Good afternoon everyone. Like to thank you for joining my presentation today. Just going to give it another minute or so just to let everyone have a chance to join into the meeting. Connect to audio. Hopefully if you are connected if somebody out there if you could uh just confirm. I want to make sure you can see my presentation. Okay. That you can hear me okay that we have no uh technical issues. If anybody could respond to the uh chat feature in the Zoom meeting. Oh, perfect. We got a response. Just going to give it just about one more minute and then we’ll get started today. But thank you for responding. Okay, I think we’re in good shape. Looks like uh everybody has joined into the meeting. So I’d like to get started today. And first uh off, thank you again for uh joining me. My name is Tom Davia, one of the financial consultants here at Alliant. I’m a certified financial planner. Our department of Alliant is called Alliant Retirement and Investment Services. Today we’re going to be talking about tax planning and tax planning changes through the four stages of retirement. So during the presentation, we just like a uh disclaimer here. Presentation is intended for educational purposes only. Please do not record, reproduce, distribute any part of the presentation. And by continuing to participate in the webinar, you acknowledge and agree to these terms. So thank you for doing that. Um, just want to let you know I do an every other week schedule for a presentation for the uh the credit union. Today, tax planning and retirement coming up on July 8th, I’m going to be talking about Roth conversion strategies. Uh, we’re going to touch on that a little bit today. I’m going to go more in depth on it uh in it on July 8th and we’ll go into some examples on Roth conversions, the taxation uh beneficiaries, all the uh the benefits of doing those types of conversions. That’s going to be on July 8th. On July 22nd, I’m going to be uh talking about social security, taking a look at the big picture. So, we’ll talk about the history of social security, how we got to this point. We always hear in the news that there’s going to be some reductions in benefits. So, we’ll address that and then we’ll talk about how your benefits are calculated, choosing the right time to file and how it could play a part in supplementing retirement income. So, I always say uh everyone’s welcome to join these meetings. Uh if you know anybody who’d like to attend, you could uh just let them know. These are our websites. This is the full schedule of our webinars. I’m the co-host of the podcast as well. So, you can see podcast episodes on our website and there’s also a financial blog that we post some information to as well. Don’t expect you to write all this down. This website uh aerys.alliantcreditun.com/events
for the webinars for the podcast and blog as well. But if you go to the credit union website, you click on the investment tab, it’s going to take you to our landing page here for the investment department. At the top of the page, you’ll see there there’s a webinar button, all full webinar schedule, podcast episodes, and the blog as well. So, you can access that information. And uh what we’re doing is we’re putting these presentations together to share some information with you, financial topics. Uh but we’re also doing it to promote our financial planning services. I always say we’re the best kept secret at the credit union. So we just want to do these presentations, let you know that we’re here, that we exist, and we can help with uh some of these financial topics. We can also help with full financial planning. Uh this slide here, this is an output from a financial plan. This is what we call the cash flow overview. And this really answers the questions, right? Do I have enough? Where do I draw funds from? Just make sure everything uh checks out and is working exactly the way you want it to. So, with something like this, we have a uh basic conversation, right? We gather some information from you. We help you build your comprehensive financial plan. We talk about different topics like today’s topic, taxes in retirement. So, we’ll talk about ways to fight taxes, uh, fight inflation, generate more income from your portfolio, and talk about volatility in the market, reducing risk, and really to, uh, where to draw funds from in retirement as well. And those also important, uh, health care costs, we can model that in there as well. So, this is a part of your membership at the credit union, right? We do financial planning. um no cost, no obligation service. Can’t do it for everybody, but that’s why we uh put these presentations on just to make some introductions, share some information with you and see if we can help you along your financial journey. We are a fiduciary firm, so happy to not only do the financial planning for you, review any accounts that you might have questions on, answer any specific financial topic questions that come up. I always like this slide as well, right? Only 36% of Americans have a written financial plan. So that’s why we’re here. We can help you with again some of these topics. Can’t do it for everybody, but if this is of interest to you, just uh let us know and we’ll help you with that. So we help with full financial planning. We help with uh estate planning questions, advanced topics, advanced planning, estate planning, Roth conversion, cash flow analysis, investment management, and investment choices as well. So, we are a financial planning firm. I’m also a registered investment adviser and can help you with some of these topics as well. That’s it on the credit union. Um, I’m going to jump into to today’s presentation, which is tax planning in the four stages of retirement. Just want to check in again with everybody. Uh, some of you were kind enough to share that the uh presentation was coming through on the chat feature. The audio is okay. If you have any technical issues, let me know. will go ahead and use that chat feature. I’ll be monitoring that throughout the presentation. So, if you need any help with anything, also uh we’re going to cover a lot of information today. So, if you have any questions, there’s any slides that pop up or any topics I bring up that need some uh explanation, you could put your questions as I’m talking in the chat feature. There’s also the Q&A feature in the meeting today. Just put those in and at the end of the presentation, I’ll be sure to uh get back to those questions. So, what we’re going to do is we’re going to dive into today’s presentation. We’re talking about taxes. So, a great way to start is to run through a simulation of an event, a tax situation. So, this is about Bill. And Bill really wants to go on a road trip to see a concert. Bill said, “Well, the only way I’m going to do this is if I take $1,000 out of my IRA to pay for the trip.” So, Bill is going to make a $1,000 IRA distribution. Little background on Bill. He has taxable income of 58,000. He has 45,000 that he normally withdraws from his IRA account and he’s got some social security benefits. So, as the slide says, a bit of a brain teaser, right? If Bill takes out $1,000 from his IRA, how much is Bill going to have to pay in taxes on that $1,000? So simply seems like an easy answer, but we just look at his taxable income, 58,000, puts him square in the 22% tax bracket. So we would assume that if Bill takes out $1,000, that Bill would have to pay 22% or he would have to pay $220 in taxes. So that would be the easy answer. Of course, can you you could tell I called this a brain teaser, so that’s not the correct answer. Uh, Bill is actually going to owe $400 on that $1,000 IRA distribution. Bill caused himself a 40% tax rate on that income. That’s really the heart of today’s presentation. Some of these pitfalls, traps, sir charges, penalties that come along with some income in retirement. So, I’m going to leave this as a brain teaser for now. Now, I’m going to show you how to get to that 40% taxation in a uh in a few slides, but four stages of retirement. So, this is really what we’re going to talk about. So, we always say you have a CPA, if you work with an accountant, anything like that, always consult with a professional tax advisor to discuss these conversations. But a basis of what we’re going to talk about today, right, a few definitions. traditional IAS. Traditional IAS are tax deferred. So, you get a little tax break up front for putting your money into a traditional IRA, but down the road you pay taxes on that money when you distribute a Roth IRA, non-deductible, meaning you don’t get a tax break today, but the money grows taxree. And when you take money out of the Roth IRA, it’s going to be taxree as well. So that’s the definition of the Roth IRA. And then also in the presentation, we’re only going to talk about federal taxation. So I’m not going to get state specific. Every state has its own rules. I happen to be here at the credit union headquarters today. I’m in Illinois. Illinois is generally tax friendly to retirees. Illinois does not tax social security benefits, does not tax pension benefits, does not tax IRA distributions. So every state is going to be a little bit different some of the definitions but now as we walk through the four stages of retirement right kind of setting the stage for that you look at it in accumulation right pre-retirement I always say this is the easy part you’re saving you’re accumulating assets money is maybe coming out of your paycheck every two weeks it’s going into an investment the market’s going down you’re maybe investing more buying on the dips the market goes up, you look at the balances, you feel better because you’re reaching a goal that you might have set or kind of a peak of the mountain of a asset base for your retirement. That’s an accumulation, but things change, right? When you actually go to live off this money or retire, there’s going to be different variations, right? New things are added into the conversation. Social Security timing, when to start benefits, Social Security taxation, required minimum distributions, the money you have to take out of those tax deferred accounts, how that’s going to affect your taxes as well. Paying for Medicare, long-term care needs, things like that. So, not only are these new concepts introduced into your financial planning, but you may have lost some tax credits along the way. child tax credits that may be gone in this phase of life. Mortgage interest deduction, right? You might not be able to itemize your taxes anymore. You’re taking the standard deduction maybe if you paid off the mortgage. Uh medical insurance paid for by the employer contributions to 401k. So, we’re kind of shifting the dynamics going from your accumulation phase to actually taking money out or distributing. So, we just want to make sure that you’re set up to do this the right way, either tax-wise or from which accounts to be withdrawing at what time. So, you put it all together. The problem is, as we almost noted with Bill and his concert trip, people pay more in taxes in retirement because they don’t know the rules. System is confusing. Income is treated differently for t different types of investments and there may be hidden taxes, fees, sir charges and penalties that go along with it. But you find out that you might be paying more than you uh than you uh originally estimated. So developing a solution, right? So we want to look through the four stages of retirement. You need a strategy that anticipates taxes, your traditional thought pattern on taxes and possible taxes going forward. What has changed in your distribution plan, sir charges that go along, penalties, social security, and other income? So, we want to come up with that solution. That’s what we’re going to be talking about today, right? The four stages are pre-retirement, saving up, uh working and saving up for those years. Number two, early retirement, kind of call them the go- go years. You retire, maybe you’re doing more activities, traveling, spending more money, possibly the first 10 years of retirement. Number three, middle retirement. We kind of call them the slowgo years. It’s almost like been there, done that. I’ve done the travel. Now I’m staying more at home, spending more time with the family. The expenses aren’t as much as they may be in the fourth stage, the late retirement. Call them the no-go years. You’re not doing as much travel as much expenses. But we also have to account for certain medical needs at that point as well. So those are some of the things that we look at throughout the four stages. Really what we’re paying attention to is inflation, longevity concerns, making sure in your financial plan that the assets can sustain themselves for a 30 or 40year retirement. Make sure you’re drawing from the accounts accordingly. Uh healthcare costs, as I mentioned before, they seem to be rising quicker than the normal pace of inflation. When you add in healthcare inflation, we want to make sure that assets are earmarked for those expenses as well. And then today’s topic taxes. So when you put it all together, right, what do you need to understand about retirement and taxes? So really the first thing is the most important is you need to know what your after tax retirement savings picture looks like. So what’s your after tax savings? Well, if you look at it and you say, “All right, I’ve saved up a sum of money. I had a goal in mind. I’ve reached my goal of $500,000, maybe a million dollars or so. But if you look at that in your 401k or your IRA, if it’s tax deferred assets, right, it might not really be $500,000 to you. So if you are married filing jointly, if you’re in the 22% tax bracket, that’s not really an IRA, an individual retirement account, more of like a JRA, a joint retirement account. It’s joint between you and the government. the IRS is in your pocket for 22% of that account. So although you have the feel and the statement and the balance of $500,000 in your pocket it could actually be 390,000 380,000 if you’re at the 24% tax rate. So as you’re looking at those balances they’re tax deferred. They’re growing over time. It’s been a great market the last three years. It’s just been going up and up. But if you’re not taking money out of your account, eventually you’re going to come across the RMDs or the required minimum distributions. If you were born before 1960, your required distribution age is 73. If you’re born after 1960, your required distribution age is 75. And all that is is the government saying, “Hey, this is half ours. We’re involved in this account. You’ve enjoyed tax deferral for so many years. You have to start taking money out. you have to start paying taxes on it. This is a retirement account. So, at that point at 73 or 75, that’s when if you haven’t taken money out, that’s when they’re in your pocket for possibly 22%, 24%, maybe even more depending on your specific situation and your taxes. Very simple chart here. Um, this chart does a good job because it shows the 0% tax rate. So, this is assuming a $500,000 investment. This is assuming a growth rate of 6%. But it’s also putting in place a reduction for taxation on the account. So, the top line, it’s hard to see, it’s a gray line. It says 0% tax rate. Now, when you look at that, that does exist. That is something that you could strive to. That is going to be if you have a Roth account because in the Roth account, it’s all going to grow taxfree. It’s all going to be distributed taxfree if you meet all the qualifications. So it’s all going to distribute taxfree. You don’t have a required distribution and the beneficiaries would receive the money without a tax liability as well. So that gray top line that is a possibility. Now the next line is 12% taxes. Basically alls we’re doing is taking the gray line subtracting taxes for it 12% less. So you can see less of a slope and even further reduced at a larger tax bracket at the 33% tax bracket. So as I mentioned uh I have a specific presentation coming up on Roth conversions. I do have some slides here as well. But if this is a concept that you’ve thought about before or heard about it, I believe everybody should consider a Roth conversion. Right? We can walk you through the exercise and we just have to make sure it makes sense in your specific situation, but could be something beneficial to you as well. All right, so we know that there’s going to be some reduction on those accounts due to taxation, but now we’re going to look at social security, right? At least we’ll have still have social security to supplement income and Medicare to pay health care costs. So social security and Medicare, right? They have their own traps, tricks, sir charges, just different things you need to plan for as well. So the first thing we’re going to look at here is social security. So social security and taxation. So to look at this, we’re going to go back to Bill and remember Bill took $1,000 out of his IRA to go on that concert road trip. So all he did different in his life from one year to the other, he took out $1,000 from his IRA. So his IRA income went up. It was $45,000. He bumped it up to 46,000. Social Security benefits stayed the same, $37,500, but that extra,000 increased his adjusted gross income from 74,000 to 76,600, increasing his taxable income from 58,6 to 60,000. So, by Bill taking out $1,000, he increased his taxable income uh by $1,850. So if you divide it out, every $1,000 that he took out, it had 1.85 in taxes. So every additional dollar he received, an additional 185 was added to his adjusted gross income. So if you put it together, what Bill did is he came across something that’s called the Social Security torpedo. So Social Security has its own taxation rates. So if you have low income, we have married filing jointly under 32,000. Social Security has a 0% tax on it. Now it was described last year in the one big beautiful bill that social security is no longer taxable. That’s not true. Social Security still does have its own tax schedule. What happened last year is the standard deduction was increased for those over 65 to compensate for the taxation on social security. But social security is still taxable. Again, married filing jointly under 32,000 no taxes. If you are 32,000 to 44,000, half of your social security is taxable. And then if you go above that 44,000, 85% of your social security is taxable. So that’s what happened to Bill. the social security torpedo. His $1,000 crossed that threshold. It pushed the taxation taxation into 85% taxable. So by walking through the scenario, his taxes would have been $7,600. His taxes are now 8,000. So, he effectively created a $400 tax bill on his $1,000 distribution, giving himself a tax rate of 40% on that versus the 22% marginal tax bracket. So, that’s what happened to Bill, right? He took more money out. He wasn’t aware of the taxation on social security. He didn’t know that that $1,000 pushed him into the next category, and he didn’t know he’d be paying a 40% tax rate on those monies. Maybe if Bill knew that, we could have looked through some scenarios, looked at other assets that were not his IRA that may have avoided that for him as well. So, that’s what happened to Bill. That’s the Social Security uh torpedo. We’re going to talk more about Social Security, right? Different approaches in retirement, right? This is kind of tied into Social Security. You could retire completely. You could stop working. You could continue to work, but you could work less, right? just maybe a part-time job, get some income, do it for some uh hobby or recreation while you’re still getting paid. Uh semi-retire into a passenger driven job. Uh retire and volunteer. So, we’re going to kind of look at these scenarios. We’re going to say, all right, social security, the good, right? We’re going to go over the good, the bad, and the ugly. Social Security is calculated on the highest 35 years of earnings. So if you’re still working and you are increasing, right, you are earning over 62, you can still increase your benefit while you’re taking social security payments if while you’re working you replace a low earning year or a zero year. So when you start receiving your benefits, they’re going to calculate it high as 35 years. So if you have a zero in there, if you didn’t work a full 35 years and you continue to work while you’re receiving benefits, it can increase how much they pay you. So that would be the good, right? You could still get some increases. Now, the bad would be if you’re working, if you’re under full retirement age, you’re working and receiving benefits, you could have your benefits reduced by your income. So, as the calculation goes, you’re going to have a $1 reduction for every $2 earned over a threshold of $24,000. So, for example, if you made $44,000, $24,000 is fine. $20,000 is an issue. The way they reduce it is one to two in earnings. So, they would reduce your benefit by $10,000 or $830 a month. So, you could see pretty quickly if you’re receiving benefits and you’re still working and you’re under full retirement age, this could be a substantial reduction for you in the amount you receive. So, you have to be careful of this. Now, they do pay this money back to you once you receive once you reach full retirement age. It’s a bit of a calculation. It’s not one big check when you turn 67 or 66 in a few months. It’ll be a calculation. It’ll be spread out over time, but you just need to know if you’re working, if you’re making more than 24,000, there could be a monthly reduction in there for you as well. Now, that was the good, that was the bad. We have the ugly. Now, the ugly would be social security taxation. So, you pay into the system if you’re still working, right? They’re taking money out of your check to pay into the system. If you’re working and receiving benefits, you’re receiving those benefits. And those benefits are being taxed to you at the same time. Earnings being taxed, benefits paid being taxed, you might call it a double taxation. But if you’re still working and you’re not replacing one of those low years out of 35 or a zero year out of 35, you just may have that double taxation going on and you may receive absolutely no benefit for it as well. So that is the ugly of social security. The taxation on the two things to consider when we’re walking through a financial plan is do I need these funds while I’m still working? Can I delay those benefits and find a more taxefficient way to take my benefits? So next we’re going to talk about Medicare. Medicare and taxes. Medicare again a good way to explain it is an example. George and Martha. George and Martha wanted to go on the same road trip kind of road trip that Bill went on. So George and Mara Martha uh they have Medicare Part B and Part D active. They have in 2024 because Medicare looks two years in a rear. 2024 they had $342,000 in modified adjusted gross income. they sell $1,000 in stock. So if they sell $1,000 in stock, right, it’s not an IRA distribution. A stock sale would count as capital gains. So what they’re looking at is 15% in capital gains plus an extra 3.8% in what is called net investment income sir charge, right? Because their income is over $200,000. So again, if you look at it, if they sell $1,000 in stock, they should only have to pay $188 in taxes, 18.8%. But we’re going to look at it differently here. We’re going to say they need to watch out for the Medicare Irma cliff. So what that cliff is is uh Medicare Part B is paid on income levels. So again, for 2026, it’s what your income was 2 years ago in 2024. So now uh they were at George and Martha were at $242,000. They took an extra $1,000 as a stock sale. So that’s going to push them into the next category in Medicare PartB Irma charges. So you can see here married filing jointly the base rate is $22 and then as you cross certain threshold it’s going to go up over time. The second bracket is 1.4 for the standard rate. The third bracket is two times the standard rate. And what George and Martha did by that stock sale, they pushed themselves in the 2.6 times the standard rate. So they’re going to go from paying $45 per person per month. They’re now going to have to pay $527 per person per month. So they have that extra charge. But with Medicare, they also have the Part D drug plan. And that’s going to have an increase per person per month as well. Same threshold. Once they went over 342,000, their premium went up from 3750. Now they’re at a plan premium of $60 per month. So, not only do we have to calculate the capital gains taxes on this, but we also have to look at the total Medicare Irma search charges of $3,470. George Part B, uh, an extra $121 per month, $1,400 per year. Drug plan part D, $275 per year. We times that by two because it was two, uh, George and Martha. So they’re going to have to pay an additional sir charge $3,470.
So if you put that together, right, the stock sale, right, capital gains at $188, we have the 3470 and Irma charges. So now what they’ve done by selling that $1,000 in stock is they’ve triggered real taxes of $3,658 or a 365% real tax rate on that $1,000 tax sale uh stock sale. So they might, if they knew that in advance, they might back up that conversation and say, “This might not be the best tax thing for us to do is to sell the stock. we have other assets, other avenues. We don’t want to cross into the next Medicare uh bracket. They could look at possibly cash distributions, possibly other avenues to do this, but in their situation, not knowing the Irma brackets, it cost them quite a bit in those search charges to get that done. Next, we’re still on uh Medicare, but we’re going to talk about some of the penalties that go along with Medicare Part B. if you’re not aware of these dates. So again, another example, Jim and an Jim and Anne are both 68. Jim retired at 65 and one year later when she was 66, they did get coverage through Ann’s employer who offered retiree health insurance. So the question is when should they have enrolled in Medicare Part B? Now, we’re going to talk about some of the penalties because they did not enroll at the right time. So, they’re going to be subject to a penalty. But you have to understand that there’s different enrollment periods with Medicare. The first one is your initial enrollment period. Your initial enrollment period, if you’re not covered by an employer plan that has over 20 employees, your initial enrollment period is going to be your 65th birthday, 3 months prior, the month of your birthday, and 3 months after. It’s going to be your initial enrollment period. Uh after that, you’re going to have a special enrollment period. Special enrollment period kicks in when you have a qualifying event. In our situation, Anne had a qualifying event when she was 66. She retired. She separated from work. Ann really should have caught the special enrollment period, which is 8 months after that event. So, she had 8 months to do it. You don’t want to wait 8 months because there’s going to be a gap in coverage, but that would be her special enrollment period. Since they completely missed those, they’re going into a general en enrollment period. They were late in filing. So now they’re going to have a 10% penalty on the base premium of Medicare Part B for life. So 10% per person per month on that. So again, going back to that chart we looked at, Medicare Part B, base amount is $22.90. They’ve now have a lifetime penalty of 10%. If they missed it for two years, they’d have a 20% penalty, but they have a 10% penalty. So, they’re each paying $20 more a month. By 12 months, they’re each paying around $250. They’re each paying well, a combined $500 more in penalty for the late uh the late coverage. And that’s going to go on for life. So, they have to pay that $500. So, you could run some financial calculators. You could say life expectancy is another 30 years for them, $500 a year. We could translate that into a $10,000 mistake by missing their enrollment periods. So, you want to watch out for enrollment periods, but you want to also watch out for coverage gaps. A lot of people think that they will leave work, they’ll take COBRA, and they’ll be fine and they can wait a while. May institute a penalty. and that period of time where you have COBRA, that’s not going to be your primary insurance because if you are over age 65, you are expected to have Medicare as your primary insurance. So, watch out for the COBRA as well. But that is the uh the penalty and the search charges on part B for missed opportunities on the enrollment. So, we’re going to talk a little bit, right? Other tax traps, other ideas. What we want to talk about here is sequence of withdrawals. You’re probably familiar with sequence of returns, right? If I retire and the market’s down, what will that do to my financial plan? If I retire in a good market, what does that look like for the next 20 years? That’s a sequence of returns. What your accounts actually make. We’re going to talk about sequence of withdrawals. which accounts to take your income from. Whether it’s first using taxable accounts, tax deferred accounts, that’s the traditional 401k, traditional IRA where you have to pay the taxes when you t take it out. Or the third category, tax-free assets. If you have the Roth account, where do tax-free distributions fit into an effective withdrawal tax effective withdrawal strategy? So, when you look at this, we look again at another example. Husband and wife, they each have an IRA. Each is $450,000 in pre-tax money. They have to pay the tax in. So, it’s a joint retirement account with the government. They each have uh $60,000 in tax-free distribution assets through their Roth IRA. And then they have their joint bank account, savings account, CDs, things like that. So you put it all together, they want to spend out of all these assets, they want to spend $8,500 per month. But what is the most efficient way for them to go about this? So if you look at it in the most conventional basic way, what you look at is spending taxable money first. Taxable money would mean bank accounts, savings accounts, brokerage accounts, right? investments, stock accounts, anything that’s not a retirement account asset, that’s going to fall into the taxable money first category. Conventional wisdom continues on taxable accounts first, then you go into your tax deferred accounts. Tax deferred accounts are when you take it out, you have to pay the taxes. 401ks, traditional IAS, when you make a distribution, you have to pay the taxes. If you wait for the required distribution, you have to pay the taxes. And then the third layer in this theory is taxexempt money. Tax exempt money would be for example the Roth IRA. It’s growing taxfree. We have possibly some municipal taxfree bonds. Any tax exemp exempt money that can create some taxfree income for you. So if you put that together you might be scratching your head and say all right what does that look like? What do I have in each one of those categories? And if I do this conventional wisdom, what would that look like for my personal situation? I shared one slide from the financial planning before that was the cash flow overview. Another one that we have here is called lifetime portfolio values. So we can model the conventional wisdom and we can say if you take from taxable first tax deferred here’s what your distribution plan would look like not only for the next 10 years for the next 20 years and so on. We can model market performance in there as well. Show you those sequence of returns. Right? Here’s in a good market. Here’s in a bad market. We could do some stress testing to the portfolio. We could show the value of the account growing over time with your withdrawals on that conventional wisdom. Now we also have the ability here within this comprehensive financial plan on the left hand side we have the ability to change these scenarios and have different views or different tax conversations with you. So what I did here in this slide is I just changed it and I said instead of conventional look at it differently. Let’s look at it. A liquidation strategy using the IRA or the tax deferred assets first. So, we’re going with the liquidation strategy of 100% they call it qualified. Qualified is a retirement account qualifies for special tax treatment. But basically, we just turned on the switch saying jumping conventional wisdom for my personal situation. What does it look like if I take out those tax deferred assets as as as a first draw down now in this plan by putting on that toggle switch over the life of the plan this added value to the lifetime portfolio values bottom right hand corner just by looking at it in a different withdrawal strategy added close to $200,000 in portfolio values by looking at what your specific best tax withdrawal strategy is getting away from conventional wisdom. Um there’s different studies, different uh reports, white papers on ways to go about these withdrawals, right? Converting to Roth under the new tax laws, effective social security strategies. Do you start it early? Do you start it late with taking your u IRA distributions? How do you mix in the social security benefits? And then finally, efficient tax efficient withdrawal strategy. So many different ways to look at this. So we’re going to put all this together and we’re going to say here’s an alternative approach. So an alternative approach is number one, spending down taxable money first. You’re doing bank accounts, you’re doing brokerage accounts. These are the taxable nonretirement accounts. By doing that, you’re kind of keeping your tax brackets lower, right? So, what we’re going to do is have lower tax brackets. We’re then going to go to step number two. We’re going to convert the IRA and we’re going to do the Roth conversion in those low low tax years. So, taxable money first, convert the Roth, then we go into whatever’s left over from the conversions, we’re going to spend tax deferred money, spend that down until depleted. let the financial plan then pick up with the Roth or taxexempt withdrawals. That’s the alternative approach. Really, what we did is we put those Roth conversions in the middle. Again, based on your situation, we can model this for you and say if you go with the alternative approach, if we add in those Roth conversions and do a different taxefficient distribution strategy, this is what it would look like. Green is what it adds value to your lifetime portfolio values. Bottom right hand corner. We started at zero. We did a little tax efficient planning. We got you to $200,000 in value gained. We went further and did another alternative approach. Created almost $700,000 in value gained by going with this alternative approach. Again, everybody is different, right? Different scenarios, different phases of your life. But just want you to know that there’s some opportunities there to look at either the Roth conversion or the tax efficient withdrawal strategies from your accounts. Just continuing on one step further, this is another financial plan output. This is the tax ledger. Left-hand side is the do nothing strategy. Right hand side is where we show the alternative approach. I’m just going to highlight left-hand side there was very low tax years. you were paying no taxes in those first few years of retirement. And then by going into the alternative strategy, we did create some taxable income by doing the Roth conversions. But by doing so, we smoothed out the ride over time. So at the end of the plan here, instead of tax uh total taxes being $19,000, by doing the alternative approach, taxes were $10,000 in the last year. So, it was able to smooth out the ride over all those years instead of being all taxed backloaded at the back of the plan. So, with that said, I’m just going to go over Roth conversions here a little bit. Again, another presentation coming up on that in a few weeks. If you have any questions on this specifically, you don’t have to wait a few weeks. We can have these conversations, but everybody should consider a Roth IRA conversion. A lot of times in my conversations, it gets mixed up. you have a Roth contribution, you can make a contribution. We’re not talking about that. We’re talking about a Roth conversion. So, you already have IRA assets. You’re going to convert it to Roth. You’re going to pay the taxes now. You’re never going to pay the taxes again in the future. So, this uh example always makes me chuckle a little bit. Uh Jill converts $100,000 from her IRA to her Roth. Jill will have to add that to her income and pay income taxes. So, it makes it seem very simple. So, it’s a big number, but Jill would have to add $100,000 into her taxable income for the year she does the conversion. Uh, graphically, if you look at this, think of it as buckets and a and a watering can. Each one of those buckets is a marginal tax bracket. So, you have a standard deduction. Then, you’re going to go into the 10% bracket. You’re going to fill up that bucket. Those next dollars would be at the 12% bracket. a big jump to the 22% bracket, 24, 32, 35, and so on and so forth. So, if you look at those buckets, right, 32, 35, 37, you may think to yourself, I’ll never get to that point. We run some projections on required distribution. You’d be surprised at how large those can grow over time and how those distributions get. And if you don’t get to those buckets, it continues to grow. Maybe your beneficiaries get into some of those larger buckets. no laws right now in place, but if tax rates are ever increased in the future, right, a Roth conversion would hedge against that. So, basically, think of the Roth conversion as that watering can. What we’re trying to do is fill up the tax bracket. So, if you’re halfway through the 12%, we do the calculation. We look at your income sources and we say for 2026 I could tell you how much more room you have left in the 12% bucket before you go into the next the 22% bucket. Once you’re in the 22% bucket again we could do the calculations say how much room is there to fill that up before you would go into the next one. So we could tell you specifically how much it would cost to do a Roth conversion and how much room you have in each one of these buckets. Again, you might look at this and say, “This is a good idea. This may help me. This may help my family, but I have no idea where I’m at on these buckets, and I have no idea how to get a good grasp on where I’m at on these buckets.” So, again, going back to uh one of the outputs in a financial plan, this is the tax bracket output. So, this is showing the marginal tax brackets. Uh the orange line starts the 12% bracket. Once you get to the uh I’m sorry, the green line starts 12%. Once you go above orange, you’re in the 22% bracket. Once you go above blue, you’re in the 24% bracket. And then you can see on the right hand side, they go up, but then they shoot down. And what that is representing here is this is left hand side married filing jointly, right hand side surviving spouse continuing on. So a surviving SP spouse goes from married filing jointly to an individual tax filer. All the tax brackets are shrunken down. So if you notice left-hand side, more income, more income taxes. Maybe you’re working, maybe you’re both working, but at some point in time uh this little sunset, right? Stopping working. We have very low to no income tax years. So we’re going to specifically identify those low tax years as opportunities for a Roth conversion. So what we do from there is again we go through an interview process with you. We gather this basic information but we say in modeling a Roth conversion we can identify the years through 2030 in this example through 2036. We can say we want to fill up that 12% tax bracket. We want to do a specific dollar amount every year. We want to compare the two and find out what your best uh options are. And then we go back to the income tax bracket. We look at the results. Uh the results are signified by the yellow bars with the taxable portion of the Roth conversion. That’s just filling up those tax brackets. What you could see happen is it added some taxes with the yellow right on the lefth hand side, but significantly reduced future taxation on the right hand side. smooth out the ride and reduce the tax liability for a surviving spouse. As well, when I say everybody should consider this, um, what I mean at the bottom of the page, this is going to show you over the life of your plan how much this could potentially lower your overall tax liability. It’s also going to show you how much a strategy like this could add to total portfolio assets for you as well. So, that’s the things that we’re watching. Does it help you on the taxes? Does it help you on the portfolio? So, that’s something that we could uh definitely take a look at and help you walk through. Um, again, just kind of wrapping up on Roth conversions. Basically, you just want to low look for low income years. You’re a business owner. You might have a low sales year, high expenses year. If you have some medical bills, right? Maybe you’re able to itemize those on a non-reoccurring every other year or so. But uh if you have a higher itemized uh deduction and then at retirement will you retire but before you receive social security benefits you start pensions or you start taking your IRA distributions and again happy to walk that through if you’d like more information or model your specific situation. Uh a few other options right this is uh getting away from Roth conversions but looking at managing tax brackets. Uh some of you may have life insurance policies, life insurance policies if they carry a cash value. You may have the opportunity to take withdrawals, loans from those policies and do that on a tax-free basis to keep your taxation low and may help you with the Roth conversion. Uh selling highly appreciated stock, right? Depending on your income, there’s a 0% capital gain threshold. Most people fall in the 15% uh capital gains for selling uh stock and then taking distributions from your IAS of lower tax years, lower tax rates. It’s really the same thing. If you take a distribution, you have to pay the taxes on it. If you do the Roth conversion, you have to take the uh pay the taxes on it. So, it’s kind of a preference, whatever works out best in the financial plan. I just want to mention these really quick. Um, just the top one. I know a lot of people have health savings accounts. Uh, use those strategically and but what I mean by that is those are really Roth accounts, right? You’re not taxed going in, you’re not taxed going out if you have qualified medical expenses. So, not many people know this, but a qualified medical expense never expires. So, if you have receipts that you’ve saved from your medical expenses, but you haven’t gotten a reimbursement from your HSA, you could hang on to those receipts. They don’t expire. You could use it for future tax-free distributions either for medical living expenses. Um, not going to go too deep here into the qualified business income. If that’s something that uh you feel you want to talk about may affect you, it’s going to be a unique situation. Next topic with taxation, I want to talk about charitable giving. Uh what we’re going to talk about here is something called a qualified charitable distribution. Again, an example of this, Allen Shirley, they’re at the 24% uh tax bracket. Normal course of life over a year, they give $5,000 to a charity, multiple charities, it’s $5,000. They do not itemize enough. So they take the standard deduction. So their donations do not count for any tax benefits. So they just give away $5,000, get no tax write off because of it. Now, there’s something called the QCD, qualified charitable distribution. This is really going to tie up everything that we talked about, the IRA, the Medicare Part B, Irma. So you can give, an individual can give up to $111,000 this year, 2026. It goes up a little bit each year. So that is per person. So a couple can give $222,000. It’s a big number. You can give $1,000. You can give two. You can give whatever you want, but up to $111,000. The catch here, the caveat is the distribution must go directly to the charity. So, we’re talking about using retirement account assets, IRA accounts, right? You do the distribution to the charity. The big thing here is it counts as your required distribution, but it is not reported as income and you get no D tax deduction either. So, this is going to count as your required distribution. So, you need to be 70 and a half to do this. Again, required distributions are 73 75. So most people kind of time this with their required distribution. The first example is uh this Allen Shirley, they did not use the qualified charitable distribution. They took $5,000 out of their IRA. It immediately became taxable to them and they had a 24% tax liability on that. So they took receipt of those funds, paid $720, then they gave it to the charity. So total cost of the contribution 5720 because they had to pay the taxes on it. Now if you do the QCD qualified charitable distribution, it goes right from the IRA. It you do not receive it. So we get these requests all the time. They come in to say here’s my list of charities. This one gets X amount. This one gets X amount. So the IRA is actually going to send the funds to the charity, not to you. It satisfies your required distribution. It does not count as income. It does not subject you to the Social Security torpedo tax. It does not subject you to the Medicare Irma Part B sir charges as well. So, if you find yourself charitably inclined, this is a good way to do it. If you find yourself charitably inclined, but starting to cross some of those search charges, this is a great option for you as well. That’s the qualified charitable distribution. Um, finally, we’re just going to talk a little bit. I know it’s coming up on the hour, but this one I wanted to touch on, make sure everyone’s aware. Everything we talked about was retirement account assets, retirement account assets, taxation. So, if you have nonretirement account assets, if you bought some stock, and again, the last three years have been just phenomenal, that stock has gone up in value. I had a client that had some Caterpillar stock and he’s like, “It didn’t do anything for years. Now it’s $1,000 a share.” But there’s something called the step up in basis. So essentially, your beneficiaries get these funds with a step up in basis. So whatever end of life is value, that’s what they inherit it. If it appreciates from there, then they’d have to pay taxes on it. So stock things, accounts like that are very tax efficient, passing to the next generation or the beneficiaries. Traditional tax deferred IAS are not very tax efficient but step up in basis. This is an example. This is a very unique example but husband and wife uh husband was diagnosed with a terminal illness. So they kind of illustrate two examples here. Do nothing. It’s a joint account. If the husband passes away, they would get a step up in basis on half of the account for the husband. There’d still be a tax liability if the wife wanted to sell her assets. That’s scenario number one. Scenario number two, they’re illustrating, well, if they knew they had that diagnosis, if they changed all assets to the husband’s name, it’s a marital asset, they can do that. He passes away, then the entire account gets a step up in basis and the wife wouldn’t have to pay any taxes on the gains in the account. She would sidestep that because she would get the step up in basis. So kind of important for that conversation, more important for uh beneficiary planning. Beneficiary planning uh of course includes IAS and inheriting IRA accounts. These rules changed a couple years ago. Beneficiaries would be able to stretch IRA payments over their lifetime. That means it was kind of a tax-free distribution. They pay a little bit of taxes every year for a very long period of time. Government came in and changed that. They said, “No, we’re going to give you a higher required distribution age, but we’re going to make your beneficiaries take the money out quicker.” So now what has to happen is these balances have to be taken out over a 10-year period. So if you’re a beneficiary, if you’ve received one of these IAS, you’re probably aware of that. I had somebody come to me that they received one of these years ago and they did not take any required distributions to do a big calculation, get them current on the account. But if you have a beneficiary IRA, the way it stands right now, you have 10 years to take the money out. You could take it out equally over those 10 years. You could wait till the 10 years is up and then take it all out. But again, going through the tax brackets, probably a very large tax liability at the end of 10 years. This example was saying that the sun took the money out equally equally year-over-year. Took an annual distribution of $54,000, just paid a little bit of extra income taxes on it. If he would have waited the full 10 years, he’s got a 10-year distribution, $716,000, pretty much guaranteed that he’s going to pay 37% on all that money. So, that’s just a more efficient way to do it by taking the uh the distributions equally. Another side note on the 10-year rule. Uh this is taxable money that we talked about. There’s also a 10-year rule that applies to Roth IAS. So the beneficiary could hang on to that Roth IRA for 10 years, enjoy some continued time of tax-free growth. 10 years, the money has to be out of that Roth IRA as well. So that’s it. Uh there was a little section here on long-term care expenses. Uh I’m going to kind of breeze over this. It’s a bigger conversation. I just wanted you to know that those are conversations that we can have as well if you have any questions regarding health care cost, long-term care planning, and the effects on your uh portfolio as well. So, with all that said, right, we’re just going to recap here a little bit. Uh, four stages of retirement. Pre-retirement, right? We want to know how you’re saving. If you have a Roth 401k, if it’s tax-free, that’s a good thing. But if you don’t, we want to know what your after tax is. After tax liability, how much could be taxable? Early retirement, we want to start looking at your social security benefits, targeting the optimal time, whether you take it early or take it late, what the difference is over your lifetime. Want to make sure we understand the social security and Medicare taxation. We want to understand filling in income tax brackets on low years, either with Roth conversions or just plain old withdrawals. Now, we got to worry about middle retirement and the required distributions if that may affect Medicare, if that may affect your marginal tax brackets as well. And then finally, again, long-term care estate planning beneficiaries in the fourth stage of retirement as well. So, with all that said, um this is kind of the things that we do here at the credit union for you. All right, we can go through and put together that financial plan or tax strategy. It kind of shows you which accounts, which assets to go to first for your expenses to do it in a taxefficient manner. And then also uh manage the accounts just so you pay the lowest tax rates possible. We want to look at distribution, spending phases, make sure that is set up correctly for you. Managing taxes and also education and planning. as we go through these four different stages says here right request a tax and retirement planning overview meeting that’s something that we do here um I’m just going to launch a poll any of these topics that you want to learn more about if you want to talk to me about this financial plan uh just let me know we’ll make sure we respond back to you uh credit union likes me to put out these polls just to make sure we’re touching on the right topics for you making sure we follow up but this would be putting together your tax and financial planning strategy by working on your financial plan, customizing this. I know a lot of advisors, a lot of investment firms don’t even offer this or they charge thousands of dollars. So again, part of the membership of your credit union members helping members. So happy to go through the plan with you. Happy to go through these different financial foundational planning topics, making sure that we have you on the right path for retirement. I breezed through it. I got it done by the uh top of the hour. This is my contact information. I always say call, click, or visit, right? Phone number. Uh you can email me. Uh I’m at the credit union every day, so we’re open to investment in-person meeting. So if you’d like to talk about any of this in person. If you have a camera, if you scan that QR code, it takes you right to my calendar. Go right to my calendar. It sets up a Zoom meeting just like this. You’re also welcome to say, “Hey, I’d like to come in the office and talk.” But with all that said, I’m sorry it took so long. We got to the top of the hour. I think I noticed we have some questions coming in as well. I’ll give you one more opportunity to if you have any questions, any of the topics that I talked about, if you want me to address those, feel free to use the chat feature or the uh Q&A feature. And uh just a few questions that came in. Uh one said, will you discuss what happens to heirs if don’t live as long as planned? So, I’m not sure I understand the question, but it could be either if I don’t live as long as planned beneficiaries receive the money sooner might be a consideration if you have uh minor children as your beneficiaries. If you have beneficiaries that you outlive, uh there are certain beneficiary designation. So, number one, I mentioned estate planning. You could have a trust set up that specifically designates what happens in certain scenarios. Or when we do our investment account beneficiary designations, we could put on there a term that is called per sturppies. Purerpies means that beneficiary, those funds are going to stay within that beneficiary’s family. Doesn’t go to the other contingent beneficiaries. So yeah, I might have to walk you through your situation a little bit. Uh again, we could talk about uh estate planning documents, wills, trusts, power of attorneys, and the all important uh healthcare directives as well. Uh great question that came in. Uh are there limits on how much you can convert to a WTH annually? I always say with a Roth conversion, um anyone at any time for any dollar amount can do a Roth conversion. The government would love for you to do it all at once. have a giant tax bill. That’s not the most taxefficient way to go about it. We usually run the financial plans and we find a systematic strategy for you over the course of a few years just to take advantage of the lower tax brackets or keep the uh conversion as tax efficient as possible. But again, converting anyone anytime, any dollar amount, it’s different than a contribution, but a conversion must be done by December 31st. And once you do it, you cannot undo it. That’s a Roth conversion. Now, the good question is, is there an age limit on when you can do a QCD, qualified charitable distribution? So, there is. On the front side, you must be at least 70 and a half, but there’s no age limit on the back side. Once you’re 70 and a half, the only limitation is you could only do $100,000. uh $111,000 each year as a QCD. You can do any amount underneath. No age limit. Just got to be 70 and a half. Another question. If you do a Roth conversion for $100,000, does it count towards your Irma? Yes. Yes, it does. So, we have to watch that. We have to watch the effects of that. Uh for social security taxation, we have to watch the effects for Irma sir charges. And then we have to weigh those effects. If you cross some barriers, you say, does it make sense for me to pay a search charge this year when potentially I could benefit from this for many many years to come? But that does count towards Irma. Great question there. Uh we had a couple thank yous. So thank you for the thank yous. Uh we have a question here. What is the fee for financial planning? You state you can do that for some. What does that mean some people? Um, so financial planning, I’m a certified financial planner. I believe every client should have a financial plan in place. Helps you understand your situation better. Helps me understand your situation better. Um, I I’m also a registered investment adviser, so I cannot make any recommendations to you until I totally understand really what we’re trying to accomplish, how you’re currently invested, what your goals are, what fees you might be paying, what risk tolerance you’re currently taking on, and how that coordinates with where you need to be. So, the fee for financial planning, I’m sorry, that’s some people, but we don’t charge for the financial planning. Again, it’s a part of your membership of the credit union. helps us understand your situation a bit. The some people I might have said that because there’s so many members to the to the credit union. I can’t do this for everybody, but uh some people, you know, just uh if you’re aware that we’re here if you set up some time, happy to walk through that with you. Some people need the full financial plan, some people uh need some specific questions answered, but that is a free part of your membership. We’re not going to charge you for that. I think one more came in at the end. Um, so let’s see. Yeah, another question here. If Medicare rates go up one year, can it go down another year? Yes. Uh, it’s always based on two years in the rear. So, if you have a oneoff year, um, higher income, Roth conversions, employment in, anything like that, uh, it would go down the next year. It’s a 2-year in a rear. I looked it up. no other reason that it takes government two years to get all the numbers and figure everything out, but uh two years in the past. So, if you have some one-off situations, retirement coming up, there’s also a form that you could kind of uh request that you have a one-off income situation and it for not for it not to count in your income uh for that year. So, I could walk you through that as well, but two years in the rear. Uh I think we did it. I got through all the uh the questions here. We’re a little bit past the hour. So, I appreciate everyone kind of hanging on and uh and bearing with me here, but if you if you do have any questions, let me know. Um the credit union will send out a follow-up email on my behalf at the end of the presentation. Thank you for responding to the poll. It helps us uh improve the uh the content that we’re sending out to you as well and follow up with you. Appreciate your time. If you have any questions, please uh let me know. Otherwise, hope to uh talk to everyone soon. Have a great afternoon. Thank you so much.