As a new year gets started and those New Year’s resolutions start taking shape, scheduling a financial wealth check-up should be a high priority — even if you don’t think you need one.

Kim Dignum of Dignum Financial Partners sat down with 360West to talk about the importance of doing regular wealth check-ups and different factors that can affect long-term financial health, including estate planning, tax harvesting, Roth IRAs and federally required minimum distributions.

Dignum is a fee-only planner with more than 35 years in financial planning and investment management. Dignum Financial Partners has about $325 million in assets under management and her average client tenure is 27 years.

Dignum meets with clients at least twice a year and encourages others to meet with a financial advisor regularly, given the financial world and tax laws are constantly evolving.

“I think it’s critical that people of substantial wealth have an advisor that they work with for exactly that reason, because this is a full-time job to keep abreast of all that,” Dignum said. “If they’re doing other things and trying to do it, something’s going to get forgotten.”

The conversation has been edited for clarity and brevity.

360West: When you’re helping someone plan for retirement, what is your approach? 

Dignum: When we’re working towards retirement, we like to have three buckets. You have your tax-free bucket, which is your Roth. You have your taxable, and that’s your qualified plans. Then we have the earnings only, and that’s your individual or your joint account. The more balanced those three buckets are, the easier to do tax planning every single year contingent on what the tax laws are. The problem is the majority of people have more in that fully taxable bucket. And that’s because they put so much money away in their 401Ks, IRAs, etcetera. We really like to look at a balance between Roths and taxable.

360West: Estate planning is something people might not think about unless they have a major life event. Why should people do yearly estate planning?

Dignum: That’s the No. 1 thing that people either procrastinate just from the get-go or say ‘Oh, I’ve got that taken care of. I can check that box.’ It’s evolving. Tax laws are changing all the time. It’s really important that you keep up. You may not have had a child, but you may have a sibling that all of a sudden you have to take care of. You may have a parent that has gone into a nursing home. There’s any number of things that happen that impact your estate plan.

360West: You mentioned tax laws are changing. What’s the biggest impact you’ve seen because of that? 

Dignum: The biggest one coming is in 2025. The tax laws are going to sunset. So back when (President) Trump was in office, we had a major tax change. The estate tax exclusion is one of those (affected). It’s going to resort back to a much lesser amount than it is right now. So people may say, ‘Oh, well, you know, I don’t have a $20 million estate,’ but they may have a $10 million estate or an $8 million, so they will be impacted. A lot of people are not aware that it’s going to sunset.

360West: What does the sunset law mean for people doing estate planning?

Dignum: They’re going to have less exemption. People are obviously on a cycle to grow their wealth, which means their estate’s probably gone up and their exemption’s going to go down. So, it’s a catch-22.

360West: With the recent rising interest rates, are people looking to invest more in stocks than bonds? 

Dignum: The Fed was incredibly aggressive to get a hold on inflation, and we’re starting to see the impact of that. It’s not like if they raise a rate, we see the impact tomorrow. It takes some time to circulate through the economy. We’re seeing kind of a leveling off, and eventually rates are going to start to go back down again, which is a sweet scenario if you own bonds.

360West: In what situations would it make sense for an investor to consider tax harvesting? 

Dignum: Great scenario — I had meetings with different clients. They’re both about ready to retire so they have significant income right now. You want to do as much tax harvesting this year as possible so you can shift or have gains in the following year when you’re going to be in a lower tax bracket. I think we’re in probably some of the lowest tax brackets we’re ever going to be for my generation. We’ve always been taught to kick the can down the road, kick the can down the road kind of syndrome. I’m seeing and recommending a lot of clients do some Roth conversions right now.

360West: What is the benefit of converting to or having a Roth IRA?

Dignum: The biggest benefit is it’s reducing the balance in this (taxable) bucket. When they get to the required minimum distribution (RMD) phase, they have to take out so much and it may be more than they need for their cash flow purposes. That’s taking a big chunk out that they’re going to be taxed on.

360West: When do individuals have to start paying RMDs?

Dignum: Right now, it’s at age 73, and it’s been a moving target. It was 70 ½. Changed again to 73, it’s projected to go up to 75. People are very confused about that one also and that’s why that’s an important thing to look at. It is the biggest penalty the IRS imposes. If you do not take your RMD, it’s a 50% penalty. That’s huge. And there’s an ambiguity in the law right now. They changed it a couple years ago where if you inherit an IRA, under most circumstances you have to take it out over a 10-year period. The IRS didn’t say you take a tenth. They didn’t say you had to take some. It just has to be liquidated by the 10th year. And so that ambiguity is creating all kinds of problems.