00:00 Speaker A
Let’s go through some of these to-dos. Uh first up, your required minimum distributions. What are they and what do people need to do about them?
00:10 John
Well, if you hold an IRA and if you’re 72 or older, you have a required minimum distribution, meaning that you have to take a certain amount out of that IRA as prescribed by the IRS rules. If you don’t do that by the end of the year, if you don’t take that minimum distribution, you can take a 25% penalty for not taking the RMD. Now, that is just the penalty. You also pay tax on the RMD that was due when you eventually take it out. So, it’s something that is easily forgotten especially by elderly folks who have IRAs and it is a very costly penalty. So that would be number one on our to-do list from a time sensitive standpoint. And then secondly, I think that there is a a a situation where most people are taking money from their IRAs. You need to judge whether or not that distribution that you’re taking is enough to satisfy the required minimum distribution.
01:23 Speaker A
Um, and then let’s also talk about tax optimization and what people need to do as they get through the end of the year in order to minimize the amounts of taxes hopefully that they’re going to be paying.
01:38 John
It’s been a great year in the market and a lot of people have gains that they have potentially even realized in their portfolios. You may have a loser there and that could help you tax-wise. if you sell that loser, then you’re going to offset some of the gain that you may have taken from some of the other holdings that you have. That is essentially called tax loss harvesting. If losses exceed $3,000, the IRS allows additional losses to be carried forward in the next year, but you net those out before you ever get to that calculation. So, you could have a loss uh based on maybe a loser that you have in your in your portfolio and maybe some gain could offset some of that loss, but you could then carry forward $3,000 into the next tax year, but all of that has to be looked at and calculated before year end or the tax loss harvesting becomes ineffective.
02:35 Speaker A
Gotcha. So the clock is ticking on that one. So those are the two that are a little more time sensitive. But the approaching end of the year is also a good opportunity to do some sort of, you know, good portfolio hygiene if you will, right? So, um, if you’re looking at your estate documents, what are we talking about our estate documents and what do people need to do with them sort of on a regular basis?
03:03 John
I think you first of all have to be sure that that everything is up to date, your wills and trust are all in good shape and a and a real key area that I see that a lot of people make mistakes in is sometimes there’s a change in your family situation, maybe there’s a divorce or something of that nature and maybe the estate documents are okay, but maybe the beneficiary designations need to be updated. Uh, certainly you want to look at all of these things and the end of the year is a really good time to to slow down and look at that and make sure everything is in line with where you need it to be. I would also say it’s a great time uh to manage risk. Uh, there’s a lot of risk that we all uh at various times manage, but it’s easy for your property insurance to get out of line unless maybe you’ve uh made an addition to your house or something of that nature. The property insurance may not be up to speed and and covering everything that you have.
04:03 John
Liability insurance as your net worth grows, your liability insurance needs to increase. And of course, life insurance, if you’re, uh, if you are responsible for bringing income into the family and that income has gone up over the years, your life insurance may be inadequate to do that. So reviewing that would be a real good thing to do towards the end of the year as well.
04:23 Speaker A
Um and then there’s also just generally managing your risk, John. How how should you be thinking about that? Again on that sort of regular cadence?
04:30 John
Well, I think that that, you know, when you look at your portfolio, you have to ask yourself, okay, are are, do I have too much on the table right now in terms of equities. We’ve had a really good run in the equity market for the last couple of years. Uh, you may want to take a look at rebalancing some of that and rebalance is one of those technical terms that we use in our industry. But essentially what it is to the folks at home is is taking some risk off the table and maybe putting that more into more calm stayed type investments that you’ll be able to use in your retirement. Uh, rebalancing is a is certainly something that you want to continue to do throughout the year, but the year end gives you that opportunity to maybe couple rebalancing with some tax loss harvesting and clean up things that may be a mess going into 2026.
05:15 Speaker A
And John, we’re almost out of time, but quickly, I did want to ask about changes in the economy and what what’s just one suggestion that you have for people to address any changes.
05:25 John
I think that you have to continue to be vigilant about what’s going on in the economy. Uh there’s a lot of concern right now, consumer sentiment just came out and it’s a at a fairly low point of recent past, but the market seems to be doing well about 83% of the companies that are reporting earnings have been positive or exceeding their their expectations. So, you have to begin to balance what the sentiment is against the reality.
05:54 Speaker A
John, thank you so much. Really appreciate it. And that was FA Thank you. That was FA Corner brought to you by Capital Group.
05:58 John
Great to be with you, Julian.