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 representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member 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’s 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 Kreinbrink, bringing you today’s show. February 14th, we are in mid-February, and it is a busy time of the year. Happy Valentine’s Day to all those out there. Obviously Ash Wednesday going on, we just had football season with the Super Bowl this past weekend. Kind of an exciting time in that realm with high school side as well. I’m seeing a few teams from the area qualify for state bowling yesterday. See, we got state wrestling kicking off, the girls, was last weekend, boys again this weekend. High school basketball tournament trail, just getting underway. All those teams that are still in it, I want to wish them the best of luck. Pitchers and catchers are reporting for baseball. We’ve got a just crazy time in the year, but an exciting time in the year.
So again, hopefully these temperatures that we’ve been spoiled with over the past few weeks, other than that week and a half right after the first of the year where we had every bout of winter in a short amount of time, hopefully they can continue and we get to springtime where again, we can get outside, open up stuff and be done with the snow and put the snow shovels away. So exciting time. Hopefully everything’s going well with everyone.
Did want to also talk today as far as the show is, obviously with everything else going on, it has been a busy time in our office too, as we’re starting to see foot traffic come in as tax season ramps up. The third Wednesday of each month, we always have a representative from Nelson Corp Tax Solutions on with us. So next week we’ll have either Mike or Andy, whichever one we can pull away from their desk for a few minutes next Wednesday morning to kind of get into maybe some reoccurring topics, reoccurring themes, what they’re seeing so far as they get kind of into the busy time of a tax season, tax preparation, getting those filed.
Everybody’s kind of winding up, getting all the documents that they’ve been waiting on, putting them together, starting to bring them in. So looking forward to having them on and sharing a little insight with us. But thought I’d spend some time today talking about taxes, but maybe from a little bit different realm than maybe what one of them will go into next weekend as far as tax preparation. But just looking at that number and then looking at what we can do from an investment side, from a savings side, excuse me. Now we can maybe help dictate some of those results that we’re going to get from here. So I think if you’re like most people, I think we see it a lot of times where people come in, they sit down, they get their taxes done either at a meeting, they drop them off, they get a call, we’re done.
They come in, they pick them up and they look at the bottom line to say, “Hey, do I owe? Or do I get a refund?” And that’s how they kind of determine whether it was a good tax year or not. And I think people need to look at that number from a little bit different perspective and realize that that number, that is outcome that they’re looking at, whether they get the refund, whether they have to pay in, there’s a lot of things that you can do throughout the course of the year to determine what that number is. If you have a magical number that say, “Hey, I want to get a thousand dollars refund every single year,” we can do a few things throughout the course of the year as far as adjusting your withholdings in order for you to get that.
If you want to try to break as close to even as you can, then we need to look at estimated income for the year and then kind of look at what we need to withhold to get it at that time. So again, when we look at that, when you get a refund, if you know that essentially it’s your own money that it’s getting paid back to you, you’ve paid in a little bit more than what you needed to based off of your income, based off of any credits or exemptions that you had. So again, that money is just the extra payment that you have paid into either the federal IRS or the state of Iowa or Illinois, depending on where you live at and is getting that money back. So again, if you’re wanting to adjust that number again, look at what you are withholding on your paycheck.
Again, sometimes we have a life-changing event where we get married, we get divorced, there’s other things that maybe come up that would change how we would want to do our withholdings. Again, if we are at an employer for a long period of time, a lot of times we don’t make those changes. We just keep withholding what we’ve done in the past and that may or may not be appropriate for any life-changing event that we can have.
Another thing is to look at your investments and to say, okay, what do we have as far as taxable investments that we have? If we have a tax deferred account that we are putting money into it, are we putting money into a Roth account, whether it’s an IRA, whether it’s a 401k, 403b, something of that nature at our employer. Okay, how is that changing our income?
So again, if we have a tax deferred account and we are putting money into it, anything that we put in, we are technically lowering our income. We get that tax deduction for the amount and in the year that we put that contribution in, which essentially is lowering our income. Now again, we’ve talked at length as far as the pros and cons of tax deferred Roth, both now and then both into the future. But again, if you’re just looking at trying to reduce your taxable income because of a tax or something irregular this year where you had a little extra income, so I may want to get it down just to maintain my levels, look at what you are putting your money into from a retirement standpoint. Again, the contribution limits for your plans at work are larger than what would be into a traditional IRA, but again, they both work the same way where again, any dollar that you put in, you get a tax deduction essentially lowering your income by the amount that you are contributing to those type of accounts.
So again, there’s trade-offs to both. It’s not the, Hey, let’s lower it now because again, we are getting that deduction in the year that we put it in. But again, essentially all we are doing is we are just deferring or kicking that tax can down the road to have to pay taxes on that money at a different time, then we will have to do that. So again, another thing we also want to look at is looking at what is your income and what is your contributions to do those? Again, if you get a raise, if you get an increase in pay, you switch jobs, you’re making a little bit more right now. Again, what are we looking at as far as contributions? Again, because if we’re to have income that goes higher, as I just mentioned, do we want to increase more? Do we want to increase less? And how are those allocated with it?
And again, we look at this all the time, and I think people look at taxes as a stress. And again, when you start to have a basic understanding as far as what taxes are, why you have to pay them, then you start looking at ways that you can kind of maintain and control your tax liability. I know Andy always says that it’s not mandatory to pay tax, it’s just you become taxable when you make more money, and then you become up into certain thresholds. So when I start looking at that and saying, “Hey, yes, you are going to make more, you’re going to have to pay more tax,” the solution to that is make less and pay less tax. Which again, it doesn’t work as far as what people wanting to accomplish, obviously but when we start looking at taxes from that, understanding that again, we have a little bit of control over what it is that we pay in taxes.
Again, I talked to people, we had a couple, and yesterday we were going through retirement planning and looking at transition from working to retirement, cashflow coming in versus cashflow in retirement, expenses now versus expenses later. And you start looking at some of those things and really the big number that stands out to people is, again, your two biggest expenses in retirement is going to be your healthcare. So whatever your premium is, whatever plan you have, whatever drug plan you have, whatever care you need, you’re pretty much stuck with, again, this is what I’m going to pay to get this care, to get this prescription to go to the doctor to see who I want to see. This is what I’m going to pay. Those premiums are set, those deductibles are set with whatever you choose, copays, anything like that, they’re set. So if you have it, you are going to pay that.
The second-biggest expense is going to be taxes and taxes On the other side, we have a little bit of control as to what we are paying for taxes, not just with income, but on an annual basis to do that. So again, when you start transitioning to retirement, when you start doing some retirement planning, again, it’s something that I think everybody needs to sit down.
I mean, if you’re within a few years of retiring, obviously the savings part, you’re kind of a little shortened with as far as what you can do to change it but from a tax planning standpoint, you are just coming on the cusp of what we can do to start looking at it. Because a lot of times those first, maybe five to 10 years from retirement to maybe age 73, and in some cases 75, when these individuals have to start taking money out of their tax deferred accounts, there’s a big opportunity in there where we can maybe move some of this money from these tax deferred accounts where we put it in, we got the tax deduction, okay, but we’ve got to pay taxes on that at some point.
And if we’re in a lower tax bracket or have very little, if any, taxable income in that time, other than maybe a social security benefit and a small little pension, okay, this is a great opportunity for you to start taking money from those tax deferred accounts, traditional 401ks, traditional 403bs, simple IRAs, traditional IRAs. The money again that we got the tax deduction for, it’s been tax deferred this whole time, this is an opportunity if we are in a low tax bracket, to move it from that account over to a Roth account again, and getting that over to a world where we probably will not have to worry about paying taxes on that money ever again. And again, got the tax deduction upfront, pay taxes at a lower rate on the backside and not have to worry. There’s a lot of planning that can be done to this.
And again, as we always say, it’s not what you have, it’s what you keep. Our goal is to kind of work with what you have, seeing where we maybe have some opportunities to, again, keep more in your pocket, less maybe paid in taxes whenever we can. So again, a lot that goes into it. Again, excited to have Andy or Mike on next week to give us a little insight into the 2023 filing season that we have from last year, and seeing any things that they’re starting to see that are good, bad, maybe not as smooth from a filing standpoint, the little hiccups that the state had with some of their software programs not functioning right away. So again, all that fun stuff that goes into it, looking excited for that. But again, understanding that there’s a lot of important with taxes that we can control from an investment, from a withholding from that standpoint to be able to do that.
So before I do run out of time here, I did want to mention that every Friday, Nelson Corp Wealth Management is wearing jeans for charity. Money raised in the month of February will be donated to the Lions Club here in Clinton. Again, this is Nate Kreinbrink with NelsonCorp Wealth Management, bringing you this week’s financial focus. Thanks again for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the 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 representative securities offered through Cambridge Investment Research Incorporated, a broker dealer member 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.