Jan 26, 2023
6 Client Success Stories from 2022, Ep #134
It can be hard to look back at 2022 and see anything positive, right? Inflation is the highest it’s been in 40 years. The stock market had a volatile year and many people’s investments are down. But the market conditions allowed us to do some positive things we normally couldn’t. In this episode of Retirement Made Easy, I share 6 ways that we helped clients find some wins in 2022. You will want to hear this episode if you are interested in...
* [1:23] LPL Financial 2023 Market Outlook
* [2:34] Get a FREE 30-minute coaching call
* [3:14] Win #1: Tax-loss harvesting
* [4:50] Win #2: Roth conversions
* [8:10] Win #3: High interest rates
* [12:30] Win #4: Social security’s cost-of-living adjustment
* [14:36] Win #5: Updating beneficiaries
* [18:11] Win #6: Unexpected Roth conversions Win #1: Tax loss harvesting
I had a lot of questions from listeners and clients about tax loss harvesting. If you sell a stock, mutual fund, ETF, etc., and book the loss, you can deduct up to $3,000 per year of a capital loss on your tax return. Anything above $3,000 gets carried over to future tax years.
But you have to be careful of the “Wash Sale Rule.” If you take the loss, you have to wait 30 days to buy back that particular security. The rule wipes out your ability to deduct that capital loss if you buy back that same security. Win #2: Roth conversions
Many people also took advantage of Roth conversions. If you have pre-tax 401k money or an IRA, you can pay the taxes on a portion of the account and switch it to a Roth IRA. Why do that when the stock market is down? You’re paying taxes on something worth less. So let's say a stock was worth $10 but because of the market, its value dropped to $8. So when you move it to the Roth IRA, you can take advantage of the market bounceback tax-free. Some people wait to do Roth conversions until the end of the year—listen to find out why! Win #3: High interest rates
How we measure inflation is far different than it was in the 80s. The calculations are completely different. That’s why we can’t compare the inflation of today to the 80s. If we used the same calculation, the inflation in 2022 would have been in the ‘teens.
So where’s the opportunity? Series I savings bonds were over 9% last year. Money market rates, savings accounts, CDs, etc. were paying as much as 5.5%. Everyone sought to take advantage of cash alternatives while interest rates were high. Win #4: Social security’s cost-of-living adjustment
Social security’s cost of living adjustment, effective January 2023, was 8.7%. It was a nice pay raise. I worked with a couple where the husband is 68 and had already claimed his social security.
They didn't have income problems, so we decided to turn off his social security benefit in 2022. Because you’re past your full retirement age, you can stop your benefit and get deferral credits, (up to 8% per year).
So his benefits are growing at 8% per year until he’s 70. Secondly, He’ll also get the 8.7% bump in 2023. In one year, he’ll get a 16.7% boost to his social security benefit. It was a huge win for him and his wife. Win #5: Updating beneficiaries
I was able to help someone update their outdated IRAs so that her deceased husband was no longer the beneficiary of her IRAs. Instead, we changed it so that her children would inherit the IRAs, without probate getting involved.
We also assigned beneficiaries to her bank accounts so that if something happened to her, it would pass to her son and daughter outside of probate. We made sure her home was titled to pass to her children. Lastly, she had savings bonds that we discovered had matured, so we cashed them out so she could invest the money. Win #6: Unexpected Roth conversions
I was reviewing a new client’s 2021 tax return and got a sense of what their income would look like for 2022. I determined they could do a Roth conversion of $14,000—and pay no income tax—or withdraw $14,000 and take a distribution and pay no federal income tax. I recommended they do a Roth conversion without paying taxes.
I had another client who was laid off in 2022. He found himself in a lower-income situation. What does that mean? He’d end 2022 in a lower tax bracket. Normally, he was in the 24% tax bracket. In 2022, he dropped down to the 12% bracket—with enough room to do a Roth conversion of $25,000. In a normal year, he’s been paying another 12% in taxes!
I hope this episode helped you see that even in a year when the market is down and inflation is high, there’s almost always a way to do something to benefit your retirement. Resources & People Mentioned
* 3 Steps to Retirement Planning
* LPL Financial 2023 Market Outlook Connect With Gregg Gonzalez
* Email at: Gregg@RetireSTL.com
* Podcast: https://RetirementMadeEasyPodcast.com
* Website: https://StLouisFinancialAdvisor.com
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