Upticks: Roth Strategy, Happy Retirement, Inflation Protection, Charitable Giving
By Jake Falcon on December 26, 2024
On this episode of Upticks, Jake and Cory discuss a potential powerful Roth strategy for savers, share four insights to a happy retirement, and explore how you may protect retirement income from inflation. They also cover tax-efficient charitable giving options for seniors.
Thank you for joining us this week! If you have a topic that you would like Jake and Cory to discuss or debate live on Upticks, please email it directly to me at luke@falconwealthadvisors.com and I’ll be sure to ask them to bring it up on the show!
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Read a summary of the conversation below:
This Roth Strategy Lets Elite Savers Stash $70,000 in Their 401(k) in 2025
This Roth strategy, commonly referred to as the mega backdoor Roth 401(k) contribution, enables high-income earners to take advantage of increased 401(k) contribution limits and potentially create a larger tax-free nest egg for retirement.
Jake highlights the significant potential benefits of this strategy, noting that it allows high-income earners to significantly boost their retirement savings and potentially create a larger tax-free nest egg for themselves and their families down the road. However, Cory points out that there are eligibility restrictions, and not all 401(k) plans offer this option. He emphasizes that this strategy can be most beneficial for high-income earners, but the accessibility for someone to do this inside their 401(k) plan is not necessarily going to be available everywhere.
Jake also highlights the tax benefits of contributing to a Roth 401(k), where contributions are made with after-tax dollars, leading to tax-free withdrawals in retirement. This could result in thousands of dollars in tax-free withdrawals later in life. However, Cory raises a valid concern about the immediate tax impact of making Roth contributions, as they are made with after-tax dollars, meaning more taxes are paid on the front end when the money is going in.
Jake emphasizes the importance of consulting with a financial planner to determine if this strategy is suitable for individual circumstances. He reiterates that Upticks is not advice and that individuals should always sit down with their financial planner at Falcon Wealth Advisors to crunch the numbers and see what makes the most sense for them and their families.
How To Have a Happy Retirement: 4 Secrets from Research
Retirement is often portrayed as a time of endless joy and relaxation, but research shows that it can lead to a significant drop in life satisfaction if not properly planned. Jake and Cory discuss four secrets to having a happy retirement based on research.
- The first secret is to have a plan beyond finances. It’s important to plan for how you will spend your time, not just your money. Cory emphasizes the importance of maintaining structure and activities, as having a reason to get out of bed in the morning is important for a happy retirement.
- The second secret is to consider continuing to work, even if it’s part-time or in a different capacity. Many people miss having something to do other than waiting for the mail and continuing to work can provide a sense of purpose and fulfillment.
- The third secret is to get a hobby. Having a passion or interest to pursue can enhance your retirement experience. Jake adds that hobbies should ideally make you healthier, smarter, and wealthier. If you can find a hobby that does all three of those, that’s a pretty darn good hobby.
- The fourth secret is to stay social. Maintaining friendships and social connections is important for a happy retirement. Cory advises having friends, seeing them often, resolving any ongoing issues with your partner, communicating, and maintaining those friendships.
Inflation Isn’t Dead Yet. How to Protect Your Retirement Income
Inflation can erode retirement income, making it important to have strategies in place to help protect against it. Jake and Cory discuss the importance of having a diversified portfolio that includes assets like stocks to potentially outpace inflation.
Jake explains that diversifying your portfolio can help maintain purchasing power by including more inflation-resistant assets. He emphasizes that the key with stocks is not to have anything in the stock market that you will need to access within the next five to ten years. The growth potential of stocks can help offset inflation and even exceed it, helping provide a more robust retirement savings account. However, staying invested is important.
Cory highlights the market volatility associated with stocks, which can lead to significant fluctuations in a retirement portfolio’s value. He points out the complexity of managing a diversified portfolio, which requires a strong understanding of different asset classes and their behavior. Jake advises working with a wealth advisor and a CPA to help ensure a well-managed and diversified portfolio.
How Seniors Can Donate More to Charity and Pay Less in Taxes
For seniors aged 70 and a half or older, there are several tax-efficient strategies for charitable giving, including qualified charitable donations (QCDs) and donor-advised funds. Jake and Cory discuss the pros and cons of each strategy.
QCDs allow seniors to donate pre-tax funds directly from a traditional IRA to a charitable organization without owing income tax on those withdrawals. This can reduce required minimum distributions and adjusted gross income for retirees, providing further tax benefits. However, the IRA sponsor must cut the check directly to the charity, adding a layer of complexity. Jake emphasizes the importance of educating your accountant about QCDs to help ensure proper tax reporting.
Donor-advised funds can provide flexibility and convenience, allowing donors to gift money to a fund and distribute it to charitable organizations over time. However, donor-advised funds may not reduce adjusted gross income or taxes linked to it as effectively as QCDs. Both strategies can require careful planning and consultation with a wealth advisor and CPA to help make sure they are executed correctly and provide the desired tax benefits.
Thank you for tuning in, we hope you have a great week!
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