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Okay. We're deep into December, and the window for smart year-end tax planning is closing quickly. Hi, I'm Rob West. Taxes may not top your Christmas list, but they're a reminder that God has provided. And wise planning helps us to honor Him with what He's entrusted to us.
Kevin Cross is here today to walk us through the most important moves to make before December 31st as we head into 2026. And then it's on to your calls at 800-525-7000. That's 800-525-7,000. This is Faith in Finance, biblical wisdom for your financial journey.
Well, my good friend Kevin Cross is an experienced CPA who's helped countless families navigate their taxes with confidence.
So there's no one better to guide us as we approach year end. Kevin, great to have you back.
So good to be back, Rob. Kevin, let's begin with charitable giving, something that's always important to our listeners. What should they be thinking about between now and December 31st?
Well, they did increase the standard deduction.
Okay. And of course, the salt limitation. You know, now we get to deduct $40,000 in state and local taxes.
Okay. Now, you're probably going to be able to itemize, though.
So, whatever you give this year, you're probably going to file that old proverbial long form.
So, go ahead and make some contributions this year by December 31st. And say you say, well, I'm never going to make it. My standard deduction is still too high. Let's bundle them. Let's do two years' worth.
And if you don't have an organization to give to right now, open a donor-advised fund. We always recommend that. And that is the most fun fund you can ever have because it's a foot race to put as much money in there as possible. You can also have it invested short term so you can grow it. Yeah.
And with this new Trump child tax. Savings account? Yep. Guess what? You can donate from your donor-advised fund into that.
Really? A lot? I didn't know that. Yeah, no, it's so brand new.
Well, we can't do anything until 2026. But if you have a kiddo, say grandkid, 25, born this year, 2025, until 2028, the president's given a thousand bucks. The kiddo has a nice little bank account open, and you can contribute up to $5,000 a year. Here's the kind of the cool little tickers that people aren't telling you yet about. You can give $2,500 from your business.
Tax. Free.
So the kiddo gets the $2,500, the business gets the write-off for $2,500, which is mind-boggling. The phones will be starting to ring and be like, Did you? Are is it really tax deductible for my kid or my grandkid? Yeah, we need to make an accountable plan. We need to do all the paperwork for the business.
But the other thing for the rest of us. Who might want to open a donor advised fund, which say $10,000, $20,000. And we want to give some of that money, not just to our favorite charities, but now we can give it to our, well, our grandkids might be our favorite charity, but they shouldn't be more important than our favorite charities. But now we can give it to them.
So donor advised fund to Trump Child Account. Starting next year, starting in 2026. You can't do anything until then. That's amazing. It's amazing.
So everybody starts Googling that, and you'll be like, wow.
So that's one of the qualified organizations that can give. It's nuts. It's wonderful. It's wild. Yeah.
Well, you're going to want to open that today. I call it a charitable checking account. As Kevin said, it's a fabulous way to give. And I would encourage you to do it at the National Christian Foundation. That way, you'll ensure that you'll always be able to give to the Christian ministries and charities that you're interested in.
Just go to faithfield.com/slash NCF. Let's talk quickly about the qualified charitable distribution, Kevin. It always amazes me how people 70 and a half or older don't know about this incredible tool. It is true. Russ Crossin, who was with Ron Blue Company, we spoke just about a month ago at a big local church, and we talked to the senior ministry and we talked to them about giving.
Through their retirement funds. I would say that probably 80% didn't know they could do that, number one. And number two, they could take their required minimum distribution because unfortunately, as you get older, you hit the 70s, 73 now, you're going to have to take what's called a required minimum distribution. The IRS requires you to take money out of your retirement account and pay tax on it. You can give all of that money to a charity or to your donor-advised fund and not pay any tax.
It is the best write-off in the world. And somebody might say, Well, it's only about six grand, it's only about 10 grand. I'd like to give more to my favorite charity.
Well, guess what? You can give as much as you'd like out of that retirement account up to $100,000.
So let's do it. Let's do it. I love it. If only Kevin was a little more excited about taxes and giving and your opportunity as a steward. Buddy, we're going to have you back real soon.
Great stuff as always. Thanks for being here. Oh, man. Thank you. That's Kevin Cross, CPA, my good friend and enrolled agent.
He joins us regularly. You can learn more about Kevin and his work at kevincrosscpa.com. All right, a quick break and then back with your questions after this: 800-525-7000. Stick around. I was in ministry full-time and I was always looking for a way to integrate my faith with this new industry around money and finances.
This is Mark. He is a certified kingdom advisor. As a CKA, one of the best things I offer my clients is trust in knowing that they're working with a professional that understands their values. And I think in all of the different challenges that clients go through, if we can go back to trusting in God, then He'll make the path straight. You can find an advisor like Mark at findaca.com.
Are you looking to maximize your charitable impact this season? The National Christian Foundation has a smart solution. It's called a Giving Fund, and it helps you give more strategically, grow your balance tax-free, and amplify your charitable impact. If you want a donor-advised fund that aligns with your values, open a giving fund today and start making a bigger difference for the causes you love. Learn how at faithfi.com forward slash NCF.
Great to have you with us today at Faith and Finance. I'm Rob West.
Well, today we're going to be taking your calls and questions.
So, there's something going on in your financial life that you'd like to talk about, we'd love to chat about it with you, help you think about it in light of biblical wisdom, making God your ultimate treasure, but recognizing there are very practical insights in God's word that relate to how we manage money. Yeah, we need to see God as owner of everything and accept our role as stewards. Yes, we need to understand that our spending reflects our values and that we can see as a result of how we spend money what's important to us. It tells a story. You know, it's not just that our heart follows our money.
If that were true, the Pharisees would have been the most devout. No, it's that our heart is revealed by our money. You know, how we handle money, how we hold it, whether it's loosely or tightly, how we give it, how we invest it, is a Revealer of the heart. The late Larry Briquette used to say: money management is the clearest indicator into what's going on in our lives spiritually. Wow.
Stop and think about that for a moment. And perhaps that should be a challenge to us to take a step back and say, wait a minute, maybe the way I'm handling money doesn't reflect what I want to be important to me. And so maybe some changes are in order. And we need to ask ourselves that periodically. But the other thing we find in God's word is these practical principles that we can apply to modern financial decision making.
The fact that we shouldn't co-sign, that we need to be careful about how we use debt, that we should seek wise counsel, that we need to pass wisdom before wealth because wisdom is the only thing that is preserved. In terms of wealth is fleeting, wisdom is not. And so we need to make sure that we're preparing the next generation. And we need to count the cost and look at the ant and see how she gathers in the harvest for the financial. For the winter that's coming, looking at the model that Joseph presents as he saved in a time of plenty, for a time of famine.
All of these principles can apply to how we manage money today. And if we boil it all down, once we recognize that God owns it all, we spend less than we earn, we avoid the use of debt. We have some long term goals because the longer term our perspective, the better the decision we're going to make today. We have some liquidity or some margin. We have something left over at the end of the month.
That's the only way we're going to fund our longer term goals beyond the here and now. And then finally, we give generously. And if we do those five things, that's not a get-rich-quick philosophy. It doesn't mean you'll be free from any financial calamity, but it does mean that you're heeding the counsel of scripture, you're understanding God is your provider, and then you're putting yourself in a position to experience God's best, where money is a tool. It's not the end, it's a means to an end.
It should be something that brings enjoyment, not frustration.
Well, if you've got some questions today, something going on in your financial life, it could be debt-related, maybe it's giving, perhaps it's investing, saving for retirement, whatever it might be, call right now. We'd love to chat about it. 800-525-7,000. Again, that number is 800-525-7,000. All right, let's dive in.
We're going to begin today in Fort Wayne, Indiana. Anthony, go ahead, sir. Hey, Rob, how you doing? Doing great. Thanks for your call.
I was calling. I have about 135,000 in my full 1K. And my home is about one hundred thousand. and some change but uh i was thinking you know would it be a good idea to Cash out my 401k to pay off my house. What do you think about that?
Yeah, good question. You know, in most cases, Anthony, I would say cashing out a 401k at age 56 or really any age during your working years to pay off a mortgage is generally not advisable, mainly because of the taxes and the penalties and then the lost, what we call opportunity cost.
So let me unpack those. First, taxes and penalties. Since you're under 59 and a half, the IRS would charge a 10% early withdrawal penalty on the $130,000, unless you separated from your employer and you could use what's called the rule of 55, you would have that 10% early withdrawal penalty. And then the full amount withdrawn would also be added to your taxable income, your ordinary income, likely pushing you into a higher tax bracket.
So let me give you an example. If you're at the 22% marginal tax rate, that's $28,600 in Federal. Tax plus a $13,000 penalty.
So that could be $41,000 in taxes and penalties.
So you'd only net about $88,000, not enough to pay off the $100,000 loan. Then we've got the opportunity cost.
So the $130,000 could remain in a tax-deferred environment and growing. And if the investments earn more than 5%, what you're paying on the mortgage, which is historically very plausible, in fact, I would say it's very conservative. If you look over the last, let's pick any time period, 100 years, when you factor in dividends and appreciation, the SP 500 has done north of 9% a year. And so, you know, that would really warrant you keeping both the 401k and the mortgage and then just. Really, trying to accelerate payments on the mortgage using after-tax cash flow if you want to be out of debt sooner.
And that could mean, you know, at a minimum, trying to make one extra payment a year. If you could do more than that, that's great.
Now, if rates drop, you could look at refinancing the 5% loan, but I don't expect you to, you know, I'd want you to save a point and a half, which means rates would have to get down to three and a half, you know, worst case, four percent before it would make sense for you to refinance. And I don't see that anytime soon.
So if it were me, I would just, unless the Lord's just really giving you a conviction to be debt-free as soon as possible. And then I would say, follow the leading of the Lord. But apart from that, I'd probably prioritize trying to pay it off as you can with extra principal payments and then keep that 401k invested so that you have that nest egg 10, 20 years from now when you need to convert that to an income stream. Does that make sense? Yes, it makes yes, very good sense.
I was also thinking that if I had pulled it out, yes, it would take about the Um There will still be some money in there. That's what I'm saying. Just like my 35, I wasn't taking the whole thing out, but try to pull $100,000. I know they would pull like a $30,000 off of that. Yeah.
go that route. Yeah, and the challenge is that if you did that, you wouldn't have the full $100,000.
So, even then, if you don't pay it off in full, you don't reclaim that mortgage payment, which could be key to you accelerating savings to try to make up for what you've taken out.
So, I just think that tax bite is too high, not to mention the opportunity cost of having that money in a tax-deferred environment, which you could not easily replicate because there's contribution limits moving forward. And so, keeping that in that tax-deferred environment for that to grow over the next, let's say, 15 years, that's going to be a meaningful part potentially of your retirement plan. And so, you know, I would probably, if anything, I would probably say, okay, when do I expect to retire? And let's just pick a number. Let's say it's 10 years from now.
What you might do is run an amortization schedule, and you can find an amortization calculator online for free that would tell you, okay, Okay, if I want to be debt-free, including my home by the time I retire 10 years from now, how much would I need to send extra beyond my scheduled monthly payment so that when I retire in 10 years, you know, at the same time I'm retiring, I'm making that last mortgage payment. That would be an interesting exercise for you. And then let's see if you can orient your budget such that you could do whatever that is so that you know, okay, by the time I enter retirement, my biggest expense, my mortgage payment is going to be gone, and I'm going to have my 401k and everything that that grows to over the next decade. I feel like that's kind of the best of both worlds. And that will help you solve for your lifestyle spending when that mortgage goes away.
Thanks for your call, Anthony. We'll take a quick break, folks, and then back with more of your questions. 800-525-7,000. We'll be right back. Are you looking for a better way to align your faith with your finances?
The Faith Phi app is here to help. With tools to track your spending, plan your giving, and grow in wise stewardship. You'll learn to see money not as your security, but as a tool for God's glory. Rooted in biblical principles, FaithFi equips you to trust God more fully and steward his resources faithfully. Download the Faithfy app today from your app store or visit FaithFy.com and click App.
We are grateful for support from Praxis Investment Management. Since 1994, Praxis has offered investment products designed to meet practical needs for everyday investors seeking to steward their assets consistent with their desire to promote positive social and environmental impacts. Praxis aims to bring a faith-based approach to ETFs, mutual funds, multi-fund portfolio solutions, and money market accounts, reflecting their 500-year-old Anabaptist Christian faith tradition. More information is available at PraxisInvest.com. Hey, thanks for joining us today on Faith and Finance.
We do have some lines open today. If you have a question, call right now, 800-525-7000. Let's go to Ohio. John, how can I help? Yes, I have a question.
The other day I was told about a fixed rate annuity. That's offering as a bonus Twenty two percent on top of your investment right off the bat. Does that sound like a good thing? Or? This is crazy.
Yeah, I mean, it sounds like a pretty big red flag. You know, a 22% bonus, I think, should immediately raise some caution. And in almost every case, that bonus is not what people think it is. You know, they don't give you that for free.
So, you know, the bonus could be applied to what's called an income benefit value. It's basically used in a formula. If you later take lifetime income from the annuity, it's not actual money in your pocket. And you pay for that bonus. Typically, annuities with big bonuses usually come with either long surrender periods or high fees for the income riders or strict withdrawal limits or maybe reduced.
Real returns. And usually, the bigger the bonus, the more strings attached.
So, if anybody's telling you you get 22% right away, or it's a guaranteed return, or you can't lose, I would say that's misleading at best and you know, deceptive at worst. Um, so you know, in your situation, I mean, I think what matters most at age 79 is. You know, liquidity, meaning you can get to the money if you need it. Simplicity, we don't want something overly complex, and that's certainly what this bonus annuity would be. And then lastly, you'd want protection of principal, something that's going to protect your money and give you a reasonable rate of return.
So I would say, just generally speaking, a fixed rate annuity with a 22% bonus, if you understood them correctly, is almost certainly not a good idea for a 79-year-old investor.
Okay. Well, thank you very much. All right, John. Kind of taking a load off.
Okay, good.
Well, thanks for your call today, sir. God bless you. Indiana is where Kelly's located. Go ahead.
Okay. Hi. My mother-in-law, who's still living, dated my husband five and a half acres out of a tract. of 13 acres, I think, total.
So he is thinking about selling his to his sister. And we were just wondering what kind of a tax rate would that be on the selling price? Is there an inheritance tax? How does that work?
Okay, yeah.
So when did he receive this and how did he receive it?
So she's living and then she just gave it to him as a gift? Yeah, he's here. I'll let him talk. Yeah, we went through the we went through a lawyer as a deed of gift.
Okay, yeah.
So it was a gift that she gave to you, and how long ago was that? That was earlier this year.
Okay. Yeah. And then have you, so your sister's looking at buying it at a market rate that. you know, whatever the the market rate is, or are you looking to give her a discount? I was hoping for a market rate, but she sh she has a realtor friend who said that what she's asking is reasonable.
Okay. Yeah. So essentially, what happens here is if she gave you the land while she's living, that's considered a gift, and her basis. Is your basis, meaning for capital gains purposes, whatever she originally paid for it, her cost basis passes to you, as opposed to, you know, if you receive it as an inheritance, you get a step up in basis to the market value as of the date of death. In this case, with a gift, you just essentially, you know, you bring her cost basis is now your cost basis.
And so then, you know, when you go to sell it to your sister, the sale is taxable.
So selling to a family member doesn't avoid taxes.
So you'd then report the selling price to your sister, your cost basis, which is your mom's cost basis, and then the difference between those is a capital gain. And if you sell it below market value, to be generous, the IRS would treat the rest, you know, the difference as a gift. And then the capital gain is going to be dependent upon how long you owned it. Um and your income level and how big the gain is. Um so that that basically that's what we're talking about here is a capital gain.
Um but his mom didn't buy the land. It came from His great grandfather gave it to his grandfather, his grandfather gave it to his dad. His dad passed away and the mom deeded it to the kids.
Okay. So, was she an owner on it with her husband prior to him passing away? No, it was it was my father's land.
Okay. So she inherited it from her husband? Uh, yes, I guess you could say that, he passed away and so everything went to her.
Okay. Yeah, you're going to need to talk to a CPA on that one because the thing you're going to need to understand is, you know, what is that actual cost basis for your mom? And because it was marital property, you know, that's where they're going to have to determine. And there's probably going to have to be an attorney involved. I wouldn't want to weigh in on this, specifically around, you know, did she actually receive it as an inheritance, essentially, and therefore she enjoyed that step up in cost basis?
Or because they were married, is it really marital property? And therefore, because it's just been gifted through these generations, does she somehow have a cost basis that goes back, you know, several owners, which could mean that it's very low? And, you know, so you have her cost basis, whatever that is. We've got to have somebody determine what that is. That's going to be ultimately what determines, you know, how much capital gain here.
The benefit is not only do you inherit her cost basis, but you also inherit her holding period, which means it's most certainly going to be a long-term capital gain, which is favorable. You know, it's probably going to be either 15 or 20%, but you're going to have to figure out her cost basis to determine how much tax is owed on a capital gains basis.
So I'd get with the attorney that helped to handle the estate and your CPA. I hope that helps, Kelly. Thanks y'all for your call. Hey, if you love the program, this is a great time of year to think about supporting listener-supported faith and finance this program. Your support helps us bring you this broadcast every day, plus, all the great resources we have to offer, including a brand new Faith Vi app that's coming.
In January. I can't wait for you to hear all about it. It's going to be. An incredible tool to help you on your stewardship journey right there in the palm of your hand on your smartphone. That plus our new devotional, our ultimate treasure that comes out in January.
That's just the first month of 2026. We have a lot planned for you, but we can't do it without your support. And right now, this month until December 31st, every gift is doubled until 1231.
So if you'd head to faithfi.com/slash give, every gift will be doubled. And a gift of any amount will ensure that as soon as my new devotional comes out in January, you will get a copy. Thanks in advance. Hey, big thanks to my team today. Sandy, Devin, Jim, and everybody here at FaithFi.
Have a wonderful day. We'll see you next time. God bless you. Bye-bye. Faith in Finance is provided by FaithBy and listeners like you.
