Stephanie McCullough (00:00):

So, I was looking at the calendar the other day, and we are recording here at the very end of September. And as I was looking through what’s coming up, I’ve got a couple week vacation coming up, which is lovely. We’ve got a couple holidays coming up. So, when I added up how many actual work weeks I had left this year, it was nine. Nine — single digits, people.

Stephanie McCullough (00:29):

I know we’ve just turned the corner to fall, but the end of the year is crashing upon us. So, not surprisingly, perhaps, Kevin and I have some ideas for you.

[Intro Playing]

Stephanie McCullough (00:46):

Hey, dear listeners, we need to let you know that Kevin and Stephanie offer investment advice through Private Advisor Group, which is a federally registered investment advisor. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations to any individual.

Stephanie McCullough (01:04):

To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Now, let’s get on with the show.

Stephanie McCullough (01:21):

This is Take Back Retirement, the show that’s redefining retirement for women. Retirement is an old-fashioned cultural concept, we want to reclaim the word so you can make it your own.

Stephanie McCullough (01:32):

I’m Stephanie McCullough, financial planner and founder of Sofia Financial, where our mission is to reduce women’s money stress and empower them to make wise, holistic decisions so they can get back to living their best lives.

Stephanie McCullough (01:44):

Kevin Gaines is my longtime colleague with deep knowledge in the technical stuff, investments, taxes and retirement plan rules. He’s a little bit geeky and quantitative, I’m a little bit touchy, feely and qualitative. Together, through conversations and interviews, we aim to give you the information and motivation you need to move forward with confidence. We’re so glad you’re here.

Stephanie McCullough (02:10):

Coming to you semi-live from the beautiful Westlakes Office Park in suburban Philadelphia, this is Stephanie and Kevin with Take Back Retirement. Say hello, Kevin.

Kevin Gaines (02:19):

Hello, Kevin.

Stephanie McCullough (02:20):

So, yes, there’s always end of year lists, you should do this, you should do that. And I think what I realized last year is like, oh, we got to talk about these things earlier than December because December is probably too late to scramble around and logistically get stuff done.

Stephanie McCullough (02:34):

So, while yes, we are recording this in 2026 and we’ll probably share with you some specific 2026 numbers, really, these are the kind of things that we would recommend you do from the financial picture at the end of every year or say, September of every year. Kevin, we’ve got a list of 10. What’s number one?

Kevin Gaines (02:56):

Alright, so first one on the hit parade, contributions to your retirement accounts. Now, yes, it is true that IRA contributions, you have until April 15th of the following year. That’s only true with IRAs. Your 401(k)s, your 403(b)s, they have year-end deadlines. So, if you’re looking to make sure that you get all your money in, don’t get confused with the IRA deadlines, for example.

Stephanie McCullough (03:34):

Right. And if you’ve been perhaps contributing at a lower level and you want to stuff as much in as possible, change that number sooner because then it’ll be less painful if you spread it out over more paychecks, I would say.

Kevin Gaines (03:49):

And the other thing is pay attention to payroll. It’s like, “Oh, I’m going to get this year-end bonus and I’m going to put all of it into my K.” Okay, that’s all well and good, but what happens if the actual bonus doesn’t hit until January 5th?

Kevin Gaines (04:04):

Guess what? That’s now a next year contribution, that’s not a contribution for this year. So, if something like that is part of your plan, you may need to pivot when those dollars actually get deducted out of your account.

Stephanie McCullough (04:18):

This is true. This is true. Now, Kevin, there was also a couple rule changes. There are always rule changes, dear listeners. Many of us know that there is a catch-up contribution that we are allowed to do once we hit the ripe old age of 50, which is way in the rear-view mirror for you and me. But there’s a new catch-up that was implemented. Remind us about that.

Kevin Gaines (04:37):

The super catch-up.

Stephanie McCullough (04:38):

Is that what they call it?

Kevin Gaines (04:40):

It is called the super catch-up, yes.

Stephanie McCullough (04:41):

Oh, goodness.

Kevin Gaines (04:42):

Well, this is actually, like many things Congress likes to do, they think they’re being helpful and God bless them. They had good intentions. Their good intentions get confusing. It may not be the path to hell, but it’s definitely the path to oblivion. So, with the super catch-up, you can put more dollars into your retirement account, but only if your age is 60, 61, 62, or 63.

Stephanie McCullough (05:19):

So, 64-year-olds are SOL.

Kevin Gaines (05:22):

You go back to the previous catch-up.

Stephanie McCullough (05:25):

Which is the 50 plus.

Kevin Gaines (05:27):

Yes.

Stephanie McCullough (05:28):

So, let’s put some numbers on it so it’s not so abstract.

Kevin Gaines (05:32):

So, if you’re under 50 for 2026, the limit is $24,500. In the year you turn 50, you can put an extra $8,000.

Stephanie McCullough (05:43):

On top of that 24.5.

Kevin Gaines (05:46):

Yes.

Stephanie McCullough (05:47):

Which brings you?

Kevin Gaines (05:48):

To 32.5. Now, once you hit this super catch-up-

Stephanie McCullough (05:56):

Which I will do next year.

Kevin Gaines (05:58):

Hey, congratulations! Only financial advisors get excited about turning older.

Stephanie McCullough (06:06):

Because then we get more money.

Kevin Gaines (06:07):

For everybody else, once you turn 21, you don’t care anymore. Financial advisors, we get excited at 50, at 55, and now 60, and-

Stephanie McCullough (06:17):

70 and a half, most people get to.

Kevin Gaines (06:18):

70 and a half, 73. We’re a weird group. What can I say? Yeah, so you get the $8,000 once you get over 50. Well, now, if you’re in this four-year period, it’s not an $8,000 catch-up, it’s a little over $11,000 you get to put in.

Stephanie McCullough (06:43):

$11,250 or something like that.

Kevin Gaines (06:44):

$11,250, yes. So, it’s $35,750 for 2026. And then in the year you turn 64, you drop back down to that $8,000 limit. Now, here’s a little bit more confusion, these numbers don’t stack. When it first came out, everybody was thinking, “Oh, I can put in $8,000 and then I can put in another $11,000.” No, it doesn’t work that way.

Stephanie McCullough (07:12):

It’s another $3,250 on top of the $8,000. Got it. And you wonder why the tax code is so complicated, right? Because successive Congresses just throw more and more stuff on top of it without cleaning out the drawer, so to speak. The junk drawer of what was already there.

Kevin Gaines (07:31):

And it’s for the geekiest of us (present company included) who’s actually read these tax laws, they don’t say in the actual law, “Oh, we’re doing this.” No, no, no, they say, “Go back to this old law, find this old clause, and change cannot to can’t, or change it to $11,000 from $8,000.”

Kevin Gaines (07:57):

But you then have to go back to that old law to see what they’re actually doing. Yes, I don’t read many tax laws just because I just don’t have the patience for it.

Stephanie McCullough (08:07):

But you’ve done it. You’ve done it.

Kevin Gaines (08:08):

I did it. And then once I realized how they wrote these things, it’s like, “Yeah, no, no, I’m not going to do it. Not going to do it.”

Stephanie McCullough (08:16):

So, topic number one on your year-end checklist, look at your retirement account contributions. Yes, you do have longer if you’re doing an IRA or a Roth IRA, but it’s still good to have a plan for that. Like how much do I want to stuff in before April 15th? And you don’t have to wait until tax filing. You can do it now if you’re doing IRA.

Stephanie McCullough (08:36):

How about not to go in too in-depth, Kevin? Dear listeners, you know I have to tell him that. But if you have a solo 401(k) or a self-employed plan, how does that affect things? There’s different limits. There’s different deadlines or no?

Kevin Gaines (08:50):

So, with the SEP plan, you can go into next year to make those contributions. Solo K, you’re still with those year-end deadlines. So, although, hey, let’s just throw in a little extra thing. If for solo K, the employer contribution can come in after the new year, there’s special rules for that. But if you’re doing any type of payroll deduction, whether it’s a regular 401(k) or the solo K plan, you do have to have those in by year-end.

Stephanie McCullough (09:30):

So, employee contributions by year-end, employer can be by the tax filing.

Kevin Gaines (09:35):

A little bit more flexibility.

Stephanie McCullough (09:35):

Okay, we’re going to pull them out of the details and go to another topic with lots of complicated details. Another thing you should be thinking about before the end of the year is required minimum distributions. And we’ll link back to episodes where we’ve talked about this before.

Stephanie McCullough (09:52):

This is a thing that happens with retirement plans, with IRAs, and especially if you inherit any of these plans. So, basically, the short version is you’ve gotten some tax deferral with these plans, the IRS is fed up and they are impatient and they want their money. So, there’s an age at which you must start taking out a certain amount of money and the IRS tells you how much.

Stephanie McCullough (10:17):

So, let’s go basic, Kevin. I have an IRA. It’s my IRA, it’s always been my IRA. What do I have to worry about?

Kevin Gaines (10:26):

Age 73.

Stephanie McCullough (10:28):

Unless I’m already older, right?

Kevin Gaines (10:31):

Correct. In which case you’re already taking RMDs. But if this is the first time, so it’s like, “Oh, what do I have to do? When do I have to do it?” Because there’s been, within the last, what, seven years, we’ve had three different RMD ages. So, if you haven’t already started taking your RMD, age 73 is the age to be aware of.

Stephanie McCullough (10:58):

Okay. The year in which you turn 73, you need to start paying attention to the amount you must take out. Usually, if your account is at Vanguard, say, they’re probably going to tell you how much you have to take out, or your accountant or your delightful financial planner can help you figure out how much you must take.

Kevin Gaines (11:17):

Correct. And you have to do that by the end of the year. Even if it’s an IRA and, oh, I can make contributions to the following year, you cannot do that with the distributions. That’s a 12/31 deadline. And if you miss it, it’s a … it used to be a 50% penalty, they’ve actually now reduced it. But it’s still, I mean, who wants to pay-

Stephanie McCullough (11:46):

It’s like 25% or something.

Kevin Gaines (11:48):

It’s 25.

Stephanie McCullough (11:49):

Yeah. Of the amount you should have taken. So, the full distribution.

Kevin Gaines (11:51):

Well, it’s of the amount you missed. So, if you’re supposed to take $10,000, you only took $5,000, the penalty is on the difference on what was missed.

Stephanie McCullough (12:02):

We have some clients who take these January 3rd of the next year. “Oh, I’m entitled to my money, I’m going to take it.” And some clients we are tracking down like, “Hey, we need to take this. We’re going to send this to you. You need to take this money out so you don’t get penalized.”

Stephanie McCullough (12:17):

Again, without going into laborious detail, because we’ve already done an episode on inherited IRAs, Kevin — but just a reminder to folks, if you inherited an IRA retirement plan from someone who is not a spouse, you have also a requirement to take money out. Right?

Kevin Gaines (12:36):

Yes. And again, I’ll try not to go into too much detail.

Stephanie McCullough (12:42):

Because we’ve done it before. We’ve done it before.

Kevin Gaines (12:44):

And I’ll do it again if allowed to.

Stephanie McCullough (12:46):

This is true.

Kevin Gaines (12:48):

Yes. So, there’s two RMDs with inherited IRAs. One is the annual RMD that you have to take out every year. You have to take out a certain amount.

Stephanie McCullough (13:01):

Based on your life expectancy and the IRS table.

Kevin Gaines (13:04):

Correct. And for now, that’s all you have to worry about. The other RMD is the terminal RMD, as I would call it, which says, unless you meet one of the other criteria, you have to empty this inherited account within 10 years.

Stephanie McCullough (13:24):

If the person who left it to you died 2020 or after.

Kevin Gaines (13:29):

Correct. That’s still an important distinction because there’s a lot of inherited IRAs that were inherited in 2019 or before. In which case, it’s just your lifetime, you just do that annual distribution. You don’t have to worry about this 10-year rule. But for anybody who’s inherited since 2020, you have 10 years to worry about. Now, if you’re listening to this episode, just as it comes out, it’s 2026, yes, nobody has that 10-year deadline now.

Stephanie McCullough (14:03):

Nobody has closed the 10-year, right. So, in theory, if your person died in 2020, when the rules first came into play, you’re getting closer to that, so you want to pay attention, but you don’t have to empty anything this year.

Kevin Gaines (14:17):

Correct. And again, the same penalties apply, the 25%, if you don’t take it, there’s a rule that allows the penalty to be 10%. We’re not going to get into that in this episode, but that does exist. Here’s the one catch I always want to point out on these inherited RMDs. This applies to traditional IRAs. Roth IRAs do not have the annual RMD if you inherited it 2020 or more recent.

Kevin Gaines (14:53):

If it’s under the old rules, you still have that annual distribution to worry about. But that 10-year rule applies to Roth IRAs as well. So, if you don’t have it emptied after year 10, you’re going to have to pay this penalty.

Kevin Gaines (15:09):

And here’s the real painful thing. There are no taxes on Roth IRA distributions. If you do not satisfy the 10-year window or you forget to take your annual Roth RMD from these older inherited IRAs, you’re going to pay tax on something that normally isn’t taxed.

Kevin Gaines (15:31):

Think about that. You’re going to pay a 25% tax on something that is not taxed.

Stephanie McCullough (15:36):

Yeah, that’s not fun.

Kevin Gaines (15:38):

That’s just wasting money. So, I mean, please, for the love of God, especially if it’s a Roth IRA, don’t miss the RMD date.

Stephanie McCullough (15:51):

Yeah, definitely avoidable. But this is why you got to pay attention to what you have, to what you’ve inherited. It might not be fun. If you don’t love doing this stuff, get some professional help. There are plenty of us here.

Kevin Gaines (16:04):

I know a couple of people who do love talking about this stuff.

Stephanie McCullough (16:06):

All right. Number three in the year-end checklist of things to think about. What if you feel like you might want to be generous to family members, friends, neighbors? You want to give away some money. There’s some annual stuff here too.

Kevin Gaines (16:24):

Correct. So, when it comes to gifting, the annual limit, at least for 2026, is $19,000. If you give $19,000 or less to somebody, you don’t have to pay any gift tax on that gift. And if it’s a joint tax return, married filing joint, you each get $19,000. So, you want to give money to one child, if you’re married filing joint, you can actually give up to $38,000 without having to file-

Stephanie McCullough (17:07):

Without filing any more forms. Yeah, right, right. And just so you know, dear listeners, back to episode 138, we talked about the estate and gift tax system. So, you can go back for more detail. And also, reminding Kevin, we don’t have to go into all the detail right now.

Kevin Gaines (17:22):

Don’t have to, but-

Stephanie McCullough (17:25):

I’m not going to let him.

Kevin Gaines (17:26):

We’ll throw a couple things out there. So, typically when we talk about gifts and gift tax and everything, always use examples of family. There is no statutory restriction on who you can gift. You can gift to anybody, and these numbers apply, and to as many people as you want because this exclusion applies to each person.

Kevin Gaines (17:50):

And the other thing is, if you need to, or want to give more money to a person outside of these limits, all you have to do is just file this gift tax return, and it counts against your estate limit, which right now is fairly substantial. So, all it is, is just keeping track of this annual number. That’s really what that gift tax is going to do. You’re not actually going to-

Stephanie McCullough (18:18):

The gift tax form.

Kevin Gaines (18:19):

The gift tax form, right. You’re not likely going to actually have to write a check to the IRS for these gifts.

Stephanie McCullough (18:27):

And if you’re in that tax bracket, dear listeners, you’re probably not listening to this podcast, just saying. So, yeah, thinking about gifting, if you want to gift to your favorite dog sitter, like whomever, but probably keep track of these things.

Kevin Gaines (18:42):

Correct. Yes.

Stephanie McCullough (18:44):

And that 19,000 is annual, so if January comes and you wanted to give more, oh, well, you could have given 19 in December, and then you can give another, maybe the limit goes up in 2027. I don’t think we’ve heard yet.

Stephanie McCullough (18:57):

But this is the time of year when it just behooves you to think about it. We’re not telling you to give your money away, but if you are thinking about it, it’s a good time to just review. Speaking of review, item number four on the year-end checklist, I’m sorry to say, listeners, we’re talking about taxes yet again. Kevin.

Kevin Gaines (19:16):

Yes. Well, I’m not sure if everybody sees the smile on my face because, hey, we’re still talking about taxes.

Stephanie McCullough (19:22):

He is grinning ear to ear, audio-only listeners.

Kevin Gaines (19:26):

So, yeah, I mean, really what you want to do is review your income and see if there’s any surprises, or make sure everything’s tracking the way I thought it would. Okay, great. But you’re reviewing your investment accounts, “Oh my gosh, I got a lot of capital gains.” That’s going to screw with some of your tax numbers, potentially.

Stephanie McCullough (19:49):

Maybe you got a big bonus or a giant commission or something, or maybe it was a lower income year. All of these things give you information to prepare for April 15th, when you might have to write a check or get a tax refund.

Stephanie McCullough (20:04):

But also, there’s planning opportunities, potentially, depending on where you’re falling in these tax brackets, and also, all the different things in the tax code have different break points and different amounts where they change. Whether it’s a deduction you can or can’t take, things you can or can’t do.

Kevin Gaines (20:27):

Right, or contributions you can or cannot make. Where you were just saying, hey, you don’t have to make your Roth IRA contributions until April 15th, but here’s the thing, eligibility to make a Roth contribution is income dependent.

Kevin Gaines (20:44):

If you’re planning on or if you already made your Roth contributions for this year, and you discover, “Oh, wait a second, I’ve made too much money to contribute to a Roth,” you’re going to have to make some adjustments, do a little paperwork to either switch that over to a traditional IRA contribution, or call it an excess contribution to back it out. But either way, you don’t want to have to worry about this as a surprise.

Stephanie McCullough (21:14):

So, opportunistically, what are the things that we can do? Let’s say I’ve discovered that here’s where there might be a silver lining, let’s say you’re in a couple, you’re filed your taxes jointly, and somebody gets laid off, or just has a super low-income year, what might that open up for people?

Kevin Gaines (21:35):

Well, now we could be talking about maybe Roth conversions. I mean, that’s a big one. We’re financial planners. When we hear low income, I think all of us think, “Oh, Roth conversions.” Because here’s the thing about Roth conversions. From a tax perspective, from the IRS’s perspective, they love Roth conversions because, oh, that’s tax dollars today.

Kevin Gaines (22:00):

Because you technically are taking the money out of your traditional IRA or your traditional 401(k) and converting it into a Roth.

Stephanie McCullough (22:09):

Which is a taxable event.

Kevin Gaines (22:10):

Exactly. It counts as taxable income for this year. So, if you’re earning $500,000 a year, and you’re in top tax brackets, Roth conversions are going to generate a number.

Stephanie McCullough (22:27):

They’re going to hurt more because you’re paying a higher income tax.

Kevin Gaines (22:31):

But hypothetically, let’s say, “Oh, wait, I’m not going to get $400,000 of that $500,000 until January.” So, you’re really only earning $100,000 this year. Oh, well, now I’m in a low tax bracket, what can I do with a low tax bracket? I could do Roth conversions. In this particular example, hey, I may now be eligible to make a Roth contribution or other things that are dependent on that low income that we’re going to get into here in a moment.

Stephanie McCullough (23:07):

Well, and to tie it back to the required distribution plan. Like alright, let’s say I inherited an IRA, I’ve got 10 years to empty it. I’m just taking out the bare minimum because I’m trying to postpone the pain. Oh, wait, I’m in a low tax bracket this year, maybe I take out more.

Stephanie McCullough (23:25):

And this is where some strategic planning and deciding how much “space” do I have in the lower brackets? How much can I take out of an inherited IRA? Or even if you’re getting closer to retirement, we don’t always recommend that you wait until RMD age to start taking out from your IRA.

Stephanie McCullough (23:46):

Opportunistically taking distributions in lower tax years, say between if you retire at 67 and RMDs don’t start until 73, those could be good years potentially if you’re in a lower bracket to accelerate your IRA distributions.

Kevin Gaines (24:05):

Absolutely correct. But then Stephanie, like we were just talking about, there’s other tax issues based off of your income. How about if I phrase it that way, not to spoil it?

Stephanie McCullough (24:19):

Well, then this kind of falls in the maybe potential negative surprises category, right?

Kevin Gaines (24:26):

Correct.

Stephanie McCullough (24:27):

Okay, so give us an example.

Kevin Gaines (24:30):

The biggest one, if you’re age 63 or older, is IRMAA, which is the surcharge on your Medicare premiums if you make over certain amount of money. And they have different tiered rates that the more you make to go into these higher tiers, you have to pay even more money for your Medicare for that particular calendar year.

Stephanie McCullough (24:58):

And I’ll point you back, dear listeners, to episode 142, Don’t Wait Until 65, Medicare Planning for Gen X and Beyond with Danielle Kunkle Roberts.

Kevin Gaines (25:07):

So, Stephanie, in two sentences, why 63, not 65, which everybody knows is when Medicare starts.

Stephanie McCullough (25:16):

Right. You start your Medicare, but when they determine how much you’re going to pay in premium for your Medicare, this IRMAA, our beloved Aunt IRMAA, they actually look at your prior, prior year’s taxable income. Your what, AGI or MAGI, one of those things that determines how much of this excess premium you might have to pay.

Stephanie McCullough (25:38):

Because obviously they don’t know your income for this year yet. And for some reason, they don’t look at last year, they look at two years past. So, you could have unintended consequences from having a higher tax. But this is the thing where it gets weird, Kevin, because it’s not just your like W-2 or your salary plus bonus that counts towards these calculations of income.

Kevin Gaines (26:03):

Correct, they look at your entire income picture.

Stephanie McCullough (26:09):

Which includes?

Kevin Gaines (26:10):

It’s going to include Social Security. It’s going to include your wages, but it’s also going to include capital gains from your investments. It’s going to include retirement account distributions. Literally anything that you pay income tax on, anything that goes on your 1040-

Stephanie McCullough (26:27):

Or capital gains tax.

Kevin Gaines (26:29):

Yeah, anything that’s on that 1040 is fair game for these calculations.

Stephanie McCullough (26:36):

That’s the part that always trips me up, is if I have a big capital gains tax year, I’m paying the capital gains tax rate. I’m not paying the income tax rate on that event. However, in these calculations up for the IRMAA brackets and certain other things like when you’re allowed to do deductions and all that, capital gains does get included in that calculation of income.

Kevin Gaines (27:01):

Correct, which is always tough to reconcile in your head unless you’re doing this stuff literally every day. So, I mean, I still find myself occasionally reaching out to my tax preparer and I say, “Marianne, remind me how the capital gains works again?” Just to double-check myself because I’m 90% sure I got it right but every once in a while, I just get that little self-doubt in my head.

Kevin Gaines (27:32):

So, Stephanie, you mentioned that your adjusted gross income or some variation thereof can also impact your deductions. What do you mean?

Stephanie McCullough (27:43):

Well, this brings us to topic number five on our year-end checklist. And I have to say, this is one that probably people think of more often. This is kind of more in the kind of common knowledge, but charitable giving.

Stephanie McCullough (27:55):

It used to be that the charities would make a big push for contributions, for donations around the holidays, around the end of the year and they’d say, “Get your tax deductions.” But the tax deduction picture has gotten more complicated vis-a-vis giving to charities, to 501(c)(3)s, not-for-profit organizations, where in the old days, it was just all deductible. It’s more complicated now, sad to say. And Kevin, can you explain it briefly?

Kevin Gaines (28:24):

Briefly. So, there’s been a couple of recent changes. So, old way, if you itemized, then you could deduct charitable donations. If you didn’t itemize, frankly, you’re SOL. You just couldn’t get the deduction for it. But then they brought back an item that we could do during the COVID, which was called an above-the-line deduction for charitable giving. So, that if you don’t itemize, the way it is for 2026-

Stephanie McCullough (28:59):

You just take the standard deduction.

Kevin Gaines (29:00):

Take the standard deduction. You can deduct up to $2,000 of charitable contributions.

Stephanie McCullough (29:06):

Which is nice.

Kevin Gaines (29:07):

Which is nice.

Stephanie McCullough (29:08):

Right, a little extra incentive.

Kevin Gaines (29:09):

Correct. Then whatever they give on one hand, they take on the other. So, they introduced this concept of a floor, if you itemize, which exists for medical deductions. We’ve known that for … that’s been true forever. You have to, I think it’s what, seven and a half for medical deductions — more than seven and a half percent of your AGI, and then anything above that, you get to deduct. Charitable contributions starting in 2026 never existed before. It’s a half a percent.

Stephanie McCullough (29:50):

The floor.

Kevin Gaines (29:51):

The floor. So, one half of 1% of your AGI, if that’s all you contributed to charity, you don’t get to deduct.

Kevin Gaines (30:01):

Yeah, below that number, not deductible. Above that number is deductible. And it’s not like a cliff, once you go a dollar over it, everything’s deductible? No. Everything under 0.5% of your AGI, not deductible. Once you get above it, then you get to make a deduction.

Kevin Gaines (30:18):

Right. So, if you donated $5,000 and that half percent floor is $3,000 then your itemized deduction is going to be $2,000.

Stephanie McCullough (30:32):

Which is another reason why item number four, having an idea of where you are on the tax picture before the end of the year, before you’ve actually turned in your stuff to your accountant to do the taxes, is helpful.

Kevin Gaines (30:44):

Because you may decide, “Oh, this is a good year to do extra charitable giving, and I just won’t do it next year when my income goes back up.”

Stephanie McCullough (30:53):

Well, that’s the thing, whenever there’s a new tax law, there become new tax strategies. So, one of the strategies that people have been talking about is, for lack of a better word, kind of stacking your donations in one particular year.

Stephanie McCullough (31:07):

Like, oh, I’m sorry, food pantry, I’m not going to give you $1,000 every year, I’m going to give you more money this year, and you get nothing from me next year because I’m going to try to get above that floor so I can make it deductible.

Kevin Gaines (31:21):

Yes. And rest assured, don’t think you’re going to offend the charity. Every charity is very much aware of these rules, and I’m willing to bet large quantities of money that they’re all prepared for this, that they’re going to be talking to their donors, these things to think about just because they don’t want people to be scared. So, they’re going to help with the education on this.

Stephanie McCullough (31:46):

Yeah, for sure. So, this brings up another interesting charitable giving tool, which we probably need to have an episode on all to itself. I don’t know that we’ve done that, but there is something called a donor-advised fund, which in my mind really is most helpful when you want to basically stack your donations for tax reasons.

Stephanie McCullough (32:08):

So, if you have a big taxable income year, this is how we used to think about it. Let’s say someone sold a business or had a giant capital gain or had some big inheritance that changed their tax picture. Ooh, if I make a big donation this year, I’ll get that tax deduction and it can offset. Well, now we’ve got the floor to deal with. So, it might be added incentive, but basically, a donor-advised fund, it’s a charity.

Stephanie McCullough (32:36):

So, you get the donation the year you put money into it, but then you don’t actually have to pass it on to the individual recipients like the food pantry or the animal shelter or whatever. You don’t have to do it in the same year.

Stephanie McCullough (32:49):

So, the donor-advised fund is kind of a vehicle that holds it, it’s donor-advised, meaning they don’t have to do what you say, but they are going to do what you say, but you don’t technically have control over that money anymore. It’s not yours. So, potentially, using a donor-advised fund can help you get above the floor.

Kevin Gaines (33:07):

And the nice thing about that is you get to stack the donation, if you will, in the year you put money in the donor-advised fund, but food pantries, animal shelters, they need the food every year. Getting extra money this year, yes, is going to be useful and they’re definitely going to put it to good use, but if you’re still able to give them that a thousand dollars say over the next five years, that’s going to help them as well. So, this way, both sides win, if you will.

Stephanie McCullough (33:37):

You can do it from the donor-advised fund in effect. Alright, there’s one other charitable giving thing that makes Kevin’s eyes sparkle because it involves the tax code. There’s something called a … back to the retirement accounts and IRAs, there’s something called a qualified charitable distribution which is why I said, when we were talking about ages, we get excited about 70 and a half, is one of those ages. Kevin, briefly, what’s a QCD?

Kevin Gaines (34:05):

QCD is a charitable contribution that you do not get a deduction for, but it doesn’t count as income. So, think of it this way. You take money out of your IRA, and you then write a check to animal shelter. You have to pay tax on that distribution, and then you-

Stephanie McCullough (34:26):

That came out of the IRA.

Kevin Gaines (34:27):

That you took out of the IRA, and you may or may not be able to deduct the contribution. Several years ago, Congress said, “Hey, if you send the money directly from your IRA to the charity, so IRA custodian writes a check to animal shelter and animal shelter gets the money. You don’t get a deduction, but it doesn’t count as income.”

Stephanie McCullough (34:54):

Whereas every other dollar coming out of your traditional IRA does count as income. So, it’s kind of a way around these new rules. I mean, it’s legal, it’s not a way around it, but it is a very exciting thing for people who get to this age and are charitably inclined.

Kevin Gaines (35:11):

And in most situations, it’s better from a tax perspective to not have the money count as income at all, as opposed to getting the deduction. So, yeah, so 70 and a half for a QCD, this includes inherited retirement accounts.

Stephanie McCullough (35:28):

You can QCD from inherited?

Kevin Gaines (35:29):

You can do a QCD from an inherited IRA. And for the record, it’s IRAs, you cannot do this with 401(k)s. But if you inherit an IRA and you are over 70 and a half, your owner’s age is immaterial. If you’re 72 years old and you inherit, unfortunately, from a child, from your child-

Stephanie McCullough (35:53):

Oh, or your brother.

Kevin Gaines (35:54):

Or your brother, or younger brother or something, somebody who’s younger than 70 and a half, you can still do this. You can still do a QCD. But if you inherit from your grandparents and you’re under 70 and a half, you cannot do the QCD, even though they were, say, 82 or 83 years old. So, it’s based on your age.

Stephanie McCullough (36:12):

And again, this is a tax year dependent thing. So, there is a maximum that you can do each year, but to get the benefit in 2026, you got to do it before December 31st of 2026. And do your financial advisors a favor. Do your custodians like Fidelity and Schwab and Vanguard a favor — don’t ask on December 30th, please start to do these sooner.

Kevin Gaines (36:36):

And just because you ask doesn’t mean they’re going to get it done in time.

Stephanie McCullough (36:38):

That’s the problem. It’s going to get backed up. It might not go out until January, and then you don’t get the benefit in this tax year.

Kevin Gaines (36:47):

Yeah, we’ve talked to custodians over the years, we know they make an effort. They know they’re going to get hit with this at the last minute, but they still can’t guarantee it’s going to get out for this tax year.

Stephanie McCullough (36:58):

Right, okay. Number six on our year-end checklist is really focused on non-retirement accounts. So, if you have investment accounts which are just in your own name or joint name or maybe in a trust name, just a regular old, in our world, we call it a taxable account, could be a brokerage account — just investments sitting in an account without a retirement account wrapper around it, there is a potential tax move you can do to benefit you.

Kevin Gaines (37:27):

Correct. So, we refer to it as tax-loss harvesting. Now, I know anybody you talk to at a cocktail party has never had an investment go down on them in value. Never have. You never hear about it.

Stephanie McCullough (37:42):

Because they’re too smart for that.

Kevin Gaines (37:43):

Exactly. But unfortunately, when you look at your statement, you’re going to see one or two things you invested in that are down from where you bought it.

Stephanie McCullough (37:52):

You never know how many things, you don’t know. Might be, might be not.

Kevin Gaines (37:56):

I’m just saying maybe there’s a couple. But if you sell it by the end of the year, whatever you lose, whatever you lost on that investment, you get to use to offset all of your profits on stuff you had sold during the year, or distributions from mutual funds or ETFs. They make these capital gain distributions.

Stephanie McCullough (38:26):

So, we talked about capital gains tax and the tax on stuff you might’ve sold that went up. This is a capital loss that gets to offset any gain before the tax is calculated. So, the strategic move, if you’re managing your own investments is take a look. Do you have anything down? Would it behoove you? Is the juice worth the squeeze to maybe sell it?

Stephanie McCullough (38:52):

There are certain rules. You can’t buy it back within 30 days. There’s rules around this stuff, but again, your people should be able to help you with this. You either stay out of it or you buy something kind of sort of similar if you want to still have the exposure, or if you have a financial advisor, they’re probably doing this for you. You can ask about it.

Stephanie McCullough (39:10):

There are more and more systems that automate it throughout the year so they’re not just looking once a year, they’re looking regularly at opportunities for this tax move.

Kevin Gaines (39:19):

If you lose more than you win, you can then take some of that up to $3,000 off of your income. So, if you made $10,000 trading, but you lost $13,000, that $3,000 will reduce your income. Now, if you lose more than that-

Stephanie McCullough (39:40):

And you can carry forward, right?

Kevin Gaines (39:41):

And you just carry it into the next tax year to use it to offset capital gains in the future.

Stephanie McCullough (39:47):

Yeah, so not a bad thing to do. And as always, don’t let the tax tail wag the investment dog. You should not be doing your investment strategy solely around tax planning as much as Kevin loves tax planning. I think he would agree with me.

Kevin Gaines (40:03):

So, I mean, those are the things that are pretty much like deadline for 12/31. But Stephanie, just like we’re always reminded every time the clocks change to check the batteries in our smoke detectors, since you’re already looking at all this stuff, this is probably a good time to look at some other stuff as well, just to make sure what it’s supposed to be. What would be the first one for this part of the list, Stephanie?

Stephanie McCullough (40:32):

Right, and really these are things we would recommend you do all year round. But if the calendar changing is going to spur you to do it, great, great. These are things we’re talking to our clients about all the time.

Stephanie McCullough (40:43):

So, number one, how much cash do you have? We’ve been talking about investments. How much do you have sitting in a bank account, a savings account, a money market account, “not earning anything?”

Stephanie McCullough (40:55):

I mean, we can debate that but cash is still very important in your financial plan and having “the right amount,” I mean, it’s a subjective thing, but cash plays an important role, especially if the markets take a big downturn and suddenly, you need to do something, pay a bill or help out a family member, or whatever it might be, make a move.

Stephanie McCullough (41:22):

If your job, heaven forbid, goes away, well, as I always say, ageism is real, how much cash does it make sense for you and your household to have? Revisit that question on a regular basis. You want the emergency fund, you want cash for upcoming needs. If you know you’re going to need a car next February, that should be in cash, not invested. And any upcoming uncertainty, if you have a move on the horizon or if anything’s going on, that argues for having extra cash.

Kevin Gaines (41:52):

Or if when you reviewed your taxes, as we discussed in step four, you realize, oh crap, I may have to write a hefty check in a couple months, do we want to raise the cash now?

Stephanie McCullough (42:04):

I would, mm-hmm, yeah. Cash might not be earning a high interest rate, but it’s not going to go down in value. Alright, Kevin, number two, another one of our favorites.

Kevin Gaines (42:18):

Now, this category, we said review your estate planning documents and insurance policies. So, the next one on our list that we’re discussing here is reviewing your estate documents and insurance policies, but I have to confess to being retirement geek again, and when I hear this, I hear beneficiary forms.

Stephanie McCullough (42:42):

I know you do.

Kevin Gaines (42:43):

Cannot preach this enough. Check your beneficiary forms. Don’t assume the will is going to cover it, because A, it won’t, but B, also things change in your life. And if you got married, now all of a sudden, that could impact who gets your retirement accounts, for example. But bigger picture, that also applies to insurance policies, TODs on maybe a bank account or something that you have.

Stephanie McCullough (43:15):

Transfer on death designation.

Kevin Gaines (43:17):

Yes. But there’s other estate planning documents, such as what, Stephanie?

Stephanie McCullough (43:22):

I mean, your powers of attorney are important. Who have you named as agent? Should you become incapacitated who can handle your financial affairs? Who will make medical decisions for you if you can’t make them on your own?

Stephanie McCullough (43:34):

You might have named a sister-in-law who’s not around anymore, or maybe you had an argument with. You might have named a neighbor who moved away, like you need to review these things. And also, of course, as we always say, make sure your people know where to find these documents. Make sure they’re up to date. Make sure they’re findable. Make sure you’ve named the right people.

Stephanie McCullough (43:56):

And on the topic of being safe, cyber safety. Again, nothing magical about end of the year, but you’re reviewing everything — hey, when was the last time you changed passwords? When was the last time you updated your computer settings even? I mean, just these little things that can expose you because shock of shocks, the bad guys are getting better at this.

Kevin Gaines (44:28):

Yeah. They’ve got the technology and they’re using it. We’ve talked before about scams and fraud that’s out there, and unfortunately, I see really disturbing headlines every day about this. So, pay attention, be aware of things that are going on. Talk to all your friends and family about these scams, because if you are aware of a scam (back to our episode with Kathy Stokes from AARP), you are 80% less likely to fall for it. So, again, just be aware of this stuff, do the best you can.

Stephanie McCullough (45:02):

And it’s holiday season, you’re going to get a lot of email requests from charities, and let’s be generous. Most of those charities are legit, but I’m pretty sure that there’s going to be at least one or two asking for money and they aren’t legit.

Kevin Gaines (45:19):

And really, there’s a lot of texting going on. My mother gets texts and she says, “Well, I got texts from this company.” You don’t have an account with that company. Like never trust, always verify. If something comes in from a company you do work with, don’t respond to it. Like reach out to them at a phone number. You can verify from a different source the number on your back of your credit card, for example. Don’t respond to these people. That’s what they want.

Stephanie McCullough (45:46):

Alright, and the last one, again, this might be appropriate during the holidays, it might not be appropriate during the holidays, but talk to your family members, whether it’s a formal family meeting, lots of people do that. Sometimes that might feel a little too intimidating. Start talking about money. Kevin, I think you and I might have mentioned this once or twice.

Kevin Gaines (46:05):

I think it occasionally crops into an episode or two.

Stephanie McCullough (46:10):

Right. I mean, just the most recent one we talked about on wealth transfer, a big part of that message was talk to your people.

Kevin Gaines (46:19):

And again, like you said, it doesn’t need to be this big, all-encompassing three-hour sit down. It can be just casual conversations of, if we want to talk about wealth transfer, “Hey, I think when I die, you would really like this painting or this space or something.” Now, nobody really enjoys that conversation as they’re eating their pumpkin pie, but you take advantage of the situation where you can to try to set the future up to be smoother and easier.

Stephanie McCullough (46:54):

Yeah, I was just talking to a client yesterday and she said she had an opportunity to do something, and it was going to have an impact on her financial picture. And her parents had never talked about whether or not there might be inheritance.

Stephanie McCullough (47:07):

She went to them and she said, “Hey, I can do this, but I’m going to need to take a pay cut. It would be really helpful to know do you think there’s anything … I don’t know how exactly she worded it, I’ll have to ask her, “But is there anything maybe coming down the pike for me and my siblings?”

Stephanie McCullough (47:22):

And she said that opened the floodgates, and all of a sudden, her parents were telling her and happy story for her. It turned out there was quite a bit, but she was shocked. They didn’t give during their lifetime. So, it could have changed things previous, but just start to plant the seeds, try to normalize the conversation and it’ll serve you better than being completely in the dark.

Kevin Gaines (47:47):

Well, Stephanie, I think that kind of covers our top 10, but this is a holiday season or coming up on the holiday season and everybody loves surprises. So, I have a surprise number 11 for probably half percent of our listeners.

Kevin Gaines (48:04):

If you have company stock in your 401(k) and you’ve been planning on doing an NUA, make sure your account is actually empty by 12/31, or your tax bill is going to be a hell of a lot bigger than you anticipated.

Stephanie McCullough (48:32):

Now that you said it Kevin, you have to explain what’s an NUA.

Kevin Gaines (48:37):

Net Unrealized Appreciation. It’s an old tax code allowance that gives a tax benefit potentially if you own company stock in a retirement account. I was going to say one day I’ll convince Stephanie to do an episode about it, but I may have to get her drunk in order to get her to agree. But for the three people that this may impact, fear not, I’m working on it.

Stephanie McCullough (49:05):

It is important. It is important. And with that, dear listeners, we shall leave you. We hope you found this helpful. We’ll talk to you next time. It’s goodbye from me.

Kevin Gaines (49:13):

And it’s goodbye from her.

[Outro Playing]

Stephanie McCullough (49:17):

Be sure to subscribe to the show and please share it with your friends. Show notes and more information available at takebackretirement.com. Huge thanks for the original music by the one and only Raymond Loewy through New Math in New York. See you next time.

Voiceover (49:32):

Investment advice offered through Private Advisor Group, LLC, a registered investment advisor. Private Advisor Group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security.

Voiceover (49:52):

To determine which investments may be appropriate for you, consult your financial advisor prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.