Financially Speaking: Think About Balancing Your Own Budget

As I write this, we are just over four weeks away from the election. My hope is you all did your civic duty and voted. If not, please don’t complain or comment on whoever was elected. Amazingly, this country is as divided with this election as I can remember. It seems that each time the presidential election rolls around, the comment I hear most often is “I really don’t like either candidate.” Well, by now we all know who our new president is. Chances are 50% of you are happy and the other 50% is upset.

Don’t panic. Regardless of who our new president and which party controls Congress are, don’t let that affect your investment portfolio.

Amazingly, as a nation we have grown callous to certain words, which have lost their meaning or effectiveness. We hear politicians talk about budgets and deficits in the trillions and it goes in one ear and out the other. Look at the following analogy for fiscal year 2024.

U.S. Tax Revenue:
$4,390,000,000,000 ($4.39 trillion)

Federal Budget:
$6,290,000,000,000 ($6.29 trillion)

New Debt:
$1,900,000,000,000 ($1.9 trillion)

National Debt:
$35,260,000,000,000 ($35.26 trillion)

The above information can be found on the U.S. Treasury Fiscal Data website.

It is truly mind-boggling. If you remove eight zeros and pretend it is your household budget, maybe you can make sense of it.

Annual family income:
$43,900

Money your family spent:
$62,900

New credit card debt:
$19,000

Outstanding credit card debt:
$352,600

If you are a long-term reader, you may remember something similar I wrote in the holiday issue back in 2012. In 2012, I wrote that U.S. tax revenue was $2.17 trillion; the federal budget was $3.82 trillion and the national debt was $15.87 trillion. The national debt is up over 122% since 2012. Just dwell on the above numbers for a minute. If this was a real person and not our government, chances are they may have declared bankruptcy. Hopefully starting next year our new president and the members of Congress will start thinking more about our country’s financial stability than themselves. So, review your budget and don’t be like Uncle Sam, make sure you spend less that you earn.

As we approach the end of the year, take some time to review your investments, retirement contributions and taxes.

Review your taxable investment portfolio to see if there are any losses you can harvest from your individual or joint accounts. This is a tax strategy where you sell an unprofitable security at a loss to offset or reduce your capital-gains taxes. If you have more losses than capital gains, you can write off up to $3,000 against your ordinary income. If you have still more losses remaining, then you may carry them forward indefinitely. Remember, if you sell an investment at a loss and then buy the same or one that is substantially identical within 30 days before or after the sale, you will not be able to take a loss on your current year tax return. If you collaborate with a financial adviser, they should be doing this for you annually.

Have you taken advantage of contributing to your company retirement plan? In 2024, the limits for 401(k) and 403(b) plans are $23,000 or 100% of your compensation, whichever is less. If you are lucky enough to be 50 or older, you may contribute up to $30,500. This is in addition to your employer’s matching contributions. The maximum limit is $69,000, which includes employee contributions, employer matching contributions, and profit sharing. Each dollar you contribute lowers your 2024 taxable income. Look to see if you can still max out your retirement plan before year-end.

IRA contribution limits for 2024 are $7,000 per year if you are under age 50 and $8,000 if 50 or older. Again, any amount you contribute will lower your taxable income. ROTH IRAs have the same contribution limits but there are also income limits that may affect how much you may contribute. One last thing to remember, ROTH IRA contributions are made with after tax dollars. So, although you don’t get a tax deduction, all ROTH IRA distributions are tax-free under the current tax law.

Depending on your income, you may be able to do a ROTH IRA conversion. There is no limit on the amount in your IRA you can convert into a ROTH IRA. You can convert at any time but the deadline each calendar year is Dec. 31. You should also be able to pay the taxes due, and be careful, it may push you into a higher tax bracket resulting in a larger tax bill.

If you turned age 73 prior to April 1, 2024, you must take a Required Minimum Distribution (RMD) from your retirement plans (IRA, 401k, 403b, etc.). If you are still working and contributing to your company retirement plan, you may not have to take one from there. It may make sense to rollover your IRA into your company retirement plan if you are still employed.

Do not forget charitable contributions and gifting. There is a limit for gifts to public charities and donor-advised funds, which is up to 30% of your adjusted gross income (AGI) for donations of non-cash assets held longer than one year. For cash donations, the limit is up to 60% of your AGI. You may also make a qualified charitable distribution (QCD) to manage your required minimum distribution from your taxable IRA. If you are 70½ or older, you may donate up to $105,000 to one or more charities instead of taking an RMD. Since the IRA assets will go directly to the charity, you do not have to report a QCD as taxable income.

Lastly, gifting is something that many parents or grandparents like to do. The 2024 limit is $18,000, which means you may give up to $18,000 to as many people as you want without paying any gift tax. If you are married, then that amount is $36,000. The person receiving the gift generally doesn’t have to pay any gift tax. The giver will generally have to file a gift tax return when the gift exceeds $18,000.

Remember to consult with your tax professional about any year-end tax moves.

If you are like me, as we near the holidays I start watching some of the classic holiday films. I’m certainly going to enjoy watching “Christmas Vacation,” the John Hughes movie from 1989. All Clark Griswold (Chevy Chase) wanted to do was to have the perfect Christmas holiday. Isn’t that what we all want for our family? Think about Cousin Eddie (Randy Quaid) showing up unexpectantly and putting his arm around Clark, who said are you surprised? Clark’s answer is priceless, “Surprised, Eddie? If I woke up tomorrow with my head sewn to the carpet, I wouldn’t be more surprised that I am now.” If next year our new Congress actually balances the budget and acts for America, then maybe we’ll all be as surprised as Clark.

I wish you and your family a Merry Christmas or a Happy Hanukkah. My hope is that 2025 brings you and your family good health and great wealth!

If you have any questions, please feel free to contact me.

Fred Dunbar, CLU®, ChFC®, RFC®, AIF®, is the former President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc.. Securities are offered through Commonwealth Financial Network®, member FINRA/SIPC. Fred may be contacted at 800-647-0762, by e-mail at freddunbar@commoncentsplanning.com or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342.

Advisory services offered through Planning Directions, Inc., a Registered Investment Adviser, are separate and unrelated to Commonwealth.

This commentary is meant for general informational purposes only and is not intended to be a substitute for professional financial, tax or legal advice. Investing involves risks including the potential loss of principal. Past performance is no guarantee of future results.