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. 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. This is Nate. James is joining me again today, kind of blowing up the hill today. It’s a little breezy out there when we walked up today.
James Nelson:
Yeah, no doubt. Really breezy.
Nate Kreinbrink:
It’s definitely kind of cool. It’s kind of weird, last night looking at temperatures, it kind of got warmer as the night went on overnight, and then when kind of picked up, storms came in, and then kind of cooling back off.
James Nelson:
Yeah, where did that go?
Nate Kreinbrink:
A little crazy weather out there. I know a lot of people are probably students. Kids are home or whatever on Thanksgiving break, big Thanksgiving holiday tomorrow. Definitely look forward to that all the time, and kind of sit down and enjoy some great family time and friends and everything. So want to wish everybody a happy Thanksgiving out there as you can transition into it. But, again, hard to believe we are approaching this time of year already, holiday season.
Nate Kreinbrink:
Also brings into it some last minute tax planning strategies that I think oftentimes get overlooked, and all of the sudden sneak up on people too. I know we kind of talked a little bit of tax when we’ve had Andy with our NelsonCorp Tax solutions on numerous times. But wanted just to hit some key topics or whatever that we want to look at. Obviously, we’re not tax professionals giving specific tax advice, but just some general concepts that people look want to look at.
Nate Kreinbrink:
The first one is looking at Roth IRA, traditional IRA contributions. There’s obviously a limit of $6,000 if you’re below age 50 for 2019. There’s a step up provision if you’re over 50, where you can contribute an extra $1,000 into that for this year. We want to look at and see, okay, if it makes sense, are we maxing that out? We have a little bit better understanding as we get to this time of year of what our income is, to see what the contributions that may have. And from a tax standpoint, what it’s going to impact. So look at contributions, and if we can max them out, let’s maybe look at doing that.
James Nelson:
Yep, and not only IRA contributions, but also 401k or any other retirement plan contributions. We’ve got about a month to go here, a couple of pay periods probably for most people try to ramp up those contributions because they play by a little bit different rules. The retirement plans, it’s December 31st. That’s the end date for this year. As far as putting money in, IRAs, you can always go up to April 15th, the tax filing date, to still make prior year contributions. So we could be in March of next year and still make a contribution to a traditional IRA or Roth IRA for 2019. So it’s a good time to be looking at all of those things. But, again, couple of pay periods about a month to go. Make sure if you can do it, ramp up those 401k, 403b contributions and get what money you can in there. Not always the best timing with Christmas coming up, but it’s a good time to look at it.
James Nelson:
The other thing that we like to look at this time of year is a non-qualified account. So this is a non-IRA, non-retirement account that holds investments. We want to look at harvesting gains and losses and trying to match some of those up. Once we get to this time of year, we kind of have an idea of what the markets have done this year. Probably not going to be a whole lot of movement, hopefully, in the next 30 days or so. So, trying to match up those gains and those losses in the non-retirement account to get that basis up maybe a little bit, take advantage of some positions that maybe haven’t done as well and match those up with some positions that have done well. This is always a great time to do that and something that we look at for clients each and every year.
Nate Kreinbrink:
Right. I think that the tax loss and gain harvesting, I think, plays a big part in those non-qualified accounts, those non-IRA accounts that people have out there. A lot of times people look at the gains and offsetting them with losses. But we sometimes want to specifically look at just the gains portion of it, when we’re going to look at what type of gains based on our basis, what the cost is of it right now at this point. Because, again, if we sell that, we’re obviously taking that gain. There’s nothing to say that we can’t go back and buy that again and just reset our cost basis again at that new price that we buy it into it.
Nate Kreinbrink:
So, again, if we liked it yesterday, we still like it going forward. In a favorable tax environment, wherever we’re at right now towards the end of the year, it may make sense to look at selling that position that we may have, re-buying it back there in the near future. Again, if we continue to still like it. Again, all we’re really doing is just resetting that cost basis to a little bit higher amount. Again, as a little tax planning favorably in our favor going forward.
James Nelson:
And that’s huge when we’re looking at a couple. Maybe somebody retired or both people are retired, income’s down for a given year. That’s a perfect opportunity where people should be looking at realizing some of those gains like Nate just described. Sell the position, take the gain, put it on the tax return at a very low level in this scenario, if income’s down. And then, yeah, you like the position, buy it back a week later or whatever, and you’ve paid tax on it, but you’ve paid tax at a low rate and that’s the type of planning that people should be considering this time of year.
James Nelson:
Again, even if you’re still employed and there isn’t any change in income, we’re still at pretty favorable tax rates. So something that I think everyone should consider at least… Again, we’re not telling you to sell all your positions and gut the account. We’re just saying it’s wise to match up those gains and losses if possible and do a little tax planning. So you’re not building up these giant gains, and then you get hammered in a couple of years from now.
Nate Kreinbrink:
Right. I think everything that we kind of just discussed today, I mean, it all goes back to understanding the tax consequences of what you’re doing. Again, when we say maybe potentially maxing out a 401k or an IRA, how is that going to impact you on your tax return? I know that Andy and some of the other people down there with the tax [inaudible 00:06:45] other part of our shop down there, is sitting down with people this time of year and understanding, “Okay, this is roughly what our income is going to be. If we do max out our 401k here towards the end of the year, what impact is that really going to have on our taxes?”
Nate Kreinbrink:
Rather than guessing, they’re sitting down with an accountant right now and being able to go through that and understanding, “Okay, so there’s no surprises next year when we do our taxes for 2019.” So, again, it’s not just a lump kind of bracket statement to say go out and max this out. We need to understand what maxing it out would do to our taxes, how it’s going to help us today versus tomorrow. And if we’re in a very small tax bracket, and we’re going to still stay in that for the rest of the year… Again, a Roth contributions for the end of the year here, whether it’s a Roth 401k, if your plan allows it, or maxing out a Roth IRA, is still a tremendous asset that we really need to take advantage of in these low tax environments that we have.
Nate Kreinbrink:
Understanding the differences in tax consequences from a traditional IRA versus a Roth IRA, not just today, but 20 years, 30 years, 40 years down the road throughout our retirement, to have a bucket of money that we can pull out tax free. Again, a lot that’s going to go into this. A lot of planning that goes into it, it’s not just making these assumptions and be like, “Okay, yes, I’m going to do this,” but understanding why this is going to do it and what the impact is for it.
James Nelson:
Well, that’s a great point because we stress this with clients, I think, all the time. We see the opportunity with the lower tax rates. That deduction going into a traditional IRA or a traditional 401k doesn’t mean as much in most cases as it used to because tax rates are down. We know these tax rates are set to expire in a few more years. Why are you taking the deduction today when we could have Roth money down the line. Again, that deduction doesn’t mean as much as it used to.
James Nelson:
The other thing that you brought up, Nate, is just the difference between tax planning and tax preparation. People think when they go to their accountant and get their taxes done and they make an IRA contribution that that’s tax planning. No, that’s last minute planning. That’s basically the only thing you can do at that point in time. Planning takes effect during the whole year. You’re not doing any tax planning when you’re doing your taxes and actually have the tax prep. So we stress the difference in that because, again, when you get that late in the game, your options are really limited.
Nate Kreinbrink:
Right. I know Andy always says the tax preparation, what they do during tax season is that you’re looking backwards. You’re just reporting what happened and how much you earned-
James Nelson:
Exactly.
Nate Kreinbrink:
… what taxes you [inaudible 00:09:21]. Tax planning is looking forward, as far as what can we do to more benefit us from a tax standpoint with what we have? So two very important points there that James just brought up. Again, it all comes down to everybody’s situation is different. Everyone’s situation is going to be different this year versus what it’s going to be next year versus two years from now.
Nate Kreinbrink:
So just because it’s worked for you in the past, we, again, want to make sure that with tax changes, with tax law changes, as brackets change, as you take a different position, you earn a little bit different income, you have another addition to your family with the birth of a child or something. Those are all things that are going to impact you on your tax return. And again is going to make sure that we take advantage of that in this new tax code and how it’s going to look forward.
Nate Kreinbrink:
So all important stuff. Give us a call. We can definitely sit down and help you out. I did want to mention real quick before we run out of time that every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of November will be donated to the Shop with a Cop program of Clinton.
Nate Kreinbrink:
James, appreciate you joining me again today.
James Nelson:
Absolutely.
Nate Kreinbrink:
Again, this is Nate and James with NelsonCorp Wealth Management wanting to, again, wish you and your family a very happy Thanksgiving. 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 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.