March 24, 2025 – Are you feeling anxious about how tariffs, tax changes, and inflation might impact your financial future? Aaron Herrscher and Nicholas Kile from Financial Sense Wealth Management discuss the importance of annual financial reviews amid investor concerns over tariffs, tax changes, and inflation. They emphasize how life changes impact finances, particularly for retirees, and outline their structured review process. This includes assessing life or health changes, updating contact info, addressing client questions, reviewing investments, and planning for retirement, taxes, and estate needs. They highlight strategies like Roth conversions and 529 plans for tax efficiency and college savings, noting that 70-80% of reviews lead to adjustments. Listen in or give us a call today if you have any questions!
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Transcript
Aaron Herrscher:
So we are seeing a lot of investor anxiety and worries here with soon-to-be tariffs, tax policy changes, and inflation. And now is the best time ever to book your annual review with one of your advisors. My name is Aaron Herrscher, and I'm one of the wealth advisors here at Financial Sense Wealth Management. Today, I'm joined by Nicholas Kile, who's another one of our associate wealth advisors. Today, we are going to be discussing the importance of annual reviews, why we do them, and how they can really brighten your financial future. So, within anyone's life, there are a lot of aspects that can change. And whenever your life does change, it does tend to change your finances. So, once a year with our clients here at Financial Sense Wealth Management, we do want to have at least one meeting a year. And within this meeting, we can also implement a lot of financial planning aspects that can really improve their lives. And, really, for those retirees specifically, this can be super impactful, mainly as we give some guidance on a couple of main areas of financial planning, such as retirement: What are you going to do? Retirement income: Where is the money going to come from? Their insurance, looking at their taxes, taking a look at their investments, and overall even possibly guiding them with an estate plan. So, here at Financial Sense, we do have a specific process for going through an annual review. It's very particular. And today, we're actually going to have Nick go over what that looks like. So, Nick, do you want to take it away?
Nicholas Kile:
Absolutely. Thank you, Aaron. So, we tend to have a structure here at Financial Sense for our reviews. Typically, considering it’s run by you, the client, it can have its sways and a different path, but we like to at least put an overall structure on it and try to abide by it. So, going into it, the first thing I always ask clients is, do you have any life or health changes? Has anything big happened in your life? Did anything change the course of your financial future or the way that we’re going to go about it? So, if you had a family member die, someone close to you, or if you’ve had health issues that have arisen recently to the point where it could change the way that you view your risk allocation—in terms of, are you going to need more cash to pay for these expenses, or is it going to change how comfortable you are with your retirement?—it essentially gives me an overall picture of where we’re going to start taking steps and how we’re going to progress toward your retirement goals, whether or not you’re retired or looking to retire soon. The second thing I typically ask is, are there any changes in the contact info or anything that we have on file for you? So, things like, have you moved recently? That can lead into other things down the line, but, in a general sense, do we have everything we need in terms of getting a hold of you? The third thing is really open-ended. It essentially is, do you have any questions for me as your advisor? Oftentimes, this can be something like a market update or, in today’s terms, why is the market down? And it typically leads into a 10- to 20-minute conversation about things regarding the market. But it can also be things like, hey, I did my taxes—how am I looking for next year? Or, do I need to be taking more money out? It really can range from anything, and that’s why we usually start with it. Those questions that you ask typically create an outline for how the rest of the meeting is going to go. After that, we will typically delve into account updates. And so, this will essentially be us going over your investments and asset allocation. As I’ve said before, all of these things wrap together because if you recently needed a roof repair, that will change the amount of cash that you’re going to need from us. And, in addition to that, things like RMDs or potential gifts to your children, college planning, college education—anything like that—it is going to change the overall path that we take when planning for your financial retirement or financial future. One of the most important topics that I like to delve into is really just acting as a financial counselor for my clients. And so, the main thing that I like asking is, is your income covering your expenses comfortably? Now, with this, it’s essentially me going over what your income’s going to be, the plan for what it’s going to be within the next five to 10 years, or whether or not you’re in a rocky spot. So, for someone in the real estate market as of recently, there’s been a lot of fluctuations and a lot of volatility. And so, for that, maybe that means you need more cash on hand; maybe that means that your typical emergency savings of three to six months is instead going to need to be six months to a year. The last thing I like to look at is the estate plan. This is incredibly crucial for people nearing retirement, but, in addition to that, it’s less thought of for people who are a little farther away. So, in basic terms, beneficiaries are the first thing I’m going to ask about. Do you have beneficiaries on all of your accounts? And if not, we need to make sure you are able to have them. The main thing is that beneficiaries, along with a trust, are going to trump probate. And so, probate is going to be a process after you pass, and if you have a will, your will is going to be read by the courts. Now, this process can range from $40,000 in court fees, attorney fees, and things of the like, to $150,000 depending on the state, and sometimes even more. So, what we do with beneficiaries and a trust, in particular, is we’re going to trump probate with both of those. We’re going to make sure that your assets go where you want them to and also make sure that you have a fiduciary who’s going over the assets with your loved ones after your passing. The final thing that I like to ask about with an estate plan is whether or not you have a power of attorney, and a durable power of attorney in particular, meaning that if you are incapacitated, is there somebody who’s able to continue making decisions on your behalf? This is going to include bill paying, your estate plan, and everything regarding all the decisions that need to be made when you’re not able to make them. And so, the final thing that kind of ties into the power of attorney is the medical directive. And that’s whether or not, if you’re in bad health and you’re not able to make decisions on your own, do you want to have a plan set in place so that everything runs as it did before—like a well-oiled machine—essentially meaning that, although your health has declined, there haven’t been any significant impacts to your overall financial health, overall plan, and your overall goals for your heirs.
Aaron Herrscher:
Nick, thank you so much for that wonderful breakdown. Now, I kind of want to just move into, basically, given all that good information, how does that really apply to the client? So, for example, a lot of the really good changes that Nick brought up are that sometimes we’ll even ask about your taxes. Mainly, if there’s been any major changes in your life, one thing that could really change is your job. So, if your income has fluctuated, that can directly impact your marginal tax rate. Here at Financial Sense, we’re not CPAs, but we do tend to work with clients on providing the proper guidance given the financial information that you give to us. So, Nick, if you were to say how many changes are there per review, how many times do you think there’d be a change with a client when we begin speaking with them, out of how many times? Like a percentage ratio, if you had to give one?
Nicholas Kile:
Yeah, Aaron, I’d say realistically it’s probably 70 to 80% of the time that there’s something in there that is going to change the overall outlook that we have. And it can be small, it can be large, but there’s always going to be something to bring up to us just so we can make tweaks on our end. And that’s kind of the importance of, before your financial review that you have with us, looking back on your own life and creating questions for us that we are able to answer so that we can initiate these changes. In particular, I think that’s the importance of doing a little bit of homework before you come into these reviews, considering that this review is totally about you putting in as much as you can and as much info as you can so that we can delve into it and really get a grasp of your current financial situation.
Aaron Herrscher:
Yeah, absolutely. I love that aspect of kind of doing your homework before the review. However, one of the beautiful things about having us as your advisor is that even if you forget to do your homework, that’s what we’re here to help you out with. So, even with regard to your taxes, Nick just mentioned that there’s around a 70 to 80% chance that, at the time, there might be a change. So, just to list a couple of these changes: if you change your job, your income may change; if you lose your job, or if you get a promotion, you might get more income—that might push you into the next marginal tax bracket; or even if you’re retiring, your income may drastically go down, or if you have significant assets, it may drastically go up. One thing that I’d like to mention is that recently, with the Tax Cuts and Jobs Act possibly being extended for the next four years of the new Trump administration, it may be plausible that you will be in a lower tax environment. And so, given this, how can we as advisors really help with that? Well, one big way is specifically Roth conversions. So, in general, with what a Roth conversion is, let’s say if you have an old 401(k) with traditional assets that you roll over into a rollover IRA, and you want to make sure that you’re building up your Roth bucket as much as you can. There are three different types of, almost, asset location, if you will. There is taxable, which would be your individual accounts, brokerage, or joint. There would be tax-deferred, which is usually traditional assets—so a traditional 401(k), traditional IRA, even a SEP IRA; these are all tax-deferred assets, meaning you have not taken the tax on them yet. And then there’s the wonderful Roth IRA, which grows tax-free, and you take the assets out tax-free. This is one of our favorite accounts that we have. And, specifically, when you are in a lower tax rate environment, meaning that the federal taxes are historically at a lower rate, this can mean, ultimately, that it is a pretty good time to consider those Roth conversions, especially if your income is lower, or if you’re retiring within, you know, a couple of years. Now, you do have the five-year rule that you have to keep in mind. So, the assets put into a Roth IRA have five years before you can take that specific amount of assets out. However, if you do have some time up until retirement, this can be a great time. Or, even if you are already moving into retirement and your marginal tax bracket is lower, that could be a great way to fill up the 22% or even 24% tax bracket. We don’t really recommend going too far past these tax brackets because then it can just be a little bit longer to basically make up the tax bill. But if you do have a low amount of Roth assets, this can be a really great time. So, with that, of course, that’s a part of our annual reviews—we will ask you about what your full financial picture looks like and decide on, you know, what would be a really good strategy to put you in the best place possible. So, this is just one area that we have. Another way to even possibly reduce your taxes is to look at charitable giving. Are you itemizing your deductions? Are there going to be deductions that are larger than your standard deduction? Meaning that, if you possibly have a home and you have mortgage interest that you can write off, or shareholder donations, there may be a way to even make sure that a Roth conversion—because when you do a Roth conversion, as well, that is going to add to your ordinary income; it’s going to be as if you made that income. So, for example, if you were making $150,000 a year and you decided to do a $50,000 Roth conversion, that can ultimately add to your income to make it $200,000. However, if you are going to be having charitable deductions, you’re going to be itemizing deductions, and you add that up, that can ultimately lower your taxable income, making it a little bit easier to manage as far as doing the Roth conversion within that specific year and owing the least amount of taxes possible. So, you know, with these different financial planning areas, there are so many different ways. Specifically, right now, since it’s, as of today, March 10th, you know, you’re probably looking at your taxes. There are a lot of different things you can do. And one of these areas, too, if you’re college planning—so let’s say you have kids, let’s say you’re in your late 40s, 50s, even 60s—then, you know, college planning can be a big part of that as well, which can even feed into the tax planning side. So, Nick, I know we’re a fan of 529s here. What are some options that a client can do? I know that they can do a specific gifting amount per year, but what’s that special rule that we have that can ultimately allow clients to even, you know, add a little bit more? What does that look like?
Nicholas Kile:
Absolutely, Aaron. So, per law, essentially, you as a client or as a parent can contribute $18,000 a year to the 529 plan that will lead to your child’s college education—the earlier, the better. And that allows it to grow, essentially, potentially tax-free if used for college education. Now, the best part about this is, if you wanted to front-load that, or if you wanted to do, like, a super contribution, you can actually do five years’ worth to this 529 plan. So, you as a parent can now contribute $90,000 to this 529 plan for your child and allow that to grow tax-free. And then, 20 years from now, 10 years from now, however long it’s going to be, your child can then use that for college expenses with no tax hit at all. In addition to that, my favorite part: if that child gets a scholarship, that does not take away the fact that they are still able to use that for other expenses as well without a tax hit.
Aaron Herrscher:
I think that’s a great explanation. With 529s, you may not get that full federal tax deduction, but depending on your state, you can get a state tax deduction up to a specific amount, depending on your state, of course. And then, really, with the 529, it can kind of mirror a Roth. So, the earnings and the assets grow tax-free. And, as long as it’s a qualified expense—meaning, is it books, is it tuition, is it anything that is really helping make sure that it’s getting your child through college—then, really, this can function similarly to a Roth, which is just another good way to not pay taxes, because no one really enjoys having to pay more on those taxes. But some of these strategies we can come up with as we’re doing these check-ins with the clients. And, for even clients that maybe didn’t do a whole lot of tax planning, there are ways to even possibly help on the back end as well. So, one of my favorite ways to do this is a qualified charitable distribution. So, let’s say you have a pretty significantly large traditional bucket of assets that you have. Let’s say you have a traditional 401(k) or rollover IRA, and this bucket seems pretty large. And, as you’re taking your required minimum distributions, you’re learning that there are significant taxes that you do need to withhold—some federal taxes. Well, if you do want to do a qualified charitable distribution, that can ultimately lower the amount of income that you have for that year, lowering your tax bracket, or possibly lowering your taxable income. So, there are all sorts of ways that we can really help here at Financial Sense. This was just, ultimately, a taste of what you can do. And, really, even with the 529, as well, it’s ultimately owned by the parent; however, the beneficiary is the child. So, as far as making sure that you’re not having too many assets or income for your college student, just to make sure that you are maximizing the FAFSA system as well to ensure that they’re not being taken away from any student grants or even possibly any student aid. These are some different areas, as well, at Financial Sense that we can make sure we help out with within your annual review and just make sure that everything’s on track to basically ensure everything is maximized within your financial life. So, if you do have any questions, or any of these ideas basically strike your interest, you can always give us a phone call at 888-486-3939, or you can reach out to our website at financialsensewealth.com, and our contact information is on there. So, for either Nick or myself, if you ever have any questions, feel free to click on our website to find our information, and we’ll always be sure to help you out and get back to you as soon as we can. Thanks so much for meeting today. We’ll talk to you soon.
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