APPROACHING YEAR END: WHAT SHOULD I BE THINKING ABOUT?

Tim:[00:01:09]Welcome back to another episode of Pilots Portfolio. Guys, it is great to have you, along on this episode today we’re talking about end of year, considerations, right? So we’re gonna talk about some open enrollment issues and some things you should be thinking about outside of open enrollment to set yourself up for a successful start of the new year. I know we’ve still got a full quarter left, but we are in that open enrollment season where, pretty much October, November, you guys are gonna be getting a lot of information to review and then to select your benefits. But before I do that, I want to mention this.
[00:01:46]In the last episode I talked about mountain biking a bit, and it has been awesome. I mentioned that I may be interested in buying some bikes. I’ve been going with the kids. It’s been great and it’s been like, where has this been all my life? So this is super cool. Love it. And here in Charlotte, we are super fortunate. I know it’s not out west and what you guys may have there, and other places, but we’re very fortunate to have tons and tons of trails just all around the city and all these bike parks. So, that’s pretty cool. The other thing I wanna talk about is value, right? So on this show I talk about saving and investing, and that’s what we do to help our pilot clients all the time, right? Is, we help them save and invest, and for a large portion of folks, like the biggest goal that they’re saving for is retirement, right? And then when they figure out that the retirement’s on track because they acknowledge that whether it’s age 65 or age 67 in the future, at some point you’re not going to be able to do what you do and earn what you earn. [00:02:47]And so you want to make sure that your future self is secure and taken care of and you don’t have to experience a drop in lifestyle, and standard of living. So for a large number of folks, retirement is like the biggest thing. And, then after that, most. Pilot clients are saying, Hey, I’d like to figure out how I can enjoy some of my money now. Right? And that’s just again, the natural next step. And, by the way, you certainly wanna make sure you do it in order, so you don’t come up scrambling because time is your best friend in the market. Right? So if we spend too much time just enjoying all the things now, spending all the money now, we won’t have enough time for our, our dollars to work for us for retirement. So you wanna make sure that, you know, you set up those, long term, retirement accounts first, and then as you, figure out that you’re on track, you want to, you know, look for other areas to enhance your life. So the point I wanna make is that it is okay to spend money. So my wife
and I, we decided to buy some mountain bikes, for the kids and I got one as well.
[00:03:52]And we shopped around and probably over a several week period. And, we finished up with five mountain bikes and the kids were stoked and I’m certainly enjoying mine. And, you know, these purchases were made at different days, different times. And so when it was all done, I like tallied up. You know how much we spent on bikes and the related bike items. And I’m like, huh, I could have flown around the southeast in the Sears for this amount. Right? And I will tell you something, I was less enthusiastic about flying around the southeast and the Sears than I was about buying all of these mountain bikes. And I started to think about that and think about, well, what do I value?
[00:04:33]And I value spending time with my family and particularly my children. They’re growing fast like weeds and I can’t fit my whole family in the series. But we can certainly go to the park and crush out a few hours on the trails and do that over and over and over, and I can watch them increase their skills and, one of my kids would just like crushing on the jumps. I’m like, whoa, dude. and so, you know, all of that is super cool. And so the thing that I mentioned is, we spent a decent amount on the bikes for sure, but we didn’t have to like, mess up our financial plan to do it right. Like, when you shop at all the bike shops, you’re like, Hey, let us help you finance your bikes. And we’re like, Nope, no thanks. That’s not for us. so there’s balance with it, right? So like, we’re saving, we’re investing, we’re making sure our future self is on track while finding ways to support the people and the things that we value, with our time and, our talent and, our treasure, or a combination of all three, right? [00:05:29]And so along this journey of saving and investing, for your financial success and security, I would encourage you to do the same. Like, how can you support the things and the people that you value with your time, your talent and your treasure, or a combination of both, and do that while, keeping your financial plan in track. There’s a balance to it and I’m gonna end with that, right? Just, that’s my little, maybe a soapbox. I guess I’m gonna step off of that and get onto the today’s topic. But, you know, if you’re a pilot and you’re in the Charlotte area and you’ve been mountain biking for a while or into it and you have tips and tricks that you wanna share, hit me up info@pilotsportfolio.com. I’d love to hear what you have to share. So let’s get on with open enrollment. As I was mentioning before, it is that time of the year when your employer is gonna start throwing tons of information at you about your benefits, they’re going to give you a few weeks to review everything, and then for the most part, you make your decision and you’re off to the races, right? Your decisions are locked in. They’re gonna start January one, and they’re gonna stay the same for the
remainder of the year unless you’ve had some major life changes. Open enrollment there is a ton of value packed in these benefits, even though you know that value may not show up in your bank account directly. It’s certainly there and it’s not something that I would have you ignore.
[00:06:55]So one thing is sometimes you may not have experienced major changes in your life, so you’re like, ah, well maybe I’ll just keep everything the same. Sometimes your employer may change significant parts of the plan. I’ve at least heard of two major airlines that are changing health insurance providers this upcoming open enrollment. I’m sure there’s going to be a lot of communication around it, but at the end of the day, you are going to have to make the decision for your family’s needs. And, when you’re trying to compare that to the old plan, you know you’re gonna have to figure out, well what’s changing?
[00:07:28]What’s staying the same? Are the premiums gone up or down? How has the deductible changed? What’s the new out-of-pocket maximum? Are there certain medicines that either you or your family were taking? How is that coverage going to be impacted? Were there certain treatments that maybe you or your family were involved in?And how is that going to be impacted? So even if your life has stayed relatively unchanged. See if your airline is changing the benefits on you. And if they are, then spend the time to figure out, with these new benefits, how they apply to you. So that’s one thing. The other thing is, and this is what we see a lot, probably more often than the airline changing the benefits, is that you guys have gone through some significant life change, maybe you got married this year. And, maybe you’re working on combining your finances while open enrollment looking at the benefits is a really big start, to that, particularly if you are, a dual income family and there are two sets of benefits to review, then really compare and contrast because a lot of times one company. I mean, sometimes one company may just be standout and boom win on everything, but sometimes there’s gonna be, well, we’re gonna go to, one spouse’s company for this, and then the other spouse’s company for that or there could be one company could give you a benefit for some reason if you don’t take their health insurance and they will give you cash for that.
[00:08:54]I’ve seen that. So like, you know, if you’re planning to take the other, you know, spouses anyway, like, make sure you get credit for that cash, so look at that. So, if you got married this year and you’re combining finances, you’re combining benefits. It’s a great thing to look at. If you got married this year or if you got divorced this year, estate planning is certainly one of those benefits or one of those planning items that you’re gonna need to consider. And all of the major airlines have super cost effective, legal plans. So you can go in there for,
really low cost per month, grab yourself a legal plan and you can work on things like wills, power of attorneys, living, wills, trust and so forth. So, you know, look at that. If you’ve gone through that major change.So either married or divorced. Let’s say that you had a child this year or maybe you’re expecting to have a child next year. Things that are top of mind for you is certainly health insurance, how we take care of you, you and this new baby. And then, you know, things like, well, are we going to have daycare, and if so, does it make sense for us to do the dependent care? FSA, right? So you think about children, you think about the dependent care. FSA, you are thinking about estate planning, which we just talked about because now we need to update beneficiaries on certain accounts. [00:10:13]We’re thinking about a will. What if something happens to you and your spouse who takes care of the child? Who’s the guardian? Who would be the custodian of their money? if something were to happen to you? We’re thinking about life insurance, without children there’s one amount, but then you add children to the mix and all of a sudden the life insurance picture changes. And so we think about that. So that’s with, if you had a child this year and didn’t get around to it, or you’re expecting to have a child next year. And by the way ,if you’re the expecting mom and you fly for, say, Southwest or American, maybe you’re looking at that long-term disability or that loss of medical insurance and you’re saying, Hey, maybe it makes sense to take the after tax.version of this benefit. And so when you go out on leave, on medical there, you don’t have to worry about, reducing your after tax dollars anymore. If you’re at Delta or if you’re at United, those are fixed, Delta you can only do pre-tax. And at United it’s gonna default to after tax there.
[00:11:11]The other thing is, thinking about the company’s life insurance plans. Okay. So, this kind of goes back to, you know, if you got married this year, typically when pilots are thinking about increasing their life insurance. We’re talking about doing it outside of the company and the union offerings just because of the way those group term premiums work. As you’re in four year bands, as you get older, your premium gets more and more expensive, and so you’re able to get around that by having an individually owned policy, when it comes time to increase your own life insurance. But, I bring this up from a spousal perspective because if you have a spouse who has concerns, health concerns about qualifying, at a favorable rate or qualifying at all, if they went through an independent underwriting process, then you can get spousal life insurance. You can at least get some through the airline without having to go through the underwriting process. So that is something to think about during open enrollment. Maybe you guys tried to get life insurance for your spouse in the past, maybe they were not successful. Well, you can get ’em some, through the open enrollment process.
AD BREAK
[00:13:28]Moving on from, marriage and children. Sometimes families are on the move. And, you know, so if you acquired a new property, particularly if you acquired a new state, now we’re thinking about, your estate plan needs to be updated, particularly if you move to a different state, right? If you, you know, acquire new property, new business, what have you?The legal benefit can help out with that. Also, if you expect maybe you started to, you know, be more involved with your parents, that are aging. The legal benefit could be good there as well. So alot of times it’ll cover, aging related, legal matters with parents, powers of attorneys and so on, that you guys need to get in place to help out with an aging parent. Another life transition that we’ve seen is, hey, maybe you’ve retired from the military and now you’re at the airline. So you’re gonna think about things like, are you gonna keep Tricare, are you gonna go with the airline health insurance? Obviously, SGLI is going away 120 days after you retire from the military.
[00:14:29]Your spousal SGLI is gonna go away and so, is the airline insurance going to be sufficient or do you need to increase that to match your new salary or your salary expectations? So those are some things, to think about there. And then, as we already kinda talked about the, estate planning needs, unfortunately with estate planning sometimes experience can be a super informative teacher. If you will, sometimes folks go through some really intense situations, but formative situations like the passing of a loved one and having to handle their estate matters, and that can usually have a tremendous impact on how they’re thinking about their own estate planning needs.
[00:15:10]Particularly if what they had to deal with was kind of messy and unorganized, right? Or maybe it was as organized as it could been, but there was some oversight or Maybe they have to deal with like this ironclad trust that, you know, and you got this, this either, you know, larger family or blended family and it’s just kind of a pain to have to like, try to figure out and deal with. Right? So, so maybe you’re saying, oh goodness gracious, I don’t want to, I don’t wanna do that to my heirs. So, the things you’re thinking about is your will, you know, guardians for children if they’re minors. We already talked about beneficiaries on account after marriage, after divorce, after birth of a child.
[00:15:40]After having a fallen out with a family member, let’s be honest, right? Like that happens, right? you’re also thinking about trust provisions. When do I wanna leave these assets? And to whom do I want to leave them to? And, are there any precautions that I need to take? Maybe there’s a child that has run into some trouble and maybe could use some professional help, or some, some other,
arms length guidance with managing their finances instead of receiving lump sums. These are all things that we have to think about. So a lot of those, you can cover through your open enrollment and like I said, hey, this is not an exhaustive list. There’s other benefits that you’re gonna find there, but the big ones are your health. Alright, your health insurance, and then those legal benefits as well.You’re gonna wanna look at that and particularly if you are a dual income family and there’s multiple insurance options to be had or benefit options to be had, make sure you take a look at both of those. Okay? Because sometimes, you know, we’ve seen, spouses save a ton of money by optimizing those benefits versus just kind of, I’m gonna do my own thing and you do your own thing.
[00:16:49]Let’s talk about some of the money stuff. So with year end tax work, let’s think about tax gain harvesting first. So this idea, I mean, the market has been up this year. So domestic markets, as we finish out, the third quarter is up double digits and international markets have been on fire this year. Okay. And so when you think about gain harvesting, maybe you are in a fairly low, tax bracket this year for any number of reasons, right? Maybe your spouse’s work took a step back. Maybe you were slow rolled in the hiring process earlier this year, so you didn’t have a lot of work going on. Maybe you were on medical leave for a good part of the year. and those benefits are not taxable. Maybe this is your first major airline job, either way, like, doesn’t matter what happens and you, you just find yourself with a low taxable income year and maybe you’re in the 0%, tax bracket for capital gains.
[00:17:39]Now, admittedly, you. Taxable income would need to be pretty low to be in the 0%, but it could happen. If you find that to be your case, then maybe you look at your portfolio, you sell off some stocks for a gain, and then you take that principle and those gains and then just reinvest them somewhere else. So what you’ve done essentially is you’ve peeled off some capital gains without paying any taxes. So your deadline to do that work is December 31st. Another December 31st deadline is the Roth conversion. So we’re not talking about a backdoor Roth conversion, we’re just talking about a plain Jane Roth conversion that you fully expect to leave you with some kind of tax bill. Okay? So maybe you figured out that, you are in the 22% bracket and next year you expect to be in the 24% bracket, and so you want to maybe fill up that 22%, or maybe you’re gonna go from the 24th to the 32nd, federal marginal bracket, and you want to fill up the 24th bracket before you exit it, and so your Roth conversion, again, just as a reminder, Roth conversion is we’ve put some pre-tax money on, we’ve gotten a tax deduction, and we are going to move that to a Roth account where those earnings will grow tax free as long as we meet some criteria. So that’s the conversion piece. So your deadline for that is going to be December 31st.
[00:19:02]Also, let’s say that you are contributing to a child’s 5 29 account. So that’s the education account that has become way more flexible, than it has been in the past after the OBBB act passed in July, and so your deadline for that, while that does not have a federal tax benefit associated with it, besides the tax free growth. A lot of states will give you a state income tax deduction, and so your deadline for making that contribution is going to be 12/31. All right? So maybe you’re funding a child, a grandchild and, nieces, the nephews, whoever. If your state gives you a tax deduction, then make sure that you capture that tax deduction. All right. Let’s talk about the backdoor Roth conversion strategy. So this one, not to be confused with what we just said, the plain Jane Roth conversion, the backdoor Roth, conversion. You don’t necessarily have to do it by December 31st, and here’s why. Let’s assume that you have to be making a 2025 contribution at this point, but you can’t be doing 2024, so you’re making a 2025 contribution.
[00:20:05]Typically you’re putting that money into a traditional IRA. Putting it, keeping it in the money market position. And a couple days later, whenever the cash clears, you’re moving it to a Roth account, however quickly your custodian allows you to do it. And then once it’s in the Roth, that’s when you’re investing it. So, you didn’t make any money on it, didn’t lose any money. You’re gonna file the appropriate forms, at tax time, primarily the 86 06. And so with this one, if you’re looking to do a 2025 contribution you actually have until April 15th of next year to do the 2025. So while you don’t have the December 31st deadline here, if it’s something that you’re thinking about and you have the cash to do it, hey, why wait. Right? You can knock that out, that backdoor Roth conversion. But if you don’t have the cash, but, maybe you will in January. Don’t worry about it, right? You still have the opportunity to get the 2025 contribution into the Roth in January. and then you can convert it at that time. So I hope that, didn’t confuse anybody and I hope that was clear. But if you have questions, just shoot me a note info@pilotsportfolio.com. We can clear that up.
[00:21:15]Alright, so here’s the other thing. your 401k. Contributions. Let’s talk about this for a moment. So, obviously your elective deferral, that limit is 23,500 for the year. If you are not on track to max it out, maybe maxing out was your goal, but you found that you’re not on track, you’ve got a couple of months left to do that. Ratchet up those contributions before the door shut on 2025. Okay, that is one thing with your 401k contributions, you still have a few months left. Many pilots who max out the 401k say in Q2 or Q3 are finding that they have a slightly higher paycheck right now because they don’t have any money going into a 401k. Maybe they’re not participating in the company’s market based cash balance plan. Or if you’re American, it’s not set up yet. You know, you’ve got the company’s NEC if the company’s maxed out their side also
coming to you, and then you’ve had social security taxes stopped, once you hit the social security wage base. So you’re enjoying a slightly higher paycheck.
[00:22:15]So that is great because then you can take a look at this cash flow and say, hey, how can this cash flow support some of my other goals that I have? And you can spend the back part of the year, helping out with those goals before January one hits 401k contributions start again. NEC is going into the 401k again, and social security taxes are being taken out of the paycheck again, so your 401k contributions. The other thing is, let’s think about next year’s 401k contribution type, and the target. By the contribution target, I’m meaning how much are we putting in? For a lot of pilots we work with, you guys are juggling multiple financial goals at one time, and life just has a way of zigging and zagging. [00:22:54]So maybe you were maxing out the 401k at one point then you had reduce it for some reason, and then now next year you’re planning to return to maxing it out. I like to help clients determine that ahead of time, right? As we think about cash flow. ‘Cause cash flow is extremely powerful. Knowing where yours is and what to do with it ahead of time helps you just be successful. Stay on the goals, right? So let’s figure out what that target is going to be. The other thing is contribution type. So now I’m talking about. Hey, am I gonna be contributing Roth in 2026? Am I gonna be contributing, traditional in 2026 or even the separate after-tax contribution? In some cases, that’s a different animal. But so primarily we’re thinking about Roth or traditional. And here’s the thing, this is not like an autopilot thing, right? So, if you’ve jumped from, say the 24% bracket in 25, you expect to be in the 32% bracket in 26. Maybe you’re thinking to yourself, Hey, how can I help out with this tax paying here?
[00:23:55]Maybe it’s time to switch from the Roth to the traditional, or you could go the other way, maybe your spouse has taken a step back. So, you’re married filing jointly two incomes, and now you’re going to marry, finally jointly one income and you’re sliding down that marginal bracket. So maybe we’re going from traditional back to the raw side.And so, we want to think about the contribution type and really that can’t be done without some proper tax planning and assessments for the year, and a lot of this stuff, you actually will need to do some tax planning, right? So an estimate of like, hey, where do I think I’m going to be by the end of the year, 2025?
[00:24:30]And then, where do I think I’m going to be in 2026? And then make the appropriate adjustments there. The last thing that we’re gonna talk about when we talk about tax planning and tax estimates is Q3 is a fantastic time to figure out, Hey, have I been over withholding or have I been under withholding
on the tax side? The last thing you want to do is arrive, to April 15th and have your CPA tell you, Hey, you’ve gotta cut this huge check. And when we can get ahead. Right. So if we know about it, we can adjust our withholdings, we can start setting money aside to stroke that check, and mentally we can just be prepared for it or we can do, if you have other things that are happening, we can try to lower that tax liability, right? So that’s one thing. The other thing is maybe you expect to have a massive, massive refund, and so we can kind of pull the throttle back on your withholdings so you don’t end up, you know, when you file getting, you know, 10 grand or 20 grand, in refund because. You know, I don’t know about you, but I would probably prefer to have that money now versus wait, right?
[00:25:31]So I could do other things with it. So, you know, it really depends on the circumstances, right? So folks, some folks are okay with getting big refunds. Some folks don’t wanna get big refunds, right? So there is some personal preference there. So guys. That’s gonna do it for this episode here. Thanks for joining and looking forward to seeing you guys in the next one. And as a reminder, shoot me a note if you’ve got questions or you want to discuss in real time your questions on the show, shoot me a note info@pilotportfolio.com and we will set it up.