Marc Killian  00:19

Hey everybody, welcome into the podcast. Thanks for hanging out with Jude and I as we talked. In fact, and I as we talk investing, finance and retirement and Roth guy, Mr. Wilson, how you doing this week?

 

Jude Wilson  00:27

I’m ready to rock and roll. Having a great week. Good.

 

Marc Killian  00:30

That’s awesome to hear my friend. Hey, look the year’s winding down on us quick like so we are into December with this episode, and so do we have time? Completely ran by. So, flick, right? Flew by. Yeah, flew by. So do we? Do we have time to do some conversions? I mean, what’s the deadline on this thing?

 

Jude Wilson  00:47

Right? We’ve got a little bit of time, but not a whole lot. You really want to get this done prior to the last week in December, because sometimes things happen when you’re talking to your custodian who’s actually holds your IRA or your or your 401, K, your traditional 401, K. And if you want to do a conversion, you want to be proactive instead of reactive.

 

Marc Killian  01:12

Yeah, I meant, what’s the deadline? The 31st but let’s first is the deadline? Yes, Christmas week. Who’s working, right? So get on it quickly. So let’s we got a couple slides to share here. Jude, so talk to us about kind of why this is something you may want to consider here. As the year is quickly winding down, we’ll pull up this first one here. Look at that lovely debt.

 

Jude Wilson  01:33

Well, look, I want to build a case to our listeners. Okay, how really important this is, and so I’m going to try to do my best Lincoln Lawyer impersonation and make the case for doing Roth conversions sooner rather than later. All right, if you’re, if you’re looking at the national debt right now, and this was taken a few months ago, this number is much higher now than it was just a few months ago, over $37 trillion so if you’re feeling really patriotic, if each one of us, including the child that was born this morning, decided to write a check to pay off the national debt, we each have to write a check for over $108,000 now, if We just limit that to people who actually filed a tax return last year. That number would be $323,000 so Mark, how patriotic Are you feeling? Are you ready to break out the checkbook right now?

 

Marc Killian  02:33

That makes you kind of go. That makes your eyes bug out

 

Jude Wilson  02:36

absolutely and and here’s the second part of my rationale, okay, taxes are on sale right now, and I know nobody likes to pay taxes, but if you look at the historic tax rates since the inception of our country, right the numbers have been outrageous as far as the highest marginal tax bracket. So if you look at the chart, you can see at one point we 94% was the highest marginal tax bracket. Now we had done an episode A while back with the with the former US Comptroller, who said that he believes that tax rates will double from where where we’re at now. Even if they were to double from where we’re at now, it’d still be lower than the highest marginal tax bracket that we’ve had historically.

 

Marc Killian  03:29

Yeah, so it’s wild that that was two years now. Granted, it was right after World War Two and rebuilding and all that stuff. But I mean, you look at that right 1940 to basically 19, well, no, it’s in the 92% all the way through 1962 91% so 20 years Jude the top rate was like between 80 and 91% that’s pretty hefty.

 

Jude Wilson  03:50

Yeah, not to be fair, like you said, there were a lot more deductions that were available back then, and different ways to reduce the actual tax liability that you had, right? But I wanted to show these the highest marginal bracket, because my argument is that taxes are on sale even if you include inflation. So let’s look back at 1981 even if you include inflation. Let’s say you made $41,508 you would be in the 43% tax bracket back in 1981 now, if you add inflation, those same dollars would be about 147,000 and at $147,000 today, you would be in the 22% bracket. Wow.

 

Speaker 1  04:42

So, okay, so you would have been in the 40% bracket in 81 making, obviously, $81 like in $81 and then that’s so you’re actually in a lower bracket today. So yeah, they definitely, you can see where they they are on sale, and we’ve known that for a couple of years now.

 

Jude Wilson  04:57

Yeah, this is, you know, I. Said before, my mom was an amazing sophomore, and she loved Kmart. This is the blue light special of taxes right now, right? And the argument I hear sometimes people say, Well, you know, the big, beautiful bill was passed, and these brackets will remain permanent. I mean, we can look at our tax cup slide, and a lot of people feel that these brackets will remain permanent, but what we’re not addressing is what I call legislative risk. If the administration changes, if Congress flips, there’s no telling what will happen in the future. And so these brackets that you’re seeing right now are as good as long as the current power structure is in office.

 

Marc Killian  05:44

Yeah, now, and, you know, unfortunately they they’re all too busy acting like children to really, to really take care of what they should be taking care of. But it’s certainly interesting. Jude, so you kind of think about, you know, okay, how do I want to be effective as inefficient as possible. And we did extend the tcja, so you do have it’s not just this year. Luckily, that was going to be the case, which we’ve talked about in past episodes. They did extend it, so you could be doing some conversions next year, but at least for this calendar year, time is running out. We wanted to talk about that again, in case that’s something that should be maybe potentially on your radar. But you could also be doing this in the next year, and rothing over time as well. Exactly.

 

Jude Wilson  06:23

Rothing over time is such a powerful strategy, meaning not converting everything in one year. And so speaking of strategies, and there’s so many things that go into doing a Roth conversion correctly, and if you don’t do it correctly, it could cause a domino effect that could actually cost you more than what you originally believed that you were going to pay in the conversion. So again, I when I talk about Roth conversions, I highly stress this. Talk to your tax professional, talk to your financial advisor before just converting at willy nilly, if you will. And so one of the strategies that I want to talk about, because there’s so many and we just don’t have the time to cover it in this episode. When you look at our tax cup, okay, right here, many people believe that when they look at the tax bracket that whatever is showing in that income range is what they’re paying taxes on. Yeah,

 

Marc Killian  07:27

you know, Jude, as you were talking right there, and I’m looking at our tax cup, it got me thinking about the fact that people don’t often realize that every dollar they make is not hit at, let’s say 22% let’s just, like, use that as an example, right? Because you’re Yeah, because you’re like, you’re filling up the cup Exactly. Can you explain that for folks?

 

Jude Wilson  07:46

That’s why I love this particular slide, because it really brings the visual and connects the dots. And so when you think about your dollars, think about it like pouring money into a cup, or liquid into a cup, the first set of dollars are at that bottom bracket of 10% and every dollar above 20, 23,008, 50, then is taxed at the next level, right? And so one of the strategies that we often talk to clients about is what we call tax bracket bumping, meaning, if you you want to do conversions, maybe up to the top of the bracket that you’re currently in. Technically, if I’ve already taken my standard deduction, I’ve taken that off the table, and I’m still, I still make $50,000 a year of taxable income. Technically, that money, I’m in the 12% marginal bracket for everything above $23,000 Yeah, but that means that I have enough room between that 50,000 and that 96,000 practical about 46,000 to convert and still stay in the 12%

 

Marc Killian  09:08

not bump yourself, right, exactly. And I think a lot of people find themselves in the 22% bracket, right? So they’re between that 96 950, and that 206,700 so again, you’re just making sure that if you’re doing conversions, you’re not bumping yourself, or at least if you are, you’re not. It’s not like you’re paying the money on the entire amount, right? You’re only paying for the amount that you’re heading over exactly.

 

Jude Wilson  09:32

And when we illustrate this for for clients, and we show them now, they’re really aware of what the cost is going to be keep on coming back to taxes on sale. Well, you got to pay the sales price and the sales price, yeah, if you want to stay in within a certain bracket, you have to understand how much room you have within that bracket. There’s a couple of big jumps. If you look at the tax cuts between 12 and 22 and. Other big jump between 24 and 32 so when we’re strategically doing Roth conversions for clients, we’re interacting with the client and saying, Hey, we need to make sure that if we’re going to do these Roth conversions, either we stay away from the biggest big jump, or if you do want to take that jump, you realize that it’s going to put you in a much higher bracket. And if you’re willing to pay that cost, you know, ahead of time. Yeah,

 

Marc Killian  10:29

and working with professionals, man, working with a financial team, you know, is going to be beneficial. Because, again, this is pretty good stuff when you think about this. Dude, we talked about that in some earlier episodes when we did some of the the Oba breakdown. It’s kind of fun to say, but you know, 31,000 plus 3200 if you’re over the age of 65 plus the additional bonus that’s going to be around for just a couple of years, some pretty big deductions that can keep you in a lower tax bracket to maybe make, you know, justifying some Roth conversions on the radar. So you know, right time to do it, right now is the time to do a blue light special,

 

Jude Wilson  11:04

right there we go, get the cart. Would make my mom

 

Marc Killian  11:07

proud. Hey, man, we used to love those things too. You get the cart, and it had a little blue light on the top, and that was good stuff. So, all right, any final thoughts, my friend? Before we wrap up,

 

Jude Wilson  11:17

just please, please, please again, see a financial professional before enacting your Roth conversion, because there’s so many different strategies out there that can make it so efficient for you and avoid traps and bombs that you may fall into, speaking of bombs, go to the tax bomb calculator to see what a Roth Conversion could possibly how Roth conversion could possibly benefit you? Yeah, and

 

Marc Killian  11:42

we’ll have a link for that right in the description here at the end of the video, or the whole time. You can click it on anytime you want to. But the tax bomb.com that is the tax bomb.com just click on that and go check that out and reach out to Jude and let them know you need some help. They’ll get you set up onto the calendar for a time that’s convenient for you. Jen and Sam and Jude and the whole team there are just waiting to kind of help you kind of put together your strategy and your buckets so that you can get yourself set in retirement. So again, click on the links below, and don’t forget to subscribe to us on Apple Spotify, and, of course, right here on YouTube, and we will see you next time. For Jude Wilson, I’m your host, Mark Killian, we’ll catch you later on. The Roth guy, you

 

Walter Storholt  12:23

i financial planning and advisory services are offered through prosperity Capital Advisors, PCA, an SEC registered investment advisor with its principal place of business in the state of Ohio, centrist financial strategies and PCA are separate non affiliated entities. PCA does not provide tax or legal advice, insurance and tax services offered through centrist financial strategies are not affiliated with PCA. Information received from this podcast should not be viewed as individual investment advice. Product discussions and illustrations are hypothetical in nature and will vary based on many factors, including, but not limited to age health product insurance carrier and product design, you should consult the insurance carrier website and policy for detailed information, for information pertaining to the registration status of PCA, please contact the firm or refer to the Investment Advisor public disclosure website, www.advisorinfo.sec.gov, for additional information about PCA, including fees and services send for our disclosure statement as set forth on Form ADV from PCA using the contact information herein, please read the disclosure statement carefully before you invest or send money. You.