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Announcer: It is time now on KROS for financial focus, brought to you by NelsonCorp Wealth Management, the opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly, registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker dealer, a member of FINRA, SIPC, Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated.
Cambridge does not offer tax advice, now here is today’s financial focus program.
Nate Kreinbrink: Good Morning and welcome to this week’s financial focus, brought to you each and every Wednesday morning right here on KROS. Well this is Nate [James 00:00:52] joined today by NelsonCorp Tax Solution, Andy Fergurson-
Andy Fergurson: Good Morning.
Nate Kreinbrink: Coming on today again and I know we are going to get into some tax planning things, a little here, as we always do when Andy joins us, but I think that they are all key, aspects of the overall process and things that [inaudible 00:01:11] kind of have some type of impact among everybody, that is out there listening to, so another crazy weather day out there again-
Andy Fergurson: I know feels like-
Nate Kreinbrink: Last night with-
Andy Fergurson: Going to rain every day.
Nate Kreinbrink: The forecast hasn’t changed much, which has not been a good thing [crosstalk 00:01:26]
Andy Fergurson: I remember moving into the subtropical rainforest.
Nate Kreinbrink: It’s been crazy, it’s great for that grass growing and flowers growing, you don’t have to spend time watering flowers and anything … but I know, trying to get the grass cutting in between mowings has been quiet difficult
Andy Fergurson: Yeah.
Nate Kreinbrink: Trying to get baseball games, outside activities-
Andy Fergurson: Yeah …
Nate Kreinbrink: Coming into, kids last week of school here. I mean just has been crazy, maybe that’s what it is waiting for-
Andy Fergurson: Yeah
Nate Kreinbrink: All the kids to get out of school and then it is just going to turn 95
Andy Fergurson: Awesome, that would be great. Then it will be muggy.
Nate Kreinbrink: Yeah
Andy Fergurson: I can’t keep [straight 00:01:58],the soccer games and the rescheduled baseball games and practices, everything is all over the place, right now.
Nate Kreinbrink: It is pretty crazy, I know memorial day weekend … turned out to be better I think that what was-
Andy Fergurson: Yeah it was good
Nate Kreinbrink: Forecasted, I know coming into the weekend was supposed to be not very good, but was able to get outside and enjoy some … playing baseball with the boys-
Andy Fergurson: Yeah.
Nate Kreinbrink: And things like that out there, for that one.
Andy Fergurson: Yes, speaking of baseball I saw that the Lumber Kings got a new stadium name.
Nate Kreinbrink: It did, big news kind of hit a day or so ago as far as NelsonCorp field down there, which will be a great partnership, I know the ball club has been around in the community for many, many generations and will be good for us to partner with them, help support them in the community something that everyone in the community can go and enjoy. I know it says a lot, for a community our size to be able to, continue to support a professional minor league baseball team.
Andy Fergurson: Yeah.
Nate Kreinbrink: There is a lot of markets I know, that are a lot larger than Clinton, that simply couldn’t support it. So, I know for professional baseball, minor league baseball at this level, single A ball, but the quality of baseball that we have right here in our own backyard seen some of these players, come here, develop and then see what they go on to do is pretty astonishing and again anything that we can do, to help things like this in the community, I think is a great thing and looking forward to this partnership.
Andy Fergurson: Yeah I love seeing local organizations, you know, take care of local-
Nate Kreinbrink: Mm-hmm (affirmative)
Andy Fergurson: Community thing. So that’s a ‘me’ thing, I was excited to see it when I say it.
Nate Kreinbrink: Happy Times, come down and enjoy it at the new NelsonCorp field, should be a good time, I know we are looking forward to getting down there and trying to juggle schedules and get down there a little more, but again great things, hopefully to come from that as far as moving forward. But, we do need to get into some financial topics today.
As I mentioned earlier, taxes and I know taxes is something that people view as, they turn the calendar over to a new year-
Andy Fergurson: Yeah
Nate Kreinbrink: And start getting those tax documents in the mail and then they setup that tax appointment, or they drop their tax things off to a tax preparer, they look at it and they view their success, or their failure I guess of their taxes on, whether they get a return back, or they have to pay money into the IRS.
Andy Fergurson: Sure, yeah. Everybody thinks of it as a first quarter event, right.
Nate Kreinbrink: Mm-hmm (affirmative)
Andy Fergurson: You get your tax stuff, you get it done and really you think about it, there is not a whole lot that we can do in the first quarter. We are talking about taxes and how we can impact or change the numbers or make things more beneficial for the tax payer. By the time we get to the first quarter, it’s too late.
Nate Kreinbrink: It’s done.
Andy Fergurson: There is not a lot that we can do there, so tax planning is something that needs to be done year around. It’s something that needs to be, considered and addressed as often as you can, to make sure that you end up in a premier, or a more advantageous tax position.
Nate Kreinbrink: Well I think that key there, is just what you said is the big difference between tax preparation and tax planning. I know tax preparation we view it as you are looking backwards, again when you are filing people’s taxes for the most part, you are just reporting numbers that have already happened [crosstalk 00:05:10].
Andy Fergurson: [It’s 00:05:11] a history report.
Nate Kreinbrink: Yeah, basically is what it is. Tax planning is looking forward and saying, okay what can I do to improve my situation or to reduce any tax liability that I may have and that’s where I think the coordination and just the joint partnership as part as, looking at retirement planning, financial planning, that type of thing and really including tax planning with that, and a lot of times when we see individuals, as they transition into retirement or those first few years of retirement.
Talking with them as far as how they underestimated the health care expenses, I mean obviously that is one of your biggest ones, but then again understanding the impact as far as what they would actually pay in taxes because right up there with-
Andy Fergurson: Yeah.
Nate Kreinbrink: Health care expenses, taxes is going to be one of your largest expenses in retirement, and if we can do some different ways, as far as what we save along the way, how we pull money out of our different accounts-
Andy Fergurson: Sure
Nate Kreinbrink: Understanding how those different accounts are taxes, and if we can have a less tax liability, that is more money in again in our pocket and less we are paying in taxes.
Andy Fergurson: Yeah, absolutely. The difference, or what happens with retirement, you get these income sources. They come from different places, they come from social security, pensions, 401k’s, IRA’s, non-taxed [crosstalk 00:06:26] money. I mean, all those different sources of income, have different impacts on a person’s tax return and so it is important, to as you get into those years or really right now, if you are working individuals to prepare for that. Make sure that you have those different types of accounts, because if you can pull money from for example a Roth account as opposed to a traditional account, an impact your tax return by not having your social security be taxed you can be significantly advantaged by the way that you spend the money. You know everyone looks at their retirement and they create this nest egg that has, I don’t four or five different income sources and they think it is all the same, but it is not.
Nate Kreinbrink: Mm-hmm (affirmative)
Andy Fergurson: You know, and there are things that you can do, the order in which you pull things out and move money, makes a significant impact on your tax returns. I have seen people’s tax returns swing by thousands of dollars by the way they move money.
Nate Kreinbrink: Right and I think that’s extremely important as well as just simply having options. I know we view it in some of our presentations that we do, we have a slide that has like different bucket pails, that are just simply up on the screen to give that visuals as far as having different buckets to be able to pull your money from and understanding that each bucket is taxes in a different way, and I think a big part of that is just people understanding now that they need, to start preparing to have options later on. It’s very common for people to come to us and say ‘Okay, here is everything that I got, what should I do? Am I ready to retire?’ And when we start entering it all in, we see that a very large part, 95 percent, 98 percent of their savings is in tax deferred accounts.
So that would be your traditional 401k, traditional IRA, things along those lines where they got that tax deduction upfront, they got the tax deferral through that whole time, but oh by the way whenever they take that money out it is taxable income to them, and at age 70 and up they have that required minimum distribution, that they have to start taking out, so whether they need that money or not, there are having to raise their income, no matter whatever the taxes are.
So again they have very limited options, when it comes to controlling their taxes in retirement. Rather, they are being forced to pay their taxes rather than having some options and being able to control the amount of taxes that we are paying.
Andy Fergurson: Yeah and now is a good time to think about especially for somebody whose still making wages, who has the opportunity to choose between a Roth and a traditional.
Nate Kreinbrink: Mm-hmm (affirmative)
Andy Fergurson: You know two years ago, putting money into tax deferred accounts was the preferred method, because tax rates were different. Well now we are in a position where we think that tax rates are probably just about as low as they are going to be, so if you have the opportunity or the option of putting money into a Roth vs a traditional, it is time to consider that option, it may be smart to pay taxes today-
Nate Kreinbrink: Exactly.
Andy Fergurson: Instead of deferring taxes, because taxes are lower today than they maybe in the future. That is a conversation that you need to have with your accountant or with your wealth manager to help you, make sure you have the options like you said Nate, make sure you have the opportunity to do what you want to do, when you are retired and make sure that you can pull the strings that you want to.
Nate Kreinbrink: I know that last workshop you mentioned a topic that goes right along with that point is and most people’s argument is well I am going to be in a lower, tax bracket when I retire and again we [don’t 00:09:58] work with a lot of people, that make 80,000, a 100,000 dollars a year that are living off of 10,000, 20,000 dollars in retirement. You start adding in the pensions, social securities, those withdrawals from those tax deferred accounts, they are right back, if not real close to where they were but I think that argument came about in a different tax period, where taxes where-
Andy Fergurson: Yeah
Nate Kreinbrink: A little different as far as then what they are now, as far as that upper tax limit.
Andy Fergurson: Yeah, a few years ago when the upper tax limit was 50 percent, 70 percent, absolutely kick the can down the road, pay taxes later, but that’s not the situation we are in right now.
Nate Kreinbrink: It’s flipped.
Andy Fergurson: It’s flipped, and we are aware that the tax rates are probably about as low as we are going to them, and we should take advantage of that. Which means we pay tax now … or consider to pay tax now, and see if that is a better opportunity for [crosstalk 00:10:48].
Nate Kreinbrink: Right. I always ask people, do you want to pay more in taxes or do you want to pay less in taxes and obviously they all come up with that same answer, but yet their actions a lot of times are the flip side of that. As far as what they are actually saving in doing that, so again, understanding how you’re saving, how it’s going to impact you and again understanding overall situation with your investing, your savings, your tax planning, estate planning, [beneficiaries 00:11:12], all that, it needs to all be considered when you are looking at making these decisions into retirement and understanding how they are all going to impact each other.
Again Andy we started talking taxes and time just-
Andy Fergurson: We go all day.
Nate Kreinbrink: We go all day, but did want to mention real quick that every Friday NelsonCorp is wearing jeans for charity. Money raised in the month of May will be donated to the Miss Clinton County Scholarship Program. Andy again I appreciate you joining me.
Andy Fergurson: No Problem.
Nate Kreinbrink: Again this is Nate and Andy with NelsonCorp Wealth Management and NelsonCorp Tax Solutions bringing you this week’s financial focus. Thanks for tuning in and have a rest of your week.
Announcer: Financial focus is a production of NelsonCorp Wealth Management in Clinton and Davenport, the opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly, registered representatives, securities offered through Cambridge Investment Research Incorporated, a broker dealer, a member of FINRA, SIPC, Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated.
Cambridge does not offer tax advice, for more information visit our website at www.NelsonCorp.com.
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