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Good morning everybody, and welcome to the Haven Financial Group Radio Show. Thanks for listening. Hope you had a wonder Christmas and a continued holiday season. Again the Haven Financial Group Radio Show. I'm Larry Kolvig, Founder and CEO of the Haven Financial Group. Give us a call at six one two five zero four eight four zero zero or
Havenfinancialgroup dot com. Kim, great to be with you. We also have Kim Lance Larson our in house CPA at Haven Financial Group because we're going to talk a lot about taxes, and I don't know anybody that gets more excited about tax discussions than Lance Larson.
Well, good for him, and Lance for glad you're with us. Thank you very much. Happy New Year. By the way, we're just about on the cusp of New Year's Eve and into twenty twenty five we go, which seems like the perfect place Lance to start talking about possible tax cuts and the Jobs Act and how that will be reflected in twenty twenty five. So let's talk a little bit about individual taxes and what you're anticipating is going to happen in twenty twenty five when it comes to rates.
So as it stands right now, Kim, the Tax Cuts and Jobs Act that was enacted back for twenty eighteen, this is going to be the last year unless Congress actually decides to do something about it in twenty twenty five. So the tax rates that we've had for the last few years have been at ten percent twelve, twenty two, twenty four, thirty two, and then we get up to the higher ones after that. So this is the last year we're going to have those low ones for sure.
If Congress doesn't do anything, then we're going to go jump back up to the ten, fifteen, twenty five, twenty eight, and thirty three. So just almost across the board, we're looking at about a three percent jump in taxes for people. So this is why twenty twenty five is going to be very important for a lot of taxpayers, because this is going to be the last year for sure that we know of that we're going to have these lower tax rates. Sow.
These tax rates were actually put into place during the first Trump administration.
Correct, yes they were, and so then they continued through the Biden administration. In twenty twenty two. The Democrats actually tried to get these tax rates back up when they were passing the Inflation Reduction Act. I believe it was
Senator Cenema from Arizona. I kind of dug her heels in a little bit and says, no, she's not going to pass the Inflation Reduction Act and sign off on it unless the tax rates stayed the same the rest of the Democrat senators caved into that tour, and that's why we still have these lower tax rates today.
So are you making any predictions about what might happen with another administration coming in? Another Trump administration? And it looks like, you know, with the Republicans both in control of both chambers.
So I'm not a political pundit by any stretch of the imagination, but I believe that is one of the promises that Trump ran on was to extend or do something even more robust than what he already has in place. What that looks like that's going to be remained to be seen, whether it's just an extension of what we have for another couple of years, or if they actually try to do something more about it, try to get
more savings to the middle class. At that point, One thing that I will probably bank on is that at some point in the future, the Congress is going to raise these rates back up to these regular levels at that ten, fifteen, twenty five, and possibly go even higher.
Caim I'd add to that too, And I am not a political pundit either, but we all have our opinion. I think there's a very high probability that he's going to extend this these rates. He'll extend the Tax Cuts and Jobs Act. I just read recently that it probably will be more towards middle of the year because there's a lot of hot buttons that are on the agenda for the beginning of the year. So they said, probably
more towards the midyear. And yeah, he's you know, he's discussed taking a step further further with making permanent individual tax cuts, lowering the corp tax rate to twenty percent, lowering capital gains tax rates, and other things. You know, whether that comes all to fruition or not, who knows. Whether it's a piece a piece of it good probability, but I definitely think he'll extend it, just because he has said and that's what he stood for the first term.
Great lan Tharson is our guest today CPA there at even Financial Group. Let's talk about some of the other ways in which the TCJA effects tax tax plans and tax payers.
So, Kim, the probably the next biggest thing besides the tax rates is going to be the standard deduction for most people. Kind of as a little anecdote here, for the longest time, people would fill out schedule A for a lot of charitable donations, they had mortgage interest, and it's really easy to get above that standard deduction threshold
with those standard expenses right there for us. And in fact, my wife was one that always loved looking at Schedule A just to see what the total was for donations that year. Well, then when the TCJA came in and standard deduction was more than what our itemized deduction would have been, Oh, as a smart CPA, I take the Sandard deduction. And my wife looked at our tax return and says, lance, you messed up. We don't have we don't have Schedule A, we don't have our charitable donations.
And so that's where a lot of people they started
seeing that, and I'm not the only one. And so back in twenty nineteen, there was actually a knee jerk reaction to the charities that they figured out they're twenty eighteen standard deduction, took that away twenty nineteen, they stopped giving the charities, and then charity started complaining to the government, and so then the government put it in a little one time exception that says, hey, if you take the standard deduction and you still give cash to charities, you
can have an extra deduction besides your standard deduction. Now, I will say that is something that Minnesota has consistently done in the past as well. It's a little bit different than how the Feds were doing it. For Minnesota, it's anything above five hundred dollars that we get fifty cents on the dollar as an addition to our standard deduction. But now the Feds they've taken that away and we're just back to our regular standard deduction.
The TCJA also had an impact on mortgage interest rates. Talk to us about that.
So the mortgage interest deduction, A lot of people aren't actually going to be aware of this because it is actually only on mortgages that were above seven hundred and fifty thousand dollars or sorry, at that point up to a million dollars. The TCJA capped that back down to seven hundred and fifty thousand dollars on the mortgages, and so if you had a mortgage worth more than that, you were not able to take one hundred percent of your mortgage interest as a deduction.
You are Another one for listeners that potentially are maybe looking to have kids or maybe have more kids, right is the Child Tax Credit expansion increasing that child tax credit from a thousand dollars to two thousand dollars. Maybe that's an incentive to have more kids, Kim, be very careful because kids are really expensive and that might not be a good reason to have more kids. Or maybe it will be.
Right, Absolutely, it shouldn't.
It shouldn't be.
Let me just say that to everyone.
I'm agreement.
Okay, So, gentlemen, if if in fact President Trump does extend this out, will all of these points that we've been making here, and there are many others, you know, corporate tax rates, so on and so forth, But will all of these stay in place or do you anticipate that he may, you know, push to change some of it.
So I think he's going to push to change some of it. Like Larry's said earlier, one of the big things he wants to do is lower the corporate tax rate. That has been one of the sticky points for our domestic based businesses to be competitive worldwide. We know that years ago Medtronic used to be based here. Well, they did an inversion and then they became home based over I believe in Ireland. Well, why do they do that again? Taxes?
Yeah, and Here's what I would say is anybody listening is going, well, how is this going to affect me? Use that really is the question. How does it affect me? I don't know. That's why we have conversation, ongoing conversation based upon the current tax rules and laws, well how they and as they change, we'll have more conversations say well, this is what you can do based upon the current changes.
Have you been doing conversions? Have you not been? Have you been drawing on the right accounts the wrong account? How do you know? Tax efficiency is so important and that's why I think the added value of what we bring here at Haven Financial Group is we're we're. Tax discussions are part of the overall conversation on an ongoing basis. They're not a talk about once a year. It's about
and Lance can attest to this. Lance is tax planning nine months out of the year, eight months out of the year, whatever it is, and the rest of it is tax preparation. Tax planning leads to successful tax preparation without surprises, unforeseen surprises, a big bill to the IRS, a penalty that you didn't know you could avoid or didn't even know about. That's really how it affects you, and that's why you should have these conversations.
All right, So let's invite everyone to have these conversations in the new year. Haven Financial Group can be reached at six one two five zero four eight four zero zero six one two five zero four eight four zero zero. You can also look them up online. It's Havenfinancialgroup dot com. We're talking with Lance Larson, he's a CPA there at
Haven Financial Group, along of course, with Larry Kolvig. And when we come back, we're going to talk about tax brackets for twenty twenty five and how that may affect your planning. This is the Haven Financial Group Radio Show.
Don't go too far.
We're gathering more important insights and retirement pays Devin The Haven Financial Group Radio Show. We'll be right back. Stick around. You've got questions, We've got answers. Your tune to the Haven Financial Group Radio Show with your host Larry Kulvig and Kim Karagan. Now back to the show.
Good morning, and welcome back to the Haven Financial Group Radio Show. I'm Larry Kolvig, founder and CEO of the Haven Financier Group. I have Lance Larsen, CPA here on the investment with the Haven team, discussing taxes changes, what's coming down the pipe, how it affects you. Please give us call set up a time simply six ' one two five zero four eight four zero zero or evenfinancialgroup dot com. Check out our classes for the first quarter
twenty twenty five all about education. What you can learn to make educated decisions to make those golden years as golden as they possibly can be.
I want to ask you guys, when people are in retirement and maybe they're on a fixed income, discuss why they even have to have a concern about tax brackets.
So the brackets themselves also determine a lot of different things that are going on. What we're looking at a lot of the time is do you want to pay the taxes now or pay the taxes later? Well, the question is is what does it cost me now versus what is it going to cost me in the future. So in the future, most of the time, people are going to have their iras and four one K money still coming out, so they have to have the required
minium distribution. At that point they've hit Social Security, so that's going to become taxable based upon how much other income you have, and then we see where does that make you sit? Well? In the future, we're expecting again the tax practice to go back to that normal level of ten, fifteen, twenty five. So if I can look at you and say, Kim, would you rather pay fifteen percent in the future or would you rather pay twelve
percent today? It seems almost like a no brainer answer, and kind of people look at me and say, is it really that simple? Yes, it really is that simple. Now to make it work, that's where the hard part comes in. That's where Larry and I will sit down with clients and we actually figure out where we're pulling from how much to pull it on. But that basic question stays the same, Pay lash now, pay more later now.
Some people also and this is the important part. As you were saying of tax planning, you know they may be and I think Larry you mentioned this earlier. You know your income may have been one thing this year, but it may be different next year because you know you'll have some kind of major capital gains. You know, something may be happening and changing. Maybe you're planning to sell your business and it's time to get out or
sell your home. So how do you sit down and how do you approach that with the clients.
Life happens, and it happens quickly, unforeseen times. What I can tell you here's a simple illustration, and we deal with it so often. And Lance and I sit down with folks like Dan and Joyce from Lakeville. They're both retiring at the end of this year. Their days are short, ones in the education field, ones at the coke refinery. And this year looks a lot different than last year. They are both they made great income together this year and next year they're like, now, what which is the
biggest question we get? You know, where's my money gonna come from? The artist thing about retiring is not getting a paycheck any longer. So we sit down with them and we say, okay, we've already planned out this year. There's the expectations for taxes next year. How much do you need? What are your sources of income? Social Security? You might delay it, maybe not make an educated decision. You have a pension, you don't have a pension. Simply
where is the income coming from? Where is it going to come from to lave a comfortable lifestyle in retirement in the most tax efficient way possible? Do we draw off the savings. Do we have leaned income years and you know, draw off I ray money, which was what people have been doing because of the low tax brackets and maybe continued low tax brackets. Do we take advantage to have investments that have long term capital gains applicable? And if you're not outside the twelve percent ordinary income
tax bracket, there's no capital gains. There's a variety of ways to come up with an income tax distribution plan. You know, we send literally millions of dollars out as an entity the first and fifteenth every month for people that retirees that need more on flee income. Well, we want to do that in the most tax efficient way possible. And sometimes people make things way too complicated just because they're scared of talking about taxes, and they make things cut.
I will say this Lance will make it very simple to understand. He knows. His favorite thing is the whiteboard to explain things to people. He's not a drop off, pickup, Hey, Lance, here it is, I'll come back and pick it up and we're done. That is far from He likes to explain things. If you're not working with if your person or people doing your taxes are not explaining things, not that it has to get complicated into the deep weeds, but there's nothing better than a complicated and I get
tons of them on Lance all the time. Nobody's ever taken the time to explain it to me. Every year I owe money, I've never been able to figure out why I should have been withholding and nobody told it what percent. Again, we hold their hand. Lance holds their hand along the way to make sure we're doing things to the best of our ability. You don't have to
do it alone. And the surprise is that you get every year at tax time, if it's a problem and you find yourself complaining, why not fix the problem so next year you don't have to complain anymore.
But Lance, it has to be a challenge for you right now because it's not clear if the TCJA will stay in place, so as you're planning out, that's got to be a little more challenging for you.
It is, but at the same time it's also not because again we go back to the assumption that eventually the tax rates are going to have to go up. I kind of throw out this little anecdote to clients as well. If your household kim you had one hundred and twenty thousand dollars of expenses, but you only have one hundred thousand dollars of income every year, what do
you do now? Or if people joke say, okay, we throw on the credit card and like, yep, that's fine, but long term, you can't sustain having one hundred and twenty thousand dollars expense per year with on one hundred thousand dollars. So you're left with only two options. One you reduce your expenses so you can take that one to twenty and take it down to one hundred, or you have to increase your income from one hundred to
one twenty. Well, our government has the same issue, just like every household, they have to run a balanced budget at some point. And so you look at the government has the same options, reduce their spending or increase their revenue. Well, they increase their revenue by increasing their taxes. And then the last question is and when's the last time you ever saw the government decrease their spending. So based upon that that, we know that tax rates are going to
have to go back up in the future. So the question is more when is that going to happen? And that's where the uncertainty comes in. So we just plan year at a time. We have an overall viewpoint that says, hey, some point in the future, this is what it's going to be. Whether that's twenty twenty six, twenty twenty eight, twenty thirty, we don't know when that future point is going to be, but at some point it will be here.
So in the meantime, let's plan and let's take advantage of what we can do today.
Absolutely so, if you're someone who's been dropping your taxes off and then picking them up, done and not getting any really questions answered, but you'd like to start to talk to someone about a long term plan, a plan that saves you money. Six one two five zero four eight four zero zero is the number you call. We
are chatting with Lance Larson. He's a CPA on the team there at even Financial, And you know, Lance, one of the great things about what you do there, too, is that you can talk to people not just about their tax planning. You can look at their entire portfolio, and that way you can make the tax planning work with all of the rest of the steps that they're taking and the rest of the strategy in retirement exactly.
Because one of the big things we want to look at as we talk about, is always about tax efficiency. So if we need to have a lot of income that's coming in, but if we have multiple sources that we have some pre tax money in a four to one k or IRA, if we might have the pension that we turn on, we have social securities draw on, we have an investment account that we can liquidate for capital gains, and then we have roth accounts right there.
That's five different tax types of income that we're looking at, and depending on how much we need, how much we have in each bucket right there, we can then create a plan and say, oh, well we should draw from here, there and then there, and then if we have an extra need, well let's pull it from this fourth place right there.
Sure. Absolutely we call that one shop one stop shopping, don't we, Larry We do.
Yep, we're medicare. I always say it, I borrow this from one of our clients, and I've said up before. We're male clinic for retirement planning. We're not just a one stop shop. We're literally doing retirement planning and wealth management, of state planning, long term care, life insurance, all of the puzzle pieces that should go to the retirement puzzle. A lot of times people piecemeal and they don't work together.
They work apart and they're not coordinated. And another compliment, because I like to get compliments, is Larry, is so nice to have everything in one place. We don't have to do this and this and this and this. And we have many clients that go from one office and have a mailor meeting to another office to an hour meeting. But I say that you don't have to have it all under the same roof. But is what you're doing?
Is it working? Or do you know? Are the different topics talking to each other, are they working together or are they working a part? And if you don't know, if that's not worthy of a discussion. I don't know.
What is six one two five zero four eighty four zero zero or Havedfinancial Group dot com. When we come back, let's take a look at a checklist some of the things that you need to know as we head in to twenty twenty five when it comes to tax planning. You're listening to the Haven Financial Group radio show.
Ready to find your financial safe haven. Your dream retirement is in reach, don't go away. The Haven Financial Group Radio Show will be right back. Are you worried that your financial strategy might be missing something, Well, you're in the right place. Larry Kolvig is back and ready to help you find your financial safe Haven.
Good morning, and welcome back to the Haven Financial Group. Happy holidays, Happy New Year. New Year's almost here, Kim, And the last thing people want is a checklist. My wife loves checklist knows actually she doesn't like checklist. I'm the one that likes to make the list. She's like the one that likes to throw in the hermage can. But that's not why listeners are listening this morning. Give
us a call. I'm founder and CEO Larry Kolvick of the Haven Financier Group on with Lance Larson CPA in house here at Haven and again, Cam, always good to be with you. I can't believe it's the end of the year. We've done some great shows and I guess this is the last for twenty twenty four.
This is the last one for twenty twenty four. I'm looking forward to twenty five and thank you so much for having me here on the Haven Group Financial Radio Show.
Lance.
I want to talk to you about this checklist. I know that we don't all love checklist, but sometimes it's really important, and I think it gives you a peace of mind when you sleep at night if you know that you've sort of gone through a list and you've taken care of what needs to be taken care of. So as we head into twenty twenty five, you prioritize for us which should be on a checklist, for retirees or for people who are getting very close to retirement when it comes to Texas.
So the number one thing that I want people to have on their checklist is if you're to take a required minimum distribution by the end of twenty twenty four, that you have done that. If you have not done that, get it done as soon as possible before the end of the year, because if you don't, we can have up to a twenty five percent penalty, and that would you have to give that to the IRS just because
you missed the deadline. In the past, the IRS has been a little bit more forgiving because it used to be up to fifty percent, but now that they dropped it to twenty five, they were becoming less forgiving about that. So that is my number one thing I want people to look at there.
Okay, how about maximizing your retirement account contributions.
So that goes to probably number two, maybe number three, depending on your age. So if you're still working, that's definitely number two. Make sure you've made the most contributions through work. Because work plans they end on twelve thirty one, you can no longer make any more contributions. With that being said, there are individuals that can still make contributions to an individual retirement account an IRA or a roth IRA. Technically we have until April fifteenth, twenty twenty five, to
make those contributions for twenty twenty four. But again that's going to be one of those things where we're going to have a discussion and make sure we know what's going on that by the end of the year so that we know if we're going to be doing those or not.
Okay, harvest tax losses. I know that we talked about that before. Talk a little bit about harvesting tax losses.
So people who have a brokerage account or an investment count. There's many type of names for it, what people call them, but the fundamental point is that it's been funded with after tax money. You're getting taxed on the growth every year, you'll have interest dividends, and then capital gains when you have realized gains or losses there. So with tax loss harvesting is where we can go through and say, hey, we bought this stock at fifty bucks a share, it
is now worth forty five bucks a share. Then we go through and say, all right, that one's a loser for us, so let's sell that one off. We can take that money, reinvest it into a different security and go something buy into something that is going to make us money. One of the rules that the IRS is thrown out there are just for people to be aware of,
is this wash wash sales with these losses. So if you sell a certain stock at a loss, you cannot repurchase it within thirty days that if you do that, they trigger the wash sales and therefore you don't get those losses. So just be aware of what you're doing when you're with those funds as you repurchase those investments.
Sir Kim, if I could add to Lance mentioned rm ds by now, if you haven't taken it for twenty twenty four, you're missing the deadline. But don't make the mistake. Next year, now'll still get get it taken care of asap. Longer to wait the less chance of grace that you're going to get from the irs. But next year, don't wait till the end of December. We notify all of our clients a lot of it. We set it up automated, so you don't have to worry about that. Unfortunately a
lot of people don't know. Nobody told them. Sure that age is seventy three and eight years soon to be seven years, that's going to go to age seventy five. Again, it's the things that would have in a financial group where we kept We keep people well abreast of that conversation. You know, one thing people don't if you're early, maybe in your earlier years you're getting close to retire about
the Medicare age. Be aware of your income. Maxim the maximum income that you can get, modify, adjust to gross income m AGI. Make sure that you're staying within those thresholds because otherwise you could be paying higher Medicare Part B and D premiums. And yes, there is a waiver that we can help you put together, but be aware of those. You know, if you're cognitive of you know some low income years before. Maybe you want to stay under some income limits to stay look at Menshire Minnesota Care.
Just be aware of those thresholds. Maybe you could save some money healthcare wise just by not taking unnecessary income at maybe in that short timeline of life, if you will. For those that are charitable and lance, we help a lot of people in this area. You don't give charitably for tax reasons, but if you are charitable, that can open up a lot of tax ideas or tax planning tools in retirement qualified charitable distributions for those rm ds
if you don't need them. Maybe you have some bigger year of income, sale of an investment, whatever it might be, donor advice funds take advantage of in a certain year. Tax considerations, again, we're back to the tax discussion. Imagine that it always seems to come back to taxes, of course, but again, if you talk about these things, it's going to come out and you're not going to miss the opportunities.
Because every week I'll have conversations with couples, individuals looking at this year's income, and from that conversation X amount of dollars it's a parent that that was their income for the given year, and we'll ask, I'll ask, well, based on that you had the ability last year to take this much of an IRA distribution or an irate of Rath conversion, did you do that? And people usually look sheepishly at each other and go, well, our tax prepared told us after the fact. By that time, it
was too late. I call that an unforced era of missed opportunity simply because nobody told you, simply because the discussion never happened. Don't make that mistake year after ye year after year. It's have these tax discussions proactively, because reactively doesn't usually work.
Yeah.
Absolutely, That's just one other thing I think that you probably would say should be on the list, and that would be updating your estate and your gift tax plan. Those need to be updated periodically because life changes, right.
Exactly, Kim. So from year to year, you might have people that you want to give money to or charities that you want to give money to. But specifically for individuals, every year the threshold has been increasing by how much you can give without having to report it, and so for twenty twenty four it was eighteen thousand dollars per person.
So if mom and Dad want to help out a child getting a first home, or they want to do a nice Christmas present, Well, there's thirty six thousand dollars that the parents can give to that child without having to report it. Now, is that the hard limit. No, you could give whatever you want, and more than likely we're not going to pay any taxes on it because you have that lifetime exclusion. And that's one of the things the Tax Huts and Jobs Act. Going back to
what we talked about earlier. For twenty twenty four, it was about thirteen and a half million. For twenty twenty five,
we're going up to almost fourteen million. And so if you happen to give more than the annual exclusion amount again util I was eighteen for twenty twenty four, nineteen for twenty twenty five, you go above those limits, all you were required to do is fill out a gift tax return and say, hey, yep, we gave more than the limit, and we're going to apply our lifetime exclusion of that thirteen and a half fourteen million dollars against that and you won't be paying any taxes.
Well, as a year comes to a close, it's crucial to stay on top of those key deadlines that can certainly impact you the next year financially or for that matter, impact your financial strategy. So if you're looking for someone to talk to about that, give Haven Financial Group a call six one two five zero four eight four zero zero. That's six one two five zero four eighty four hundred.
You can also reach the Midhavenfinancialgroup dot com. The end of the year is here, folks, and if you haven't had an opportunity to look at all those deadlines or to think about your tax check list, be sure you give them a call. Like Larry said, maybe it's too late this year, but you don't want to make that same mistake again next year, so start fresh at the beginning of twenty five. All right, gentlemen, when we come back IRA and four oh one K tax treatment, let's
talk about that. This is the Haven Financial Group Radio Show.
Don't go too far.
We're gathering more important insights and retirement ways the Haven Financial Group Radio Show. We'll be right back. Stick around. You've got questions, we've got answers. Your tune to the Haven Financial Group Radio Show with your host Larry Kolvig and Kim Karragan. Now back to the show.
Good morning, and welcome again to the Haven Financial Group Radio Show. I am founder and CEO of the Haven Financial Group. Thanks for listening today and throughout the year, where every week we talk about retirement, planning for it, navigating through it, staying retired. Most people retire once and they don't get it. They really don't want want to retire twice. How to avoid having to do that? Give
us a call with questions. Get on our twenty twenty five calendar, our number six one two, five zero four eighty four hundred. Visit our Haven Financial Group dot com website see all the classes first quarter of twenty twenty five. They're all no cost, free of charge workbooks provided throughout the metro area here in the Twin Cities. Love to have you out. No better way than to learn. And again we're wrapping up a new year here and IRAS
four to one k's tax treatment. All these fun discussions maybe not so much fun, Kim, but really important.
Yes, they are very important. You're so right. Lance Larson is with CPA, with the Haven Financial Group. And let's talk a little bit about some of these different accounts, because they are different types of accounts are seen differently when it comes to tax treatment. So let's begin with the four roh one k. Talk to us lance a little bit about a four H one K and what the tax situation is there.
So okay, we'll actually back up just to one step there before. And all these ones are their investment accounts. And in the early history, what we had was the investment accounts were always funded with after tax dollars. You'd be taxed on all the growth every year. Whether you took the interests out or you had the dividends reinvested, you still got taxed on that and you may not have received any cash. Well, this was one of the only ways that people could good plan for retirement is
by having one of these accounts. So then Congress decided said, hey, you know what, we want people to invest more into their own retirement. What is one way we can do that. Well, they heard loud and clear from the public that hey, don't taxes on the growth every year because we're not going to be touching that money. And so that's where Congress started coming through with the iras and then a
four to one K for employers. And so that's where we have what they call qualified accounts, and that's what an IRA is and a four one K. So now you're working for someone at Corporate America. Typically the company will have a company for a one K four one K is there because that is the code section that
created that retirement plan for Corporate America. And so what we do is then through your salary, we do a salary deferral and instead of being taxed on that salary the year that you earned it, you will actually put your money into that four to one K account and that will grow tax free or not tax free, but it will keep growing tax deferred until you pull that money out. Then companies started saying, hey, you know what,
let's be more attractive to the employees. Let's start giving out matches because hey, we'll give you more money to come work for us. And still now you'll have a different match program for every single employer that's out there. There are some employers that still have no match. There are some that do, hey, we'll match three percent up to your six percent deferral right there. There could be the ones that say, hey, we'll just do twenty five percent.
Across the board, it varies from company to company.
Surely, I may add because somebody might be thinking, well, they're talking about a four toh one K, but I don't have a four toh one K. I have something that's maybe called a four oh three B, A deferred comp a thrift savings plan TSP, A four to one A. Mine's called something different depending up on different sectors in industry. They're not different, They're just they're said differently. There's still employer sponsored plans. They work exactly the same lance if
you could. People are probably wondering because in recent years roths have been added to four A one k's and a lot of plans, and I get this often, should I contribute to my wroth for a one K? Or should I contribute only to the pretax? Or should it be a blend? What do you say to that?
As my fun answer for a lot of tax questions, it depends. Overall goal is we want to have as much money in that wroth account as possible. But we also go back to that age old question do you want to pay taxes now or pay taxes later? So, for someone who is not earning a lot of money, do we want to put a lot of pre tax modelers in there? No, because you're only going to be saving at twelve percents on the dollar versus someone who's doing pretty well for themselves and they're sitting in the
twenty four or even the thirty two percent tax bracket. Well, at that point we can almost guarantee that retirement income is going to be a lot less than what you're being taxed at today. So it makes more sense at that point to do it in the traditional four to one cave versus.
The wroth and are wroths because I'm less familiar with a wroth account. Is a roth account? Is it offered by the employer or do you have to go out to do that on your own?
So there are wroth sponsored for a one case, so that will be part of the employer, And so you'd make an election of hey, this amount I want to go to the traditional and this is the amount that I want to go into my wrath. So the only difference is is that with the traditional you're not going to be taxed on that income today Versus the roth you will be taxed on it today, and then it's going to go into that Wroth account. The Roth account
will grow tax free. And then once that Roth account has been in existence for five years, then all the earnings on the contributions will be tax and penalty free as well.
Is there other limits on roths like they are on four to one K contribution limits?
So within the four to one K, whether you do it to a traditional or to a roth, the four to one K does have a limit. I believe it is about twenty three thousand dollars with a seventy five hundred dollars catch up for those over fifty. So for an employee, you have thirty thousand, five hundred dollars that you can put into the four to one K. Now, it is up to you to decide does it make sense to put it into the traditional, to the wroth
or a blend. But no matter how where you want to put it, you cannot go over that thirty thousand, five hundred that is different than your IRA, that is not company sponsored, that is solely on you. Those contribution limits are believe seven thousand dollars right now with one thousand dollars catchup, so we have an eight thousand dollars total. And again this is the same idea that between the traditional IRA and the roth ira you are limited to
eight thousand dollars. There's a couple more caveats in there that we have to go through to make sure that yes, you can contribute to the roth if you have earnings, or if you can make a deductible contribution to your traditional IRA because you may be earning too much. We'd have to go case by case to see if that's going to be a viable option in what we can do do.
Changes in tax laws affect these kinds of accounts very often lance.
The only changes that they really do is going to be the contribution limits. That's not to say that they can't make changes, but what I would go again and say, not a political pundit here, but to me going through and trying to rewrite the rules that everybody's been used to, especially for retirement accounts, that is going to be almost political suicide in my opinion. So people would tell me, oh, why contribute to a wroth. They care just gonna make
the roth taxable in ten years. I don't see that happening because that goes against the promise that we were made by our politicians when they set that up. Anybody who decides to do that, I guarantee you that the entire United States, whether you're Democrat, republic and independent. Everyone is going to be up in arms about that one, and that probably one of the most unifying causes that the American people would have.
Another takeaway from this is, you know, to piggyback off. What Lance said is if you employer has a match, make sure you're maxing out and take advantage of that mac that match. You know, some of the times you regiation, No, I can't afford to do it. I can't afford. You can't afford not to do it. Start with a certain percentage. Maybe incrementally it. Let it increase the percent every two every year to get the match. You will not probably
ever even notice that it was increased. Start somewhere to get somewhere. If you're going, I still don't know if I should do partial four to one k ROTH or all pre tax. If we sit down with you, we'll help you with that to see if it makes what makes sense, what makes the most sense to make that decision. Investment options within employer sponsored plans, it used to be where you had a whole bunch of options to choose from due to simplistic reasons employer, the costs involved. Now
you maybe not have fifty options. Now you might have five to fifteen options, and many of those options were in the last ten to fifteen years the target funds. Target date funds were introduced because it made it simple. Okay, I'm going to retire in twenty thirty or thirty five, let's just choose that one. I'm not saying that's the right or wrong decision, but what I will say is oftentimes, first of all, all target date funds are not created equal.
Many times are cookie cutter versions of stocks and bonds, maybe not always the best producing, and they're they all don't carry the same internal costs. So what we do is, again, if that's the plan you have, and we can offer it some advice, Ay, give us the menu of investment options. The team will look at it and go based upon these options, based upon your age and risk level. Here's the options that we would allocate the certain contributions to.
Whether you listen to it or not is up to you, but that is what the advice that we offer a lot of folks that are in these plans, they are going to be in these plans until they retire Number one or we do a lot of in service fifty nine and a half rollovers for those that are still working or not working, because the federal government at that age says, you're getting close to retirement, you might want
to look at all investment options. So we can internal fifty nine and a half internal partial rollover, no tax implications. Or we just had a couple. They were both IT consultants. They jumped around a lot. They had a whole bunch of we call them orphan for a one case from previous employment. We condensed eight or nine for one k's down to two. They go, thing, goodness, we don't have to keep track of all this. There is something to
say about simplicity, simplistic consolidation, simplification, yet still maintaining diversification. Again, there's something to say about the simplistic approach.
You bet. It's the end of the year, folks, and if you're thinking about your taxes and your strategy when it comes to retirement, are you making the right decisions? Could you make better decisions for next year? Call the folks here at Haven Financial Group six one two five zero four eighty four hundred six one two five zero four eight for zero zero. You can also visit them at Havenfinancialgroup dot com. Lance This has been very informative. Thank you so much. Happy New Year to you and Larry.
Happy New Year to you as.
Well, Kim. Great to be with you all year, look forward to twenty twenty five.
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