uh doing everything from these webinars which is a a complimentary source uh for you to learn about various topics tonight about tax planning in retirement and uh but you know other than that what I do I am full financial services investment advisor uh so if it’s something that you’re interested to learn about what investment products and services are out there these days that’s certainly something that I do um I will be putting up a survey at the end of this presentation. Uh the survey is basically would you like to set up an appointment and hopefully you will select yes on there just to talk a little bit about uh so you and I can have a one-on-one conversation about what is important to you with taxes, retirement, Medicare, Social Security, how all of this stuff ties in together in your retirement. And it’s certainly something that we do uh and it’s uh one of the biggest things that I do with that is the full financial plan or retirement plan. It’s a very comprehensive uh tool that we uh that we use to dig into. Many people will ask and say, “Joe, here’s what I have. Here’s what I want. Am I on the right path? Am I doing the right things? Am I saving uh enough? Uh how much is my social security? How, you know, once I have those numbers, maybe you have a pension, too? uh do I have enough to that I want to spend a little bit more? Am I going to be drawing too much of my assets? And come up with an income plan, investment plan for you so you know that you’re going to have that comfortable retirement hopefully that you are that you desire. So with that again, that’ll be at the end of the presentation. I’ll put up that survey. So hopefully you will select yes on that. I’ll put a couple up a couple of reminders on there. Uh before I do get started on the presentation, I do want to let you know that I do have uh that I am actually not able to uh record these. One of the biggest questions that we get in um and is you know can we get a copy of the deck? Can I get a recording of this? Unfortunately, we are not able to do that. Uh so we cannot record it. We cannot have these recorded by listeners as well. So thank you so much for uh your cooperation with that. I do uh have a couple of uh other webinars coming up. Uh the home stretch, the seven things to do before you retire, September 23rd, that’ll be at 2 p.m. Central time. And then after that, I have planning for long-term care. Uh that’ll be October 6, another evening, 6:00 p.m. Central. Uh for that, uh you do have access to some resources through Alliant. you can see what other webinars, what other topics are being discussed or presented that you would like to listen in on. Uh, Invest Savvy podcast and our Aerys Aerys meaning Alliant Retirement and Investment Services, our website and blog and all those are available to you. I will be taking questions at the end of the presentation. So, if you think of a question at any time, you do uh you just type away and those will hold in the chat box or the Q&A box, the question and answer box. If you think of a question, go ahead and type away at any time in during the presentation and I will get to those at the end. Uh very quickly, I do know there’s one, how much is a one-on-one uh meeting? Uh complimentary. We do not charge for uh you know as far as the service of getting to know know you a little bit one-on-one meeting. If you would like to do that full retirement plan that we do offer that is also complimentary. Uh yes I do investments and I do uh manage a lot of investments here as well as our team. uh that’s certainly something that will be presented to you but that is not mandatory if you would like to go through that retirement planning and it there is no obligation for you it is complimentary you do not have to pay one dime for that so as we get going toward the presentation here’s a list of products and services that I do uh the financial plan complimentary financial plan advanced planning once we start to get into Roth conversion versions. And uh again, we’re going to touch on some of that tonight about tax planning in retirement, estate planning. I am not an attorney that can draw up documents for you like powers of attorney, wills, and trusts and all those important documents. Uh but we do presentations on these. It’s certainly something that part of our conversation is should you speak to an attorney? How complicated is your estate? Maybe there’s some future um legal advice that you might need on that. But we can certainly have that initial conversation. Investment management like I said and comprehensive range of investment choices. You can see a little bit uh you know with stocks, bonds, mutual funds, annuities, all the different um products and services that are available uh are certainly available through us here. Uh so before as we get started, a little brain teaser. Bill is retired and has taxable income of $58,688. He is in the 22% bracket where you could see that on the right between 50,41 and 105,700. So his 58,688 taxable income is in that range. He is in the 22% bracket. This includes 45,000 of IRA income. IRA, traditional IRA withdrawals that he’s taking out, plus $37,500 in social security, and he taps into his IRA for an extra $1,000 for a concert road trip. How much does he owe uh taxes on that extra,000? Now, we could see that if at that um 58,000 688 is in the uh 22% bracket, but if he takes an extra,000 out, he’s still in that 22% bracket, but uh there’s a we would think he is in the 22% bracket, so he should owe $220 on that, right? But wrong. He owes $47 and a 40% tax rate on that extra $1,000. So, there’s uh going to be some things coming up, but we’re going to get back to this. Uh we’re going to go through a little bit and then I will get back to what uh what this plan on going to this concert and taking this extra $1,000 out, what this really means in some of these. You might hear this term a couple of times, but tax traps you. So certain things on withdrawals and what you might be doing could certainly affect other things in your um tax, you know, situation. So um but some of these different things, we’re going to see a couple of examples of some of these tax traps. So let’s dig into how tax planning changes through the four stages of retirement. Seek professional tax guidance. Traditional IAS uh as we talk about different types of IAS are pre-tax. It’s money that has never been taxed going into a a traditional IRA, but every dime is taxable coming out of a traditional IRA. So, you get tax benefits by putting money into a 401k or a traditional IRA if you get a deduction on those. But just know that when you start to take money out of those accounts, that’s when you have to pay the taxes. A Roth IRA is there’s no tax benefit putting into a Roth IRA, but the big benefit is when you take out of a Roth IRA down the road. It is all 100% taxfree. So traditional IRA, you get the tax benefit putting it in. You get the deductions, the write offs for that, but it’s taxable later. a Roth IRA, no tax benefit upfront, but the tax benefit comes later. So, do you want the benefit now? Do you want it later? Do you want a combination of both? And if you are eligible to contribute to regular traditional and Roth or and or Roth IAS, uh we can certainly talk about that in our one-on-one conversation. State taxes could also apply. This presentation digs into mostly on federal taxes. Certain things could be have additional state taxes. As an example, traditional IRA withdrawals. I am in the state of Illinois. And if someone does a traditional IRA withdrawal or even a required mandatory distribution from their IRA, those are federally taxed, but in the state of Illinois, they are not state taxed. There is a handful of states that do. I could say Indiana is one of those states that taxes IRA withdrawals and there are some a handful of other ones. A new complex world for retirement planning taxes in the accumulation phase when you’re saving money versus taxes in distribution phase when you’re spending money. uh no more. So, if you’re retired and you’re not getting any child tax credits, maybe your mortgage is paid off and you’re not deducting uh any interest off of that on your taxes. Uh tax-free employer uh medical insurance uh or contributions to 401ks or similar have stopped as well when you are retired. uh new social security, required minimum distributions, that’s what the RMD stands for, paying for Medicare, and long-term care. So, these are the things that will be coming if you are not retired yet and you’re looking forward to that. So, Social Security, required distributions, Medicare, long-term care, and again, pretty much all of these topics, I do separate uh presentations on these as well. But again, our one-on-one conversation can we can tackle all of these for you. People often pay more taxes in retirement than expected because of a confusing system, treats various income types differently, and contains hidden taxes and penalties. again those tax traps. Develop a solution because your tax exposure uh will change throughout the four stages of retirement. You’ll need a strategy that anticipates both traditional uh taxes and possible taxes, sir charges, and penalties related to social security, Medicare, or other income. So, here’s our four stages, our pre-retirement. So, if you’re in that 50 to 60 range and you’re starting to think a little bit about retirement, you’re in the accumulation phase, you’re working in your saving years. early retirement if you’re going to retire in that 60 to 70 age range. Um, and those are your what they like to call the go- go years. Maybe you’re traveling more, you’re more active, uh, versus the middle retirement, your 70 to 80 age range when the slowgo years, you maybe not as doing as much traveling at this time. Um, but um, you know, but maybe a little slower in retirement. and then late retirement as we start to get 80 plus uh calling the no-go years. Uh but basically now you’re starting to maintain um health care and things like that, maybe long-term care. So again, the four stages of your retirement, retirement surprises, looking at inflation, longevity, how long are you going to live in retirement? Uh expenses, how much do you plan on spending? again taking inflation into account on that health care uh if you’re going to retire before the age of 65 when Medicare starts are you going to be able to afford that uh insurance on your own you have to go out in the marketplace and shop your own insurance before Medicare starts and that could be pretty costly especially if there’s pre-existing conditions uh I’ve talked to many people that as an individual maybe you’re going to pay 7 or 800 a month maybe you’re going to pay more closer to a,000 or 1,200 a month uh for your health care coverage and then the taxes that we’re going to touch on as well. So where what’s the first thing I need to understand about retirement and taxes? Uh start with the end in mind. You need to know what your after tax retirement savings picture looks like like before retiring. So you know what what is the spending that you would like to have? Where are your assets? is are your a lot of your assets in savings, a lot of your assets um spendable assets in 401ks, Roth IAS, what are the tax consequences of taking money out? So, here’s an example. If you have a $500,000 uh 401k or traditional IRA, it’s not really $500,000 in your pocket when you start to take that money out. If you are married, filing joint and your 500,000 could actually be 390,000 if you’re in the 22% bracket, 380,000 if you’re in the 24% bracket. So, if you’re going to be in a tax bracket and you’re going to be taking money out of your traditional IAS, you need to know those are taxable. And depending on what your your overall tax bracket is, which includes any other income, maybe you’re working part-time in retirement, maybe you have a pension, your social security coming in, maybe there’s a lot of savings that you’re getting, 1099s on on interest earned or dividends from brokerage accounts. All of this stuff is all totaled to get your total tax bracket. And if you’re going to be in that 22 or 24%, just know you don’t get all 500,000 out of here. So, and after tax is what you would be getting. In addition, you must take required minimum distributions starting at the age of 73. If you were born 1959 or earlier, if you were born 1960 or later, then your required minimum distribution age is 75. So, here’s just a little chart to show that if you were in in a zero tax rate, uh, hypothetically on here, or if you’re in the 12% bracket or even the 33% tax bracket, this is just a simple chart to show the higher your taxes are, the less that goes in your pocket. And we could see the higher tax rate is the the greenish line. Um, and that obviously higher taxes mean there’s less in your pocket there. So, we want to get as close to the top at the top line or at least that red line to minimize the amount of taxes that you’re paying in retirement. And what kind of withdrawal strategy can you do so you don’t start to jump up into higher brackets? Okay. But at least I have social security to supplement income and Medicare to pay your health care costs. uh social security and Medicare again have their own tax traps again uh that need to plan for those as well. Social Security and taxes. So, let’s look at Bill. So, we’re going to talk go back to this $1,000 withdrawal to uh to go to a concert for this concert trip. So, Bill again has 45,000 of IRA income, 37,500 of social security. He has an adjusted gross income of 74,788. Uh his taxable income after his deductions is 58,668 and his income tax how much he has to pay 7600 7,623. So concert trip happens and he takes an additional,000 out. So now he has IRA withdrawal of 46,000 instead of 45,000. He has the same social security. We could see his adjusted gross income goes up. His taxable income is higher and uh income taxes at 8,30. So he took out this extra,000. And we’re going to start to dig into what happened here. So we could see his adjusted gross income went up. So he took a,000 more out, but his adjusted gross income went up more than a,000. uh we could see his taxable income went up more than a,000 almost 2,000. Uh it went up. So it actually went out up $1,850 higher. So we took out a,000. Why did his taxable income go up $1850? What’s basically happening on here is that um once you hit certain levels of income, your social security, if you have extreme low income, you might not pay any taxes on your social security income. If you have more modest income, up to 50% of your social security can be taxed. If you have higher income, up to 85% of your social security is taxed. Um, the good way to say it, 15% of your social security is guarant guaranteed to be taxfree. But basically what happened here is that that extra,000 put him just above a threshold where he had to pay a little bit more taxes on his social security. So when that which put him instead of $220 at the 22% bracket on his um on that $1,000 withdrawal, it put him at $47 that he had to pay. So and kind of a net um tax rate of $40.7% his effective marginal tax rate. So again, these are those things that we don’t think of all the time of just because I took an extra thousand out jumped him up on how much taxes he has to pay on his social security income and we didn’t even know about that. different retirement approaches. Retire completely, semi-retire with fewer hours in your existing job, maybe semi-retire with more of a passion-driven job, something that you want to do versus something that you have to do or retire and volunteer. So, are you planning on having any income in retirement? Any type of part-time or some income coming in working in social security the good. So social security uh benefit is calculated on your highest 35 years of earning calculated at your age 62. So if you still work be so at 62 that’s when your full uh retirement income for from social security is calculated. If you choose to work beyond 62 at 63, 64, 65 up to 67, your full retirement age, uh then uh that can increase your income. But if you have no income after 62, your social security income will not decrease, but it can increase if higher numbers uh knock off some lower numbers. So again, it is based on your highest 35 years of working. Just so you know that if you do happen to have um uh 30 years of working, not 35, you have 30 numbers and five zeros that bring your average down. If you work a 31st year, a number goes on and a zero falls off. So, um but it’s calculated on the highest 35 and zeros count in that 35 if you don’t have a 35 full years of working. If you take social security early, so if your full social security age is age 67, let’s say, and you decide to retire at 65, maybe Medicare kicks in at age 65, but uh now you want to take your social security early, which you can take it as early as 62 if you choose. But if you do take it before your full retirement age, in this example, age 65, and you make more than $24,480 for the year, $1 of benefits withheld for every $2 earned over that $24,480. So, if you make more than that amount, you’re starting to put money back into your it’s taken from your benefit um and goes back into the social security uh at your full retirement age at age 67, you are recalculated and your number can be adjusted from all that money that you put back in. You can start to get that back in a little bit higher benefit. Uh but just know that if you do take social security before your full retirement age and choose to work, let’s say full-time or more than $24,480, you’re putting $1 of every two that you get back in. So you have to be very cautious if you’re taking it early how much money you plan on earning. You still pay social security taxes, too. If you do decide to uh work, you’re on social security, but you’re still working, making some income, and and even though you’re on social security already, 6.2% of your paychecks from your job will go to pay into social security. Again, uh so just know that even though you’re on social security, if you’re working, you are still paying into social security. Now it’s potentially it can increase your income. I’ll say potentially because you that current income in retirement needs to be one of your top 35 years uh of income to increase your your benefit. If it is not uh in the top 35 years then your benefit will not increase over time. So Medicare and taxes. So how what how does Medicare come into this play? So, we’re going to look at George and Martha in this example. Uh, George and Martha, they’re they are in Medicare part A, part B, and part D for their prescription coverage. So, they have traditional Medicare. And now we start to look at watch out for the Medicare Irma, IRMA, Cliff, income related monthly adjustment amount, Irma. I get these questions all the time and many times when I’m doing these, someone will say, “How does how is Irma affected? Irma. Irma. I talk about Irma quite a bit on these presentations.” But here’s what’s going on with George and Martha. They’re on Medicare B and D, which you have to pay for. If you are not familiar with this Medicare Part A, you do not have to pay for. It is part of what you’ve paid into Social Security over all the years. So Medicare A is covered. You do not have to pay for that in retirement. But Medicare B, which is your doctor visits, Medicare A is your hospital coverage. Medicare B is your just your medical insurance, doctor visits, things like that. And D is your prescription drug coverage, which you also have to pay for. So you’re paying for B, you’re paying for D. And in this example now, we have um modified adjusted gross income of $342,000 for their adjusted gross income in 2024. Uh they sell a stock with $1,000 gain on top of that $342,000. So, they sell this stock and we’re thinking, well, they, you know, owe $188. Uh, $150 for taxes and $38 for uh what’s called a net investment income. If you have extreme high income, you pay an additional $3.8% in taxes on income related investments. So, you’d be thinking they would pay 18.8% 8% which the selling a stock at a capital gain the tax rate on capital gains is 15%. But plus the 3.8 puts them at 18.8% taxes, right? But no, what happened is that their Medicare part B. So that was very uh you know I’m going to go back one screen here. Bear with me when I see that remember they had 342,000 of income plus the $1,000 gain which puts their modified adjusted gross income at 343,000 which is just a hair above the threshold of the 342,000 which means when you have income related uh adjustments because you make too much money the government says you’re going to pay higher Medicare costs. So, we could see the initial or um base pay is $22.90. That’s what uh what Medicare is now. In the next month or month and a half or so, they’re going to be announcing how much that uh premium is going to be in 2027, which typically it’s possible could be the same. It won’t go down, but it could potentially go up. So 2290 is the base, but if uh if a married filing joint, if they make between 218,000 and 274,000, that premium jumps up to 284. If it’s 274 to 342, which George and Martha would have been in that range, uh they would be paying $45.80 for their Medicare premium. But because they sold the stock and it jumped them above, now they have to pay in 2026. Remember this happened in 2024. And now because you earn the income in 2024, you file everything in 2025, February, March, April, long as it’s done by April 15th, and IRS sees it, Medicare sees it, it’s all known, and then your prem, your premium is adjusted in 2026. So, their additional income in 2024 means they now have to pay $52,7.50 50 cents a month for at least that 12 months every month for that year um for each of their Medicare. And then now we’re looking at the you know that’s an increase of $32460.
So then we look at also with uh part D your prescription drug coverage. uh the base, call it about46 a month for Medicare Part D on average. And I have to say on average because you go out and shop that through United Healthcare, you know, uh you know, u uh Blue Cross Blue Shield, you know, or Etna, you’re going to be looking to see what these uh average prices are. call it $46 a month, but because their income was high, now they’re going to pay $60.40 a month just because they had high income. So, your Medicare Part B and your Part D premiums will go up if you have high income in retirement. And what is a big part of that? IRA withdrawals. It’s the biggest uh withdrawals that most people make, 401k withdrawals or IRA withdrawals in retirement, especially if you have significant IRA savings and you reach the age of 73 or 75 uh depending on your birth year for required minimum distributions. If you might be taking out 50,000 a year, 70,000 a year, 80,000 a year, depending on how much you have in retirement accounts will determine how much you have to take out. And those bigger withdrawals could jump you up brackets. It could make make your premiums on these go up as well. So with that, when we look at the uh the sir charges that they’re paying an extra for George, extra B, a part B is $121.70. His part D goes up $22.90. And the same thing happens with Martha. They are married filing joint. So those increases go up for both of them. And we’re talking for a combined annual total $3,470.440
because they sold that stock and it jumped them up another um level for their Irma, their in um income related monthly adjustment amounts. So the stuff does get very confusing. So now we look at uh that uh extra $1,000 capital gain cost them $3,65840
in call it taxes for their Medicare for that year. I’ll throw out another reminder that if you do have some questions, go ahead and type away at any time and again I will get to those at the end of the presentation. Example number three, Medicare enrollment coverage gaps. when you have to sign up for Medicare typically age 65 uh that you have to sign up uh for Medicare um A and B and your prescription part D but there’s some exceptions for that if you’re working or if you’re you know uh if you are working at 65 66 67 there are ways to delay it but let’s look at the ex example of Jim and an Jim and an are 68 Jim retired at 65 and one year later uh and retires at age 66. Uh they get coverage through Ann’s employer who offer retirey health insurance. So now neither of them are working at age 66. Uh they’re currently age 68 and they didn’t sign up for Medicare uh typically when they were supposed to when she stopped working. Uh but even though she had this employer retirey health insurance, even though she was not working anymore, remember? So let’s look at what happened here. You can’t get Medicare coverage instantly. U they missed their enrollment. There is a 10% of the base premium for life penalty. So for 2026, their 2020 is an extra $2029 each. uh $24348* 2 per year. So $486.96 for the couple in penalties and this will happen every year. So the premiums tend to increase each year. So do the penalties. Uh could translate to a lifetime of $10,000 mistake. So, if you are working, check with your uh your your human resources or your benefits uh department to see should I be signing up for Medicare A or B or D or prescription? Because if you retire, even though you have some type of coverage for health insurance in retirement, uh if you are not working, you have to sign up for Medicare A, B, and D. You have to sign up for those because your retiree health coverage is secondary to Medicare. Unless you’re working full-time and have a qualified plan, the B and D can be delayed. But in this case, it was retirey healthcare and you do have to sign up for Medicare.
Okay. Are there any other tax traps we uh that we’ll face in retirement? You must plan how and when you will use your taxable, tax deferred, and tax-free assets to manage your income and tax brackets efficiently. So, if someone has savings, you have a traditional IRA, you have Roth IAS, what do you draw from first and how do how do you manage these taxes throughout retirement? So, here’s uh you know what to spend. Example number four. So, now we’re going to look at Sam and Mary. They each have a $450,000 traditional IRA and then they each have a 60,000 Roth IRA each. So 120,000 in Roth and 900,000 in traditional IAS and they have a joint savings of 300,000. Conventional wisdom says spend your savings money first, then spend your uh tax deferred stuff, your traditional IAS second, then spend the tax-free later. Now your plan might be a little bit different and there might be some reasons why you would or would not take maybe out of Roth first but you know certainly something when I do the retirement plan that uh we can certainly talk about what this all means to you specifically. Uh an alternative approach is spend your savings first and then start to talk about converting from a traditional to a Roth IRA if you have very low income years and you want to start converting. If you’re not f you’re quite sure what that means, it’s basically you’re taking money from your traditional IRA, you take it out of that to put into a Roth IRA, which again that grows taxfree from that point on, but you have to pay the taxes to get it out of the traditional IRA to a Roth IRA. So that is a taxable event. And again, we have to remember all the tax straps because all these IRA withdrawals that you’re taking out of there to either spend or convert it to a Roth. It’s all taxable and we have to keep all that in check to make sure you’re not jumping up too high in brackets. Is your Medicare premiums going to go up because you took out too much and all these different things. So, uh, typically when I talk about Roth conversions for people, it’s, uh, it’s one of those that we just start to do late October, early November, we start to get a feel of where’s your income this year, how much interest or dividends have you received for, you know, so far throughout the year, and we can start to get a gauge of how much to convert in a given year without jumping up to the next tax bracket. So, considering Roth conversions, here’s an example of Jill converts a H 100,000 from her traditional IRA to a Roth IRA. Jill Jill adds 100,000 to her income and the conversion income is taxed at Jill’s tax rate. So, the more you take out, the more income, the higher bracket you could potentially go uh into. Filling up the bracket or filling up the bucket. uh we we like to call so Roth conversion strategy. So if someone is you have ranges of the 10% bracket is a range of income. Uh the 12% is another higher range of income. The 22 is another higher range of income. But if you’re you know comfortably let’s say in the middle of that 22% bracket and you want to take a little bit more out to not jump to the 24% but fill up the bucket of the 22. So, how much can you convert in a given year to not to max out that 22% bracket, but not jump up to the 24% bracket? That’s where we start to have those toward the end of the year conversations of how much can someone convert without going to that next bracket. Low income uh years are good for Roth conversions. So, if you were a business owner, maybe you had very low sales in a given year or high expenses, a lot of deductions, uh high non-recurring medical bills after retirement, but before receiving Social Security benefits, some people will actually do that if someone retires, let’s say at age 66, but they say, “I don’t want to take out my uh I don’t want to take Social Security yet. I’m going to I don’t even want my pension yet. I’m just going to start to live off of my own assets at very low income years and start to take money out of traditional IAS to spend or even converting to Roth IAS. Um those are great years. So B some people will defer social security and other retirement income like pensions simply to start withdrawing from IAS or converting to Roth IAS strategically especially if you have high IRA balances starting to get those down before you turn the age of 73 or 75 for your required minimum distribution years. You want to start to get those balances down if you can. Uh so again that’s certainly a strategy that you and I would work together with on important guiding questions. What’s the goal? You must know whether you’re trying to keep income low or income below a bracket threshold to avoid bumping up to the next highest bracket um or whether you’re trying to increase income to fill up a bracket and take advantage of that tax rate. So again, October, November is when I start to have most of these conversations.
Other possible approaches to managing tax brackets, withdrawing tax-free money from life insurance policies to keep income low. If you do have cash value in life insurance, uh sometimes if you actually make a withdrawal or if you surrender a policy, close out a policy, you could have some taxable gains in there. But one of the advantages of life insurance cash value is you can borrow. And this is what a lot of wealthy do when they build up cash value in accounts. They don’t do withdrawals from the uh that cash value in a life insurance. They actually borrow the money from there. And there’s some strategies that we can certainly talk about if you have high cash value in life insurance policies. Selling high appreciated stocks for a low or no capital gains. uh taking distributions from IRA or 401ks to take advantage of a lower tax rate. So again, each year when I start to look at people’s uh with you know where they are income-wise so we can start to strateg uh strategize withdrawals or conversions. Two other pre-retirement strategies, if you qualify, use a health savings account uh strategically. So, if you have a high deductible uh health uh health plan and you’re able to contribute to an HSA or health savings account, uh certainly some tax advantages there. Or if you are a business owner, speak to your qualified tax advisor maybe about some qualified business income deduction after funding a company pension. Uh that starts to get into you might need uh to have an accountant to assist with some of those charitable giving and tax planning. So, here’s one we’re uh with Albert and Shirley. Uh Albert and Shirley uh are charitable. They want to give $5,000 to a charity. They’re in the 24% bracket, so they’re got some higher income in retirement. And they have 15,000 existing itemized deductions. 2026 standard deduction is actually 32,200. So, if you are not familiar with this, many people are, but you do one or the other. You either itemize or take the standard deduction. In this case, Albert and Shirley only have 15,000 of itemized deductions. So, they’re not going to itemize anything. They’ll just take the standard deduction of 32,200. So, 18,100 per person. I’m sorry, 16,100 per person. Um, and now they want to do this five $5,000 donation, which is typically something that you would, you know, write off on your taxes. So, in this case, they have 15,000 of itemized deductions, and then they want to donate this 5,000 to a charity, which puts them at 20,000 uh in uh itemized deductions, which is still again less than the standard deduction of 32,200. So they can give that money, but they don’t get the benefit of deducting it because they’re better off just taking the standard deduction. So they can do what’s called a qualified charitable distribution, a QCD. And I do quite a bit of these with clients that I work with as well. So if you’re at 70 and a half or older, you’re able to do this up to 111,000 per person. So, if you’re married filing joint, you can give 222,000 uh for a married filing joint couple. It goes directly to the charity. So, basically what happens is that if you have uh Boys and Girls Club of America and you want to donate 5,000 to them, you can take it directly from your traditional IRA. You don’t withdraw it. You give it directly from your IRA. A check is made payable to the Boys and Girls Club. and uh that is part of it qualifies as your um required distribution. So if you had to take out 5,000 and you typically you might have to take it out and pay taxes on it, but in this case you can take out the 5,000 you don’t have to pay taxes on it because you donated it immediately from your IRA. It is called a qualified charitable distribution. Uh it’s a great strategy. If you are a charitable person and you give uh and you’re not able to deduct it, do it directly from your traditional IRA. So, here’s one of the options that they could do is they can uh charity, they want to give 5,000. So, they take money and option one here, which is the one I don’t want you to do, is you take out 5,000 to satisfy your required minimum distribution and it’s reported as taxable income and you pay taxes. Again, we said they were in the 24% bracket. They have to pay $720 in taxes. And now, um, they had to, you know, give the 5,000, but they had to pay those taxes out of pocket. So five that 5,000 charitable uh contribution they wanted to do is uh now they have to take out you know it’s 5,720 cost to them to do this because they took it out paid taxes put it in their checking account and then gave to the charity. Instead what you’re going to do is a qualified charitable distribution. they have to take out the 5,000 and the the charity a check is made payable directly to the Boys and Girls Club like I the example and it is not taxable to them because it was gifted to the charity. It counts that they had to take it out. They had to take out 5,000. It still counts. They satisfied the required distribution and now they just save $720 in taxes on that by just giving directly to the charity from your IRA qualified charitable distributions. If you have more questions on that, please say yes at the end of the presentation and we can certainly talk about how you can give in retirement and make it uh tax benefit to you. Uh, I hope to have assets to pass to my family. How does t retirement tax planning figure in? Organize your assets for your family’s benefit. Estate planning still matters. So, now we’re going to look at an example of um a stepped up basis strategy. So, we have this is an unfortunate uh example here, but we have Phil and Mary. They hold a taxable investment account in a uh a joint joint tenants with rights of survivorship JTW writ,000
and they have long-term capital gains in there. Of that of that 120,000, Phil is diagnosed with a terminal illness with 18 months to live. So how what tax strategies can they do for this estate planning? So if they do nothing after the diagnosis, a joint tenant with rights of survivorship rules are 50% of the money is Phil’s 50% of the money is Mary’s. So the step up in uh basis eliminates a capital gain on Phil’s 60,000. So Phil passes away. the money that is um is Mary’s, that’s already technically hers, but she still has capital gains. She still has gains in that, but when she when he passes away, she inherits his 60,000 at what’s called a stepped up basis. What does that mean? Let’s say you have a stock or someone has a stock that was purchased many years ago. Uh let’s say it was some old oil stock BP that was purchased years ago. Let’s say it was purchased for $50,000 and now that stock is worth $150,000. If you are living and you sell that stock, you will have a $100,000 capital gain that you will have to pay taxes on. If someone has that account and passes away and they have beneficiaries named, the beneficiaries get that $150,000 stock and the basis now instead of being the initial purchase price of 50, it actually jumps up to 150, the current price at the time of death. And if they sell that stock immediately for 150,000, there are no taxes uh paid on that. It’s called a stepped up cost basis. Um, so if she sold all the investments, she would have to pay taxes on her own gains. Even though the portion she got from Phil, the 60,000 from Phil, that was a step up on that, but she has to pay taxes on her own gains if she if they did nothing. The other strategy is after diagnosis, put the whole account in Phil’s name and make Mary the beneficiary. Phil passes away. Mary is now the beneficiary of this full account. All 120,000 steps up to 120,000 cost basis. She can sell everything immediately and not pay any taxes. This is the same for real estate, too. We had this example for when my mother passed away. I’m one of five kids. We were beneficiaries. We were in her will and everything goes to the five kids. And when they bought their house years ago, I’ll use an example. They bought it, say they bought it for 135,000 and at the time of death, we got an appraisal, let’s say 220,000. And so we sell the house and now because we inherited this house, it is now an investment property for us kids as the beneficiaries even though it was owner occupied by my mother, my father and mother at the time. And so now both parents are passed away and we get the house, we get an appraisal, step up at 220,000, sell the house, sell the condo at 220,000. We didn’t have to pay any taxes. So that same stepped up cost basis happens even on real estate as well. Uh so when you go to sell investments, would you rather owe tax on 60,000 or no tax at all? uh inheriting an IRA as we start to get uh toward the end of the presentation here. Again, I know there are some questions here now, but is if you’re thinking of any question, go ahead and type it in. I’ll be getting to those very shortly here. Uh an example of inheriting an IRA. So, now we have a mother and a son. Pamela is 65 years old and Kyle is 40. Pamela dies and leaves 100% of her IRA to son Kyle and a balance of 400,000. It’s got, let’s say, it’s got a average 6% rate of return just invested in something. Uh, so Kyle takes distributions over 10 years to minimize tax. So that’s the IRS rule. If a mother passes away, IRA goes to son uh he has to liquidate that account within 10 years. He has 10 years to zero that out. If uh he took all 10 years and uh let’s say that money was invested still growing, he has to take out an average of about $54,347 each year for 10 years. And that is added to Kyle’s income. he has to pay taxes on his own tax bracket. Uh so it is taxable to him and these are mandatory that he has to zero this out in 10 years. This first example is if he just spreads it out takes withdrawals over 10 years fairly even. Now someone might say I want to take 50,000 year 1 and I’ll take 20,000 year 2. I’ll take 80,000 year three. You can take it as long as it’s a zero balance by the end of 10 years, you can take it out any way you want. Here’s another example scenario number two that Kyle does nothing for year 1 2 3 all the way through year 9, he doesn’t take a dime out of this account. But now year 10 because it was growing at an average of about 6%. Now that value of that account is 716,000 plus and he’s going to cash that out. He has to within that 10th year and it’s all taxable. Now he just jumped up to the highest tax brackets. So he can legally do it. Is that advisable to do something like that? Most likely not to defer everything and then take it all in one year at the end. But just know now um let’s say it’s a spousal situation. If a husband passes away and the a wife is the beneficiary in this example um that he has an IRA and she inherits that the wife inherits she can just add it to her own IRA is as long as it’s like as if it was always hers. She will have to take required distributions and spread it out over her lifetime. But that is a spousal benefit. There’s a few other things if it’s minor children or if it’s a sibling based on the year the age gap uh between the deceased and the beneficiary. There’s a few other twists and turns. So, if you do have one of those situations that you might be curious about, please say yes at the end and we we can have that one-on-one conversation. How in the world do we manage all this? So pre-retirement, early retirement, middle retirement and then late retirement. All these four different stages of income coming in maybe or the tax traps of Medicare and social security. You want to do withdrawals over time. How do we manage this? Uh because your tax exposure will change throughout retirement. You need a strategy um that understands ranges of taxes, anticipates how and when you tap assets to cover your personal expenses, manage your action actions so you pay the lowest tax rate possible. Uh preparing for retirement and taxes when you’re going to be taking money out. Managing taxes happens throughout retirement. Mistakes can be costly. Again, that was that Medicare not signing up for Medicare on time. uh thinking about all of these different things. Retirement can be difficult uh for many people when there’s so much to think about. Education planning advice needed request uh a taxes and retirement planning overview meeting. Again, I’ll be putting up that survey here in just a moment. Uh please say yes and we can have that one-on-one conversation. Again, a complimentary conversation. Here’s again a list of all the different type uh products and services that I do offer. Uh again that top left complimentary foundational financial plan, retirement plan, however you want to call that. It’s uh it’s a it’s complimentary free source that we can dig into. Here’s what you have. Here’s what you want. Are you on the right path? So here’s my contact information up on the screen. Uh, as I go through the questions and I put up the survey, please say yes if you would like to have that one-on-one conversation. If you think you would like to have that conversation and you want to book that right now, put your phone, get your camera on your phone and hover that over the QR code that’s up on the screen and you click on tap the little yellow thing that comes up there and you’ll have access to my calendar. You can do that right now if you would like or simply just say yes on when I put the survey up and I am doing that right now. So, you should hopefully see that up on your screen. If you would like to have a one-on-one conversation, please say yes. Or if you’re not um ready for that yet. So, I’m going to go through all the questions here. Uh so, how much is a one-on-one meeting? Uh we covered that. That is a complimentary uh service that we do offer. Uh we’ve been making Roth conversions for the past two years. Uh if we plan to retire in two years, uh should we stop the um conversions temporarily to avoid Irma sir charges? Depending on how much you do, yes, but sometimes if you’re going to stop working, then you’re going to be in a lower bracket. I would say maybe that’s a good year. So we would need to absolutely go through some numbers of where is your other income, when do you plan on stopping work and should we keep doing conversions. Most of the conversions that I do for people are when they stop working, their income goes down and sometimes people will like I said even defer social security so they can do as many you know as much of conversions before jumping up to a higher bracket before Irma um you know penalties kick in. Uh but uh retiring might be great years to do that. Can you convert a 401k to a Roth or is it different from a uh from a 403b? Sometimes within a plan you you might be able to 401k 403b uh convert within the plan from uh regular 401k to Roth 401k. Another option is that if you’re eligible to roll over to a 401k or 403b would roll over to a traditional IRA and then convert to a Roth from the traditional. So that might be an option too. Uh but you can potentially convert within your 401k or 403b plan. Check with your provider if that’s available in there. Uh can RMD withdrawals be rolled into a Roth IRA account? So IRA uh so if you’re doing the withdrawals which you still have to do uh that can’t cannot be rolled into a Roth. Basically if you have earned income like any job income you would have to then do a uh contra um uh uh you know the a contribution to a Roth IRA. Um, so but if you are even if you want to do Roth conversions and you’re in the age of required distributions, you still have to take out your your required distribution first. And if you want to convert on top of that after the uh the distribution that you did, you are able to do conversion still, but you have to do the withdrawal of the required distribution. that cannot just go to a Roth unless you have some earned income in retirement that you are eligible to con contribute to a Roth IRA. And I have your information here. Hopefully, you’re you’re a yes on there. I would love to dig into what that means to you. Uh let’s see if there’s uh only first meeting is complimentary, right? What is the fear for the rest? So uh we do have even though I do investments so um when I do a full retirement plan so the initial you know consultation uh we can get all the information do the retirement plan maybe in meeting two we’re going over a retirement plan you’re not paying a dime for any of this. Um even if you’re doing investments with me we have investment accounts that have no fees at all. We do have advisory accounts that you might pay the let’s say the the 1% or plus or minus depending on an account balance, but there could be some fee on some type of an investment. But if it’s not an investment, you’re not paying anything. You’re not paying for any consultation. I’ve had two, three meetings with people of before they even start to bring assets over to for me to manage uh that uh you know, you’re not paying you’re not paying for the consultations. um anytime even if I’m holding accounts for you and re still in the future reviewing your retirement plan or making changes to the plan based on years going by, you’re not paying for any of that. Uh so, um and again, hopefully you and I can have that one-on-one uh conversation about what you would like to accomplish. Uh again, my goal is that hopefully we’re going to work together on some things and get your retirement on track. Uh but uh I do have the poll uh completed here. I think that is all the questions. We are right at uh 6:59 and we did it right within an hour. Thank you all so much for your time and attention tonight. I thank you and hopefully we’ll be having a one-on-one conversation here very soon. Thanks. Have a great night.