions instead of fifty, Right, So that affects your
total income number. And again your income for medicare premiums

(44:14):
for you know, the other deductions are lower for other
tax credits is lower by ten thousand dollars, so you
don't pay tax on the money. The charity doesn't pay
tax on the money. So you know, Gay, it's a
great way to take funds that you would pay tax
on otherwise, donate it directly to charity and everyone benefits

(44:35):
except for the IRS. And the good news also is
if you're a New York resident, New York follows suit
with the IRS, and actually you know, you get a
New York deduction for that amount as well. So again
only forty of that fifty thousand is taxable for New
York purposes as well. Scott, So you know, before we

(44:58):
and let's talk a little bit. I know, we we
talked about qcds. We only have a couple of minutes
left about inherited irase. I know again this is something
that we often see, you know, certainly reported incorrectly as well.
So can you talk a little bit, you know, I
know we often talk about how if you're fifty nine
and a half or older, you get to exclude twenty

(45:19):
thousand dollars per person in New York of retirement incomes
such as IRA distributions. But can you talk about the
exception also for inherited diary distributions?

Speaker 2 (45:30):
Yeah, absolutely, and nicol. So with inherited iras, you do
actually give a up to twenty thousand dollars that exclusion
for pensions and irays. If the decedent or the original
owner of the account was of an R and p H,
you can then again exclude the amount they took as

(45:53):
a distribution up to twenty thousand. Again, I like using
a quick ease the example to better understand it. So
if you're let's say fifty years old or again under
fifty nine and a half, you inherit a IRA from
your father and mother who was seventy five when they
passed away. You can then exclude your arm D amount

(46:14):
you know up to twenty thousand dollars on your New
York tax return. Therefore you know it won't be taxable. Again,
it does need to be handled properly by your prepare
when doing your return, so you have to really make
sure that we have.

Speaker 1 (46:30):
To end the show, sorry for that. So you're listening
to let's talk money, brought to you by Bouchet Financial Group,
where we help our clients prioritize their health while we
manage their wealth for life. Thanks so much for listening.