Tax Planning Strategies to Help Preserve Your Money in Retirement with Peter Roache, CPA Ep 074

When it comes to retirement planning, many people focus on investments, income strategies, and estate planning—but tax planning is one of the biggest factors that can impact your financial future. Without a proactive approach, taxes can take a bigger bite out of your retirement savings than you might expect.

In this episode, Derek Gregoire and Matthew Peck are joined by Peter Roache, CPA, a tax expert and longtime partner of SHP Financial. Peter shares important insights on how taxes affect retirement planning, the impact of Required Minimum Distributions (RMDs), and how smart tax strategies—like Roth conversions and tax-loss harvesting—can help you keep more of your hard-earned wealth.

We’ll also discuss how tax laws are evolving, why planning around IRMAA is key, and how to minimize taxes for your heirs when passing down assets. If you’re nearing retirement or already retired, this episode is packed with practical strategies to help you optimize your tax situation.

In this podcast interview, you’ll learn:

• Why tax planning is one of the most overlooked aspects of retirement.
• How RMDs can push retirees into higher tax brackets.
• Why Roth conversions can be a powerful tool to reduce long-term tax burdens.
• How IRMAA can increase your Medicare premiums and what you can do to avoid it.
• How inherited IRAs are taxed and why proper planning is essential for your beneficiaries.
• The benefits of tax-loss harvesting and how to use it to offset capital gains.

Inspiring Quotes

• “One of the bigger questions that I’ve been getting over the last couple of years has been along the lines of IRMAA. If you’re not looking at the whole picture, then you’re going to be surprised by what else comes down the pipe.” – Peter Roache

• “The value of a simple plan today, the way Congress is and the way the laws are, isn’t that like a no-brainer if it’s done properly?” – Derek Gregoire

• “The things that are certain in life are death and taxes, right? So, if you don’t have a plan and someone that’s managing both of those and coordinating how they have an impact on you, your family, your retirement, your lifestyle, all of that. That’s just a fundamental issue that you need to tackle and manage. And if you are not managing that, it’s an opportunity wasted.” – Matthew Peck

Interview Resources

• Donellon, Orcutt, Patch & Stallard, PC
• Donellon, Orcutt, Patch & Stallard, PC on LinkedIn | X/Twitter
• Peter Roache on LinkedIn | X/Twitter
• IRMAA
• Laura Russo
• Standard and Poor’s
• ExxonMobil
• Chevron
• Nick Sirianni

[INTERVIEW]

Derek Gregoire: Welcome, everyone, to another edition of the SHP Retirement Roadmap podcast. Today, we’ve got myself, Derek Gregoire, joined by my business partner, Matthew Peck, and we have the legendary Peter Roache, CPA, who a lot of our clients know. And if you’re not a client, you’ve got to get to know Peter. Welcome to the show, my friend.

Peter Roache: Thank you, Derek. And we should apologize for everyone, a CPA Monday morning.

Derek Gregoire: I know, I know. Well, they will always hear on a Monday morning. We’ll make sure on a Friday.

Matthew Peck: Yeah. It’s usually Saturday night when people will listen to our podcast. That’s what they do on a Saturday night.

Derek Gregoire: They order in. They order food. They sit with their family and they put the podcast on.

Matthew Peck: Yeah. They put the fire going. Everyone just gathers around, the whole family.

Derek Gregoire: No sports. No movies. It’s just the SHP podcast.

Matthew Peck: Bringing people together.

Derek Gregoire: So, to share how much of a legend Peter is in our neck of the woods, this morning I thought it’d be a good idea because he’s done so much work for our clients and our team. Every time there’s one-off tax questions, we email Peter. Peter emails us like five seconds later. If it’s a bad day, it’s like, “Peter, it’s been two minutes. Let’s go here.” But we had a bunch of our employees, a full house in the conference room, and you walked in and got a standing ovation.

Peter Roache: Yeah, definitely the most embarrassed I’ve been in a long time.

Derek Gregoire: The sweat is still coming down. But, yeah, our team really appreciates someone and our clients do. Only good reviews across the board. So, tracking back to we started the firm actually over 21 years ago, and what we always wanted to do was to build something that was comprehensive, that looked at all areas of retirement planning. And we found early on in our career, most of the planning was all around this person. Every time we talked about financial advising, it was stocks, bonds, mutual funds, which that’s a huge part of what we do here. We have two CFAs and Matt runs a whole investment committee and it’s a huge part of what we do for the clients that we serve.

However, and we’ve said it for years, if that’s all you have is this pile of money with investments and there’s nothing around, where to draw from, income planning, legacy planning, estate planning, health care planning, and what we’re talking about today, tax planning, you have like a quarter of a plan, not even. You know what I mean? And so, we’ve worked with Peter. We do a lot internally and then Peter and his team at Donellon, Orcutt, Patch & Stallard.

Peter Roache: You got it.

Derek Gregoire: Got it? All right. Very nice.

Matthew Peck: I was wondering about this if you’ll be able to do it. You nailed it.

Derek Gregoire: So, for years, Peter is a partner there and we said we got to knock out one of the names to get Roache in there. And he’s too humble to take that approach. So, anyways, we do that partnering because tax planning inside retirement, there are so many facets to it around, you know. And just to tease a few of them, you have tax loss harvesting, you have when to rebalance a non-qualified portfolio based on gains, you have inheritance step-up in basis, you have Roth conversions, you have when to do Roth conversions and what’s appropriate and what year, and then you have tax laws changing. So, do we get ahead of them?

If you think about our clients, Matt, doing this for 21 years, we probably should know this number, I’d say 70% of the assets that we have are retirement assets that we manage for our clients. And for everyone that knows, you have these retirement assets and you have never been taxed on those dollars if it’s an IRA. And every dollar that comes out to you or your next generation is taxed at your highest bracket that you’re in, and a lot of people don’t even think about that. And so, we’re going to get to a lot of these topics today. Another thing a lot of people are not familiar with is required minimum distributions or specifically inherited required minimum distributions in the laws that are changing around there. So, now, I’ve teased a bunch of points.

Before I get started, Peter, anything you wanted to talk about that you thought was important right now?

Peter Roache: Yeah. I guess, for me, one of the bigger questions that I’ve been getting over the last couple of years related to you guys has been along the lines of IRMAA, so people paying attention to the Medicare premiums that they’re paying every month. And, again, that just goes back to the full planning, looking at the whole picture and not just one piece because you can do anything if you’re only looking at a quarter of it and accomplish what that quarter goal was. But if you’re not looking at the whole picture, then you’re going to be surprised by what else comes down the pipe.

Derek Gregoire: There are so many…

Matthew Peck: And just so, I’m sorry to interrupt, Derek. Just so all of our listeners know, IRMAA is income in respect to the Medicare applicant. Long story short, it’s the penalty that applies to your Medicare premium based on your income. And kind of to connect some dots, I mean, to Derek’s point about everyone that’s entering retirement, they think like, “Oh, my taxes will most likely go down because I’m not working anymore.” However, if all of their assets are in 401(k), all that pretax dollars, suddenly their income could be equal, if not more, because all of those monies are taxed at your income level, which then impact Medicare. So, if your income is at a certain level, then suddenly your Medicare premiums go up due to IRMAA. So, it’s all connected.

Derek Gregoire: So, Matt, someone came in, someone that’s working with our team, my team specifically with Laura and Natalia. They came in and they have a series of IRAs, 401(k)s from previous employers, and they’re finally getting to the point where they’re getting ready to retire. And, basically, long story short, I don’t know if they came from the podcast or TV or radio, whenever they came from, they’re like, “Oh, right now I’m making $200,000 a year,” which is a good salary for them but they had all this money in 401(k). And so, when we forecasted out, they’re like I think she’s mid-late 50s, he’s early 60s, we forecasted out. It’s like, “All right. Yeah.” They said, “We should be in a much lower tax bracket in retirement.”

Well, they might be for a period of time but by the time RMDs kick in where you’re forced to take money out of your IRAs, they’re going to be like $370,000 of income. They’re like, “What are you talking about? We only get Social Security.” I’m like, “No, when you add your forecasted RMDs.” And then when you show people what the impact is, not only tax-wise, not only leaving money to the next generation but then you look at IRMAA and the Medicare premiums now, they thought they were going to be $160 a month each or $170. Now, it’s $400 or $500 a month each. And the whole goal of it is, “Hey, we have some planning to do. We have a gap of time.” We can do some planning with the goal of doing some Roth conversions within tax brackets, but also down the road, not only will your tax bracket be less, but hopefully, your Medicare premiums will be less.

So, just to close a loop there, you can see it. If someone’s not looking at your entire picture, how do you know? Like, to me, I’m always confused. Like, when our clients look at a portal, they see their goals, their income, their assets, the tax status. And when we make decisions, it’s all based on those goals. But if you don’t know what you have and what the future ramifications are and you just saved a bunch of money, then you have no idea how to plan. And that’s why if you look at the five worlds: income, investments, taxes, health care, and estate planning, you can almost argue that what we’re talking about when it comes to when to do Roth conversions, how to proceed with IRA dollars, it almost affects at least four, if not all five, of those areas because from an investment standpoint, those moneys have to be invested somewhere.

If you’re pulling money out, that might be one of your conservative, more conservative assets so you’re not pulling at a downturn because the government requires you to take money out. Your income is affected because you’re pulling that out to hit your income. Your taxes are affected because based on how much you take out, you pay taxes. Your healthcare could be affected because your premiums for Medicare could go up or down based on what you’re taking out. And then your estate plan and legacy could be affected because if you leave money in an IRA format, they have to pull that out in ten years at a high tax bracket. If it’s left in a tax-free format, they can avoid touching it for ten years, get ten years of tax-free growth, and then pull it out.

So, whew, that was a lot of information, but you can see just this type of plan, there’s five different, that’s affected by all different areas of a real financial plan. But when you hone in, “Oh, that’s just the RMD.” Well, no, there’s so much more to it than that. So, I don’t know if I’m asking a question, but that is, I guess, do you see like in the general, you know, working over the years, do you see a lot of clients that maybe they’ve had financial planners for a while, but they’re not really looking at all these areas and just they have a portfolio but not a plan?

Peter Roache: Yeah. I think that’s probably, I mean, from what I’ve seen of people, that is probably the predominant relationship I would say is that it is just one aspect and not the entire picture, which it’s like we just said, it is the entire picture that’s important, not just that one part.

Derek Gregoire: Exactly.

Matthew Peck: And I would ask, what would you say is the most common question you get? Let’s say, from retirees, people that are 55 and older, I know it’s a broad question, but is there something that you see consistently people are always asking the same question no matter how many times you’ve answered it?

Peter Roache: Well, I would say the funniest question I get is, “I’m 80. I don’t have to pay income taxes anymore, right?” And, no, even my wife’s grandmother is 103 and she still has to file income taxes.

Derek Gregoire: So, when you retire, they don’t just… Uncle Sam doesn’t leave you alone?

Peter Roache: Yeah. They don’t just say, “Why don’t you sit in the corner?”

Derek Gregoire: You’re okay.

Peter Roache: “You’re good. We’ve taxed you enough during your lifetime. We’re all set.”

Derek Gregoire: So, the current rules for, let’s look at IRAs is one of the biggest things. So, IRAs, let’s break it down into regular traditional IRA, 401(k) dollars, and then we’ll look at inherited IRAs when you inherit money from a parent or whatever it is from an IRA. So, for RMDs or required minimum distributions are basically an age which used to be for the first several years of our career, Matt, 15 years or so at least, was 70.5. So, I said, “All right, whatever you have in 401(k)s, IRAs, SEP IRAs, simple IRAs, 403(b)s, any money that’s pretax, you get the tax benefits when you’re working. Now, you’ve got to pay the piper. So, at 70.5 and every year forward, you have to take out a certain amount, right? So, then it went to like 72 then to 73. Right now, it’s 73 but for some people listening, it could be 75. Is that right?

Peter Roache: Right. Simplification always in the government’s eyes. Let’s make things easier. So, it’s been arranged now between 72 and 75. For most people, though, yeah, it would be now 75.

Derek Gregoire: Is there 72 right now or 73?

Peter Roache: I guess if it were 72 that would have meant you started last year so you’re now 73.

Derek Gregoire: Okay. But right now, if someone hasn’t had to take any, the starting age would be, the minimum age is 73.

Peter Roache: Yeah.

Derek Gregoire: And then there’s a certain cutoff of when you’re born where the younger you are, it’s a better chance at 75.

Peter Roache: Right. I think, yeah, for most people now I think if you’re under 60, it’s going to be 75.

Derek Gregoire: Okay. So, that’s the rule. So, basically, think of if you’re listening and you have 401(k)s, IRA dollars, number one, what’s it worth today? And number two, what’s it going to be worth at 75 or 73? And if you think of those numbers and you do some math and you take let’s say it’s roughly 4% and up that you have to pull out of it, that’s all added to your top bracket, right, all that income.

Peter Roache: So, whatever your… I guess the easy way to explain it, if you had no other income, just your Social Security and your RMD, the first thing it’s going to do is it’s going to make your Social Security taxable. So, 85% of your Social Security is going to be subject to tax. And then just whatever the rest of your RMD is it’s going through the tax brackets. So, starting at the 10 and going up to the 37. Yeah.

Derek Gregoire: And so, that’s for RMDs. And then so let’s say this is another confusing area. So, a lot of folks, we have clients all the time, they’re inheriting IRAs and 401(k)s from their parents or whoever. And so, I guess, can you explain like everyone knows, okay, well, I have to get this out in ten years. So, for a pretax IRA, 401(k) that’s never been taxed, if let’s say you inherited money from your parents, Peter, and you have $500,000 that you inherited in an IRA. So, what are the rules around what has to come out, how much, and when?

Peter Roache: So, again, to make things government-easy, they convoluted the inherited IRA rules so that if it’s a spouse that inherits it, they’re fine. They can take the IRA and roll it into their own and treat it as their own. But for any children, now you’ve got the issue assuming that the person was in the RMD range, they were taking distributions out, the child then has to take that money out over ten years, ten years from the date that the person passed. So, we’ve had some transitional rules over since 2020-2021 that have now been solidified. So, just to use an example, if the person passed away in 2022, you have until 2032 to take the rest of the money out but you really have to take distributions out over ’25 through ’31.

Derek Gregoire: Every year?

Peter Roache: Every year. And then the money…

Derek Gregoire: Does it have to be equal?

Peter Roache: Doesn’t have to be equal. It has to be at least what the RMD would have been. But then you get into, do I need to take more today just to utilize tax brackets? Do I need to take less today to utilize tax brackets?

Derek Gregoire: So, it’s tax planning around that.

Peter Roache: Tax planning all around that because especially now we know what the tax rates are going to be in 2025. We don’t know what they’re going to be after ’25 yet and we certainly don’t know what they’re going to be in 2032.

Matthew Peck: So, if I understand you correctly, Peter, so… Client inherits money from an IRA from their parent who was of RMD age. They now have ten years to withdraw that money.

Peter Roache: To empty the account.

Matthew Peck: To empty it out. They have to take out the bare minimum for sure per year, but they can take out more than that if they want to. However, if they only take out the bare minimum, if an advisor or if they’re unaware and is saying like, “Oh, just take out the RMD,” then that 10th year they’re going to have a massive tax hit. Is that right?

Peter Roache: Right. Yeah so, rather than using today’s brackets, if you were taking the minimum amount out and you’re still paying at the 22%, beginning of the 24% bracket conceivably and assuming in ’32 the rates were the same, you’re probably looking at a majority of the fund, the IRA being taxed at 37% in ’32 as opposed to 24% now.

Matthew Peck: Yeah, kind of smoothing it out over…

Peter Roache: Yeah, smooth it out over time rather than take it all in ’32 and lose more of it.

Derek Gregoire: Or there are some instances, too, where I have clients that are still working and they’re still in their 50s but they’re going to retire in five years. Sometimes the strategy there is take the minimum for five years and then when your income’s lower, then load up the following five years. So, this planning, I mean, it sounds so cliche as I say it, but everyone’s situation is unique. It really is and every plan is going to be a little bit different. But I guess if someone’s not in there, let’s say someone passed away at 70 and you leave assets to their kids, what’s the difference in rules at that point?

Peter Roache: So, with 70…

Derek Gregoire: Basically, they haven’t started taking their minimum distributions.

Peter Roache: And they hadn’t taken the distributions. And I will admit, because this rule is somewhat new, yeah, I keep looking it up every time that it comes up.

Derek Gregoire: There’s no clear direction?

Peter Roache: You have to take, as I recall, you would take…

Derek Gregoire: I don’t think I’ve ever stumped Peter in my life.

Matthew Peck: Yeah. Right.

Derek Gregoire: This is gold.

Peter Roache: If I remember right now if you hadn’t taken distributions, you inherited the IRA, you don’t have to take distributions within the ten years. It has to be drained by the 10th. But again there…

Derek Gregoire: Even a scenario, you want to space it out.

Peter Roache: Yeah. You would want to space it out because there’s no way it’s going to cost you less to hold off for the ten years.

Derek Gregoire: Yep.

Matthew Peck: So, hopefully, this next question will be more stable ground but what about Roth IRA? So, walk us through the rules of a normal. Someone has inherited a Roth IRA. What are the ten-year rules that apply to Roth IRAs?

Peter Roache: So, right now with the Roth, because there’s no required minimum distribution, you’re back to that rule that you hadn’t taken. So, any time within the ten, it just has to be taken out within the tenth year.

Derek Gregoire: So, let me pause you there for a second because I think I’m always floored and, obviously, we’ve been doing this for 20-something years, so we have a lot of amazing clients. But I’m floored where people try to be cheap and not hire an advisor when it comes around this stuff because two things. I always think, and especially if you’re married, if you’re married and again this is touting what we do so it could be but it’s not just us, any firm, if you are married and one spouse knows everything about financial planning, it’s not just about knowing stocks and bonds, first of all. It’s knowing stocks and bonds, it’s knowing IRMAA, it’s knowing tax codes, it’s knowing income distributions, it’s knowing RMDs like the whole gamut like you have to study.

If you want to waste your retirement… And not waste it. I shouldn’t say that. But if you want to sit around every day studying charts, graphs, Congress changes, tax laws, IRMAA then you don’t need an advisor. However, if your wife or husband is not doing that, you need to make sure that they’re not thrown to the wolves if something happens to you and they don’t know what to do. So, first off, I always say like if you look at the value of true planning, it should add, a Vanguard study said it adds like 3% in value. And so, if you look at our average fee, let’s say, comes out to 0.7%, 0.8% a year, right? Less than 1% on average.

So, I always think like think of that planning, think of this one move. I was talking to a client the other day and they had a scenario where we did some Roth conversions and they were like, “Ah, this doesn’t make sense. I can’t see paying taxes now.” We did long-term projections. Let’s say you’re in your 60s right now. You have money you’re going to leave behind to your kids. And let’s say you do some Roth conversions and you start taking money from IRA, moving it to Roth. Now, the downside is when you do that, you owe taxes. However, if we do it smartly within tax brackets, number one, Matt has always said this. You said this, Peter. We have a known known. We know where tax brackets are now so we can plan as opposed to guessing where the tax is going to be down the road. So, we do some planning.

Let’s just use a scenario. Let’s say we get $500,000 to Roth over the next five years. Let’s say that client lives to be 85-90 and that value is $1.3 million, right? Because they didn’t need that money. Now, again, if that was left in a pretax IRA that your children who are inheriting it, probably in their good earning years, if you’re 80-85, they’re probably 50-60 probably making good money, they’re forced to take that money, add it to their income and pay taxes during that ten years. If it’s in a Roth, let’s say you pass away at 85 and they’re 55, they can wait ten years, grow that 1.3 million tax-free up until the ninth year, 364th day mostly, right? Joe and Mary, whatever the name is, we’re going to send you a check all tax-free. So, obviously, I geek out a little bit about it but the value of a simple plan like that in today’s like the way Congress is and the way the laws are, isn’t that like a no-brainer if it’s done properly?

Peter Roache: Right. I mean, and using that example, so 60 to when they’re 95, so a 35-year period, the amount of growth that then goes to the next generation tax-free, it’s staggering.

Derek Gregoire: Yeah, staggering. So, this is important and this is why we’re always, the neat part about our clients, a lot of times they work with a similar attorney. They work with you as a CPA firm and your awesome team over there. And what’s awesome is like during the years, Matt, as we know, Peter reaches out, “Hey, I need Sue and Frank’s return,” or their 1099s, we didn’t get them yet. So, a lot of times, us communicating with Peter saves our clients just knowing, “Okay, I’m going to go enjoy Florida. They got to take care of… They’re going to let me know what we have to do,” but it’s kind of one team. We’re two companies, but one team.

Matthew Peck: Well, it certainly makes tax season a lot less stressful for really everyone, right? You think it’s less stressful for the client because as you were saying, Derek, they’re down in Florida and then I’m assuming hopefully, Peter, tell us if I’m wrong, it makes it less stressful for you because you’re not having to track down the client for this information. You can reach out to the advisor who can supply all the necessary documents, at least on the custodian side.

Peter Roache: Right. It does make things a lot easier on us because I just ask the question, “Who are you working with at SHP?” And then I send the email over and say, “When the 1099s are ready, just shoot them over.” I think it’s easy on everybody.

Matthew Peck: Well, and sorry, one other point I was gonna to make, and kind of, Derek, it went back to what you were mentioning about making sure you have a team. I mean, there’s that old saying, I think it was Franklin, death and taxes. I mean, this is saying the things that are certain in life are death and taxes, right? I mean, it’s been around whatever, 400 years. So, if you don’t have a plan and someone that’s managing both of those and coordinating how they have an impact on you, both you, your family, your retirement, your lifestyle, all of that, I mean, again, that’s just a fundamental issue that you need to tackle and manage. And if you are not managing that, it’s an opportunity wasted.

Derek Gregoire: Yeah. If you want to do it yourself, like I said, I couldn’t do it myself with my clients and this is what I do for a living. We have, like I always say, I have Matt and his team running the portfolio. We have a planning team helping on making decisions around long-term planning, income goals, cash flow. Where is this coming from? We have you working and helping us with certain tax planning decisions. So, it’s like I couldn’t do it by myself. I can’t imagine being a retiree trying to learn all these different areas. And if you can do it, God bless you. Do it yourself and you love it. Make sure your spouse is taken care of if something were to happen because they might not be as good as you at all those areas. You know what I mean?

So, as we pivot, that’s awesome information. I think just tax planning, Roth conversions, RMDs, inherited IRAs, inheriting Roth IRAs, all important topics. Any other like so if I’m a retiree, pre-retiree, anything else that you would say I need to get ready for, or other things when you start thinking about in our planning process around taxes?

Peter Roache: I think the biggest thing besides pulling away from the IRA side of it is probably more just keeping an eye on where your income’s coming from. Is it interest? Is it dividends? Are they qualified dividends? Where am I on realized gains or losses during the year? Is there a planning opportunity there when we get further on during the year? Tax loss harvesting to offset the gains to, you know, I know some people do get hung up on, “Well, I like whatever, XYZ stock, and I don’t really want to sell it,” but you lost 90%.

Derek Gregoire: Well, we always say it’s amazing. Like, if we go back to 2022, Matt, we did some of the most amazing long-term planning there. Like, in terms of like what’s the making…

Matthew Peck: Oh, if God gives you lemons, you make lemonade.

Derek Gregoire: Yeah, there it is. So, you know where I was going. But like during that timeframe, a few things that we did from a planning standpoint so, okay, we talked to our clients. No one likes it if the market’s down. No one likes seeing it, but it happens. We’ve been through it. Since we started the company in ’03, we’ve seen plenty of volatility. Even ’03 had some volatility. We saw ’08. We saw, I think, it was a few years during ’08 to ’18, it was not bad. It was actually pretty steady but a few years. 2022, bang, interest rates went up. The bonds got crushed, stocks got crushed. It was a bad year for everyone in terms of being in the market. But so, okay, let’s look at this scenario.

First off, we told our clients we’re probably more conservative and hedged than a lot of other firms, so their losses weren’t as bad, but they still saw losses. So, what can we do? Let’s take advantage of what we can do. One, we can do some tax loss harvesting and take losses that we can utilize either for that year or for future years, which we can take a deduction of 3,000, carry over the rest. That was number one. Number two, we did a lot of Roth conversions because like, okay, let’s take a situation where if your IRA dollars are down while shares of the Standard and Poor’s or whatever shares you own are probably down. So, if we do a conversion within proper tax brackets and move those same shares to a Roth, pay the taxes, would you rather have the recovery occur tax-free or an account that’s all taxable?

So, even like during down years, I remember clients years ago, they’re like, “Do you still make money when the market’s down and we’re losing money?” And I’m like, “Actually, we should be making double but, yes, we’re only making normal.” Because it’s amazing, there’s so much planning around those times. But I think when we have a planning focus-centric firm, you always look for opportunities. And so, while I always go back to the same image of like maybe it’s because I’m a type 1 and a little nuts and OCD, but if I’m on a beach somewhere retired, I don’t want to wonder if I’m missing an I that’s being dotted or T being crossed. I want someone that’s looking at all these opportunities for me so I can go, which our tagline, Matt, you can spend more time living and dreaming than wondering and worrying.

Matthew Peck: Yeah. Exactly. Wondering and worrying.

Derek Gregoire: So, I think Matt does too, we kind of nerd out over the planning because there’s so much to be done with a good financial plan beyond just, okay, let’s buy Exxon and sell Mobil. That’s the same stock, but you know. Make sure you call me on that.

Matthew Peck: But, Peter, if you don’t mind, explain a little bit about tax loss harvesting. How does that work? Why is it such an effective tool?

Peter Roache: Most of the time we don’t talk about it until November-December. So, we get to that point of the year and you’ve got some realized gains, that investment that you sold during the course of the year. But you’ve got some fund that’s down. Just by selling that fund, you can offset that taxable income by recognizing that loss.

Matthew Peck: Okay.

Peter Roache: So, in essence, the investments are already down, but you’ve created taxable income by recognizing some gains. So, by recognizing that loss, now we’ve offset the gain and in essence, created back to tax-free income just by recognizing the loss.

Matthew Peck: And then you can buy back in but there’s something called the wash sale.

Peter Roache: 30 days. So, you’ve got to wait 30 days before you repurchase whatever it was that you just sold at a loss.

Matthew Peck: But let me go back because I’ll use ExxonMobil, right? So, correct me if I’m wrong because I’ll go back to kind of Derek’s point.

Peter Roache: Exxon or Mobil.

Matthew Peck: There we go. So, the client has ExxonMobil. It’s down, whatever, 90% that particular year. They can sell ExxonMobil, buy Chevron, still hang out in the oil space, and then 30 days later buy back into ExxonMobil. Is that how it works?

Peter Roache: Right. As long as they’re not buying Exxon. Yeah. But Chevron, basically the same company, but by purchasing that with the funds that you just sold Exxon, you’re avoiding the wash sale rules.

Derek Gregoire: And that loss can be used for deductions and to offset future gains that you might want to pare down gains in a future year.

Matthew Peck: Well, that’s what I was gonna say, Derek, so then walk us through 2022. Like, so why 2022 was such a busy time for us is because of that. I mean, because we say like now is the time to take advantage of that because there’s also a carryover, right? So, even if let’s say you harvest losses and, okay, now you have $20,000 in losses, then what?

Peter Roache: Yeah. I mean, conceivably you could. So, if you don’t use the $20,000 in losses in that year, $17,000 of it is going to carry forward to 2023 in that example.

Derek Gregoire: And you get a deduction of three.

Peter Roache: And you get the deduction of three. But, typically, we talk about harvesting when there’s already gains, but there’s a possibility that you’ve got losses that you’ve realized that now you can maybe work into diversification by taking some of your gains from some of your other funds and offsetting losses that way as well.

Matthew Peck: When I think, Derek, you mentioned it too because sometimes our clients are business owners and we’ll say, “Look, hey, when are you planning on selling ABC business?” And it’s like, okay, well if they’re selling in four years, try to harvest as much losses because we know there’s going to be a big gain in four years. Is that accurate?

Peter Roache: Yeah. And I know Keith’s not here with us today, but we’ve worked on that with a few different clients.

Derek Gregoire: Yeah.

Matthew Peck: And it can be, sorry to interrupt, Derek, I mean, it can be a business even, obviously, if you’re a business owner, but it can be a home. I mean, I did have a client that he owned a number of different rental properties, and he knew the plan at some point in time was to sell not all of the properties, but one at a time.

Derek Gregoire: He had some gains in there.

Matthew Peck: He had some gains just with all the depreciation on the basis. And so, he said, “Okay, hey, let’s build up a whole bunch of losses,” not that we want losses. But it goes back, Derek, to what you were saying. I mean, look, there’s always opportunities out there. So, take advantage of it. And then we were able to bank roughly about $50,000 worth of losses. He only sold the property last year, but he carried it over and offset. I mean, that’s what? It’s 20% or whatever, I mean, taxes lost on that amount saved.

Derek Gregoire: Massachusetts and all that, thousands of dollars. And the other thing, too, we talked about dividend income. One of our favorite clients you referred to us, this woman is like a multimillionaire living near your office. And last summer she complained because she was too hot and she didn’t have air conditioning. I’m like, “Put in air conditioning,” and she’s, “Ah, it was too expensive.” I’m like, “You have more money than you’ll ever need.” But anyways, when we took her on years ago, she was getting a lot of dividend income but it was a lot of taxable income. She’s getting hundreds of thousands of dollars dividend. So, we switched some of it up to be some coming.

Some of it’s qualified dividends, some of it’s municipal bond income. So, she gets a tax-free income on that portion. But it’s important like I said you have a lot of people, their biggest asset is retirement assets. But for some of our clients, they have just as much, if not more, in after-tax dollars. Maybe they got stock options from their company. Maybe they have built up just a large portfolio of an inheritance or just savings on the side, and they have these huge after-tax non-qualified portfolios. There’s also planning around how those assets are positioned both do I sell based on financial gains and how they’re invested in terms of dividends so I’m not paying.

If you want to grow your assets, you may not want to have high dividends because then you’re paying gains along the way that you wouldn’t have to if you owned something that was a lower dividend. So, the planning is I don’t want to say endless, but there’s so much out there.

Matthew Peck: Yeah. Sorry to interrupt, Peter. I mean, it really is just because if I go back just to build on the dividend income, right? Okay. Municipal bonds, tax-deferred annuities, whatever that may be, you have all these different strategies, right? Highly appreciated stocks. You have direct indexing and stock option overlay and all the different strategies there, donor-advised funds. I mean, it just goes on and on and on about all the different tools that we have in the toolbox. And that’s why I really appreciate, Peter, our relationship is because you’ve helped walk us through, “Okay. How does this work and what’s the best way of using this tool on behalf of the client?”

Derek Gregoire: Yeah, that’s awesome. As we close, I’m just a little nervous, Matt. What we did to him here, we embarrassed him. I might not go to your office for a little while. I’m afraid what’s going to happen in that office.

Peter Roache: I think we’re already scheduled for March 10.

Matthew Peck: Yeah. We’ll see you in a couple of weeks.

Derek Gregoire: All right. I’ll be prepared how to sneak in the back. But, no, you can tell honestly as much as we joke around, not many people that we refer business to walk into our office and get a standing ovation. So, that speaks volumes of how well you’ve taken care of our clients and been a big part of our business as we’ve grown over the years. And so, we appreciate both the insight today and all just the valuable insight you’ve given us over the last decade plus.

Peter Roache: Thank you.

Derek Gregoire: Anything else you want to close, Matt?

Matthew Peck: No, that’s it. Again, just thank you so much, Peter. Obviously, as Derek was saying, the standing ovation does not happen every day, so it should speak for itself.

Derek Gregoire: Awesome.

Peter Roache: If I could add one thing.

Derek Gregoire: Yes.

Peter Roache: Just during at the end of the game last night, Nick Sirianni just when they asked him what brought the Super Bowl and he said it was the team. And that’s the way I see this as well, that it’s SHP and the team. One person can’t do it.

Derek Gregoire: I agree. No. We always say internally when we sit with a client it’s like, “Listen, you might be seeing me or an advisor, but there’s like 20 people that have touched your plan to get to where it is today.” So, team effort is definitely the way we believe in and you’re a big part of that team. So, thank you again and we look forward to talking to you all soon. Everyone, have a great day.

[END]