Marc Killian  00:30

That’s right. I love some turkey time, right? So you know, if people get busy at the end of the year, I get it, right? You guys get swamped and all that stuff. So let’s just try to give some folks a few things to think about. You know, as the year’s winding down from a tax planning, you know, checklist standpoint, or year end planning, let’s just kind of start with assets, I guess, and debt. So, you know, unrealized investment losses, you know, things like that. Like at the end of the year, we start thinking about tax loss harvesting, right, right? That kind of conversation. Can you kind of break that down a little bit for folks? And what is that and what is that and why is it important?

 

Jude Wilson  01:03

Yeah, some people have never even heard of the term, and it’s something that we use quite often here at the firm, because we believe in tax Alpha. You know what? How can we better your return by being tax smart on your portfolio? That’s kind of a easy definition of tax alpha, and one of the strategies that’s often used is looking at your portfolio for losses that you haven’t taken. Maybe you bought something a year ago and it hasn’t performed, but the rest of your portfolio is killing it, you know, right?

 

Marc Killian  01:37

Yeah, this year’s been great. Obviously, it’s been pretty good since the election, you know? I mean, it leveled off, but it started it was pretty strong for a little bit. So you could have some winners, but you could have some losers, and that’s kind of the point, right? Exactly.

 

Jude Wilson  01:49

Very rarely do I see a portfolio where everything in there is killing it, but this year may be one of those years, but I’m sure if, if you’re working with a financial advisor or portfolio manager, you might be able to find something in your portfolio that just isn’t doing well. Now, some people might tell you to hold on to that and and and buy hold strategy is is really something that has worked, but there may be an opportunity to to sell that item and and use the loss in different ways to offset, right? You can use that loss to offset against some of the gains that you’ve made. But here’s a here’s a pro tip that we’ve done for several clients. You know, I’m called the Roth guy, so we’re always looking for opportunities for conversions. Now, you can sell up to $3,000 of losses and apply it to ordinary income. So if we’re doing a Roth conversion, we might look at selling some losses and taking that to apply against converting from the always taxable funnel. We’ve talked about that before, the three different funnels. Your IRA, that’s money that’s going to be taxable in the future, and we want to move it to the never taxable tax advantage funnel. Well, there’s a cost for that. Any money you pull out is taxable income for that year. What if we applied up to $3,000 of losses toward that conversion? That’s

 

Marc Killian  03:19

a great point, right? That’s a little little extra tip there. So something to think about, something to talk with your financial professional about, and, you know, I was thinking about, like, the tax laws harvesting. Jude, I hear people sometimes they’ll be like, well, listen, I really like, I’ve got this, it was a dog this year, but I really, like, believe in the company, or I really like it, or whatever. I don’t want to get rid of it. Well, you can also, you can sell it, right? And you can buy it back, but you do have to observe the wash sale rule, right? So you have to wait, what? 3130 30 days, right? 30 days. One days, exactly, right. So, I mean, so if you really like it, it doesn’t mean you have to get rid of it forever. It just might, hey, again, be tax efficient, right?

 

Jude Wilson  03:56

So you may have a company that you really love and you think long term is going to do well, but it may be having a rough year. So it may be an opportunity to take the loss help yourself, tax wise, but if you believe in it long term, wait the 30 days 31 and get back into it. So that’s you can, you know, recognize that loss, and who knows, you may be buying it back at a bargain. So you know that Kmart blue light special that I always talk about, you know, if you really believe in it, why not buy it at a bargain? Yeah,

 

Marc Killian  04:28

when you’re a kid and used to go to Kmart, it was awesome, right? Especially

 

04:33

blue light, and it happened

 

Marc Killian  04:35

in the toy department, we were all excited about it, right?

 

Jude Wilson  04:39

There might be a few people that don’t know what we’re talking about. But if you’re of a certain age, you know, you remember the blue lights, if you’re

 

Marc Killian  04:46

checking out this, this podcast, there’s a good chance you probably know what it’s about, right? But if not, that’s a good too, because then it means you’re thinking about this at a younger age, and that’s good stuff. So all right, I’m gonna jump around on our list a little bit here, ju but let’s talk about because you mentioned, you know. Off, right? And we just recently talked about RMDs and stuff, and we can, I’m sure we’ll touch on that again. But let’s talk about from a tax planning issue kind of thing, again, that concept, do you expect an income going into the new year? Now, some people, yes, some companies are looking good. Others are not, right. So it could be a flat year for a lot of people. But if you are expecting that, is that something to think about, as far as your contributions, right, making some changes as this year’s winding down?

 

Jude Wilson  05:27

Yeah, this is one that we, we strongly evaluate for our clients who are who are still working and getting, you know, prepared to retire in years in the future is, are you maximizing the contributions that you could put into your 401, K, 403, B, or whatever retirement plan that you have at work. And so sometimes people you know may get a year end bonus. They’ve been taking a steady contributing a steady amount all along the year. But then, oh my gosh, I got a windfall. I got this bonus, and they don’t think about, Hey, maybe I can use part of that bonus to maximize my contribution for the year. So that’s very important that people think about. And you can go

 

Marc Killian  06:11

either way, right, if you’re expecting to, you know, have lower wages next year, or something like that, right? Either way, you could kind of look at it and, you know, we haven’t talked to you since, really, since the election. But, you know, whatever your kind of forecasting thought outlook is going into the new year, you know, there’s a lot of possible changes coming. You know, there could be the tcja could now be getting extended. We don’t know yet again, Mr. Speculation, but with, obviously, with the new administration coming in, since it was their administration to begin with, there’s a good chance that they’re going to want to want to try to keep that, and that could be a great thing from a planning standpoint, because if they do extend it for two years, four years, seven years, make it permanent, whatever they you know, may, may do that really kind of gives you a longer timetable now for Roth conversions, right? Because that window was getting short with it only being about a year left. Absolutely,

 

Jude Wilson  06:59

you know, as well as I do, we’ve been banging the drum. I’ve been like, you know, Paul Revere, saying the taxes are coming. The taxes are coming. And it’s been all around the tax cut and Jobs Act expiring at the end of 2025 and as you said, there’s a strong likelihood that it may get extended because of the administration that’s in office right now, either way, yeah, yeah, coming in, yeah, but either way, it is something that we really need to focus on and be proactive. Because just like the analogy we used before the blue light special that blue light didn’t stay on forever, and I highly doubt that the tax cut and Jobs Act will be voted into law is possible, but the question is, how probable it is, and if it’s not, if it’s not, then we need to take advantage of the tax sale and make sure that we’re planning for that. Yeah, and it’s

 

Marc Killian  07:52

totally speculative, right? But obviously, with the, you know, with the Republicans having control of all three, basically, there’s a likelihood that, if nothing else. They at least extend it while they’re figuring out the multitude of other things they’re going to want to try to do. And we may have an answer to that in the first 100 days, and which, you know, we’ll be talking about things probably Fast and Furious in the new year. So make sure you subscribe to the podcast for sure, because I’m sure there’s going to be a lot of changes coming, you know, with the new administration in the first 100 days, as usual, right? So, yeah, something to think about there, all right, so let’s kind of keep going a little bit. What about tax brackets, right? Are you on the threshold? Is there something to think about from that standpoint? Because if they don’t make any changes, well, then you’ve only got about a year left under the current brackets. You know the width of those, right? So that could change. Yeah,

 

Jude Wilson  08:39

man. That is a perfect topic to discuss, because when we look at the brackets, in fact, in our firm, we like to use visuals. So we use what’s called, what we call a tax cup that shows each bracket and the amount of income that can be realized in that bracket before you stair step into the next bracket. So there’s a theory that we use our strategy we call bracket bumping. How do we use the maximum of that bracket, that level to our advantage, before going into the next bracket where we’re taxed even higher? So, you know, think about it if, if you’re looking at your brackets and you’re solidly within, let’s say, the 22% bracket, and you’ve got money before, or income that you can realize before getting into the next bracket. One of the things you might want to consider is doing a Roth conversion up to the top of that bracket, so you don’t trigger the next bracket. You you’re in that same range, and you’re, you’re converting money at that at that tax rates,

 

Marc Killian  09:45

yeah, yeah. And it’s funny, because a lot of us, we don’t really understand. We think, well, we’re in the 20, you know, 2% tax bracket, so every dollar we make is taxed at that number. And it’s not right, right? So it’s, it’s incremental as it moves three. So you can be a little bit more efficient, obviously, working with a professional who understands that can help you be a bit more efficient in that regard, because it does have that laddering stair step kind of thing. Yeah.

 

Jude Wilson  10:10

And bracket bumping is something I personally believe you really need to work with a professional on that, because if done incorrectly, it could cause a domino effect that is against what you’re trying to do. It could actually cost you more money. So the concept works, but you gotta implement it correctly. Yeah, well,

 

Marc Killian  10:29

all right, we’re talking about end of year and talking about being tax efficient. So let’s remind folks about possibly, if you’re charitably inclined, which during this time of year, many people start to feel that kind of pull, maybe you’re that way all year long. That’s fantastic. But you know, you think, hey, I want to, you know, do something with charity. I want to be helpful. Well, why not be helpful, but also be efficient, right? So you could look at maybe doing a QCD if, especially if you’re already at RMD age, that could be something worthwhile to think about.

 

Jude Wilson  10:57

Qcds are definitely a strategy that if you’re at RMD age, you should be considering a qualified charitable distribution now, many of us make donations to our church or other charities that we love, and we’re usually just writing a check out of our checking account for that well, that’s after tax dollars that you’re writing that check for. If you’re at RMD age, you can send money directly from your IRA to the charity, and that will avoid those dollars being taxed, yeah. So satisfied, almost like a Yeah, yeah. It satisfies the RMD, and it’s more tax efficient to do it that way. You’re already sending money to the charity, yeah? Why not get a little bit of a tax break for doing it, yeah,

 

Marc Killian  11:41

and you can kind of break it down like so if your RMD that you have to pull for this year, let’s say it’s $10,000 we’ll just use an easy number. And you’re thinking, Well, you know, I’m charitably inclined, but I’m not that charitably inclined. Well, that’s okay. You can send a portion of it, right, Jude, and it still satisfies that dollar amount, right? So then it does help you from a tax efficiency standpoint. Now, it has to be to a qualified one. That’s the point, right? It can’t be to like, you know, Bob’s, you know, charity, unless Bob, unless Bob has the proper forms in place, right? Can’t be to your favorite, you know, podcast host or anything, you know, it has to be to the right thing. But that’s a great way to help, yeah, wink, wink. But that’s a great way to also, you know, kind of, kind of take care of the arm, because so many people do come in and see professionals like yourself, and they say, you know, I hate having to pull these RMDs because we’re in good shape. You’ve built a good plan. We’re rocking and rolling, but I have to do it, but I don’t need the funds. What’s, you know, what can we do with this? And that’s a great way to think

 

Jude Wilson  12:37

about, absolutely, a wonderful strategy, and we often employed here at the firm. All right,

 

Marc Killian  12:41

let’s see what else we got here. We can kind of talk about for year end items. Let’s see. Well, okay, you know, let’s talk about saving more, right? So just cash flow, end of the year, it’s easy to want to go out and spend a bit more, you know, holiday season, all that kind of stuff. Any kind of thoughts there, anything we could should think about maximizing. Maybe you got an HSA, right? Maybe you could kind of fund that. I

 

Jude Wilson  13:04

think of two things when I think of saving at the end of the year. One, I think of the HSA because when you look at our tax efficient funnels, the diagram that we share with clients showing the three ways that money is generally taxed, the HSA is the only thing that gives you the triple tax benefit, you get a deduction for the money that you put in. It’s tax sheltered while it’s there, and distributions come out tax free. So if you’re one of those lucky people that happen to have an HSA funding, it to the max may make a lot of sense, depending on your situation, of course. So that’s one thing that we usually at our firm. We go through our checklist, and we want to make sure people are doing it, who have that available now. The other thing I think about year end savings is that many of our clients who are very successful are getting a bonus around the end of the year. And when you look at our financial planning strategy. We talk about the buckets all the time, the now, the soon and the later. Well, the now bucket is basically the income that you make for the year and any money that you have readily accessible, checking, savings, CDs, those type of things. And I think it’s a great opportunity when you look at the end of the year to shore up that now bucket, because what you want there is sleep at night, money, if something were to hit the fan, that you can get to that and not have to borrow money to take care of it. But you also want that now bucket to be shared up for opportunities. And there may be a lot of opportunities coming in 2025 very

 

Marc Killian  14:38

true. You know, we’ll go back to the conversation about new administration, new administration coming in, excuse me, you know, and the market’s been doing well for a while. You know, we’re going to see some Blips. We’re going to see some bumps. If they’re making some changes, you know, and doing some tariffs, or doing, you know, keeping the tariffs, or doing more whatever, whatever happens, you know, go on. You know, the market’s going to kind of forward. Look at that as. Always, and if it does go down, well, don’t necessarily get too bummed about that, obviously, because, you know, your time horizon plays into this dude as always. But that’s a great opportunity to do what we’re supposed to do, which is buy low, right? So if the market does dip and you’re still contributing, or you still have some dry powder, which is what you were just talking about, shoring up some of those funds, well then you can maybe take advantage of that by, you know, buying on the low, which, again, the market always returns. And that’s in theory, that’s kind of always been the case. It’s all about time horizon. So you just want to make sure that you’re planning efficiently and you’re working with your advisor for that, you know, soon, money that later, money, so on and so forth. It’s

 

Jude Wilson  15:38

so funny. Whenever I do my seminars, I always say, How many people have heard buy low, sell high. Everyone raises your hands. Exactly. The market is one of those few places that when things are on sale, people run the opposite direction, crazy. So just, just make sure your now bucket is is fortified, and you’re you’re ready to take opportunities when they present themselves. Anything

 

Marc Killian  16:02

you want to add some stuff. I was kind of riffing some things off the top of my head from this list we have, but any other items you’d like to kind of toss out there? Jude,

 

Jude Wilson  16:10

so I don’t want to give away everything that’s on the checklist. I want you to be able to go download it. But I’ll give you one more bonus. We’ve been talking about the new administration and their first time at bat. One of the things that happened in the tax cut and Jobs Act was the standard deduction was raised, and then people appreciated that, but many people lost the ability to itemize because the standard deduction was so high. So one thing that we talk about at our firm is bunching our deductions for one calendar year, so you can get all the deductions that you can that you may take over two years, bunching it in one year to be able to itemize. Now you might not have the ability to do that. You should talk to your tax professional, but sometimes that will make a difference, particularly if you have a donor advised fund, and you’re making contributions to that donor advised fund, putting a lot of money in that fund to make charitable contributions in future years. So it’s a, it’s a good strategy, but it’s one that that really needs some professional help for you to walk through. Yeah,

 

Marc Killian  17:15

I mean, in all this stuff, you want to make sure you’re checking with your financial advisor, your CPA, you want to, I always want to bounce that off. Hopefully you’ve got a financial team in place. And to that point, you know, I think they realized that there was a lot of good stuff in the tcja, which I think is why, if they do make changes, and there’s some revisions that they’d like to put in, one of that is, is changing the salt, the salt tax, again, right? Making that itemizable, if they do that, so that, which is state and local taxes, for folks who aren’t familiar with that. So there could be some good changes coming to that as well. Again, we’ll have to watch and see, but we’ll wrap it up with this and say, as always, please, please, please check with a qualified professional make sure you’re talking with your financial team, and if you don’t have one, well, reach out to Jude and get on their calendar. Even though it’s the end of the year. Don’t let that be a reason not to take a little action. You can find all the links in the information below in the show note details, so make sure you go to the website and get some time have a conversation, whatever it is that you need to do, and subscribe to us on Apple or Spotify or YouTube, hit that little thumbs up and a little subscribe button so you catch new episodes when they come out. And we’ll be back with more before the year ends, as well as into the new year. So we’ll see you next time here on the Roth guy, June, have a happy Thanksgiving, and don’t don’t forget your stretchy

 

Jude Wilson  18:26

pants. I’m gonna be eating some turkey and watching some football. There we go.

 

Marc Killian  18:30

That’s what we gotta do. We’ll see you next time here on the Roth guy,

 

Walter Storholt  18:35

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