Announcer:
It’s 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.

Announcer:
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. 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, James, joining me again this morning. Hard to believe we’ve kind of flipped the calendar over to May already. I know April has kind of flown by and I’m sure I’m not the only parent that’s in this boat, but with a senior this year, looking at the calendar and trying to get everything done.

Nate Kreinbrink:
Graduation is only a couple of weeks away and school’s almost done. So it’s definitely moving right along and this past weekend actually even felt like summer. So I think we’re getting close.

James Nelson:
Yeah, hard to believe the school year is only a couple weeks from me and over and into summertime and all the sports and activities that go along with that. So yeah, fun time of year and nice to have some decent weather finally.

Nate Kreinbrink:
And I think whether it’s the students, parents, teachers especially, administration, faculty, staff, I think every one of those is probably in the same boat saying that this has been a school year unlike any other. And that they are probably really excited to get to that end of the school year, even more than any other year.

James Nelson:
Yeah, time to get it over with and then get to summer break. Sure, you’re right on that.

Nate Kreinbrink:
So, I know we’ve kind of touched the last couple of weeks. But again, this time of year, and especially given the circumstances that we are, again, wanted to talk a little bit more as far as the quickly approaching tax deadline. Obviously, usually it’s the middle of April. It got extended by a little over a month this year to May 17th.

Nate Kreinbrink:
That brings, obviously, people think filing, getting your taxes turned in obviously is the most important thing. But also if you’re still able to make contributions to IRA accounts, Roth IRA accounts, and still have them treat it as a 2020 contribution, you still have up until that deadline to do that.

Nate Kreinbrink:
And I think it’s important for people to, again, if that falls into your situation, take a look at that because if we can get money in to the account with not having maxed it out the previous year, let’s go ahead and do that. And that gives us the whole 100% contribution that we can still make for 2021.

James Nelson:
Yeah, and the HSA deadline was extended as well. So, all important items and again, a lot of people already have filed their tax return, but with that extra month or so extension, hopefully that allows most everybody else to get it done. And maybe not so many extensions later in the year like some of the tax folks are used to seeing on a regular year.

James Nelson:
So, yeah, another unusual year, but it’s important that deadline, that May 17th deadline is important and make sure we get things taken care of. The other thing that we touched on a little bit last week but I think it’s worth saying again, is that now this year 2021, we do have to start taking those RMDs again. We got the one year freebie last year where we weren’t obligated to take money out.

James Nelson:
You could defer that and leave it alone if you didn’t need the cash. But we got to pick those up. So if you had a, we call it a systematic plan where that RMD goes out on a regular basis and you don’t really have to think about it, it’s just set up. If that was either deleted or paused, make sure to pick that back up for this year., Don’t miss out on taking that required minimum distribution, because it’s a pretty stiff penalty if you do forget that.

Nate Kreinbrink:
Right, and that’s great points. And the required minimum distribution, just as a refresher for those who may not know, it’s an RMD and it deals with those tax deferred accounts. So your traditional 401k accounts, your traditional IRA accounts, simple IRA accounts. Those type of accounts that when money was put in, you got a tax deduction for any contribution that got put into it.

Nate Kreinbrink:
That money grew tax deferred. Well, once you get to age 72 is what the current law is for those that have to have to take it out from years past, it was 70 and a half. They just bumped that up to 72, but you have to start taking a certain percentage out of each of those accounts on an annual basis. Now, again, that money is taxable to you when you take it out. So again, we want to make sure, as James mentioned that we take it out because the penalty is roughly 50% of the amount that you had to have taken out.

Nate Kreinbrink:
So it’s a pretty steep penalty if you don’t get that money out. So again, we’ve touched on it a couple of times, but it’s extremely important for those individuals that fall into those age brackets to take that out. Because again, that penalty is pretty harsh if you miss that.

James Nelson:
Yeah, and as we’re kind of wrapping up this last year 2020, we should also be looking forward, right? I mean, this is when the tax planning takes place. So as one year, the filing date approaches us, we really should be looking at the next year 2021 being this year as far as tax year, as far as what we can do going forward. We always talk about tax prep and tax planning. They’re two separate items.

James Nelson:
The tax planning takes place throughout the course of the year. The tax prep takes place the beginning of the next year into spring. So those are two very different items. And if you had a tough year tax wise, if you owed some money, if you’re looking to position assets a little bit better for retirement, if you’ve got a retirement date approaching, these are all things that you should be considering throughout the year.

James Nelson:
Because there’s a lot more that we can do throughout a given year rather than when the calendar turns over to January next year, you’re pretty limited. You’re pretty limited to the IRA contributions, the HSA contribution, some of that stuff that we just mentioned. The other stuff should take place throughout the course of the year. And that’s what we really harp on this big item that we continue to talk about is the tax planning takes place during the year.

James Nelson:
And this is when we should be having those appointments and talking with your advisor, talking with your accountants, and getting your ducks in a row now versus waiting until you get your taxes prepared. Not much you can do at that point.

Nate Kreinbrink:
Right, I think most people, if they’re normal, they just get their tax documents sent to them. February, March, they gather them all up, they turn them into their accountant or whoever prepares their taxes for them. And they see, okay, do I owe money? Do I have to pay money? And that’s where they think of taxes.

Nate Kreinbrink:
But again, if we can do some of that planning from literally now up until the end of the year, it’s almost like you have the answers to the test when you go in to do your taxes. There’s no surprises at that time because you’ve done some planning now to look at what your taxes were last year, have a pretty good understanding as far as what your income and any special situations that may have occurred this year.

Nate Kreinbrink:
You have an understanding as far as what that will be for you. And then, so again, when you go then in March or February or April, or whenever you go in to do your taxes for 2021, you pretty much already know exactly what it’s going to do because you’ve taken the time to do that planning to maybe put some things in motion where it actually has an impact on it to you for when you go in and do your taxes.

Nate Kreinbrink:
And to me taxes shouldn’t be like going to a dentist when people just cringe when they think of going to do your taxes. If you’ve done the work and you’ve done the legwork ahead of time, it should just basically be a reporting of, of the activities and the actions that you’ve already done.

James Nelson:
Yeah, that’s a good point. It also shouldn’t be a mystery. We hear it all the time. Oh, I don’t know where I’m at. Oh, I don’t know if I’m getting money back. I have no clue where I’m at. Well, if you don’t have an idea of where you’re at, that means that you really didn’t look at things until the year was over and that’s what we’re trying to avoid. And a lot of people don’t get excited to talk in taxes like you and I do Nate.

Nate Kreinbrink:
Especially when you have Andy on the show, he can just go on and on and on for it.

James Nelson:
Yeah, maybe it’s not so exciting to others, but really there’s there shouldn’t be too big of surprises. If we need to change the withholding so you don’t have that bad surprise at the end of the year or tweak the withholding down a little bit so you’re not getting quite as big of a refund. All of that stuff should again take place during the year and should be pretty well-known.

James Nelson:
You should have a pretty good idea. Most people’s income is pretty consistent from one year to the next. And if it’s not, that’s where you really need to make some changes. But it really shouldn’t be a guess when you go and meet with the accountant and, and you should have a pretty good idea. That means you’ve done the planning. That means you’ve done the heavy lifting throughout the year. You pretty much know where things are going to fall.

Nate Kreinbrink:
There are a lot of individuals that we’re sitting back down with now, especially as we get to that tax deadline. And when we get to the other side of it, we’re going to start circling back to all these people and start looking at Roth conversions. And that’s literally paying taxes on those tax deferred assets, paying taxes willingly, getting them into a Roth account where they’re tax-free essentially.

Nate Kreinbrink:
And again, why would you want to do that? Well, if you have an understanding and if you are in a lower tax bracket and you still have some room in that lower tax bracket, it makes a lot of sense for the most part to pay taxes at that lower tax rate and get it into a vehicle where you don’t have to worry about what taxes are going to be moving forward, how much income you have coming in.

Nate Kreinbrink:
If you need to take a distribution, those withdrawals or those distributions aren’t going to affect your Medicare premium or anything like that going down the road. And those are all the factors that people really need to take into consideration and say, “Okay, hey. Yes, I’ve done a good job saving, but from a tax standpoint, where am I sitting? Not just now, but five years, 10 years, 20 years down the road.” And I think that’s the value. That’s the real sweet spot that people really need to focus on.

James Nelson:
Yeah, especially in a year potentially where we’re going to have some tax law changes. Maybe some things get shuffled around a little bit. May not affect everybody, but again, staying in the loop, staying current on some of these topics can head off a bad scenario or bad discussion come next year around tax time.

Nate Kreinbrink:
A lot of fun and exciting stuff as always James. But again, we’re running out of time, but I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of May, will be donated to the Hometown Heroes Banner Program. James, as always appreciate you joining me today.

James Nelson:
Absolutely.

Nate Kreinbrink:
I did want to take a quick minute to mention happy Mother’s Day to all the mothers out there coming up this weekend. Hope you have a great special day, hopefully weather cooperates, and it’s just a special day for all you mothers out there. So again, Nate and James 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 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.

Announcer:
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.