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 a broker, dealer, 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’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus. This is Nate Kreinbrink, bringing you today’s program. To say that we are into the New Year, second show of the New Year. And obviously winter is here. It’s kind of a little drastic change of events. We had 40, 50 degree temperatures there right before Christmas. Obviously yesterday we had a round one of, you could say our first winter storm coming in. A little break here now and obviously looking into the next few days, we are a little break here for the next day and then round two Thursday, Friday and then see what we get. And depending on how the front comes through, will depend on how much we’re going to get. So again, hopefully everyone be safe out there, kids enjoying hopefully a little snow day, getting outside. Yesterday was great packing weather.
I know we got snowmans built in our yard already, so I guess you look at the positives and enjoy it for what it’s from. I did see on a positive note though, they’re already starting the countdown to spring training, which means warmer weather isn’t too far away. It’s just getting through our normal January, February, here in Iowa, Illinois, Midwest, I guess you could lump it in together, and dealing with the winter. So for today’s program, I know last week David was in for the first Wednesday of each month talking end of the year closeout items as far as 2023, how we’ve transitioning and what we’re looking for into 2024. Obviously the market’s had a strong finish to 2023, kind of struggled just a little bit so far in the short time here in 2024 to find its footings. And as we go forward, we want to continue to monitor those things and then see how things are going to shake out.
Wanted to spend some time today talking more 2024 planning, just 2024 housekeeping ideas to look at as we continue into the new year with this. So first thing is obviously contribution limits to IRA accounts, Roth accounts if you’re eligible to contribute to them, and obviously any retirement plan at work. Those amounts did increase for each of those accounts heading into 2024. Specifically IRA, Roth accounts went from $6,500 up to $7,000 if you’re below age 50. If you’re above age 50 and still eligible to contribute to those, they went up to $8,000 there apiece for the new year. So what we want to look at with those is specifically if you are doing monthly contributions to max those accounts out, if it doesn’t do it automatically, you’re going to want to readjust those figures so that your monthly contribution is going to hit those maxes.
We’ve talked in shows past that, again, we do have up until the tax deadline to make a prior year contribution into an IRA account, into a Roth account. So we’ve got a little bit of time here before we hit that mid-April deadline. But again, if you have some room left over for 2023, you may want to look at doing that as a prior year contribution to max out 2023. And then obviously, that gives you the full amount for 2024 that you can look at maxing out. And again, that would extend to the tax deadline for 2024 tax filing season, which would be April of 2025. So again, look at those contribution limits at work. Again, if you’re putting in a flat dollar amount to max it out, you’re going to want to either, one, log into your online portal and make those adjustments, talk to HR and make sure that you are increasing those so that the amount that you are wanting to take out is exactly the amount that is coming out with that.
So again, with changes to 2024, obviously tax brackets went up a little bit as well accordingly. So again, depending on what your income is going to be projected to be for 2024, you may want to look at any withholdings that you have coming out as well. Again, if you are looking for an increase for the year, you may want to withhold a little bit more and make sure that your income, your withholdings are, again, corresponding with what it is that you are, again, looking at doing. With that, when you do file for this, looking at any exemptions, if you had a life-changing event that is going to be happening. You get married, your tax brackets are going to change. You lose a spouse, tax brackets are going to change for you. One that people oftentimes forget about or kind of overlook is if you are able to claim a child. Say in 2023, they get to an age where you are no longer able to claim them, then that’s going to impact obviously your taxes differently than what you maybe have accustomed for the previous years.
So again, when you have life-changing events like that, you want to make sure that you understand what those changes and how they’re going to impact you on the upcoming tax years. And again, if there’s anything that you need to do, you may. If you’re not going to be able to claim a child any longer because of their age, again, you maybe want to look at possibly withholding a little bit more because, again, not being able to do that is going to change you in a negative way as far as possibly the amount that is owed on any tax return that you may have. So again, having Andy Ferguson, having Mike Van Zuiden in here from NelsonCorp Tax Solutions, we’ve touched on a lot of those topics throughout the year. But again, they do have a lot of bearing as far as the outcome on your return there.
Again, the importance of planning ahead of time, to understand that down the road to say, “Hey, again, I know coming up in a year or two this is what the changes are going to be. Is there anything I can be doing now to possibly take advantage of the situation that I’m in at the current moment?” So again, we want to make sure that we are being proactive and not being reactive to when those items come with it.
So another item too that I wanted to bring up that I don’t think is getting as much attention and obviously will as we get closer to it, is the end of the Tax Cuts and Jobs Act that went into effect January 1st of 2018. The most bearing things that people realize with this is that the tax brackets change. So January 1st of 2018 is when the Tax Cuts and Jobs Act went into effect. That first or so paycheck in January of 2018, you got a little bit more on your check and that’s because the tax brackets went down by a little bit. The 15% bracket went down to 12%, the 25% went down to 22%, and so on. So because of that, there wasn’t as much withholdings taken from your check.
That was not a permanent bill that was signed into law there in 2018. It was an eight-year program. That program, the end of those eight years is set to end on December 31st of 2025. Now that’s end of next year, but again, that’s coming up here quickly. And if nothing is done, again, I’m not saying it won’t be extended. Every article that I’ve read and hearing some people talk, they don’t expect that to be extended. They look for it to be just sunset and then it’s going to just wake up January 1st of 2026, you’re going to revert back to the old tax brackets.
So again, the 12% will go back up to the 15%, the 22% will go back up to the 25% and so on. So that extra little bit that you got on your paycheck starting in 2018 throughout, again, you’re going to get a little bit less in your paycheck than if nothing else is done prior to that deadline at the end of next year heading into 2026. Where that also comes into play is looking at those tax brackets and say, “Hey, if I do a little bit of planning now versus if that bill does not get extended, I’m going to pay an extra 3% or so in a couple of years as opposed to doing the same thing now.” Roth conversions is a big part of that. Obviously, taking money out of your pre-tax retirement accounts, traditional IRAs, traditional 401(k)s, 403(b)s, those types of items, converting it over to a Roth. We are willingly paying taxes to make that move to get it from that account over to a Roth account.
But again, if we know we are going to get taxed on that money at some point in time, and if we do something in the next year and almost two years, we’re going to save 3% as current tax law sits, then it may be worthwhile to look at doing some of those things prior to that bill expiring.
The other thing is a standard deduction if nothing changes, may go back to what it was prior to the Tax Cuts and Jobs Act. One of the big, I guess, effects of the Tax CutS and Jobs Act with the standard deduction increasing was a lot of people that may have itemized prior to that law gone into effect, during that law since 2018 may not have itemized because the standard deduction was higher. They just took the standard deduction and went forward. Again, if it does sunset and it is not renewed, those standard deduction limits are going to go back to what they were prior to that. So then that means more people may be eligible to itemize on their tax return as opposed to just taking the standard deduction.
Now again, we talk about some of these things that are in the pipeline. Again, as we get closer to those, hopefully we’ll know a little bit more specifics as they become on the agendas in Washington. Obviously, with this being election year, get through that and see anything that maybe is extended after that. But items that we want to kind of keep our eye on and do some planning. And as we always say, “It’s not what you have, it’s what you keep.” And if we’re looking at taxes from this and there’s a chance that tax laws and tax brackets and the tax system may have a change on the horizon, we want to look at it and see what can we do now to take advantage of where the current law sits.
So a lot of good stuff as we get into the year. Next week is the third Wednesday. We will have Andy back on with us talking beginning of the year tax season. I’m sure he will be in a chipper mood getting rolling with that tax forms starting to roll in, prior to him getting busy with actually filing taxes into that season. So I’m looking forward to having him on next week. Before I do run out of time though, I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of January will be donated to The Adopted Closet in DeWitt. Again, this is Nate Kreinbrink with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks 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 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 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.