Good afternoon everybody. Thanks so much for joining us today. Uh we’re going to be uh presenting our webinar on tax planning uh changes through the four stages of retirement. My name is Christian Chaplua. Uh I’m a financial consultant here at Alliant Retirement Investment Services. So we work with members throughout the United States. Uh I work primarily with folks on the west coast uh but other parts of the country as well as well. So, uh, welcome for from wherever you’re joining us, uh, today. Uh, a little bit about myself, uh, before we get into our agenda and, uh, some some other topics. Uh, I’ve been in the industry on the financial planning, uh, personal finance side for 15 years. Uh so we really look forward to these webinars to help you with your financial planning and uh have a you’ll have a chance to ask questions uh set up a meeting with me if you like and um just want to give you the chance to to work on your financial plan uh make it the best uh best plan possible and benefit from all the ideas, strategies, technologies that we have available to you and u that includes tax planning and uh through the different stages of retirement. So again, thank you for joining us today. Uh before we get through the material, uh quick housekeeping item. Uh you know, just in in terms of uh the presentation to kind of protect content and privacy, just kindly ask that you do not record, reproduce, distribute any part of this presentation. So that includes video, audio, screen capture, any kind of AI based tools. Um again uh really appreciate your understanding on that front. We have a couple webinars coming up. Usually we uh have these once a week unless uh I’m on vacation or away for travel. So uh the next one is estate planning. That’s going to be six steps to legacy planning for the generations. Uh so very important part of financial planning. uh just to think about the estate coordination, all the different documents to put your estate in good order, uh think through some tax implications. Um so if you’re interested uh decide to get that done this year, please do join us uh next week uh at 2 p.m. Pacific. Then we’re also going to have um Medicare presentation coming up on the 25th. Uh so just thinking about health care costs in retirement uh Medicare plus long-term care how it all works. So if you’re approaching uh Medicare age, please do join us. Uh lots of great information. In addition to our webinars, we’ve got our uh invest podcast which has various episodes on lots of kind of uh financial planning topics. We’ve also got our website, our blog, tools, templates, articles, uh lots of great information to help you with your financial planning journey. And then um wanted to mention also how we can help you. So if you’re t tuning in uh thinking about financial planning, thinking about investments, uh asset allocation, um taxes, um you know, these are all the ways that we work with clients. So uh number one uh we offer a complimentary financial planning service uh so uh that includes you know organizing your income, expenses, savings, insurance, taxes into a financial plan so you understand your cash flows over the coming years and decades. Um so that is available to everybody uh no charge so tremendous value. Uh if you’re interested in advanced planning, so that includes Roth conversions, tax planning, uh cash management strategies, things like that, then um that is available to clients. So um it’s very easy to become a client. We we uh obviously love working with people and try to encourage that as much as possible. And with that comes advanced planning uh no charge uh as a client. Uh estate planning also available to clients. We have a digital estate planning service. I’ll show you a slide in a little while. um great idea to take advantage of that. Uh tremendous savings versus attorneys. Um for 90% of people it works great. Doesn’t take um you know it takes a few hours if you’re very diligent or you could spread it out over time. But estate planning um and that goes in line with our webinar uh next week. So if you’re interested in that, please do give me a call, let me know. I’ll launch a poll a little later on. You’ll have a chance to set up a meeting with me. Um so investment management is another topic that includes asset allocation um investment strategies various uh types of products uh portfolios uh all available to you. We have active, we have passive portfolios, um we have no fee options, uh we have feebased options. I am a fiduciary. Uh so we just want to help you with your plan, get to your goals and execute in the best way possible. Uh so hopefully you take me up on the invitation to uh set up a meeting. And with that, wanted to uh uh get started on our topic for today. So quick brain teaser in terms of taxes. Uh, Bill is retired, has taxable income of 58,000. Uh, is in the 22% tax bracket. He’s got some IRA income, 45,000. He’s got social security income, 37,500. Decides to go for a concert. Great idea. Um, looking at an extra $1,000 for a road trip. But the question here in terms of our brain teaser is how much will he owe in taxes on that extra $1,000? So you can see the tax brackets on the kind of right hand side. Um you know going from 10% to 37%. Um you know the um whole ideas here is that you know taxes are tricky. Uh so you want to kind of just be aware of all the different brackets all the different kind of uh uh risks or or chances that you’re going to jump to a different bracket. And that’s exactly what’s going to to happen with our friend here. um you know, he’s paying 22 cents on the dollar in federal income taxes for um you know, his tax liability. So, you know, the simple math is that on $1,000, he should owe $220. But um actually, he’s going to owe $47 on that uh concert road trip. So, um that’s going to be a 40% tax rate, which is kind of a a surprise. Uh we’ll show you how we get to that calculation. But um it’s just a little kind of uh you know insight into um you know watching your tax brackets uh understanding tax code so that you don’t get surprised with things like this.
When it comes to taxes uh you keep in mind that today’s presentation is about kind of uh investment management, retirement planning, financial planning. um you’re um you know whether you do your taxes on your own uh you’ve got a CPA, rolled agent, anything like that. Um you always want to kind of consult professionals, people who are licensed uh to get the the right answer about your taxes. We are not a tax service. Uh but we know a lot about taxes and how it impacts your overall financial plan and that’s kind of the the focus of today’s discussion. But just want to mention, seek professional tax guidance when you need it, when things are tricky, um when new things happen and uh usually it’s money well spent. Uh I know that many of us, many of you are are doing your taxes on your own and that’s okay. Uh that’s terrific. Um if you’re confident about that. Um but you know, again, today’s discussion is is just about general financial planning. Um so we’re going to talk about traditional IAS, which are tax deferred vehicles. tax deferred retirement accounts, you know, Roth IAS. Uh we’re going to be talking about uh uh tax-free retirement accounts and and some ideas there. Um and then there’s state taxes that you want to be aware of. So, uh again, um you know, seek out professional uh tax advice uh when appropriate, but uh today will put you in a good place in terms of being aware of all the issues.
There’s kind of two phases of retirement that you want to be aware of for taxes. And one is the uh accumulation phase. So that’s when we’re all working, saving for retirement, hopefully um getting u you know vested and contributing to our 401k accounts, our IRA, individual retirement accounts or uh 403bs or whatever we have access to. Um when we head into retirement, we’re going to be entering the distribution phase. And so that’s our spending phase. And you know depending on sources of income we’re going to be drawing down on our retirement accounts at different rates uh sequence of returns uh that gets around or kind of speaks to rates of return inside of the the retirement account. Um and so things are going to change as all those different variables change and our nest egg and and uh you know the again the distribution phase of uh retirement just a distinct phase of um of the overall financial plan. And then as you get into that you want to just consider the changes in terms of tax code. So that’s going to include child tax credits which are kind of going no longer possibly going to be available to you. uh you know, interest deductions. Uh if you’ve reduced your your mortgage or paid off your your mortgage, um that’s a great problem to have. Obviously, um less debt and less financial obligations, but it’s going to impact your your uh your tax returns given the um interest deduction that’s no longer available. um you know tax-free employer paid medical insurance um you know might no longer be available as a deduction and uh contributions uh to your 401k no longer a deduction either. So that’s the difference kind of uh as a quick summary you know in the in the accumulation versus the distribution phase uh you know throughout uh our financial plans and just want to keep in mind all of these different um changes and and deduction opportunities and contribution opportunities uh as we go through one phase into the another into the other. Then of course, you know, social security, required minimum distributions, Medicare, long-term care. These are all things that we’re going to be facing uh in uh in retirement u you know, as we age and get uh into our 60s and 70s. So the whole idea for today is uh just you know paying less tax hopefully. Um it is a bit confusing. Uh we saw a little example there at the beginning and um we want to make sure that you’re aware of some of these uh kind of um ideas and and penalties um going forward. Your tax exposure will change over time changes for all of us. So again, you want a strategy and you want to be aware of the the major issues. Here are the four stages of retirement. So we’ve got pre-retirement which is 50 to 60. That’s when people are starting to feel like retirement is on the horizon. Uh because it’s getting closer. Uh early retirements age 60 to 70. So that’s when the bulk of folks are are entering their retirement years. Might be voluntary, might be nonvoluntary. Um and then we get to middle and late stage retirement. So that’s 70 to 80. Um that’s kind of the early years of retirement. We’ve got, you know, more energy, our health is better, more activity. We tend to spend more on travel, things like that. then late retirement. We’re planning we’re planning for those um you know later years and uh everything that we need there in terms of uh increased you know health care budget or long-term care or support around the house and really depends on you know um how well we’re feeling our longevity prospects and you know whether or not we head into our uh 80s 90s you know 100 years uh with improvements in medical services and technology um you know living to 90 is not a big deal anymore. or living to 100 um you know very possible especially uh in the future and we’re all going to be hopefully uh impacted by some of those advancements. So that’s why you want to get your financial plan in order. Um and it sounds simple but uh you know it it takes diligent work to um to kind of work save plan for retirement and it takes years and decades.
You want to be aware in your financial plan of these factors. So inflation, longevity expenses, healthcare taxes, they’re going to impact your financial plan a great deal. Um healthcare taxes, uh certainly how long you live, longevity, um your budget, your assets available, inflation rates will certainly change the scenario, um as the cost of living goes up and depending on your different uh you know what your balance sheet looks like in your net worth. So when you think about again retirement taxes uh you know quick suggestion here key point number one you know start with the end in mind. So know what your after tax retirement savings picture looks like before retirement. Um especially you know this is so important when we think about our 401ks and our IAS because you know if you’re married filing jointly uh you know half a million dollar portfolio is actually worth you know quite a bit less. You know 22 24% tax rate you’re looking at somewhere around you know 380 $390,000. So that $500,000 is not actually kind of in your pocket. it’s your um you know after tax cost um after tax take-home amount that you should be focused on and that’s going to be impacted by your tax rate. Um and then also you want to keep in mind those RMDs require minimum distributions uh age 73 and 75. Um that’s when you’re going to be withdrawing automatically at those ages um because you got a tax break going in. So um there is a required distribution or withdrawal that’s um that’s mandatory u at age at those ages um and that uh is going to offset some of the the benefits that you had kind of saving for retirement.
Here’s a quick snapshot of a um you know after tax account uh and um you know one with a 12% tax rate and one with a 33% tax rate. So, um you could see that, you know, taxes um make a big difference in terms of, you know, your again your um your take-home pay, your your after tax returns. Uh so the $500,000 account, you know, with zero tax and taxfree account is going to be the, you know, the uh the highest dollar value, especially over the long term, 10, 15, 20 years. at a 33% tax rate, um you’re going to have the lowest kind of dollar value in this scenario, uh accounting for, you know, rates of return. And and that’s why financial planning is so so important because your tax rate, you know, your um rates of return over time, your sequence of returns, uh all these things are going to impact what your take-home is. Um and then your quality of um you know retirement uh in terms of reaching your goals and um having enough for living expenses and everything else. Then there’s social security um Medicare healthcare cost costs which are going to be different for all of us. Um but it’s again part of the overall financial plan and it’s kind of in the tax domain so to speak because um you know you are taxed on social security depending on uh how much you make and how much total income you have. Um it will supplement your other source of income um and then Medicare will be deducted from there uh plus any co-pays everything else. So you know all these things are part of the the overall uh financial plan and and uh and tax management. Here we have key idea number two. So social security Medicare um they have their own kind of tax watch outs as well. Let’s talk about social security really quickly. So this gets back to the example that we have at the beginning. So, uh, before, uh, you know, the concert bill had, um, you know, $45,000 in income, um, social security coming in again, his social, uh, AGI was $74,788. Uh, but when he decided to take out that extra,000 uh, for the concert, um, he actually, uh, increased his income to 46,000. And in this case, his AGI climbed to $76,638,
which increased his overall taxable income. And so, this is kind of the um you know, the the idea of the brain teaser in that, you know, his income tax uh went up um by about $400 from $7,600 to uh you know, $8,000. Uh and and that was because of that IRA distribution. and he was just kind of uh right around the edge there in terms of tax brackets where he was exposed to more uh taxable income because of that $1,000 that he took out of his IRA. And this can happen to any of us. It’s really tough to kind of watch every dollar and all the brackets throughout the year because we’re living our life and trying to um you know get to our goals, take care of our family and ourselves. Um so you know very easy um to have this happen to any of us. You know again this increase in AGI um in from one scenario to another uh resulted in taxable income going up um you know from scenario one to 70 scenario two. Um so again his income tax increased by $400 and uh for every additional dollar of income Bill received an additional $185 was added to his AGI um and his taxable income. And then again, the net increase was $47. Uh that’s an effective marginal tax rate of 40.7% versus the stated marginal tax rate of 22%. You know, based on that, uh $1,000 increase uh with IRA income. And again, um you know, just something to watch out for and um you know, just be aware of that you can slide into another tax bracket all of a sudden. um you know it’s very simple when we think about social security and Medicare taxes
when we think about retirement uh of course we have options we have choices so you know some of us are retiring completely uh some of us are um semi-retired or um or creating kind of opportunities for um volunteer work passion projects X all of the above. Um so you know every one of us is going to have a different retirement plan. Uh personal finance like I always like to say it’s very very much uh you know a personal uh project. It’s more personal than it is financial. Um so as we have these different approaches to retirement. um it’s going to impact our financial plan uh differently and um you know kind of where we spend our time and and uh the financial resources that we need to uh to get to our goals,
you know, working in social security. Um let’s talk about social security for for a few moments here. So remember that social security is um you know, it’s a great u retirement benefit if you paid into the system. um then you’re going to be you know receiving a a check from the Social Security Administration and um it’s based on the highest 35 years of earnings and those earnings uh can start at age 62 and increase uh to uh the longer you wait the the larger the check. So um typically people are waiting until full retirement age which is going to be uh around age 66 age 67 for most of us. If you keep working um even past full retirement age, remember that your earnings can increase um your your social security benefits and the reason is because uh again they use the highest 35 years of earnings to calculate your benefits. So, if you are working in uh retirement, you and you maybe started your social security uh benefits, um you could still get a higher check in the future because um you might be replacing some low income years or some zero income years and uh and getting a bigger check based on that averaging process.
Remember
that if you take social security early um your benefits could be reduced. So that’s why typically most people are waiting until age 66 or 67 their full retirement age to start benefits. These are kind of some of the you know taxes or fees that go into your overall financial plan. When you think about, okay, where I’m going to be drawing income from potentially, um, if you decide to take social security early and you continue to work, there’s going to be what’s called a earnings test applied, which, um, we could think of as an additional tax. The way it works is that a dollar of benefits will be withheld for every $2 earned over $24,480 um, in 2026. So it’s very easy to kind of uh reach that threshold depending on where you live in the country, depending on your financial resources and then it kind of you know takes away the incentive to apply for social security because then a big part of your social security check is going to um you know is being applied to the earnings test and you reduce your overall benefits. Um remember that when you reach full retirement age the earnings test goes away. So, if you’re working and you’re um at full retirement uh age, then uh there’s no haircut, no um nothing held back uh on your social security check. But again, if you are working prior to full retirement age and if you’ve filed for social security, the earnings test will be applied. So, you can think of this as a kind of hidden tax because um your overall take-home pay is going to be reduced based on um you know, this special situation. So keep that in mind for any of those uh folks considering taking social security early. Uh but if you’re not working then uh the earnings test is not applied. You will receive a little bit less than your full pension. Uh if you decide to um file for social security benefits prior to full retirement age. Uh but if you’re not working then um uh the earnings test will not be applied and that can be okay. you know, some of us um you know, it’s part of um you know, we have very good reasons why we might be applying for a social security uh early. Um if you have any questions or would like to talk about that, then give me a call. Um you know, most of the clients that I speak with, they do not take it early. Um but there are some special situations and that might be related to health or longevity expectations or, you know, a spouse’s salary. Uh so if you want to take talk that through uh happy to do that with you. um you know we do it often and you know again talk about what what is the optimal age uh to file for social security whether it’s before or full retirement age or wait till age 70 increase your um your benefits by 8% per year um you know all all of those scenarios
then also keep in mind um when you’re thinking about social security um you might be paying tax on social security earnings um you know even in when you’re in retirement kind of depends on what tax bracket market you’re in. Um, and so you want to just remember that social security will be exposed to tax potentially. Um, you know, for instance, while you’re working, you’re subject to, you know, 7.65% social security Medicare taxes in addition to, you know, your income tax. And, uh, you know, this uh, self-employed folks, they pay twice that amount. They pay 15.3% that to cover that employer contribution. Um so you know whether you’re uh you’re still paying into the you know social security system or you know afterwards when you go on um when you start to take benefits you just want to be aware of you know the added taxes uh that you’re exposed to and uh in the different tax brackets depending on your income.
Medicare is another topic. Uh so you want to watch out for the Irma cliff. Um, best way to look at that is, um, you know, an example, George and Martha. So, Irma stands for income related monthly adjustment amount. Uh, it’s basically a tiered search charge that’s tacked on to people’s Medicare parts B and D. Um, it only happens if you have income over $109,000. Then you start to get into the, um, you know, income tiers. Uh, that $109,000 is for single filers. for married couples, uh, joint filers, it’s 218,000. And you can, uh, the chart on the next slide, you’re going to be able to see the, uh, the matrix. Uh, but basically, you pay more for Medicare, healthcare, uh, depending on how much you earn. So, here we’ve got George and Martha, high earners, married couple. They have Medicare Part B and D. Um, in their case, you know, this couple’s on track to uh make $342,000 in modified adjusted gross income um in 2024. Uh keep in mind there is a 2-year look back for Medicare. Um so, you know, looking back, Medicare is going to decide how much you’re going to be spending uh on on Medicare depend depending on your income two years ago for Georgia Martha. So, that’s 2024. um if they decide to for instance sell some stock they got a $1,000 gain um you know they’ll you know be exposed to tax and just you know an idea around uh you know what tax rate are they really exposed to so again this is about kind of being more savvy about the tax planning understanding the Irma bracket so you can see from the you know the chart here they’re high income earners so their Medicare uh part B and part D premiums are going to increase uh that extra $1,000 um unfortunately pushed their AGI into the next premium tier that you know starts with 342,000. So again, they were on the edge. Uh maybe didn’t realize that uh that withdrawal was going to kind of push them into the next bracket. So instead of owing $45 for Medicare Part B, George and Martha are going to uh owe about, you know, $527 per month together. That’s an extra $121 per month. um you know, times 2, that’s going to be um you know, $243 in terms of uh total monthly premium. Uh so, you know, they started out at 202 uh $22 each and now they’re um they’re looking at $527 a month. Um and so that’s going to, you know, increase the amount that they need to pay for uh for healthcare. And then part uh part D is also going to go is also going to increase. It’s going to be impacted. They’re going to pay another $22.90 per month for the drug plans. Um and that’s an extra $549 for the couple over the course of a year. Uh so when you add up all this together, you know, um George and Martha will owe an additional $14460 uh cents a month, more than $3,470 of combined additional charges for the year. Uh so yeah, you know, that certainly adds to the um the tax hit or the tax bracket when we think of that. uh you know all kind of triggered by that capital gains um uh transaction. So they sold the stock at $1,000 gain. Um you know they thought they were getting an 8 point 18.8% rate but uh it did the stock sale did trigger the uh Irma income tier and so their total Irma charges now 300 3,470. Um so that’s you know quite a big jump. That’s a 365% real tax rate. uh you know based on that decision and because they’re so close to the edge. So again something to watch out for uh remember kind of the the key takes takeaways. So two-year look back um you know remember where you are in terms of brackets um as it impacts impacts your uh your tax bracket and also your Irma brackets because uh it can impact you and uh something to be aware of. Another thing that you want to be aware of is uh enrollment kind of gaps and penalties for late enrollment. So here we have an example Jim and an uh both 68. Uh Jim is retired at 65 and Anne uh retires one year later at 66. They get coverage through Ann’s employer who offers retirey healthcare insurance. Um they have a question when should they enroll in Medicare Part B. Um so you know for them they want to enroll on time. Make sure that um you know they there are no uh gaps in coverage. Um that’s kind of a worst case scenario. Um you know when there’s a gap in coverage when they’ve uh enrolled in late uh into the system late then there’s going to be penalties as well. Um so in terms of uh you know the two of them they want to enroll in part B as soon as they retire. uh they want to get that Medicare coverage instantly uh to make sure that they’re, you know, they’re enrolled, they’re qualified, and that they’re getting coverage um and there’s no gaps. Uh so again, you know, want to make sure that um you know, you’re avoiding kind of worst case scenario. in their case, you know, they’re looking at lifetime, you know, $10,000 mistake because they decided to um to enroll late um because the the search charges and penalties can add up and uh you know, for them it actually, you know, turns on into like a a $500 um you know, mistake for the couple. Uh so you know it’s not catastrophic but again a uh you want to enroll in your part B part D on time. Make sure your coverage uh avoid those increased taxes penalties that can lead to higher costs in in in your retirement years.
So we’ve covered social security, covered Medicare, you know, talked about the different tax brackets. And so once you get the idea of how this all works, then you can be kind of more aware and uh uh just more active and um and uh thoughtful about u you know planning for you know where your income is coming from and your expenses and and mitigating those penalties and increase taxes. Our key point number three here uh just uh the idea of planning um how to use your taxable tax deferred and taxfree assets. Uh so we get this question a lot. Uh the question is you know what is my withdrawal strategy from my different types of accounts and um you know generally kind of rule of thumb uh the whole idea is to spend your taxable accounts first, your tax deferred accounts second and your taxfree accounts third. Um, so sometimes there’s an opportunity for um asset uh location and optimizing uh where you keep your assets and that’s going to depend on um you know tax rates for different types of accounts. And so um again it’s not always easy or possible to to move things around. Um but you know you want to kind of be aware of all the different factors that are going to impact your tax rate you know in a different type of account. Uh so here we have an example. Sam and Mary uh each have an IRA of $450,000, a Roth IRA of60,000, uh some joint bank accounts. Um so Sam and Mary, they want to spend $8,500 u per month in retirement. And the question that they have, and we get this question a lot, um you know, when do they uh when should they uh spend their tax bill versus tax deferred versus tax exempt money and in what order? Um there’s a lot of research on these ideas. Um so you know the PhDs of the world um that are thinking about you know Roth conversion strategies thinking about social security benefits and RMDs and tax efficient withdrawals sequence of returns um you know over time there’s just you know more and more literature that kind of talks about this but I could save you um you know the need to read all of those publications um unless you’re super interested um or you need some sleeping material um but basically the the whole idea idea again uh is to spend the taxable money first. Um you know think about uh tax deferred accounts and uh and tax exempt money uh in that order. Um but another strategy is for you to think about Roth conversions um in some low tax years. So the lower that your um your tax um your your tax rate is the the bigger the opportunity for a Roth conversion. Um, a Roth conversion is basically, you know, turning a IRA, traditional IRA into a Roth IRA. And so, um, that’s when you kind of, you know, you pay tax now, uh, versus paying tax later, hopefully at a lower rate and having more money in your pocket. It’s as simple as that. And so, when you’re thinking about the sequence of returns, um, and sequence of uh, spending, uh, then you want to think about your Roth conversions in terms of the the overall sequence. Also uh so again um you know a Roth conversion is an idea uh to to include in terms of the overall strategy of u you know asset location and and uh income withdrawals. Um so think about a Roth IRA. Uh for example, you know Jill in our in our example is going to um you know convert $100,000 from her IRA to her Roth IRA. Um, when she does that, she’ll have a $100,000 added to her income and that in conversion will be taxed at Jill’s rate. So, naturally, the lower her income tax rate, the better it is for Jill. Um, you know, she should be looking for opportunities to convert at lower tax rates or, you know, convert enough so that she’s not jumping tax brackets. Uh, so couple names for this strategy, you know, filling up the bracket, filling up the bucket strategy. Uh, most people, they’re trying to stay in the 12 22 24% tax bracket. uh not jumping into the 30% tax bracket unless they want to really accelerate their um you know their conversions for you know sometimes is a good reason but again um when we do financial plans uh we are um we’re thinking about Roth conversions almost half the time um so it’s a very popular topic and uh again we can help you with this uh so that you understand you know what’s the impact of uh making a conversion over time maybe doing it over 3 years or 5 years, you know, should you do a fixed amount? Should you do a um you know, think about filling up your bracket and all the different factors that lead into um you know, just a good business case for this Roth conversion. So, I can help you with that. We’ve got great software and planning tools to help you with this Roth conversion strategy. So, when I launch the poll a little bit later on, please do uh sign up for a meeting so we can help you with this Roth uh conversion analysis um or just talk it through so that you you know more about it. So again you know the Roth conversion strategy um you know it’s part of the uh you know asset location u discussion is part of that u you know distribution strategy um and then again like I said you know people are looking looking for um opportunities where there’s u you know lower lower um income coming in lower tax bracket exposure so that you can possibly do a Roth conversion so that might like, you know, lower sales for business owners, uh people who are taking time off work, uh early retirement prior to receiving income from um you know, a pension or from social security, uh gap years, taking time off, all the above are opportunities for Roth conversions. Um so again, you just want to plan that accordingly.
So again, when you think about Roth conversions ideas, the whole the whole concept, all the uh examples that I’ve been going through, it’s about, you know, making sure that you’re aware of the the variables that are going to impact your income tax return that are going to impact your uh various retirement accounts and kind of optimizing that so that you’re not paying uh too much in tax, not jumping to the next tax bracket uh whether that’s Irma Whether that’s social security taxes, um whether that’s um you know, just tax brackets in general, all of the above.
When you’re thinking about selling, you know, appreciated stock, maybe you’ve worked for a company for a long time and you’ve got a big gain there. You want to uh again manage those tax brackets. Um when you’re thinking about distributions from your retirement accounts, um you want to think about tax brackets. Um, and this is just an ongoing thing that we need to do throughout retirement. Um, be uh tax aware and be smart about, you know, um, how much we’re withdrawing. You know, worst case with scenario, we’re withdrawing too much upfront, maybe spending too much. Um, and we generally want the, you know, those, um, those retirement accounts to to be able to acrue and and give us benefits. So over you know 10 20 30 years uh depending on financial plan and uh you know our family situation and so you know optimizing those accounts is very important. HSA accounts we’ll talk about this real quick. So if you have access to that um you know generally a good idea um you know you have an option sometimes to invest those funds. It really depends on you know whether you’re going to be using those um uh those account balances sooner rather than later. people who are going to be thinking about using those HSA balances uh which never expire. If they’re using them later, then they can invest those funds uh if they have a long kind of horizon. If they plan to use those funds um shorter term, maybe this year or next year, generally they’re in a more fixed account strategy so that they’re really not exposed to the ups and downs of the market. But um you have an opportunity to benefit from an HSA account. You know, do uh contribute to that. uh do get you know funds from your employer if you have a chance. It’s a great strategy uh if you have access to it. Um and then there’s some you know uh qualified business income deductions um that’s available to um some folks. Um won’t really talk about that but just you know couple other pre-retirement strategies. Charitable giving is another topic that uh you know people bring up and we often discuss with clients. So, um, you know, you just want, if you’re charitably minded, you want to be kind of mindful of, you know, the different ways to give. And, um, you know, here we have an example, Albert and Shirley. So, they’re in 24% tax bracket. They give $5,000 to charity. Uh, they’ve got an itemized deduction. Um, so versus the standard deduction. Um and then you know they want to think about how much they’re um they’re donating and what’s the best way to kind of optimize this whole strategy. Um there’s this thing called a qualified charitable distribution which is giving uh after you’re 70 and a half. So in retirement years and um this is a great tax uh strategy take advantage of. Uh so you know you can give up to $111,000 from your IRA per person in 2026. um you know if that money goes directly to a charity um and it will count as an RMD but it’s not reported as income so there’s no deduction on on the income tax um so you know these QCDs qualified charitable distributions um again you can kind of um you know your RMD is probably going to start uh at 73 or 75 uh but you can start you know this QCD strategy um sooner uh anytime after 70 and a half and you can give more um and it goes straight to the charity. Uh there’s no deduction for income tax. Um cost of a uh you know a QCD, you know, in terms of uh you know what the charity gets, they get $5,000. Um either way, um that $5,000 in our example satisfies the RMD. um if you decide to do it outside of your um your QCD, outside of your IRA, um it’s going to report it as income uh on your on your income tax return, um exposed to tax, um in this case, 24% tax bracket, which is going to equal $720. So, the total cost of this uh charitable contribution is going to be $5,720 if you do it outside of the QCD. But if you decide to do it inside the QCD, you’re going to save that $720 uh because the charity is still going to get the 5,000. You’re going to satisfy your RMD um excluded from taxable income. So your tax on the distribution is zero. So you basically save that 24% tax rate, which is just a a really nice benefit. Uh optimizes your charitable giving. You have more to give down the road, more for your family, more for your um you know, for yourself and your goals. So, um, if you’re charitably minded, you know, this is one way, um, to, uh, to save money. There’s some other ways, uh, in terms of bundling, um, you know, your your charitable intention. Um, we’re not going to go through that too much, but, if you you have any questions on uh, you know, charitable giving, I can give you kind of a few different strategies to consider. Um, and planning goes a long way in terms of optimizing, you know, how much you’re giving and and uh your ultimate take-home uh you know, how much money you have in your pocket.
Another uh kind of key point here, organize your assets for your family’s benefit. So, uh estate planning. Um and when we think about estate planning, you’re thinking about a number of things. Number one, getting your documents in order. Uh so like I mentioned, we have that digital planning service that uh is a tremendous value. Want to take advantage of that if you want to get your estate planning done. Uh but there’s also kind of the the investment management um the tax management that goes with estate planning. Um we’ve got a great example here um in terms of u you know the step up in basis uh that a family might be exposed to. So you know Phil and Mary for instance they hold taxable investments in a joint brokerage account. So, this is going to be uh you know, joint tenants with rights of survivorship. They’ve got a um $120,000 gain uh from, you know, a long-term uh holding. Um you know, in this case, they’ve got kind of a bad news diagnosis for Phil. Unfortunately, he’s got 18 months to live, but you know, the whole idea is, you know, making sure that our estate planning is in order. Uh eventually, we’re all going to pass away. Um, and you know, we want to be mindful of all the planning uh kind of tax opportunities that that go along along with that. Uh, so in this case, you know, Phil’s got 18 months uh in terms of, you know, advanced notice and uh how to optimize his estate. Um, so got a couple choices. Uh, scenario number one, you know, do nothing after the diagnosis. But, uh, there’s a couple things that are going to happen after that. You know, you know, Phil’s going to pass away eventually. um you know, marriage going to inherit Phil’s half of the joint account. So, this is a non-retirement account. That step up in basis is um you know, going to eliminate the long-term capital gain on Phil’s $60,000. Uh however, if she sold all the investments, she’d only uh she’d end up owing income tax on her gains. Um so, Mary’s going to, you know, still own half of the holdings and she’s going to uh owe tax on half the holdings. she got a step up in basis for uh Phil’s portion but not her own her gains her long-term capital gains um you know are going to be calculated and uh you know bottom line she’s going to own an extra $60,000 tax on on on her gain plus any of the gain uh after Phil’s death. Uh but you know there was another option um you know if um you know after the diagnosis um this uh family had moved all the investments into an account in Phil’s name then after Phil passes away um and this is terrific kind of planning uh you know Mary inherits Phil’s entire account of $120,000 and u you know Mary can sell and pay zero in taxes uh so a huge savings uh you one scenario versus another and you know not paying any tax having moved all of the holdings into Phil’s name and then Mary benefiting from the step up in basis after he passes away. So, you know, most of us, you know, we’d rather um you know, not pay tax on that $60,000 gain. Um and so that this was a good planning opportunity. Again, some bad news, but you know, putting more money in Mary’s pocket. um and benefiting the um you know the family for from some um you know some thorough tax planning when kids uh inherit IAS um you also want to think about tax planning. So uh especially um you know in terms of the withdrawal schedule it used to be that uh um there was a stretch IRA available to to to children that’s only available to spouses nowadays. Um, you know, in our example here, um, Kyle is 40 40 years old and, uh,
he’s going to be inheriting, uh, funds from his mom. And then, you know, the question is, you know, how will he kind of withdraw that? He has to withdraw the the account, empty the account after she passes away within 10 years. um if she was already RMD age, then um Kyle’s going to be uh starting those withdrawals right away. Um but if he was, you know, prior, if she was prior to RMD age, then um you know, he’s going to have a choice in terms of what his withdrawal strategy is going to be. Scenario number one, you know, Kyle takes distributions over 10 years to minimize the tax. Um, in our example here with a 6% rate of return, $400,000 IRA balance, you know, his annual distribution could be about $54,000 per year. Um, another scenario is where he waits until year 10 to take the distribution. You know, again, at that 6% rate of return, um, looking at $716,000. So, um, you know, really depends on his his goals. Maybe he’s trying to purchase a home. uh maybe this for living expenses, for you know um supplementary income, all the above. Um so he’s going to want to just you know plan through the the uh distribution schedule. Um make sure that he’s thoughtful about you know uh taxes throughout the entire pro process. And you know in this case there’s um there’s no wrong answer. It really depends on Kyle’s goals. Uh you know the money is earmarked for him and so he uh but he should have a financial plan and that’s the main point here. Have a financial plan. So you could take advantage of uh you know a lower tax rate uh when possible.
You know planning uh you know for healthcare, planning for long-term care, estate planning, all that goes handinhand with your overall financial plan. Um talked a little bit about long-term care right now. So premiums um you know that’s one consideration. Uh reimbursements um your benefits um you know whether or not they come from being self-insured. uh from uh getting a long-term care policy, those are all choices that you have available to you. Um if you’re interested in long-term care, let me know. I can tell you that uh you know, for most families, if they’ve been exposed to long-term care because of a family member, they’re more likely to purchase long-term care insurance. Um if they haven’t gone through that experience before, they’re less likely. Um so that’s kind of the the normal rule of thumb, but if you’re interested in long-term care, let me know and we could talk about it. um you know what the you know potential costs are um in terms of health care costs, what the uh you know the benefits uh could look like based on different premiums and different types of policies uh and whether that’s both for like uh um you know one spouse or you know a family plan um and all those different scenarios. Here we got another example. So um you know Florence who is a widow, she um she’s going through the long-term care uh benefit process. Um, she’s receiving inhome inhome care benefits around $60,000 a year in our example. Um, and she’s wanted to be thoughtful about her overall strategy about, you know, um, how her assets are going to pay for long-term care. You know, she’s got some social security benefits coming in. She’s got IRA balance. She’s got life insurance with a long-term care writer. And, um, you know, so the question is, how does she pay for long-term care? you know given all these different assets and income sources um you know the life insurance can complicate things because life insurance um you know is paid tax-free uh to the beneficiary uh when the owner when the when the insured uh passes away um so that just adds uh you know it’s both an opportunity and extra complexity in terms of thinking through you know how does Florence pay for these long-term care costs because she can use you know all of these assets or one the assets to do so. Um there’s no right or wrong answer. Typically, it kind of depends. Um but scenario one, you know, she uses long-term care policy to pay for 5 years of care. Um you know, her long-term care insurance, uh you know, pays the $60,000 per year, so 300,000. Um you know, the kids inherit $200,000 at the end of that plus the $400,000 in the IRA. Um so uh you know a nice inheritance here uh you know for the kids. Um but another scenario that they they could have done or could have um thought about is um you know using the IRA money to pay for that those long-term care costs. Uh because they do have choices um you know paying out that $300,000 uh for that income uh in home care. uh you know, maybe they’re getting um some medical benefits uh on their income tax return, but typically you don’t get a lot of um income tax benefits um you know, for long-term care coverage. Uh but the question is, you know, how the the kids are going to inherit that money. In this case, you know, they’re looking at taxfree life insurance of $500,000 as well as $100,000 left over of the remaining taxable funds. And that’s in contrast to um you know the $400,000 which is taxable in our previous example. So again some couple different tax scenarios here. Um you know seems like they would probably get more money from the you know tax-free life insurance inheritance but really depends um they want to be thoughtful about this financial plan because there are choices available to them. Our whole idea throughout this presentation today is just to you know think through all these scenarios uh think through um you know how you’re impacted by t taxes with different choices because um you know we we want to take advantage of tax code when we can uh and again put more money in our pocket. Um so um the whole idea here is just uh you know start thinking about taxes, start thinking about the different stages of retirement. um start thinking about, you know, all the different things you’re exposed to in terms of social security, Medicare, Irma brackets, um you know, RMDs, earnings test, um you know, and then just maintaining being diligent about um you know, each year that you’re you have withdrawals and how they impact you and how they impact your tax return. So again, taxes and retirement. Um, you know, know your after tax savings before retirement. Uh, think about Roth IRA, Roth conversions. You know, understand social security, Medicare. Uh, think about your RMD strategy, uh, tax location, uh, asset location and uh, tax minimization and and think about estate planning. You know, this slide does a nice job of summarizing all the different things that we talked about. Uh, so again, you want to put more money in your pocket for yourself and your family.
We talk about distribution uh we talk about uh the accumulation phase but um you know the distribution phase is where the the mistakes happen. Um you know again education is the first thing, planning is the second thing. You know getting the answers to your questions um very important. So uh again happy to help uh any way that I can. So I’ll launch a poll shortly. do take me up on that and uh hopefully provide you with some additional information to um you know to make better choices and plan accordingly. So that brings us to the end of our our discussion today. Um I’m going to launch poll in a second but um you know these are all the topics that we discuss with clients. So uh when we’re thinking about the financial plan thinking about different sources of income expenses and and everything we talked about today uh you know and like I mentioned at the at the beginning of the discussion uh you know asset um allocation um thinking about uh you know managing uh investment fees u you know different strategies whether that’s growth strategies different uh dividend portfolios all of these things are considered when u we think about uh working with people. Um but the you know the first step is to get your financial plan done um and you know get your um uh get all your goals kind of lined up so that you understand the direction that you’re going and then uh think about any uh improvements in your overall financial plan whether it’s tax planning or investment management or estate planning uh or all the above. Then lastly here is a quick snapshot of uh digital estate planning service that we offer. Uh so that’s offered through trust and will. Um so if you’re interested in you getting your um power of attorney, your living trust completed um your you know um HIPPA authorization, your will, uh we have a great service available to you. There’s no cost to clients. Um and then again, you can save $1,000 uh several thousand versus going to an attorney. So, if you’d like to take advantage of this, please do kind of give me a call and uh we can set up a meeting, get this organized for you. With that, I’m going to launch the poll. Um, so if you’d like to schedule a meeting, please do respond yes, and then in the meantime, um, you know, put a question, feel free to put a, uh, a question into the chat or the Q&A. Uh, I’ll do my best to answer it. I’ll give you a couple moments to to think about that. just post a question on any of the topics that we’ve discussed today. Um, you know, again, whether it’s tax management or Roth conversions, uh, optimizing social security, uh, thinking about break even strategies, uh, thinking about estate planning. Um, but again, you look forward to, um, you know, a meeting with you. Uh, several folks have already signed up for a meeting. Uh, so, uh, thank you for doing that. I’ll reach out and get that scheduled. Uh but in the meantime, if you do have any questions, just post them in the chat um uh in the Q&A and then uh I’ll do my best to answer them. So I’ll quickly kind of put my contact information here. Um this is my direct number. Uh 213320860.
Um we’ve got uh you know my email also, so feel free to reach out to me anytime. Um I always do my best to return calls. So, if you leave a a voicemail for me, would be happy to uh to to get back to you. Uh so, available anytime now or in the future and look forward to hearing from you. Okay, we’ve got uh some questions coming in. So, I’ll start to kind of go through this. Um first question uh is uh enrolling for Medicare. Uh you know, whether that should be at a specific age when you retire. I’ve heard that should be 65 regardless of when you retire. Um, so good question. Um, the answer to that is going to be it really depends on um, you know, whether or not you work for a large company or a small company. If you work for a small company, it should be 65 or if you’re self-employed potentially. Um, if you work for a large company, which is more than 20 employees, then you want to um possibly keep your current retirement um uh retirey health care benefits um as long as you uh keep working. Um so, um you know, you might keep working for the um the your current employer to, you know, age 67 or 70. Um in that case, if you’re covered under the group plan, then um you don’t need Medicare. you’ll have a chance to enroll in Medicare afterwards after you kind of uh uh fully retire um and sever from the uh from the employer plan and then that’s when you sign up for Medicare. If um if you work for a small company, you want to sign up at 65. Um and then there’s some kind of things um you know uh you’ll want to just remember in terms of uh HSAs um you know part B part A talk to HR um if you have uh a large employer plan available to you um they’ll help you with some of this you know give me a call we can kind of go through your exact situation um that way um you have a better idea of you know when to officially apply for Medicare and then also um you know please do sign up for our Medicare webinar And uh we’ll go through all the kind of uh the different scenarios of when to apply u and you know think about part D think about part B part A uh advantage plans how all that works.
Okay. Um no other questions coming in. Um so quiet group today that’s okay. Uh we went through a lot of material and um again you know uh open invitation to give me a call. Um my direct uh line again here is uh on the screen and you know look forward to seeing you at our next event. Um so again we put these webinars on a weekly basis. So uh join us please for our next webinar. Um usually that’s on Thursdays at 2 p.m. Pacific. Uh so the next topics will be estate planning and then Medicare. Uh thanks again for joining us today and uh learning about taxation and and all the different ideas and strategies. Uh really appreciate the the participation and the the uh the commitment to us. Um and look forward to working with you in the future. Uh have a great end of the week. Thank you and uh and um and talk soon.