Retirement Year End Planning: Contributing to Assets
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IT shows a proud member the retirement podcast network. I would rather have questions that can't be answered, the answers that can be questioned. Richard, five men.

Welcome to the show dedicated to help and you you not just survive retirement, but to have the confidence because you're doing work to really lean in and rocket today on the show, we are going to continue our series on optimizing year and task and look at all the different accounts that you might want to consider contributing to between now and the end of the year. In addition to that, we're going to answer some of your questions. We had a great meet up last week regarding roth iras and the framework to think through that.

We had a lot of questions, so i'm going to answer some of those questions here on the show. As part of our open house web r on raft conversions last thursday, we opened up the last open enrollment for the iraq retirement club in two thousand and twenty four. They will be open until november seventeenth.

You can go to rock retirement club dot com to learn more. This is the last open and romance for the year, at least until february. This is also the last open enrollment at the current Price. We are increased in the Price in two thousand and twenty five, so you can lock that in today if you are considering within the required real club.

We have assembled all of the tools that you need to build your retirement plan of record step by step, along with a contrary of expert coaches, including three retirement planners that are available in group form to answer your questions and encourage each other. One good announcement we had is in coming in two thousand twenty five, we have a partnership with y nab, a budgeting type APP, where we're going to create our own temper to track spending in retirements. We can make sure we're leaving those goals.

So if you're looking to build your retirement plan of record and you want to have some wise people walk life with, go to rock retirement club that come right. That said, let's get to contributing to assets from a year in planning perspective. This month, the theme has been to look at year and planning items in order to optimize your plan of record.

So we're in the optimization pillar of retirement planning. So this means that if you want to to ignore optimization, if you have a feasible plan of record and a resilience ent plan of record, you shouldn't have to optimize to make your plan sound for your life. This is just how do we enhance the journey in my practice.

We look at this fourth quarter where we review a lot of these items, says optional for some clients are just aren't a lot of things to look at. But we internally go through the checklist of some of the stuff we're talking about this month, just make sure that there are not any missed opportunities, typically from a tax perspectives. Ves, so what going to talk about today is contributing to assets, to individual accounts between now and the end of the year.

And there a number of accounts where we have a year and deadline on the annual amount that you're able to contribute, and we have some that go to April 4 and delineate what those are。 The first one that will start off with is contributing to your four one k account. So in two thousand twenty four, you're able to contribute twenty three thousand dollars as an employee e contribution two, three, four, one k or four or three b if you are eligible.

One, you may have been doing this throughout the year, but perhaps you just became eligible in the last quarter. So because you change jobs or you just haven't really contributed much and now you're the position of I could really front load this or backside this in this case and get as much as as possible. So you have the opportunity for possibly your november paycheck and your january paycheck to maximize the contributions of your under age fifty.

You can get twenty three thousand in. And if you are over age fifty, you can add on top of that catch up provision of seventy five hundred dollars. I'm looking at my two thousand and twenty four important numbers worksheet, which we will send out in our six shot saturday email.

If you're not signed up for that, you go to sick shot saturday outcomes. So the first is the four o one k either as a rough or as a pretext contribution depending on your retirement plan. If you have the option to do row in your foreman k or qualified plan, it's something to consider, especially if you make too much money to contribute to a raf I ray, because of the income around rather I race and will go over in a minute.

So next one, just evaluate where you're at on your four one k contribution. If your tent was to max IT out, well, you get a little bit of opportunity here in the mother or so in those last paychecks to get that done. The second day we want to look at is contributing to an I ra or a rough I ra.

Now you can do this up until April fifteenth, but I want to point out the back door roth ira, because that something you might want to get done in this year. So in two thousand twenty four, you can contribute up to seven thousand dollars to a individual ira or a rough ira. Now that traditional ira contribution will get reduced if you start going over certain income limits, if you're married.

Finally, jointly, that deductibility feature starts to go away about one hundred and twenty three thousand dollars and is fully gonna one hundred and forty three thousand dollars. If you are single, the deductibility of an I ra go starts going away at seventy thousand and fully goes away at eighty seven thousand dollars. So you're not able to make a traditional ira contribution of seven thousand dollars and deduct IT because you're over the income limit, you can still make a non deductable contribution.

You'll just pay tax on the amount that you're contributed to that traditional ira a. Now in addition to that seven thousand dollar limit, if you're over age fifty, you can contribute an extra thousand dollars, so a total of eight thousand dollars and it's deductable if you are within the income limits and this will be on the two thousand and twenty four important numbers are gonna sending out all this month. But IT looks like you you make too much money for this to be deductable.

Why would you still contribute to a traditional I R. A, especially in two thousand twenty four, you're not going to get the tax deduction. Well, IT would grow tax defer. So that's nice. But if you are planning on making a rough a contribution and not a traditional contribution, there might be a reason to do an on deductable ira contribution first because roth contributions, which are seven thousand, with a thousand dollar catchup of your over age fifty, those can go away as well.

If you are single and you make over one hundred and forty thousand dollars a year, your ability to even contribute to a roth ira begins to go away, and we will totally go away. If you make over hundred sixty one thousand, if you're married, if you're modified, the justice growth income is at two hundred and thirty thousand or more, you may not be able to make a rough ira contribution. So that's where the back door rough contribution comes, where you contribute and after tax contribution to your traditional way.

And then you immediately convert that traditional ira to a rough account and IT ends up being a tax neutral thing. And we've covered back to ross before, and we will try to put a link and sixth shot saturday to and we ve answer that IT more in depth. But this is one reason why I bring this up, even though we have until April fifteenth from a deadline perspective because if you're trying to do a back or oh, I A probably good to get IT in this year so you can do another another one next year.

The next account you might consider contributing to is your health savings account. You are only qualify for a health savings account if you have a high deductable health care plan. So this is going to be prior to medicare typically, and IT will be designated as h sa.

Compliant typically. You know, if you have an a can plan now, you have until April fifteen th to contribute the aga for this year. But if you want to get IT done before the end of the year, then you can go head and do that.

Just don't miss IT if that's your plan, if you're going to wait April fifth. So in two thousand twenty four, for individuals, you can contribute fifty one hundred dollars to a health savings account that's a tax deductable contribution that will grow tax free and come out tax free. Assuming is coming up for qualified medical expenses.

If you have a high deductable family plan, then your contribution limit for two thousand and twenty four is ninety two hundred dollars for families. Now if you're over fifty five, the catch up provision, which is different than iras and rows, which you're at fifty, if you fifty five over, you get a thousand dollar catch up in the hc contribution. So it's good to get that done in the year that you are making the contribution to be two thousand twenty four, but you do have until April fifteenth to get that done, right?

Another thing that you might consider contributor to, and that is a donor advised fund or any type of charity, any donations you make in the calendar two thousand twenty four may help you in taxes. So you want to make sure if you have any charitable contributions that you get them done well before the end of the year. And a donor advice fund is essentially a charity that you can contribute money to and then disperse what individual charity that goes to us like a pool of money that can grow.

And then each year, you can contribute all or some of your portion to specific charities. It's a way of getting a tax deduction or getting the money into a charity fund this year without having to go choose a charity now with a donor advice fund. If you plan on making cheerful contribution to a couple things to think about.

Number one is consider doing highly appreciated stock. So let's say you bought NVIDIA, you know, the an AI chip stock and it's gone up a zillion percent. And you have a huge capital game. Let's say you put five thousand into IT now towards hundred thousand dollars.

Well and if you have one hundred thousand dollars and even let's say that you're charitable intent for this year, well, you can contribute cash you could sell in the video, take one hundred thousand dollars and give IT to the donor a device fund and then you're going to have a capital gain on selling the the video stock in this example or you could contribute the highly appreciated as that directly to the donor advice. Fun in this case would be NVIDIA stock. And by doing that, you avoid all of the capital gains taxes related to the transaction.

That number one, if you're going to contribute money to a charity, whether it's your local charity or church or whether it's a donor advice fund, don't just give cash, consider giving highly appreciated asset so you can get that tax liability off of your baLance sheet. Second, if you're going to make cheerful contributions to get impact from them, you'll need to advise your time errors, meaning you'll have to have enough deductions that are above the standard reduction you get as an individual or as a family. That would mean that from a planning perspective, when you're making contributions to charities, you would want to batch those.

So good examples. Go back to the example that I shared. Maybe you don't want to give a hundred thousand dollars to a charity this year. That's more maybe you really want to do one fifth of that well by front loading your charitable gift this year and per giving into a donor advice fund or directly to a charity five years of giving, that's going to help you out a much more from a tax perspective. We have a couple of cases right now where we're coupling charitable contributions, in this case, directly to donor vice funds, along with rough conversions to help manage the tax liability.

So consider that before the end of the year, also before the end of the year, if you are over seventy five and a half and you are working to manage your required minimum distributions and you're charitably inclined, you want to make sure you get your qualified charitable distribution in going from your I R A directly to the charity that will offset your required minimum distribution now or in the future by getting money going directly from your R A. To a charity. Now you're able to do that on, sure, seventy and a half.

So that's the the age bracket that you can start doing qualified charitable distributions. And in two thousand twenty four, you can do up to one hundred and five thousand dollars. Now a lot of this stuff, maybe i've heard all this stuff that's fine or you ve thought of this and i'm okay.

That is okay. But it's good to review a list in a systematic wak because we might forget about something. If we're not organized and how we review these end of your items.

And i'll use the example of a donor advice fund in that we were going through a review and IT was only by having a checklist that we ever remember. Oh yeah, we have the donor advice fund and then we had a conversation to explore IT because IT wasn't on the radar. That became a strategy.

But if we hadn't gone through a checklist, IT might not have come up when we might miss the planning opportunities. So it's just a good habit to get into. And the last one i'll talk about here today is five twenty nine education plans.

So if you have a five twenty nine set up for a child or a grandchild or you're considering IT, you could set one up today and contribute your annual give limit that you give to anybody in any given year in two thousand twenty four that eighteen thousand dollars. So if you have a grandchild and you want to contribute to a five twenty nine, you get one set up before the the year and get that tax an amount of eighteen thousand dollars into a five twenty nine. If you're married and you want to get more money into a five twenty nine, you can double that to thirty six thousand thousand because H, U.

And your spouse could give the eighteen thousand dollar exclusion. Simple things you can do, there are more advanced tragedy to get more money in there that we don't have to talk about today real quickly. Let me go back to the standard deduction because I really tell you what that was.

So in two thousand twenty four, a single person has a standard deduction of fourteen thousand six hundred dollars meaning if you don't have deductable contributions like a donor or a charitable contribution above fourteen thousand six hundred, you're going going to use a standard deduction. So you're not going to get the benefit of your five thousand charitable contribution if you are married, IT goes to twenty nine thousand two hundred dollars. So if you make a curable contribution of five thousand dollars or ten thousand dollars and that plus you rather Normal deduction when you calculate your taxes doesn't get above that twenty nine thousand two hundred, you're not really getting any tax benefit from the cheriton contribution.

That's one reason why you might want to consider batching them. Another account you might want to consider contributing to is your after tax investment an account. Maybe you've gone through your checklist.

You've done the tax game as much as you can in ross and four one k and five twenty nine and whatever else. Now you have access money left over that doesn't need to go to an emergency fund or a income for or this is a situation I was in recently. So I moved money over to my taxable broken age account and i'm investing in.

The reason I want to bring this up is because if you're investing IT, you want to make sure that you're careful not to buy a tax liability unintentionally. And what I mean by that, if you are buying a traditional open and mutual fund and know why you'll know it's an open and mutual funds, it'll heavy symbol of five letters, S, G, I, I, X. As an example, those open and mutual funds issue dividends and capital gains generally in december.

So you have to be careful about that. And you can go to the website of the fun that you're considering buying and see if they've already issued their dividends and capital games that they've realized for this year or if they have an estimate of forecast of what they're going to be. So you can do that directly at their website because what could happen is if you don't do that, you could buy A B, C, mutual fund today because you had access money to contribute, and then the next day they could issue the capital gains individed liability for shareholders, and you would have a taxable event in the year for whatever capital games and distributions they realize this year.

Even though you only own the fun for a day, you can be careful about this this time a year. Now if you are buying exchange traded funds etf, you're probably okay on this because they're much more tax sufficient in their construction than the traditional open and mutual fund. Most of us are buying etf nowadays, still see a lot of open end funds, and I still use a few in my practice actually.

And you'll know it's an exchange traded fund. If IT has a three little letter symbol, so an example would be S P Y as an T F trust for the S M P five hundred and IT trade down the new york exchange. So just one little wrinkle you want to be aware of.

Now remember, all of this stuff is in the optimized pillar, so you don't have to do any of this stuff. You can just go through a quick checklist, no, no, no, no, no, no. And then be done with IT and go on with your life.

But for those of you that have some optimization inclination as well as opportunity, you can be in real dollars in your pocket, right? With that said, let's get on to enter some of your rough questions that came up during our rough me up last thursday. By the way, monday was veterans day, so at the end of the show, i'm going to share, and i'll probably do this for some weeks because I have fifty one missions that my grandfather flu in A B seventeen.

In war war two, he flew for the three hundred and forty second bomber squad of the ninety seventh bomb group in the fifth wing of the fifteen th air for stationed in italy, starting about one thousand hundred and forty four may. So I want to share some of his missions because I have a log book where he does a very brief log of every mission that he flew, someone to share the first mission at the end of this episode. And let me share some more just to honor him and honor all of you that served our country.

And thank you so much. Goblets you. Let's get to some rough questions that came about mainly from the media we had on how to think through rough conversions in a logical way. First one is from me. My question is regarding erma brackets.

I'm trying to determine a rough conversion for two thousand and twenty four, but i'm concerned about the effect of erma in two thousand twenty six, but the arma two thousand twenty six bracket are not known. How do I handle this conundrum? Great question read.

So let's get everybody up to speed. Erma is a medicare surge charge that can come in to play if you have a modified to justice growth income above certain levels. And the reason read is think IT about his two thousand and twenty six impact to the medicare sear charge in two thousand and twenty four is because i'm guessing read is sixty three or over.

And in the year that you get assessed, the surge charge, which is essentially paying extra for medicare, they're going na look at your tax return two years prior. So the twenty four tax return is going to impact the two thousand and twenty six tax year. So what are we talking about here? Ira is a third charge if you make too much money under what's modified to just gross income.

Again, the important numbers worksheet that you're getting all month will have this listed on there. But if you make over two hundred and six thousand dollars as a married couple or a one hundred and three thousand dollars as an individual, you're going to pay more money for part in party medicare. And the amount that you're going to pay for that first bracket is sixty nine dollars and ninety cents a month more for part b and twelve dollars and ninety cents a month more for part d, and that will happen in the year that you hit that bracket.

So like with read, if IT does a rough conversion this year, two thousand twenty four in two thousand and twenty six, if is over that first bracket, he's going to have that extra expense for the entire year because the irs is going to look at this two thousand and twenty four taxi term. And it's teared up like brackets, meaning that there are different brackets that the more money you make that hire your surcharge on party and party could be. And unlike the tax code, tax brackets, if you're one dollar over, you go to the next brackets.

So that's what reads concerned about. And this question is we know if the twenty four bracket are, but I don't know twenty six is going to be and read, there's no answer to this conundrum. We will have the range of income will increase index to inflation.

I don't know the exact index that they use. So the the the income threshold that should go higher because that will get index to inflation. Now the amount of the search charge we don't have clearly on.

So you got to go with what you got what we do in our practice. We use the brackets this year and use that for our rough conversion planning. That means where you'd using lower income threshold to hit these, sir charges because in theatre index and go higher.

But that gives us some margin of air because we don't want to inter go over by a dollar because I can have a bigger impact. And then on the third charge, there's no clearly. So there's not much we can do about IT.

Our next question comes from David related to how we talk about projected required minimum distributions. David thanked us for the the meet up and says the team has charisma and authenticity. Trust is so important in the R.

C. Culture is outstanding. Thank you, David. They says, I do have one question, but are not expecting a persons reply.

I told David i'd just reply on the show. Perhaps you could be addressed on the future podcast. Like many of your peers, the chart you used does not show portfolio withdraws prior to require minimum distributions.

So on the weapon are which we have a replay for. I believe it's in our free resource section. If not, I will be there sooner. I used the shark showing, okay? If someone has two million dollars today in the eight sixty three, and we assume a five percent growth rate, what the projected required minimum distribution would be at eight seventy five and IT would grow by five percent a year.

And the reason I show that is in a good rough conversion process, you want to have an understanding of what your future R M S could be because then you can get an estimate of what tax package you might go into, and that might save you some money by doing rauf conversions today because you lower those R M S. And David correctly points out, in the example I used, I assumed zero withdraws from eight, sixty three, sixty five. So they weren't taking money out because they needed the money to spend on life.

Whereas if they were taking money out, say, in sixty four, sixty five or any time in that time frame, all of those qualified withdraw without the years would reduce the required minimum distribution. And David has a really good point here because in reality, you do want to map out what you think you're going to be needing from your ira, in fact, or those withdraws in there. And in the spread ed sheet that I use, which is included in the club, IT has a place to enter those withdraws before required minimum distributions.

And when I had replied to him, and I will say here is for teaching purposes, we just wanted to show, hey, you need to pay attention to the so you don't get surprised in permanently in a higher tax bracket because you have been not taking money out of an array in the spreading y IT has where you can take money out on a systematic basis or a the spoke basis year by year and map out what that might be to see if you really have A R M D problem or not. See here one hundred percent correct there. IT was simplicity in my example, because we had living about the time, and I was trying to teach the framework, and I was just using IT as an example.

Now, David, what are you? Have too much characters. Suggest anything far? Cco, but I do question if peers less concerned with ethics use similar charts to scare people into using their service.

I may be missing the point entirely. IT would be the first time. Just ask my family on that, David. I don't know because if you use a traditional just calculator to calculator require minor distribution, IT doesn't give you that option to do those withdrawal beforehand, I think.

Is that more of a simplifying assumption than IT is an a furious intention? Now I can't speak for everybody, but you're correct. IT does come into place and should be factored in.

Our next question comes from joe, and joe says I get IT that IT makes sense to convert if you are in the zero, ten or twelve percent tax bracket early and retirement and you will be in the twenty two or twenty four percent right or later once your income streams are turned on but if one is going to be and say in the twenty four percent tax bracket throughout retirement, does converting just to lower the unneeded R M, D make sets when those can be offset by qualified terminal distributions? Yes, they can definitely be offset by qualified charitable distributions. And IT would decrease the need or the the inclined to do roth conversions.

If you know you're going to be in a higher tax bracket regardless, well, that's going to be more checking the box if IT might not be as important to. So I don't disagree with that, joe. Where IT might be problematic or some things you might wanna consider, joe, is if you are married, what the assumption is typically that we're always in the joint brackets and likely if you're married, one of you is going to be alive alone, which means that you are going to be in the single brackets ts, which could move you up the tax bracket scale quicker.

So as an example, me look my chart here. If you're married and you're in the twenty four percent tax bracket, well, that bracket is in two thousand and twenty four two hundred and one thousand fifty one dollars to three hundred and sixty three thousand nine hundred dollars. So if you had two hundred and fifty thousand dollars in income, you would be in the twenty four percent bracket.

If you were married, if you had that same income and you are single, you would be in the thirty five percent tax bracket. So that single tax bracket going going to get you up a lot quicker. So one thing you do want to consider, ers, what's the long gevalia? Both of us, we both healthy.

Do we have anything that is an issue related to our longevity? And will one of us be a single bracket for a longer period time? And then two, just how we feel about simplicity in prepare taxes.

Kevin lives and he shared on the weapon up, but he's not here to share IT now. But one thing about we're doing rough conversions is IT like prepaying a mortgage. You're just prepaying the taxes and the taxes are going to be applied on today's dollars.

And so you're not allowing that tax liability to increase in the future. A lot of this comes into play too, I think is do you have a lot of after tax assets to handle paying the taxes? But great thought.

Get to one more question and what maybe we would do a few more these next week. Get a lot of questions, always questions on raw deny says the more I read about roth conversions in the five year rule, the more confused I get, I understand. And that being fifty nine and half or make all the difference, what i'm confused is in regards to wait in five five years to withdraw gains on rock conversions after i'm fifty nine and a half.

For example, if I convert ten thousand dollars and I gained ten percent in the first year after the conversion, would I have to pay taxes on a thousand dollars of gains unless I wait five years? Will each conversion have its own five year old, even after one, fifty nine and a half? So denese, the way that I would work is each conversion would have its own five year clock.

Even after fifty nine and a half, if you haven't had money in a roth for at least five years, the golden rule is if you are over fifty nine and a half and you've had at least one dollar in a rough I R A, then any money you take out of an I ray is not going to be subject to any tax, and you don't have to track any of the conversions that you do. So the fifty nine and half is over one threshold, and then having an ira open and funded is another. So once you've had a dollar in a roth for at least five years and you hit fifty nine and half, you don't have to think about any other stuff.

And this is going to be the case, at least in my experience, for ninety nine percent of the people. Here's example for me. I'll use myself as an example.

I have any money, and I have foreign kay money. And in my foreign ay, I have rough assets, so I can't contribute to a rough array. So what I did this year on fifty seven, I did a rough conversion of three hundred dollars.

So I established a rough I array, and I converted three hundred dollars this last month. So IT counts at the beginning of two thousand and twenty four in. The reason I did that is because I want to get that clock started on the five year old.

And like the cobbler who are so busy thinking about everybody else, he forgets to put his own shoes on. I should have done this some years ago. I just never got around to IT. So what does that mean for me? So I have an ira that started in two thousand, roth, I ray, that started in two thousand and twenty four.

And let's assume I did some conversions once I hit fifty nine and half and fifty seven today, if I would take money out of my roth I array, the first money that's going to come out of my contributions. And then, if I take a usual example, ten thousand dollars. So the first ten thousand dollars I take out of my contributions, the second thousand after that would be gains.

I'm gonna taxed on that. I'm over fifty nine and half. I'm not gonna a penalty, but I would be taxed on that. But once my routh account ages toward that first dollar in two thousand and twenty four has been there five years, then I don't have to think about IT ever again. With that said, let's get to a smart sprit.

And off to set a little baby step you can take in the next seven days to not just rock retirement. Rock life are in the next seven days. If you don't want to worry about optimizing any of this money stuff, ignore everything about to say and go live a great life.

As long as you have a plan of record in place that you feel confident in, just ignore this stuff. If you want to try to do some optimization, grab the important numbers worksheet will have IT in six shots saturday. Grab the worksheet of what things to consider before the end of the year.

We've shared that prior six shot saturdays will share IT in this six shot saturday and just spend saturday morning with coffee and just go through the last row quickly and IT may just be checked. No, no, no, no, no, no, i'm cool. Or you may find one or two things that you pursue a little bit more as how you got to do one of those two things. With that said, let's hear the first mission from my grandfather. In honor of veterans day, I thought at the end of the episode, and maybe I do this in future episode, i'm going to share some of the missions.

My grandfather flu, do you think all the veterans that created a an amazing country that I and you get to live in? So here's the first page, these relatively brief, he wrote missions that I have flown with the three hundred and forty second bomb squadroom of the ninety seven bomb group in the fifth wing of the fifth air for stationed in italy, uh, something airbase at a doa airbase type of ship b seventeen IT looks like A G right mission. And i'm reading this verbal mission number one, may twenty five, one thousand nine hundred and forty four ship number five, one six, thirty.

Number one target. Today we bombed repair shops in the old france target, demolished no flag over target on way up, one engine failed and could not be fathered. Number two also went out, and we flew over knees the shortest way back to our base, got a heavy garage flag in how two measures tes.

Nine ones attacked us, and I got my souvenir from the juries in the form of a twenty millimeter bullet through the upper part of my league while being hit. The rest of the crew managed to send both attackers away. Smoking, landed at covey field and was taken to the hospital.

Carry twelve, five hundred pound bombs. So that is the first mission for my grandfather. And he got shot.

The first mission. I am blessed to have his purple heart. So next week we will remissions number two and three, because he put some of these together. You know, if veteran, okay, monday's past, give a shout out, just give a facebook. We're blessed sed to help people that serve our country.

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