Are You Using the Right Tax Breaks to Boost Investment Returns?

Episode Transcript

Speaker 1 (00:00):
This is straight talk from the House with certified financial
planner Tracy Anton here on thirteen ten. WIBA get to
know Tracy on the website Tanton Investment House dot com,
of course, a fee only fiduciary with offices right in Middleton.
I mentioned the website an opportunity to get to know
Tracy the team. You can listen back to podcasts. There's
a bunch of great information all available at Tanton investment

(00:21):
House dot com. Tell iph a number for the office
in Middleton, six oh eight five zero one, fifteen forty nine.
That's six oh eight five zero one fifteen forty nine. Tracy,
How you doing on this great day.

Speaker 2 (00:31):
I'm doing great. How are you?

Speaker 1 (00:32):
I'm doing really really good and we're going to be
talking about some exciting stuff. Let's kind of get a
breakdown of what our conversation, what we're going to be
talking about today.

Speaker 3 (00:39):
Tracy.

Speaker 2 (00:40):
Yeah. So I came across again another great article and
it was talking about are you using the right tax
breaks to boost investment returns? And I thought, well, this
is interesting. I loved I was looking for something about taxes,
so I thought, okay, let's check this out. And then
we're talking about with the recent market villity Volatila, there
have been many concerns that people have about, you know,

(01:02):
just general, like how am I investing? Like are you
over concentrated in growth stocks? Or do you have the
right mix between stocks and bonds? Or you know, should
you invest the extra cash that you have in your savings?
Like is this a good time? And those are all
awesome questions and one we'll get to probably in a
later show. But I thought this was good. They said,
a more valid concern really is looking at something that's

(01:27):
more like where is your money spread out? Like how
are your savings spread out across tax sheltered savings accounts?
And they said the answer could have a major impact
on your investment returns. And I think we don't think
about that.

Speaker 3 (01:43):
You know.

Speaker 2 (01:43):
It's like we've talked about conversion on the show. And
remember when Ed Slot said, you know this is an
IRA is an iou with the irs. You know, I
love that little lingo because it's hard. It's hard to
put our mind wrapped around our numbers of how all
these different vehicles are taxed and what should be your

(02:05):
right mix. So that's what we're going to talk about today.

Speaker 1 (02:07):
It should be exciting. Kind of reminds me of with
the taxes thing, kind of a dripping faucet. We're a
little here, a little there, little there, little there, and
all of a sudden you have a full bucket and
you don't want that. And we'll talk about some really
great information with Tracy. Of course this morning sort a
fin financial planner. Tracy Anton mentioned the website check it
out Tanton Investment House dot com, the telephone number six
SOH eight five zero one, fifteen forty nine. That's six

(02:28):
SOH eight five zero one, fifteen forty nine. So let's
kind of break down the accounts that you can be
investing money into, Tracy, and it seems like that list
keeps growing well.

Speaker 2 (02:37):
Absolutely so today there are several types of tax sheltered
accounts to consider. Everyone kind of recognizes the traditional IRA
and the traditional four one K, but many plans now
I see people have wrothfour O one k's, which a
decade ago they didn't have that option, so that was good.
WROTHIRA is obviously two is a good option for people
that don't have too high of income. Health savings accounts

(03:00):
too are a nice option. Five to nine college savings
plans for people that are trying to put their kids
through school. And one I think that is really underrated
is taxable accounts, which offers some really great tax benefits.
So we're going to talk about those today and why
I think almost everyone should have a brokerage account. So again, additionally,

(03:21):
there's stuff for people who are you know, like solo
you know only one employee type thing, solo shops. There's
solo for one case for self employed people, four O,
three B plans for nonprofit employees. Those have been around
a long time, but you know, you take a good
look at all these types of accounts that are available,

(03:42):
and if you use a financial plan sean, you can
really help to project those dollar amounts in each kind
of account at retirement along with those tax consequences, and
it just can be extremely beneficial when you're trying to
maximize your returns and your net worth to see, okay,
here's here's my buckets, right, and where are my dollars today,

(04:03):
and let's assume say six, seven, eight percent rate to
return depending on how you're invested, and say, well, what
are those buckets going to look like later? And then
my software is awesome because it shows an actual ten
forty and shows, okay, looking at it today versus looking
at it in ten, fifteen, twenty years from now, once

(04:24):
I have to take those require minimum distributions, what is
my tax is going to be look like? And you
can see an actual ten forty, then it's really really
awesome and it really just helps us try to visualize
because it's hard to project in our minds what those
numbers will be and what where the buckets will be.
And that's what is really important to figure out where

(04:45):
should my money be to maximize your returns and networth.

Speaker 1 (04:49):
What an amazing tool to be able to see those
numbers and kind of work through that stuff. So we
talked this morning with certified financial planner Tracy Anton. The
irony Tracy is, you know Uncle Sam. If you underpay,
Uncle Sam will let you you know. But if you overpay, Strangely,
Uncle Sam's very quiet about oh you paid?

Speaker 2 (05:06):
Was relatives like that?

Speaker 3 (05:09):
Oh, Tracy? We all do.

Speaker 1 (05:12):
We talk with certified financial planner Tracy Anton, and we
love them all. Of course, you can learn more about
Tracy and the team all on their website, Tanton investment
House dot com. That's t A N t O N
Investment House dot com. Also if you miss part today's
podcast or want to listen back to previous shows, all
available to you, as well as some other great information
at Tanton Investment House dot com and Tracy. Then if

(05:33):
we look at tax strategy, let's kind of put these
accounts in, these options into into the mix and how
can they help with tax strategy.

Speaker 2 (05:41):
Well, really making smart use of the various kinds of
investment accounts can really have a bigger impact on your
overall investment returns than specifically even looking at like well,
how many bonds should I own? What percent in bonds?
So I just thought, again, that's just so important. Now
I've always said kind of the opposite too, not opposite,
but also it is it does matter how much bonds

(06:03):
you have, so I don't want to mitigate that or
minimize that. It is really important how much bonds because
bonds do typically half of what a stock does, so
getting your allocation is extremely important. But I also think
it is really important to look at where your piles
of money are, which buckets they're in, And it just
can be extremely challenging because each type of these accounts
has its own tax rules and there really is no

(06:26):
one size that fits all. It just depends what the
right mix is for you. Again, it's again very tailored
to you, So it depends on the factors like what
your age is, what your risk tolerance is, what income
you need over time, what your spending needs are, what
your estate plan would look like, do you have beneficiars
that you're trying to kind of set up for later,

(06:47):
all those things. So I just think it's really it's
really a crucial thing to have someone that you can
sit down and talk to and talk these things out.
But I also see a lot of people they just
kind of do this same thing day in and day out,
and they don't go, wait a minute, I do have
an option like this, I should be thinking about that.
And I think if you have a relationship with someone,

(07:10):
I think it's I think they help you see more
a the bigger picture, but also what your options are.
You know.

Speaker 1 (07:16):
One of the things it's interesting is we're talking this week, Tracy.
It's always fascinating some of the different the different conversations
we have in different strategies. Earlier this month, I remember
talking with a couple of folks about about home repairs,
and the word value kept coming up, and the importance of,
you know, is what's your return on that? And you
know the importance of you know, sometimes the things that

(07:38):
are less glamorous are way more valuable overall, things like
roofs and gutters and you know, those kinds of things.
As we as we're talking this morning about about different
types of strategy and the value is everybody wants to
you know, we want to pay our fair share, and
we want to do that, but we want to make
sure that when it comes to what we're paying, we're
getting I guess I don't know if the word value

(07:59):
is exactly right for this, but we want to make
sure that we're taking advantage of and getting every opportunity
afforded to us. So let's kind of get an example.

Speaker 3 (08:06):
Let's let me just.

Speaker 2 (08:08):
Add to that. It's not also always about trying to
mitigate the taxes. Although everyone puts that the tax that's true.
That's true too, But how are you going to use
the dollars and when do you need to use those
dollars and what kind of distribution are you looking at?
And you know, sometimes a brokerage account actually makes more sense,
maybe not in a ROTH. I mean Roth kind of

(08:28):
always trumps everything but you know, it might make more
sense to do a brokerage account than trying to maximize
your for one k And everyone's like, what are you sure?
You know what I mean, you always want to do
up to the match, but there are reasons why you
do a brokerage account over a pre tax vehicle, and
it just depends on how are you going to use
the dollars and what does that look like. I've had

(08:48):
I have people that are like just about to retire
and they you know, maybe they're on the young side,
under fifty nine and a half, and then they're like,
I'm like, well, try to build up your savings, like
stop adding my your four one k right now. You
know it's like oh really, you know. So it's things
like that, but it's again looking at the tax consequences

(09:09):
now and maybe even you know, midlife later life in
retirement and taking look what is the best. So it's
kind of how you use the assets.

Speaker 1 (09:17):
As well as really reinforces, you know, having a plan
and working with somebody on a plan as well and
thinking about something. You know, a lot of this stuff
that we don't think about. Let's kind of break down
some maybe a little bit of an example for maybe
folks who are maybe mid career savers and kind of
a breakdown for them. Tracy.

Speaker 2 (09:33):
Yeah, So a good example in this article is that
you know, mid career savers who put all their money
in the traditional area for one k might end up
with out easy access for cash for emergencies or even
some great opportunities that come along. So you know, sometimes
people focus. Also, I haven't seen it too much in
my career, to be honest, but I do. You know,

(09:55):
every once in a while, I get that anxious person
who says, you know, my baby is just and I
want to put money in my five two nine, And
it's like, that's awesome, you should do that, but how much? Right,
It's like, you don't want to oversave because that child
they might receive a large scholarship and you know they
don't need the dollars. And yet you could have used it, right,

(10:17):
You could have used it, and you could have grown
it even in a brokerage account, which would still been
a great option. So again, I think people, you know,
depending on where you're at. I've seen different things come
up for different ages, and one was like baby boomers.
This is a really common one where people say really diligently,

(10:38):
and yet they they might not have any access to
roth irays or even hsas for many decades, you know.
But then they've saved really well, and then they put
their money into four one K. That's great, it's you know,
still all good. But then the require minimum distributions have
to happen and from the iras and four one ks
and they go what I didn't expect. I thought I'd

(11:00):
be in a lower tax bracket. Probably not. I mean,
we don't know where tax brackets are going. But that's
even a separate issue. This issue is you know, what
are we going to do about these rates are actually
higher than the rates that we're that we're saving at.

Speaker 1 (11:15):
Portant of course to have a plan and have a strategy,
and of course we talk with certified financial planner Tracy Anton.
Always a great reminder to start that conversation. If you
want to learn more about Tracy and the team at
Tanton Investment House, all you gotta do head on over
the website. It's Tanton Investment House dot com. That's t
A N t O N investment House dot com. Tell
offhon number six oh eight five zero one fifteen forty nine.

(11:37):
That's six oh eight five zero one, fifteen forty nine.
We'll talk with Tracy about some tax strategies for iras.
We'll get those details next as straight talk from the
House with certified financial Planner Tracyanton continues right here thirteen
ten wu I b I. This is straight talk from
the House with certified financial planner Tracy Aton. Here on
thirteen ten WUI b A mentioned the website Tanton Investment

(11:59):
House dot com. If you get a chance to stop
by check it out. There is so much great information
provided by Tracy and our team on the website. Also
great information about Tanton Investment House as well as links
to this podcast and previous shows that all available to
you at Tanton Investment House dot com. Delpha number six
oh eight five zero one, fifteen forty nine. That's six
eight five zero one, fifteen forty nine. Talking about an

(12:21):
interesting article Tracy recently read about if you're using the
right tax breaks to boost your investment returns. And Tracy
just mentioned before the break you were going to talk
to us a little bit about some tax strategies when
it comes to iras well.

Speaker 2 (12:34):
Sean, I think everyone kind of recognizes that roth accounts
are considered the gold standard, and it is for several reasons. Basically,
withdrawals or tax free and account owners don't have to
take any distributions for them at their requirementimum distribution age
right and then roth contributions. They're obviously not tax deductible,
but they grow completely tax free. When you take the

(12:55):
money out, it's never taxed, so it's a pretty cool thing.
So in contrast, you have the traditional four one k
and ira which are tax deductible, but the withdrawals from
these accounts are taxed ordinary income, which can be as
high as thirty seven percent depending on you know what
bracket you're in. So again, these withdrawals might also affect
the other taxes you owe, like Social Security being taxed,

(13:18):
how much that's being taxed, or what your Medicare premiums are,
and that's why qcds qualified charitable distributions are helpful anyway.
Although you know it's possible to convert from a traditional
ARA to a wrath IR account, you'll pay the taxes
today on the amount you convert, So again, with traditional accounts,
you don't pay the taxes on growth and income until

(13:39):
you withdraw the money, whereas the wrath accounts grow and
you know, the tax free. The growth is tax free,
and income is tax free. So again, what's the what's better?

Speaker 3 (13:48):
Right?

Speaker 2 (13:48):
So again, wrath contributions and conversions you know, usually work
well if you expect your tax rates to be higher
in the future, making them a good choice for younger
savers for older savers. You know, I think you should
look at what bracket that you're in and look to
see what can I convert money. I see some people
in the twelve percent bracket. I'm like, let's do conversion,

(14:11):
you know, and then twenty two percent bracket. I mean
a lot of people think brackets are going up. We've talked,
you know, probably endlessly on that. But you know, something
to consider, right, you know, should we do in conversion
even in the twenty two twenty five We all know
tax brackets are going to go up if the Trump
tax laws sunset in twenty twenty five. So anyway, you know,

(14:34):
I'm a big advocate of it, but it's always taking
a look at it and saying, you know, can you
pay the tax, how does that affect other things that
are in your taxes?

Speaker 1 (14:42):
Great guidance from certified financial planner Tracy Anton right here
a thirteen ten. WIBA, don't forget about the website Tanton
investment House dot com. That's t A N t o
N investment house dot com. That's off number six oh
eight five zero one, fifteen forty nine. That's six oh
eight five zero one fifteen four nine. Let's talk about
some tax strategy then for folks that are that are

(15:02):
employing Tracy and what we're seeing there.

Speaker 2 (15:06):
So you know, there was a in this article it
says couple, and there was. They were from this place
Broken Aarrow, Oklahoma, which I kind of thought was a
cool name. And Jeffy was sixty four as a retired
police officer, and his wife, Donna Martin, who was sixty two,
and she works at a medical testing firm. And they
found out that they once they had to start taking

(15:26):
their requirementimum distributions, that they were going to be in
the thirty two percent tax bracket at age seventy five
because they had their arm DS, they had their so security,
and they had the pensions. So again this is much
higher than their current rate that they had in the article,
which was twenty two. So jeff said, I never realized
this could happen until I saw the big picture. So
I love that statement because it's like, that's what you

(15:49):
need to do. You have to see your financial plan
and say where am I going to be when I
retire and what do those dollars look like? So their
plan now is they plan to convert seventy percent of
their IRA to a writh iray before taking the required payouts,
and a tax would be due on conversion, but they'll
stay apparently in the twenty four percent tax bracket after

(16:09):
twenty twenty five. So their advisor, Terylan Brownfield, she said
that these moves could save more than a million dollars
in taxes over their lifetime. So that's a big number, right,
So the only little tiny hole I would maybe look
at there it would be I love the idea, and
that's what we do as well. But you know, when
you have to pay your taxes upfront, you know, our

(16:32):
living our life right when we can do you know
the go go years where we could use the money
the most? Do you really want to pay Uncle Sam
a lot of money? And does that affect your current lifestyle?
So that would be only one question about that, So
you know these again, there's no right answer. I don't
think there's a right answer here. It's nice for her beneficiaries,

(16:54):
it's nice for the estate of the family, but does
it make sense over time?

Speaker 1 (16:58):
Great to talk about and think about the big picture
as we talk with certified financial planner Tracy Anton right
here on thirteen ten WIBA and Tracy, as we break
down some of these options, are there other accounts out
there that may be good choices or good options for folks?

Speaker 2 (17:11):
Well. Another great option is a health savings account, which
you have to pair with a high deductible health insurance plan,
but for a family, you can contribute up to ten
three hundred dollars in twenty twenty four, and these contributions
shown are tax deductible and the withdrawals for eligible medical
expenses are tax free. Additionally, any growth and income from
this account are also tax free when used for eligible expenses,

(17:33):
so this makes the HSA kind of what they call
a triple tax advantage. So there are really some nice
benefits there, and savers who pay for unreimbursed medical expenses
out of pocket can keep their receipts apparently and let
their HSA grow later on, even years down the road,
they can request a tax ree disbursement based on those
previous expenses from years ago. So again there's no tax

(17:57):
or penalties on these withdrawals, making the HI say an
excellent option for rainy day funds, but also way more
than that, I'd say it's really a great option.

Speaker 1 (18:06):
What a great day. Yeah, what a great tool. There's
something definitely you want to look into. As we talk
with certified financial planner Tracy Andton. Speaking of looking into things,
you need to check out the website Tanton Investment House
dot com. It's t A N T O N investment
House dot com. Great website to learn more about Tracy
and the team. Also, you want to listen back or
share this podcast, all available to you at Tanton Investmenthouse

(18:27):
dot com. So, Tracy, how are five to two nine's
tax sheltered?

Speaker 2 (18:30):
Well, the five to nine is basically put people you
put those dollars in there so that their children right
can receive college benefit there, so they're not taxed if
they're used for education purposes. And I would only concern
there would be just be concerned about how many dollars

(18:52):
you you know, don't over contribute because if the child
gets a scholarship, but five to nine's, you know, it's
it's a great option, and I I would encourage people
to do it. It's really a nice option.

Speaker 1 (19:03):
It's interesting too when you mentioned you know available as
to additionally, you know they can switch to another family
member other things like that.

Speaker 2 (19:10):
Yeah, absolutely, I mean that's a great point.

Speaker 1 (19:13):
Yeah, is there Tracy, As we kind of talked this morning,
we certified financial planner Tracy Anton right here in thirteen
ten WIBA anything else as far as just different accounts
and things that folks need to know here.

Speaker 2 (19:22):
Yeah, I love the last part. We saved the best
for last year. I think the tax of the account
which most savers have at banks or brokerage accounts, and
despite the name, these accounts offer really excellent tax benefits,
making them a valuable part of the financial strategy. So
in these accounts, investments are made up of after tax dollars,
but you typically don't pay taxes on the growth until

(19:45):
you sell an asset. Now they create a dividend or
capital gain like the mutual fund companies if they throw
it off. You could do exchange traded funds. We'll talk
about those in another program, but that's also a great option.
But long term capital gains, they're text at rates that
are much lower than ordinary income brackets. So for a
lot of people I see, you know they're capital gains,

(20:06):
they're either zero, fifteen or twenty percent, and a lot
of them it's really fifteen percent, So they might be
in the twenty two twenty four percent bracket or higher,
but their dividends are and long term, long term capital
gains and dividends are being taxed at fifteen percent, so
that's pretty cool. So and again you could take your

(20:26):
capital losses that offset the gains in that kind of account,
and we do that at the investment house. We do
tax lost harvesting before year end for all clients. It's
pretty a neat option. So again I would encourage people.
If you don't have a brokerage account, you might want
to have one, especially as what we're seeing here is
if interest rates come down, if you have too much

(20:48):
in your bank account, you might want to get involved
in some stocks. You could do a stock mutual fund
stock or a stock and bond if you want to
be more conservative. But these these type accounts are really
great because again getting lower capital gains rates. It's cash,
it's liquid, you can use it anytime, you don't have
to wait till retirement and you can use it in
retirement and for your children. There's a step up basis.

(21:11):
So you know what if when when you pass away
there's five hundred thousand a million bucks in there and
you know half a million was was gain, well, guess
what you know none of that. Nobody pays to any
taxes on that. It's stepped up in basis. So it's
way cool. It's way great, and I think I don't
see enough people having brokeras accounts.

Speaker 3 (21:32):
That is. That is great advice. That's a strong one
to end on there. Foot up bump. Yes. Certified financial
planner Tracy Anton, of course comes to us from Tanton
Investment House, the website Tanton investment House dot com. That's
t A N t O N investment House dot com
and the telephone number six oh eight five zero one,

(21:52):
fifteen forty nine. That's six oh eight five zero one,
fifteen forty nine. Tracy. It's always great saying you, always
great talking with you. You enjoy this beautiful day.

Speaker 2 (22:00):
Thank you, Sean, you too,