You Filed Your Taxes? Now What?

You Filed Your Taxes. Now What?

Three financial moves North Idaho residents should consider right after tax season

Tax season is finished. The paperwork is done, the return is filed, and for most families that means it is time to close the folder and not think about money for a while.

That is a completely understandable impulse. But after 35 years of working with families across Coeur d'Alene, Hayden, Post Falls, and the surrounding area, we have noticed something. The families who make the most meaningful financial progress are not always the ones who earn the most. They are the ones who treat the weeks right after tax season as a planning opportunity rather than a finish line.

Here is why. Your tax return is the most complete snapshot of your financial life you will get all year. Your income, your investment activity, your retirement account contributions, your tax bracket, your withholdings. It is all right there. And it is fresh. The smartest thing you can do with that information is use it.

So let us talk about three things that are worth looking at right now, while the numbers are clear and the year is still new.

1.) Should You Be Thinking About a Roth Conversion?

For most families in North Idaho, the bulk of their retirement savings is sitting in traditional IRAs or 401(k) accounts. That money went in before taxes and it has grown before taxes. But it has never actually been taxed. Every dollar you pull from those accounts in retirement will be counted as regular income and taxed by the federal government. Idaho also taxes those withdrawals at its flat 5.3 percent income tax rate.

A Roth conversion is a way to get ahead of that. The basic idea is that you move some money from a traditional IRA into a Roth IRA, pay the income taxes on it now, and from that point forward it grows completely tax free. Qualified withdrawals in retirement are also tax free. And unlike a traditional IRA, a Roth does not require you to take money out at a certain age. You can let it keep growing as long as you want.

Why Right After Tax Season Is a Good Time to Think About This

When you do a Roth conversion you are adding income to your tax return for that year. So the question is always: what does adding that income actually cost me, and is it worth it?

Right after filing you have the clearest possible picture of where you landed this year. You know your income, your deductions, and your effective tax rate. That makes it much easier to model whether a conversion makes sense, how much you could convert without jumping into a higher federal bracket, and what the long-term benefit looks like.

For families who are between jobs, recently retired, or in a lower income year for any reason, the math can look especially favorable. You are paying taxes at a lower rate today to avoid paying them at a potentially higher rate later.

What This Means for North Idaho Residents Specifically

Because Idaho taxes traditional IRA and 401(k) withdrawals as regular income at a flat 5.3 percent rate, every dollar you convert to a Roth today is a dollar that will not face Idaho income tax when you withdraw it in retirement. For families who expect significant retirement distributions from traditional accounts, that is a meaningful consideration over a 20- or 30-year retirement.

One important note: Idaho does not tax Social Security benefits at the state level. So if Social Security will make up a large portion of your retirement income, the Idaho tax picture is more favorable than many people assume. The IRA and 401(k) piece is where the planning opportunity lives.

Questions to ask yourself about Roth Conversions:

• Is this a lower income year than I expect retirement to be?
• Do I have traditional IRA or 401(k) funds I have never paid taxes on?
• Am I concerned about required minimum distributions pushing me into a higher federal bracket later?
• Do I want to leave tax free money to my heirs?
• Have I modeled what federal and Idaho taxes will look like on my retirement withdrawals?

2.) Do You Know When You Should Take Social Security?

Social Security is one of the most valuable retirement assets most families have and one of the most consequential decisions they will ever make. When you claim it, how you coordinate it with your spouse if you are married, and how it interacts with your other retirement income all have a significant impact on your financial life for decades.

One piece of good news for Idaho residents: Idaho does not tax Social Security benefits at the state level. That makes Social Security income more valuable here than in states that do tax it. But the federal taxation rules still apply, and the timing decision itself remains one of the most important calls you will make in retirement.

The Basic Tradeoff

You can start collecting Social Security as early as age 62. But if you do, your monthly benefit is permanently reduced compared to what you would receive at your full retirement age, which is 67 for most people currently approaching retirement.

If you wait past your full retirement age, your benefit grows by about 8 percent per year up until age 70. After 70 there is no additional benefit to waiting. So the tradeoff is straightforward in theory: take less money sooner or more money later. But in practice the right answer depends on factors specific to your situation.

What Actually Drives the Decision

• Your health and life expectancy. If you have good reason to believe you will live well into your 80s or 90s, waiting tends to pay off significantly. If you have health concerns, starting earlier may make more sense.

• Your other income sources. If you have enough income from savings or part time work to cover expenses in your early retirement years, waiting on Social Security can be a smart strategy.

• Whether you are married. For couples, the decision gets more complex. Coordinating when each spouse claims, particularly when there is a meaningful difference in benefit amounts, can add up to tens of thousands of dollars over a lifetime.

• How Social Security affects your federal taxes. Up to 85 percent of your Social Security benefit may be subject to federal income tax depending on your combined income. Understanding how this plays into your overall federal tax picture matters when planning withdrawals from other accounts.

This is one of those decisions that looks simple on the surface and gets complicated fast. The families we work with who feel most confident about it are the ones who modeled it out thoroughly before making the call, not after.

3.) When Did You Last Really Look at Your Investment Portfolio?

Your tax return gives you a clear picture of what your investments did last year. Capital gains, dividends, interest income. It is all there. And for a lot of families, that is the most honest look at their portfolio they get all year.

Right after tax season is a natural time to take that information and ask a few bigger questions.

Does Your Portfolio Still Match Where You Are in Life?

Investment portfolios have a way of drifting. Markets move, some holdings grow faster than others, and the mix you had three years ago may look very different today without you ever making a deliberate change. A portfolio that was appropriate when you were 52 may not be appropriate at 58 or 62.

The general principle is that as you get closer to retirement, you want to be more intentional about how much of your money is in investments that can drop sharply in a short period of time. Not because growth does not matter anymore. It does. But because you have less time to recover from a significant loss, and because a big drop early in retirement can be especially damaging.

This does not mean moving everything to cash or bonds. It means making sure your mix of investments is intentional and matches your actual timeline and goals, not just what you set up years ago.

Are Your Accounts Set Up in a Tax Efficient Way?

Where you hold different types of investments can have a meaningful impact on what you owe in taxes each year. The general idea is that investments generating regular taxable income tend to be better suited for tax deferred accounts like IRAs. Investments with the potential for long term growth may be better held in taxable accounts where gains are taxed at lower capital gains rates.

This concept is called asset location and it is one of those things that does not make headlines but quietly makes a real difference over time. If you have never thought about it, your tax return is a good place to start.

Did Last Year Raise Any Questions Worth Planning Around?

Sometimes a tax return surfaces a surprise. A larger than expected capital gains distribution. A higher income year that pushed you into a new bracket. An RMD that was bigger than you planned for.

Each of these is worth understanding not just as a past event but as a planning signal for the year ahead. The earlier in the year you address them the more options you have.

A simple post tax season portfolio checklist

• Does my current mix of investments match my timeline to retirement?

• Did I realize any large capital gains last year that I should plan around this year?

• Are my investments held in the most tax efficient accounts?

• Have I looked at my overall asset allocation recently?

• Am I taking on more risk than I actually need to reach my goals?

The Bottom Line

Tax season ending is not just an administrative finish line. It is a planning starting line. The information is fresh, the year is ahead of you, and the decisions you make in the next few months can set you up meaningfully better for the year and the years beyond it.

None of these conversations need to be complicated. A good financial advisor can help you look at your return, understand what it is telling you, and figure out what, if anything, is worth acting on. That is exactly the kind of work we do every day with families across North Idaho.

If your tax return raised any questions this year, or if you just want a clear picture of where you stand heading into the rest of the year, we would love to have that conversation.

This article is for educational purposes only and is not personalized investment, tax, or legal advice. Tax strategies and retirement planning involve decisions that depend on your individual situation. Please consult a qualified financial professional before making investment or tax decisions. Alpha 3 Wealth Management is an investment consulting firm serving North Idaho. Securities and Advisory Services offered through Centaurus Financial, Inc., member FINRA/SIPC, a Registered Investment Advisor. Centaurus Financial, Inc. and Alpha 3 Wealth Management are not affiliated companies. Best of North Idaho recognition is based on reader voting.

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