NerdWallet's Smart Money Podcast - How Tariffs Could Impact Your Retirement and What to Know for 2025 Taxes

Episode Date: March 6, 2025

Learn how to respond to market volatility, the risks of private credit investing, and key tax updates for 2025. Should you adjust your 401(k) amid uncertain market conditions? How do you decide between the standard deduction and itemizing on your taxes? Hosts Sean Pyles and Elizabeth Ayoola discuss stock market volatility and tax season essentials to help you make smarter financial choices. NerdWallet senior news writer Anna Helhoski and investing writer Sam Taube, join Sean and Elizabeth to discuss recent stock market swings, covering how new tariffs on major trade partners are affecting the economy. They provide insights into why markets react to policy changes, the risks of panic-selling investments, and strategies for how you can maintain a steady financial course through uncertain or turbulent times.  Then, NerdWallet tax writer Bella Avila joins Sean and Elizabeth to answer listeners’ burning tax questions, including explaining key filing deadlines, recent tax bracket changes, and when it makes sense to itemize deductions instead of taking the standard deduction. NerdWallet’s federal income tax calculator: https://www.nerdwallet.com/calculator/tax-calculator  Use NerdWallet’s dividend calculator to estimate your long-term returns and tax liability on a dividend stock, assuming dividends are reinvested: https://www.nerdwallet.com/calculator/dividend-calculator  Learn about qualified and nonqualified dividend tax rates: https://www.nerdwallet.com/article/taxes/dividend-tax-rate  In their conversation, the Nerds discuss: stock market volatility, private credit investing, how to invest in private credit, retirement account changes, investing during a downturn, tax season 2025, tax deadline 2025, tax filing tips, tax brackets 2025, standard deduction vs itemized deduction, IRS Free File, Direct File IRS, how to file taxes for free, Roth IRA contribution limits, how dividends affect Roth IRA, reinvested dividends and taxes, backdoor Roth IRA, qualified vs ordinary dividends, investment risk tolerance, impact of tariffs on stock market, shadow banking, alternative investments, investing in private credit, tax changes for 2025, how to estimate tax payments, how to avoid tax penalties, and e-filing vs paper filing. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

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you train smarter. There's also a free Zep app you can pair it with to get in-depth analytics and downloadable maps you can use with turn-by-turn directions. And it has Zepflow AI voice control, so you can check stats hands-free. And don't worry about battery life. The Amazfit Active 2 runs up to 10 days on a single charge. If you want a smartwatch that delivers more for less, then visit amazfit.com slash smart money to get 10% off. That's amazefit, A-M-A-Z, fit.com slash smart money. Sean, I hope you did not look at your retirement funds this week. You know, Elizabeth, I actually just checked

my 401k balance and it is certainly lower than it was a couple of days ago, but I'm trying to do a little bit of exposure therapy and practice what I preach, realize that the markets go up and down and don't make rash decisions based on what's happening from one day to the next. That's for sure. And I've been doing the same. So let's hear a bit about what's going on over on Wall Street and some tips for making

smart investment decisions. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola. This episode we're talking about, dun dun dun, taxes. We've got a lightning round of your tax questions as we approach the sure signs of spring. Tulips, cherry blossoms, and the IRS deadline. But first, our weekly money news roundup, where we break down the latest in the world

of finance to help you be smarter with your money. Alright, Sean, so we'd all be forgiven for sticking our heads in the sand this week and not paying any attention to what was happening with our 401ks and IRAs. I mean, honestly, it was a hot mess. It was, and it was by and large a reaction to the implementation of tariffs on Canada and Mexico and their retaliatory tariffs. Our news colleague, Anna Hilhosky, is here with more. Hey, Anna. Hey. So yeah, I did not look at my retirement account balances either this week.

I'm not sure about y'all, but I'd definitely like to hear about some ways to cope with the news so we don't become our own worst enemies. Agreed. So I'm joined now by our fellow NURBS Sam Taub, who covers all things investing and has a newsletter dedicated to it as well. Welcome, Sam. Glad to be back. We've been sort of joking about this, but would you agree that now is not the time to go wading into our retirement accounts trying to figure out whether to make changes while the market is swinging this way and that. It's definitely not the time to make any impulsive decisions. It can be tempting to panic when the market takes a dive like it has recently, but that's often the worst thing you can do.

All right. Well, let's start with a topic you've addressed in your newsletter, which is private credit and how and whether regular investors should get in on it. So first, what is private credit and how and whether regular investors should get in on it. So first, what is private credit? Private credit is a little bit technical to define, and I think the easiest way to explain it is by analogy. It's a little bit of a hike, but bear with me here. A lot of listeners have probably heard of private equity.

Private equity is kind of like stock, it's shares in a company, but it's shares of a company that hasn't gone public yet, like an early stage startup. It has the potential for much higher returns than what you'd get investing in the stock market, but it also comes with more risk. And since it's not publicly traded, you don't necessarily have the ability to sell whenever you want. Okay, still with you. And private credit is? If private equity is like a non-publicly traded stock, private credit is like a non-publicly traded bond. It's a fixed income investment

that pays interest income to investors, but it's issued by companies that aren't big enough or aren't established enough to borrow money the normal way by issuing publicly traded bonds. So private credit is to bonds as private equity is to stocks. You have the potential to earn much higher returns, a much higher interest rate

than you'd earn with conventional bonds, but there's also more risk and you have less flexibility about when you can pull your money out. And private credit is growing really fast, right? It really is. There was a McKinsey report last year that estimated the private credit market was worth about $2 trillion a year ago, and since then some other sources have estimated it at $3 trillion. It's really ramped up in the last few years. And why is that?

A lot of it has to do with regulation. During the late 2000s financial crisis, a lot of financial institutions got themselves into trouble with bad loans. And in the aftermath of it, we created a lot of rules on bank lending to try to prevent that from happening again. One side effect is that banks became much more reluctant to lend money to small or early stage companies. It became harder for those companies to issue bonds, which is part of the traditional corporate lending process. But, for better or for worse, people have found a loophole in these post-Great

Recession regulations, which is that they only apply to banks. They don't apply to other financial institutions like hedge funds and high net worth individuals who can act as non-bank lenders. So is this what people call shadow banking? Exactly, yeah. Shadow banking is an ominous but also frankly accurate term for unregulated lending, which is private credit. Now, private credit has grown really fast in recent years, partially because it provides this regulatory workaround to less established companies, but also because the returns are really good and

that's created a lot of investor demand. One investment advisor I spoke to told me that the returns on private credit average around 9% to 11% per year, which is a lot higher than what you'd earn with most investment grade bonds. So Sam, what are some ways that retail investors that is regular people can get a piece of this action? Should they decide that they like some in their portfolios? In recent years, some robovisor firms have started to offer private credit investments to customers. Of the robo-advisor's nerd wallet reviews, Titan has a private credit strategy and Fidelity does too, although Fidelity only offers it to accredited investors who have a net worth of a million dollars or more. On top of that, a few companies have recently launched private credit ETFs. These

give anyone the ability to invest in private credit, and they allow you to buy or sell whenever the markets are open, like any other ETF. What are some pros and cons of getting into the private credit space? The pros are pretty simple. Private credit potentially offers high returns and it also offers some diversification to a portfolio. There could be a case for devoting a small percentage of a portfolio to private credit if you understand the risks, but there definitely are risks. Such as? Well, as we talked about, private credit, the underlying loans here, are not publicly traded.

They can't be bought and sold at any time between 9.30am and 4pm the way that stocks and conventional bonds can. Some private credit investment vehicles, like Titan's robo-advisor offerings, will only allow you to buy or sell once per quarter. The new private credit ETFs don't have this limitation, but that's not necessarily a good thing. If a lot of people buy shares of these private credit ETFs and the ETF isn't able to buy a proportional amount of private credit loans, or if a lot of people sell the ETF and the ETF can't sell enough investments,

then the price of the ETF could really get untethered from the value of its investments. And what about regulation? Is the lack of regulation something to worry about? It very well might be. When I asked an investment advisor about the potential risks of investing in private credit, he pointed out that this is a very new type of investment that hasn't really been through a big crisis yet. And given that it's outside the guardrails of our post-2008 regulations on corporate lending, it's hard to say how bad a private credit downturn could get. We thought it was important to write about this topic in the newsletter, not just because it's this buzzy new thing that people might want to invest in, but also because

people might want to keep an eye on this sudden rush into an asset class that isn't really regulated at all. There's potentially money to be made in private credit, but there's also a lot of money to be lost potentially. And as private credit goes mainstream through ETFs, the risks and returns may both get higher. So one other question, Sam. What's going on with the markets now that President Trump's 25% tariffs on Mexican and Canadian goods have officially begun? Well it's 25% tariffs on Mexican and Canadian goods and also an additional 10% tariff on Chinese goods. It so happens that these are our three largest trading partners

and they've all announced or threatened their own retaliatory tariffs. Our tariffs create new costs for businesses that import things and those costs are either going to eat into corporate earnings or get passed on to consumers as higher prices or both. The market really doesn't like that, especially because we've already been struggling so much with inflation in the last few years. And what about those retaliatory tariffs? Those make it harder for U.S. exporters to sell things abroad, and the market really doesn't like that either.

But it seems like these tariffs aren't exactly a surprise. President Trump talked about them a lot on the campaign trail, and he's been pretty clear that he was going to do this since he got back into office. So why is the market just selling off now? You know, I don't know if there's a completely logical answer to that question, but basically, people thought the tariff was just a negotiating tactic, and that is something Trump is known to do sometimes. When he first got inaugurated, he threatened these same 25% tariffs on Canada and Mexico,

but then he got some concessions from those countries and suspended the tariffs. Up until a few days ago, I think the market expected Trump to produce some other last-minute Deus ex machina, but this time he didn't. The tariffs have gone into effect. He seems to have actually meant it this time. Is there still some possibility that we'll reach a deal and the markets will go back up? Anything's possible. As we've discussed, investors seem very quick to say, oh, well,

Trump probably doesn't mean it. So if there is some news of major new concessions from Canada or Mexico or another delay from Trump, we could see a rally in stocks. Now, does that make sense in the long term? That's a more complicated question. It's hard to say what this means for America's trade relationships in the longer term. It's pretty safe to say that our biggest partners don't like all this drama, and it could hurt our ability

to make new deals going forward. We're just going to have to wait and see. All right, Sam Taub. Thank you so much for your help today. Always happy to come on. And thank you, Ana. You got it, Sean. Up next, we answer a listener's question about taxes as we barrel towards April 15th. But before we get into that,

a reminder listener to send us your money questions, leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or you can email us at podcast at nerdwallet.com. Maybe you need some help planning the best way to use your credit card points as you book your spring and summer travel. Or you're trying to figure out whether you should revisit your investment risk tolerance.

Whatever your question, leave us a voicemail or text us on the Nerd Hotline at 901-730-6373. That's 901-730-NERD. Or email us at podcastatnerdwallet.com. Now let's get to this episode's money question. That's coming up in a moment. Stay with us. Today's episode is sponsored by Range Rover Sport. Some decisions in life require careful research, like picking the right investment strategy or figuring out which streaming service actually has the movies you want.

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nerd wallet tax writer, Bella Avila. Welcome back to smart money, Bella. Thanks. I'm happy to be back on. So Bella, let's start with the basics, the who, what, where, and when of tax season 2025. As in, when do people need to make sure they get their taxes in? Tax Day is Tuesday, April 15th this year. That's the last day people have to file their taxes before penalties and interest start to stack up. There are some exceptions to this deadline. For example, people affected by federally declared natural disasters, like the wildfires

in LA, get more time to file and pay taxes. So what advice do you have for the procrastinators out there who might not make that April 15th deadline? If you don't have all your paperwork sorted out by that April deadline, remember that you can always request an extension by tax day, which pushes out your filing deadline six months to October. But this extension is only to file your return, it's not an extension to pay your taxes. You still have to send an estimate of what you owe to the IRS by April 15th.

Estimating your taxes includes finding your total gross income from the last year, factoring in things like credits and deductions and more. Using an online income tax calculator, like nerdWallet can help simplify the process. I love that you added that people have to still pay their taxes because I will not lie, I might have forgotten that part. And also good suggestion on the calculator, Bella, I'm a calculator girl. So for everyone listening, we will have a link to NerdWallet's federal income tax calculator in today's show notes. Or you can just search in Google or whatever search engine you use,

NerdWallet tax calculator. Yeah, go check that out if you're interested. And the last deadline related thing I'll touch on is if you're due a refund, there's no penalty for filing late, but you might want to file on time anyway to get your money back sooner. And although you might not be penalized for filing late, you may still be obligated to file a return based on the IRS's rules. Alright, so are there any big changes this year that people should be aware of? Every year the IRS makes what we call inflation adjustments, which means things like the tax brackets, standard deductions, certain tax credits, and more are shifted. And these shifts tend to work out in the favor of us taxpayers.

We can dive into how that plays out starting with tax brackets. Although the seven income tax rates don't typically change year to year, tax brackets do. For example, last tax filing season as a single filer, the first $11,000 of your income would have been taxed at 10%. Whereas this filing season, the first 11,600 is taxed at 10%, keeping more filing season, the first $11,600 is taxed at 10%, keeping more of your income from reaching that higher tax rate. And then I also want to touch on how the standard deduction has changed this year.

We can use that same single file or example. Last year, if you took the standard deduction, you would have gotten a $13,850 deduction, whereas this year under the same circumstances, you'll get a $14,600 deduction. This means an extra $750 of your income isn't subject to tax. So last year we talked about the IRS's free tax filing program. Bella, what's the current status of that? Is it still intact after the slicing and dicing of the federal government that we've seen over the past several weeks? As a refresher for listeners who might not be familiar with the program,

the IRS debuted its own tax filing software last year called Direct File, and it piloted it in 12 states. Despite some confusion about whether or not Direct File is still up and running this filing season, I can assure you it is. And it's more widely available than it was last year, having more than doubled the number of states where it's available to 25.

So even more people who have fairly simple tax situations may have the opportunity to file their taxes for free this year. I also wanted to call out the IRS Free File Program as another option for people to file at no cost. The IRS partners with tax prep companies each year to give eligible taxpayers access to free software. Which forms and credits are supported can vary by provider, but anyone who had an adjusted gross income of $84,000 or less in 2024 might qualify.

Bella, we often talk about the importance of filing your taxes early. Can you give our listeners, especially the procrastinators out there, a couple of big reasons to file before April 15th? For sure. So tax software often becomes more expensive the closer it gets to the tax filing deadline. We call this surge pricing. A package that was $30 in February might run you $50 in April. So if you want to get the best deal, filing early generally guarantees you better prices

than if you wait until the last minute. And if you want to get your hands on your refund sooner, that's another reason to file early. It generally takes the IRS about three weeks to process refunds for e-filed returns. So waiting to file until the last minute means you might not get your refund until early May. And I'll also say that e-filing your return

will get you your refund faster than if you mail it. So try to avoid the pen and paper. I will say a refund and saving money sound like great incentives to me. Let's turn to a couple of questions that we got from listeners about taxes. Here's the first one, which comes from Diana. Hello, I've been trying to max out my Roth IRA,

but I'm worried that I will hit the cap on MAGI, so won't continue to be able to put money into it. The problem is that although my salary is not close to the limit, my brokerage account dividends are is not close to the limit, my brokerage account dividends are putting me closer to the limit. I don't understand why the dividends get reported on taxes since I haven't ever taken the money out. I also don't understand the difference between ordinary and qualified dividends. Lastly, I don't understand how

it will work later for taking the money out since some of it was included in my taxes now and some was not. I've been just putting money in for the future but don't know how to actually take it out later. Thanks, Diana. So, Bella, can you explain what might be happening with Diana's situation and how reinvested dividends might make someone's income above the limit to contribute to a Roth IRA? Absolutely.

I won't put our listeners to sleep by diving into the nuances of what makes a dividend qualified or not, but the taxes team does have an article on this for those who are interested. The highlights are that it generally must be paid by a U.S. corporation, the IRS must consider it a dividend, and you must have held it for a certain amount of time. As for why reinvested dividends might put your income over the allowed limits to contribute to a Roth IRA, the IRS considers dividends taxable income. Even if they were reinvested and you didn't receive them in cash, you still have to report them as income on your tax return. Yeah, that's a little thing called phantom income.

The IRS considers you to have received this income even though you never saw the cash hit your bank account. So the income is there, but it's also kind of not there like a phantom. So Bella, how can folks like Diana contribute to a Roth IRA if that's their goal, even if their income might push them past the limits? If you think that dividend income from your brokerage account might continue to be part of your tax situation and put you over those income limits to contribute to a Roth IRA, you might consider looking into opening a traditional IRA which doesn't have income limits for contributions and taking the backdoor Roth IRA approach. And lastly, you won't pay taxes

when withdrawing contributions from your Roth IRA because you've already paid them upfront. But whether you'll pay taxes or penalties on earnings generally depends on age and how long you've held the account. I think backdoor Roth IRAs are like a gift because they sound too good to be true, but they're actually true. So thanks for that, Bella. Exactly. All right. So another question we often get from listeners is about whether they should take the standard

deduction or itemize. Can you explain to the people the difference and why someone might choose to do one or the other? To back up a little bit in case some listeners might not know the difference, the standard deduction is a set amount the IRS lets you shave off your taxable income and most people qualify for it. When you itemize your deductions, you forego that standard deduction and instead tally up all your individual expenses throughout the year that the IRS considers deductible.

Popular deductions include those for medical expenses, property tax, and mortgage interest. When it comes to choosing between the two options, you'll want to run the numbers both ways to see which one gets you the bigger deduction. And luckily, good tax software or a tax preparer will do that for you. Bela, any other words of wisdom for folks as they embark on tax season 2025? Research is key. Maybe that looks like seeing which tax credits you qualify for to ensure you get the biggest refund or minimize what you owe.

Or maybe it's comparing which tax software would do all the work for you behind the scenes. But in any case, there are many good resources out there that make brushing up on your taxes knowledge easy. So with that, happy filing everyone. Thank you. And Bella, Elizabeth, I have one last question for you. Have you guys filed your taxes yet?

Ha ha, I'm not answering that. Ask me again next week. I'll take that as a no. Okay. Well, I'm happy to brag and say that I have filed my taxes. Good job, Sean. We're learning from you. Thank you.

I tried to set a good example for everyone. Well, Bella, thank you so much for coming on and sharing your insights with us. Thanks for having me. That's all we have for this episode. Remember, listener, that we are here to answer your money questions. So turn to the nerds and call or text us your questions

at 901-730-6373. That's 901-730-NERD. You can also email us at podcastatnerdwallet.com. Follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes. This episode was produced by Sean and Tess Vigeland. Hilary Georgi helps with editing.

Megan Morrow mixed our audio. And a big thank you to NerdWallet's editors for all of their help. And here's our brief disclaimer. we are not financial or investment advisors. This nerdy information is provided for general, educational, and entertainment purposes, and it may not apply to your specific circumstances. And with that said, until next time, turn to the nerds!