Latest / HPK Provident Advisors: The Weekly Bull / When Jobs Cool And Deductions Rise, Strategy Beats Headlines

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When Jobs Cool And Deductions Rise, Strategy Beats Headlines · HPK Provident Advisors: The Weekly Bull

0:06
SPEAKER_01: Welcome to Friday Live.
0:08
SPEAKER_01: Every Friday, some of the partners at HPK Profitant get together to discuss what's going on in the markets, economy, and some financial planning topics.
0:16
SPEAKER_01: So usually this comes out at 12:30, but Brian's gonna beat the snow to get to some client meetings today.
0:21
SPEAKER_01: So we're gonna we're gonna launch it a little early and and why not get the weekend started.
0:26
SPEAKER_01: I mean, for everyone else, first of all we're gonna be working.
0:30
SPEAKER_01: So Brian, we missed you the past couple weeks.
0:33
SPEAKER_01: Glad to have you back on.
0:35
SPEAKER_00: Yeah, yeah.
0:36
SPEAKER_00: I've had uh Friday's been busy.
0:38
SPEAKER_00: You know, we get into uh January and people uh want to get their tax forms as quickly as they can, and uh we get them out there as quickly as possible.
0:48
SPEAKER_00: Um, you know, and folks uh want to get the year set up.
0:51
SPEAKER_00: There's uh a lot of people that we meet with and work with.
0:54
SPEAKER_00: They, you know, they want kind of want to have their plan for the year and uh get it established, and uh we help them kick it off.
1:01
SPEAKER_00: And um so yeah, it's been busy on Fridays.
1:04
SPEAKER_00: Normally not too much, but it has been.
1:06
SPEAKER_00: I'm glad to be back.
1:07
SPEAKER_00: Love being here.
1:08
SPEAKER_01: Yeah, it's nice to have you back.
1:10
SPEAKER_01: Although it's thank you.
1:11
SPEAKER_01: I think we had pretty good episodes.
1:13
SPEAKER_01: I guess I was just on last week, and then I had taken a couple weeks off, and you and David have been doing them.
1:18
SPEAKER_01: So it's been uh more of a rotation than normal.
1:21
SPEAKER_01: Usually uh usually you and I are pretty consistent being on here on Fridays.
1:25
SPEAKER_00: Well, you know, that's you know, kind of the benefit we bring to our clients as well, in the sense that uh, you know, when one of us isn't available, somebody else is, and two of us aren't available, somebody's still there.
1:37
SPEAKER_00: And so that's kind of the design of uh of the client service and interaction, and uh certainly helps out on Friday Lives as well.
1:46
SPEAKER_01: All right, so I'm gonna go through the typical format of the week.
1:51
SPEAKER_01: Uh, this is kind of how we cover um Friday Live.
1:54
SPEAKER_01: We go through what we're seeing going on in the markets, the economy, and then go through some of our blog posts.
1:59
SPEAKER_01: So just this is just a schedule of kind of the thematic nature of our blog posts.
2:03
SPEAKER_01: So we got market Monday, Tax Tuesday, wealth building Wednesday, think ahead Thursday, and Friday live discussion.
2:10
SPEAKER_01: So that's pretty consistent throughout the the week.
2:13
SPEAKER_01: Sometimes we deviate a little depending on what's going on, but that's the general nature on it.
2:18
SPEAKER_01: So start with markets.
2:21
SPEAKER_00: Let's do it.
2:22
SPEAKER_01: All right, let me pull it up.
2:24
SPEAKER_01: So here we are, SP 500.
2:27
SPEAKER_01: We did dip below the 50-day moving average, as you can see here.
2:31
SPEAKER_01: If you can see my mouse, can you see my mouse, Brian?
2:35
SPEAKER_00: I can.
2:35
SPEAKER_00: I can see it moving around there.
2:36
SPEAKER_01: Yeah, all right.
2:37
SPEAKER_01: So here we're sitting right at the 100-day moving average.
2:41
SPEAKER_01: It does look like that coincides with this downtrend line that we brief uh pre briefly.
2:49
SPEAKER_01: There we go.
2:49
SPEAKER_01: That's the right word I'm looking for.
2:51
SPEAKER_01: Uh broke above.
2:52
SPEAKER_01: So we'll see if we hold that level.
2:54
SPEAKER_01: That is a natural line for uh support.
2:58
SPEAKER_01: But if we do break that, you're uh you're looking at a potential short-term double top, which actually brings you down.
3:05
SPEAKER_01: If we break this level here from the end of January, around kind of kind of around where we're trading at now.
3:11
SPEAKER_01: Futures are pointing higher, but we'll see what how the day progresses.
3:14
SPEAKER_01: But that would bring us down to around price projected, around the uh November 20th lows, uh, around 6,500.
3:23
SPEAKER_01: So hopefully, fingers crossed, we hold that.
3:26
SPEAKER_01: But it's been a very interesting story this year.
3:29
SPEAKER_01: Um, previous year we've we've really seen the uh mag 7 drive the upside.
3:36
SPEAKER_01: Um, this year we're seeing a divergence.
3:38
SPEAKER_01: The market cap weighting actually, yeah, even last year was uh out over uh outperformance from market cap versus equal weight.
3:46
SPEAKER_01: But going into this year, we're seeing the opposite.
3:48
SPEAKER_01: Equal weight's actually doing better without those mag 7 concentration.
3:52
SPEAKER_01: Small caps are doing well, international continues to do well.
3:56
SPEAKER_01: Um, and the international story and commodity story has a lot to do with the dollar.
4:00
SPEAKER_01: So uh the dollar has been weak uh year to date, although of late it has seen an uptick, which that among some other things like the Fed chair nomination really put a headwind to the commodity, especially precious metal trade.
4:15
SPEAKER_01: Uh golden, golden silver last Friday.
4:20
SPEAKER_00: Big selling.
4:21
SPEAKER_01: They had some downside.
4:22
SPEAKER_01: And yesterday, I think silver was down 10% again.
4:26
SPEAKER_01: Um, so it's it's been drawn down, but when you've had that much of a parabolic run, you're gonna have some some major volatility.
4:34
SPEAKER_01: We're not recommending getting in or out.
4:36
SPEAKER_01: Um, there's other metals out there as well.
4:38
SPEAKER_01: So you might want to take a look at them, and not necessarily the ones that have had parabolic moves, but we're not commodity traders, we're long-term investors, portfolio builders of diversified um assets.
4:52
SPEAKER_01: So here's the 10-year treasury.
4:54
SPEAKER_01: Um, kind of similar story.
4:55
SPEAKER_01: We briefly broke this downtrend line, but we're flirting with it again.
4:59
SPEAKER_01: If we break around the 417 level, um it could point to further downside on that, which would be greatly appreciated by markets.
5:10
SPEAKER_01: Um let's see.
5:12
SPEAKER_01: So, yeah, talked a little bit about the Fed chair.
5:15
SPEAKER_01: Uh, you know, it's hard to say what the the Fed's gonna, the new Fed chair is gonna bring to the table.
5:20
SPEAKER_01: Um, historically, he's been a hawk.
5:23
SPEAKER_01: Uh, he was very implemental in the uh financial crisis, implementing policies for that.
5:29
SPEAKER_01: But it seems like he's very concerned about the balance sheet, um as well as he should be always been concerned about inflation.
5:37
SPEAKER_01: So that would point to not being, or at least the first the second part, not being aggressive on uh cutting rates.
5:45
SPEAKER_01: But the balance sheet side, if they bring rates down and long incomes down, interest payments will be much less.
5:51
SPEAKER_01: And I mean, if you hear some of his interviews in the last six months, I guess why Trump would possibly put him in.
5:57
SPEAKER_01: He's he's been a little more dovish than in the past.
6:00
SPEAKER_01: So um yeah, I don't know.
6:03
SPEAKER_01: I think uh and with any new Fed member, it's gonna take some getting used to how he goes about it and whether he's able to get.
6:12
SPEAKER_01: I mean, it's not just the Fed chair making the decision, it's the whole board, the whole board of governors or voters, I should say, not governors.
6:20
SPEAKER_01: Um, so that's really gonna be the dynamic.
6:23
SPEAKER_01: On the economic side this week, we got actually a very strong ISM manufacturing number that came in above 50.
6:30
SPEAKER_01: I think it was 53 in change, well above consensus.
6:34
SPEAKER_01: We've been really, we've had very few greetings above the 50 level, which marks expansionary territory.
6:40
SPEAKER_01: Uh new orders were strong, but um looking at like the survey of the people interviewed the companies, uh, there's a lot more pessimism, especially around tariffs.
6:49
SPEAKER_01: So I heard somewhere that it's more pull-forward data.
6:54
SPEAKER_01: Um, but January is usually a weird month.
6:58
SPEAKER_01: I'd and I usually don't place too much emphasis on the January numbers because they've been they've been kind of crazy in the past couple years.
7:05
SPEAKER_01: Um, ISM services came in about the same level as last month, but lower than expectations.
7:12
SPEAKER_01: Again, high 53 around that level.
7:16
SPEAKER_01: Uh, we did see a notable decline in new orders and the employment situation, so not necessarily a good thing.
7:23
SPEAKER_01: Um we have seen a pickup in uh so the late, so unfortunately, we don't get the non-farm payrolls this morning.
7:32
SPEAKER_01: It would have came out at 8 30.
7:34
SPEAKER_01: But thanks again to the the government, it's delaying me until Wednesday.
7:40
SPEAKER_01: So we'll keep an eye on that number.
7:42
SPEAKER_01: Um before the this week, I think we were looking for about 80,000, but uh we have seen headlines out of companies like Amazon, UPS, Nike, Home Depot, Pinterest, Dow, Expedia announcing um layoffs.
7:57
SPEAKER_01: And we got the Challenger Job Report yesterday, and that was actually came in a hundred and see if I can find it 109, 100, 108,435 layoffs in January.
8:12
SPEAKER_01: That is up 205% from December and the highest reading since January of 09.
8:22
SPEAKER_00: And there were some uh there were a few companies that accounted for a vast majority of that, I think.
8:28
SPEAKER_01: Yeah, so uh UPS was 30,000, Amazon was 16,000, um, healthcare, there's some names in there.
8:38
SPEAKER_01: Um, so yeah, that made up a big bulk of it.
8:41
SPEAKER_01: Um and I mean we're we we've had really good productivity numbers.
8:46
SPEAKER_01: Um AI is gonna have an impact on the employment situation.
8:51
SPEAKER_01: Uh I saw a report from Goldman that in the most exposed areas of uh in industries that it's gonna it could potentially drive 20,000 job loss a month from those areas.
9:05
SPEAKER_01: Um, so we also got the job openings uh yesterday, came in well below consensus, 6.54 million.
9:13
SPEAKER_01: I think consensus was uh 7172 million, and the prior month was revised lower to 6.93.
9:21
SPEAKER_01: So we're actually the lowest um job opening since September 2020.
9:28
SPEAKER_01: And the ratio of job openings to unemployed employed worker is below one now, it's at about 0.93.
9:35
SPEAKER_01: So the labor market's getting a lot more difficult.
9:39
SPEAKER_01: Um, although with immigration and the birth rate being down, um the supply is not as high.
9:46
SPEAKER_01: We're also not seeing as much demand, and we did see that in the um ADP employment report as well.
9:54
SPEAKER_01: We got 22,000 versus consensus was about 45,000.
10:00
SPEAKER_01: So all pointing toward a weaker labor market.
10:02
SPEAKER_01: Um, jobless claims were also a little higher at 231,000.
10:06
SPEAKER_01: Nothing alarming in that number, but it wasn't a notable uptick from last last week.
10:12
SPEAKER_01: Um, but they've been that number, those numbers have been anchored low for many, many years now.
10:18
SPEAKER_01: So whether we can still trust them, you can be the you can be your own your own judge of that.
10:24
SPEAKER_01: Um all right, so I think that pretty much covers what went on in the what's gonna happen next, that's a question.
10:34
SPEAKER_01: Well, it's really a pivotal today's a pivotal day.
10:37
SPEAKER_01: If we break that line, like I said, we got more downside.
10:41
SPEAKER_01: Uh we'll probably complete that short-term doubles top pattern.
10:45
SPEAKER_01: Um, but on the upside, if we uh if we break back above, we gotta make it above prior resistance.
10:54
SPEAKER_01: So um I I'm leaning, I I don't know what today will bring, but I'm leaning more toward potential weakness.
11:04
SPEAKER_01: But as you know, I've been cautioning for a while now based on um earnings have been good so far.
11:10
SPEAKER_01: I think the as of last Friday, um, a report that came out on Monday that we put out, earnings are tracking about 11.3%.
11:19
SPEAKER_01: So very good, although well above consensus, although the mega caps have dragged that number down.
11:25
SPEAKER_01: So you can see revenue growth rate's been strong, 8%.
11:29
SPEAKER_01: Uh yeah, 11.3 on earnings growth, 77% beat rate, which is pretty close to the five-year average.
11:35
SPEAKER_01: Um, so yeah, going into our blogs, you want to talk about the the QCD versus regular IRA distribution?
11:44
SPEAKER_00: Yeah, this absolutely.
11:46
SPEAKER_00: This was uh Tax Tuesday part of a series, and you know, talking a good bit about uh uh taking money out of qualified plans.
11:53
SPEAKER_00: Qualified plans are gonna be IRAs, 401 gays, things along those lines.
11:57
SPEAKER_00: Um the QCD stands for qualified charitable distribution.
12:01
SPEAKER_00: And then, of course, regular IRA distribution.
12:04
SPEAKER_00: What does that mean you take money out of your IRA?
12:07
SPEAKER_00: Um and so there you uh many people come to us and say, hey, you know, my IRA has become a tax burden to me.
12:13
SPEAKER_00: I don't I don't need all of that money right now, uh, but I'm forced at some point in my life to take money out of my IRA.
12:21
SPEAKER_00: It's called required minimum distribution for people at around the age of 73 right now.
12:26
SPEAKER_00: Uh 73 is the um the age at which you are forced to take some money out of your um retirement plans.
12:36
SPEAKER_01: And there are exceptions to this.
12:38
SPEAKER_01: At least for now.
12:38
SPEAKER_01: That seems like it's been changing all the time.
12:40
SPEAKER_00: Well, yeah, if you're born 1960 or later, your required minimum distribution age is 75.
12:48
SPEAKER_00: Um before that, and there's kind of a ban, but most people that are around the age of 73, it's going to be 73.
12:56
SPEAKER_00: And then for folks that are a little bit younger, it's gonna be 75.
12:59
SPEAKER_00: But let's say it's 73.
13:01
SPEAKER_00: So at 73, the IRS says, hey, um, on traditional plans where you get a deduction on the way in and gross tax protected, then on the way out, you're paying taxes.
13:11
SPEAKER_00: Uh, on those types of plans, um there is a required amount.
13:18
SPEAKER_00: Uh it starts out at about when you're 73, it's about 3.7% of the total, roughly, has to come out in that year.
13:25
SPEAKER_00: Then that percentage increases every year.
13:28
SPEAKER_00: Uh, but a lot of people come to us and say, hey, I don't I don't really need this.
13:31
SPEAKER_00: You know, I'm just getting forced to be taxed on it.
13:33
SPEAKER_00: And so when you take money out of that traditional plan, deduction on the way in, tax protected, taxable on the way out.
13:39
SPEAKER_00: IRS says deals over.
13:41
SPEAKER_00: We want to tax some of that money.
13:43
SPEAKER_01: They always send to get their money eventually.
13:45
SPEAKER_00: Well, they do.
13:45
SPEAKER_00: They're they're pretty crafty folks.
13:48
SPEAKER_00: Um so that but there is a way I call it a qualified charitable distribution.
13:52
SPEAKER_00: Now, the ages get a little funky here.
13:54
SPEAKER_00: You can actually do a qualified charitable distribution at 70 and a half or later.
13:59
SPEAKER_00: And how that works is you can take money out of your IRA tax-free and send it directly to a qualified charity.
14:05
SPEAKER_00: And it has to go directly.
14:06
SPEAKER_00: You cannot receive it in hand first and then give it to the charity, uh, the custodian of your accounts, which for us is LPL financial, but they would have to send it directly to the charity.
14:18
SPEAKER_00: So, in our example, you would instruct us and say, Hey, I want uh some money out of my IRA to go tax-free to a charity.
14:26
SPEAKER_00: So you can do that at 70 and a half or later, but you are forced to take money out at 73.
14:32
SPEAKER_00: The nice thing about the qualified charitable distribution, it does count for your required minimum amount.
14:38
SPEAKER_01: So 70 and a half used to be the old RMD age.
14:42
SPEAKER_01: So that's right.
14:43
SPEAKER_01: Did they do that intentionally?
14:44
SPEAKER_01: Keep it at 70 and a half, or was that an oversight?
14:47
SPEAKER_00: I think it was an oversight.
14:49
SPEAKER_00: I don't, I don't really know.
14:50
SPEAKER_00: I think it was an oversight because when they started the qualified charitable distributions, they said, well, you can do this at 70 and a half, but that was the required minimum distribution age as well.
15:00
SPEAKER_00: Then the required minimum distribution age went up and they didn't update the rule.
15:04
SPEAKER_00: I think that was an oversight, would be my guess, on the qualified charitable distribution, which remains at 70 and a half.
15:11
SPEAKER_00: Uh, now, interestingly enough, uh, it's not just for your your required minimum distribution.
15:17
SPEAKER_00: You reach that age of 70 and a half, you got a big IRA, you want to give this charity.
15:21
SPEAKER_00: In 2016, you can actually give up to$111,000 tax-free to a charity out of your IRA, uh, which could be for some people very beneficial.
15:31
SPEAKER_00: Serves a couple of purposes.
15:33
SPEAKER_00: One, it gets money to the charities that you care about.
15:35
SPEAKER_00: Uh, two, uh, it reduces the size of your IRA.
15:39
SPEAKER_00: Bad news, right?
15:40
SPEAKER_00: Uh, it could be good news because if you're 70 and a half now, you give away a bunch of money when you're 73, your IRA is smaller.
15:48
SPEAKER_00: And so if it's smaller than 3.7% in the age at when you reach 73, that required minimum distribution of roughly 3.7% is on a smaller amount.
15:59
SPEAKER_00: And so when you turn the age of 73, you are forced to realize taxes on a smaller amount.
16:04
SPEAKER_00: So um, long story long, is qualified charitable distribution is tremendously helpful uh for many people.
16:13
SPEAKER_00: Uh, those would be the people that say, you know what, I don't really need to pay my bills with the required amount that I have to take out.
16:21
SPEAKER_00: So I'm being forced to take to be taxed on money that I don't really need.
16:25
SPEAKER_00: If you're contemplating that and if you give to charities, um you know, those combined factors could be very helpful to you.
16:34
SPEAKER_01: And I believe in one of your prior posts in this tax campaign talking about QCDs, you mentioned something about it also goes toward the um income limits, like a deduction from the income limits when you're referring to um like Medicare or Social Security being taxed.
16:51
SPEAKER_01: Is that correct?
16:53
SPEAKER_00: Yeah, exactly.
16:53
SPEAKER_00: Well, you know, if you're giving money directly out of your IRA to a charity, you're not realizing that as income.
16:59
SPEAKER_00: And therefore, uh it does not affect um what your Medicare premiums might be.
17:05
SPEAKER_00: So if you think about it, if you do a required minimum distribution out of your IRA and it's big, let's say you're 73, you take the required minimum, and now that's that's income to you.
17:17
SPEAKER_00: Uh so that income, depending on how it is, can affect not only your tax rates, uh, but it could affect for some folks, depending on what your other income sources are, it could uh affect how much you pay in Medicare premiums.
17:30
SPEAKER_00: Uh Medicare has limits called IRMA, um, which says if your income is over a certain limit, you're actually going to pay more on your uh on your Medicare.
17:43
SPEAKER_00: So that's um income-related uh Medicare adjustment amount, I R M A A.
17:51
SPEAKER_00: So if you're taking money that required minimum, you got more income in that year.
17:57
SPEAKER_00: If that takes you over a limit, you may end up paying more uh in your uh Medicare premiums in that year.
18:04
SPEAKER_00: So it kind of has a waterfall effect that you really need to kind of take a look at.
18:07
SPEAKER_00: But if you're doing these charitable distributions, you know, we see so many people take money out of their IRA, they pay taxes on it, they put it in their checking account, then they give it to charity.
18:18
SPEAKER_00: Uh or some portion of that.
18:20
SPEAKER_00: Much more efficient just to say, okay, I'm gonna take what I give to charity anyway.
18:25
SPEAKER_00: I'm gonna put it, take it out of my IRA.
18:28
SPEAKER_00: Um, for many, many people.
18:29
SPEAKER_00: That's not for everybody.
18:30
SPEAKER_00: Of course, we don't give tax or legal advice.
18:32
SPEAKER_00: Uh, but so uh you can give money directly out of your IRA to a charity if you're 70 and a half or older.
18:40
SPEAKER_00: Um, and then if anything else you take out to enjoy your life, you take money out of your IRA, that's all taxable money.
18:48
SPEAKER_01: Okay, so 2025 changing subjects to our Thursday post about deductions.
18:53
SPEAKER_01: Yes, um, most people didn't itemize because the standard deduction for single filer was 15,000 for single and 30,000 for joint.
19:03
SPEAKER_01: Is that correct?
19:04
SPEAKER_00: Uh, I think it was 31,000.
19:08
SPEAKER_01: Yeah, it might have been yeah, high 30 at least.
19:11
SPEAKER_01: Uh so, anyways, what's changing in the OB3 is the uh salt deductions going up, correct?
19:20
SPEAKER_00: Correct, yeah, state and uh local taxes.
19:24
SPEAKER_01: Um, what amount is that and what does that mean?
19:27
SPEAKER_01: What are the implications of that?
19:28
SPEAKER_00: Yeah, so when you spend uh so uh what it had been before is you could only get a deduction of ten thousand dollars um if your state and local taxes were ten thousand dollars or more, you can only consider that as a deduction.
19:42
SPEAKER_00: And uh not many people were hitting that.
19:45
SPEAKER_00: So they weren't itemizing, they were taking that big standard deduction 2025 when you file your taxes for April 15th of this year.
19:52
SPEAKER_00: It's married filing jointly, it's actually$31,500.
19:57
SPEAKER_00: Uh, but if you had uh more than$10,000 in state and local taxes, um, then you can you know consider that a deduction.
20:06
SPEAKER_00: If you didn't, then you don't.
20:07
SPEAKER_00: They've raised that to$40,000.
20:10
SPEAKER_00: So um so there is a greater possibility that um with state that you might be able to, you need to can you should consider work with your qualified tax preparer to consider if your state and local taxes now, if they could be um deducted, because they had that limit before and said that you know this is all you can deduct.
20:34
SPEAKER_00: Now they're saying you could deduct up to 40,000 of state and local taxes.
20:38
SPEAKER_00: Um so um there would be a greater number of people that would say, well, you know, I can if I can only deduct 10,000, then you know, standard deduction is 31.5.
20:49
SPEAKER_00: I don't have any other deductions, so I got to go standard deduction.
20:52
SPEAKER_00: But now with the state and local taxes, if they're higher, you might be able to start to itemize on those.
20:58
SPEAKER_00: There's a phase out on that, uh, as with many things in the IRS.
21:02
SPEAKER_00: If you make too much money, they say, well, I guess you don't need our deduction, so we're not gonna give it to you.
21:06
SPEAKER_00: Um, so take a look at our post on that.
21:09
SPEAKER_01: Yeah, I think that starts to phase out at half a million and it's completely gone by or back to the old limit at 600,000.
21:16
SPEAKER_00: Um, yeah, it's right around there.
21:18
SPEAKER_00: Uh, you know, I I will tell you and I tell everybody else I don't memorize the tax numbers.
21:22
SPEAKER_00: Uh reason being isn't just look them up.
21:25
SPEAKER_00: So um so don't quote us on that.
21:27
SPEAKER_00: But when the the uh that's all in the post.
21:32
SPEAKER_01: Yeah, so I mean, given if you bought a house in the past two, three years, interest rates have been high.
21:38
SPEAKER_01: So you might really get to to benefit from that deduction.
21:41
SPEAKER_01: Um, we were actually talking to a prospect, and then I actually had another conversation uh later in the evening with someone.
21:50
SPEAKER_01: Might I mean, given the tax deduction, you want to talk a little bit about the potential for Roth conversions?
21:58
SPEAKER_00: Yeah, so uh Uh, you know, this could be certainly another Friday live.
22:03
SPEAKER_00: Roth conversion is the idea of taking money out of that traditional area that I talked about earlier, which is taxable, realizing the taxes on it and putting it into a Roth.
22:12
SPEAKER_00: Well, why would you do that?
22:13
SPEAKER_00: Well, you pay taxes now, you get it into a Roth.
22:16
SPEAKER_00: And if you follow rules on the Roth, generally the way the Roth works is you take money that's already been taxed, you put it in there, it grows tax protected.
22:24
SPEAKER_00: And if you follow the rules, you hold it long enough, you have the account open long enough, and there's a couple other rules on that that we can clarify for your specific situation.
22:32
SPEAKER_00: But you get that money in there, you follow the rules, it becomes tax-free.
22:36
SPEAKER_00: So the idea in its simple version is does it make sense to realize taxes on my traditional IRA?
22:44
SPEAKER_00: Um, pay the taxes now, short-term sacrifice for long-term gain, which is kind of the summary of all of financial planning.
22:51
SPEAKER_00: But take the short-term sacrifice of paying taxes now to build up a um a tax-free pot of money, which tax-free pots of money we love.
23:02
SPEAKER_00: And there's very few of them.
23:04
SPEAKER_00: Now, with the uh standard deduction going up, and for everybody over the age of 65, there's also an additional$6,000 deduction.
23:13
SPEAKER_00: So standard deduction is pretty high.
23:15
SPEAKER_00: You get, if you're over the age of 65, you get well, an additional 6,000.
23:21
SPEAKER_00: Um, there have been over 65 deductions, which are still there, and they varied a little bit depending on your filing status, single or married filing jointly.
23:30
SPEAKER_00: But everybody over 65 was getting the standard deduction plus an over 65 deduction.
23:35
SPEAKER_00: Now there's an additional$6,000 over 65 deduction.
23:39
SPEAKER_00: So, long story long, uh, it makes a lot of sense to uh look at your your numbers, work with your qualified tax preparer, and say, hey, I've got a lot more deductions, so I could realize more income.
23:52
SPEAKER_00: And in the Roth conversion idea, it's realizing more income by taking out of the traditional IRA, getting it into a Roth IRA.
24:00
SPEAKER_00: Uh, maybe now, uh for many people, it's gonna make uh more sense than it has in years past to do that Roth conversion.
24:11
SPEAKER_00: Uh, but you need to recognize kind of the earlier slide, you take money out of a traditional format, traditional IRA, it is gonna be taxable in that year.
24:20
SPEAKER_00: So you got to kind of balance that.
24:21
SPEAKER_00: And you can do a piecemeal, you can do small amounts of Roth conversion, you can do one big amount uh of a Roth conversion.
24:28
SPEAKER_00: Um, that additional$6,000 deduction over the age of 65 runs through tax year 2028.
24:34
SPEAKER_00: So these next couple years are gonna be really interesting to analyze uh whether it makes sense to realize the income by taking out of the traditional, getting it into the Roth, follow the rules, um, and then you have a tax free pot of money.
24:48
SPEAKER_00: Tax free pots of money are always wonderful.
24:50
SPEAKER_00: By the way, tax free pot of money for you and for your heirs.
24:54
SPEAKER_00: So, you know, we work with a lot of folks that they are in a lower tax bracket than whoever they're giving that money to.
25:03
SPEAKER_00: So you got some uh children that you want to give your IRA to, they're the beneficiaries of your IRA, for example, and they're doing great.
25:10
SPEAKER_00: They've got you know big careers in big cities making a lot of money, and they're in a really high tax bracket.
25:15
SPEAKER_00: Something happens to you, you give them a traditional IRA, they've got to take that money out of that traditional IRA at their tax bracket, which is higher than yours.
25:23
SPEAKER_00: So you look, if you look at the lifetime of the taxation of a traditional IRA, it might make more sense to realize some of that income now for somebody who's paying in a lower tax bracket, because the lifetime taxation of that traditional IRA uh might be lower if you realize that income at your lower tax bracket, as opposed to leave it to your kids who are in a much higher tax bracket.
25:48
SPEAKER_00: So you do that Roth conversion.
25:49
SPEAKER_00: We do work with some folks that do the Roth conversion to benefit their kids.
25:53
SPEAKER_00: Say, hey, if I'm not here, this IRA has to go to my children.
25:58
SPEAKER_00: They have to realize the taxes within 10 years.
26:01
SPEAKER_00: Um, that's another new rule for beneficiaries.
26:04
SPEAKER_00: They've got to take the money out in 10 years.
26:07
SPEAKER_00: And it depends on when the person died, but we can clarify that for you.
26:11
SPEAKER_00: But uh, if you're handing over a traditional IRA to somebody that's in a very high tax bracket, they've got 10 years to get that money out.
26:18
SPEAKER_00: And so now not only are they at a higher tax bracket now, but they got to take some money out of that IRA that you gave to them when you passed away.
26:25
SPEAKER_00: And um uh maybe that increases their tax bracket even higher.
26:30
SPEAKER_00: So again, that short-term sacrifice, long-term idea.
26:34
SPEAKER_00: Uh very simply, the concept is uh with a lot of assumptions, but you can sit back and say, what is the potential?
26:43
SPEAKER_00: We don't know the future, know it again.
26:45
SPEAKER_00: Uh, what is the potential taxation of the lifetime of this IRA?
26:50
SPEAKER_00: The lifetime of the IRA would be your lifetime and plus 10 years when you're gone to the beneficiary.
26:57
SPEAKER_00: So when you look at that and say, are there ways that I can reduce the overall taxation of the lifetime of this IRA?
27:03
SPEAKER_00: Maybe it makes sense that you realize the taxes now.
27:05
SPEAKER_00: If you're in a lower tax bracket than your beneficiaries, go ahead and get it into the um into the Roth.
27:12
SPEAKER_00: And when the Roth goes to your beneficiaries, that's uh tax-free to them as well.
27:16
SPEAKER_01: So Yeah, I'm I'm usually not too involved in the financial planning side of it.
27:21
SPEAKER_01: That's your department.
27:22
SPEAKER_01: But I I did sit on the in on that prospect meeting yesterday, and our software is really cool, I gotta say.
27:28
SPEAKER_01: So Brian was able to like go in and make a tab in there and whether a Roth conversion made sense for this particular person, and then he can make tweaks to it.
27:37
SPEAKER_01: Well, what happens if I die 10 years earlier, or if I make more in this year?
27:41
SPEAKER_01: Does it still make sense?
27:42
SPEAKER_01: And he can make all those on the on the fly.
27:45
SPEAKER_01: Um, it was really cool.
27:47
SPEAKER_01: And the same goes with like whether uh you should start taking social security or where you should take your um initial retirement income from what source, retirement, not taxable accounts, cash.
28:01
SPEAKER_01: Um, so that was cool to see.
28:02
SPEAKER_01: It's it's pretty impressive.
28:04
SPEAKER_00: Well, it it's uh it's uh I love it, and it's a great exercise to kind of picture picture any point in your life, but retirement in particular.
28:14
SPEAKER_00: Yeah, you picture you've got different spigots of money that you want to fill up a monthly bucket so you can enjoy your life.
28:23
SPEAKER_00: And those spigots might be cash, uh money in the bank, save checking savings, that kind of thing.
28:29
SPEAKER_00: Uh, it could be a non-retirement account.
28:33
SPEAKER_00: So that's an always taxable account that gets taxed along the way.
28:36
SPEAKER_00: It could be a retirement account, it could be a traditional or Roth, uh, whatever it is.
28:41
SPEAKER_00: And you and if you visualize that, you've got these spigots and you got a bucket, a monthly bucket that you want to fill up.
28:47
SPEAKER_00: And the question becomes which spigot do you turn on when?
28:50
SPEAKER_00: Uh many people say, hey, it's it's retirement time.
28:53
SPEAKER_00: I'm gonna use some of my cash, I'm gonna use some of my IRA, I'm gonna use some of my non-IRA accounts.
28:58
SPEAKER_00: I'm going for it.
28:59
SPEAKER_00: You turn on all those spigots at once, your bucket overflows.
29:02
SPEAKER_00: What is the overflow of the overflows unnecessary taxes?
29:06
SPEAKER_00: So the the idea, and it's different for everybody.
29:09
SPEAKER_00: There is not one formula.
29:10
SPEAKER_00: There's many people who say, you know, go uh, many people say go cash, non-retirement accounts, traditional save Roth for later.
29:19
SPEAKER_00: It works for many.
29:20
SPEAKER_00: You know, you know, that's a good kind of back of the envelope idea.
29:24
SPEAKER_00: Uh, but it doesn't work for everybody.
29:27
SPEAKER_00: So that exercise is really kind of uh modeling out what if I turn this spigot on first, this one second, what if I turn these two together, and then look at the lifetime of that and say, okay, we can make very simplified projections and say, okay, over your lifetime, this is the total taxes if we turn on these two spigots.
29:47
SPEAKER_00: But if we turn this one on first, deplete it, and then turn this one on, lifetime taxation of your uh could be lower.
29:54
SPEAKER_00: These are projections, of course, based on current assumptions.
29:57
SPEAKER_00: But uh it's a lot of fun.
30:00
SPEAKER_00: It's not precise.
30:02
SPEAKER_00: Excuse me, it's not precise.
30:04
SPEAKER_00: Um, but you know, financial planning is like any other planning.
30:07
SPEAKER_00: It's it's a living document.
30:10
SPEAKER_00: It's a living document that needs adjusted and reviewed on a regular basis as life circumstances, as the needs of how much you need in your bucket every month, as those changes, and of course, as the fickle uh IRS changes their rules as well.
30:26
SPEAKER_01: Yeah, and if you're interested in how this pertains to your particular situation, you can book an appointment directly on our website at hbkprobden.com or email us with questions.
30:36
SPEAKER_01: Alternatively call 724-463-1331.
30:41
SPEAKER_00: Yeah, absolutely.
30:43
SPEAKER_00: And um right on our website, you can contact us.
30:47
SPEAKER_00: Uh, you can either contact us by email.
30:49
SPEAKER_00: Uh, of course, our phone number is on there.
30:51
SPEAKER_00: And so you can just email us and say, hey, I'd like more information.
30:55
SPEAKER_00: I'd like to set up some time.
30:57
SPEAKER_00: Um on the upper right-hand side, you can actually um you can book time with us uh on our online calendar.
31:05
SPEAKER_00: You can do that through Zoom uh or a phone call, whatever your preference.
31:08
SPEAKER_00: Uh that's all right on there as well.
31:10
SPEAKER_00: Uh our initial conversations are complementary.
31:14
SPEAKER_00: Um, and Mike had alluded to earlier, where you know, we're very um uh transparent on the costs, uh, but the initial discussion um is is complimentary.
31:25
SPEAKER_00: And I, you know, I I I make a commitment that in each discussion we have with folks that they're gonna come away with something to uh at the very least consider.
31:37
SPEAKER_00: Uh and most often they're gonna come away with some actionable idea.
31:41
SPEAKER_00: So even if we just have a conversation, um uh we do everything that we can, that it is valuable and interesting, and at least something that is applicable to you to think about.
31:53
SPEAKER_00: And oftentimes it's something that you might be able to take action on right away.
31:58
SPEAKER_01: So all right.
31:59
SPEAKER_01: Well, anything else you want to add before we flip on the disclosures and leave for the week?
32:04
SPEAKER_00: No, no, I gotta hit the road.
32:05
SPEAKER_00: I gotta beat the uh beat the snow.
32:07
SPEAKER_00: We got some snow coming through here going west to east.
32:10
SPEAKER_00: I'm heading east, so I'm gonna try to get ahead of it.
32:12
SPEAKER_01: How much uh how much snow are you guys supposed to get today?
32:15
SPEAKER_00: Oh, heck, they don't know.
32:16
SPEAKER_00: It's one to three parts of where I'm going.
32:19
SPEAKER_00: They're saying possibly three to six.
32:21
SPEAKER_00: Those numbers are by tomorrow.
32:23
SPEAKER_00: Um hey, it is what it is.
32:26
SPEAKER_00: Powder day.
32:28
SPEAKER_00: Not for me.
32:30
SPEAKER_01: Not for me either.
32:30
SPEAKER_01: I'm in North Florida.
32:31
SPEAKER_01: We have no snow here.
32:33
SPEAKER_01: But if I was in a ski location, I may uh I may take an hour off of the workday to do that.
32:41
SPEAKER_00: Not me today.
32:42
SPEAKER_01: All right, well, everyone have a good weekend.
32:44
SPEAKER_01: I'm gonna flip on this disclosures, keep an eye out for our blog posts um that we showed you earlier, the thematic nature of them.
32:51
SPEAKER_01: Um so, and then we'll be back next Friday at uh probably back to our normal time at Friday at 12 30 eastern PM time.
32:59
SPEAKER_00: Absolutely.
32:59
SPEAKER_01: Everyone have a good weekend.
33:02
SPEAKER_00: Security is offered through LPL Financial LLC, member FINRRA, and SIPC.org.
33:07
SPEAKER_00: Advisory services offered through LPL Financial LLC, a registered investment advisor.
33:13
SPEAKER_00: Brian Peluso, Michael Kutch, and David Harper are registered representatives of LPL Financial LLC.
33:19
SPEAKER_00: Content discussed is for informational purposes only and not intended as an offer or solicitation to buy or sell any security or investment strategy.
33:28
SPEAKER_00: Any opinions expressed are those of the authors and do not necessarily reflect the views of LPL Financial or its affiliates.
33:34
SPEAKER_00: All investments involve risk, including the possible loss of principal.
33:38
SPEAKER_00: This communication may include links or references to third-party websites.
33:42
SPEAKER_00: These links are provided as a convenience only.
33:45
SPEAKER_00: LPL Financial and its representatives are not responsible for the accuracy or content of such sites.
33:50
SPEAKER_00: Brian, Mike, and David and HBK Profident Advisors may only transact business in states where they are properly registered or exempt from registration.
33:59
SPEAKER_00: Please contact us directly for information regarding licensing and registration status.
34:05
SPEAKER_00: Past performance is not indicative of future results.
34:08
SPEAKER_00: You should consult with your financial advisor, tax professional, andor attorney regarding your specific situation before making any investment decisions.