Year End Wrap Up (Ep 103)
We’re diving into the biggest financial updates to wrap up the year, including post-election impacts, rising insurance costs, and tax planning strategies. Discover new 401(k) contribution limits and how Roth accounts could play a bigger role in your financial future. Don’t miss these essential insights for starting 2025 on the right foot!
Transcript - The following transcript was generated by a robot, so please excuse any typos or inaccuracies.
Brian Doe 0:03
It's a year end wrap at make the dough rise. We've got lots of changes, with an election under our belt, changes coming to 401, K contributions and just a general wrap on taxes and the Look Ahead for 2025 stay tuned. We will cover all of that on today's episode. You
Speaker 1 0:26
it's time to make the dough rise. The financial podcast with Brian doe.
Walter Storholt 0:35
It's another edition of make the dough rise. I'm Walter Storholt alongside Brian doe, certified financial planner at living worth Wealth Advisors based in Greensboro, Georgia, but serving clients all across the country. We're happy to have you listening wherever you're tuning in to today's episode, we're going to tap into that two decades of experience that Brian has in the financial planning realm to really dig into our end of year recap here, yes, a hodgepodge episode, that's what the end of the year ends up being anyway, right? Any new show you watch, anything that you kind of consume this time of year, it's all recaps, breakdowns, look aheads, little bit of everything. So we're gonna bring you all of that on today's show before all of that comes down the pike. Though. Brian, great to see you and talk to you again this week. How's live treating you?
Brian Doe 1:18
Going great. Growing. Great. I would go with Cornucopia instead of
Walter Storholt 1:22
COVID. What do you think of that? Like that? I mean, it's got more of a sophisticated feel to it than hodgepodge. There you go. There. Yeah, that's what we've got for you today. Yeah, it's like a stocking stuffer. You're not gonna say I put a hodgepodge of presence in there. No, there's a cornucopia of presence in your stocking this year. The horn of plenty. I like that. I like that. So yeah, we'll change that up, Cornucopia here on the episode today. So yeah, where do you want to start things? Brian, what's catching your attention the most as we dive into the cornucopia? Yeah,
Brian Doe 1:50
well, we're cruising into Christmas time here in a couple weeks as we record this, which means we've got an election well in our rear view mirror, and the results seem to be settled upon. Nobody's contesting anything big. We'll move into the nominations and cabinet pick process here pretty soon, so that will definitely be interesting and full of drama. But what we're hearing a lot of, and what we talked a little bit about in one of our last episodes was what kind of tax policy we would get based on different outcomes. And like I said, despite what you think of the individual candidates and personalities, policy wise, I like the looks of what I'm seeing as far as energy policy and the push towards bringing manufacturing back to this country, this hemisphere, you know, more pressure going to be on China. And the big word, the number one word that is getting thrown around a lot by the by President Trump, is tariffs. We're gonna slap a tariff, 100% tariffs, 50% tariffs, and it's caused a lot of concern, because obviously tariffs, it, it sounds like you're shifting this cost onto the other country, but you're really not. You're just you're what you're really trying to do with a tariff is level the playing field to protect either your domestic market or protect yourself from an unfair, subsidized market that another country like China might be engaging in. But what we have found is Trump is a lot of bluster, so don't, don't panic too much about hearing about these massive trade hikes or tariff amounts. Interesting note, he was talking about really attacking the BRICS alternative currency, the alliance between Russia and China and India and a few other Brazil, a few other countries, and really was wanting to maintain the dollar's supremacy. And he made some comments that, oh, we're going to be a tariff everybody that tries to not use the dollar effectively, and well, if you dramatically ramp up tariffs. Okay, that's inflationary here in the US. If you have a punitive level of tariffs, it would collapse the economies of the export driven countries. Both of those things would be bad for the dollar. Yet, in the midst of this, he's touting and promoting these, these quote, unquote terrible policies for the actual strength of the dollar. But if you look at Wall Street's reaction, the dollar actually strengthened by about, I guess, about 30 to 60 basis points the day that he was making those comments. You. And so the the takeaway there is the market has learned to translate Trumpism into what maybe he wants the end policy to actually be and and I think what he's wanting to do is bring people back to, you know, more productive kind of the old alliance. We've basically shut Russia out of the dollar and the Swift banking system with all the sanctions. So hopefully we can get some wrap up to some of the geopolitical conflicts, get people back to more open trade and using the dollar and maintaining and strengthening the dollar, but there's going to be a lot of talk and a lot of bluster about how you negotiate that, and so it'll it'll be interesting to see if, if Washington establishment can handle the aggressive talk versus what actually comes out as as policy. So we've already seen Justin Trudeau trot down to mar a Lago to meet and, you know, I don't know what else is going on behind the scenes, but I like the talk, I like the stance, I like the aggressiveness, and I think it's going to be good for domestic markets and domestic companies. It's
Walter Storholt 6:15
interesting. You know, it doesn't necessarily mean that the bluster will be how things turn out, like you said, but do feel like we've learned over the years that a lot of that negotiating strategy he's he's mapped that out for us, right? Ask for the moon, and then, you know, meet somewhere in the middle, or come back down to normal realms. And it sounds a lot more, you know, palatable to folks than his original stance, yeah,
Brian Doe 6:35
it scares him into the negotiation to say, Oh, I guess somebody's serious about this, you know, so Mexico and Canada, he's, he's really been blasting here out of the gates. And, you know, there's definitely some things that need to change, and I think
Walter Storholt 6:49
it'll be good. What else catching your eye here at the end of the year?
Brian Doe 6:53
Well, obviously, with the Trump win, we're, you know, one of the big issues that we had was the expiration of the Trump tax cuts. That's right. So 2026, was going to be a reversion back to the Obama era, tax brackets, tax rates, so more compressed brackets and higher rates. Again. This is, you know, another piece of legislation that would have to get passed. But obviously it's going to be a lot easier to extend those the current rates, which continue to go up, as we look into 2025 the brackets are expanding a little bit, which means you'll have the ability to earn a little bit more income and stay in some of the lower tax brackets, as opposed to looking at a cliff in 2026 where those could not only come back down, and then we'd go from like a 12 to a 15% rate, and the 22% rate would go to 25% so we're talking about pretty significant, you know, help As far as tax rates and brackets going forward. You know, it's to be determined, obviously, but I think it looks good for preferential dividends, long term capital gains. You know, we're not going to have this talk about taxing unrealized capital gains again, something else that would absolutely tank the the economy. And then a more esoteric note, because the amount has gotten so high, the estate tax limits, you know, we're at 13 point 6 million per person that you can leave to heirs, estate tax free. So, you know, a couple could leave, you know, 26 $27 million with a properly structured estate with no estate tax implications. Well, again, that number was expected to drop precipitously, down in maybe somewhere in the five to $7 million range, which, again, that's that's not going to impact a lot of people, but a lot more. If you had a ten million exclusion for a couple, as opposed to a $32 million or 36 $37 million exclusion amount for a couple, it could ensnare a few more people than than the old rates. So again, I don't know where exactly it's going to fall, but less concern and alarm for those with 13 point 6 billion plus estates.
Walter Storholt 9:24
What about the insurance world been in the news with, kind of the unfortunate, I guess, assassination. Can we call that at this point, that happened to the leader of United Healthcare and, boy, all the fallout from that? Yeah, I've
Brian Doe 9:37
heard some speculation on that, and it's too early for me certainly to know anything about the motive and all that, but a common complaint, a common theme that I'm hearing from clients, is just the cost of health insurance and the cost of property and casualty insurance, especially on automobiles, has just continued to skyrocket and. Coverage quality keeps keeps going down. So I really don't know what the solution is to those, especially with the property and casualty area. I guess there may be some of these natural disasters and things have really wiped out a lot of vehicles and property and caused claims on the insurers to go up. And yeah, it will be very interesting to see how companies respond, because a lot of what has happened is that the insurers and with the with United Healthcare, specifically, they were the insurer. They were the claims process, processing and payer accounting function, and they were owning some hospitals, and so they had this circular loop where they really like, if that's not a monopoly, I don't, I don't know what is or how else you would describe a monopoly, and individual physician owned hospitals have been prohibited to be started ever since the Obamacare era legislation went through, and we're seeing a decrease in competition. We're not it's not as easy to get new facilities open, and then the insurers just have a death grip on claims and who gets paid and at what rates and the premiums have shot up for everybody. So if you can fix that Walter, I will gladly hand it over to you, but it is above my org authority or authorization level for sure. All right,
Walter Storholt 11:41
we won't, we won't ask you to solve all the world's problems today. So we'll let you, we'll let you go over that one. What else do you have your eye on? I
Brian Doe 11:48
guess maybe lower regulation. There's, there's a lot of talk with Elon Musk and Vivek Ramaswamy coming in to see what they can do with savings. And you know, those guys are both very successful entrepreneurs, brilliant guys, whether they can have some influence on government bureaucracy and congressional spending. You know, I don't know. It's not, it's not like it's a private company where you can just go in and start firing everybody and change the funding. You've got to have Congress buying into to a lot of that. But maybe, maybe lower regulations will free up the ability for more startups. I'm optimistic about the small cap, you know, startup, merger and acquisition activity. I think you'll see a lot happening with with that segment of the market, as far as the markets. You know, we've had a big up here this year, and I was just caution everybody to be mindful of capital gains, especially for mutual funds. If you've got actively managed mutual funds, obviously, if they're Schwab, and under our purview, we're keeping an eye on that, and we've minimized that. But a lot of people have maybe a mutual fund, especially growth mutual fund, and all of a sudden, in December, they get a big capital gain distribution that will all flow onto their tax return, whether you think you've realized gains or not. That is one of the fallbacks to an actively managed mutual fund. Well, if all of a sudden you have a big chunk of income coming in that you weren't expecting, and you've done some tax planning, we're seeing some people start running into the Medicare Supplement premium thresholds. So they're they're crossing over into amounts where they're going to see maybe a 900,000 ish dollar increase per spouse in their Medicare Supplement premiums, even more if you get into the higher tax brackets. So, you know, definitely, kind of one of those little tax traps. It's not really a tax but it's driven by income rates that in taxable income rates that will cause your premiums to further go up. So all of this is connected. It's all it's all wrapped together. And you have to be mindful of all those points.
Walter Storholt 14:05
Lots to keep our eye on here at the end of the year, a lot of movements and changes, in addition to the new administration that'll be coming in and coming up with their own rules and things like that. I know we're going to get to a few numbers, I believe, to end today's episode that'll provide us all a bit of a challenge to try and keep up with the government's tinkering in terms of contributions and those sorts of things. But before we get to that, RMDs, I'm guessing. I mean, this seems like every year we've had kind of an update in that arena for folks who are going to be impacted by required minimum distributions. Yeah,
Brian Doe 14:36
those dates keep, uh, changing. We went from 70 and a half to 72 now 73 but one thing that I've run into is, if you're on your larger accounts, obviously everybody's wanting to make sure they take RMDs, but I've seen some cases where maybe a spouse has a smaller Ira balance somewhere, and they've gotten a couple years. Into RMD age and had not taken RMDs. And I was just asked, well, I don't really want to take one from I took my big one. I took the RMD from my big account. I don't really want to take it from the little one. We haven't had a problem with that in the past. And I would say, focus on the letter R. It is required minimum distribution. Doesn't matter if it's a million dollar IRA or a $10,000 IRA, you do have to take those distributions. And here's the very compelling reason why you may go a year or two not taking the distributions, and maybe nobody catches up to you and the IRS doesn't come knocking. But at some point, either when somebody inherits that IRA and starts taking distributions, or if you need to pull some money out of there, when you do take distributions, the custodian generates a 1090, 9r that goes to you, get a copy to file with your taxes, and that information gets reported to the IRS, so the IRS is looking to match your tax filing with what the custodians reported to the IRS to expect. Well, if you don't take the required minimum distribution, you're not absolved from taking prior year distributions. You now have to go back and take all those missed distributions. You still have to pay tax on them, and now, because you've lumped them all into one year, you could be looking at higher brackets and higher Medicare supplements and all those other things that we just talked about, and you're going to owe a 50% penalty on the amount that you fail to withdraw. So let's say you're in the 25% 22% bracket, maybe a 5% state, and now all of a sudden, you have to pay a 50% penalty. That is a great way to give up 77% of your IRA distributions for the for the year. So truly, if you've got an IRA inherited IRAs, whatever the case may be, make darn sure you're taking your required minimum distributions
Walter Storholt 17:12
before we get to those contribution limits and and changes that I teased a moment ago. Brian, you know, this time of year, people are thinking more charitably, I believe. And I think that's another topic you wanted to talk about,
Brian Doe 17:24
yeah, so let's go back to that scenario where you have the required minimum distribution. Maybe you don't need the money, or don't want to take the extra income. One really good option is the qualified charitable distribution. So you can just get a request a checkbook on your Charles, Schwab IRA, and instead of taking the distribution and then, you know, maybe putting it back in your brokerage account and just sitting on it and having to pay the tax on it, you can gift the required minimum distribution to a charity. And that doesn't then hit your tax return, it goes, you know, it's all pre tax dollars that go to the charity. It goes to satisfy your required minimum distribution. You can gift up to $100,000 per year from an IRA. So definitely a great way to do it. And if the qualified charitable distribution isn't really an option or necessary, but you have highly appreciated stock that you want to rebalance a portfolio or trim a position that's had a really good run. Gifting appreciated stock can also be a great way to do it.
Walter Storholt 18:36
All right, have we arrived at the 401, K contribution changes and what we need to know here, yep,
Brian Doe 18:41
yep,
Walter Storholt 18:42
buckle up. This is going to get, folks, I've seen preview Yes, of what's to come here. So,
Brian Doe 18:48
you know, we've gone along and we've had 401, K contribution limits. And you know, if you're under 50, it was one amount. And if you were over 50, you had the catch up amount, which is all still pretty straightforward. So let's just kind of recap those numbers. The standard 401 K contribution limit for 2025 is going to be 23,500 so if you're under 50 and you want to max out your 401 K, 23,500 is, is the amount. I would also encourage everyone to look at doing the Roth option if your plan permits it, because if you're earlier in your career, maybe a lower income, maybe you've got the kids and the tax deductions and all the things that you typically have at that age, you may be in a lower bracket now, and may want to put some of that in the Roth and just go ahead and pay the tax. I know it's not fun. It's nice to get the tax deduction, but there's coming a or I will be getting to one of the little provisions that actually makes the Roth even more attractive. You. Uh, so that's, that's your standard contribution, 23,500 the catch up contribution. So if you're over 50, that's another $7,500 and again, anyone over 50, that was your you get your standard contribution, your catch up contribution. And so we've got a total, we're at a total of $31,000 that you can put into a 401 k if you want, and again, if your employer offers the provision. You know, look at the Roth. Well, here's the interesting wrinkle, if you are between age 60 and 63 you get an extra $3,750 of contribute, of catch up contribution. I don't know how we ended up with this few years window. And it's not, it's not even 60 to 65 or above 60. There's a higher is from 60 to 63 so you've got these four, four years there that you can contribute, 34,750 So you're essentially looking at the 23,500 contribution and an 11,250 catch up contribution. All clear. So far, Walter Gotcha.
Walter Storholt 21:19
Just getting, we're getting a boost,
Brian Doe 21:22
and we'll, I'll diagram this out. We'll have to have a download or something here that flow charts for everybody to follow. But I'm just, I'm mostly just covering these points so that if, if one of these categories registers with you, you at least think to ask about it. Okay, so the reason the Roth has become more attractive is because they have eliminated the required minimum distribution requirement for Roth, 401, K's. So if you're in your 70s and you don't need any money from your 401, K, you don't have to take an RMD from before 1k Roth, you can let that money keep growing tax free. And again, how you keep track of all these dates and times and exceptions is going to be a miracle to that they're really going back to the complexity that they had pre 2000 when they they had such complicated rules. But that's where it's going. So that's what it is. So let's say that you want to make the max contribution, and whether you're over 50 or over 60 or but you're not yet 64 whatever the dollar amount is, if you make more than 145,000 starting in 2026 your catch up contributions are going to have to be Roth contributions. So 2025 you could do all regular you could do all Roth. But if you get to 2026 know that your catch up contributions, if you're higher income under 45,000 they're going to have to be Roth. So whether you like it or not, you may end up with the kind of a split option there where you're doing part regular part Roth, but only
Walter Storholt 23:16
applies to the catch up, though not the original contribution. Correct
Brian Doe 23:20
only applies to the catch up and and whether that amount is 7500 or $11,250 it is going to have to go into a Roth starting in, starting in 2026 so you got 2025 to do the the regular way.
Walter Storholt 23:33
Moral of the story seems simple. You're you're getting opportunities to save more near the end of your career. All good. Just the actual amounts and the dollars and the figures of the ages, those are a bit complicated to map out, and
Brian Doe 23:47
the category of Roth versus regular, and they're making Roth more attractive in the long term as well. So it's, is this good? Is this bad? Man? It all depends. You know, it just depends on so many variables, but nothing you can't put a pencil to and sort of figure out what the best, best option is for you. Very
Walter Storholt 24:07
good, great recap of, kind of what we've seen in 2024 the things that we're making note of as we turn the page to next year. Brian, anything else big on your agenda as we look forward to a new year here? No,
Brian Doe 24:19
I just I say, hey, it's been a great year. Market wise, return wise balances are probably looking really good. Take them. Take a minute and assess your wins. Go go back and look at your you know, December 31 statement from last year, and see how much progress you made this year, how much you were able to withdraw or contribute. Where your balance is now. Note your wins, and if you've taken advantage of some of these planning points and they've worked out for you, fantastic. If you have missed some opportunities, or you're hearing some of these opportunities that we're talking about that are coming with these changes, hey, use those as your starting point for your new. Year's resolution, because in a few more weeks, it's going to be time for for New Year's resolutions. Make converting to the Roth contribution, or setting up for qcds or something like that. Make those part of your resolutions for
Walter Storholt 25:13
next year, all great stuff. Brian, thank you for the help and for guiding us through all the great podcasts here on make the dough rise over the last couple of months, and we'll look forward to new shows coming out next year. In the meantime, folks, if you have questions about your financial life, and if you're looking to take more control of your financial future in 2025 perhaps that's a New Year's resolution for you. But if you don't know where to start, you can let Brian doe, a tenured, Certified Financial Planner with more than 20 years of expertise be your trusted partner as a certified financial planner, if you haven't heard us talk about it before, a CFP professional means that he meets the highest standards of training ethics and always puts your best interests first. So take advantage of a complimentary 15 minute call with Brian to gain clarity on your financial goals and prepare for that more secure tomorrow. Don't miss the opportunity for that call. You can book it one of two ways. The first is to go to living worth.com and click book a call. It's that easy living worth.com click book a call. Or you can call directly at 706451 9800 706451 9800 we've got that contact information in the description of today's episode. Brian, thank you so much. Hope you enjoy the rest of the holidays. Happy New Year to you as well, and we'll see you in 2025
Brian Doe 26:31
sounds great. Having Merry Christmas and a Happy New Year. Thanks, everybody. See you again
Walter Storholt 26:35
next time on. Make the dough rise you.
Speaker 2 26:46
Make the dough rise is brought to you by living worth Wealth Advisors with a central office in Greensboro, Georgia, but serving the lake country and beyond. The podcast is available on Apple podcasts, Spotify and all your favorite podcasting apps. Subscribe today and never miss an episode. Just search for make the dough rise with Brian doe, you can also visit make the dough rise.com to listen to recent episodes. If you'd like to contact the show or schedule a complimentary financial review with Brian and the team, just go to make the dough rise.com and get in touch through the website or call 706-451-9800, 64519800, thanks for listening to make the dough rise.
Ben George 27:25
Investment Advisory services offered through Main Street financial solutions LLC, 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 accurateness and completeness cannot be guaranteed.
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