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LTWM Resource Library Explore our Resource Library – Your hub for financial insights, educational materials, and tools to empower informed decisions and financial success. Simply scroll down the list and click on any item you would like details about 2-Step or Backdoor Roth IRA Contribution Learn the mechanics of a Backdoor Roth contribution in under 4 minutes Video, Media Form ADV - Part 3 - CRS This document proves registration with the SEC and other requirements as financial advisors. Document Form ADV Part 2a - Disclosure Brochure Copy This Brochure provides information about the qualifications and business practices of Lake Tahoe Wealth Management, Inc. Document Retirement Lifestyle Guide This document aids your financial advisor together with your input in crafting a personalized plan for retirement, covering finances, goals, investments, and estate planning. Document Title Decription Link Tags

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Executive Summary The first quarter was strong for stocks, building on a very strong fourth quarter of 2023. Most U.S. indices are at new all-time highs breaking the previous records from January 5th, 2022. The U.S. economy remains resilient despite the Federal Reserve efforts to cool it by keeping interest rates elevated. At its last meeting in March, the Fed left rates unchanged and the term “higher for longer” has dominated the recent news and is predicated on the following data points: The U.S. economy is strong and growing - growth expectations for 2024 increased to 2.0%, in part because of the continuation of solid consumer demand The U.S. labor market is healthy - the unemployment rate remains low and the four -week moving average of jobless claims has yet to break out of its low range. While we do see headlines of corporate job cuts, workers are finding new jobs quickly Inflation is lower, but at a slowing rate - Core inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, edged down to 2.8% year over year in January from 2.9% in December. The Fed target remains 2.0%. The other measure of inflation, the Consumer Price Index (CPI) results for January, February and March were all higher than expected, which has sent bond yields up across longer maturities The next Fed move is widely expected to be a rate cut and the first cut may be pushed out to the end of the year since the election is in November. The last rate hike was in July of 2023. The Federal government continues large deficit spending, which is making the Fed’s job harder to bring inflation down to the 2% target rate with its monetary policy. The European Central Bank and Bank of England are likely to start rate cuts ahead of the Federal Reserve, as current expectations are for the first cut in June. The unemployment rate is low in England and the Euro area; however, growth expectations are less than the U.S. economy and stock market valuations reflect it. Growth rates in emerging Asia and all of Latin America look robust but could easily change with any downturn in the more developed economies. We are cautious due to the high valuation of U.S. stocks but remain optimistic on the global job market and improved productivity from new technologies. We want to remind you we are watching all the developments closely, especially inflation, which is turning out to be more stubborn than expected. We look forward to our planning discussions for the new year and meeting with you, whether in person or virtually. For those who would like a deeper dive into the details, please continue reading… World Asset Class 1st Quarter 2024 Index Returns The first quarter was very positive for U.S. and International Developed stock index returns and most indices finished at new record highs. For the broad U.S. Stock Market, the first quarter return of 10.02% was well above the average quarterly return of 2.4% since January 2001. International Developed Stocks returned 5.59%, also well above the long-term average quarterly return of 1.6%. Emerging Market Stocks returned 2.37%, just below the average quarterly return of 2.5%. Global Real Estate Stocks were negative for Q1 and returned -1.19%, below the asset class’s average quarterly return of 2.2%. Bond yields increased in Q1 after the sharp decline in bond yields during the fourth quarter of last year. The U.S. Bond Market was down -0.78%, below its average quarterly return of 0.9%, while the Global Bond Market (ex U.S.) was up 0.58%, close to its average quarterly return of 0.9%. Here is a look at broad index returns over the past year and longer time periods (annualized): For the past year ending 3/31/2024, U.S. stocks led all broad categories with a positive return of 29.29%, International Developed stocks were up 15.29%, Emerging Markets stocks were up 8.15%, and Global Real Estate stocks were up 7.44%. The U.S. Bond Market gained 1.7% and Global Bonds were up 5.92% for the past year. Over the past five years, U.S. stocks were up 14.34% annually, while International Developed stocks were up 7.48% annually, Emerging Market stocks were up 2.22% annually, and Global Real Estate stocks were up 1.21% annually. The U.S. Bond Market was up 0.36% annually for the past five years, while Global Bonds were up 1.03% annually. It has been a difficult five-year period for bonds, due to the increase in interest rates across the yield curve. Over the past 10 years, the U.S. stock market (up 12.33% annually) is well ahead of International Developed (up 4.81% annually), Emerging Markets (EM) stocks (up 2.95% annually) and Global Real Estate stocks (up 3.89% annually). U.S. Bonds were up 1.54% and Global Bonds were up 2.64%, annually over the last 10 years. Taking a closer look within U.S. stocks during the first quarter, many asset classes had strong returns. At the bottom after two straight quarters as the leading asset class, is Small Cap Value, which was up only 2.9%, while Large Growth led all U.S. asset classes, up 11.41% for the first quarter of 2024. Large Cap stocks (up 10.3%) were above Marketwide results (up 10.02%). There was a noticeable shift back to large cap growth stocks during Q1 as investors increased the valuation of stocks associated with the concept of AI. We will have more to say about the “magnificent 7 stocks” at the end of the commentary. It is a challenge for small cap value stocks to perform well when the regional banking ETF, symbol KRE, struggles. During the first quarter, KRE was down 6%. Regional banks are challenged by higher interest rates and commercial real estate loans. We still believe almost all banks will make it through a period of higher default rates as lenders and borrowers negotiate new commercial mortgage loans. Small cap value stocks are also stuck in a strong correlation where they under perform when inflation data is higher than expected and outperform when inflation data is lower than expected. During the first quarter, inflation remained stubborn, especially the price of crude oil, which is a manipulated commodity, given the monopoly of supply by OPEC. If we extend our analysis of U.S. stocks over longer time periods, Large Growth stocks lead over the past year, up an amazing 39% vs. 20.27% for Large Value. Large Growth has been the top returning asset class over the past 5 and 10 years. It is worth noting that U.S. Market wide results for the past 10 years are robust, up 12.33% annually. The U.S. business cycle continues to slow, but there are signs that a bottom is in. The Conference Board Leading Economic Index, which consists of 12 leading economic indicators has ticked up in February for the first time in 2 years and is 26 months off from its previous peak. On average for the index, there is 10.6 months between a peak and a recession, so the current cycle is well past the average. The 4th quarter GDP growth final reading was revised up to 3.4%, which brings GDP growth for the full year 2023 up to 2.5%, well ahead of GDP growth for 2022 (full year), which was 1.9%. For 2024 GDP growth is expected to slow down to 1.5%, but that is up from consensus expectations of 0.8% growth last quarter. It is difficult to see a heavy recession with the job market still so strong; if you want a job, you can find it. The four-week moving average of initial claims for unemployment insurance remains near the lowest levels in the last year, which means the U.S. job market remains very tight; and until it falters, we are not likely to experience a recession in the near term. One reason why the jobs market is so strong is the robust fiscal spending, which is adding another $1 trillion to the national debt every 100 days. The pace of fiscal spending isn’t sustainable and is making the monetary policy of the Federal Reserve more difficult in its goal of fighting inflation. The Fed has paused from hiking rates but continues to sell Treasuries and mortgages at a monthly pace of just under $100 billion, which has the effect of increasing interest rates. Moving on to International Developed stocks, Growth Stocks were up 11.04% in local currency, but up only 6.91% in U.S. dollars, since the dollar appreciated against most foreign currencies during the first quarter. The Euro went from $1.10 last quarter to its current value of $1.08. It is still down from $1.18 per Euro, 2.5 years ago. The currency effect served as a strong headwind, hurting international stock returns during the quarter. The value premium (Value-Growth) was negative -2.7% (4.22% vs. 6.91%), and the size premium was negative -3% (Small Cap-Large Cap, 2.58% vs. 5.59%). Our investment funds are priced in U.S. dollars (unhedged) and benefit from a weakening U.S. dollar: Over longer time periods, the value premium (value-growth) is positive over the past 1 and 3-year period, but still negative for 5 and 10 years. The size factor premium (small cap-large cap) is negative in the quarter, 1-year, 3-year 5-year and 10-year periods, although just below large cap for the past 10 years (4.54% vs. 4.81%): Moving the commentary to fixed income, bond market returns around the world were positive during the first quarter, as yields increased for most bond maturities. The bond market is now predicting 2-3 interest rate cuts by the Federal Reserve in 2024, and the Fed’s QT (quantitative tightening) program of selling $90-100 billion of bonds per month is expected to continue for many years. The yield on the 5-year Treasury note increased by 37 basis points, ending the quarter at a yield of 4.21%, down from 3.84%. The yield on the 10-year Treasury note increased by 32 basis points, ending the quarter at a yield of 4.2%, up from 3.88%. And the 30-year Treasury bond yield increased by 31 bps to 4.34%, up from 4.03%. As yields increase, bond prices decrease, and higher borrowing costs make it more difficult for consumers and corporations to use debt, including auto loans and mortgages. Here is the U.S. yield curve, and you can see how yields increased for all maturities longer than 3 months (current yield curve in grey, one quarter ago in blue, and one year ago in green): Looking at fixed income asset classes, the highest first quarter bond return was for the U.S. High Yield Corporate Bond Index, up 1.47%, which is a sign of a robust economy, while the Government Bond Index Long (long-term Treasuries) was down at the bottom, -3.24%, since longer bonds lose more value than shorter maturity bonds when interest rate increase. The U.S. Aggregate Bond Index was closer to the bottom, down -0.78%, and is up 1.7% in the past year, but down -2.46% in the past three years. Short-term bonds were near the top for Q1, and have positive longer returns for 3, 5 and 10 years. Here are the fixed income period returns: During the first quarter, the U.S. fixed income markets declined as interest rates climbed due to higher-than-expected inflation readings. Inflation has stopped its decline each month, due to the very strong fiscal spending by the government, which is not likely to end during an election year. The Fed, which was expected to lower rates 6 times at the start of the year, is now expected to lower rates two or three times and may not be able to raise rates until after the November election. We may only see one rate cut toward the very end of the year. The Fed continues its $8 trillion balance sheet reduction (selling bonds) at a rate of ~$95 billion per month or $1.1 trillion annually. Historically, the Fed only lowers the overnight lending rate when the job market looks to be in trouble, since its second mandate is full employment. Job market trouble is usually stock market trouble. However, stocks can continue up with a long pause by the Fed. The stock market considers hundreds of factors to determine asset prices, some more important than others. One cannot time markets and typically the short term is just noise. Here is a sample of how the world stock markets responded to headline news, during the last quarter and the last year (notice the insert of the second graph that compares the last 12 months to the long term). We encourage you to tune out the financial news, since major news sources have a bias toward negative headlines; and often the headlines of the day have very little to do with the direction of stocks. CONCLUSION The positive run for stocks and bonds during 2023 continued into the first quarter of 2024 and the major U.S. stock indices are at new record highs. The strong returns are driven by just seven very large companies known as the magnificent seven: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, and the valuation of the S&P 500 has increased to a level that some argue isn’t sustainable, while others argue, it is not near the peak of the internet bubble. This argument assumes the AI craze is as big as the internet and it may turn out to be. However, the internet bubble collapse was most painful for the tech sector; and it took the Nasdaq 15 years to regain its peak during the internet bubble. This is the reason we hold globally diversified portfolios. Stock valuations are much more reasonable around the world, and it would be reasonable to expect a shift to international out-performance in the future. Our recommendation, as always, is to tune out the news and focus on what you can control with your financial well-being in the new year. We are here to help you succeed and look forward to seeing you soon. Here is a timely piece from our friends at Dimensional: Some investors attribute the Magnificent 7 stocks’ dominance to a “winner-take-all” environment in which a handful of companies achieve sufficient market share to hinder competition.1 In businesses where gaining users drives success, establishing a strong market share may be like building a moat around profitability. But that doesn’t guarantee these companies can stay on top. Think about the state of mobile phones 15 years ago. In all likelihood, you would have been reading this on a BlackBerry, such was that device’s entrenchment for mobile business communication. Then, along came iPhones and Androids and suddenly BlackBerry’s foothold was eroded. History is littered with examples of household names that were usurped by the Next Big Thing. Remember, Sears was a Top 10-sized stock in the US once upon a time. AOL was synonymous with internet access in the 1990s. And in 2003, the most popular social media network starting with the letter F was Friendster. Even the biggest companies have uncertain futures, highlighting the need for broadly diversified investments. And even if these companies stay at the top of the market, that’s no assurance higher returns will continue if their success is expected. Standardized Performance Data and Disclosures Russell data © Russell Investment Group 1995-2022, all rights reserved. Dow Jones data provided by Dow Jones Indexes. MSCI data copyright MSCI 2022, all rights reserved. S&P data provided by Standard & Poor’s Index Services Group. The BofA Merrill Lynch Indices are used with permission; © 2022 Merrill Lynch, Pierce, Fenner & Smith Inc.; all rights reserved. Citigroup bond indices copyright 2022 by Citigroup. Barclays data provided by Barclays Bank PLC. Indices are not available for direct investment; their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell securities.  Diversification does not guarantee investment returns and does not eliminate the risk of loss. Investing risks include loss of principal and fluctuating value. Small cap securities are subject to greater volatility than those in other asset categories. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks. Sector-specific investments can also increase these risks. Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, liquidity, prepayments, and other factors. REIT risks include changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and creditworthiness of the issuer. Principal Risks: The principal risks of investing may include one or more of the following: market risk, small companies risk, risk of concentrating in the real estate industry, foreign securities risk and currencies risk, emerging markets risk, banking concentration risk, foreign government debt risk, interest rate risk, risk of investing for inflation protection, credit risk, risk of municipal securities, derivatives risk, securities lending risk, call risk, liquidity risk, income risk. Value investment risk. Investing strategy risk. To more fully understand the risks related to investment in the funds, investors should read each fund’s prospectus. Investments in foreign issuers are subject to certain considerations that are not associated with investment in US public companies. Investment in the International Equity, Emerging Markets Equity and the Global Fixed Income Portfolios and Indices will be denominated in foreign currencies. Changes in the relative value of these foreign currencies and the US dollar, therefore, will affect the value of investments in the Portfolios. However, the Global Fixed Income Portfolios and Indices may utilize forward currency contracts to attempt to protect against uncertainty in the level of future currency rates (if applicable), to hedge against fluctuations in currency exchange rates or to transfer balances from one currency to another. Foreign Securities prices may decline or fluctuate because of (a) economic or political actions of foreign governments, and/or (b) less regulated or liquid securities markets. The Real Estate Indices are each concentrated in the real estate industry. The exclusive focus by Real Estate Securities Portfolios on the real estate industry will cause the Real Estate Securities Portfolios to be exposed to the general risks of direct real estate ownership. The value of securities in the real estate industry can be affected by changes in real estate values and rental income, property taxes, and tax and regulatory requirements. Also, the value of securities in the real estate industry may decline with changes in interest rate. Investing in REITS and REIT-like entities involves certain unique risks in addition to those risks associated with investing in the real estate industry in general. REITS and REIT-like entities are dependent upon management skill, may not be diversified, and are subject to heavy cash flow dependency and self-liquidations. REITS and REIT-like entities also are subject to the possibility of failing to qualify for tax free pass through of income. Also, many foreign REIT-like entities are deemed for tax purposes as passive foreign investment companies (PFICs), which could result in the receipt of taxable dividends to shareholders at an unfavorable tax rate. Also, because REITS and REIT-like entities typically are invested in a limited number of projects or in a particular market segment, these entities are more susceptible to adverse developments affecting a single project or market segment than more broadly diversified investments. The performance of Real Estate Securities Portfolios may be materially different from the broad equity market. Fixed Income Portfolios: The net asset value of a fund that invests in fixed income securities will fluctuate when interest rates rise. An investor can lose principal value investing in a fixed income fund during a rising interest rate environment. The Portfolio may also be affected by: call risk, which is the risk that during periods of falling interest rates, a bond issuer will call or repay a higher-yielding bond before its maturity date; credit risk, which is the risk that a bond issuer will fail to pay interest and principal in a timely manner. Risk of Banking Concentration: Focus on the banking industry would link the performance of the short-term fixed income indices to changes in performance of the banking industry generally. For example, a change in the market’s perception of the riskiness of banks compared to non-banks would cause the Portfolio’s values to fluctuate. The material is solely for informational purposes and shall not constitute an offer to sell or the solicitation to buy securities.  The opinions expressed herein represent the current, good faith views of Lake Tahoe Wealth Management, Inc. (LTWM) as of the date indicated and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such.  The information presented in this presentation has been developed internally and/or obtained from sources believed to be reliable; however, LTWM does not guarantee the accuracy, adequacy or completeness of such information. Predictions, opinions, and other information contained in this presentation are subject to change continually and without notice of any kind and may no longer be true after the date indicated. Any forward-looking statements speak only as of the date they are made, and LTWM assumes no duty to and does not undertake to update forward-looking statements.  Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time.  Actual results could differ materially from those anticipated in forward looking statements. No investment strategy can guarantee performance results. All investments are subject to investment risk, including loss of principal invested. Lake Tahoe Wealth Management, Inc.is a Registered Investment Advisory Firm with the Securities Exchange Commission.

Receiving a tax refund can feel like a financial windfall, providing an unearmarked sum of cash that presents a unique opportunity to strengthen your financial standing.  However, with life’s ongoing demands and unexpected expenses it is easy for good intentions to get bypassed and be left with a feeling of treading water. Below are a few ideas on leveraging your tax refund to maximize its impact in line with your overall financial goals. Accelerate Debt Repayment.  Put your tax refund to work by speeding up the repayment of outstanding debts.  Whether it is paying down student loans, auto loans or a home equity line of credit, you can significantly reduce the total interest paid and expedite your path to debt-free living.  Often the debt with the highest interest rate is where to begin.  Talking with your financial planner will provide insight into what works best for your specific situation. Bolster Your Cash Reserve / Emergency Fund.  Ensure greater financial stability by increasing your cash reserves.  An emergency fund acts as a safety net for unforeseen expenses like home or auto repairs, or in the event of a job loss.  If your emergency fund is not ready to cover three to six months of regular expenses, consider using your tax refund to solidify this vital financial safety net. Supercharge Retirement Savings.  Boost your retirement nest egg if you are not already maximizing your contributions.  Pretax contributions to your employer 401k or an IRA will reduce your taxable income for the current year.  A Roth IRA might make even more sense if eligible since from an emotional standpoint this is money that is not coming from your regular paycheck so getting into the potential “tax-free” world of the Roth doesn’t impact your on-going spending. Diversify Your Investment Accounts:  If you are already maxing out your retirement contributions, explore opportunities beyond retirement accounts such as an after-tax brokerage account invested in a manner aligned with your financial goals. Accelerate Savings For a Major Financial Goal: Maybe it is saving for a down payment on an house, or a special vacation, your tax refund can accelerate your savings progress to that goal.  Choose an appropriate savings vehicle based on your time horizon for the goal and accessibility needs.  Right now, high yield savings accounts or certificates of deposit are a good choice for many intermediate goals. Take Advantage of a Health Savings Account If Eligible.  If you have a high deductible health plan you should explore maxing the contributions to a Health Savings Account.   An HSA potentially has a triple tax benefit.  Contributions are deductible at the federal level, growth is tax-deferred, and distributions are potentially tax free if you follow the rules.  (Look for more in-depth information about HSAs in a blog post in May). Invest in Education: Invest in your child’s future by using your tax refund to jump start or increase 529 savings.  529 plans provide tax-free distributions for qualified education expenses and now thanks to the Secure Act 2.0 some funds from an established 529 account can be transferred tax-free to a Roth IRA for the beneficiary of the 529 account.  Do note that there are limitations and many nuances to navigate so working with your financial planner is highly recommended. Using your tax refund to strengthen your financial plan is great.  However, if you are getting a refund that means you have made an interest free loan to the government.  Adjusting your tax withholding for the current year to prevent overpaying taxes will likely free up take home pay throughout the year, allowing you to allocate more to your financial goals on an ongoing basis. Every financial decision should be made in alignment with your long-term objectives and risk profile.  Lake Tahoe Wealth Management is here to provide support and guidance.  Reach out with questions on how to best leverage your tax refund to improve your personal financial plan.

As the calendar flips to the new year, our focus at Lake Tahoe Wealth Management shifts to cash flow planning. Those of you taking distributions, or starting to in the near future, have probably wrestled with the questions that come up in this process. How much do I need from my portfolio each month? How much can I afford to take? Where should I be taking it from? LTWM advisors strive to make these discussions open and collaborative, tailoring our planning to each individual client’s needs, goals, and comfort level. With that being said, our advisors enter these conversations already prepped with data and analysis in tow. For potential clients looking to understand our process, or current clients wanting an in-depth look at our methods, here’s a peek behind the LTWM curtain… The Withdrawal Amount How much can I afford to take from my portfolio? It’s one of the most common, and probably one of the most challenging questions about cash flow planning in retirement. For many of our clients, it’s the question that brought them here. Frustratingly, there’s no perfect answer, or one-size-fits-all approach to reach it. The right number depends on your retirement income, your goals, your risk tolerance, and a myriad of other factors. Your LTWM advisor is here, armed with quantitative information and years of experience, to help chart the path forward that’s best for you. First, though, a disclaimer: Your money is your money. We’re here to steer the conversation in a sustainable direction grounded in numerical evidence, but you are still the driver. You won’t hear a LTWM advisor tell you what you can and cannot do; rather, our role is to understand your situation and goals, and use them create a plan that satisfies your needs while also giving you the peace of mind to know that you can afford your distribution. As you go through the initial distribution planning process, your advisor will help you gain an understanding of what is affordable and sustainable given your financial situation. But how does your advisor know? One of our most useful tools is Monte Carlo simulations, a modeling method that uses simulations to quantify probabilities in situations far too complicated for simpler arithmetic methods. To be more specific, we pour the details of your financial situation, including goals, asset allocation, liabilities, and timeframe into our financial planning software; the software then runs thousands of simulations using a set distribution of potential market returns, modeling potential future market outcomes and seeing in how many of them your financial goals are met. If your plan is successful in most of the simulations, that likely means your distribution amount is sustainable. Tax Efficiency Ok, so, you and your advisor have landed on a number. Congratulations! Hopefully, you are already feeling the weight lifted off your shoulders. While you can start thinking about the more enjoyable aspects of retirement (piña coladas, anyone?), the work your advisor does for you is just beginning. There are still several ways to optimize your cash flow plan, and chief among them is tax efficiency. Our goal is to get you your money in the least expensive way possible. That is, we want to get you your money while incurring as little tax as possible. The tricky part is this: the lowest-tax method for your distributions this year might not be the most efficient method in the long run. After all, we’re invested in the success of your plan not just today, but for the rest of your life, just like you! Most retirees have their assets split between multiple types of account, each with their own tax treatment. The three most common types are as follows: Taxable accounts. This is your standard brokerage account. Gains generated from assets sold for profit are taxed at the applicable capital gain tax rate. Pre-tax accounts, also known as tax-deferred accounts. Most common examples are Traditional IRAs and 401(k)s, but this category also includes SEP IRAs, SIMPLE IRAs, 403(b)s, and 457s. Distributions from pre-tax accounts are taxed at the applicable ordinary income tax rate. After-tax accounts. The most common examples are Roth IRAs and Roth 401(k)s. Qualified distributions from Roths are not taxed. If all of our money was in a Roth, tax planning would be simple! However, that’s rarely the case. Usually, Roth IRAs make up only a portion of an overall portfolio, meaning we need to be strategic about when we use them. Between Required Minimum Distributions (RMDs) and the start of Social Security, most retirees see an increase in taxable income the later into retirement they get. For many, this pushes them into higher ordinary income and capital gain brackets. So, while it may be tempting to draw from your Roth this year, that could mean paying more tax in later years unnecessarily. Why use your Roth funds to avoid a lower marginal tax rate this year, when you could use them to avoid a higher marginal tax rate after your RMDs and Social Security kick in? The Tax Projection So, if taking everything from your Roth IRA isn’t usually the right move, then what is? The answer to that question depends on many factors and is different for every person. To answer that question for you, we start by projecting your income for the current year in our tax planning software. To do this, we go line by line on your most recent tax return, changing any items for which we expect a different amount this year. Some of these changes are straightforward, like IRA RMDs and Social Security COLAs. For others, we rely on our relationship with you and our previous knowledge of your financial landscape. Events like retirements, job changes, children starting college, business sales, or even electric car purchases can all change your tax situation, and we use our in-depth knowledge of each of our clients to make sure all bases are covered. Once your tax projection is complete, we’ll have a good idea of what your taxable income for the year will be. From there, we can determine your projected marginal ordinary income and capital gain tax rates as well as how much headroom you have in each bracket, which will form the basis of our recommendation. The tax projection lets us know what we’re working with, and allows us to directly compare the current-year tax impact of different cash-generating strategies. What does your future hold? The tax projection sets our baseline, and clearly defines the variables we’re working with, but context is important too. Two people with the same taxable income could have wildly different financial pictures. If we expect income to increase in the future, then “filling out” the current bracket by taking money from a Traditional IRA would make a lot of sense. Conversely, if someone is in an unusually high tax bracket because of a one-time taxable gain, like a home sale for example, “filling out” their current bracket would mean incurring tax at a higher-than-normal tax rate, and a Roth IRA distribution might be more appropriate. As we plan for your individual cash need, we’ll consider your individual context, and what changes we expect in your future. That, in turn, will illuminate which path forward makes the most sense for you. An Example Let’s illustrate this process with an example. Say we have a client, Collette, who is 64 years old and lives in a state with no income tax. Collette was lucky enough to retire at 62, and since then has earned about $40,000 a year from her rental properties and some consulting here and there. After speaking with her financial planner, Collette decided she can afford to spend $10,000 a month, which means she’ll need an additional $80,000 from her portfolio this year. She has both a Traditional IRA and a Roth IRA, both of which have balances big enough to cover this year’s cash need. Additionally, she has $95,000 in a brokerage account with $15,000 in unrealized gains. Collette’s advisor would first use the above information to compile a tax projection for the year. The projection would show Collette in the middle of the 12% ordinary income bracket and still in the 0% capital gains bracket, with about $21,000 of headroom in both. However, the tax projection is just a baseline. Collette’s advisor still needs to determine the most appropriate method for generating the $80,000 she needs, which may create further tax liability. With the current year tax projection complete, Collette’s advisor would turn their attention to future years. Next year, Collette will reach full retirement age for her former employer’s pension plan and will start to receive an additional $60,000 a year. This will be important in evaluating the impact of any distribution strategy on Collette’s long-term financial plan. Now, with the tax projection finished and the future changes noted, her advisor can evaluate the impact of each potential funding source. Collette’s advisor, knowing about her impending pension income, would rule out using only Roth IRA distributions right away. Her pension income will push her into the 22% marginal bracket next year, and Social Security will likely take her into the 24% marginal bracket when she turns 67. Why use Roth funds to avoid paying a 12% tax rate this year when she could use it to avoid paying twice that in three years? With the 100% Roth IRA distribution ruled out, two options remain: the Traditional IRA and the brokerage account. Let’s compare the two: The Traditional IRA Considering that Traditional IRA distributions are taxable at the ordinary income rate, Collette would need to distribute around $100,000 from her Traditional IRA to generate the $80,000 after taxes. The first $21,000 of distributions would fall into her 12% ordinary income bracket, which is 10% lower than the expected tax rate on her IRA distributions after her pension kicks in. However, the remaining $79,000 of distribution would be taxed at either 22 or 24%, right in line with future rates. While being taxed at future rates isn’t a bad outcome, there’s no benefit to it either; it’s essentially a wash. Collette’s advisor would likely recommend filling only the 22% bracket with Traditional IRA distributions and using Roth IRA distributions to cover the remaining cash need. That way, Collette’s exposure to her highest expected marginal tax rate is limited. In the end, the benefit of this strategy would be paying 10% less in taxes on $21,000 worth of distributions. The Brokerage Account To cover her cash need with her brokerage account, Collette’s advisor would only need to create $15,000 in taxable income. This is because her initial contribution, or “basis,” isn’t taxed on withdrawal; only the gains on her contributions are taxable. So, even though $80,000 would need to leave the account, only the $15,000 of gains would be taxed. Another important note is that gains on assets in taxable accounts that are held for more than one year are taxed at the capital gains rate, which is different than ordinary income rates. As stated previously, Collette’s current capital gains rate is 0%, meaning she wouldn’t have any additional tax from the withdrawal. After her pension starts, Collette would be pushed into the 15% capital gains bracket, meaning she’d save 15% on the $15,000 by realizing the gain this year. After the analysis above, Collette’s advisor would recommend generating her needed cash entirely from the brokerage account. Since she has more money in the brokerage account than she needs for just this year, not all of the assets would need to be sold. Her advisor would recommend selling the assets with the most gain, as this year is the last year with the advantageous capital gains rate. Additionally, because she had $21,000 of headroom in her marginal brackets but only generated $15,000 in new income, Collette could still realize $6,000 in additional income at the current marginal rates. Her advisor would likely recommend a $6,000 Roth conversion, which would incur ordinary income tax at the current 12% rate but move the funds to her Roth IRA (more on this later). That way, she can access those funds tax-free when her marginal rate has increased to 24%. Overall, this strategy would save her almost $3,000! Other Considerations Unexpected Changes Sometimes, even the best projection can be rendered incorrect by unanticipated events. To account for this, LTWM advisors often do cash flow planning in stages, generating cash for only a few months at a time. This avoids incurring taxes unnecessarily early and allows us to react to unexpected changes with maximum flexibility. Medicare Costs Medicare part B and D premiums can increase when you cross certain income thresholds. LTWM advisors factor in these increases when computing the tax consequences of cash-generating transactions for Medicare-eligible clients. Charitable Giving Charitable gifts can be deducted from taxable income when using an itemized deduction. For clients who give routinely, there may be ways to maximize the tax efficiency of donations. One tool for this is a Donor-Advised Fund, which can be used to donate highly-appreciated capital gain assets without realizing any of the capital gain. Roth Conversions Sometimes, even after all the necessary cash has been raised, a client will have headroom remaining in a marginal tax bracket they won’t be able to access in future years due to income increases. When this happens, we often recommend a Roth conversion to “fill” the lower tax bracket. A Roth conversion transfers funds from your Traditional IRA to your Roth IRA. The transferred amount is taxed in the current year, but the funds continue to grow tax-free in the Roth and can be distributed tax-free in future years when marginal rates may be higher. This is especially useful for clients with large Traditional IRAs, whose Required Minimum Distributions often push them into higher brackets. Conclusion Planning for retirement distributions without help can be a challenging and overwhelming experience. It’s hard to know how much you can afford, optimizing your withdrawals takes a lot of legwork, and flipping from the “saving” to “spending” mindset can be difficult for some. Lake Tahoe Wealth Management advisors are here to help you every step of the way. We consider the full breadth of your financial landscape to make an individually tailored roadmap to success, and use our understanding and experience to help ease the anxiety of transition. Our job is to sweat the small details, so you can enjoy your bigger picture! Interested in learning more? Contact an advisor or sign up for a TestDrive™ today!