As we approach year-end, there are several tax-optimization strategies credit union executives and recent retirees may leverage based on their current financial situation. Credit union leaders often have complex compensation and retirement benefit packages plus a unique tax delta that lend themselves to creative solutions that may help them save more money or manage their tax liability.

Wes Johnson, CFP® professional and ACT Advisors partner and financial planner, joins Doug to discuss these strategies and offer insights to inspire and support credit union executives at any stage. Wes is a seasoned financial expert with a wealth of tax and financial planning knowledge.

Employer-Related Tax Optimization Strategies for Credit Union Executives

Doug and Wes start the conversation with strategies related to a leader’s employer, including maxing out retirement accounts and other pre-retirement considerations. Here are a few of the techniques they discussed:

  • Exhausting flexible spending accounts that may be “use it or lose it” 
  • Maxing out your 401(k) and 457(b) and strategizing where to contribute based on your tax bracket, income, and goals
  • Funding your health savings account (HSA) while covering medical expenses out-of-pocket if you can afford it

Doug and Wes also discuss planning pre-retirement activities, such as a major acquisition or identifying a successor based on your retirement date. Considering the optimal time to take strategic risk could affect your organization’s success and your eligible benefits. Stream the episode to hear the full details and reasons why you may consider these strategies. You may also check out our downloadable guide, which covers the top mistakes credit union leaders make at retirement, and our podcast episode, “The Unique Opportunity Secure Act 2.0 Offers Credit Union Executives.”

Personal Tax Considerations for Credit Union Leaders

In addition to considerations directly related to your employer, Doug and Wes discuss personal factors that may affect your tax planning. Many of these techniques leverage credit union leaders’ unique tax delta, the significant difference in income and tax brackets before and immediately after retirement. Planning around low income and tax rate years, and vice versa, could provide various benefits, including:

  • Leveraging capital gains or losses based on your tax bracket and income to manage your tax payments
  • Optimizing your cash flow by timing your withdrawals to qualify for low-cost healthcare
  • Making charitable donations in advance, possibly using a donor-advised fund to manage your tax liability
  • Considering a 529 college savings plan to take advantage of pre-tax contributions and potentially fund educational expenses for multiple generations

Doug and Wes delve deep into these strategies, exploring scenarios credit union leaders commonly encounter and offering valuable suggestions to maximize tax deductions, executive compensation, and benefits.

Listen now.

Audio Transcription (pulled from the podcast)

Doug English  00:00

Welcome back to “CU on the Show.” My guest on today’s podcast is my partner at ACT Advisors, Wes Johnson. Wes is a seasoned financial expert and CFP® with a wealth of knowledge in tax planning and financial strategies. In this episode, Wes and I discuss our best end of year tax-saving ideas for credit union executives. Whether you’re a credit union executive looking to optimize your tax strategy or simply interested in gaining valuable insights into year-end financial planning, this episode is packed with tips and strategies you won’t want to miss.

Welcome Wes Johnson. Welcome back to “CU on the Show.” We’re glad you’re here and looking forward to talking about the year-end tax savings ideas you have for us.

Wes Johnson  00:54

Thanks for having me back, Doug. 

Doug English 00:56

Yeah, well, let’s start out with sort of a top 10 list for year-end tax savings ideas. You know, these, of course, are for credit union executives, as we always are on “CU on the Show.” So the first idea, let’s start with the ideas that come in relation to your employer. So Wes, you go first.

Wes Johnson 01:18

A lot of you guys probably take advantage of the employer’s flexible spending account or a dependent care account. Those accounts have historically been use it or lose it. With COVID, they allowed a little bit of rollover flexibility. But make sure you spend all of it—you just submit receipts—make sure you’ve used all that money and you don’t lose any of it. The other one I’ll say is check your 401(k) and your 457(b) and make sure you’re maxing those out in the correct buckets. And you really need to analyze this but it could be pre-tax in a traditional bucket or post-tax in a Roth bucket. It usually does require some analysis to get that right. It’s not just, I’m in a high tax bracket, I need to do the pre-tax bucket. Oftentimes, that’s how it works out but not always. So make sure you’re maxing those out for this year, the most you can contribute is $22,500. If you’re over the age of 50, you can do an additional $7,500. 

Doug English  02:12

Thanks, Wes. Yeah, the decision on funding pre-tax or after-tax is an important one, right? But it’s not clear. It’s not clear just because you have a high income that you should be doing pre- tax versus Roth. With credit union leaders, you know, you guys have unique benefits, a 457(b) and hopefully the collateral assignment. The collateral assignment creates a potentially large income stream, and when you optimize the timing of when you receive that large income stream, you can have a period of years with no income tax. Maybe if you’re in that circumstance, you use those low income years to do Roth conversions at that point instead of doing Roth contributions now, during your high tax years and missing out on those tax deductions. Bottom line is it’s a complicated analysis that you really need to get into the weeds on to figure out which makes sense and why. And then of course, when to draw from which account once you get to retirement. Another tool we see in credit unions is the Health Savings Account. It’s just like a 401(k). But of course, it’s for healthcare, you can put $4,150 in it in 2024 if you’re single, $8,350 if you are a family, and if you’re over 55 you can put an extra $1,000 in it. So that’s nice. That’s a big potential pre-tax tax deduction. Now, the ideal use of a Health Savings Account is sort of, again like a 401(k), is to put that pre-tax money in there, make sure it gets invested, right? Most HSAs I’ve seen have got various mutual funds options you can invest in. If you’re using the technique we think is optimal, where you put the money in the HSA and then you leave it there, you let it grow, invest that in something that earns money over time, and then actually pay for your healthcare out of pocket. If you can afford to do both, you just pay for your healthcare needs out of pocket and that way, you’re getting the max tax deduction, and then you’re allowing the compounding from the returns and the investments to build and grow the HSA, and then you can consume it later in life when that compounding has really had time to work. It’s a pretty neat technique to use. If you can’t afford to do both, then still fund the HSA, hopefully all the way to the maximum, and then just use it to pay for those healthcare expenses that are eligible.

If you are near retirement, it really is critical as a credit union executive to begin planning your retirement years in advance, right? You’ve got to decide who your successor is, you’ve got to sort of test and prepare that successor. We’ve done a lot of work with credit union leaders near retirement. And we suggest you don’t do a core conversion just before retirement; we also suggest you don’t do an acquisition just before retirement. Those are difficult things to deal with all by themselves. And if you announce your retirement, it really changes the cohesiveness of your team. Your team may not function as well as it has historically when there’s that sort of competitive situation, if your successor is not clearly defined. So we suggest you get those things out of the way ahead of time, and do a lot of analysis on figuring out the timing of when you’re going to retire. Lots of stuff to think about, you know, you got bonus eligibility and whether or not you would get that. You got to pay out of annual leave and sick leave. Very often, we’ll see credit union executives retire and then have the annual leave and sick leave a payout in the following tax year. That’s when they’re retiring at year end. So the annual leave and sick leave come in the following year. And very often the executives will live on that the first year. If they also pay out the 457(b) in the year the annual leave and sick leave pay out; it creates this high tax year that can be really optimal for some strategies we’ll talk about in a minute. It creates this massive tax delta, which is the difference between your pre-tax income and your retirement income, that in credit union executives is higher than we’ve seen in any industry ever. And it’s a potent tool to use for retirement planning to say, okay, I see this really high tax year coming, I can be very strategic about my activities in those years to make sure to leverage the tax year when it’s here. And then if I’ve got a bunch of low years to take advantage of sort of the opposite things in those years. 

Two resources we built for you from our website,, is some reading material on the top mistakes credit union executives make with retirement. That’s a downloadable you can use to kind of identify some ideas we have from your peers, or maybe ideas not to do. And then there’s also a podcast episode we did called the Unique Opportunities That Secure Act 2.0 Provides, where we go over this same material I’m talking about. So now let’s switch to talk about personal related ideas for year-end planning. Wes, go ahead.

Wes Johnson  08:29

The next one I have is capital loss harvesting. This only applies to non-retirement accounts. Basically, if you have an investment that has gone down in value, it’s worth less than what you paid for it, you can sell it and book that loss on your tax return. Now you have to wait 30 days to buy that exact investment back. But you can immediately buy back something very similar. So for example, if you had a large cap growth fund, you sold it to book the loss, you can buy back a different large cap growth fund that same day and not violate the law; it’s called the wash sale rule. So you don’t have to be on the sidelines for 30 days but you capture those losses at the end of the year while you’re in a high tax bracket. You can carry them forward indefinitely. The exact opposite of that, and Doug kind of touched on this, if you are recently retired, there’s usually a few years after you retire where you’re in a very low tax bracket. And if your income is somewhere around $85,000 or lower of taxable income, your capital gains tax rate is at zero. So in those years, we oftentimes will implement capital gain harvesting, where you’ll purposefully sell something that has a gain just to book the capital gain on your tax return to take advantage of the fact that you’re in a low-income year and your capital gains tax rate is zero. Now, I do want to point out, the window where you have a 0% capital gains rate is usually very short but doesn’t have to be super short. But once you start pulling from your retirement accounts, that’s when your taxable income starts to jump up. And especially when you reach the age of required minimum distributions, then your tax bracket jumps up significantly, and you’re definitely not going to be in a 0% capital gains tax rate from that point on. So taking advantage of capital losses or capital gains is a big one.

Doug English  10:16

Yeah, it sure is. And again, with a tax delta we see in credit unions, it’s pretty amazing, right? You can go from being in a 20% capital gains bracket before retirement to zero capital gains for some years between retirement and required minimum distribution age, which is 73 for most folks these days. So that ability to say I’m going to purposely take income, I’m going to pull income to my return, instead of avoiding it like most of us do, I’m going to pull income because I got this window of no capital gains tax, really a pretty awesome thing if it applies to your situation. Another thing that comes kind of as part of that work is optimizing your income for Obamacare. Now, Obamacare, of course, is healthcare access for folks who retire, don’t have a major medical plan, and are not yet old enough for Medicare. So that’s a lot of you, a lot of credit union executives are in that circumstance. If you just have to go to the marketplace and buy health insurance in 2023, it’s about $1,100 a month per person for just sort of market-based insurance. That’s what we’re seeing with the executives we work with, that’s a ton—$2,200 a month for a couple for healthcare. Well, again, you can kind of strategize this, you can control the receipt of income. If you have multiple sources of plans, you’ve got a pre-tax like 401(k) and 457(b), you’ve got tax-free like collateral assignment, and then you might have capital gains assets like personal investments. If you have all of those tools, you can be really strategic about which one you take when. For Obamacare, the ideal income is about $50,000. You want to have about $50,000 in income and this year anyways, to have enough to qualify for Obamacare. But you really don’t end up paying virtually anything, like $100 a month to get healthcare. It’s probably not going to be as complete a coverage as you would get with the $1,100 a month or as what you had through the credit union. But it is a massive money saving opportunity available if you just have multiple plans and are strategic about when you spend each one. 

Another thing that comes from the massive opportunity of tax delta is the potential to fund charity in advance. Credit union leaders as a group are incredibly generous. And if you just kind of go about giving the amount you do to charity every year, using cash, you really miss out on a variety of strategies. You know, one of the simplest ones is to use appreciated securities to give to charity. So you sort of avoid those capital gains tax. But if you have done the analysis we suggest and project your income taxes for the rest of your life and figure out which one of your vehicles to spend each year, you probably are going to find some years with almost no income taxes. In those years, a regular charitable gift doesn’t make much sense because you’re not getting tax leverage. So if you know that’s coming, what you do is you frontload your charitable giving, find the high tax year or highest tax series of years and you can put the money into something called a donor advised fund, it’s sort of like a private foundation, not the same, it doesn’t have all those expenses but it feels a lot like it. You can put the money in whatever year makes sense for you, get the ordinary deduction on your tax return for your contribution that year, and then actually give the money to charity in those little to no tax years that occur early in a credit union executive’s retirement. So you get the deduction in the good year, and then you give the money to charity in the years you choose. And you don’t have to keep that entity there for in perpetuity or for a very long time. But the idea is if you’re in that 37%–39% bracket before retirement, get the deduction then, not when you’re in the 5% bracket in early retirement. 

Last idea is the 529 plan. The 529 plan is classically a college savings plan. That’s what folks think of it as, and in some states it comes with a tax deduction. For folks who are in states with a tax deduction, it’s a pretty compelling way to provide college funds for your children or for most of our listeners, I’m sure we’re talking about your grandchildren. Some of you may not yet have grandchildren or you want to sort of think more multi-generational. The unique thing about 529 plans is they don’t have an expiration date, unlike our Roth IRA or traditional IRA or 401(k) that has to be paid out at some point in time. A 529 plan doesn’t; you can put that pre-tax contribution in there, invest it, and let that continue to grow and compound for multiple generations, you can kind of have a dynasty 529 they call it, where that education fund is there available to provide funds for your grandchildren, your great-grandchildren. They’re a pretty interesting idea for you to include in your year-end planning. Wes, any final thoughts for our listeners on year-end planning strategies?

Wes Johnson  16:28

Just know that everybody’s tax situation is different. And you know, we rattled off a lot of stuff here. Some of it will apply to you, some of it will not. But if you have a full financial plan built out, you’ll easily be able to incorporate these things and know which ones apply to you and which ones do not.

Doug English  16:46

Awesome. Thank you, Wes. Thank you credit union leaders. Thank you for your service to this great movement. We are here to support you. Email us, call us if we can be of any help. And thank you for your service to the credit union movement.

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