Roth IRA Conversions (from Traditional IRAs) aren’t as much fun as they used to be, though this doesn’t negate their usefulness. In the good old days, starting in 1998, Roth IRA Conversions were limited to people with incomes under $100,000. Beginning with Tax Year 2010, the income limit was eliminated. Apparently, it took Congress that long to figure out that every Roth IRA Conversion resulted in more tax revenue in the year of Conversion. They love that feature; a buck in the hand, so to speak.
For many years, any amount could be converted before year-end with impunity, provided to taxpayers through a process called Recharacterization. When a taxpayer performed a Roth Conversion in one Tax Year, any portion of that Conversion could be undone before October 15th of the following year. This afforded the taxpayer (and his/her financial advisor and tax preparer) an opportunity to fine-tune taxable income from the year of the Conversion. The objective, of course, was to control the marginal tax bracket (the percentage paid on the next taxable dollar) of the taxpayer.
All good things, as the saying goes, must come to an end, and in 2018 that happened. No longer could we over-shoot the optimal conversion amount, only to correct it after year-end. We should note that the total amount of any Roth Conversion counts as part of taxable income. Unwanted income (above what the tax planning process aimed for) is taxed at the taxpayer’s marginal rate, having been irreversibly added to taxable income.
In the original OBBBA (One Big Beautiful Bill Act), income tax rates were lowered, and tax brackets were widened (both temporarily), resulting in significant tax cuts for most taxpayers. Unfortunately, OBBBA tax provisions were set to expire at the end of 2025. During the period of lower rates, Roth IRA Conversions were popular, as taxpayers would pay the reduced tax on any amount converted. This provided an incentive to perform Conversions.
When modifications to OBBBA were passed, temporary tax rates were made permanent. This provision took away some of the urgency to perform Roth IRA Conversions, as expected increased tax rates were eliminated from consideration. A future Congress may increase rates, but it takes time.
Another factor reducing the glitter of Roth IRA Conversions was postponement of Required Minimum Distribution Beginning Date for many taxpayers, from the longstanding 70-1/2 age to 72, 73, or 75, depending on year of birth. These taxpayers have more potential Conversion years.
These considerations did not destroy the value of performing Roth IRA Conversions, but the process has taken something of a back seat in financial planning. For all the right reasons.
Year-end planning has been the recent focus of this Blog, as the number of days remaining in 2026 is dwindling at an alarming pace. Many forms of retirement accounts must be funded by year-end, but many IRAs are able to be postponed until 2027, while counting as 2026 activities. Traditional and Roth IRAs can even be opened after year-end, and their funding opportunity lasts until the taxpayer’s first Filing Date (usually April 15th).
Many savers wait until the last moment to make their annual deposits, some using their anticipated tax refunds to contribute to the IRA. The Federal Government is complicit in this process, in that the IRS will direct any or all of a refund to an IRA specified by the taxpayer. Traditional IRA owners contributing with this method receive the tax deduction for the prior year, assuming the account is specified and the taxpayer qualifies for the deduction.
On a current cash flow basis, this procedure is taxpayer-friendly. However, from a retirement income standpoint, it presents an opportunity cost. Investment success is predicated on several factors, and among the most important is time in the market. Delaying the annual IRA deposit robs the account owner of up to 15-1/2 months of market exposure. Over a working lifetime, the reduction of months and years of market exposure on annual contributions can prove costly when retirement distribution time arrives.
To be sure, we support the system for taxpayers whose cash flow can’t support earlier deposits. This is particularly common among young taxpayers, whose earnings struggle to make ends meet on a payroll-to-payroll basis. These people should prioritize their ability to eventually make IRA contributions earlier, with a target date of the beginning of each new year.
From an Income Tax standpoint, delayed IRA deposits have no effect on annual tax liabilities. Today’s discussion has all to do with the future, when larger account balances are desirable. Compounding investments in a tax-deferred IRA creates opportunity for a more comfortable later life. We all share that goal, and our jobs as financial advisors include stressing the importance of maximizing retirement income. Making early in the year deposits to IRAs is a building block in that pursuit.
Taxpayers should avoid getting into the “we’ve always done it that way” rut. Most people experience improved personal earnings and cash flow over time. Establishing a goal of earlier annual IRA deposits will accrue to the saver’s retirement income by Required Minimum Distribution time.
Taxpayers considering the opening of a Roth IRA should do so prior to the current year-end, even if the bulk of the contribution will occur next year. Roth IRAs need to have existed in each of 5 years for their full benefits.
Little in the world is as mundane and boring to most Americans as financial necessities, including insurance, income taxes, and a host of other complex financial considerations. At the same time, few topics are as important in the long term. Writing weekly about these topics is a challenge, but one which I take seriously. After all, what subjects affect a larger percentage of the population than money?
While I have long advocated for tax planning to be a year-round pursuit, the final quarter of every calendar year deserves the most thorough analysis. As the calendar phases out, it takes with it opportunities both for realizing gains and preventing unnecessary losses and taxes.
Retirement account contributions should be maximized. Employer Plans, including 401(k) and similar, are generally funded through payroll deductions that count only for the year in which they occur. Many Plan participants fail to max out their available contributions, although they are planning to do so.
Employers will furnish Plan rules and payroll histories for participants, from which a simple calculation will demonstrate whether the current contribution pattern will result in the desired outcome. Deductions come from payroll deferrals and must be planned in time for the employer to react.
Sadly, opportunities abound for disappointment due to under-contributing. Fortunately, catch-up contributions are available for Plan participants who will be at least 50 years old as of the last calendar day. Employees who will turn 50 late in the year often wait too long to adjust their withholding accordingly. For Company Plans, the basic “catch-up” limit is $8,000, which can be spread over several pay periods, given time.
However, even better opportunities exist for some age groups. The $8,000 limit is extended to $11,250 for participants who will be 60, 61, 62, or 63 at year-end. For many, this would be easier to budget with more payroll periods ahead. These higher limits are available only if the Employer Plan allows them. If yours doesn’t include the provision, request an amendment.
This year, participants whose prior-year W-2 incomes (from the same Employer) were over $150,000 must be made Roth-style. No tax deduction will be available for that portion of the annual contribution.
IRA rules are not limited to activities performed during the calendar year to which they apply. We will discuss those rules and limitations in an upcoming Blog.
Learning the rules is critical to achieving the maximum investment and tax outcome, but that is useless unless proper planning takes place in advance.
During these final weeks of 2026, we are dedicating these pages largely to year-end planning, which involves a mixture of retirement savings, mandatory withdrawals, potential tax savings, charitable giving, and estate planning. These considerations are complex and intertwined, requiring time and (usually) professional assistance to avoid costly errors.
In this Blog, we recently covered the topic of Required Minimum Distributions (RMDs) from Qualified Retirement Accounts. Understanding that taxpayers will eventually be faced with these taxable transactions, our goal is to suggest ways and means of improving long-term investment results.
As an important component of this planning process, Roth IRA Conversions (from pre-tax Retirement Accounts) need to be discussed. We are frequently asked if an RMD can be converted to a Roth IRA. That answer is an emphatic “NO!” In order for a taxpayer to convert any IRA asset to a Roth IRA, any RMDs for the year of the conversion must have already been taken.
Roth Conversions are a legal process used by taxpayers who are looking to reduce their future RMD amounts. In the Roth Conversion process, assets from a taxable IRA are transferred directly to a Roth IRA, creating a taxable distribution of the total value of cash and/or assets converted. There is no limit to the dollar value of the Roth Conversion, but tax rules apply. Any funds not converted (e.g., for paying tax on the conversion) may be subject to a 10% penalty if the account holder is under age 59-1/2.
When an RMD is mandated from a Traditional IRA, that entire RMD must leave the account prior to any desired Roth Conversion taking place. What can be done, assuming the taxpayer is eligible to make a Roth IRA contribution, is to use net proceeds of the RMD to make a maximum allowable contribution to the Roth. Taxes would already have been assessed on the funds contributed.
Important here is the distinction between Roth Conversions and Roth contributions. Roth IRA contributions are limited by the account owner’s income, as measured by Modified Adjusted Gross Income, or MAGI. For single filers, Roth contributions are available to taxpayers with a MAGI under $153,000 (2026 limits are $7,500, plus an additional “catch-up” contribution of $1,100). For married filing jointly, contributions are limited to taxpayers with MAGI under $242,000.
MAGI for most taxpayers is the same as the Adjusted Gross Income entry on line 11a of the 2025 Form 1040. This may vary for 2026 when the forms are released, as there have been changes to the Tax Code. We can help guide people through the rules, but a professional tax preparer should be consulted.
Successful year-end financial planning requires early attention and timely execution. This week we are concentrating on charitable giving, an important year-end process with serious tax implications. In recent years, there have been many helpful changes to taxation rules. Timing is critical for minimizing taxes while exercising generosity.
Before the OBBBA (One Big Beautiful Bill Act), donations to qualified charities were generally tax-deductible for taxpayers using taxable accounts. This system was helpful only to taxpayers who itemized deductions on their annual Income Tax Returns.
Due to changes in the Tax Code over time, taxpayers have increasingly selected the Standard Deduction over Itemizing Deductions on their annual Form 1040 (Individual Income Tax Return). For many, this eliminated the deduction for their charitable contributions. Congress reacted in two ways. In 2006, along came the Qualified Charitable Distribution, or QCD, which allowed IRA holders (minimum age 70-1/2) to use all or part of their annual RMD for charitable donations, reducing the taxable portion of the RMD.
OBBBA produced a second form of non-taxable charitable deductions coming from taxable accounts. Limited to $1,000 per individual taxpayer per year (indexed for inflation in future tax years), these Universal Charitable Deductions (UCDs) exclude the amounts donated from otherwise-taxable income. In the Tax Code, this is similar to an “above-the-line” deduction. UCDs are not available to taxpayers who itemize deductions, as this could create a redundancy.
Both QCDs and UCDs are designed to stimulate charitable giving by taxpayers who no longer itemize deductions. Although it has been shown that Americans are inherently generous, and donate regardless of tax status, the tax-free incentive likely adds to overall annual charitable gifting.
QCD rules require payment to be made directly to the qualified charity by the custodial firm (the large financial services company that holds your actual assets) handling the IRA. IRS maintains a list of acceptable charities on their website (see Publication 78). Since there is no custodial firm on most taxable accounts, UCDs require the taxpayer to keep proof of the transaction. In both cases, individual donations of $250 or more require the recipient to furnish a written acknowledgment to the donor.
QCDs and UCDs are used by generous taxpayers to reduce their tax bills for something they would probably do anyway. Rules for making and documenting these donations are defined in the Tax Code, and must be followed with precision. The potential savings are worth any trouble.
Suddenly, we are entering the final Quarter of 2026, leaving fewer working days and planning days than most of us can comprehend. Having checked the calendar, I verified that time flies. From a financial planning and taxation standpoint, this means busy times for Strivus Wealth Partners, along with investors and taxpayers everywhere.
Certain lesser-known IRS rules are useful for efficient year-end tax planning. Perhaps the most important of these demands Required Minimum Distributions, or RMDs. These apply to tax-qualified Retirement Accounts, including Individual Retirement Accounts (IRAs), as well as 401(k) Plans (and the other similar employer-sponsored Plans). RMDs are the payback required by the IRS for the many years a taxpayer benefitted from deferring taxes on contributions and account growth.
The Required Beginning Date (RBD) is the date on which RMD rules apply to an account owner. This date depends on the year of birth of the affected taxpayer. For decades, RMDs were required when the account owner achieved age 70-1/2. The actual RBD was April 1 of the following year. This was a 1-time only postponement of the first required withdrawal, and also required a second RMD before the end of the same year.
In 2020, with passage of the SECURE Act 1.0. the RBD was moved to age 72, and otherwise the rules remained the same. SECURE Act 2.0 raised the age from 72 to 73, and everything else stayed the same. In 2033, the RMD age will rise to 75. These changes are meant to acknowledge increasing lifespans of Americans.
Calculating the amount of each RMD is performed according to a formula specified by the IRS, and is always based on the account balance from the prior year-end. RMDs can be made in cash or securities, and are not eligible for conversion to Roth accounts. (Note that Roth accounts are never subjected to RMDs, except when the Roth account is classified as an Inherited Roth, when they are treated the same, except those RMDs will not be taxable.)
Most large asset custodians (we use Schwab) will calculate RMDs for non-inherited IRAs custodied at their firm. However, there is one instance in which this may not be relied upon for the exact calculation. Married account holders whose spouse is more than 10 years younger, and are the sole beneficiary of the account, are allowed to use a different RMD table. Under this alternative, the calculation produces a lesser required withdrawal amount, intended to preserve the account for a longer time span.
We have barely scratched the surface of the year-end planning process. In coming weeks, we will discuss other year-end necessities and possibilities.
Silly Season is back, and with a vengeance. For those who don’t follow the media, the term describes (appropriately, I believe) the period before a federal election, when candidates and media personalities say and do silly, ridiculous things. Even more than usual.
In this 2026 version, the buzzword is affordability. Every American knows that life got dramatically more expensive during the past few years. Therefore, both sides claim that the other is to blame, and that they alone have the antidote for high prices. They are, of course, wrong. Some more than others.
Alone (almost) at the top of the discussion is a Senate proposal called “Make Stuff Cost Less” (MSCL). While that would be wonderful for all of us, no one can simply decree the intended result. Let’s see how they intend to accomplish that goal, and if any of their proposals actually make economic sense.
Would MSCL proposals have the intended effect on prices? MSCL proposes to expand Medicare so individuals pay less, passing along costs to the government. Critics of their “Medicare for all” proposal estimate that universal Medicare would cost $3 Trillion per year. Therefore, any expansion of Medicare coverage would add cost to the system. Health care and health insurance would both cost more, including individual Medicare premiums.
In addition, MSCL proposes that the government should negotiate lower costs with the drug companies. If you have not paid attention, the Trump Administration has completed 90% of that job already. Stolen valor, anyone?
Several other specific proposals to “make stuff cost less” include:
- Cracking down on price gouging, which is a nebulous term at best, as profit margins on grocery stores average 1% – 3%, whereas technology companies average well into double-digit profits, so who’s gouging us?
- Reducing college costs by canceling student debt – I can’t even figure out how to respond to this ridiculous proposal
- Raising workers’ purchasing power by “supporting higher wages” and making unions stronger (no cost savings there)
- Forcing companies to share more of their profits with employees (this makes what less expensive?)
- Reducing childcare costs by providing government-funded day care and increasing wages for the caretakers (this drives the hourly cost of daycare up)
- Increasing taxes on corporate profits to fund spending programs, which would spur corporations to raise prices to maintain profit margins
Economics of prosperity are not dictated by elected officials, though many seem to believe that they have the power. Unsound and silly economic proposals work to the detriment of all Americans. Ignore them, and the election will soon be over.
Economics has been dubbed the “dismal science,” which reflects more on its practitioners than on the actual science. One of the most basic rules of economics cautions us that we can’t continue to forever spend more than we take in. As individuals, we all must learn that standard, even if we have to learn it the hard way. Apparently, however, most elected and appointed officials in Washington, D.C. only pay lip service (if that) to their spending problem.
One recent Presidential proposal would pay every qualified adult citizen a one-time $5,000, as a “dividend” from our economic success. I believe this to be a horrible idea. Many will disagree, I’m sure. Let me explain.
On an annual basis, the U.S. Government dramatically overspends its income. For illustration, I used the value $1 trillion (12 zeroes) as the average annual deficit (overspending). By definition, that government cannot “pay for” anything new, as every subsequent dollar spent must be borrowed from somebody. Additionally, unearned money in the economy is inflationary.
The obvious solution to this situation would be to gradually eliminate some spending, then to not replace that spending. Economic growth, increasing population, and inflation would gradually balance the annual budget. Balancing the budget this way would take quite some time, depending on the magnitude of annual net spending reductions.
Anyone who is paying attention to the nation’s Capital City knows that this will never happen. The best we can hope for is to gradually reduce the annual deficit. At the household level, that would require a spending reduction, but in Washington it means increasing revenue (read: raising taxes). That approach is counterproductive and reduces prosperity.
No reasonable proposal for an additional $1 trillion in spending in the form of a so-called “dividend” could help the situation. Every penny (oops, every nickel) would have to be borrowed. When borrowing occurs in the short run, interest must be paid on that borrowed money forever. Often, the lenders are foreign governments and banks, who get richer as we get poorer.
Individually, Americans might expect to benefit by receiving this “dividend,” as inflation has eaten up any income increases most working or retired people have incurred. But receiving money that will simply fuel further inflation makes no sense. Talk about shooting ourselves in the feet! The proposed “dividend” would cost more than our annual military budget. Bad idea, terrible timing.
I understand that I may not be making many friends espousing my opinion on this proposal. Hoping to not come across as hypocritical, should the government choose to send me $5,000, I won’t send it back.
On the Van Wie Financial Hour radio program (Saturday mornings at 10:00 on WBOB radio, AM600 and FM101.1, and wbob.com), we frequently explain that our mission is not to tell listeners and/or callers what to do. Specific individual advice is beyond the scope of live radio (or a written Blog, for that matter). Rather, our goal is to explain to everyone what can be done, and how to do it, with or without our assistance.
Today’s topic is 401(k) Plans, but not the common and well-known accounts so many workers have available. Instead, we will discuss the Individual 401(k) Plan, or Indy(k) for short, which is only available to self-employed people. Although available for about 25 years, it is neither widely known nor well understood. For lack of information, this can result in a large quantity of money left on the table annually, due to sizeable contribution limits and annual tax breaks.
We should note that the Indy(k) is also known as a Solo(k), Personal(k), and perhaps other versions of the same Plan.
Evolving workforce demographics favor the Indy(k) Plan, as this Qualified Retirement Account is only available to our independent workforce. Contract workers (“gig workers”) are increasingly numerous, and the Indy(k) Plan is only available to self-employed business owners with no employees (except a spouse, if applicable and who works in the business).
For high-earning independent contractors, who are increasingly numerous, due largely to technology, availability of the Indy(k) can produce current tax breaks while simultaneously providing large Retirement Account balances. For 2026, employee contributions are capped at $24,500, compared to a mere $7,500 for Traditional and/or Roth IRAs (Individual Retirement Accounts). But there is more, as Indy(k) owners can also add contributions from their Company, all with current income tax deductions.
In our financial advisory business (Strivus Wealth Partners), we use Charles Schwab & Co. as our primary custodian, but all the large custodial firms offer similar plans. Paperwork is required, but is relatively straight forward. For high-earning qualified independent business owners, seeking the assistance of qualified advisors is recommended. We suggest Certified Financial Planners® (CFPs®), doing business as fee-only Registered Investment Advisors, or RIAs, and accepting fiduciary responsibility.
Most people understand that making the self-employment decision offers both opportunities and drawbacks, and we place the Indy(k) Plan solidly in the beneficial category. Prepare for your financial future. We can help.
Beyond expectations. That is an apt description for my 25+ years in the world of professional financial advising. I am constantly surveying the landscape for a glimpse into the future for our profession.
Amid rampant advances in Artificial Intelligence (AI), many people believe that financial advisors will be replaced with electronic substitutes. I strongly disagree. Rather, I foresee increased need for qualified professional planners and advisors, and I don’t foresee AI filling the gap. Most investors prefer human advisors. AI will be one of their advisor’s valuable tools.
Simply stated, there are not enough of us to go around, and about 100,000 current advisors are expected to retire over the next ten years. The Baby Boomer generation is very large and highly successful. Our youngest Boomers turn 62 this year, and the oldest will hit 80. The magnitude of Boomers’ collective wealth is estimated at over $80 trillion (12 zeroes). Daily, these assets are already being passed on to subsequent generations, many of whom are not prepared to effectively manage their inheritances. Hence, we will have the need for more professional advisors.
According to Junior Achievement, roughly 80% of today’s high school students have never heard of a FICO score, and don’t understand compound interest. While this pervasive lack of financial literacy bodes poorly for their futures, the tide may be turning. Thanks to the State of Florida (credit to Governor Ron DeSantis in 2023), Florida’s high schools added a required course in Personal Finance. Today, at least 30 states require a course in personal finance in order to graduate from high school.
For years, both on radio and in writing, I have been alerting young people and their families to upcoming opportunities in the world of professional personal financial advising. For the right group of young Americans, meaning those interested in people, money, and math, the financial and emotional rewards can be numerous.
While it may seem strange for a practicing advisor to be promoting competition from new entrants, the shortage is real and ongoing. This needs to be addressed. Given the (above-referenced) lack of financial knowledge and understanding among young Americans, career opportunities are being squandered daily.
Historically, young people experienced serious barriers to entry in the financial advising world. This is changing fast, as demand for advisors increases daily. Young people should be paying attention and responding by considering this career path. Parents, teachers, friends, and even elected officials need to become supportive. They will be glad they did.