Listen Now:
The Smart Take:
It’s that time of year again … the fourth quarter. Before you get enthralled with the holiday season, it’s time to look back over this year and towards the next. Have you completed all the financial goals you set this year? Reviewed your medical coverage? Executed your tax planning for the year? Set your preliminary tax strategy and retirement distribution plan for next year? If not, there is still time!
Listen to Tyler Emrick, CFA®, CFP®, discuss how True Wealth Design ensures your important financial tasks get handled so you stay on track and pay no more than your fair share in tax.
Here’s some of what we discuss in this episode:
- Prioritizing tax planning and determining what items need attention before December 31.
- What we discuss during our Yearend Tax and Investment Review meetings.
- Looking back on your financial goals at the beginning of the year and comparing that to where you are now.
- Why you should be taking a closer look at your benefits for the next year.
- Looking at spending for the next year and setting income targets.
Sign up for our newsletter on our podcast page: https://www.truewealthdesign.com/podcast/
Have questions?
Need help making sure your investments and retirement plan are on track? Click to schedule a free 15-minute call with one of True Wealth’s CFP® Professionals.
Subscribe:
Click the below links to subscribe to the podcast with your favorite service. If you don’t see your podcast listed with your favorite service, then let us know, and we’ll add it!
The Hosts:
Kevin Kroskey, CFP®, MBA – About – Contact
Tyler Emrick, CFA®, CFP® – About – Contact
Episode Transcript:
Tyler Emrick:
Well, it’s that time of year again; the fourth quarter. Before you get enthralled with the holiday season, it’s time to look back over the year and towards the next. Have you completed all your financial goals that you set for yourself this year? If not, there’s still time. Today on Retire Smarter, hear our process to make sure your important financial tasks get handled so you stay on track and pay no more than your fair share in tax.
Walter Storholt:
Welcome to another edition of Retire Smarter. Walter Storholt here with you this week, alongside Tyler Emrick, Wealth advisor, CERTIFIED FINANCIAL PLANNER at True Wealth Design. Tyler’s also a chartered financial analyst, and it’s great to be with you again this week. Tyler, I can’t believe we’re talking year-end planning already and we still haven’t quite put the costumes on yet for Halloween, at least, at the time of today’s taping.
Tyler Emrick:
Nope, I think we’ve got another week or so to get all the final preparations in order, get some new candy to pass out, make sure some of that old stuff doesn’t go out and we’re all set, but no, holiday season [inaudible 00:01:06]-
Walter Storholt:
You did say before we started recording today that you have the costumes ordered, so there’s no turning back now, right?
Tyler Emrick:
I do, I do. We have the costumes ordered. Hopefully, everyone is happy when they come in and the expectations are fully met.
Walter Storholt:
Nice. Well, glad to hear it. Hope it’s a great holiday for you guys. And does sort of then kick off whenever Halloween comes around, boom, before you know it, it’s Thanksgiving and then Christmas after that, and then New Year’s and all the holidays related and around that time, and things do get busy. So I see why you want to bring this conversation up a little bit further in advance before we kind of get mired in all of that other stuff in our personal lives. And so today we’re talking year-end financial checkups for folks, and with a specific focus on tax moves. I mean, I think that kind of goes hand in hand. You get to the end of the year and you sort of start thinking about taxes first. What can I do before that calendar flips to improve my situation or mix things up a little bit? And it’s just kind of a conversation you’ve got to have with people every year depending on how rules have changed or what’s different, that sort of thing.
Tyler Emrick:
Absolutely. Taxes are extremely important. And you’re right, once December 31 hits and we move on to the next year, the planning is over. And sometimes you have to even start before then to make sure certain accounts get open and things get done properly prior to year-end. So taxes are a big piece of the pie. It’s funny when we were doing a little bit of research for the podcast today, this is a pretty typical one for us most years, and Kevin had made a comment on the one last year where his CPA friends seemed to slow down around this time because we had just hit that big deadline.
October 15th is the extension deadline. So once we hit that 15th date, it seems like, well, hey, they’re taking a breath of fresh air going, “Hey, we’re good for the year.” And then here you have us kind of diving in as financial planners saying, boy, we’re about to ramp up and get extremely busy and try to get year-end tax items taken care of. So I think that just kind of lends itself to the approach and some of the benefits that we think come out of that planning ahead and kind of taking that inventory of what the years looked like.
Walter Storholt:
Part of that difference between tax filing and tax planning, they kind of happen on different seasons, it seems, in addition to kind of serving people in different ways. So when the end of the year comes around, Tyler, take us under the hood a little bit. What goes into the planning process at True Wealth Design?
Tyler Emrick:
Sure. So a lot of our families are getting ready to come in for what we call our year-end tax and investment review meeting. Nothing special in the name there. It’s exactly what it sounds, right? Tax is right there in the name. And that’s really going to be some of the big focus that we take a look at. Now, as you think about coming in and working with a financial advisor, a lot of times it’s like going to the doctor each year and you get your checkup. The doctor’s going to draw some labs, sometimes there’s some change, sometimes there’s not. And I don’t think this meeting is any different, but the important thing is that you take the time to look under the hood and evaluate and say, “Hey, where are we at and where are we going?” I kind of think back on a meeting I just had with a family that I’ve been working with for a number of years.
This was one of those busy years for them. It was a single-income household, and she actually retired this year. And since she retired, this is going to be a big shift in their household and their family dynamic as they head into retirement next year. So you think about a meeting like this, there’s a lot of work that’s done to say, well, what does that next year look like from an income standpoint? What assets are we going to live off of? Where are they going to get that money from to live off of? What big expenses do they have coming up, and how are we going to fill and meet that need and get them to a place to where they feel completely comfortable with where that money is going to come from and how they get access to it? But also another thing that we take a look at for them is going to be healthcare.
We’re going to lose employer benefits. Now, her spouse is going to go on Medicare, so he’ll do that application early in February. So if anyone’s gone through that recently or anyone has it coming up and they’ve started to think about it, there’s a lot that goes into that. When do we have to file? How do we file? What type of plan selection are we going to choose for him? So there’s a multitude of choices that need to be made and make sure they get done in a timely manner to ensure that Medicare starts in a timely manner. And then for her, not to complicate things more, but she’s not 65, so she’s not going to go on to Medicare. So that healthcare decision is much different. She’s been on COBRA for the last few months, which if no one’s familiar, that’s the health insurance that’s available to you once you leave your employer. It’s essentially the same insurance that you have.
And traditionally or typically you’re able to keep that coverage for about 18 months from the time that you leave. So since we’re heading into a new year, she has the opportunity to either say, “I want to continue with that COBRA coverage,” or, “I want to go on an individual healthcare plan.” And those are two very, very different things. If you stay on Cobra, it’s that same healthcare, as I mentioned. But if you go on the individual healthcare plan, well, now we introduce a whole new set of planning opportunities to where their income would have a direct impact on the amount of the premium that she’s going to pay for that healthcare. So if she decides to go with that individual healthcare plan, well, now as we start looking at that first thing we talked about, where are they going to get their money from next year?
Well, the answer to that question changes. And maybe we want to start doing distributions from their retirement accounts before this year ends, so that way it’s on this year’s taxes. So that way they can use it for spending in 2024 and have a little bit more control to manage their income and maximize the healthcare subsidies that they get from the government to keep the ACA plan premium down. So not only are they reeling with the fact of, “Hey, where am I going to get my income from next year?” But then we’ve got this healthcare decision, and each of them are going to be on a different healthcare plan, and those directly impact, well, where they’re going to get their money from. But then they also earlier in the year had set some financial goals to where they’re very charitably inclined and we were going to utilize a donor-advised fund this year where they’re going to front load some of their gifting and get some tax benefit from it.
So Walter, as you kind of think about that, I mean, I’m just rattling off the meeting I just had, and hey, we’re coming up to a year-end. Their checklist that they have to get done by the end of the year is pretty long, and each of those items on that checklist are going to play off each other. And us from a financial advisor standpoint, it’s our job to really kind of analyze that situation, understand what they’re trying to accomplish, what’s important to them, and then help them with each of those decisions and help them do it in a clear and concise way to maximize each of those benefits and accomplish what they’re trying to. So that’s a little bit of a high level of, well, what could be entailed in these year-end meetings and some of those decision points that could come up. And then other times in other families, there’s not that much involved. But that was one I just had, and I thought it would be nice to give families a little bit of an idea of just some of those topics that might be covered,
Walter Storholt:
Yeah. Their situation is a good example that even though it’s the end of the year and we know taxes get our main focus, it’s not all about that. So those healthcare decisions are really important to think about. And what a situation to be in, right? COBRA is certainly not cheap, typically for folks, and then it’s a whole new world maybe for them having to go onto the exchanges and that kind of thing, or looking for healthcare in alternative ways. That’s something that a lot of pre-retirees don’t think fully through. What happens if I retire before 65? What are the complications, as well as if they retire earlier than that? And then yeah, just looking at other things, like where you’re pulling money from and what order that’s going to be in, all those kinds of things. I’m glad that you highlighted that. I know that we’ve done this show before, Tyler, and if you go on the internet and you look up a whole bunch of different “year-end planning, what should I do?” you’re going to get a bunch of top five, top 10 lists and that kind of thing.
Tyler Emrick:
Yes.
Walter Storholt:
I won’t pigeonhole you to a certain number of items, but you want to take us through what the True Wealth Design list looks like?
Tyler Emrick:
Yeah, absolutely. I’ll give you a peek under the hood into our list and some of the things we prioritize, but you made a pretty good comment. I’d like to just jump back on that real quickly.
Walter Storholt:
Oh, sure. Yeah.
Tyler Emrick:
Because you were saying, “Hey, taxes are a big decision,” and then you said, “Well, and on top of that, healthcare and so on and so forth,” right? There could be other things aside from tax, but I would like to just point out just how that healthcare decision impacts tax. How the income decision, where are you going to pull your money from that next year for them, for that family, it was, “Hey, next year they’re not going to have a paycheck coming in from working. Where they going to do their distributions from?” all those things have direct impact on their taxes and what they’re trying to do from a tax situation, not only this year, but next. Because that individual healthcare plan, that ACA, well, if she goes on that and we want to manage their income lower next year to pick up that tax subsidy, well, that’s tax, right?
That’s tax planning. And I think it’s just a great point and a great way for us to maybe highlight just how some of those levers move together and how a decision, just as simple as, “Well, what healthcare plan am I going to select?” boils down and can affect taxes in the year prior? Does that make sense? Are you following me there?
Walter Storholt:
It does. Yeah.
Tyler Emrick:
I think that’s an extremely important connection for the listeners to make. And that integrated financial planning approach, if you’re willing to take it and if you’re working with an advisor that truly understands what you’re trying to accomplish and understands your goals, that’s our job to fit in those decisions and understand how those things intertwine and work, and make sure that the advice that we give you reflects that and maximizes those decisions.
Walter Storholt:
Neat. So even if it’s not a direct tax conversation, there’s that undercurrent in almost everything you guys are doing.
Tyler Emrick:
Almost everything.
Walter Storholt:
Makes sense.
Tyler Emrick:
Yep. Nice, clear, succinct way to put it. But you’re right. As far as the tax checklist, or not tax checklist, but year-end checklist, there’s a number of them out there. I’ve done the Google search and I wouldn’t say that they’re all terrible by any means, but as you kind of think about your situation, I think there’s a number of ones that kind of get missed or that maybe aren’t talked about as much. So I figured, hey, let’s take some time, we’ll dive into them and see if one might be applicable to your situation as you kind of sit here and listen.
And the first thing on that checklist in my opinion, as you’re kind of heading into this year-end and trying to say, “All right, what do I need to do if I’m looking at my financial situation?” I think the biggest thing is to look back to the start of the year and say, when I came into this year, what were my financial goals? What was I trying to accomplish? And where am I at in relation to them? And I’ll back up if anybody here’s listening and they say, “My financial goals, what did I have? What were my financial goals this year?” Hopefully, there’s a bell going off or a ding, ding, ding saying, “Hey, why didn’t I have some financial goals heading into the year?” Right. Well, I mean [inaudible 00:12:57]-
Walter Storholt:
Or why have I for forgotten them
Tyler Emrick:
Or why have I forgotten them? Yes, that’s fair. And if there’s not, hey, give us a call. Let’s have that conversation because you have to know where you want to go to be able to make good decisions and get yourself there. And this year-end, a lot of our year-end planning is looking back on that and saying, hey, what were our goals, like I said, and how can we accomplish them? Or what do we need to do to get them? I think back to that family that I had mentioned earlier in the meeting I just had, they had a number of things that were going on, but one of them I’d mentioned was funding a donor-advised fund. That was something that we identified much, much earlier in the year as something that might be beneficial for them this year, and something that they wanted to continue into retirement and wanted to maintain that gifting that they’ve always done.
That was extremely important. So if we wouldn’t have had that conversation and we wouldn’t have understood that that was on that list, and that should be on the checklist for this year, well, then hey, we wouldn’t be able to kind of circle back at the end of the year and make sure that that type of account gets up and we understand what type of funding we need to do and how it integrates with the tax situation that they’re looking into. But if you’re still working, a few things that I think should be on that checklist is really some of the basic stuff. Have you put enough into your 401(k) plan? Did you maximize your health savings account? Did you maximize your flexible spending account? These things might be very simple, but a lot of times when we do prep work for these end-of-year meetings, one of the things that we do for our families that are working is we take a look at their pay stubs and we run out of projection to say, hey, over your remaining pays throughout the year, are you going to maximize your 401(k)?
Are you going to hit the max into your HSA, or do we need to make some changes to those contributions to ensure that they are going to get to the numbers you want to and you set for yourself earlier on this year? Sometimes I’ve had families forget that, “Hey, I got a catch-up contribution that I can do to my 401(k) now. Oh, I forgot to make that contribution. Let’s make changes over the October and November, December pays so that way we can get that catch-up contribution into the 401(k),” just as a slight example. So it’s a lot of that double-check work and verification work to ensure that those things get done because they can easily be missed. And that’s one of the ones where, hey, that cliff happens. December 31, we roll over into January. You can’t go back and say, “Hey, I want to put more into my 401(k) for the last year.” It’s gone.
So now’s the time to be looking at some of those things. If you’re not working, you’re heading into retirement or you’re already into retirement, there’s a list that we’ve talked about a number of times. Things like Roth conversions, tax loss harvesting, have you harvested losses throughout the year and how has that impacted your income target for the year? Have you done your qualified charitable distributions? So those are just rattling off a few things that are on our checklist that if you did that Google search and that came up, I think those are the ones that are kind of maybe front and center, a lot of times, the ones that you’ve heard about many times on our podcast. So I won’t dive into any of those in detail today, but I wanted to spend a little bit of time, especially for those individuals still working, taking a look at that paycheck, diving in and saying, “Hey, are there any things from an employer standpoint that we need to maximize?”
Walter Storholt:
Some of this isn’t secretive or special. Some of this just, you need the process, you need the reminders, and you need the solution to just, “Okay, we’re going to always make sure we’re checking these things every year.” And that batch of items falls under that category.
Tyler Emrick:
And the accountability to do it. Because just as anything, I mean, we alluded to just how busy the holiday season gets in the year-end things. It very quickly gets, “All right, hey, I don’t have time to do it.” And if you don’t take the time to double-check it or have a financial planner that is double-checking some of these things, these are just the things that easily get missed on a year-in and year-out basis. Now, that’s taking a look where I would lump all those items into, all right, hey, this year, what do we need to get done by the end of the year? But we also should take some time to start looking to our upcoming year and what are some of the things that we need to be looking at from that standpoint. And I think a big one there, especially if you’re still working, is it is open enrollment season for your benefits.
A lot of employer benefits are coming out right now in November, and you’re going to have those choices that you have. Well, hey, which healthcare plan do I go with? Do I need to increase my 401(k) contribution? Do I need to increase my HSA contribution? And those limits from year to year typically go up. So if you are taking that open enrollment and you’re just kind of clicking through going, “All right, hey, no, I’m good. Same thing as last year,” I think you might be doing yourself a disservice. Because as you think about limits going up, well hey, you can put more money into some of those retirement plans, some of those HSAs. I think another big one that I think gets lost in the shuffle is really diving into your benefits. I hear a lot of families just saying, “Hey, I go with the traditional healthcare plan, because the one I’ve always been on.” But when you get down into the weeds, a lot of times those employers were offered too.
They’ll have their traditional plan, but then they’ll have a high deductible plan that you’re able to pair with, say, an HSA. And have you done the math to decide which plan is really right for you, or have you just kind of defaulted to one? I think a lot of families are surprised when you actually take the time to dive into the numbers between each of their healthcare plans that are afforded to them and really dive into saying, “Hey, which plan is going to be best for my family and I as I approach and go into 2024?” And doing the due diligence that it takes to get yourself in a situation to where, hey, you might be able to start an HSA, you might be able to get some additional tax benefits if you go with a plan outside of the traditional, in that case.
And as I think about retirees, I think that healthcare is another big one. We’re in Medicare open enrollment right now, started in mid-October. For those of you that are on Medicare, this is the time where you can look and say, hey, what are the new plan options that are out there? Do I need to make any changes or am I okay? And same thing for individuals that aren’t on Medicare. Open enrollment for the ACA plan network I think opens up at the beginning of November. So those are, again, some big decisions that I think impact our day-to-day lives that a lot of times can just get pushed on the wayside. “Hey, I’m on the same Medicare plan it worked out,” and not doing your due diligence and making sure that, “Hey, what are going to be the best options for me and my family looking ahead?”
Another thing as I kind of look at that checklist, so open enrollment, healthcare benefits, retirement plan contributions, all that stuff we just kind of touched on. But for those retirees that are listening, you have a few other things that I think need to be added on, and a lot of them have to do with spending and income management. You start looking at next year, what I don’t know about you, but inflation’s come down to about 3.7%, I think in September is where we were, but I’m still feeling it. I definitely feel it. I’ve got two little girls. They like to eat. I’m still feeling it at the grocery store, right?
Walter Storholt:
Yeah, come down to 3.7%. You’re making that sound rosy, but that’s still a hurting number, I think
Tyler Emrick:
It can be. So it’s like, well, do you need to increase your spending expectations for the upcoming year? These past two years for our families, we’ve kind of indiscriminately increased those projections and increased what we assume that you’re going to need to cover those basic living expenses. And if those things get increased, well, then do we need to adjust where you’re getting your money from? Aside from that, we’ve done a number of podcasts, I feel like, this year on income targeting, because we feel like it’s so important as you kind of head into a year understanding how high you want your income. Well, those limits that we always are being mindful of, the IRMAA limits for Medicare, the tax brackets, all those things are going up, and they change from year to year. Same thing from a standard deduction standpoint, that changes from year to year.
So the question becomes is, as we’re trying to match what we need from a spending standpoint and how high we want to take our income up to, all those numbers on a year-in and year-out basis change. So kind of getting that forward view of the next year and kind of planning out those items will give you some confidence as I think you head into the next year of, like, “All right, hey, where’s my money coming from and what am I trying to accomplish from a goal standpoint?”
Walter Storholt:
Very good. It’s all really helpful. So looking ahead to next year is really the secret sauce. There’s a lot that we can do looking in the rearview, but where you’re going to make the biggest differences for your financial future is this ladder section. The looking ahead to next year, and I guess even multiple years into the future could be considered in this year-end planning.
Tyler Emrick:
Absolutely. We always want to take a holistic approach. We always base our decisions off of some type of financial plan, which again, I always say in its most basic sense, is taking your assets, taking your goals, and spending and projecting it out over the next 20, 30 years, and trying to get a framework that we can use to make decisions today. And the more information that we have, the better decisions that we can make holistically as we kind of get down into the nitty-gritty year-end items and then projecting out to the end of the year. So as we’re kind of wrapping up here, I think the big takeaways from today is kind of saying, hey, make sure you take some time this quarter to go through your personal checklist and make sure you check off some of those financial goals that you’ve set for yourself this year and you’re on track to continue to accomplish them.
And if any of those need to get done prior to your end, let’s go ahead and get those checked off the list and get them done. And if you’re sitting here and you’re listening and a lot of the things that we’ve rattled off, you really weren’t financial goals for you maybe at the beginning of the year, well then, hey, let’s go into 2024 and let’s set some of those financial goals so that way when we come to the end of next year, you can look back and do a check on yourself to make sure that A, did I accomplish what I wanted to this year, and did I hit the things that are going to put me in a better financial situation?
Walter Storholt:
The problem, as you kind of mentioned at the very beginning of the show, Tyler, is that there’s a lot to do when it comes to this year-end checklist. It’s a comprehensive list. There’s a lot of stones to look underneath and to turnover. And we are hitting a time of year where people get to be their busiest of the year. And so that’s a problem too. And so if you struggle to make it through all of these steps and make sure that all of this is considered, work with a professional who can help guide you through it and do it very easily, and has that systematic process to make sure that you’re walking through that checklist fully and can help you all along the way. If you’d like to see if you’re a good fit to work with an experienced advisor on the True Wealth Design team, here’s how to set up a quick visit.
You can go to truewealthdesign.com and click the “Are We Right For You?” button. That’ll allow you to schedule a 15-minute introductory call with an experienced advisor. So again, go to truewealthdesign.com, click the “Are We Right For You?” Button. Or you can give a call at 8-5-5 TWD Plan. That’s 8-5-5-8-9-3-7-5-2-6. Work with Tyler, Kevin Kroskey, and the great team at True Wealth Design. See if you’re a good fit to work with one another. Walk through the year-end planning process and make sure that you’re well-prepared for anything that your financial future has to throw your way. Well, Tyler, thank you for all of the help on today’s show. It’s a good thing that we do this annually because there’s little tweaks and changes and things to be reminded of, and it never hurts to have reminders. So thanks for our annual year-end checklist conversation today.
Tyler Emrick:
You got it.
Walter Storholt:
Enjoyed chatting with you. Have a great Halloween with the little ones, and I hope everybody has a great week. We’ll talk to you again next time, right back here on Retire Smarter. Information provided is for informational purposes only, and does not constitute investment, tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accuracy and completeness cannot be guaranteed. All performance reference is historical, and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.
