Latest / TaylorMade Retirement with Taylor Demars, CFP® / The Tax Planning Window Is Open (But Not for Long)

Transcript

The Tax Planning Window Is Open (But Not for Long) · TaylorMade Retirement with Taylor Demars, CFP®

• 0:05
  SPEAKER_02: Most people don't think about taxes until they're sitting down to file.
• 0:08
  SPEAKER_02: And by then, most of the best opportunities are gone.
• 0:11
  SPEAKER_02: The moves that actually lower your tax bill usually have to happen before December 31st.
• 0:15
  SPEAKER_02: So today we're tackling what's worth doing now.
• 0:21
  SPEAKER_00: Welcome to Taylor Made Retirement, where we explore what it takes to build a retirement that works for your money and your life.
• 0:28
  SPEAKER_00: With third generation certified financial planner Taylor DeMars.
• 0:37
  SPEAKER_01: Welcome into the podcast.
• 0:38
  SPEAKER_01: This is Taylor Made Retirement with Taylor Demars from DemarsFinancial.com.
• 0:43
  SPEAKER_01: And yeah, let's talk about Taylor, the fact that you know the tax planning window is open, but not for real long.
• 0:50
  SPEAKER_01: So it may be worthwhile to uh you know to to tackle some of these things, right?
• 0:55
  SPEAKER_01: So I've got a list of a couple of items I wanted you wanted to uh kind of uh highlight and and put some focus on some of these things.
• 1:02
  SPEAKER_01: So let's dive right in and get started and just kind of hit on the first one.
• 1:06
  SPEAKER_01: A donor advised fund, considering opening one, I guess kind of break down that for us.
• 1:11
  SPEAKER_01: What is that?
• 1:12
  SPEAKER_01: Why should we?
• 1:13
  SPEAKER_01: And what are some things to think about there?
• 1:15
  SPEAKER_02: Yeah, 100%.
• 1:16
  SPEAKER_02: Donor advice funds are an interesting charitable and tax planning opportunity because it's like a separate account.
• 1:22
  SPEAKER_02: You know, you've got your IRA, Roth IRA, maybe a brokerage account.
• 1:25
  SPEAKER_02: A donor advice fund is an account in of itself that when you put the dollars in, you get that tax deduction.
• 1:32
  SPEAKER_02: Now, the reason we talk about it here at year end is because especially when people are, you know, down the home stretch of retirement, they may be getting some of their largest bonuses they've ever got in their career.
• 1:40
  SPEAKER_02: Maybe they got a severance package.
• 1:42
  SPEAKER_02: So they're getting some sort of spike in income.
• 1:44
  SPEAKER_02: And a donor advice fund can be a great opportunity to put in those extra dollars that would give you more credit from a deduction standpoint than you would just using the standard deduction.
• 1:53
  SPEAKER_02: And on an ongoing basis, it operates like its own investment account that you can then on a discretionary basis decide how you want to send those out on a charitable basis, if that makes sense.
• 2:03
  SPEAKER_01: Okay.
• 2:03
  SPEAKER_01: And so with donor advised funds, anything like any big caveats there that are worth mentioning that people maybe don't need know or that because I hear this term a lot, but I know people get confused by them.
• 2:13
  SPEAKER_02: Yeah, I mean, I wouldn't say that it's a one-size-fits-all solution.
• 2:16
  SPEAKER_02: There are certainly uh it's it's a case-by-case basis that we're evaluating for people.
• 2:21
  SPEAKER_02: I wouldn't say that most people should use it just because it sounds like a great opportunity.
• 2:26
  SPEAKER_02: Many people benefit because they're making smaller donations or they'd rather be able to not feel like they're pre-committing a certain amount of money into an account.
• 2:34
  SPEAKER_02: But it's certainly one of those things here at your end that we want to take advantage of before the deadline.
• 2:39
  SPEAKER_01: Okay.
• 2:40
  SPEAKER_01: All right.
• 2:40
  SPEAKER_01: So that's one thing to consider and talk with your financial professional about.
• 2:44
  SPEAKER_01: Uh, if you're still working, if you're a pre-retiree, you want to certainly think about the tax withholdings, right?
• 2:49
  SPEAKER_01: Is any changes there that could make a nice move too.
• 2:52
  SPEAKER_02: It's true.
• 2:53
  SPEAKER_02: Yeah, and and that's what makes it easy when you, you know, have a paycheck from an employer, is they're usually withholding a chunk of that for your federal and maybe state income taxes.
• 3:02
  SPEAKER_02: But maybe there's changes.
• 3:03
  SPEAKER_02: Maybe you're still on autopilot with your work, but your spouse picked up a job or you have uh some sort of surprise income or drop.
• 3:10
  SPEAKER_02: It's good to calibrate to know, hey, am I am I on track with my tax withholding so that either A, I don't get a big tax surprise of X amount of thousands of dollars I'm supposed to still pay, or B, having realized you gave the IRS a tax uh interest-free loan that you then get a refund on.
• 3:26
  SPEAKER_02: So it's easier to adjust that now in October rather than fix it back in April.
• 3:30
  SPEAKER_02: And that's just one side of the tax payments is either having it withheld from your paycheck, or if you are retired, having it withheld from your IRA.
• 3:38
  SPEAKER_02: Many times we're realizing pay in a portfolio paychecks out of a client's brokerage account where only the capital gains are taxed.
• 3:45
  SPEAKER_02: And so those aren't as cut and dry because you know,$10,000 out of that account is not taxed the same as$10,000 out of an IRA.
• 3:52
  SPEAKER_02: So that's where quarterly payments come into play, where we're coordinating with our client CPAs to make sure, hey, are we making sure those payments are paid in advance so we don't get any penalties?
• 4:00
  SPEAKER_01: Okay.
• 4:01
  SPEAKER_01: All right, yeah.
• 4:02
  SPEAKER_01: And so again, this is you know, it's pretty standard stuff.
• 4:04
  SPEAKER_01: But again, if you're talking about thinking about for going into next year, it's easier to make these adjustments in October than fix it in April, right?
• 4:12
  SPEAKER_01: So exactly, exactly.
• 4:13
  SPEAKER_01: So just tackle some of that stuff while it's top of mind.
• 4:16
  SPEAKER_01: And you're doing some other year-in kind of rundowns.
• 4:18
  SPEAKER_01: Um, speaking of year-in stuff that could be worthwhile, uh, I think this one is an underrated tool for a lot of people, but again, it's like everything, it's kind of client-specific.
• 4:28
  SPEAKER_01: But if you have an HSA, plan ahead for that, or or maybe even look into it or talk about it.
• 4:33
  SPEAKER_02: It's true.
• 4:34
  SPEAKER_02: I for me personally, an HSA is the very first place I I invest my contributions into my retirement accounts because an HSA gets that triple tax benefit, the silver bullet of dollars going in tax-free, growing tax-free, and then being withdrawn tax-free for eligible medical expenses.
• 4:51
  SPEAKER_02: So uh need to be sure that you're eligible for it, of course.
• 4:55
  SPEAKER_02: You know, you have to have a high deductible plan.
• 4:58
  SPEAKER_02: So it's kind of the trade-off to be able to be able to contribute to it.
• 5:01
  SPEAKER_02: HSA is is is the juice worth the squeeze.
• 5:04
  SPEAKER_02: And that's a personal decision, right?
• 5:06
  SPEAKER_02: To to evaluate just not only between yourself and your household, but also financially, can your plan support the higher deductible if it came around?
• 5:13
  SPEAKER_02: And and for many of our clients who are listening, you know, that are approaching age 65 sooner than later, got to make sure that you stop those contributions at least six months before Medicare because Medicare coverage is backdated, and then those dollars that maybe have been contributed within that window count as an excess contribution.
• 5:30
  SPEAKER_02: So a little bit of a tidbit to be aware of so you don't get surprised.
• 5:33
  SPEAKER_01: Okay.
• 5:33
  SPEAKER_01: And and what else with an HSA that is there any kind of hidden things or is there any kind of things that people, if they don't have one and they're kind of unfamiliar but have heard it, they might want to be on the lookout for or talking with their employer about?
• 5:45
  SPEAKER_02: Yeah.
• 5:45
  SPEAKER_02: I mean, many uh employers have an option to be able to be eligible to contribute to an HSA.
• 5:51
  SPEAKER_02: You know, there's a certain limit for if you're filing single or there's only one person who's eligible to contribute to an HSA versus if you can do roughly double the amount if the entire family is eligible.
• 6:01
  SPEAKER_02: We really love the HSAs as a part of the plan because it's it's kind of an alternative to a Roth IRA for tax-free funds, because you know, the harsh reality of getting older is medical expenses aren't going away.
• 6:12
  SPEAKER_02: So if we have this other account in our back pocket, we can be able to tap on that for needs rather than relying on the rest of the other monies in the portfolio.
• 6:20
  SPEAKER_01: Okay.
• 6:20
  SPEAKER_01: All right.
• 6:21
  SPEAKER_01: So again, we're talking about some things to think about here in October or in the fourth quarter as we're leading into the year winding down before you move into next year.
• 6:29
  SPEAKER_01: Uh, and let's see, what else that we have on my radar here?
• 6:32
  SPEAKER_01: The Roth conversion conversation, Taylor.
• 6:36
  SPEAKER_01: Um, certainly could be a good one uh to have.
• 6:39
  SPEAKER_01: And certainly for many people, there's a lot to be happening uh happening here.
• 6:42
  SPEAKER_01: So Roth conversions, and I guess, and or tax harvesting, tax loss harvesting, whichever one you want to go with.
• 6:47
  SPEAKER_02: Or both.
• 6:48
  SPEAKER_02: It's true.
• 6:48
  SPEAKER_02: It's true, or both.
• 6:49
  SPEAKER_02: Yeah.
• 6:50
  SPEAKER_02: Roth conversions are a key part of our upfront analysis we do for clients in our retirement readiness roadmap.
• 6:56
  SPEAKER_02: And and just because they're a great tool, doesn't mean they're a great tool for everyone.
• 6:59
  SPEAKER_02: And that's where our cadence of meeting with clients on an ongoing basis comes into play.
• 7:05
  SPEAKER_02: Because I know we're talking about year end, but we're already talking about Roth conversions in the springtime when we have completed the prior year tax return, actually seen where the cards landed, where we thought they might be or might not be.
• 7:15
  SPEAKER_02: And then we're creating a strategy for the Roth conversions.
• 7:18
  SPEAKER_02: But it's around this time that we're filming here in October, maybe November, we're measuring twice, cutting once, saying, you know, if you're still working, how much did your bonus actually come out to be?
• 7:27
  SPEAKER_02: Or if you're in retirement, how much did we actually withdraw?
• 7:29
  SPEAKER_02: We can be able to really narrow in on how much headroom we have within certain tax brackets to do a Roth conversion.
• 7:35
  SPEAKER_02: And while the deadline is December 31st, it's not our favorite thing nor our clients to really be uh trying to iron that out during the holidays.
• 7:42
  SPEAKER_02: Please don't wait, yes, until the very last second.
• 7:44
  SPEAKER_01: Look, it might be the 31st, but look, who's open, right?
• 7:46
  SPEAKER_01: And who's doing things?
• 7:47
  SPEAKER_01: So you need to give yourself two weeks before that, I would think, if not more.
• 7:51
  SPEAKER_02: Yeah, and then that's why we're doing it here in October, November, so we have time to iron things out if we need more information or to calibrate on something.
• 7:57
  SPEAKER_02: And at the end of the day, right, it's it we may even have thought years ago that a Roth conversion would have been good in this year, but life happens.
• 8:05
  SPEAKER_02: Tax code changes, and that's why it's part of the ongoing work that we're doing, is to be able to say in which years does it still make the most sense.
• 8:11
  SPEAKER_01: Okay.
• 8:12
  SPEAKER_01: All right.
• 8:12
  SPEAKER_01: What else?
• 8:13
  SPEAKER_01: Anything else that we might have missed, especially with the um I don't know, with the Roth with the Roth conversions, you certainly want to make sure that you're not doing this on your own, Taylor, right?
• 8:21
  SPEAKER_01: You want to make sure you're having some conversations about this because you don't want to bump tax brackets, you don't want to trigger anything with RMD issues or excuse me, uh Irma issues for down the way.
• 8:30
  SPEAKER_01: So just different things to worry about there.
• 8:32
  SPEAKER_02: It's true.
• 8:33
  SPEAKER_02: Uh, I mean, I wouldn't wholeheartedly uh you know preclude people from doing Roth conversions on their own.
• 8:39
  SPEAKER_02: I think that the people who are doing their own retirement planning successfully have have at least three things, which is to have the time to dedicate for it, uh the talent, so building the expertise to do so, and then the temperament to make the right decisions, even though it may feel like uh the wrong one in your gut.
• 8:54
  SPEAKER_02: Sometimes it feels a taboo to be proactively paying taxes to a certain degree as Roth conversions do.
• 9:00
  SPEAKER_02: But you know, it sounds like a great strategy.
• 9:02
  SPEAKER_02: So I've seen people even come to us who did around a hundred thousand dollar conversion the prior year working with us, but unknowingly made themselves pay, you know, thousands more in taxes than they had to, just because they hadn't done the long-term vision to see, hey, what actually made sense.
• 9:16
  SPEAKER_01: That's a good point, though.
• 9:17
  SPEAKER_01: So uh anything else we th that we might have missed or that we should cover this week here on the uh on the podcast?
• 9:22
  SPEAKER_02: Yeah, you know, you mentioned tax loss harvesting.
• 9:24
  SPEAKER_02: It is another strategy that we can do within a client's brokerage account, their non-retirement account, so to be able to see, hey, what accounts are have yeah, lost value versus selling those off and and and pairing them against the winners that have had gains.
• 9:37
  SPEAKER_02: And so we have a net zero tax consequence, ideally.
• 9:40
  SPEAKER_02: There's many other topics we could talk about here, but for the sake of uh quality over quantity, those are the four biggest things I think would be worth keeping in mind as people are here in the home stretch of 2026.
• 9:51
  SPEAKER_01: All right.
• 9:51
  SPEAKER_01: Well, and it all falls back to having a roadmap in place.
• 9:53
  SPEAKER_01: And if you don't, then maybe the team can help you with your own retirement readiness roadmap.
• 9:58
  SPEAKER_01: So reach out to them at demarsfinancial.com.
• 10:00
  SPEAKER_01: That's demarsfinancial.com for your retirement readiness roadmap.
• 10:04
  SPEAKER_01: And don't forget to subscribe to the podcast on Apple or Spotify or whatever app you enjoy using, and also go check out Taylor's YouTube channel as well.
• 10:12
  SPEAKER_01: You can find all that information at the website, demarsfinancial.com.
• 10:16
  SPEAKER_01: And that's gonna do it for us this week here on Taylor Made Retirement.
• 10:19
  SPEAKER_01: We will see you next time.
• 10:20
  SPEAKER_01: Thanks, Taylor.
• 10:21
  SPEAKER_01: My pleasure.
• 10:22
  SPEAKER_02: Thank you.