Tax-Smart Retirement: Moves to Consider Before Year-End

Executive Summary

In this webinar, Alek Johnson, CFP®, walks through tax moves retirees may want to consider before December 31: how tax-deferred, tax-free, and taxable accounts are taxed, three charitable giving strategies, when Roth conversions may and may not make sense, and tax-loss harvesting. The examples are hypothetical, and the content is educational only and is not tax advice.

Welcome and What We Will Cover

Alek Johnson: Well, good afternoon and welcome. Excited to be here with you today because taxes are just the most exciting topic out there, I think. No, I’m just kidding. I know for some of you that you like to nerd out like me, this is probably a fun webinar, but for probably the majority of you, this may be the last webinar on planet Earth you want to attend.

But I know you also like your money, and it’s a necessary evil to jump on and learn about some tax planning moves. So whether you are here by choice or by force, appreciate you taking the time and jumping on with us today.

My name is Alek Johnson. I am a Certified Financial Planner™, one of the senior advisors here at Peterson Wealth. Today’s webinar, believe it or not, it’s actually back by popular demand. So last year, I actually gave this webinar in December, and the feedback was awesome. We got a lot of great insights from all of you that joined us then.

But one big thing we took away from it was, hey, this was great, but we’d love to do it earlier in the year, so we have more time to actually implement the tax planning moves that we talked about. So hopefully now doing this in October serves you well and gives you plenty of time before year-end to actually make some of the moves we’ll talk about.

As always, before we get started, I do have just a couple of quick housekeeping items. So I do apologize first and foremost. This is always a little bit longer one. It’ll probably be around 45 minutes today. I usually like to keep them around 20 to 30 minutes. If there was a way to do that with taxes, I would love to do it. But unfortunately, I think most people want all the details, right? And I want to make sure we take the time to get you all well-equipped to walk away out of here confidently.

Next, do feel free, if you have any questions throughout the presentation, to use the Q&A feature located at the bottom of the screen. I have one of my colleagues, Daniel Ruske, on here with me today. He’s one of the senior advisors at the firm as well, and he’ll be kind of answering all of your questions throughout the webinar. We will take some time at the end to just maybe answer three or four kind of general questions that come up that he thinks would be beneficial for everyone to hear. So please feel free to utilize that feature as well.

And then final thing here, kind of last but not least, at the end of the webinar, there will be a survey that is sent out to give us some feedback, some suggestions. Please do utilize it. I feel like most of the time you all do great of giving us really helpful feedback. So please keep that up. It’s insightful for us to know how we can improve both as presenters on the topics we’re teaching and then anything else that comes to your mind.

Okay, quick disclaimer. I just want to preface today by saying this is not tax advice. Clearly, we don’t know all of your tax situations, so please do use caution when determining if what we cover today makes sense in your particular situation. But hopefully, you can get some good golden eggs out of today’s webinar.

Here’s our quick agenda that I want to go through today. So we’re going to just start off with kind of an overview of taxation and really kind of the different account types that you have leading into retirement. We’re going to kind of dissect all of that first to just give us a good base. From there, we’ll talk about three big charitable giving strategies. We’ll then touch on some Roth conversions and then end with some tax-loss harvesting. Now, this is not all-encompassing of everything there is tax-wise, but these are some pretty core and common strategies that you can look to implement.

Now, I’ll say that today is not about turning you into tax experts. Okay? The whole goal is to give you a short checklist of moves to consider before December 31st. So my hope is that there’s a few things we can discuss today that you can take to your accountants, to your advisor, and just ask if it makes sense in your particular situation. And hopefully, with their help, you can implement a plan to help save more of your hard-earned dollars.

One of the last things I’ll just say here, really the big reason why we always want to do this too is, one, to help you, but two, it’s just I feel like there’s a lot of retirees that are just unaware of the tax savings that can be created by utilizing just even one of these strategies, let alone multiple. I personally feel like they’re very underutilized with all the consultations we take, the people we meet with. And so one of the big parts of the reasons for doing this webinar is just make sure we get the word out because a lot of these can result in thousands of dollars of tax savings.

How Retirement Accounts Are Taxed

So let’s dive in. Before we get to those strategies, like I said, I want to kind of start with just an overview of really how we are taxed in the different accounts that you have and how those are taxed. So we’re going to start off by talking about the taxation of different account types as that will really help us know how to manage our tax brackets effectively.

So broadly speaking, you’re going to have three different account types, each with its own unique tax advantages. Okay? The first is going to be what we call tax-deferred accounts. This will be things like your 401(k)s, 403(b)s, traditional IRAs, TSPs. There’s a lot of them out there. Generally, contributions to tax-deferred accounts will reduce your taxable income in the year that you make the contribution. Once you make that contribution, all of the money that you put in there is then going to grow what we call tax-deferred, meaning you will not have to pay taxes on any gains from things that you’re selling, any interest, any dividends, anything like that over the course of your working career.

Now, the catch is that once the money is distributed from these accounts, which is usually meaning it’s going to your checking account so that you can spend it, those withdrawals are 100% subject to income tax. Another thing to note here is that generally with these accounts, you have to wait until you’re age 59 and a half to pull any funds out of these accounts without incurring a 10% early withdrawal penalty. Okay?

Now, unfortunately, with these accounts, you can’t just leave your money in there forever, right? A lot of people think, well, since it’s taxable, why not just keep it in there? The IRS requires you to take what’s called a required minimum distribution, or an RMD for short, each year starting at either age 73 or 75, depending on what year you were born. There is one exception to that. That’s if you’re still working and actively contributing to your employer plan. If you’re beyond that age, that’s the one account you wouldn’t have to take that money out of.

Now, a required minimum distribution, this is the minimum amount of money that must be withdrawn from a retirement account each year to comply with federal tax laws. Okay? You can definitely take more than what they’re saying, but that’s the lowest amount that you have to take. We know just how patient our government has been all these years to get this tax revenue. So this is how they ensure money starts getting taken out of these accounts.

Next, you’re going to have tax-free accounts. Okay? So unlike tax-deferred accounts, this will be contributions to like Roth 401(k)s, 403(b)s, Roth IRAs, and they will be made with after-tax dollars. So it will not reduce your current year’s taxable income. So why would you want to make these contributions into these accounts if there is no immediate tax benefit? Well, because as contributions go into these accounts, they grow completely tax-free. And then the punchline here is that when you withdraw that money from those accounts, you will not owe any taxes on that income, which includes any appreciation and growth over your 30, 40-year working career. Okay? It’s all totally tax-free.

Now, a couple quick things to note on these accounts as well. Just like the tax-deferred accounts, you are also subject to waiting until age 59 and a half to avoid that early 10% withdrawal penalty on any of the growth that you saw within those accounts. But Roth IRAs and 401(k)s are not subject to required minimum distributions like that first bucket is. So your money can stay in those accounts until the day that you die, if you prefer.

Lastly, you’re going to have what we call taxable accounts, otherwise known as brokerage accounts. Whether you have a bank account that’s like a high-yield savings or an account where you purchase CDs at the bank, the taxation of those accounts is pretty much the same as a brokerage account. These accounts are going to be funded with after-tax dollars, and the flexibility here is that these accounts, you can sell your investments, you can contribute money, you can withdraw money at any time, at any income level.

And the bummer with these accounts, however, on the flip side of that flexibility, is that any interest or dividends earned or any time that you sell an investment, there will be tax ramifications in every single year that happens. Okay? So there’s not as much tax sheltering, so to speak, as those first two, but you do have a lot more flexibility as far as when you access your money.

So please do take a picture of this slide. You will notice here in the bottom right-hand corner of what you’re seeing on the screen, that little camera icon. I tried to put these on there so that if you’re at home taking a picture, that kind of signals, hey, it’s the end of the transitions on that slide. So if you want to take a picture, that’s the time to do it. One thing to note, too, obviously, this is going to be recorded, and it will be sent out to you. So if you do miss taking a picture of one of the slides, just know you’ll get that recording afterwards. But especially this one, just kind of keep these in mind, take a picture, because I will be referring back to it as we go throughout the presentation today. Okay?

How Your Tax Bill Is Calculated

So now that we’ve covered those different accounts, I also just want to take a minute or two here to make sure you understand the basics as far as how we are taxed, and how our tax liability is actually calculated. Okay? Now, if any of you are CPAs or accountants, please do not hold against me how simple I am going to try to make this breakdown here.

So at a high level, you start by adding up all of your income to get your gross income. Okay? Your wages, your salary, dividends, interest, all of it goes right there. Once you’re here, you are allowed to subtract certain deductions called above-the-line deductions. Examples of these would include things like your IRA and 401(k) contributions, HSA contributions, student loan interest, a couple others there. And doing this gives you what we call your adjusted gross income. Okay? It’s probably a term that many of you are familiar with, as you’ve filed your taxes your whole life.

Once you have your adjusted gross income, or AGI, you get even more deductions called below-the-line deductions. Okay? Examples of these, we’ll talk a little bit more on in our next slide, but I highlighted it here in red, because what’s important to know with these deductions is you get to take the greater of what is called the standard deduction or these itemized deductions. Okay? And we’ll talk about that over the next couple slides here. That’s why I kind of highlighted it here for us.

For now, just know you’re going to take the greater of these two deductions and reduce that from your AGI to get what we call your taxable income. Okay? This is the number that you will actually run through the brackets and pay your taxes on. So that being said, you’re going to multiply that, run it through those brackets, and you’ll multiply it by your ordinary income tax rate. There are currently seven tax brackets that range from 10% all the way up to 37%. And once you’ve run that through, that gives you your tax liability. Okay?

We are still not done. I know. It keeps going. So next, you’re going to subtract any type of tax credits that you may be entitled to, like the child tax credit, education credits, things like that, which finally brings you to either your tax due or your tax refund. Okay?

So what I want to focus on for just one minute is what I have highlighted here in red, where you subtract these below-the-line deductions. When it comes to below-the-line deductions, as I mentioned, you get to take the greater of the itemized deductions or the standard deduction. Here are some of the things that count for itemized deductions. First is going to be mortgage interest that you pay, your state and local taxes, otherwise called the SALT tax, your property taxes. Kind of a funny one here is your medical expenses that exceed 7.5% of that adjusted gross income number. So usually the first couple hundred dollars at least are not actually deductible. It’s only the expenses above that amount.

And then the big one here is charitable donations. Okay? Included in this charitable donations deduction, if you’re a member of The Church of Jesus Christ of Latter-day Saints, this can be tithing, fast offerings, or other charitable donations that you give.

Now, if you take and add up all of these deductions that you see on the screen here, and they are not higher than the standard deduction, then you’re just going to take that standard deduction. If the total is higher, then you will be itemizing your deductions that year.

In 2017, the tax laws changed as part of what was called the Tax Cuts and Jobs Act that President Trump signed into law, and one of the biggest things that happened as part of that law was that the standard deduction was actually doubled. Some of you may remember that period of time. The One Big Beautiful Bill Act that was passed last summer permanently extended these higher deductions. So you can see here on the screen that in 2026, the standard deduction for a single filer is $16,100, and for a married couple, it’s $32,200. Okay? You get some additional deductions if you’re blind or over the age of 65, but for, again, just to kind of put it in perspective, for a married couple, if your itemized deductions don’t add up to more than that $32,200, you’re just going to take that standard deduction.

What this essentially means is that with these larger standard deductions, most of us will actually forgo itemizing our deductions and will end up taking that standard. So a little fun fact here. Previous to the Tax Cuts and Jobs Act that was passed, about 30% of Americans itemized their taxes, okay? Once it was passed, from what we can see between 2018 and 2024, that dropped down to 10% of Americans itemizing their deductions.

Now, I’m just saying through 2024 because we actually don’t have the most recent data. There were some changes made last year, like the state and local taxes, the cap on that actually increased. We’ve also had some higher interest rates, so mortgages may now be kind of hopefully or potentially bumping that back up. But over the last six or seven years here, it basically dropped 20% out of the itemizing side and just taking that standard deduction.

Charitable Giving Strategy 1: Bunching and Donor-Advised Funds

Now, how does this impact those who give to charity? Well, although gifts to qualified charities are still available as an itemized deduction, most charitable donors do not receive any type of tax benefit for those donations because few will donate enough to charity to actually exceed that standard deduction. Therefore, the 90% that do make those charitable donations don’t get any benefit. Now, the good news is there are still actions that can be done to help reduce your taxes, and this is what’s going to lead us into our first tax strategy today. It’s our charitable giving strategy number one, bunching and donor-advised funds. Now, I want to start with bunching first.

Bunching is the strategy that is used to maximize your deductions, and you are likely already familiar with the concept of it because we do it with other things in our lives, okay? For example, we bunch our medical expenses. Let’s say you have a $5,000 deductible on your health insurance policy, and you know that you’re going to have a knee surgery replacement next year. Well, you know you’re likely to hit your deductible next year with that surgery, so more than likely, you’re going to kind of push off any other procedures that you need done until the year that you get that knee surgery taken care of.

Another example could be our credit card reward points, right? Many of us earn reward points on our credit cards through our regular spending that we sometimes redeem for airline tickets. Typically speaking, we don’t usually redeem these points for kind of shorter flights. Usually, we’re more willing to pay out of pocket on the more inexpensive flight, but we will save up and bunch these points and use them when we can take these longer vacations, right? So for example, if we were to go from Utah out to Hawaii, that’s a little bit longer. We may not want to incur those larger airline ticket costs, and so we’ll kind of bunch the points together on those trips.

Well, just as we can reduce our medical costs and our travel costs through this idea of bunching, we can likewise minimize our taxes through bunching strategies as well. The goal of bunching, again, is to exceed that standard deduction by piling on all of your itemized deductions to provide those savings. Now, in years where bunching does not occur, you’re just going to take the standard deduction. I’m going to show you an example here in just a minute.

In the year that you plan to itemize, it is important that you pay every tax-deductible bill, incur every tax-deductible expense, and then the big thing here is that you want to donate two or three years’ worth of donations to your favorite charity all in one tax year. Okay? That’s what’s going to result in these higher itemized deductions. So practically, how this may look for you is during the year that you’re going to itemize, you might pay your regular donations just as frequently as you want, right? Monthly, biweekly, as often as you get paid, whatever it may be. And then come December, or November, December of that same year, you’re going to prepay all of the coming year’s donations in one lump sum. Okay?

So let me just give you a quick glimpse of how this would work. We’re going to take Mr. and Mrs. Miller as our examples here. And I’m just going to grab my laser pointer on the screen. So we can see here the Millers, they have $30,000 of deductions each year. $16,000 of those are going to be for charitable deductions. The other $14,000, again, think of it, it could be their property taxes, mortgage interest, any of those likes.

Now, in option one, what we’re looking at here on the left, if the Millers decide to pay their $16,000 of charitable deductions of donations in separate years, they will not be able to itemize either year as their total deductions equals $30,000, but that standard deduction in both years is a little bit higher. Okay? So $31,500, $32,200, which means their total two-year deduction is $63,700, AKA the standard deduction totaled up across the both years.

In option two, we can see that tax smart approach. Okay? So the Millers decide to pay their donations, maybe their tithing, whatever it may be, regularly each month through all of 2025. And then at the end of 2025, they are going to prepay all of 2026’s donations in that same call it December month. So in 2025, they now have $32,000 of deductions. In ’26, they won’t have any of those charitable donations made. You can see in 2025, along with their $14,000 of their other deductions, they now have $46,000 of a deduction, which is higher than that standard deduction, and so they get to itemize in 2025. In 2026, because they don’t have any deductions, they’re just going to revert and take that standard deduction again. Okay? Now, this results, as you can see on the screen here, in a total two-year deduction of about $78,200, which is an additional $14,500 of additional deductions simply by changing the timing of their charitable donations. Right? They didn’t change the amount at all. It’s just when they actually made those donations.

Now, a common question we will get is this: So is there a way for me to bunch my deductions to get that tax benefit but still pay my charitable contributions on a more frequent basis? The answer to this question is yes. Okay? That is where a donor-advised fund comes in.

Now, donor-advised funds, or we call them DAFs for short, they have been around for years, and there are a lot of them. They have become increasingly popularized, say, over the last decade. You can open them up at large financial service companies like Fidelity, Vanguard, Charles Schwab. They’re all over right now. So what are they and how do they work?

The best way to describe a donor-advised fund is that it is an account, just like your IRA account, just like your 401(k), but it’s an account specifically designed to hold your charitable contributions until you decide when and to what charity you would ultimately like to donate to. So how this works is that you, as the donor, will make a charitable donation to the donor-advised fund. This can be done with cash or better yet with appreciated stock. We’ll talk about that more in just a minute.

You as the donor will then receive the tax deduction for the contribution in the year that you make that contribution. Then it’s going to sit inside an investment account. It can actually continue to grow if you choose to invest it in there. It’ll sit inside that donor-advised fund until you direct your contribution to be sent to a qualified charity. Essentially what I’m saying is the timing of the donation is up to you, but you got the benefit right when you needed it.

So here are some practical applications of these donor-advised funds. First and foremost, bunching becomes easier to do, so we get to get those higher tax savings, and charitable giving can be just a lot more flexible and easier to accomplish.

Second, it’s a tool that helps you get, again, that tax deduction when it’s advantageous to you. One thing I want to point out here, we oftentimes have clients who they have higher income in the years before retirement, right? Kind of think the last three or four years of work, you’re probably making the most money you ever have. We have clients that will come through, they may be selling their business or their practice or a second home, whatever it may be. Donating to a donor-advised fund during those big income years can help you get a big deduction when you need it, and then you can essentially be prepaying for certain charitable endeavors. Okay? I have plenty of clients that will come through, they’ll pay the next 10 years’ worth of donations all in one single year because they’re selling their business and it’s the best time to be doing it.

And then lastly here, a donor-advised fund can create a legacy for future generations. I kind of think of this, for example, like a missionary account for grandchildren, or upon your passing, you can actually have one of your children or someone else utilize this for their own donations. So it’s something that you can also be using for a part of your legacy as well.

Charitable Giving Strategy 2: Donating Appreciated Assets

Okay. That brings us to strategy number two on the charitable giving side, which is appreciating or donating appreciated assets to charity. Now, this is a great one because there are huge tax savings that can be realized by, again, not changing how much you want to donate, but by how you donate it. One key thing to point out here before we dive in, though. If you think back to that image of the three buckets that we had, this is going to be bucket number three. Okay? So this is not your 401(k)s. This is not your Roth IRAs. This is that third account that we call that brokerage account. This is what you’ll utilize for this strategy.

So donations in kind, they are gifts of non-cash assets. Okay? So you’re going to give the actual thing, not cold hard cash. Think of a community food drive, right? Instead of writing a check, you donate canned goods. Charities accept the goods, and they put them to work immediately. With investments, the canned goods, so to speak, are shares of investments that have gone up or appreciated in value.

Many charities, including the Church of Jesus Christ of Latter-day Saints, they accept donations in kind. Many charities will accept all kinds of marketable securities, things like stocks, mutual funds, exchange traded funds, or ETFs for short. Some will even accept gifts of real estate, life insurance policies, sometimes even interest in partnerships and shares of privately held corporations. So it’s always important you check with your intended charity to see what types of assets they are willing to accept. But overall, this is a really great strategy. Let me just give you another quick practical example so you can see the benefits of this type of donation.

So we’re going to take the Andersons. Okay? The Andersons, over the years, have saved for retirement, and they now have a portfolio of individual stocks. One of the stocks that they own is Apple. We’re going to say that they bought $10,000 of Apple stock over 10 years ago. Today, those same shares would be worth more than $100,000. As you can see on the screen here, if the Andersons were to sell $25,000 worth of Apple stock and then donate the cash to their charity, they would end up paying $5,000 in federal and state taxes, and the charity would end up getting $20,000. If, however, they take the tax smart approach and just directly donate the Apple stock, you can see they won’t pay any tax whatsoever, and so the charity’s going to end up getting a full $25,000.

So here’s the benefits of the Andersons donating that stock in kind instead of liquidating it and sending the cash afterwards. First, the charity will get an additional 20% greater donation, or in this case, $5,000. Next, the donor doesn’t pay any tax on the gain of the stock. Okay? So the Andersons completely avoided having to pay any tax when they sold that. The Andersons also now get to deduct $25,000 on their tax return versus $20,000 as a charitable contribution. And then last, the Andersons can then take that cash that they otherwise would have paid to the charity to do the same thing, kind of rinse and repeat that same cycle. So they can now buy a more diversified portfolio of stocks, and just over the years, they can continue to utilize, hey, those that won, we’ll just keep donating those winners.

So before you write your next check to your favorite charity, you may just want to ask yourself, do I have any appreciated assets that I can donate that would be more beneficial than me writing out this check? Okay? Now, this strategy obviously saves you from paying that capital gains tax, and it’s great on its own. But when you couple this with the idea of bunching and utilizing those donor-advised funds that we just talked about, that is when we can really start piling on those tax savings.

Charitable Giving Strategy 3: Qualified Charitable Distributions

Okay, strategy number three is what we call qualified charitable distributions, or QCDs for short. Probably many of you are familiar or at least heard of this before. Again, if you refer back to that image of the three buckets that I showed you, we are now looking at that first one. Okay? Specifically, we’re going to be talking about those pre-tax IRAs, but we’ll get to that in just a minute. But we’re looking at bucket number one.

Now, utilizing QCDs, this is the most tax effective strategy that I know to save you tax dollars. Unfortunately, there’s quite a few rules surrounding it that we’re going to talk about, but when done correctly, it is amazing. So what is a QCD? It is a provision of the tax code that allows you to take a withdrawal from an IRA and make it 100% tax-free as long as that withdrawal goes directly to a qualified charity. Okay? Again, there are huge tax savings that can be incorporated by this, but it’s not about changing how much you want to donate, just by how you are actually making that donation, right, directly from the IRA instead of out of your checking account.

Now, I always like to point this out. Number one, you didn’t have to pay any income tax when you earned this money and put it into an IRA or 401(k), right? You got a deduction in the year that you made that. Second, as a reminder, you didn’t have to pay any tax on the compounding interest your IRAs were making over the 30, 40-year working career that you had. And then third, any money that you pay directly to a charity utilizing the QCD will not be taxed. So this is one of those rare occurrences, like your HSA accounts, where there are triple tax benefits available to you.

So what are the benefits other than those triple tax savings? Well, number one, it will potentially reduce the amount of your Social Security that will be taxed. It can also reduce the amount of your overall income that is taxable. It will enable you to get a tax benefit by making a charitable contribution regardless of whether you itemize or take the standard deduction. Okay? So you do not have to itemize in order to get a tax benefit by utilizing these QCDs. And then last, these QCDs, they count towards satisfying your required minimum distribution. Right? As a reminder, age 73 or 75, the government starts forcing you to take money out of these accounts. These donations count towards satisfying whatever number they require you to take out. I have a lot of clients that they may not need their money, but they don’t want the government to have it, so they just do a QCD of the required distribution each year to make sure the money ends up in the hands of their favorite charity rather than in the hands of the federal government.

Now, as beneficial as QCDs are, they unfortunately are not available to all taxpayers. And the rules regarding these distributions, they have to be followed with exactness, or the QCD will be considered a taxable distribution. Okay? So here’s the rules. First, and most unfortunately, they are only available to people over the age of 70 and a half. Why 70 and a half? I don’t know. Let’s call up your local congressman and figure that out. But specifically, it is 70 and a half. Okay? It’s not even the year that you’re going to turn 70 and a half. You have to actually be 70 and a half years old.

Next, they are available only when distributions are from IRA accounts. Okay? Your 401(k)s, your TSPs, 403(b)s, you cannot do these QCDs out of those accounts. Now, this isn’t a big deal because you can always just roll those accounts over into an IRA account, but it is something to at least be aware of.

Next, a QCD, it must be a direct transfer from an IRA to a tax-qualified charity. Okay? Best mode of practice here is do not let that money come into your hands. Okay? A lot of times people will take that, put it in their checking account, and then try and donate it. That’s going to be taxable to you. Just get it directly from the IRA to the charity.

Fourth, there is a maximum of $111,000 of money that is allowed to be transferred via QCD every year. This does adjust for inflation. I know exactly what all of you are thinking. Why is it such a low number? Just kidding.

And then lastly here, the IRS has special reporting requirements for QCDs, okay? Always check with your CPA to ensure they know how to report this correctly. Now, we have spent months and months in the past unwinding our clients’ tax returns just because their CPAs reported those donations incorrectly.

Now, I believe every person over the age of 70 and a half who has an IRA and who gives to charity regularly should investigate making their donations through these QCDs. Talk to your tax professional, talk to your advisor, run the comparisons, and I feel confident that many of you will find the tax savings to be significant.

Roth Conversions: When They May and May Not Make Sense

Okay, we made it through the charitable giving here. So we’re going to pivot away from charitable donations. We’re going to talk next about considering the possible benefits of a Roth conversion. Now, you will notice I did not say do a Roth conversion, but rather consider the benefits of one. I say that because I want to point out that this strategy may or may not be for everyone. A lot of people, whether it’s from family, friends, the media, their HR department, whoever, they hear that just Roth is better, Roth is king, but it isn’t always the case. So please do exercise caution on this strategy.

So what is a Roth conversion? Again, if we think back to that picture of those three buckets that we started out with, virtually all retirement accounts are classified into one of two categories. That is, they contain either the pre-tax money or the post-tax money. So we’re going to be talking about the first bucket and the second bucket. Okay? For most retirees, it is much more common to have a retirement account that is pre-tax money. What a Roth conversion allows you to do is take money out of that pre-tax account and put it into that Roth side or that post-tax account, where it essentially will grow from that point on forever tax-free.

So what is the catch? Why not just convert everything to a Roth and never pay taxes again? Well, keep in mind that just as the name suggests, any money in a pre-tax account has never been taxed before. So that being said, any amount that you choose to convert becomes taxable to you in the year that the conversion is performed. Okay? So as you take it out of the account, you are literally creating a tax liability at that moment in time. So for this reason, it’s very uncommon to convert an entire account at once, as it would likely push you into a higher tax bracket and make your tax bill unnecessarily large. Right? Think about it. If you convert a million dollars from your IRA into a Roth, you can expect to pay close to 40% in taxes. So generally, the advice that we give to our clients is we want to convert enough to get the future benefits of a Roth conversion, but not too much that it pushes you up into a higher tax bracket.

So some key facts surrounding a Roth conversion. First, there’s no income limits on a conversion. Okay? You can make a dollar a year, you can make a million dollars a year, and you can still convert to Roth. Second, there’s no age restrictions. Third, there’s no limit on how much you can convert. Right? I just reemphasize this because sometimes we think about those Roth contributions, which is capped around like $7,000, $8,000. This is different. Again, you could convert your entire account if you wanted to.

Fourth, the conversion must be done by December 31st each year. Okay? This is, again, not like those contributions where you have up until the tax filing deadline of April 15th. With a conversion, it has to be done in the calendar year that you want it done. And then lastly, if you are RMD age, so 73 or 75 or older, and you’re already taking your required distribution out, you have to take that out first before you can convert anything else. Okay? So the RMD itself cannot be converted to a Roth IRA.

Now, knowing that the conversion is all taxable, it sometimes begs the question, well, why would I do it in the first place? It feels counterintuitive to willingly pay a tax on your money. So how do you know if it’s beneficial for you? Well, despite the immediate tax liability, there are several potential benefits. The first one is, again, those tax-free withdrawals. Once the money’s in that Roth, future withdrawals are 100% tax-free. This can be especially advantageous if you expect to be in a higher tax bracket during retirement, which I’ll talk more about that in just a minute.

Next, again, there’s no required minimum distributions, so you’re not forced to take money out from those accounts year over year. That means we can leave the money in there longer to continue to grow tax-free. Hand-in-hand with that is a reduction of future RMDs in your pre-tax accounts. Right? The more money we get out of those traditional IRA accounts, the less those required minimum distributions will be over time.

Fourth is what we call tax diversification. Having money in both traditional and then Roth or post-tax retirement accounts can provide a lot of flexibility in helping manage your taxable income during retirement. You can strategically withdraw from each account to help minimize your tax burden. Or if you needed a lump sum of money that you wouldn’t want to pay a higher tax amount on, if you took it from a pre-tax account, you can take that from the Roth. And again, you have that tax-free account right there.

The next is estate planning. Roth IRAs can be really advantageous here because your beneficiaries, oftentimes your kids, who inherit these accounts, they can keep it inside of those accounts for an extra 10 years after you pass away. Okay? That’s another decade’s worth of, again, completely tax-free growth. Now, I will be the first to tell you, I have yet to meet many of my clients’ children who are absolutely willing to keep it in there for another 10 years after mom or dad passes, but I digress on that point.

And then the last one here is a future tax rate hedge. So if you expect tax rates to increase in the future, converting to a Roth IRA right now can kind of lock in that lower tax rate. So if you ever hear of legislative changes on the horizon, potentially raising taxes, it can be good to kind of lock in that lower rate.

Now, a common misconception is that it is better to pay taxes now and let them grow tax-free than vice versa. The truth is that it doesn’t matter whether you pay taxes now or later if the tax rate is the same. Okay? Often deciding which is more advantageous in your specific situation comes down to a number of factors. So here are some of those things that you need to consider. First, how long will you work? And second, how long will you live? Okay? If you have family history that you can sort through, things like that. What tax bracket are you currently in versus what tax bracket will you be in during retirement? What type of income sources will you have in retirement? Right? Will you have Social Security? Will you have pensions? Will you have rentals? Things like that. Whether the government changes tax rates and in which direction, right? Up or down. And another big one is what state you live in and when. These are probably more of the common factors you should be thinking about that go into the planning of if you want to do these conversions or not.

So I’m just going to put on the screen here some common scenarios when it may make sense to do some conversions. The next slide will be when it may not make sense. But again, let me reiterate, even though it may make sense for someone else, doesn’t mean it makes sense for you. So even with these examples, I want to be helpful, but please, again, don’t view this as advice. Please talk to your accountant or advisor beforehand.

So first, if you have a year with unusually low income, like potentially, for example, a senior mission, during a job transition, or early retirement, whatever it may be, converting to a Roth can be advantageous. You’re going to, again, pay it at that lower rate when you do that conversion. Many clients of ours that are charitably minded, when they go and serve their senior missions, they find that they spend less on their mission. So that can be a really good opportunity to look at doing those Roth conversions.

Second, you have a higher tax bracket in retirement. Okay, so if you expect and anticipate having a higher tax bracket in retirement, paying taxes now at a lower rate can save you money in the long run. Third is you foresee a RMD issue down the road. So if you see, okay, come age 73, I’m going to be forced to take out massive amounts of money that will bump you up unnecessarily, more than likely into a higher tax bracket, converting some of your assets to a Roth IRA can lower your traditional IRA balance, thus reducing those distributions.

Next is before tax rates increase. So if you expect your tax rate to be higher in the future due to changes in tax laws, like I mentioned, or just increased income, you can lock in the current rate there. And then the state tax law. So you live in a low tax rate state and you plan to move in the future. For example, if you live in the beautiful state of Wyoming, which is where I’m from, where there’s no income tax and you plan to move to Utah soon in retirement, you would be saving an extra five cents on the dollar by converting in Wyoming versus converting in Utah. Okay?

Now, likewise, here are some times when you should not consider doing a conversion. First, you are currently in a high tax bracket, and you expect to be in a lower tax bracket during retirement. Okay. At that point in time, it may not make sense to do these Roth conversions. Next is if you don’t have a sufficient way of paying the taxes. Okay. If you have to withhold on the conversion itself, just to get the money into the Roth, we start to lose a little bit of the edge of the benefit of doing it. And so usually having outside sources to actually pay the tax bill on the conversion is best, just so we can get that full amount into the Roth IRA.

Next is if you anticipate needing to withdraw funds from your retirement accounts in the near term, converting to a Roth may not be beneficial. It’s usually best when you can leave it in there to grow tax-free over a longer period of time. Okay. Next is if you’re close to RMD age. If you are close to age 73, you’re going to be subject to those RMDs. You have to take that out before converting, and so typically, any conversions beyond that point may just be adding on to a higher taxable income. Now, that being said, I have plenty of clients that are RMD age, and we are still doing Roth conversions. So it’s not just this absolutely don’t do it, but it is something to be mindful of.

Next, if you have children that are applying for college financial aid, a Roth conversion can really increase that taxable income and potentially reduce the amount of aid that your children will receive to get through college and school. The next is any impact on credits or deductions. Okay. A Roth conversion will, again, it’s increasing your taxable income, which may reduce your eligibility for certain things like the child tax credit, educational credits, your medical expense deduction. So just kind of keep that in mind, too.

Next, if you are very charitably inclined already, well, a qualified charitable distribution may make more sense than a Roth conversion. Okay? Even if we could convert at the lowest tax brackets, which is 10, 12%, a QCD is a 0% tax burden. Okay? It’s zero versus 10 and 12. We’ll take the QCD side of it all day long.

And then last is just kind of the Medicare and Social Security considerations. Again, increasing your income can make more of your Social Security benefits taxable. It can also increase your Medicare premiums if you’re pre-age 65, kind of building up to when you’ll claim Medicare and you’re on the marketplace insurance. It can also really hurt you if you’re receiving those government subsidies to help cover your monthly premiums. Okay, so all of these things to keep in mind.

Now, let’s just take a quick look at an example here. I have a lot of clients who go and serve senior missions, so I wanted to show you how this could be advantageous. So we’re going to take the Parkers, they’re age 63, and assume they’re retired and going to serve a two-year church mission in ’26 and ’27. Okay? Before they leave on their mission and when they return home, their income needs are about $12,000 a month. That puts them pretty squarely in the 22% federal tax bracket. Now, Mr. Parker has a $7,000 monthly pension, so he’s withdrawing $5,000 out of his investments or his traditional IRA to sustain his lifestyle.

Now, again, this means if they were to convert any money from a traditional to a Roth, it would cost them 22% in federal taxes. Well, when they go on their mission, it turns out they only need $7,000 a month as their discretionary spending is going down while they serve. Now, at $7,000, they’re squarely in the 12% tax bracket, and his pension is covering all of their income needs at that point in time. So if they want to do a conversion while they’re gone, they have about $49,000 of wiggle room before they hit that 22% bracket. Okay? If they do that conversion and say, “Let’s convert that $49,000,” the tax bill created is $5,580.

If they were to convert that same $49,000 while they’re at home or before or after their mission, that same $49,000 conversion now costs them $10,780. Okay? So that is a $4,900 a year savings that just simply serving their mission created. Over the course of two years, right, that’s near $10,000 worth of savings. Again, if you’re in the same bracket before and during your mission, it doesn’t really matter, and Roth conversions start to lose their appeal. That 10% savings was created solely because they had a low income year.

Tax-Loss Harvesting

Okay, I know I promised 45 minutes, now we’re already at 51, so I’m going to try and wrap this up within the next five, 10 minutes here. But the final strategy I want to talk about is tax loss harvesting. So this is a strategy to lower your tax bill by selling investments at a loss to offset capital gains and then reinvesting in similar assets to maintain your market exposure. So quick heads up, if we think back to those buckets again, we’re looking at bucket number three or that brokerage account. This is not involving your IRAs or Roth IRAs.

So let’s just take a quick look at how this works. First, you’re going to identify your losses, okay? Find your investments, your stocks, your ETFs, whatever it may be that has lost value in your taxable accounts. You will then sell at a loss. So you’re going to just kind of pull the trigger, hit sell, and actually recognize that capital loss. That will offset any gains that you’ve also sold. So if you had any appreciated assets that you’re selling, you’re going to offset those gains with these losses.

If your losses exceed any capital gains that you have, you can deduct $3,000 a year of that remaining loss against your ordinary income, like your wages, your salary each year. You can also carry forward any losses over that $3,000 limit to future years to offset, again, $3,000 of regular income or any capital gains in the future. And then the big thing here is you want to reinvest, right? You immediately buy a similar investment to maintain your desired market exposure, ensuring you don’t miss out on potential upturns.

So let me give you a quick example. Let’s say that you bought Coca-Cola stock two years ago for $50,000. Since you bought it, it has gone down about $10,000 in value, and it’s now worth $40,000. Okay, if you sell Coca-Cola, you’d be creating a $10,000 capital loss, which now benefits you tax-wise. Okay, no one ever likes losses until it comes to tax time. And with that $40,000 of cash you now have, what do you do? Well, we want to stay invested. So generally, you’re going to invest this in a company or a fund that you think will perform similarly to what Coca-Cola did. So in this case, we’re saying Pepsi.

Now, again, please note, this is 100% hypothetical since Coca-Cola has actually gone up in value over the last couple of years. But I’m really just comparing two companies that we know they’re beverage companies. But hopefully, you get the idea. You want to sell at a loss, reinvest in a company that you think will perform similarly to the one that you sold.

Now, there’s one big rule here called the wash sale rule. It simply states that you can’t claim the tax loss if you buy the same or substantially identical security within 30 days before or after the sale. So you can’t just sell Coca-Cola, recognize a loss, and five days later, buy Coca-Cola again. That would eliminate the ability to claim that loss on your tax return there. So again, just double-check with your advisor before implementing this.

Year-End Checklist and Recent Tax Law Changes

Okay, so final review here. I would strongly encourage each of you to meet with your tax advisor and see if any of these strategies make sense. These are some of the questions I’d be asking. Would bunching your deductions help you itemize this year? If you do bunch, should you consider using that donor-advised fund? Do you have any appreciated assets you can donate? Have you taken your RMD, and are you eligible for those qualified charitable distributions? Should you consider a Roth conversion this year? And do you have any of those tax loss harvesting opportunities that you can implement?

Okay. I did add these last two slides here. I’m just going to quickly review them because I know we’re running close on time. But just a couple of reminders on One Big Beautiful Bill. First and foremost, what this did is it expanded the Tax Cuts and Jobs Act. I don’t think that’s talked about enough. That is huge. It gives us those bigger standard deductions, things like that. But also for individuals age 65 and over, you can receive an additional $6,000 deduction on top of the standard deduction or itemized deductions, just for being over the age of 65. Now, that does start to phase out. So for single filers, if you make over $75,000, it starts to phase out, and it’s completely exhausted after $175,000 of income. For joint filers, it starts to phase out at $150,000 and is completely phased out at $250,000. And again, you just receive this in addition to either the standard or itemized deduction.

And then next, it increases the SALT cap from $10,000 to $40,000. So that’s nice. Your state and local property taxes, you should be able to get more of that if you are over that $10,000 limit. Starting this year, there’s two big things. Okay? The first is that you get an extra $1,000 donation per person, so $2,000 for a couple, if you don’t itemize. So if you don’t have enough to itemize, they’re still giving you a little benefit here for just donating. Also starting this year, though, is you’re only able to deduct charitable contributions that basically extend and exceed 0.5% of your adjusted gross income. So if you make $100,000, the first $500 worth of donations are not deductible. It’s only everything over that. Okay?

Okay, so before I open it up for questions, hopefully just how I’d like to end with this, it is so vitally important to do good tax planning, but I don’t know how people can do it without having a good income plan first. So if you haven’t received a copy of this book, please let us know. We usually get a ton of requests after to just get this. And inside of it will detail all of our income planning, kind of how we view how you should manage your investments throughout retirement. And from there, it’s really easy to build out a really good tax plan throughout retirement. So other than that, just first and foremost, thank you for attending. If you would remember, there’s going to be a survey coming to you pretty quickly after we end today. So I’m just going to turn it to Daniel for a couple questions. We’ll take two or three questions, and then we’ll jump off.

Question and Answer

Daniel Ruske: Very good, Alek. We were able to get through quite a few-

Alek Johnson: Daniel, I cannot hear you.

Daniel Ruske: Oh, no.

Alek Johnson: Oh, there we go. Perfect. You’re back.

Daniel Ruske: We’ve had quite a few questions, and I’m going to read you two that I think would be good for the whole group. So the first question here is: Is it possible to donate to a DAF directly from a traditional IRA?

Alek Johnson: Okay. So it’s not. We don’t want to be taking it out of the IRA and putting it into the donor-advised fund, okay? Again, the idea there is you’re basically taking it out of that account, and it’s becoming taxable to you. Technically speaking, I guess we can move the money around, but that’s not the account you want to be utilizing it with. You want to use bucket number three or those brokerage accounts to be putting that money inside the donor-advised fund.

Daniel Ruske: Very good. And then last one here: When should we meet with an advisor to make sure my QCD is done on time?

Alek Johnson: Yeah. So really at any time before the end of the year, it’s appropriate to meet with them and just make sure it gets done, right? The deadline every year is basically December 31st. Now, I’m always kind of get it done quick, so if you want to meet earlier in the year, I usually recommend with my clients, let’s not do it after December 1st, just because end-of-year processing time gets hectic. So please feel free to meet with your advisor at any time, but it has to be done before December 31st.

Daniel Ruske: Okay. Very good. If your question didn’t get answered, which I think I answered all of them, please email us and reach out. But that’s it, Alek.

Alek Johnson: Okay. Well, perfect. I’m only 14 minutes beyond what I told you, so that’s a terrible job, but hopefully you learned a little bit today. Again, please feel free to take that survey, give us any feedback, and we’ll hope to see you all again here soon.