4 Seasons Podcast

Tax Strategies That Keep More Money in Your Pocket

• Jeff Bingham • Episode 6

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Does B&H Wealth Strategies Provide Tax Planning Or Advice?

Taxes are inevitable, but paying more than necessary isn't. In this illuminating discussion, Jeff Bingham of B&H Wealth Strategies breaks down practical strategies that can help you keep more of what you earn while staying fully compliant with tax regulations.

We explore the powerful impact of retirement account contributions on your current tax situation. For 2024, individuals can contribute $8,000 to IRAs (with additional catch-up provisions for those over 50), potentially reducing taxable income by thousands. When coupled with employer-sponsored 401(k) plans that offer matching contributions—essentially free money—these strategies create both immediate tax relief and long-term wealth accumulation.

Whether you're currently working or approaching retirement, these tax strategies can significantly impact your financial trajectory. Schedule your free 20-minute consultation today by phone or visit online and discover how personalized tax planning can transform your financial future.

To learn more about B&H Wealth Strategies visit:
https://www.BHRetire.com
B&H Wealth Strategies
423- 247-1152

Speaker 1:

Welcome to the Four Seasons Podcast brought to you by B&H Wealth Strategies, serving Northeast Tennessee and Southwest Virginia since 1966. Here we guide you through the ever-changing seasons of your financial journey, offering insights to help you grow, protect and enjoy your wealth. Ready to turn your financial dreams into reality, dare to dream. And now here's your host. President of B&H Wealth Strategies, jeff Bingham.

Speaker 2:

Taxes, the one thing we all love to hate. But can smart planning turn tax season from dreadful to doable? Let's break down how B&H Wealth Strategies helps clients navigate tax strategies to keep more of what they earn. Because who doesn't want to pay less and save more?

Speaker 3:

Welcome back everyone, skip Monty here co-host slash producer back in the studio with Jeff Bingham Jeff how's it going?

Speaker 2:

It's going great. How are you doing this morning, skip? I'm doing just fine. Doing just fine, although it is tax season and I regret to say that I am just now starting to work on that, so I'm sure there's a lot of folks like me. So big question on the top of my mind today is does B&H Wealth Strategies provide tax planning or advice?

Speaker 3:

I need it, as my dad used to always say, without question. The caveat to this is that I am not a tax preparer, I'm not a CPA, but we're wealth advisors and in the financial planning process, obviously taxes are a key component to that. So I just want to lay that out there to everybody. So I'm not an expert in tax preparation and filing. What we try to make sure that we do is to minimize taxes as much as we can. When you take all of your documents to your CPA or tax preparer, or if you're doing them yourself with TurboTax or however you might be doing that today that you are minimizing, you're already prepared for that, because when you do your taxes, it's really just a scoreboard. The tax preparer, the CPA, is really a scorekeeper. What we want to do is make sure that we are minimizing your taxes so you can maximize your savings, your earnings and your income.

Speaker 2:

Very good. Well, this is a question. I've got two dogs. Have any clients ever asked if they could deduct a dog as a dependent? That was a suggestion of my wife.

Speaker 3:

Well, in some instances the expense that we utilize and the raising of our pets and our dogs, let's say you would think you might be able to, because they certainly are dependent, but I don't know that that would fly with the IRS. I'd be very careful about that. I do appreciate your question. People try a lot of really creative things like that. I don't think that would pass an audit, but who knows? It's a strange world we live in.

Speaker 2:

Yes, sir. What specific tax planning services does B&A Wealth Strategies offer?

Speaker 3:

Well, I think that's a good question and it's a pretty big and broad question right there. So I'll try to paint a bit with a broad brush as well on these lines, some of the things that you'll see people doing. As a matter of fact, just right before I went on air here, I had a client that was in here and they were making their individual retirement account contributions. You can make your 2024 IRA contributions all the way up till tax filing time April 15th, as we move forward to that, and that's certainly one way to do it. You can put $8,000, I think is the number for 2024, depending on what your age is. There's a catch-up provision in there. It's less than that. If you're under 50, you've got a thousand dollar catch-up provision. That's in there and I won't go into the depth on that. But when you make these contributions your IRA contributions such as I just described right there you're reducing your taxable income by the amount that you put in there. So if a husband and a wife you know put $16,000, let's say, into his and her IRA account, then you reduced your taxable income by $16,000. And, you know, if you do the arithmetic on that and you assume you're at a 20% effective tax rate, you reduce your income tax liability by $3,200. That's just real simple math. So don't everybody kind of take that and run with that, as that's how it would work for the folks that are out there listening. That's just kind of again a broad stroke of looking at that. But that's one way to minimize income taxes. Another way to do it make sure that you're taking advantage of your 401k plans at work. If you're still working, or a 401k plan or some equivalent thereof to where you can put in pre-tax dollars, you may get some match from your employer. If you're lucky enough to do that, you certainly want to contribute to those plans, not just for the tax advantage of doing that, which is certainly a good thing, but also if your employer is matching some of that. That's free money in a sense, right that's, if they're matching. You know if they, if you put in 5% of your income, they match dollar for dollar at 5%, that's 100% return on that 5% that you're putting in there, right? So you want to take advantage of those things and that's kind of tax planning and efficiency of what your workplace is offering you right there. So those are some ways to reduce your income tax while working, you can certainly make charitable contributions. I mean, there's a lot of things there.

Speaker 3:

But the other thing with your investments that you want to look at, I think you want to do, is that you can use tax efficient investing with your after-tax dollars that you're putting in. There are deferred investment type of annuity contracts that are out there and annuities can have some negative connotation from kind of the popular press that's out there, but they're just tools like anything else in the investment world. But you can grow your money, your earnings on your money can grow on a tax deferred basis. And there's other ways to do it. You can invest in funds and ETFs that are out there with your extra tax, or individual stocks. Even those have tax advantages because as those gains go up, if you're investing in a growth mutual fund or a growth ETF or an individual stock or a group of individual stocks, the growth on those stocks is not subject to income tax. You don't get a 1099 on those. You're only subject to income tax on those types of things was when you would sell them they were subject to in most cases not all depending on the length of time that you own them capital gains tax, not to regular income and capital gains taxation is at a lower rate than regular income is.

Speaker 3:

So that was a bit of a weedy, probably kind of wandering down that path right there. So apologies to the listening audience out there for that. What we really want to do, like I said, is when it goes back to the first conversations that we've had. We want to talk to folks and listen. But where are you, where you want to go, how you want to get there? And everybody wants to reduce their income tax liability.

Speaker 3:

Because you said everybody hates it. You're looking, you know paying income tax. You know I think there's a saying out there. It's that you know, I'm very patriotic and I love this country, but I can be just as patriotic and red, white and blue by paying half the income tax liability that I have to pay. So you know we want to be very careful in ways we minimize, but the code is very complex and convoluted. That's out there. We want to use everything that is within our legal rights to use to minimize those income taxes. When you move into retirement, we can talk a little bit about that too. How do you minimize income tax there? It's not how much money you make, it's how much money you get to keep.

Speaker 2:

Amen, brother. Well, here's a question for you. I had a friend who was telling me who's really been loading up his 401k and he has a retirement account and ran into some financial difficulties and ended up doing some disbursements prior to he's 60. So I know there's big issues with that, including penalties and that sort of thing. Can you talk about that?

Speaker 3:

Yeah, now you mentioned that your friend was 60 years old, so that's key to it, because the penalties that you're speaking of right there, the tax penalties, are associated with pre 59 and it's kind of the magic age there. If you take money out of retirement plans, whether it be 401k plans or an individual retirement account there are some exceptions to this, but I won't talk about those yet. If you take the money out before reaching age 59 and a half, you're not only going to pay income tax on every dollar that comes out of it because again, you put in pre-tax dollars, the money's grown on a tax deferred or a tax free basis. So every dollar that comes out of us can be subject to income tax, but pre-59 and a half is subject to a 10 percent tax penalty. So if you think about what that amounts to on a pre-59 and a half, let's say you take a $25,000 disbursement out of that, as you said right there, because of whatever circumstances have come up, that appears to be the only place where you have enough funds to kind of take care of this emergency that has arisen right there. So if you take $25,000 out and you're under 59 and a half, right off the top. You're going to pay a $2,500 tax penalty because that's the 10% depending on your other income, because you're going to stack that $25,000 distribution on top of your other income for the year yours and your wife's and let's say that puts you in an effective tax rate of 20%. There's not a 20% bracket. We'll talk about effective rates if we want to here in a moment. That's your effective rate. So you're going to pay. If we want to here in a moment, that's your effective rate. So you're going to pay 20% of $25,000, that's $5,000 plus the tax penalty. So in effect, you pay a 30% tax, $7,500 on that $25,000. So you've turned it into $17,500.

Speaker 3:

I did my arithmetic right there. I believe I did the $17,500 out of $25,000 that you needed to get. That's an expensive place to take care of emergencies. The clients have had to do it over the years. No question, like your friend that you're talking about right there, as he was loading up that 401k plan.

Speaker 3:

If you're proactive on that, what if he were talking to someone like me? It would be like okay, well, let's make sure that we load this up, put as much money as you can in there, take advantage of the tax deduction that you get, reducing your taxable income, letting the money grow on a tax deferred or tax free basis as it grows, taking advantage again of the employer match. But let's also make sure that we've got some emergency reserves, cash in the bank savings, money markets that kind of thing, or home equity loans. I mean, there's a lot of different ways to look at this. What might be available for emergency reserves.

Speaker 3:

But, like I said, sometimes it's the only place you can take, but it is an expensive place to take money out of. But in some cases it's the only place that you've got to do it. But you've got to understand what the ramifications of doing that are. You've got to take care of the current you, but it's damaging the future. You right, it's damaging that, your future income, and so you just got to calculate all those things out.

Speaker 3:

What you try to do there is, again, be proactive in the planning process of sitting down with myself and going okay, here's what we're doing in the 401k plan, what are we doing to take care that we have our emergency reserves, other savings, college funds, dah, dah, dah all the things that can go into an overall comprehensive financial plan.

Speaker 3:

So long answer to that question, but it's there it can be done. Oftentimes it's the only place where you have money but, like when we have clients that need that type of emergency or whatever comes up, it could be an opportunity, it could be an emergency, it could be a desire, it could be a want right. All those things kind of come into play when that occurs is that we look at everything. We look at the 401k plan, we look at the assets we have here. We look at the money that they have in the bank. Do they have a lot of equity in their home? And then you try to lay that out and determine which is the most efficient way to get that money that we're looking for from your resources that you have available to you, to take care of it today, but also to make sure we're being good to the future you and not damaging your future retirement plan, so you can be successful today and tomorrow.

Speaker 2:

Very good to know. I'm going to make sure my friend gets to see this episode, although it's a little too late for him, but maybe we can help some other folks out that are thinking about doing the same thing.

Speaker 3:

Thinking about your friend. And another thing that I didn't point out here is in many 401k plans, as you're describing right there, you can borrow oftentimes from a 401k plan, so you can borrow from your own funds and avoid the taxes and the tax penalty, but you've got to pay yourself back and so again, you've gotta be careful and understand that. So that's a very broad stroke of that. But that's another way to do it where you don't have to incur the tax liability and perhaps the tax penalty, depending on what your age is. But again you've got to make sure that you're going to get that loan paid back before you retire from that employer, because that has its own set of problems that I won't necessarily go into during this episode. That's a little more in depth, but it can create some problems, but it also might be able to solve a problem in the short run, as long as we know we've got to deal with something over the long pull.

Speaker 2:

Very good, very good to know. Well, jeff, I appreciate your time today. Taxes is a huge subject for everybody and maybe we can address some other issues with taxes in another episode.

Speaker 3:

Yeah, I think that'd be good, because there certainly are some other things that are out there and which we didn't get into, which I would like to talk about at some future time, and I think the listening audience will probably appreciate. This is that how do you have the most efficient and effective income stream during retirement, protecting that so you pay as little tax as you can during retirement when it really becomes very, very critical, and you've got social security and 401k plans and pensions and savings and all those kinds of things that come into the mix right there, how do you utilize that at its most efficient and long-term success for each individual and that's different for each person.

Speaker 2:

Sounds like about three episodes. Actually it's a lot. Well, jeff's different for each person. Sounds like about three episodes actually it's a lot.

Speaker 3:

Well, jeff, appreciate your time today and we'll see you in the next one, all right.

Speaker 1:

Thanks everybody. Have a great weekend. Hey, you too. Thanks for tuning into the Four Seasons Podcast brought to you by B&H Wealth Strategies, where your financial success is our priority. Schedule your free 20-minute consultation today by calling 423-247-1152 or by visiting bhretirecom. Take the first step toward making your financial dreams come true. Until next time, remember every season is the right season to plan for your future. Securities and registered investment advisory services offered through Silver Oak Securities Inc Member FINRA, sipc. B&h Wealth Strategies and Silver Oak Securities Inc are not affiliated.