Contributing to Your 401k Plan

Episode Transcript

Speaker 1 (00:00):
And our phone lines they are open for you right now.

Speaker 2 (00:02):
If you have questions for our retirement planning professionals from
Klass Financial love to get you on the air six
oh eight three two one thirteen ten. That's six oh
eight three two one thirteen ten. If you've got a
question about uh about retirement retirement planning, we've got the
go to guys with us this morning. Joined this week
by CJ. Closs and Eric Schwartz. As mentioned, they come
to us from Class Financial. The website for Coss Financial,

(00:25):
it's just that Cossfinancial dot com. That's k l Aasfinancial
dot com. Telph number six oh eight four four two
five six three seven.

Speaker 1 (00:33):
No charge for that.

Speaker 2 (00:34):
Initial gets to know your appointment tech Loss Financial it
will be complimentary to you again their number six oh
eight four four two five six three seven And to
join us this morning on the program. Regular numbers to
get on the air six oh eight three two one
thirteen ten. That's six oh eight three two one thirteen ten.
As mentioned, joining us this morning, c J. Looss and
Eric Schwartz.

Speaker 1 (00:53):
CJ. How you doing this morning?

Speaker 3 (00:55):
I'm doing great. Happy Thursday, Sean.

Speaker 1 (00:57):
Happy Thursday. Do you do great? To talk with you. CJ. Eric.
How have you been?

Speaker 4 (01:01):
I'm doing great, Sean?

Speaker 1 (01:02):
Did you get vacation time? Have you been off the
past few weeks? Haven't you? You're lucky.

Speaker 4 (01:07):
Yeah, I was off last week and you you went
on with the show without me, so I guess, I
guess it can go.

Speaker 1 (01:12):
It wasn't the same. It wasn't the same.

Speaker 2 (01:14):
It's great to have you both along. And we've got
a great conversation ahead. As I look at the calendar
right now. Yeah, we're mid year and we're gonna be
talking near enough to mid year, and we're be talking
about midyear tax hacks, and we're gonna get to that
just a moment. A couple of great things about the program.
I mentioned the phone lines. They are open for you
at six eight three two one thirteen ten. That's six
eight three two one thirteen ten, if you.

Speaker 1 (01:34):
Like to join us.

Speaker 2 (01:34):
Another great feature of the program, it's the Class Quiz
Question the week. It's your chance to win a fantastic prize.
This week, our friends from Class Financial have provided a
twenty five dollars gift card to Texas Roadhouse. Tell you
a little bit more later on the program on how
you can win that little tip though, listen closer to
the program not only get a lot of great information,
but oftentimes just about every time both the question and

(01:55):
answer come up each week during the program, and before
we start talking about midyear taxes and as we kind
of work our way down the stretch, let's actually look
back at last week's program, get the Closs Quiz question
week question and answer there as well.

Speaker 4 (02:11):
Yes, our question last week was a true or false
question and it was Diversification is about spreading your investments
across different asset types to reduce risk. Our winner from
last week was Jeff from Sun Prairie, who knew that
the answer to that was true. So congratulations to Jeff,
and thanks to everybody for listening.

Speaker 2 (02:30):
Great work Jeff, and you two can be like Jeff
by simply paying attention to the program and being the
first caller.

Speaker 1 (02:35):
Again. We'll tell you how you can do that a
little bit later on in the program.

Speaker 2 (02:38):
As mentioned, we're going to be talking about taxas and
some considerations for the midyear stretch.

Speaker 1 (02:43):
What do we need to know? CJ.

Speaker 3 (02:46):
Yeah, So today's show is all about taxes and making
sure that you're on track to have a successful tax
filing season. Hopefully without too many surprises. As Eric can attest,
all too often our clients and general public when we
meet with them, wait too long to start asking questions
about tax optimization strategies. Often, by the time people start

(03:08):
asking questions about these tax mitigation strategies, it's often too
late in the calendar year to make any affordable or
significant solutions or i should say adjustments. Therefore, since we're
nearing the middle of twenty twenty five, which is kind
of crazy to say, we thought we should slow down

(03:30):
and dedicate a show to some mid year tax strategies
and questions you should be asking yourself. So here are
some of those questions and strategies. Starting with questions, are
you withholding appropriately from your income sources? Have you had
any significant life changes or do you anticipate any significant
life changes before year end that could impact the amount

(03:50):
you should be withholding from your working income. Do you
owever get a refund from last year from the Feds
or the state? Have you made any adjustments this year
to your account for the prior years under or over withholding?
So these are just some high level questions for you
to be thinking about as it relates to kind of

(04:11):
mid year pauses. We often find that individuals or couples
are so excited to be done filing their income taxes
in March or April that they fail to make any
meaningful adjustments the following year to avoid any under or
over withholding. So now is a great time to pause
and ask yourself if you made any of these adjustments
to your withholdings this year to compensate for last year's problems,

(04:35):
and if not, you should even if your taxes were
perfect last year. So some people go, yeah, yeah, I
was fine. I only owed you five hundred dollars or
I got one thousand dollars back, so I'm fine, Okay,
we'll stick with me. Even if your taxes were perfect
last year, you should still ask yourself if there's any
significant changes or differences about this year compared to last year.

(04:59):
Here's some exam simples of significant changes that you might
want to consider. Number one, did you receive a significant
pay raise or decline? Are you expecting or have you
received a large bonus this year? Are you for the
first time vesting some non qualified stock options or restricted
stock units? Were there any changes in the ways that

(05:24):
you're compensated, like moving from w two to ten ninety
nine compensation. Are you starting to generate some income from
an online business or like a side hustle. Now, well,
this is not certainly not a comprehensive list of these
significant changes in income from one year to the next.
Hopefully it gets your mind thinking critically about this. If

(05:44):
anything I've mentioned makes you think there could be something
you need to review, then we would highly suggest working
with a good accountant or CPA who can help you
decipher what, if anything, needs to be adjusted to avoid
any major tax filing surprises in the new year. The
good news is that by asking these questions now, you
have ample time before the end of the year to

(06:05):
make adjustments that hopefully will avoid any major swings in
your personal cash flow well.

Speaker 1 (06:11):
Laid out there from CJ. Closs.

Speaker 2 (06:12):
Of course CJ Closs and Eric Schwartz, they are our
retirement planning professionals from Class Financial. The website coss Financial
dot com that's k l aa S Financial dot com
have been mentioned to you about checking out the website.
Not only can you get to know the team at
cows Financial, including CJ and Eric and of course Malia
and others at Class Financial. Their bios there and learn
about the separate divisions at COSS Financial. You can also

(06:33):
sign up for the weekly Market Pulse newsletter. It's a
great weekly email comes in your inbox, got a link
to the most recent programs podcast. It also has a
little snapshot of what's been going on in the market.
So again a great, great service, great thing for you
to head on over to Clossfinancial dot com. That's Coss
k l aa S Financial dot com And they're teleph
number six so eight four four two five six three seven.

(06:55):
No charge for that at first get to know you
appointment at cows Financial, it will be complimentary to you. Again,
they're number six oh eight four four to two five
six three seven. So Eric, you know what about estimated
tax pay payments? I hear, you know, people that are
you know, own the small businesses are talking about quarterly
estimates and things like that. But people other never, you know,

(07:15):
other people have never maybe paid a quarterly estimate in
their life.

Speaker 1 (07:18):
What what's going on there? What's that all about?

Speaker 4 (07:21):
It's a great question, Sean, And I think when when
people are here quarterly estimated tax payments, I think often
people associate it with oh I need to pay more
taxes than than I would have. But really what you're
doing is is pre paying some of the tax that
you will owe at tax time. So estimated tax payments.
They're basically just a way for individuals and businesses to

(07:43):
pay income tax that are going to be due at
the end of the year if not if not paid earlier.
And this is typically on earnings that are not subject
to regular tax what's holding, So think of it this way.
After the end of the calendar year, in most circumstances,
you're going to owe some federal and state income taxes
based upon all of the various sources of income that

(08:04):
you've received throughout the year. So let's look at some
examples of these income sources. You've probably seen these on
your tax return, so cash tips, social Security income, pension income, rental,
property lease payments that you receive, gambling winnings. I know
everybody's for sure reporting all of that interest income, dividend income,

(08:30):
capital gains from selling a stock or other appreciated asset,
W two, wages from your employer, and then if you're
a contractor, ten ninety nine payments. Now there are many
more to add to the list, but these are some
of the more common ones that we see, and pretty
much all of these sources of income, they have various

(08:51):
required federal and or state income tax consequences that you'll
need to be accounting for at the end of the
year when you go to file your income taxes for
the prior year, And the question becomes, then, do all
of these income sources, including all of those that I
mentioned above and many others, do they automatically pay the

(09:13):
federal government and the state where I reside before they
actually pay me. Simple answer here is no. So if
we think about like a W two for example, that's
really straightforward. Your employer is withholding federal and usually state
income taxes, and are they are sending those into the

(09:33):
I R S or the Department of Revenue in advance, right.
But if you have substantial earned income sources or unearned
income sources that do not withhold federal and or state
income taxes prior to you actually receiving the dollars, you'll
probably need to make quarterly estimated tax payments. And you
need to do this to avoid any penalties, since it's

(09:55):
generally not allowable by states or the federal government to
just wait till the end of the year and pay
all of your tax that is due. The I R
S wants to wants you to pay taxes as you
earn the income. They are they are not very patient
when it comes to actually getting the tax payments. So
how does this work in practice? What you what you

(10:17):
would need to do is the first step is you
need to basically estimate what you think your annual income
will be for the year, and then based on you know,
various deductions and things like that, what your actual tax
liability will be. Now, this is where you very likely
would need to pull in an accountant to help you out,
which is why we often see small business owners and

(10:40):
folks who have more income sources outside of just like
a W two or or even in ten ninety nine.
This is where we see them working with accountants to
make sure that they're they're doing all of this correctly
in advance. But when you after you've done that estimation
of income and tax liability, if you estimate that you'll

(11:01):
owe more than about one thousand dollars in federal or
state taxes, you should generally divide that amount into quarterly
payments and make these payment amounts by the quarterly due dates,
which are April fifteenth, June fifteenth, September fifteenth, and January fifteenth,
and the irs is quite specific about those dates. So

(11:24):
if we are if we are a few days late,
there can still be some some interest penalties due on
those dollars. And I know, Sean, I know, if we
have accountants or our CPA is listening, they are probably saying, wow,
that is quite an oversimplification of how all of this works.
And we hear you. You are you're not wrong about that.

(11:45):
But we are here on the radio speaking to the
general public. So this gives everybody a general sense of
why they might need to make quarterly estimated tax payments,
along with when those those payments might be due, and
then we'll trust our friends in the accounting profession to
implement it all correctly.

Speaker 2 (12:03):
One of the things I really like about this show
is is the way you guys are always able to
kind of keep this stuff very good information, but keeping
it general enough that you know, we all understand it
and at the same time know that you know, maybe
I do fit in these box and maybe further exploration.
And that's one of the great things that we get
a chance to talk with everytirement planning professionals from Class
Financial each and every week. And if you miss part

(12:24):
of a program, whether it's today's show or you want
to listen back to a previous program, Dorfgey, you can
always listen at Costsfinancial dot com. That's coss k l
a a s Financial dot com. You can listen and
subscribe to the podcast right at the website. Of course,
you can always give them a call at cost Financially.
They love to talk with you six oh eight four
four two five six three seven. That first call, that
first conversation that gets to know your appointment not going

(12:44):
to cost you a thing. It'll be complimentary to you.
At Coss Financial again, they're telephone number six oh eight
four four two five six three seven. We're going to
continue our conversation with c Jen Eric next as Money
in Motion with Coss Financial continues right here on thirteen ten.
Wuibi joined this morning by our retirement planning professionals from
Closs Financial CJ. Closs and Eric Schwartz. You can learn

(13:05):
more online thewebsite Closs Financial dot com. That's coss k
l as Financial dot com and they're telephone number six
so eight four four two five six three seven. Talking
this week as we're kind of getting close to midyear,
getting you ready for tax season and getting you getting
you prepared and things to keep in mind, And had
a great rundown in that last segment about estimated tax payments.

Speaker 1 (13:28):
What about record keeping?

Speaker 2 (13:29):
I got to guess, keeping good records of your income
sources and potential deductions. It's probably pretty important here as well,
isn't it.

Speaker 3 (13:37):
Yeah, absolutely great point. So given that the emphasis emphasis
of our show today is around midyear tax hacks and suggestions,
we should emphasize how important it is to develop a
good record keeping system for all your income sources and
your potential expense deductions in any calendar year. So, starting
with the basics, you should obviously keep good records of

(13:59):
all your income so and tax documents that arrive in
the new year for the previous tax year. Some of
these income sources will send you a tax document, and
some of these income sources will not. Examples of these
income sources and tax documents might include a W two
ten ninety nine's whether it be ten ninety nine R
or div or I, int self employment income, rental income,

(14:23):
alimony received, gambling winnings, jury duty pay, etc. Et.

Speaker 4 (14:28):
Cetera.

Speaker 3 (14:29):
Beyond your sources of income and the supporting tax documents
that might arrive in the new year, you should also
keep good records at any possible deductible expenses or contributions.
Some of those expenses or contributions you might want to
consider documenting and keeping good records of include mileage logs
for business miles or charitable travel, donation items or donated

(14:53):
item receipts and logs you don't think like goodwill or
Saint Vinnie's home office expenses, State and local tax This
is like property tax bills, mortgage interest expenses that typically
show up on a Form ten ninety eight, charitable contributions,
casualty and theft losses, education expenses, retirement account contributions, childcare expenses.

(15:16):
Think of a purchase and sale of like a rental property,
and then health savings account contributions. So again, while these
are not comprehensive lists of income sources or deductible expenses
or contributions, this should at least give get you started
on the types of items you may need to record
in a file for when you eventually go to file

(15:36):
your income taxes in the new year. Now, I don't
know about you. But when I hear lists like this,
I start to clearly understand why people often hire accountants
to file their income taxes. Again, maybe it's just me,
but by the way, I'm actually formally trained in tax
not that I am an enrolled agent or CPA. I

(15:57):
don't file income taxes for clients. However, we do have
somebody on staff who does that, by the way, for
our team, for our clients, but even for me. So again,
formally trained in tax we have a person on our
team who does this. I mean, I'm reviewing literally hundreds
of tax returns a year, so I'm quite competent on
how the irs or how the tax code works. And

(16:17):
yet do you think I file my own income taxes? Nope, nope.
So I'm not saying everyone should have an account and
file their taxes, but wow, there is a lot to
know and keep track of to make sure you're filing
your taxes accurately and with the greatest amount of consideration
for possible, you know, reductions and tax liability for deductible

(16:40):
expenses or contributions. And listen, it's not just it's not
just that there's a lot to this, because again I
generally know the things that I need to keep track of.
It's more the Okay, it's enough work for me throughout
the year just to gather this information. Right, if I
install a new furnace that has certain efficiencies for I'll
keep a copy of the receipt so I know these

(17:02):
kind of hacks and things I should do. But then
to take it all curated up to a tax return
and be aware of any minor changes in both the
documentation and the filing, and then the you know, the
the actual submission of that return, I just don't want
to do it. So I'm not saying you need to
be like me, but what I am saying is do

(17:24):
develop some good habits around keeping track of these documents,
whether you're going to file it on your own or
have somebody do it for you. That the harsh reality
is even in the best accountant can't file taxes for
somebody who doesn't know what they bought or contributed or
sold or what their income was for the year. So
make sure you try to keep good records.

Speaker 1 (17:45):
As we go through this stuff too.

Speaker 2 (17:46):
It really reinforces the value of having a good financial
team around you, and of course people that you have
a great relationship with speaking of great relationships and starting
that conversation. Great day to pick up phone. Gave a
call Class Financial six so eight four four to two
x three seven. Don't forget that initial gets to know
your appointment at Class Financial. It will not cost you
a thing again. Their telephone numbers six oh eight four
four two five six three seven. The website coss Financial

(18:09):
dot com. That's coss k l aas financial dot com.
More of money in motion with Coss Financial, it comes
your way next to here on thirteen ten WIBI.

Speaker 1 (18:22):
Talking this morning with CJ. Closs and Eric Schwartz.

Speaker 2 (18:25):
They are our retirement planning professionals from Class Financial. The
website coss financial dot com. That's coss k l aa
s Financial dot com. Telephon number for the office right
here in Madison six oh eight four four two five
six three seven. Don't forget that first appointment at Coss Financial.
It will be complementary to you again their number six
oh eight four four two five six three seven. Talk

(18:45):
in taxes this morning, and a lot of great points
about about certain areas that you may not always think
about as far as saving and retaining tax documents.

Speaker 1 (18:55):
Let's get into kind of the.

Speaker 2 (18:56):
The realm of retirement account contributions, and of course, as
retirement plan planners, you're obviously emphasizing saving into things like
four oh one ks and iras or some sort. Is
there anything that we should be thinking about relative to
our retirement accounts that in tax optimization for the mid year?

Speaker 4 (19:14):
There? Eric, absolutely, and I think this is one of
the simplest ways to reduce your tax liability maximizing contributions
to a pre tax retirement account. It's really straightforward, it
comes right out of your paycheck, and you don't even
need to think about it. And we've talked about this
on previous shows, but we typically suggest that people focus

(19:35):
on maximizing the contributions through their employer sponsored retirement plan.
So I think four oh one K, four oh three B,
maybe four fifty seven plan. Max out these contributions first,
and then consider additional retirement account contributions thereafter once you've
hit that max. But just as a quick reminder, the
maximum that you can generally contribute as an individual employee

(19:58):
to a four oh one K or a four oh
three B or even you know another similar employer sponsored
retirement plan for twenty twenty five, that limit is twenty
three thousand, five hundred if you are under the age
of fifty, or you can contribute thirty one thousand if
you are over the age of fifty, or you can
contribute thirty four thousand, seven hundred and fifty dollars if

(20:21):
you are specifically age sixty, sixty one, sixty two, or
sixty three. So, given that we're talking about twenty twenty
five mid year tax hacks and reminders here, we highly
suggest that you evaluate the amount you are currently contributing
to your retirement accounts where you work, and then also

(20:42):
consider increasing these contributions to number one, potentially reduce your
tax liability for the year and number two saved more
for the future.

Speaker 2 (20:50):
Really great advice this morning, talking with Eric Schwartz and CJ. Closs,
our retirement planning professionals from class financial website coss financial
dot com that's Coss Klaas Financial.

Speaker 1 (21:00):
Of course, you can get to know the team at
COSS Financial.

Speaker 2 (21:02):
Also listen back to podcasts and one of the things
you'll notice in the podcast health Savings account. We've talked
quite a bit about those on previous programs in great depth,
and of course you can listen to those shows at Clossfinancial.

Speaker 1 (21:12):
Dot com and CJ.

Speaker 2 (21:14):
Speaking of those accounts, there are some tax benefits that
are becoming more popular with them these days, isn't there.

Speaker 3 (21:21):
Yeah, another great reminder, so if you have a high
deductible health insurance plan through work or on your own
that qualifies as an HSA, you should consider making contributions
to the HSA account. These accounts can typically be established
at a vendor of your employers choosing, or at your
local bank if you can show them you qualify it

(21:42):
to establish one of those those types of accounts. And
again this is based upon your medical insurance plan and
whether or not basically the deductible is high enough. Now
there's other tests that they do to make sure it
qualifies as an HSA plan, but it's basically our higher deductible.
So contribution to these plans. Again, just think I've got
this medical insurance plan with a high deductible and basically

(22:06):
because that deductible is high enough, the IRS says you
qualify for this HSA account kind of thing. Often your
employer will will say, oh, that's through fidelity or whoever,
and you can just do it through payroll deduction. But
other times you have to go set this up at
your local bank and contributions again to these plans are
tax deductible and they grow tax free and can be
used tax free for qualified medical expenses. Furthermore, you aren't

(22:31):
typically required to use all of the money within these
accounts by the end of the calendar year, so any
unused amounts in the account can roll over to future
years and help cover medical related expenses. Now, as a reminder,
the maximum you can generally contribute to an HSA again
health savings account in twenty twenty five is four three

(22:52):
hundred dollars for an individual or eight five hundred and
fifty dollars for a family. In addition to this, if
you are over age fifty five, you can contribute an
extra one thousand dollars as a catchup contribution on top
of the maximums I just mentioned. Therefore, if you have
an HSA eligible medical plan, you should consider if you

(23:16):
have an HSA account open for contributions, along with considering
trying to max out these contributions in order to reduce
your taxable income for the year while having a pot
of money available to cover current and or future medical
related expenses. So listen, everybody, as it relates to these accounts.
These are actually one of the most tax preferred account

(23:39):
structures in the entire IRS Code. Let me repeat that
HSA accounts are one of the most tax preferred account structures,
if not the most, that you can establish fund and
use in the entire IRS Code. And here's why. I

(23:59):
get a deduction for federal income tax and in many
circumstances state income tax. I get a deduction when the
money goes in, I get tax free growth while it
stays in there, whether it be you know, just earning
a little bit of interest or a lot of interest,
and then when I pull the money out, it's tax free.
I don't pay tax on that. And now the money

(24:20):
has to come out for medical related expenses. I can't
just generally use it for anything. There are some rules
once you get over sixty five that you can pull
it out like a retirement account. But that's not the
point of our show today. But here's the idea that's
that's like unbelievable in the IRS Code. And the reason
why is typically in it like an IRA, When I
put money into an IRA pre tax and then it

(24:42):
grows tax deferred. When I get to retirement and pull
the money out.

Speaker 1 (24:45):
It's taxable.

Speaker 3 (24:46):
Or conversely, if I do a roth IRA, when I
put the money in, it's post tax money. I've already
paid tax on the money, I don't get a deduction,
and then when I get to retirement it's tax free. Well,
if you understand what an HSA is, it's the best
of all of that. I both get the deduction, I
get the tax free growth, and when I pull it

(25:07):
out to pay for medical expenses, there's no tax. Okay,
I get too excited about these things.

Speaker 1 (25:12):
Forgive me for good reason. Yes.

Speaker 3 (25:15):
Bottom line is, if you are eligible for one of
these things, listen. That means you've got a high deductible plan.
That means you are going to have expenses that are
going to pop up that are deductible related expenses. I
don't know about you, but I'd rather use tax free
deductible money than post tax money. And the only thing
I have to do is just like funnel it through

(25:35):
an HSA account. So hopefully everybody gets the idea. HSA's
wonderful little you know segment to the of the tax
Code highly suggests that you use suggest or that you
set up one of those accounts and make sure you're
contributing assuming you have an HSA qualifying plan.

Speaker 1 (25:53):
Pretty phenomenal stuff. As we talked this morning with CJ.

Speaker 2 (25:55):
Closs and Eric Schwartz, our retirement planning professionals from Class Financial.

Speaker 1 (25:59):
It's a great data, aren't that conversation? All I gotta
do is pick up phone, gimme a.

Speaker 2 (26:02):
Call six oh eight four four two five six three seven.
Don't forget that first apployment, Class Financial. It is complementary
to you again their telephone number six oh eight four
four two five six three seven, website Cossfinancial dot com.
That's Coss k l aas financial dot com. Gave you
that telephon nuber because you're gonn want to hold on
to it because it's time now for the Class Quiz
Question the week. It works like this, just a moment,
I'll ask you the Class Quiz question of the week.

(26:23):
You'll then have thirty minutes from the and today's program
call the Class Financial office right here in Madison at
six oh eight four four two five six three seven.
If you are the first call with correct answer, you'll
win this week's prize, which is a twenty five dollars
gift card to Texas Roadhouse. This week's Class Quiz question
the week is this, what is the maximum a forty
five year old employee can contribute to their four oh

(26:44):
one K plan in twenty twenty five, not including any
employer contributions. Telephone number six oh eight four four two five,
six three seven first call with crieckt Answer one the
twenty five dollars gift card to Texas Roadhouse and don't
forget as well. That's Class Financial's office right here in Madison.
Six oh eight four four two five six three seven CJ.

Speaker 1 (27:02):
Eric. It's always great chatting with both of you, guys.
Enjoy this beautiful day.

Speaker 4 (27:06):
Thanks Sean.

Speaker 1 (27:07):
Take care guys.

Speaker 2 (27:07):
Doctor Marty Greer of check Out Veterinary she comes your
way next right here on.

Speaker 1 (27:11):
Thirteen ten WIBA.

Speaker 2 (27:13):
This is Money in Motion with COSS Financial Asset Advisors, LLC,
a registered investment advisor registered with the SEC. The contents
of this show are for informational purposes only and should
not be considered individual investment advice. Class Financial does not
offer tax or legal advice. Any opinion offered during the
course of this show is the opinion of that particular

(27:34):
investment advisor representative and not necessarily the opinion of COSS.
Financial News comes your way next right here. On thirteen
ten Wiba