How Will the Election Impact Your Taxes?
27:59 Share

Walk back to ask the compound where we didn't get a single question about the us. elections. Can you believe in kidding? We ve got plenty of questions. We ve got a question about the potential for a bear market and our session in the next presidential term, the downside of early retirement, some potential tax implications from the presidential election, um the tax impact from seventy million baby boomers retiring in the coming years and when to fill up your rock buckets for retirement.

Email here asked the compound show at g mail dot com, send your email, send us your comments, or is glad to have them tons and tons of questions for people we appreciated today asked the compound sponsored by rocket money. Rock money is a personal finance up that helps you find the cancer going to want to descriptions one of your spending and help law ability can grow your savings. I was looking in mind the day, said, bin, here's your upcoming conscriptions and all of them are financial related barents while street journal financial times I can't remember A A bunch of them um and I can look and say, do I really need that one anymore? Can I cancel this? But then I let rocket money do IT for me.

I don't need to think about IT nice. They can be negotiator. They can cancel form me. It's easy. Five million users on rocket money, total of five hundred hundred dollars, one hundred per user per year. When using all the apps features, stop using those on one of things. You don't use cancer on one description by going to rocket money that com flash s that rocket money, that com slash kill inflation here with the work .

money of work money.

right? Duncan tells me we are in the need for a new video editor.

It's true, and not just an editor, ideally someone with some video production or film production experience. So we do IT all here, we shooting in person, uh, and then we record things remote. We added, so yeah, I need an all around uh, video and audio professional .

kind background of where coming from.

Well I an I deal so a good place to start if or communication school and uh and your interview h finance h yeah hit me up a at the email .

that we always have no more independent make movie .

yeah will make that .

happen still question okay.

at first day we have a question from twitter, which presidential candidate is more likely to cause economic strife?

This question obviously in before we had the results election, we do listen. I would give the same means regardless of who won. okay. So it's OK. And the quickest person was wondering about drawdowns in recessions, right? Which is going to which presidental cannot will cause more drama and recessions.

Uh, john, through the first chart here, this is a look back at presidential anio returns and then max draw ounds by president is going over back to teddy rose evelina. You can see that corruptions do not discriminate by president. It's hard to pin down some relationship here.

Obviously some presidents at worse drawn and others uh you know be uh eighty six percent of great depression not great obviously sorry for over um i'm pretty confident we are going to have a big return bear market at some point over the next four years and maybe we decided that, but um the president can't stop the stock market from going down IT just happens as much as the sessions go, john, for the next one up. We did this long term short of presidential terms, the line red and blue and then the gray bars for recessions and over the time and you can see three world war two, there are way more recessions. So that that's a big difference between lately, obviously, there's I don't know, this is another one of those where you can really tell us, you digging in the little more to john student in our one.

And we look at the number of recessions that are started under each individual type of party, and this one actually surprised me. Since nineteen hundred, there have been eighteen recessions that have started on republicans in six of the other democrats. I look at that, you think, okay, republicans are worse for the economy going to get to turn off now um I think that there are some context report you though I don't think this really tells us anything because was running reagan economic mysta w back in the one thousand nine hundred and eighty or he just happened to take over during a period of distinct lation and foreign tes after the seventies, was a terrible decade.

Was George H. W. Bushed, a terrible president, got voted after one term because he was a bad president? Or did his election you're happened fall DNA slow down in the us. Economy with bill clinton, like us found with the economy, or he happened to take over during a period of economic new one in the nineties with fever, uh, demographics in that combustible to round out the decade George w. bush.

Was he terrible the economy? Someone say, maybe I would say he proudly, he took office coming out of a two decade long bow market and walked IT after the one of the biggest two, the biggest bubbles who ever seen in the country, in the stock mark, in the dock com bubble, the housing bubble, in the in the odds. So when where obama and truck masters of finance? Or did the habit take over after a lost decade, during a period of low rates in a huge economic recovery? And then did you bit and push up the stock market and housing practices decade? Or did he have to take over as president when we had this huge influx of government spending because of the pandemic?

It's kind of a user and adventure right now.

You, you, nick, pick here and say, well, there are certain policies in decisions that were made or not made, and you can get into that stuff. My point is this stuff is cyclical in the timing of a president coming in. Sometimes they're lucky.

You're unlucky. Public investors, when you come in, if you came in, started investing during the eighties, early eighties, you were at a great time. If you started investing in the year two thousand, that's poor timing, right? So I think so.

The question is, is trump going to be lucky or unlucky in the next four years? And on the one hand, we've had exactly one recession in the past fifteen years in a passage for two months in the pending tic. Not even a real recession really we can created in our own.

So you could say we're due for a recession regardless of who is the president doesn't even matter. Um on the other hand, here's look at the current set up that trump is taking over in the economy. Unemployment ate at four point one percent.

Inflation rate two point four percent. Probably continue to go down at least for a little bit ten you're treasury of four point four percent. Real G, D, P, growth close to three percent if there is such thing as a sweet spot for the U.

S. Economy, this is probably IT. We're in IT right now plus have the fed in an easing cycle lower rates, of course, that can last forever.

And then you say, well, what about the prospect of higher inflation? If trump s is going to spend amount money, he's going to put these terrorist through. But then you go, well, we just live to repair inflation and that denly the recession.

And so round and round you go or you you could talk yourself into anything. I think of the last three years have taught us anything about the economy is that predicting recessions is hard. It's hard when you using economic data, hard using the stock market, is hard using the yield proof.

It's hard using vibes, and it's hard when using politicians. So I think my take is recessions in bear markets are are the future of this system, and they're going to happen eventually. You have to taken to do account for plan, but you can't plan for them in advance. And I don't think the president is going to tell you one way another, whether wrong will hold or not.

IT is interesting to see via the Price action today and obvious stocks that are associated with a trump, uh, one way another. So test with that big, all other E, V stocks are hurting big time. Clean, eric, stocks are down big.

The fun part about this is that you know that there is some other reactions going on and now, but you just don't aware we're going to talk about this more. We actually a live episode of the compound this afternoon, four P M eastern on wednesday. We're going to talking about some of that stuff.

But yeah, there there are over reactions and first, older effects and second third order effects that you can even tell IT now. So it's always interesting. My favorite example is a under trump energy socks and terribly and you'd think he's a big and then underbit and er just taxed really well. And so sometimes these these things are kind of tuition and not what you think will happen.

right? Yeah baLance are shocked to lot of people. They are buying gas, wind and oil stocks did not work out for you yeah during .

the west trap administration.

Next question. Okay, up next we have a question. You just put youtube comment guy, a great fire question, which the panel completely avoided and then went to the typical nonsense about what you be bored.

weird. The question did have anything to do with the person's retire my wife style. But you talked about that for nine minutes. Can we answer the financial part of the question next time and not get the picture about your opinions on retire early? Fair fair and off he and i'm a big boy .

take um but so last week we had a question john n money was hearing with a question when I was thirty six years old asking about roth irae conversions as he retires in mid thirties and we did go through some of the threats sheet part of IT saying, you know it's kind of a trade off. Do you want more liquidity now? Do you want more tax breaks in the future? And jill, I went through that. But then we did spend the book of that question talking about what do you do to retire early? And first of all, let's let's just get in the trust tree together. All the fire people um fire people can be a little a little sensitive about their lifestyle because beyond they catch a lot of flag from personal finance experts and others who go like, oh, I could done what you do if fit in any kids or I just didn't spend any money or working in tech or whatever um but you didn't do those things so people put them down and I think there is some jealous y there. So I do think I think the fire I think the fire moving is a net positive like maybe they take the frugality thing a little too far for my personal taste, but for them, whatever teach .

definitely be the opposite. You know, just like spending like crazy running up being right.

they have the right idea. Some people said, well, it's bend. You're just work aholic, which that is not true. I'm a huge fan of finding balancing one's life.

I said I purchased a lake home in my late thirties because I wanted to have something of a mini retirement. I don't want to wait to sixty five doing join itself. I so I am more the proportion of bounce if .

you're not one one .

two years ago maybe. But yeah, see, i'm i'm basically retired already. I wanted a series of many retirements so I can enjoy my time with my kid's mother Young, and they still want to hang out with me.

So here's what i'm going to push back someone on these comments. So yes, spread sheet and numbers stuff is important, but I think people, especially the fire moving to take the spread shit stuff, wait too far and they don't spend enough time thinking through the emotional stuff. I've seen this stuff first time.

The research spects on opponent. Um people find a lot of meaning in their work and it's not just the work itself, it's the relationships and the routine you create. And often times, whether you return in thirties forty, fifty or sixty, taking that routine off the table can be a huge blow to your psych.

So there was a study that looked at employees work at shell oil, and they found that people who retired to age fifty five that that thousands of employees over the years, people who retired at fifty five, double their risk for death before reaching age sixty five verses. Those who retirement after age sixty and mortality rates improved with older retirement age. And they think part of this is you stay more cognitive ly aware, used to keep those relationships, and you have something to strive for and actually can improve your health.

So there is more research from this book. The longest study on happiness ever is called the good life. I've references one before.

Highly recommend this book. And IT says, here's what they found. Positive relationships that work lead the lower levels of stress, healthiest workers and fewer days off. When we come home, except come home upset, they also simply make us happier. This doesn't mean that you have to have a good jo B2Be hap py.

But IT is true that people who are happy on the job and have these good relationships at work are actually tend to be happier in your life. Obviously, there there are other ways to create relationships and say, cognitive engage besides work. And i'm sure, like the guy in the in question said, yes, and I bought a hobby.

sure. I'm sure you do. I'm not saying you're going to be miserable automatically through retire early.

Only thing is you have to think through the psychological impact of retire early and have that be part of your plan to can't just plan out your money, you have to plan our all the other stuff too. Because i've seen way to many people. This happens.

The people in sixty two, they stop one day and ago, man, I can only how many times can actually golf and still be happy like I need something to do. So I think you have to focus more on the emotional stuff in addition to the thread chy stuff. I just consider that side of the equation because I could, I could sneak up on you.

I think a lot of people that do this, they have for jobs or hair industry and working and right. And so so it's understandable that's different than if you have a job that you enjoy, you like your good that and you you find a fulfilling then of course, maybe fire is not something that you're interested in pursuing. But yes, we have you hate your job and everyday is drag. And yeah.

why wouldn't want to the point? And guess what if you're there, you can still find something else to do with your time or maybe a different career path that you wanted to do or so that you don't even get paid for. You vote teer, whatever.

But you have to have some sort of plan. That's my point. Yeah.

I think i'd be old, like run a four minute mile if I retired early.

E, E, go for the beer to do IT. Next question. Oh, i'm next. We have regardless .

of who wins the election, tax rates will be different in the years ahead. The tax cuts and jobs act expire at the end of twenty twenty five. So whoever .

wins bcg a yeah.

yeah. I say I know things. Uh, so whoever wins will be implementing some changes, even if they do nothing. How do you prepare for uncertainty and tax rates like this? Anything you can do ahead of time to put yourself in a Better position financially?

All right, let's bring in a text at this one bill. Number two, bill art.

iranian bill heads up our .

tax practice at R W. M. Uh, in a beautiful state of pensylvania. No ones be talking about that, say, lately um are right bill, so impossible to get clearly on this stuff for sure um I guess sometimes even after the text also have been passed.

But what do you think about this? Like let's say that the the bill just gets extended, I guess in status call. What does that even mean?

I think that our defauts right now ban is an extension of T C G. A. So the tax environment we've been living a living in since twenty seventeen, we expect now that we have some results over less what's called twelve ve hours, we expect that to continue.

Um that would more than likely be a seven year extension just like the first, first, first tax change seven years. We expect seven more um there could be some takers around the edges, but we think the core of that will likely stay the same. So no major changes, however, we don't know.

And so for the last couple months, last couple two years, maybe we've been answering this question from clients and taxpayers across the country, what what should we do in advance of the election or after the election? And my response is always you don't fight the front runner. Um most tax changes are go into effect for the future and so you're able to plan ahead. Um there are some exceptions to that. Some of the the code that tax changes um were retroactive, which drove us tax professionals kind of crazy um but often time you can plan ahead once the laws and added you there some, there some go time before anything gets put in the place.

How long do they have to extend this end of next year?

IT IT is set to expire uh, as of december thirty first twenty twenty five. Um so the extension we need to happen before then if IT is not extended before that date, we've revert back to twenty seventeen tax law um which is slightly higher income tax rates, different settle deductions, different limits on deductions, a uh different corporate tax rate um so back to the back to the obama years of of tax for .

my friends on the coast. Could we see the repeal of the assault deduction?

We're skeptical given we kind of expect now an extension. I did say they might think around the edges with this, and that's one area they could. I don't see a full repeal um just where we are in america.

I don't need to tell the audience that we're pretty divided politically and that salt repeal was very, very popular in the middle of the country um which is where a lot of the G O P represents their um their constituent and so a full appeal. I'm pretty skeptic. I could see a world where they double IT from ten thousand dollars of old camp to twenty thousand. And, you know, that's change. Your life will help.

Sorry, I knew the taxes, cuts and jobs that I don't know what so does. Can you do the equipment? Tes of that road?

What is that? yeah. So on your federal to x turn down k in um if you iambic your deductions, which usually require a mortgage, if you don't have a mortgage, it's unlikely you're atomized.

Um but historically, ally, you could deduct one hundred percent of your state and local taxes that you pay that is real state taxes, state local income tax, stuff like that. As of T C, J, that was limited to ten thousand dollars. So the folks who were most affective by that were high income earners in new york, uh, new jersey, connective, california.

So if you have at seven percent mortgage, you you're hoping for a little bit of a rise in that because you're truly paying higher interests costs there.

Well, the mortgage doit isn't kept based on salt sault is um part of real state taxes and state income taxes. There is a different limit on the there is a different Morgans limitation right now. You can only adopt mortgage interest on mortgage dead up to seven hundred and fifty thousand dollars um without the T C J repeal or exploration in theory that could be up to a million um after twenty twenty five.

So that's why I like guys tax on talking .

about I mean, I think that's the biggest point is on lean on professionals, lean on A C F P is doing tax planning or lean on a tax professional C P A and E A um because those of the folks that are you most tune with the current and there are the ones that should doing in the forward looking.

And even if there are some the edges, you're probably going to know what they are you going to need to tech professional asus set out for you on the details. Yeah but but I guess the big takeaway here is probably not broad changes. I don't based on .

what i've seen over less hours, I don't expect broad changes. I think we're probably gna be in twenty twenty six, I think is probably going to look a lot like twenty twenty four.

Yeah, that makes sense, right? Not a question.

okay. And that one was from android or next we have one from Michael. Will there be any meaningful impact on the deficit as boomers start taking R M, S, regular withdraws and ten year withdraws from areas when they pass away? I'm thinking there is a possibility that all of this kicking we came down the road was to wait for this moment. Will the greatest transfer of wealth be accompanying a huge taxi?

I don't want to speculate on the macron. I'm compacted with this of the tetra seats. Uh, just wait too many variables to play like when the money comes out or how much actually transfers.

My all think a lot of people boys ask us, like, are the baby boomers going to crash the stock market? IT was always hard for me to see that because you know the top ten percent on one ninety percent of the stock market. So I think most of this money is not going to be spent.

It's going to be passed down or something. Um but there are seven million baby boomers are our in retirement or reaching that age. And so I I guess it's it's interesting to think about like what are the tax for ramifications of this in the years ahead? Like what are the biggest things to think about in retirement when you from .

a tax perspective, right? Yeah and the crooks here is that. A lot of folks for decades, the the baby bloomers of the world, they've been sitting in tax qualified retirement account for decades.

Uh I R S and four one case for a three b stuff like that. And at age seven, the current age of seventy three, it's going to be seventy five of a couple of years. But the government basically says you've deferred taxes for decades.

Now if you have to start taking money out of those accounts and pay taxes, those are called required minimum distributions. And that's the that's what the listener is getting out here. Um I think there is this is a this is a micro solution to a larger maco problem, right?

The micro is folks have to take money out of their retirement account to m pay text. The larger the larger thing here is a huge, huge micro deficit. I think this is kind of a drop in the bucket for you know the deficit.

Um john, can you put up the change uh, chart on I should say so this is a breakdown of retirement assets in the united states. It's about forty trillion dollars. Total assets in the united states are about two hundred drone.

So we're talking about one fifth of U. S. Assets, uh, charge off turn.

We're talking about one fifth of U. S. Asset during these retirement of vehicles. The thing is, IT doesn't all happen at once. R, N, these occur over the course of your lifetime.

And so when you're seventy three, your first, your RMB, it's less than four percent of your account value, right? So it's not it's not this massive. This isn't all gone to happen in a single year.

And if you know life expectancy is increasing across the globe, folks are living longer and then they pass IT on their kids. And right now, their kids have ten years to take on take that take that money out. So yes, tax revenues will be affected, but I I don't think that will be material.

Yeah, it's a drop of the bucket, right? Like you said.

yes, let's talk generally been on what we can expect in taxes uh, in retirement. So most folks are earning uh in retirement social security income. They're drawing on these retirement account um and they might have you they might have a broker account is paying interest and dividends.

Uh, retirement is pretty uh a pretty good time to pay taxes on one you've deferred for decades. So there's a time value of money to that before. And number two is at certain income level, social security could be not tax at all or could be taxed at fifty percent or up to eighty five percent. So dollar for dollar, you're never pay facts on one hundred percent of your so security income. And then if you do have a broker account, long term capital gains and qualified dividends could .

also be subject to a zero percent actually. So depending pay very little tax and .

that might be a good outcome, IT might also not be an optimal outcome. You know, paying zero and taxi sounds great, but there might be opportunity costs to paying zero taxes. There might be an opportunity to complain like a rough conversion.

So you taking some of this iron money that's been deferred for years. And there might be there might be a window in your in your lifecycle where your income is really, really low. And that would be a great time to convert your ire way money to a rough area.

I like a double edge sort that makes sense. But but again, to your point, not to to your own horn here, but like this is I talked to a group of financial advisors today and they are asking me some of the biggest chAllenges ahead for the final vice industry.

And I just said there's probably going to be more demand for advice and there are people to take IT because for a lot of people, building the wealth is an easier process than taking IT back out, right? And people are going to be in need for tax advice and insurance advice and state playing advice, and they're going to need help spending this money or transfering IT, whatever IT is. And that's going require more experts. Do you for C P S bill.

do you think with uh, trump winning is the I O S and R I R S agents are going to increase or decrease?

Uh, certainly not increase. Um I you know part of them I forget which tax act IT was IT was IT was during biden's term um but they added eye resident uh to the tune of eighty thousand and IT wasn't folks with guns running around ordering people as people to stay answer the phone. So for C P S, like me, that was a big win because now I can call the arrest, I can get someone s attention if a client has an issue.

Um proud of that. I I I have I have litter, literal phone uh screen shocks that have me on hold for over two hours. So it's a nightmare for me if the irs god, that's you know based on based on a lot of the triumph, ric, I think that might be where we're heading, not budding IT, but certainly reducing some of the the inflow of money and support the the bind administration provided.

Someone told me this morning they're onna, think about not paying tax that more suit happens to gy, we may not work with this person.

I around and find out is what I say.

I remember the first time I went to asia, north CarOlina, when I was in my high school. Ah ah you know bush dobby bush was in in the office and of the stores are on ashfall like little you kind of uh mom and pop stores said we we don't charge tax because we don't boy in this you this government of this you this war, whatever there were a bunch of different ones are being like that's a thing you can you can not pay taxes. I don't think I .

was right.

Last question last at least um we have a caution from jeff. I'm an old guy looking retire next year when I turned sixty four, I make about one hundred thousand doors a year. And i'd like to get as much money into my routh account as possible for the swash year of work. So here's my question, after the first of the year, do I max out my rot for when cave first our rough is? Or does that even matter what happens if I max on my areas for my wife and I am january and then whose my jobs soon afterwards?

Does the timing really Better here?

Not really. I mean, just got the right idea if he if he slow things down um and he's a person retirement adding as much a rough account is going to be really strong for him long term. There is a little bit of murcia that says you don't want to contribute to an I array before you know you have the earned income.

You know if based on his customers here, he earns about eight grand a month, the maximum array contribution next year for jeff over age sixty five, it's gonna thousand. So what I would pull, jeff, is wait until under january until you're paid twice and you know you're employed through the month to make the air rate contribution because it's the real pain to can over contribute and and not be allowed and then try to get that money out. Um it's formula at its a nightmare.

Um the other considerations on the four one, kay, and it's not so much your contribution, jeff, but it's your employer match. If you think you know if you stay is if you stay employed for the full year or a partial year, some employers will not complete their full match on a big lump sum contribution. So if you max everything out in january in the four one k which is going to be over thirty thousand dollars, um your employer might match whatever their matches.

They might just do IT for january um and they might not give you credit for the full contribution where where if you do IT evenly over a series of month or series of by weekly patch x, you're going to get a full massage ge your entitled to. So i'd be careful on the four o okay. Um in terms of the timing and then on the I R A, just make sure you have the earned income to make the contribution into.

Is the point if he has some low income in the release retirement, he could continue filling up the rock box if you wanted with rosy versions right?

Yeah I mean, that's, uh take a drink if you if you were waiting for rough conversion. H that's number two. But yes, I mean that's the kind of the the peak time to is especially if he is like A A partial year of earnings, that means this income on paper next years can be really, really low um and that would be the time to fill up those low tax Price is right now at the federal level, that's ten percent to one percent. I'm looking to fill those up with rough conversions.

I guess, getting Better. Other point about complexity and retirement. Having more rough assets makes your life a little less complex and retirement, right? Because you don't worry about IT.

It's certainly you don't like to worry about tax. You don't have to worry about gaming out your tax brackets and figuring out X A lot like you're routh account, a raft account, it's all going to be a tax free as one as you meet the five year um five year requirement, you have to contribute and wait five years before you can draw on the earnings. But that sounds like just been on this path for a while. Then you should be .

a good yeah good question. I very .

confuse. Am happy I have a tax genius during my taxes.

you know, let I used to do with myself. Now my first tech from us over fifteen years old. My first job my father made me do myself was a hand written or yeah.

did IT by hand when when I was a free way. Three years ago.

I used to do turbo tax. IT was my always favor thing.

We do always if you're cpa and you want to get in the world of investment management, financial planning and also they do really, really high quality tax work.

Member, live with the compound tonight. Four P M eastern me. Josh Michael Kelly, E S.

Ask the compound. Show a gmail. Come see you next time. Every everyone things we're listening to.

ask the compound. All opinions expressed by then, carson dunk, can hill and any of their guests are solely their own opinions and do not reflect the opinion of realtors wealth management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of rich holdings wealth management may maintain positions in the security disgust in this podcast.