Ep 3 Early Financial Planning: Why January Is the Key to a Successful Year

Voice Over: [: 00:00:00

Now your hosts.

Jeb: Welcome to Metcalfe Money Moment, the podcast. My name is Jeb Graham, Metcalfe Partners Wealth Management with. Co-hosts and partners, Ethan Hutchison and Eric Wymore. Welcome to the podcast. How you guys doing today? Doing good. Yeah. Wonderful. Glad to be here. Yeah, it's January . You know, we're through the holidays.

t of our clients went through: 2024

Um, and here we are in January of 20. 25 and, uh, you know, I was actually looking at a statistic, uh, and this was on being, but it says that only 35 percent of households have a long term financial plan. And the good thing with our clients is all of our clients have already taken care of that long term financial plan, you know, but what a lot of people don't do is a this year financial plan.

Okay. And so January is the time to do that. It's not October. It's not November. And I think we have a lot of clients and I'm, I'm guilty of it myself sometimes too, as you get to October, you get to November and you're like, Oh, I haven't maxed out this, or I need to do that. Or I want to give some money to charity.

f focus on maybe some things [: 00:02:00

Uh, and I think a great thing to start with and maybe, uh, you know, Ethan, uh, you and I were talking about this is, is 401k levels of change and stuff like that. So maybe we can go through, through that sort of stuff. Yeah, it

Eric: is. Yeah, it's kind of every year, you know, the IRS releases new rules on, Hey, your, your IRA maximums have gone up or your 401k contribution.

Uh, maximums have gone up. There's a lot of tax law changes that happen year to year as well. Um, so we're going to kind of hit on a little bit of, of what we think is very pertinent information to adjust for your accounts, um, in January leading throughout the year. Um, so. Funny enough, IRA contribution limits have not changed.

, [: 00:03:00

d. That was the same for, for: 2024

Now it's 23, 500. Um, if you're over the age of 50. You have an additional 7, 500 that you can contribute to your 401k. Okay. I'll say that one more time. If you're 50 and above, you can put 7, 500 extra above the 23, 500 into your 401k.

Jeb: Really? You, what does that get you to a total of 31, 000.

Ethan: If you're over 50.

. And here's, this is new for: 2025

Kind of unique. I'm still kind of confused why they stopped it at 10, 000. Age 63, because when you're 64, that, that contribute, that ketchup goes back down to 7, 500. So

Jeb: you're not, you're not even to full retirement age at that point,

Ethan: but exactly. You may

Jeb: have the reasons, but that is a cool new thing this year.

We, and oddly enough, I didn't even know that until we started planning for this podcast that they added that in. And I think it's, um, you know, it's, it's interesting and I think it will certainly come into play for some of our clients, I would think. Yeah. So, yeah,

Eric: and, and, you know, back to the maximums too.

percent of [: 00:05:00

So, you know, it's tough to do. We look at cashflow planning and, you know, putting 23, 500 away into a 401k. That takes a lot away from cashflow, but if you can work to get closer to that number, we always recommend increasing your contribution rate by one or 2%. Per year, if you get a 5 percent raise, you know, maybe increase your contribution rate to 2 percent above what you were doing the year prior.

t happened. To your career in: 2024

You know, it's there. You don't want to be 62 years old and have 10 old, old 4 0 1 Ks out there, you gotta hunt down, you know, prior to retirement. So we, we do recommend getting that stuff under, under order.

Jeb: I, I would say one other thing there, um, is that, you know, we, and we run into this with clients all the time, uh, is that they, they come.

To us. And they're like, I know I have old 401ks out there. They don't know how to access them online. They haven't seen him for a while. Maybe they've, they know they've got a statement. I think, you know, digging in and kind of doing that and consolidating all of those things can absolutely just make you feel more organized.

And number, and the other, the other part of that is, is, you know, that all your assets are working together that way. You know, if everything's in a bunch of different accounts everywhere and you're not really managing them, you don't necessarily know. In my opinion, you know, kind of how everything's being managed and whether they're working together and, and really what your overall risk tolerance and allocation could be.

h, not only is it, you know, [: 00:07:00

And, and I, I'd say a lot of times. The Roth portion of that benefits a younger client, or even sometimes, you know, clients that are closer to retirement. Uh, and they haven't really done the math to figure that out or do the forecasting to know which one's the better thing to do. Um, so I think that's a great thing to do.

percent of families use a [: 00:08:00

Uh, to save for college, and there's some huge benefits to doing that. Um, I would argue that the, the best benefit is if the child is pretty young, has a, a ways to go until they get to college, is that you get tax free growth in there, very similar to a Roth IRAA 5 29 plan. If you put in $5,000 today and that 5,000 grows to 50,000.

Um, that 50, 000, as long as it's used for college education purposes. And that's a pretty broad category there. So you can use it for tuition books, you know, and there's a lot of different things that can be used for, uh, it comes out completely tax free. Uh, and then the other thing is, is you do get a small, and this isn't hugely significant, but it is something is that you do get a state tax break for putting money in there.

and you get to deduct that [: 00:09:00

I'm sorry. 8, 000 as an individual and 16, 000 as a couple. So that's a much more significant tax deduction in Missouri than it is in Kansas for someone that wants to contribute. To that, uh, to that five 29 plan. So, so those are kind of contributory plans. And I know Eric, uh, we've gone through some other things.

Ethan: Yeah. One nice thing with the five 29, and obviously this isn't necessarily investment advice, but you can always invest in, in an age based plan. So the older or the farther away that child is from 18 years old, it's going to be a little bit more aggressive. And then as they age. And get closer to, to college age, it's going to slightly reduce, you know, going to slightly reduce the risk, um, getting ready for the distribution phase.

o a different, different tax [: 00:10:00

So this would be some kind of an individual or joint account, uh, or some kind of a trust. If you have a living trust, you can open up an account or even a small business account. You can open up one. Um, but basically let's say you invest 10, 000 into, into an investment and it grows to 11, 000. Um, if you sell that.

ty to where we are long term [: 00:11:00

However, we can take, sell that position, take that 1, 000 loss, offset the 1, 000 gain and minimize our tax bill. We can also reinvest that money immediately into some other different type of investment and still remain that long term investment focus. Now, I don't want to get too deep in the weeds, but there are some wash rules involved.

So just be careful of that. Obviously you need to consult your tax advisor and financial advisor for that. But, but that's just an opportunity to look out rather than just. Cramming it into the end of the year to do something throughout the year, uh, harvesting both gains and losses. So Eric, you would say that strategy is more, more of a tax play than an investment.

to take a loss, so to speak, [: 00:12:00

Jeb: And that, that can be, we've seen that be a pretty big deal for a lot of clients, like specifically toward the end of the year, and they get ready to, to, uh, you know, file their income taxes.

just certain years, you know,: 2022

We got to take those losses and then, and then they get to carry it forward as well to future years. Absolutely. Yeah. One other thing to pivot to, um, would be for clients. And this would probably be more of our corporate clients and listeners. Um, which is, uh, when we talk about restricted stock units and stock options, you know, people, uh, that work at large corporations and even mid sized corporations, uh, and especially when you kind of get into that executive level.

ation package is going to be [: 00:13:00

So if you have a restricted stock unit and it's a three year vesting, well, it's going to invest in year three and you're going to have to pay the taxes on that in that year. And there's not a ton you can do there. But what you do want to think about is do I want to, you know, you, you could end up with a pretty highly concentrated stock.

If all you do is continue to get restricted stock units and you build up that stock. So, so big question is, do you want to reinvest that? Elsewhere and kind of diversify it a little bit, or at least a portion of that, um, after you do, after it does vest, cause you can't do it until it best. And then with stock options, usually you do have, have, uh, discretion to a degree of when you're going to exercise those options.

t also your accountant as to [: 00:14:00

ly another couple of times in: 2025

st rate, but also have some, [: 00:15:00

They might be a little bit more volatile than a money market. Um, but it does give you probably some additional upside opportunity that you're not going to get. Uh, in, in a money market or a CD and, uh,

in back in: 2022

Remember that was kind of the talk of the town. You can get, you can get a 9 percent return on a 10, 000 investment, which was awesome. Which is great. I mean, yeah, that was. Virtually unheard of, but those I bonds aren't paying anywhere near what they were before. And I've talked to some clients and they said, Oh yeah, I did that.

And I forgot my money's still sitting there. And you know, it's definitely not making the 9 percent that they initially sought after. So keeping track of those, you know, that goes back to those outside accounts, keeping track of those and where those are at, and just be very, very open with your advisor on, on where those are.

er, super, super good point. [: 00:16:00

Ethan: So we've talked a lot about like kind of the accumulation phase of, of our clients and, and all, all the things that they're doing during their working careers.

So are there some. Some tactics that they can do during the distribution phase.

Jeb: So yeah, so that distribution phase. Um, so, so, and to, to Eric's point, you know, we have two kind of buckets of clients and there's kind of two buckets of people out there. Some people are working toward retirement and so they're accumulating money and they're growing their money and they're contributing to IRAs and, and 4 0 1 ks and all that sort of thing.

u have, number one is if you [: 00:17:00

Uh, and that's, it's a little bit of a moving target. So right now. It's 73 years old. So if you get to 73 years old, you have to take a required minimum distribution. So right now it's 73 years old, uh, to take a required minimum distribution. And depending upon your age, it could be 75 and it could even be later than that down the road.

Um, But, uh, when you have to take that required minimum distribution, that's fully taxable. So that is going to be taxed as ordinary income, just like any other distribution out of an IRA. And for people that have big IRAs and 401ks, it can be a sizable number and it can greatly impact, you know, your tax situation.

ritable distributions, donor [: 00:18:00

But a qualified, uh, charitable distribution is where you can take your required minimum distribution and send either a portion or all of that. To a qualified charity and you don't have to pay taxes on it. So if you're going to give money to charity, that's probably the best money to give to charity because it's taxes, ordinary income, uh, and it's, it's just a great thing to be able to do.

So. So I think that's, that's one thing that distribution clients can, can definitely focus on.

Eric: I'd say another one, and this goes, this kind of goes both with the accumulators and, and the distribution phase clients. But, um, you know, thinking about looking ahead in, in planning for that larger distribution that may come down the road, let's say it's January.

in distribution phase, they [: 00:19:00

Pensions, uh, and then there's retirement account distributions, the social security and the pensions. There's not much control we have over those. Those are what they are depending on when you file and how many years you've worked. We do have control over the distributions from your retirement accounts.

So if you need 80, 000 to live on 40 of that comes from social security and pensions, You need another 40 from your retirement accounts. And we know that as advisors, that our clients that every year they need 40, it might be 45 next year because of inflation or cost of living. Well, what we don't know is that you are planning to buy that truck in January or in July rather, and you need that 30, 000.

your taxes are going to look [: 00:20:00

Um, our accumulator clients, people in the accumulation phase, that's also something to plan for, you know, Hey, I'm going to finish the basement this year, or I do need that. I didn't do truck in July, just.

Uh, you know, jab Ethan, I know we've thrown a lot at, at, at everybody, as far as all kinds of little tips and there's going to be one more that I want to share. Um, For them and admit, you know, think about this, you've spent your entire career kind of socking away money into squirreling it away into your 401k, trying to lower your tax bracket.

x bracket, either do it into [: 00:21:00

Or we can do our Roth conversion, reinvest that money, have it continue to grow for us. And then we don't even have to worry about the RMD in the future. Roth conversion is one of the biggest planning pieces that we do for all of our clients to look at every, every single one each and every year.

Jeb: Totally agree.

And I would say too, is that I think we get a lot of clients that come in and they know what Roth conversion is. They've heard of it. They want to do it. They know that a Roth is a better thing, you know, to own than a traditional. But it's hard sometimes to put, to actually know what the numbers mean. Okay.

n take someone's. Tax return,: 1040

[: 00:22:00

And then number two, give them a pretty. Pretty close estimate of exactly what kind of taxes they're going to pay. And then not only that, once we figure out what it means this year, let's model it out and in e money and let's see what that means. Five years from now, 10 years from now. And I'll tell you, the numbers are pretty eye opening.

Sometimes when you start to look at that, it's, it's just such a great planning piece. So

Ethan: a big, big reason for Roth conversions is, you know, looking way. Way ahead of, of, of where you're at in retirement, looking at when you pass and kind of passing on those assets down to your, your children or the heirs or wherever they're going, getting money into a Roth efficiently is, is one of the best tools for, for passing down money, because when the, when the client's inherited or when your children inherited odds are they're going to be in their highest earning years, right?

When, when [: 00:23:00

A lot of money that comes out of that is going to hit your ordinary income tax brackets, whereas a Roth it's already been taxed. So it's a really beautiful tool to pass down assets to your children. Absolutely.

Jeb: A hundred percent. So, well, guys, this has been a ton of fun. Um, I think, you know, ton of fun for us, right?

I mean, we get to talk about the things that we enjoy talking about and, uh, we certainly appreciate all of our listeners, uh, tuning in and this is Metcalf money moment, the podcast signing off and we will see you soon.

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Disclaimer: Jib Graham, Ethan Hutchison, and Eric Wymore are registered representatives with and securities offered through LPL financial member FINRA SIPC investment advice offered through WCG wealth advisors, a registered investment advisor. WCG Wealth Advisors and Metcalfe Partners Wealth Management is a, are, separate entity, entities, from LPL Financial.

The opinions voiced in this podcast are for general information only, and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

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