Good afternoon everybody. Thank you so much for joining me today uh to talk about how tax planning changes through the four changes of retirement. Uh so we’re going to talk about uh some tax strategies. This is not so much about filing taxes and uh you know uh things like that, but it’s going to be looking at tax advantaged accounts. Uh how do you save on not paying so many taxes based on different types of of withdrawals that you can do over time? But we’ll dig into uh the presentation about tax planning in retirement. But before I get into there, just a couple of housekeeping things is let’s get to uh first of all, we are not allowed to record these presentations. Just so you do know, uh we cannot record these and neither can any listeners. Uh we’ve had some other uh institutions try to record our presentations and that is certainly not allowed. So, um, it’s only, you know, if we do, uh, have any other questions in the future about this, if some people want to review the presentation again, I would be happy to do a one-on-one with you, uh, to go over anything we do. In fact, at the end of the presentation, I will be putting up a survey question, basically a one question. Would you like to set up a time to speak uh about your specific situation? So, uh, that will be certainly available to, uh, for you at the end of this presentation. I do have some upcoming presentations. I’ll be doing the seven things to do before you retire. Uh, very popular topic that I do Tuesday, June 16th, and that will be an evening presentation. Uh, upcoming webinars. I do have long-term care coming up. Uh, another, you know, certainly how long-term care has changed over the years. If you happen to have or know someone that has a policy from 20, 25 years ago, uh, you know, a long time ago and many times premiums have gone up or the benefits that you have are reduced from what you had originally signed up for or a combination of both of those. So, uh, talking about how long care how long-term care did work before and how policies are very different now, uh, to avoid any of those future problems from happening again. So, as we get into, uh, that coming up in on Wednesday the 1st, that is another 2:00 p.m. Central time in the afternoon, uh, you do have uh, access to some educational resources. You could see what other webinars we have. I am one of about 11 people or so that do these presentations. We usually have three to four presentations a week going at different times of the day, different days of the week. So hopefully there’s some, you know, an interesting topic that you would like to listen to and uh hopefully learn a little bit more about and we do various topics. I do myself probably about eight or nine different topics throughout the year. Some of them are repeated, but uh you do have access to some of our resources. Uh before we do get into the presentation, I will let you know that you do have access to the chat box or the Q&A box. Either one of those is just fine. If you do have a question, uh if you think of something, go ahead and type it in at any time and I will get to those questions at the end of the presentation. So if you think of a question, type it in and it’ll hold till the end there. So to get into the presentation uh first starting with a tax brain teaser. So Bill is retired and has taxable income of 58,688. So we could see based on that that he is in the 22% bracket. If you look on the box on the right, if you see that 22% go to the right of that between 50,41 and 105,700, that 58,688 in that range, this person is in the 22% bracket. This includes 45,000 uh of IRA income, IRA withdrawals, traditional IRA uh assumed, plus another uh 37,500 of social security income, and he goes into his IRA for an additional $1,000 for a concert road trip. So, he wants to take an additional,000 out. How much will he owe in taxes on that? We would think that that would be well he’s in the 22% bracket, but he might have to pay a little bit more. Now, it might not just be federal taxes on here. We’re going to get into why a little bit later on why is he paying a little over 40% in taxes uh on this extra thousand even though he’s in the 22% bracket. More on that to come in just a little bit. So, we’re going to get into savvy tax planning, how tax planning changes through four stages of retirement, seeking professional tax adv um advice. So, um I am not a CPA. I am not uh the qualified tax advisor that you might be filing taxes with. However, we’re going to be getting uh covering some tax strategies. If you do have very specific things on what this means to your specific tax brackets, speak to your qualified tax professional about that. So, traditional IAS that are tax deferred. Basically, money that goes into a traditional IRA has not been taxed typically, especially if it was even in a 401k. How did you put money in a 401k? It came through your paycheck before you paid taxes. So, it was pre-tax money going in. it was never taxed and it grows tax deferred growing growing growing and then you finally start to withdraw from a traditional IRA that’s when you have to pay taxes on those Roth IAS are after tax money going in meaning that you already paid tax on income maybe it’s in a savings or checking now you want to contribute to a Roth IRA you don’t get any other tax benefit you don’t get any deduction by putting into a Roth IRA however all the withdrawals, all that interest and growth that you will get over time is all taxfree. And then this does uh talk about also federal taxes is what we’re going to be touching on. Various states might have their own uh tax situations as far as taxable income or you know when we talk here in Illinois. I’m in Cook County where we might have property tax freezes if your income is below certain thresholds. We’re not touching much on that stuff. If I do a one-on-one conversation with you uh after this, then we can certainly talk more specifically about some of these other tax situations on how to plan for these in the future. Uh new complex world for re uh retirement planning, taxes in the accumulation phase, meaning that’s when you’re putting money into uh savings accounts or brokerage or IRA or 401ks. and then taxes in distribution phase when you start to withdraw from these accounts. Typically, you’re not getting child tax credits as a retiree. You probably don’t have children unless you do have maybe custody of grandchildren or something like that where you can certainly uh take advantage of, but um it’s uh typically most retirees do not uh you know have young children with tax credits. Uh mortgage interest, hopefully a mortgage is paid off when you’re retired. tax-free employer paid medical insurance. So, if you’re uh getting contributions to your health care coverage and you’re getting support from an employer on that, there might be some benefits in there. Maybe you’re not working anymore and you’re not doing that anymore. So, uh and also you’re not contributing to a 401k if you are retired. Social Security required minimum distributions, that is RMDs. We’re going to talk a little bit more about RMDs coming up. uh paying for Medicare and long-term care. People often uh pay more taxes in retirement than expected because of the confusing system uh you know treats various income types differently and contains hidden taxes and penalties. Developing a solution because your tax exposure will change throughout the four stages of retirement. You need a strategy uh taxes search charges. When we talk about possible taxes and sir charges, these are some of things these things. When we talk about Bill and his uh $1,000 extra for his concert road trip, that could be an extra little tax or sir charge that we’re going to talk about some of those things that you getting more income affects other parts of your taxable income. Uh and penalties related to social security, Medicare and other income. So there are four stages. Your pre-retirement, let’s say between ages 50 and 60. Your early retirement if you’re you’re retiring anywhere from 60 to 70. Let’s say uh middle retirement, your go slow years now. Maybe you’re doing some travel between your age of 70 and 80. Maybe you’re still doing some things but maybe have backed off a little and then you’re 80 plus. They termed as the no-go years. I hopefully there’s still some go in uh even in late retirement. But again, our four stages, retirement surprises, inflation is a big thing. One of the things I’m going to be offering at the end of this presentation is our full comprehensive plan, the retirement plan, or I’ll just say future plan. Maybe it’s not just retirement. Maybe you’re looking to save for children’s education or grandchildren’s education or some other maybe buying a second home and how do we save uh maybe some advantages on some of those types of things. Uh so we could certainly get into just basically future planning. But when I do a retirement plan for someone inflation is a very big deal when we talk about spending. So, if someone is 65 years old today and they say, “Yeah, we’re looking to spend 5,000 a month in retirement.” Uh, so 5,000 a month, next year is going to be a little bit more because costs go up next year. And then the following, when we talk 10 or 15 or 20 or even 25 years later, you’re not spending 5,000 a month. You are spending a great deal more than 5,000 a month basically buying the same things that you are. Uh, but just inflation really takes over. So when I offer that you you have this comprehensive plan available to you at no cost. We do not charge for something like this. This is just basically for membership and how we uh with our members on uh education. All these webinars are no cost. anything that we do as far as education resources. I do get a base salary here at this credit union and that’s part of my job is doing all of these maybe retirement plans and future planning. So, please when I put a survey up at the end, would you like to have a one-on-one conversation, please say yes on that and we will dig into just planning for the future, longevity, expenses, health care, taxes, these are all other things that affect your retirement. So what’s the first thing you need first thing I need to uh understand about retirement and taxes start with the end in mind basically what do you want to spend not do what do you want your gross income to be pay taxes and what’s left over we need to gross that up basically so if we’re one of the things I do is if I say what does spending look like not just paying your bills but going out to dinner maybe travel you have property taxes you have insurance costs you have all these different things that we’re looking to sell for and what’s all that need, including all of your entertainment and then grossing that up and looking to see what do we need if you’re going to be drawing out of accounts that you have to pay taxes on and especially even social security potentially partially being taxed. Uh how do you how do we do that? That plan helps us figure all of this out. If you save $500,000 in a 401k or a traditional IRA, it’s not necessarily 500,000 in your pocket. When we look at different tax brackets in here, we can see on the right side here, if you are in the 22% bracket, you’re netting 390,000 of the withdrawals by paying 22% taxes. The 24% tax rate, you get a little bit less, 380,000. In addition, you might have to take required distributions starting at the age of 73. If you are born 1960 or later, those required distributions will be age 75. Uh so they did that in this last uh tax uh uh strategy that we did. They upped it to age 75, but if you are born 1960 or later. So here’s just a simple chart looking at the top uh line. The grayish line is if you had a if you didn’t have to pay taxes on how much money you would be getting out of a $500,000 account over a 30-year period and you’re getting it all because you don’t have to pay any taxes. I wish that was the case, but that’s just showing that illustration of how much you would actually have in accounts. But if you’re in the 12% bracket, the red line, you’re getting less in your pocket. And even if you’re in a higher bracket, in this case, let’s say the 33% tax bracket, you’re even getting less in your pocket. So, when I do that retirement plan or when I’m talking about uh to people about how much to take out of retirement accounts and not going to the next bracket, if you’re in the 12% bracket, can we avoid going to the 22%. If we’re in the 22, can we avoid going to the next one, which is the 24? or up to 32 35 37% is the top bracket. So more years that you take money out, uh are you paying more taxes than you would want to? That’s where maybe we can start to have that strategy of how much can you take out each year without going to that next bracket. But at least I have uh social security and to supplement my income and Medicare to pay my health care. Social Security and Medicare have their own, I’ll call it tax traps, and you need to plan for those, too. So, we’ll dig into Social Security and taxes. So, now we’re going to go back to Bill. Bill in that story where he uh has uh that income of 45,000 uh for IRA income. He’s got social security. He’s got an adjusted gross income. I’m looking looking at the before the concert trip uh column here uh where he has an adjusted gross income of 74,788 and then taxable income after deductions and how much he has to pay in taxes. Income tax 7600 and if he took that extra $1,000 out uh $46,000 on the right side here of IRA income. So instead of 45,000 he took that extra,000. He still has the same social security benefit, but now his adjusted gross income goes a little bit higher. His taxable income and what he’s paying in taxes on here, 8,30. So, here’s where we’re going to dig into, and I’ll certainly just explain what’s going on with this uh certain scenario here. So, we have basically at the uh that Bill is paying an additional $1,850 in taxes uh or actually adjusted gross income of $1,850 more. He took $1,000 out, but he has $81850 more in taxable income. So, what happened here? Social Security. Here’s one of those tax traps. If your social sec, if your income hits certain thresholds, if let’s say it’s below a certain threshold, you don’t have to pay tax on your social security. If it goes up, you have to pay up to 50% of your social security can be taxed. If it goes up to another level, up to 85% of your social security is taxed. So that’s what happened here. Bill took out that extra thousand and he had to pay extra money because his social security now premiums uh went or uh taxes on his social security uh increased. Now that’s where that tax trap was. Not even realizing that he’s thinking he’s still in the same tax bracket. So what’s an extra $1,000 going to do? But that put him over a threshold that he now has to pay a little bit more taxes on his social security income. So again, Medicare, Social Security tax traps are certainly there. Uh so it’s certainly, you know, something we want to be conscious of of when we are taking out of retirement accounts, not just your tax brackets, what is this affecting? Another uh trap that could be here again when I talk about Cook County and Illinois is property tax freezes. If your income is 74,000, let’s say it’s 74,500 and you took out an extra,000. Now you’re 75,500. You don’t get property tax freezes that year because you exceeded the 75,000 limit. So, there’s another uh situation of not just social security taxes or Medicare premiums uh but now we’re talking about more local taxes that could be affected. So, again, he paid a little bit more taxes uh in this social security trap on here because he took that extra $,000 out. Different retirement approaches. retire completely, semi-retire with fewer hours, an existing job, or semi-retire to a passion driven uh passion-driven job or even retire and volunteer. So, are you planning on having income in retirement or no income? Maybe just volunteering. Certainly, having other income certainly can affect your tax brackets and some of these other tax traps that we need to worry about. So, I’ll throw out another reminder. If you do have any questions, the chat box and the Q&A box are both available. Uh, type away at whenever you think of a question and I will get to those at the end of the presentation. So, working and social security, the good your social security benefit is based on your highest 35 years of working. It’s not your last 35. It’s not the last five or it’s not your just the overall average. It’s your highest 35 years of working. So if you work for 40 years, the lowest five don’t even come into the calculation. It’s the highest 35 years. As a caution, if you only had 30 years of working, let’s say you took some years off to of work to raise children or anything that you just did not have earned income coming in uh for whatever reason. If you only had, let’s say, 30 years of working, you have 30 numbers and then you also have five zeros that could affect your average. If you work a 31st year, so 31 years of working, a zero falls off, a number goes on, and your average goes up. So, it’s your highest 35 years of working. This is calculated at your age 62. Uh if you do work uh past the age of 62 at 63 64 65 let’s say your full retirement age is age 67 for social security maybe you’re going to plan to work until age 67. Um your income if it’s lower by chance it will not go down after the age of 62 but it can go up if it does bring your average up if those are higher income years. working in social security. The bad is you do want to be uh caut um have some caution of how much income you have. If you take your social security early, this is what this page is referring to. Only if you take your social security income prior to your full retirement age. So based on your year of birth, it determines how much you um uh when you’re able to get your full benefit. Uh mine for example is age 67. If you were born 1959, your uh full social security is 66 and 10 months. 958 and 1958 is 66 and 8 months. Um and so there’s some just reduction in time uh for all of those years or dates of birth. Uh but if you take it early and you make more than $24,480, every one uh every $2 you earn, $1 is withheld from your social security. Uh so you do want to be cautious of your um you’re getting less benefit by making too much money. If you make less than 24,480 or up to that amount, you can certainly do that. Does not affect your social security at all. Uh but it’s only the amounts above that that uh is this $1 of every two that is affected. Uh and if you uh take your social security at your full retirement age and you decide to keep working, you can make as much as you want. You are not affected at all on that. There is no what they call this earnings test. Uh so you can make as much as you want. This is only if you take it early.
you still pay social security tax even if you are working in retirement. So what this means is 6.2% of your social uh of your income you pay into social security. So my paycheck 6.2% of my paycheck goes into social security. My employer Alliant pays an additional 6.2% of my income. So technically 12.4% of my income goes into social security. And even so, let’s say if I retire or when I retire and I’m getting social security income, if I decide to keep working, even that I’m getting social security income, if I decide to work, 6.2% of my future paychecks still go into social security. Can I potentially even uh increase my benefit by working? Possibly. if it’s your higher income years. Um if it’s higher income, it can certainly increase your benefit even if you are on social security. So even when you work in retirement, even when you’re receiving benefits uh and working, it only increases your benefit if is one of your top 35 years of earnings. Medicare and taxes. So some tax traps for Medicare uh that we have to talk about. So now we have George and Martha. uh they have adjusted gross income, MAGI, modified adjusted gross income is what that stands for in 2024. They’re both on Medicare part B and D. So technically part A and B is so A is your hospital coverage, B is your doctor coverage basically and D is your prescription drug coverage. So you have to pay for Medicare part B and you have to pay for Medicare part D. So, they have, God bless George and Martha, they have 342,000 of modified adjusted gross income, very good income that they are getting. Uh, but that’s a very specific number here, and we’ll see this on the next page why, but they have 342,000 of adjusted gross income, but now they sold a stock for $1,000 gain. Uh, so now they owe $188, which is uh, you know, 15% tax bracket, $150 plus an additional 3.8% for a net investment income. Uh, that because they have such high income, they have to pay a little bit more tax on that. So, they would have to pay 18.8% is what we’re thinking on here. But here’s what they did. So their 342,000 of income you could see just above uh above the circle here where they have MAGI married joint. So the second column here that uh that threshold of 274001 up to 342,000 they have to pay they would pay if it was $342,000 $45 um for their premiums for uh their social sec uh for their Medicare part B. $4580 each is what they would have to be paying. But because they sold that stock for an extra $1,000 gain, now their modified adjusted gross income exceeded the $342,000 and now they have to pay $527.50 in premiums uh for their Medicare Part B. So they have to pay a lot more and that’s for the following like two years later is when this is affected. But that’s uh you knowund almost $122 more per month per person that they would have to just because they sold that extra stock there and they exceeded that level. Uh so there um that’s where we could see the two brackets there. And then um you know this also affects the Medicare Part D premium over on the far right there where we see they would have been paying $37.50. Now they have to pay $60.40 40 cents each for Medicare Part D just because they sold that extra stock and they exceeded those levels again. So when we look at what does this effect for each of them for George to pay higher B and D and Martha to pay higher B and D, that’s a total of $3,470 for the year just by selling $1,000 worth of stock. So that’s the additional premium. That’s not the premium in uh Medicare B and D. That’s the additional premium that they would be spending. So sold stock $1,000 income gain. The taxes they would pay is that 18.8% and but it triggered the Irma. That’s is the income related monthly adjustment amount uh is for your Medicare part B and D. And the search charge is 34,70 3,47040. So we’re looking at a 365% real tax rate just because they sold that extra stock and it affected their Medicare Part B and Part D premiums. So another example is Medicare enrollment coverage gaps and late penalties. If you are approaching the age of 65 and you are not going to be working, you need to start planning to sign up for Medicare A and B and your prescription drug coverage D. Uh if you opt to go with the advantage plan, Medicare C, that’s certainly something you can uh explore. The majority of people are do traditional, which is A and B, and then the prescription drug coverage D. Uh so in this case in this uh example we have Jim and an they are both age 68. Jim retired at 65 and an one year later retired at 66. They do get coverage through um Ann’s employer who offers retiree health insurance. Now this is not the standard employee coverage that you get. This is retiree coverage, which is certainly something that’s not a bad thing to get. But what they didn’t do is sign up for Medicare because they had thought that the the retiree benefit was good enough or enough for them to have. If you do not have your work plan, you have to sign up for Medicare B and D or A, B, and D um at certain times and typically age 65 or you know if in this case they retired at 66. If they retired at 66, they have to sign up for their Medicare Part B and D at age 66. Um but they are 68 and they didn’t sign up for it, so they’re going to have a penalty. And you could see the missed enrollment penalty, 10% of base premium for life. Uh it’s kind of a cruel penalty that is if you just didn’t sign up in time that every year you’re alive, you have to pay a higher premium just because you initially didn’t start it at the right time. That’s how important this is to sign up for your Medicare A, B, and D uh when you need to. And if you want to dig into your specific scenario, please say yes at the end of the presentation when I put up the survey and you and I can talk about if you need or want to sign up for Medicare A, B, and D and when is the appropriate time based on your specific situation. If you’re still working and have your qualified group plan, that’s fine. You can certainly have that. Um but if you retire and you are not working, you have to sign up for A, B, and D. Then if you do not have coverage, so are there any other tax traps we will face in retirement? You must plan now when you will uh use taxable, tax deferred, tax-free assets to manage your income and tax brackets efficiently uh efficiently. So what this is saying is if people have traditional IAS or Roth IAS or savings accounts or brokerage accounts that are not IAS, what do people draw out of first? What’s that order of operations? Do I take from savings first? Do I take from the traditional IRA first or should I take the tax-free Roth IRA stuff first? Um, so basic, you know, on those order of operations and that’s certainly something when I do that retirement plan that we do talk about. So here’s an example that we have Sam and Mary. Each of them has a $450,000 traditional IRA and then they each have a 60,000 Roth IRA and then an additional $300,000 in a joint account. So they have traditional IRA, they have Roth IRA and then they have some savings.
So what do they spend first? Conventional wisdom on here is spend your taxable money first, the bank account money, then spend your traditional IRA money, then spend your tax-free money. That’s the uh the general consensus of what do you take out of first? spend your savings first, get the traditional IRA stuff, and then your Roth IRA. An alternative approach is to start planning uh spending your taxable money first. Start converting if you can of staying up your traditional IAS into Roth IAS. If you haven’t talked or even heard about what that means, you can take money from a traditional IRA, pay taxes on it, and put it into a Roth IRA. It’s called a Roth conversion. You can uh do quite a bit if you wanted to. There’s no limits on uh on what you can do uh in converting and you can uh there’s no age limits. There’s no income limits. You can convert whenever you want, however much you want. Uh but there’s certainly a process that you would want to make sure that you’re staying within certain tax brackets. You don’t want to pay too high of taxes. You don’t want to do it all at once. maybe doing, you know, in stages each year. One of the things that I do with some people, and I do this every year, usually typically about Novemberish, we start to get a feel of what someone’s income is for that year. What how much interest have they earned in accounts, dividends, we can start to really dig into where is their income going to be. And if we do a conversion from a traditional IRA to a Roth IRA, it’s all based on all of your income and where your tax bracket is. So we want to stay typically within certain tax brackets. Uh so we don’t want to pay you too much. So you can start to take money out of your savings. You can start converting from a traditional to a Roth and start spending those down. Um and then start uh you know and then you’re digging into especially when you are age 73 or 75 and you’re in those years of required minimum distributions. you have to take money out of those and then you’re spending the tax-free Roth stuff later last. So consider Roth conversions again. In this example, Jill converts a 100,000 from a traditional IRA to a Roth IRA. Jim uh Jill will have have to add that 100,000 to her income. This conversion income will be taxed at her tax bracket. So if she is happens to be in a higher tax bracket and does an additional 100,000 which is all taxable income, she could be even jumping up to another bracket. So should Jill convert 100,000, maybe she should convert a little bit less. It’s all dependent on what tax bracket is Jill in and is this helping her uh plan later as well. So here’s what we call filling up the bracket. So in this top section before the conversion we see that when you are in a 10% bracket or a 12% bracket in 22 24 32 35 and 37% brackets now we see that someone is within the 22% bracket in this case and if someone says well can I convert a little bit more from a traditional to a Roth IRA but I don’t want to go into the 24 I just want to max out the 22% bracket That’s what I do typically for a lot of people toward the end of the year is seeing what tax bracket they are currently in. How much can we convert before we jump up to the next bracket. Uh and if you’re not familiar with that that a tax bracket is a certain range. It’s let’s say 100,000 up to 150,000. If your income, taxable income is 110,000, uh you got 40,000 up to that 150 to maybe convert or do something with so you don’t exceed the 150 to go to the next bracket. Uh so it’s certainly some planning that you and I can do together. Uh so again, I’m going to just throw the reminder any questions uh the Q&A box or the chat box and I’ll be getting to those here shortly. Roth conversions if you especially if you are a self-employed person and let’s say you’re a business owner with a a low sales year or a year that you had higher expenses. Um maybe just you have higher uh medical bills uh to deduct that year. Uh so maybe there’s a few reasons why you might want to do it depending on where income is. And uh so if you had a lower sales year or just a lower income year for whatever reason or more deductions, things like that, then we could certainly talk about Roth conversions doing a little bit more.
You must know whether you’re trying to keep income below a bracket threshold or avoid bumping up to the next one just like though filling up the bucket or whether you’re trying to increase income to fill up a bucket uh bracket or take advantage of that tax rate. Other possible approaches to managing tax brackets with withdrawing tax-free money from life insurance policies. If you happen to have a life insurance policy, and certainly something that I could do for you is life insurance reviews. I do have many sources that I can find out about your policy and exactly how it works if you do have cash value, especially significant tax uh uh cash value in a policy. How do you start to get money out without having to pay taxes? Basically, you’re borrowing from your life insurance policy. Many people do this, especially more wealth. Uh people with wealth that have a significant cash value. You’re not withdrawing that money, which could potentially be a taxable event, but you are able to borrow cash value from a life insurance policy tax-free. Uh there are certain limits on how much you can borrow on there. So, it’s certainly uh again, we can certainly do a life insurance review to uh to dig into that a little bit. But there are certainly some tax advantages by borrowing from a life insurance cash value for future planning. Uh selling high appreciated stock for low or no capital gains. So if you happen to have a low income year and the under certain thresholds you might not pay any taxes on capital gains. Or if you’re in a modest income level maybe you’re going to pay up to 15%. If you’re in high income you could pay up to 20% on capital gains. So many of us uh you know in an average range are going to be in that 15% uh bracket for capital gains uh taking distributions from IRA or 401ks uh to take advantage of lower tax rates. So if you happen again to have a lower income year and you want to start drawing from uh from retirement accounts to live off of, some people will actually defer taking social security. They won’t take it at all. Excuse me. they will just live off of their own retirement account assets, withdrawing, staying within lower tax brackets, and then starting social security later. So, that’s certainly a strategy that our retirement plans do take into account. We look at Roth conversions. How does that affect your plan? Is it worth it? Uh we look at should you live off of your own assets first then take higher social security later or should you take a lower social security income sooner and draw from your accounts later. What wins? The retirement plan that I do helps with this decision. Two other pre-retirement strategies is use your health savings account strategically and use your qualified business income deduction after funding a company pension. If you are a self-employed person, we can certainly dig into that uh charitable giving and tax planning. So, here’s where we’re going to look at how do people give, especially in retirement. And if you are at the age of required minimum distributions, RMDs, let’s look at Albert and Shirley. They’re in the 20 to uh 4% bracket and they give $5,000 to a charity, 15,000 to existing uh existing itemized deductions and 26 uh 2026 uh standard deduction is 32,200. So married filing joint, they have a standard deduction of 32,200. Uh 5,000 donation, they have no federal tax benefit. So they don’t even get to deduct that. Why? Because they they can write off. It’s either you itemize or you take the standard deduction. In this case, the standard deduction for them is 32,200, but they have uh 15,000 of deductions. And if they give to a charity, another 5,000, that is 20,000 of deduction. Since the standard deductions already at 32,200, they don’t even have to itemize anything or they don’t itemize anything. Uh so they do not get that deduction on that charitable giving. So up to 111,000 you can do what is called a QCD, a qualified charitable distribution. What this means is that you give to a charity directly from your IRA. your traditional IRA is what we’re talking about and you can give directly from there, especially if you are in a required minimum distribution age range. If you’re age 73 or higher and you’re taking money out and uh you can give to the charity, it counts as what you need to take out, but you don’t have to pay taxes on it because it goes directly from the IRA directly to the charity. So, um, there’s no taxes that you have to pay. Just so you do know, that check has to be made payable directly to the charity from your IRA. And I do this with people all the time. Every year, I have people that do qualify charitable distributions where they have to take out a certain amount. In this case, we’re going to talk about this couple that have to they have to take 5,000 out uh for their required distribution or they have to take out uh they want to give this to the charity. So, let’s look at this example. So, the charity is going to get 5,000. So, this is if they just do a withdrawal of their required distribution. Let’s say the 5,000 say so they take 5,000 out. They have to pay taxes on that. So in this on the far right where you can see it’s goes from the IRA into their check-in account in this example where it’s basically a distribution a taxable distribution. So the 5,000 satisfies their required distribution. They had to take it so they took it. Uh and so the 5,000 is reported as taxable income. And let this is assuming they’re this couple is in the 24% bracket. They have to pay $720 in taxes. So, the charitable uh contribution uh cost them 5,720. So, they want to give the 5,000, but they had to pick it up and pay taxes. And so, that cost them $720 more by doing that. So, this is the recommended way to do that. If you’re going to be giving to charity and you’re taking out required minimum distributions, do a QCD, qualified charitable distribution. the charity gets the 5,000. The 5,000 satisfies what you had to take out and you don’t have to pay taxes on it. Uh so zero taxes on that uh distribution and the total cost instead of so you didn’t have to pay $720 in taxes to give to the charity. You are able to do that directly from your IRA. And again, I do this with people every year. I hope to have assets to pass on to my family. So, how does retirement uh tax planning figure in? Organize your assets for your uh family’s benefit. Estate planning still matters. I do other estate planning where we talk about these types of things. Um the estate planning webinar that I do uh certainly digs into this more. So, if you do want to hopefully look out for that presentation and uh talking about tax planning on uh estates. So, in this case, we’re going to look at Phil and Mary. So this is an interesting uh uh scenario here. So they have a joint account. So they have a taxable investment. So they just have a brokerage account in this case. And it’s a joint tenant with rights of survivorship. And this most joint accounts are held that way typically. Uh there are some other ways, but this is typically what I do see. And they have 120,000 investments have a long-term capital gain. So there’s gains within this account. So Phil is diagnosed with a terminal illness and he has 18 months to live. So there’s two scenarios that we’re going to look at. This is kind of a drastic uh example here, but it’s certainly a realistic uh example. So first of all, do nothing after the diagnosis. So Phil dies and Mary inherits Phil’s half of the joint account. So, how this works tax-wise, technically Mary owns 60,000 and Phil owns 60,000. It’s not they jointly own 120. Legally, she owns 60 60,000. He owns 60,000. So they have what is called a stepped up basis which means when Phil in this case passes away. She does not have to pay taxes on the portion that on any gains of the portion that she inherits from Phil. She does have to pay taxes on her own portion though. So if she sold all the investments, she would only owe income tax on her gains, not his. It’s called a stepped up cost basis. And if you do want to dig into that, if you do happen to have investments or you think you’re a beneficiary on an account of this type of an investment, I would love to have a conversation with you on how this may affect you or not affect you. Um, so her gains, long-term uh gains on her 60,000 plus any gains of the remainder of after Phil’s death. So if Phil passed away and then there was gains after that, she would have to pay tax on those. But anything from the original cost of investments up to the date of death, all those that taxable gain is wiped away on his half. So the bottom line on this is that Mary owes tax on her 60,000 and potentially more of Philills if it grew after death. So here’s what an example could look like. If after diagnosis, you move all of the investments into Phil’s name, 100% of the account, you’re able to do this as a married filing joint couple, she can gift it all to him. And when he passes away, 18 months later, uh, Phil dies, and she inherits now all of Phil’s account. All 120,000 is tax-free. So, she does not have to pay because everything steps up on there. She doesn’t own it. So, it’s not split 60 and 60 anymore. 100% of it, 120,000 moves to Phil’s name. If he passes away, 100% of that goes to her and she does not have to pay any capital gains on that. So, there’s a little kind of tricks to the trade. It’s again, it’s a sad example to have to share, but it’s certainly a realistic thing that could happen. Uh, when you go to sell your investments, would you rather owe tax on 60,000 or no tax? inheriting IAS. And here’s an example of inheriting an IRA. And uh this is the son. So Kyle is 40 years old. Pamela leaves 100% of her IRA to Kyle and there’s a balance of 400,000. So an average 6% average rate of return. So now we’re talking about some inheritance rules. So just I’m going to share very quickly that if a husband and wife spousal married filing joint and if you again in that situation married filing joint legally. So if husband passes away and the wife is the beneficiary all of that money just goes to the wife as if it was always the wife’s. That’s how spousal benefits go for IAS. If it’s other than a spouse, in this case a child that it goes to, he Kyle has some rules that he has to follow on this 400,000 that he would inherit. So on an average of 6% rate of return, he has 10 years to liquidate this account to zero balance that IRA. Doesn’t mean he has to spend it. He just has to pay take it out and pay the taxes on the IRA distributions. So he has to do it uh over 10 years. If it was 400,000 and there was gains over time over that 10-year period, we’re talking an annual distribution of a little over 54,000 that Kyle would have to take in on Kyle’s tax bracket. So, is Kyle in a higher bracket or a lower bracket? Uh, so, but just know on an average of 54,000, he would be paying taxes on those distributions. Now, you don’t have to take it all uh exactly the same amount each year as long as it’s a zero balance by the end of 10 years. In this example that we have that Kyle is the beneficiary, and he decides to not take anything out years 1 through nine, he doesn’t touch it. It’s growing 6% average rate of return every year, 400,000 to start, and it’s just growing, growing, growing. He does nothing for the first nine years and then he year 10 he’s got to liquidate. He’s got to take it all out. It’s got to be a zero balance by December 31st, the 10th year. And that would be 716,000. That would throw Kyle into the 37% the highest tax bracket. So is that the best thing for Kyle to do? Probably not. He should have taken stuff out. He can if he wants to. Uh but it’s certainly something you do want to be uh um have some caution on of uh when you take out of IRA distri you know inherited IRA distributions. And I have several people that I work with that have beneficiary or inherited IAS that they are doing distributions throughout their uh their 10-year period that they have to own this. So again, that’s a big tax bracket that Kyle would be in. Taxes and long-term care premiums may be taxdeductible. Uh payments uh from policies for reimbursement are tax-free. So if you are have a long-term care policy and you aren’t in a claim, meaning you can’t do two of the six daily activities of living uh and you’re starting to get a payment from your long-term care policy, those are tax-free. So, uh, that’s certainly something that you could have some benefits on a long-term care policy. It’s an important thing that I do. Talking about long-term care, uh, and, uh, one of the costs if you do not have long-term care coverage, it could be catastrophic. Um, so there could be family members that could help. Can you count on family or friends to help and uh not have these big costs? But sometimes we can’t avoid these extreme costs that long-term care has and maybe be prepared for that. I’d be happy to dig into long-term care. If you do say yes on that uh qu survey question and uh I would be happy to do some future planning on that as well. How in the world can we manage this? So taxes and retirement highlights your pre-retirement, your early retirement, your middle retirement, your late retirement. If you’re starting putting money into retirement accounts, if you’re taking money out of retirement accounts at these various stages, how does this all affect your overall plan? Please say yes at the end of the presentation and I will put uh uh together a plan specifically for you. Typically what that is, it’s a couple of appointment meeting process where the first one is we have that first discussion. What are you trying to accomplish and the second one is is maybe usually going over the plan of uh if we’re together if you’re local here in the Chicago area. Um my office is still on the over by O’Hare airport. If you’re not, I do many of these Zoom. I share my screen just like I’m doing on this presentation and we can dig into your future plan. Uh because your tax exposure may change throughout retirement, you need a tax strategy that anticipates how and when you tap your assets, understands the range of taxes you will face, and manages your actions so you pay the lowest tax rate possible. Preparing for retirement and taxes, the distribution phase, managing tax happens through retirement. uh throughout retirement, mistakes can be costly. Again, remember that Medicare, not signing up for Medicare on time could be very costly. Education planning and advice are needed. So, we’re going to hopefully you and I will have a one-on-one conversation about taxes and retirement planning uh review meeting, and I would be happy to dig into your future at a complimentary, no cost, uh no obligation plan. I would certainly share here’s what I do for people. Uh as I go through uh the questions now uh so you see on the screen my contact information. If you do want to schedule a time to meet you can actually if you have your phone handy uh put it up to the QR code on your for your camera. Put it up on there and you’ll get access to my calendar. If you want to do that right this second you’re able to. Um as I I’m going to launch the survey here in just a second as I go through some questions. So, um, you know, so again, if you do want to have that meeting, you can actually schedule this on your own, uh, and see, you’ll have access to my calendar to schedule either a 30 minute or 60 minute. Just so you know, I always count on 60 minutes. If you think you only have 30 minutes, we can we’ll we’ll certainly uh go by your schedule, but I usually typically block off an hour for all of those meetings. So, I’m I’m going to put up the survey right now. So, hopefully you see that up on your screen. So please uh uh respond to that if you would like to have a time and I will go through all the questions. Now uh let’s see does it include spouse’s income. Is spouse’s income included to determine social security reduction for income? No, that is your own income. It’s not household income. It’s if Joe is getting social security income and I took it early, what is Joe’s um you know uh total income if my social security will be affected uh by that $1 of every two being withheld? So, uh no, it it’s not spousal income. It’s only my in that example um my income that would affect. So, it’s not the spouse’s income. Can uh you split the QCD between charities to total the RMD or does it have to be lump sum? You can have I’ve done one client that I have had six charities actually. Uh let’s say if it was a 10,000 distribution, you know, one was 1,500, one was 2500, one was 500, one was 2,000. Uh you know, so varying amounts. Uh and yes, you can have multiple charities get it. Um and uh but yeah, absolutely. Uh you can do whatever you would like to do on that, however many charities you would like and to satisfy the full required distribution. Uh are there different rules for inheriting a Roth? Inheriting a Wroth, it’s all tax-free. So there’s no 10-year distribution. Uh so it’s all taxree. So there’s limited, you know, so it’s not the same rules on a Roth as it is for a traditional. Basically, a traditional is going to be all taxable coming out. Uncle Sam says, “We want some tax money. Start taking those distributions and close this sucker out within 10 years.” Uh, so very different for a Roth because it’s all taxree. The government’s not getting any. Whether it’s the owner’s Roth or an inherited Roth, it’s all tax-free. Are long-term care premiums only deductible if you itemize? Yes. Uh, very good question on that. Um, so if you’re getting the standard deduction, uh, in fact, I just read this recently as I was checking something for someone else on deductible, uh, long-term care premiums and you do have to itemize to get the that deduction. So, yes, uh, what happens if spouse dies and you file married filing separately? What happens to asset? Um married filing separately could be different especially well if you’re if well if you are is still even filing separately it’s all based on your own tax bracket then not a married filing joint tax bracket so if you’re married filing separately if you’re referring to the taxable gains on investment accounts um I have your information I could certainly dig into to see I might have a few more questions on that. Uh, but I have your information. I’m going to follow up with you on on that specific question just to see exactly uh which uh slide you were referring to and uh but I will certainly dig into that for you. Um I just have a few more questions on that. Let’s see if there anything else came in on here. I think we are right at 258 here. Um so actually one more. How do I know if I should be contributing to a Roth or traditional IRA? Um, do all uh do all 401ks have Roth options? So, how you so based on your tax bracket, what are you trying to accomplish? So, people want the tax advantage now by putting into a retirement account. That means that you’re going to um do a if you want the tax advantage now, you have to put it into the regular 401k. If you want the tax advant advantage later, you’re not worried about your tax bracket now. You’re going to do a Roth. Some people say, “Well, I kind of want both. Maybe split the uh the contribution to traditional and Roth and uh split it that way.” So, you’re able to do that. Uh but uh so to be contributing to, that’s the question that I have back to people when they say, “Should I contribute to a Roth or a traditional?” What do you want to accomplish? Do you want the tax benefit? Now, put it in the traditional. If you want the tax benefit later, you could put it into a Roth or split it between the two and get some tax advantage now and some tax advantage later. Uh, and the retirement plan helps us figure that out, too. Looking at your current brackets and looking at your future brackets. Um, so we can certainly dig into uh let me see if anything else just came in. I think that is all of our questions. We’re right at 3:00. Thank you all so much for your time and attention this afternoon. I look forward to speaking with some of you and very soon about your specific plan. Thank you. Have a great rest of the day.