Hello,
Amelia’s kindergarten class celebrated their hundredth day of school last week by dressing like old people. The days are adding up. She’s loving school!
Last week I picked her up from school and from the time I picked her up until she got home, she told me how excited she was to do her homework. Then on the way to school later in the week she told me Tuesdays and Thursdays are her favorite days of the week because she has homework assignments. Whose kid is this? I dreaded homework like the plague! Amelia is pictured below in her hundredth day outfit.
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Something else is adding up besides Amelia’s days of school. The interest on our national debt is up to $730.8 billion per year according to the Daily Wire. What’s worse than this is that our interest is more than “The combined net worth of some of America’s most prominent billionaires, Elon Musk, Jeff Bezos, Mark Zuckerberg, Bill Gates, Ken Griffin, Mark Cuban, Ray Dalio, and George Soros, adds up to approximately $726 billion according to data compiled by the Bloomberg Billionaires Index.”
The interest payments increased 39% in 2023 from 2022 numbers. These numbers are difficult to conceptualize. From the Daily Wire article, “The United States collected $4.4 trillion in federal taxes in fiscal year 2023, up from $4.19 trillion in fiscal year 2022, yet the debt increased by more than $2 trillion.”
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One more stat. Currently the national debt is a whopping $34.1 trillion. As it stands that number will increase to $48 trillion by 2028. Clearly, our national debt is a problem, but I never want to be the one who gives bad news with no solutions. Unfortunately, the government has no way to fix our debt problem other than massive cuts to government spending and / or raising taxes. Which do you think is most likely?
We need to consider a couple of key details. The first is that about half of Americans pay taxes or file a tax return. That leaves a disproportionate share of the fiscal responsibility on those who pay taxes. I think, given the past 20 years of evidence, it’s fair to say that the government hasn’t been a good steward of our tax dollars. I love our country and the opportunities it provides, but we’ve lost our way. It began in haste around the turn of the century and it doesn’t look like we are going to pump the brakes any time soon.
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I’ll assume since you are reading content like this that you have been a good steward of your finances and you’ve saved for retirement. If you’re like most of our clients you’ve used a tax-deferred account like a 401k or IRA. These are wonderful tools and allow us to supercharge our savings by deferring our taxes while we are working and saving, but the buck stops when we reach “required minimum distribution” (RMD) age.
Depending on when you were born, at either 70.5, 72, 73 or 75 you had to or you will have to begin taking RMDs. The government increased the age recently with one of the biggest legislative changes to retirement accounts in years, hence the different ages. For folks born in 1960 or after it will be 75. If we’ve been fortunate and didn’t need to take money out of our tax-deferred accounts before these ages, we will need to begin distributions to be compliant. This brings up an interesting question.
Ansley's Easter outfit came recently. She loves ducks! So she was excited for her duck outfit.
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Do you think taxes will be the same, higher or lower when you get to RMD age, or if you’re already taking RMDs do you think taxes will go up in your lifetime? We know under current legislation we will have a tax increase at the end of 2025 when the Trump tax cuts sunset. But could more increases be coming? I believe there is a strong possibility that tax hikes will be necessary. If you fall in line with my train of thinking, do you think it makes sense to take proactive steps to mitigate the potential taxes you may owe?
One of the ways that we add value to our clients’ situations is by helping them create a tax plan. We work closely with accountants to figure out methods to pay some of the taxes on our tax-deferred accounts now and transition those funds to tax-free accounts that are shielded from further taxation. Then if taxes do increase, we have paid taxes at a lower rate on funds we are going to have to eventually pay taxes on anyway.
We’re always willing to answer your questions or provide further insights. You can reach me at 864.641.7955.
Until next week,
David C. Treece,
Financial Planner
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Clients Excel, LLC is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through Creative One Wealth. Creative One Wealth and Clients Excel, LLC are not affiliated companies. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified tax professional for guidance before making any purchasing decisions. Clients Excel, LLC is not affiliated with or endorsed by the U.S. Government or any governmental agency. Clients Excel, LLC has a strategic partnership with tax professionals and attorneys who can provide tax and/or legal advice. Published on 01.24.2024. |
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