Is reviewing your tax return enough or are you missing the bigger picture? In this episode, Tommy and John break down why simply looking at last year’s return doesn’t cut it, and how projection-based planning connects directly to key financial decisions like Roth conversions, mortgage deductions, and retirement income strategy.

They also explore how a proactive tax planning approach can prevent costly mistakes and create opportunities you might otherwise miss. Listen in to hear stories, strategies, and tips that bring tax planning to life. Whether you’re doing your taxes with TurboTax or working with a CPA, this episode shows how a thoughtful second layer of review can protect—and even enhance—your financial future.

Listen to the full episode here:

What you will learn:

• What we do once we receive a tax return. (3:00)
• What is the point of reviewing a tax return if you don’t know what you’re reviewing? (5:00)
• Why we’re passionate about reviewing tax returns before they’re filed. (7:15)
• What we are striving for when reviewing your tax returns. (11:00)
• What to do if you receive a big tax refund. (17:30)
• How important tax planning is. (28:00)
• The importance of a strategic plan. (30:30)
• Why assumptions really matter when it comes to tax planning. (36:20)

Ideas worth sharing:

• “You can’t have a financial plan unless you have a tax plan.” – Mason & Associates
• “Accuracy is important when it comes to tax planning.” – Mason & Associates
• “Your financial plan comes back to taxes, and everything you do needs to come back to how it impacts your tax plan.” – Mason & Associates

Resources from this episode:

• Mason & Associates: LinkedIn
• Tommy Blackburn: LinkedIn
• John Mason: LinkedIn
• Form 2210 – Underpayment of Estimated
• TurboTax 
• H&R Block
• SPECIAL EPISODE: New Client Process & Client Experience

Did you enjoy the Federal Employee Financial Planning Podcast? Never miss an episode by subscribing on Apple Podcasts, Amazon, Spotify, and YouTube Music.

Read the Transcript Below:

Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.

John Mason: Hello, I’m John Mason and welcome to the Federal Employee Financial Planning Podcast. In this episode, Tommy and I are talking taxes. We’re recording this episode on March 3rd, 2025, and we’re talking taxes. What is tax review? What is tax planning? And why is tax planning important for your financial plan?

Specifically, you can’t have a financial plan unless you have a tax plan. Unlike many content creators, we’re financial planners first, and we do this second. In each episode, we share real-life experiences from decades of helping federal employees navigate the complexity of their benefits package in all areas of their financial plan.

Tommy, welcome to the Federal Employee Financial Planning Podcast.

Tommy Blackburn: John, thanks for having me. It’s fun. This is the third one that we are producing today. So we like to surge our podcast just like we like to surge a lot of different tasks around the firm, like client meetings as well, and hopefully this one will make it out and not too long.

But again, we surge these recordings, and part of it is we’re getting ready to head into our annual strategic planning meeting season as we record this. So it is possible that this episode may not make it out until later in the year. Think it will certainly still be relevant, and it could get pushed back again ’cause there’s a lot of flux in the world, in the federal government right now as we record this.

So we may have some more timely content that we need to push in front of this, just depending on how things continue to change, but should still be relevant and hopefully a good fun episode for everyone.

John Mason: I guess at a minimum it’ll be released slightly after, either slightly before April 15th or maybe a little bit after.

But taxes should still be front of mind, I imagine for most folks whenever this episode is released. So it should be pretty timely. And I know we said it in the introduction, but today’s March 3rd, 2025. Third one of the day, Tommy. So we’re feeling a little tired, but if we’re gonna bring the energy like we always do because we both get excited about tax.

We put together an outline audience on some things that we want to cover today. Tommy did the agenda for this one. So Tommy, where do you want to go first as we think about tax planning and how we help our clients?

Tommy Blackburn: Yeah, so this is real front of mind for us right now. I suppose always front of mind because taxes are so integral in all parts of financial planning.

But right now, March 3rd, as John said, tax returns are coming hot off the press for many of our clients, and we’re getting ready to head into that annual strategic planning meeting season. So I think we’ll start with maybe when we first get that tax return, we do a review and what is that review?

Typically, maybe what are we looking for? But the review can always evolve depending on the client’s situation and how detailed maybe certain things need to be. But I know I’m thinking myself, like chronologically, I get the tax return. We’ve already done a projection last year. We get the tax return.

What are we doing with it? And then where do we go from there? And for me, first thing I do is compare it to the projection that we laid out last year.

John Mason: It’s a great point, Tommy. I’m glad you said that because I wrote down what is a tax review, and I imagine it’s really hard to review something if you have no idea what to expect.

It’s really hard to review something if you have no idea what’s coming your way. So for instance, when we have a tax projection, it includes all of the income, all of the deductions, everything we expect is going to happen that year. It includes distributions, Roth conversions, qualified charitable distributions.

If a client now has a 6%, 7%, or 8% mortgage, we’re factoring in the mortgage interest deduction. If we did a donor—all of that’s there—donor-advised funds, et cetera. So when we get the tax return back and we put it side by side, we’re frankly like pretty upset if the numbers aren’t within a rounding error on each line of the tax return.

Where we have to give ourselves some grace is our self-employed clients or folks who have a separate side business. We do the best we can, but we’ll just say bad data given to us results in bad data in the tax projection. But we’re pretty good, and we expect these numbers to be within dollars—not hundreds of dollars, not thousands of dollars—within a few dollars on each line.

And it’s really easy to buzz through a review, even easier when we get 1099s and source data from our clients. But Tommy, you’re a CPA, which means you’re very good at tax. What good is it to review a tax return if you have no basis for what you’re reviewing?

There’s nothing to review, is there?

Tommy Blackburn: You’re mainly just reviewing for based on the information you have, does it seem like you’ve got an accurate tax return put together? Whereas our review is definitely that because we have a good idea of what happened, and so maybe we were privy to some piece of information that others weren’t.

And so we can look at it through that lens to make sure it was captured. But we’re also just reviewing: Hey, what I thought was gonna happen, what I sketched out—?is that what happened? And if it didn’t, why didn’t it? Do I need to learn from this? Hopefully, we’ve been doing this long enough that we’ve got it pretty nailed down.

But so what changed? That’s part of the review. And then the other part is not many things. Can we go back in time and change? But some of them we can still take a look at like, “Hey, are we eligible to do a Roth IRA contribution? Did we meet those income limits, or should we be thinking about an IRA? Did we not fully fund the HSA?”

So we’ll be looking for those things on the review too. Also, was that federal long-term care insurance premium picked up either as a self-employed deduction or, in Virginia, did we pick up that military deduction in Virginia? So we’re looking for a lot of those things.

Did that Roth conversion—that’s a real common one—did it get reported? One, did it get captured? That’s very important. And then, did it get reported correctly? Did we actually mark that this was a Roth conversion? So those are some of the things. Oh, actually, one more that comes to mind, John, with a few more is the Series I bonds that folks are beginning to cash in.

You have to go grab that 1099 as we all got that email. So it is possible that email slipped through the cracks from the US Treasury and you didn’t go grab it. And if we’re aware at Mason & Associates, your team, that that happened, we’re certainly gonna spot it when we’re checking the interest on the tax return.

So there’s a number of things, I guess, in the review, both somewhat proactive as well as also just making sure we have an accurate reflection of everything that happened.

John Mason: We’re passionate about reviewing tax returns before they’re filed because we work really hard to do good tax planning, and unfortunately if the tax return isn’t prepared correctly, then we end up in a situation where we did all this really hard work, we did all this really good planning, and then it’s reported incorrectly and it takes away some or all of the benefits of what we’ve been working an entire year to achieve with our clients.

Accuracy is important, and maybe we get a little bit too much into the weeds. Like for instance, we get hot and bothered if there’s no 8606 filed with a Roth conversion. Maybe like we’re going to the nth degree, but that’s okay. That’s what we do at Mason & Associates is so important. Tommy, little things like 1099s with 401(k) transfers, or last year if we brought on.

Let’s say you bring on 20 or 30 new families a year, or a hundred new families a year as a financial planner. Then did they have investments before you did? Did they have 1099 consolidated statements from Morgan Stanley or Wells Fargo or Edward Jones, and then it transferred over to the new custodian that generated a similar 1099 for the same money?

Like how often do clients forget about where the money was before it was transferred to us? We go back in time to make sure that all of those documents are incorporated into the return as well.

Tommy Blackburn: That’s right. And we think we are pretty quick about it. We can breeze through this pretty quickly, and we know clients appreciate it.

It’s another check, and the preparers that we work with that work proactively with us, they certainly appreciate that quick other check just so we can all file that thing accurately and hopefully not have to come back to it. Sometimes we will catch some random stuff, clients preparing their own tax returns or using some other preparers that may have, for whatever reason, something slipped through the cracks, or they weren’t aware of it.

A couple of examples I’m thinking of is one, I have no idea what happened, but they missed a pension. It beats me. But this is again where I’m putting the tax return side by side to the tax projection we have. I was like, “Well, what was that change about?” Oh, that’s this pension, which by the way, in this scenario was not a new pension.

So how that one got missed, I’m more understanding if the pension started this year, and that’s to your point, John, right, where social security started and the tax preparer may not have been aware. Maybe they didn’t know to be on the lookout. In that example, well, that was an old document that you should have been expecting again, so not sure where we missed it.

That one also even had a business element to it on that tax return. So had a couple of creative comments there. Another example that comes to mind is a client, their kids are going through college age right now, so we had things like child tax credits changing, taking the American opportunity tax credit, but oh, we’ve already taken it four years.

So just kinda walking through with them like, “Hey, I think you’re actually, unfortunately, you’ve claimed too much credit here. You need to go back and get the lifetime learning credit.” So probably have nailed, I think, unless you’ve got some other examples you want to kind of what that first step is for us.

John Mason: I agree. I think you did a good job. Dovetails nicely probably into TurboTax or H&R Block or a tax preparer who—let’s say that you owed money come April 15th, and John, Tommy, and client knew that you were gonna owe money and it was communicated. Maybe we should say that first. We strive so that no client receives a surprise come April 15th.

Are we perfect? Nobody’s perfect. But that’s what we’re striving for, is that if you owe on April 15th, you knew about it in advance, whether it was in November, December, or early January. Hopefully, it shouldn’t be a surprise to you what the status or the expected opportunity or expected outcome’s gonna be from that tax return.

But we see this all the time where the software or the tax preparer, Tommy, is just going to push out estimated tax payment coupons for the following year. And that’s one of the most frustrating things for me because they’re just looking and saying, “Well, you owed $10,000 this year. Here’s four coupons for $2,500 a quarter.”

And that could be completely wrong because of a Roth conversion that we did, liquidating a 529, or whatever it was that increased our income for last year may not be true going forward. Or it could be such that the $10,000 in estimates is very low; it should be $30,000 in estimates. But these systems just push out these estimated tax payment coupons, which we just find to be a huge pain in the backside.

Tommy Blackburn: We do. And that’s a good point. That’s also where we’re getting pretty proactive and really beginning to step into that next piece of projecting forward for the coming year. And estimated tax payments are certainly a part of that. The pre-generated auto, what did it generate? And we can pretty much probably ignore that.

And then what do we know about your situation? How is income, deductions, payments changing, and what are we even thinking about into the future part of the year that we may want to get ahead of? So we’ll certainly have some advice, and it’s very specific and tailored to each client. We’re always trying to avoid underpayment or, yes, underpayment penalties.

So it may be that, like John said, we don’t want there to be any surprises, and maybe you will owe, and we’ve let you know ahead of time. But we don’t want you to owe and also have several hundred dollars in penalties unless that was your decision. If that’s really where you want to stand on things and you’re okay getting penalized in addition to owing, so be it. That’s not advice that we’re going to give. We certainly want to keep you out of those penalty situations there.

And you mentioned, John, the Roth conversion. We both did. We want to capture those. But in this estimated tax world, that’s also where our review, I think, comes in handy because we make sure that everyone knows that the Roth conversion happened in the third or fourth quarter typically, and the tax payment lined up with that Roth conversion.

So if we see a penalty being generated because the computer system says, “Hey, you didn’t pay in evenly throughout the year, so now we’re going to compute a penalty,” well, that’s when we say, “Hey, a 2210 needs to be filed to show that, no, that tax was paid when the income was realized,” and we can get rid of that penalty.

?So just being proactive and looking at things to, again, we really have that global view of the situation. So we’re able to come kind of look at it through that lens.

John Mason: 2210 is not a fun form to fill out. Basically, you’re taking your income and you’re saying, I made $120,000 of income this year.

The tax software assumes you made $10,000 a month. What you have to do is file the 2210 to show that your income was unequal, and it’s a pain in the backside. The way the form reads, it’s not even months. It’s like the first one is four months, then it’s two months, then it’s three months again.

And then you’ve gotta code your investment income in there too. It’s a huge pain. If you’re paying somebody to do your taxes, make them do it. If you’re doing it in TurboTax and you notice that you have an underpayment penalty of $10, we’re not telling you that you should pay that, but it’s like it could be worth your time to just pay the $10 and move on. So 2210 is out there.

Tommy Blackburn: Fun little anecdote. Yeah, we agree completely. You pretty much need a professional to help you get that done in an efficient manner. Luck trying to walk through TurboTax. Maybe you’ll figure it out. But there’s gotta be a cost-benefit. We have one of our retired NASA clients, Chuck, he’s like one of those types that does the whole return in Excel to check what is being done.

And he figured out the 2210, but I remember, John, him emailing me and being like, “What a bear. I never want to have to go through that again.” I was like, “Yeah, man. I agree.” I would’ve suggested paying somebody else to go through that with the software that they can easily navigate versus you going through the forms.

But typical retired NASA client—and I say this as a compliment—had to be the engineer and get in there and figure it out.

John Mason: Yeah, that’s a funny story. You said underpayment penalties, and we try to avoid—one, we like to have clients in safe harbor, even if they’re gonna owe, we want them to be in safe harbor.

But you taught me a trick this year, which I think you and I did, which was interesting how we did our taxes. Because the fourth quarter estimates for 2024 were due January 15th, if I’m not mistaken.

Tommy Blackburn:You got it.

John Mason:Then, first-quarter estimates are due April 15th, I believe, which, unfortunately, is the same time that your taxes are due for 2024. So your first-quarter estimate is due at the same time as your true-up for last year.

So what you and I did is we made a big fourth-quarter estimate in January of 2025 with the intention that this estimate would cover any shortfall for last year. But then knowing that any leftovers could just be applied forward as an estimated tax payment for 2025.

I thought that was a really neat idea that you gave me. And it’s just a little tool out there for our audience to say, if you’re in this estimated tax payment world, maybe consider next time making a bigger fourth-quarter estimate. That way, you can effectively use it as a first quarter of the following year.

If you’re receiving a big tax refund on April 15th, what do we do with it? How many people just say, “Take it back”? And it’s like, well, maybe we should leave it in the system because it carries forward as an estimated tax payment for this year, and that could be used to offset the income on activating your Social Security, Roth conversion, or whatever lever that you pull in your financial plan.

Does it really make sense to take that money back just to have to give it back again later? Maybe not. But the default for many consumers out there is to get it while the getting is good.

Tommy Blackburn: That is, and thank you, John. I’m glad you like that strategy because it kind of covers the previous year in case there’s a surprise we just weren’t anticipating.

It shouldn’t be the case, but might as well play it safe. Our plan is to apply that refund forward to cover the first quarter we were going to make anyway. Yes, we probably could have held onto the cash for a couple more months, but in the name of simplicity and risk mitigation, we like that strategy of making sure we’re covered for last year and probably applying it forward just like we were planning on.

I love it, John. So now it seems like we’re really crossing into the review part, is maybe coming to an end. Still, I guess it’s still somewhat of a review, but now we’re really stepping into the strategic plan for the coming year, right? This is where it’s like, okay, tax return’s done, now what?

And the first step of that is if we have an overpayment, what are we doing with it? It could be, well, why take it back just to turn around and make another estimated tax payment? That seems like it’s more effort than it’s worth. You could do it. Our suggestion would be to at least get that first quarter paid with that overpayment. Maybe two quarters because June 15th is coming pretty quick on you.

So thinking through that, one of the clients I was looking at, we’re applying it for Safe Harbor and then another one, we are probably going to do a Roth conversion. Just a large Roth conversion, probably a large Roth conversion, based on their age and some uniqueness about their situation.

So for this one, I’m thinking of they retired early-ish and they’re on COBRA, so they’re not federal. I realize it’s the Federal Employee Financial Planning Podcast, but we do have some non-federal, and they’re on COBRA coverage right now and will mostly likely gonna go onto the healthcare exchange next year.

It’s income-tested then. So the thought is let’s get at least one more really large Roth conversion in there when we don’t have a bunch of other things tied to income.

So we’re applying the overpayment forward because if you took out that Roth conversion, they don’t need to do that. But we’ve kind of already agreed we’re going to do this, so we might as well just begin paying for the Roth conversion, taking some of the sting off later in the year. So that’s part of that thought process as well.

John Mason: And because the carry forward that applies to 2025 is deemed to have been there January 1st, maybe that even helps with the 2210 and underpayment penalties and things like that because that’s one of the issues like you highlighted earlier.

It’s nice to go ahead and have it done via withholding. Your estimated tax is better to do via withholding or these carry forwards because they’re deemed to have been there the entire year.

Tommy Blackburn: Yes, that’s right. Withholding is usually the most advantageous way. So a lot of what we’re talking about is we’re stepping down to a strategic plan. Hopefully, the audience will appreciate us sprinkling in some examples that are just half of our mind. And sometimes we take a step back. Maybe we shouldn’t be so impressed, but it’s kind of impressive.

What just kicked off was, I got a tax return in. When I say ‘I,’ I mean “we,” the entire firm. Just as the advisor, you get a tax return in and it’s like, alright, check for accuracy now. Start thinking about this coming year. Go to the financial plan, start thinking the 30-year. I mean, it just kicks off a whole series of workflows that’s putting out the plan for the year.

So typical changes that you see too, as you begin factoring in there, are: are we thinking we’re gonna do a Roth conversion this year? Maybe we’re not committed to it right now, but what does it look like at the moment? What about those Medicare premiums? Do we need to be concerned or thoughtful about the income levels and anything we can control?

Some common ones with folks retiring is, hey, what is OPM doing on withholding? And do we need to adjust for that? And is Social Security new to the scene? Did we just file for Social Security recently? And what did that do? Because nothing’s probably being withheld unless we affirmatively had withholding on it.

And even more fun this year, John, is we just had this Social Security rules change. So some of our folks who never had any Social Security, all of a sudden, that’s gonna be showing up on the tax return.

John Mason: I love the Social Security one specifically ’cause I helped a client turn on Social Security last week, so he turned 70 in May, so he’ll be, we applied, yep, last week. He’ll be 70 in May. So May 1st, he’s eligible for age 70 social, June 1, he will get that payment.

2024, my tax projection says they owe or they were gonna get a refund of $2,500, for example. I think that’s pretty close. This year, activating social in June, they’re going to owe $700. In 2026, which is a full year of income, they’re going to owe $3,000, I think. I think my math was pretty close.

So when we were trying to figure out what we need to do from a tax withholding perspective, I was able to have the conversation with them to show them three years, this is what I think is gonna happen for last year. This is where we are now, and this is where we’re gonna be in the future. Why don’t we set the tax withholding to cover what we think it’s going to be in 2026?

Let’s set it for that. And then understand that 2025 may be a little less than ideal. Maybe the refunds a little too big or too small, whatever the case may be. We’re looking over three years to make a decision on how to have taxes withheld on social security. And at the end of that appointment, I emailed them the W-4 that already had checked off, have 12% withheld for taxes because I don’t think there’s any way to do that online yet. Maybe DOGE will. Yeah, I know DOGE is controversial, but maybe DOGE can help with making withholding on social security a little bit easier.

Tommy Blackburn: That would be nice. ’cause I agree. The W-4V is how you withhold Federal on Social Security.

And sometimes I avoid it where it’s just, “Hey, if you have OPM or you have DFAS, you have a military pension, it seems like it’s much easier ’cause we can go online and do this versus doing the W-4V and faxing it in or calling Social Security. But that’s certainly the way to do it. And we do it.

It is just all situational and what do you prefer? I agree. I have to chuckle about the DOGE though. ’cause I think some of what I saw was Social security, I think have been given money to modernize some systems. And I think DOGE has been coming after it. So maybe don’t get your hopes up too high, but maybe, who knows, maybe it just is a matter of being efficient with that modernization, we can only hope.

Also comical that, yeah, we’ve got the new laws right, so now. If you had WEP or GPO, Government Pension Offset or Windfall Elimination Provision previously, that’s no longer here. And so Social Security is trying to get caught up on getting all those payments and getting people into the system. But we’re also potentially not gonna modernize or who knows what’s gonna happen with that budget and we’re potentially reducing and already appear to be short-staffed agency.

Again, maybe we just need to be more efficient. So who knows what comes of all that. Had to go down that path for a second. But yeah, the one I was looking at right now, the male client is CSRS, and the female spouse is FERS. So for hers, we’ve got the first pension coming in and we went ahead and started Social Security ’cause that’s what the plan called for.

And now all of a sudden the role’s changed and CSRS spouse is gonna be able to pick up the Spousal Social Security. And we’re waiting until we get to his full retirement age so he can get the full spousal, which will be this fall. But anyway, there’s another change. It’s amazing sometimes when it’s like, how much could change in one year?

And as I’ve looked across their tax return and was planning for the future, it’s man, we’ve got all kind of things changing every single year and it’s good. But we’re also trying to manage capital gains. We’re trying to manage getting into Medicare. What if charitable strategy might we be thinking about?

So there’s a lot. Another part that, John, you and I look at is, are we taking distributions? What is that doing to the tax return? And also we step back too to just say what is that from the financial plan? Like how do we take those distributions? When do we wanna take those distributions? And is it sustainable?

Most likely for our clients, it is. It’s not a very common problem for our clients to be unsustainable spenders, usually fairly conservative people, but we are checking, sniff, checking all of these as well as thinking through efficiency. And that all, again, launched out of that tax return just came in.

John Mason: So we’ve crossed the line now from tax review, tax planning into what a strategic planning meeting should be if you’ve hired a financial planner. So maybe Tommy, we can link in these episodes a link to our strategic planning meeting process. Maybe we can link to the special Episode 20, which talked about our client experience because we talked about this at Virginia Tech Audience.

We have a lot of software: social security, financial planning, tax, investment. We’ve got ?software, software, software. Not as many licenses as others, but we have a lot of licenses to a lot of different softwares. If we could only keep one, we would keep our tax planning software. And we could do a really good strategic planning meeting with clients with our tax projection software and Microsoft Excel, and maybe some Google Slide deck for pictures of the family and other key talking points, but we could get it all done with Holistiplan, our tax planning software.

That’s how important it is, and the tax plan kicks off the financial plan, which kicks off the retirement plan, which kicks off the insurance and estate plan, which kicks off the domino effect about all of these plans end up working together. So when you approach this from a tax first mentality, it doesn’t meannthat we’re always trying to pay the least amount of tax.

It doesn’t mean that we’re trying to avoid tax. It just means that we’re trying to be very intentional when it comes to everything tax because all of those other areas of financial planning all come back to taxes at some point. Death taxes, inheritance taxes, income taxes, capital gain taxes, depreciation, recapture on your rental property, it all comes back to the tax man at some point.

I believe Mr. Musk said something where it’s like you pay tax when you earn it. You pay tax when you buy it, and you pay tax when you own it, and you pay tax when you die with it. That’s too much tax. Your financial plan comes back to taxes and everything you do needs to come back to how it impacts your tax plan.

So we’ve crossed into strategic planning meeting season just to say, Tommy, that when we meet with clients, we’re not talking about investment performance. We’re talking about all of this stuff, and it’s amazing how much of it kicks off from—if you’re thinking about the tax plan, you’re also thinking about the social security claiming strategy, right? You’re thinking about all of that.

Tommy Blackburn: That’s exactly where my mind was going because it’s, okay, lemme start with the tax return. I do my accuracy review. Look for if there’s any quick opportunities or things we need to talk about. Now let’s start thinking about the coming year or two and doing that projection.

But now how do I do that without going and looking at my long-term financial plan? The strategic long-term plan, right? And so it’s like I can look at the next year projection and say, oh, I’ve got room for a Roth conversion. But does that even make sense from a long-term perspective? So that’s where we’re going back to the long-term plan, the big overall financial plan.

And it’s just really cool how they’re all connected and sometimes to see this all started from here’s the tax return, can you do a quick review? And it’s about 20 different things. Just ran through a process that we can’t even help ourselves when we want to, right? Because it’s how can I look at this without going back to these other things?

So completely agree. I think is really well said, John.

John Mason: It’s funny how when you look forward in a financial plan, and this is why we laugh, audience, annual review. I really don’t care a lot about what happened last year. The market did what it was gonna do. I wanna make sure that what we’re modeling for you and what we’re thinking about strategically did happen.

Because if we’re just materially off every year, that’s bad. But I really want to focus on what’s happening going forward. And it’s amazing, Tommy how when we’re looking in RightCapital or in Holistiplan, and somebody’s total tax, it’s ?flat, flat, flat, flat, and then it drops. And you’re like, “I wonder what happens then? Oh, they retire.”

?Or you see flat, flat, flat flat, bam. Where’d that come from? RMD’s kicked in. So as you think about the tax plan and you think about the retirement plan. If you’re not looking ahead, you can’t really make adequate decisions on what to do today or tomorrow. And I think part of this strategy session, like for instance, if I knew somebody’s income was gonna be flat, flat, flat and then drop, I’m probably gonna wait to harvest capital gains until the drop happens.

I’m probably gonna wait till the Roth conversion until the drop happens, or if I see a big spike, I’m gonna try to prevent that big spike from happening. So you just go into problem-solving mode, either creativity mode or problem-solving mode.

When you start looking far enough ahead and I know we do retirement planning. I just feel like retirement planning doesn’t—that word isn’t as powerful as it should be because everybody says they do retirement planning, but I don’t think they’re doing it like we do it.

Tommy Blackburn: I agree. I’ll say, yeah, I don’t know what you wanna call it, independence planning, but it’s a neat thing, I guess in that you have a probably more control over many levers in your financial plan than you did over many other parts of it.

Which is I think why we get excited about it. We have a lot, are we taking distributions? Where, how, what are the tax ramifications? So we get to be creative about these things on the low income, high income.

Yeah. That’s why you have to go look into the future, the longer-term plan, because you could be, before RMDs, say you retired, all of a sudden it dropped down. And you’re just enjoying this low tax environment for six years or whatever have you. You’re just doing nothing proactively.

Think you’ve got it figured out and then all of a sudden Required Minimum Distributions happen and you’ve lost control because, for lack of better words, you missed the opportunity or you squandered that opportunity when you could have proactively paid more taxes in a lower tax situation.

I love the RMD too, John, because recent client onboarding was asking me some questions about the plan afterwards and was like, I noticed when I looked through these plan distributions start in the future, like 2036. I forget what year it was. I was wondering like, what is that? And then I also noticed my taxes further in the plan, I jumped two tax brackets, like what happened?

And it is I’m really happy you picked up on this, client. What happened was Required Minimum Distributions, those were those planned distributions you had to take. And that’s exactly what Uncle Sam was looking for, was all of a sudden your taxes jumped up.

That, by the way, is the projection where we don’t do anything proactively. And so I’m really happy that the client spotted that ’cause then we could have a fun or more proactive conversation about, you saw what that looked like. So now what if we do some Roth conversions, voluntarily pay some taxes earlier to smooth that out on the back end.

So hose are always fun too, particularly when clients almost lead themselves there. It’s like, oh, you saw that. Well, that is exactly what happened and what we can do about it.

John Mason: If you’re in a 0% tax bracket, we probably want to fill up the 10%, the 12%, maybe even the 22% in the interest of the long-term financial plan. So no party-throwing, audience, if you’re in a 0, 10%, or 12% tax bracket. We could be doing some strategic planning to better serve you over 30 or 40 years.

Let’s not throw a party over three or five years because maybe we beat the man here. So just think about it from that perspective. We work with clients entering near retirement, Tommy, who have a million dollars or more, which for federal employees, everybody knows 57 to 62 is kind of a sweet spot. But it’s a common theme out there that federal employees do not typically enjoy spending their TSP when they retire.

And in fact, many of them, if left up to their own, would delay taking TSP withdrawals or IRA withdrawals maybe until required minimum distributions kick in, which is 75 for a lot of folks now. So let’s paint this picture: You have $1.5 million in TSP, and you’re 60 years old. That could easily be $3 million by the time age 75 rolls around.

If we don’t put any strategic thinking into your tax plan, 4% distribution on $3 million is $120,000 of required minimum distribution around age 75. That’s a big number and just allowing that to balloon out of control is probably not where we want to be. So think about that as we design the tax plan.

And then, Tommy, I know you and I feel very passionately about this too., is that assumptions really matter when it comes down to tax planning. So for instance, when we think about Roth conversions and everything that we need to be doing for a client, we also have to come back and revisit the assumptions. How long are you going to live? What are the future tax rates going to be? What’s your spending now? What’s your spending going to be in the future? What your legacy goals are?

Because it’s really easy to get all fired up and say, “Let’s convert everything,” but if we have a five-year life expectancy, it’s probably not worth it to do all those conversions. So I guess just a word of caution: Don’t you think that we’re talking a lot about really cool tax planning opportunities, but it’s, like you always say, situational? And we have to know your own personal situation before we can begin executing.

We don’t want you paying more taxes than you need to pay.

Tommy Blackburn: Absolutely. Yeah. Or if you’re gonna leave everything to charity, why are we paying any taxes right now? Leave it to the charity that’s gonna pay nothing. No point in doing so. Yes, it’s all situational. That’s why this is hopefully fun and educational, but this isn’t individualized advice.

John Mason:Well, I think we’ve done it justice. Tommy, what do you think?

Tommy Blackburn: I think so. One final thing I was gonna put as what this potentially kicks off to as well, is many times we like to prepare generally. It’s situational, I suppose. A tax letter for a tax preparer of, so again, as we’re forecasting into the future, we’ll begin building that in the process so that we can give that letter to the tax preparer of here’s everything that happened because we’re already planning out what’s gonna happen, so we start sketching that.

John Mason: I love the tax letter. I love it. For me, when I review a tax return, I pull up the tax letter because typically I can see everything that happened. Then I pull up my Excel and my Holistiplan.

Then I pull up the 1040. And it’s just so beautiful to have that all together. And hopefully the CPAs that we work with and the tax firms that we work with appreciate those letters. Hopefully, our clients, when they get down into TurboTax and they’re completing their return, hopefully they’re reviewing that letter to make sure that they have all of their documents.

Really cool thing that we’re doing, we don’t include, I don’t think Tommy typically, like you’re gonna get a 1095-B for your health insurance. Most of the time we’re focusing on the income or the subtractions, or the deductions that one would receive. Not necessarily those ancillary documents, if you will.

Tommy Blackburn: Yeah, exactly. We’re ultimately not trying to prepare the tax return as we write that letter, so it’s putting more of the, we would call more material important things, particularly that we have visibility into.

John Mason:Tommy, thanks for another great episode.

Tommy Blackburn: Thank you, sir. Always enjoy it. Audience, I hope you’re enjoying it as well. I know we always love to hear from you.

Is our content helping you make more informed decisions? Do you feel more educated and empowered? Have you made positive changes in your financial plan since you started following? If so, please be sure to share in the comment section or send us an email to masonfp@masonllc.net, or share our podcast with friends, family, and coworkers.

Thank you for tuning in to another episode of the Federal Employee Financial Planning Podcast. We’re financial planners first; we do this second. As always, we hope you leave this episode feeling educated and empowered to make positive changes in your financial plan.

The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.

We encourage you to consult with the office of personnel management and one or more professional advisors before taking any action based on the information presented.