How to Plan for Taxes in Retirement 2024

Intro hello everyone welcome to today's webinar today's topic is how to plan for taxes in retirement with Dana anpa and Oscar Vivas Dana's the founder and CEO of sensible money and she's recognized as one of the nation's leading Authorities on decumulation planning she's the author of control your retirement Destiny the popular guide to decumulation planning and you can also find this as a podcast on Apple Spotify and iTunes her online course how to plan for the perfect retirement is available at the great courses.com and at w.com sensible money was recently ranked 35 out of 500 in USA today's best financial advisory firms and named a best place to work for financial advisers by investment news earlier this year and for the third year in a row sensible money has been cited by Inc 5000 as one of the country's fastest growing private companies with Dana today is Oscar Vivas a Florida Bay CPA who joined us recently as a financial planner bringing a wealth of knowledge and experience particularly around taxes he also holds the designations of personal financial specialist and certified financial planner in addition to being a speaker at industry conferences around the country Oscar has been a frequent contributor to several well-known financial news and information Outlets I'm Nancy felinger another financial planner here and I'm in pully's Island South Carolina most of the team is based in Scottdale Arizona and we also have team members in Massachusetts Oregon Indiana and South Dakota using some of the same technology that we're using today we work seamlessly with each other and with clients in 38 States across the country you will see a question box on your go to meeting screen and we encourage you to add any questions to it as we go Dana and Oscar will have plenty of time to answer them as we go I May respond to some of you directly or follow up with an email and so with that let's get started hi everybody and thank you Nancy for the wonderful introduction I want to start with our favorite thing in the world disclosures so of course uh we need to have disclosures and let you know that we're going to be talking about broad general concepts only someone that knows your situation can tell you how this applies to you we may talk about case studies we may talk about specific examples that we've encountered with clients but none of those are guarantees of course you know this um that those situations or examples would apply to your situation so that being said let me talk about what we are going to cover we have the content broken into three phases so Basics we're going to talk about just generally how do the tax rates work what does that look like how do you withhold taxes like what is the functionality of how you actually pay taxes during retirement then we're going to be talking about the opportunity years there's a lot of moving parts that occur between about the ages of 55 and now you know up to 73 to 75 depending on when your required minimum distribution start so we'll be looking at all of the moving parts during those years and then the last section we're going to talk about strategies so what are the things that you can do like what are ways that you can structure things so that over your lifetime you may possibly reduce your tax bill not this year but we like to look at cumulative taxes over the 20 or 30 years that you may spend in retirement and figure out are there strategies that can reduce that cumulative tax bill so let's start with the basics when we're talking about Basics retirement your cash flow and I'm using that word on purpose your cash flow comes from a lot of different sources so while we're working we think of income and income comes through our paycheck there's tax withholding that happens and our income is often closely aligned with what shows up on our tax return unless you're a business owner that's a whole another story but for a lot of us your income is closely aligned for what shows up on your tax return well in retirement you have mutual funds St dox CDs savings accounts you might own those in a non-retirement account and they have a particular type of tax treatment you have a Roth IRA maybe where withdrawals are tax-free assuming you followed a certain set of rules you have IA in 401ks where everything will be taxable you have social security which is partially taxable you might have rental income pension so there's a lot of different sources and they're all coming together to form your retirement paycheck and each one of these sources can have a different kind of tax treatment which is what makes it so challenging to plan for taxes during retirement now when we talk about taxable income that may not reflect the actual cash flow that you see so in retirement there can be a big disconnect between the cash you're receiving and living on and what actually shows up on your tax return let's look at how the tax rates work and now this this part works the same while you're working or or whether you're in retirement we have here 2024 rates we have single rates on the leftand side married on the right hand side and this chart reflects taxable income so after your deduction randomized or standard deductions so after your applicable deductions your income flows into this chart and only the income that falls Within These ranges is taxed at the applicable rate so we call these your marginal rates and sometimes there's this misconception that oh my gosh if I cross into the 32% tax rate then all of my income is now taxed at 32% but it doesn't work that way it's like a waterfall schedule the income that falls um for a married couple in 0 to 23200 is tax at 10% the income that falls in this range is tax at 12 and so on and so sometimes you'll heal terms like marginal rate versus effective rate effective rate is like a blended rate you take your total tax divided by your taxable income and that was your effective rate and it's typically going to be lower than what your your marginal rate is if you use an assumed marginal rate for your retirement planning that can be problematic and we'll talk about that throughout this webinar why you need to look at your specific sources of income and and have a projection model that taxes them appropriately otherwise your your assumptions and your planning may be giving you uh an answer that is not going to be correct now in addition to these ordinary income tax rates you have qualified dividends and long-term capital gains rates and these are taxed in a according to a different schedule so you have something called the 0% capital gains rate that falls uh in this range and there's many times where we've seen people when they first retire and Oscar is going to talk about that in a little bit their tax rate might be much lower and we've had an opportunities to exit out of stock where we could keep somebody's income in this range and realize capital gains of 60 to 880,000 and have them pay no tax on on realizing those gains doesn't happen all the time but when those opportunities come about uh it it provides an excellent opportunity to take advantage of the tax code as it stands today you have this next range where capital gains and long-term qualified dividends will be taxed at 15% and if your income is in a high range those same capital gains and qualified dividends will be taxed at 20% now a common question we get is what is a qualified dividend so most regular dividends from us corporations are qualified if you own an S&P 500 Index Fund or you know a blue chip stock the dividends you're going to receive are typically qualified if you own master limited Partnerships or real estate investment trusts or foreign companies those dividends may not be qualified all the dividends flow into your tax return and you'll see a total dividend line and then there's a subset that says qualified dividends and that subset of dividends that are qualified that income gets this preferential tax rate so when we put all of this together and you have your income coming from from all of these different sources and these various tax rates that apply you have to figure out how you're actually going to withhold and pay taxes in retirement and here I'm going to turn it over to Oscar to talk a little bit more about that Oscar all right Dana thank you um so you know what's interesting is that when we are working most of if we're if you're a W2 employee um your taxes are automatically withheld from your paycheck and you never really have to think about how am I going to pay my taxes um but as you transition into retirement that's really an important thing because there's no longer a corporation doing that uh on your behalf and so to Dan this point uh there's different types of income items that are flowing through in retirement and they're all taxed differently however what's interesting to note is that you can't have a withholding from all your various income sources so um but the ones that are highlighted in Orange so if you have pension or social security or distributions out of your retirement accounts you can set up a withholding that goes straight directly to the IRS but from some of the other sources that's not really the case and the reason why this is important is because again when you were working you didn't have to worry about sending your um tax withholdings because it was being done automatically if you flip to the next page well we want to make make sure that doesn't happen to you is that you get caught in underpayment penalty land which means that if you don't pay your taxes uh throughout the year I'm going to talk about this um you can potentially owe underpayment penalties and we want to make sure that you avoid that and so here's more or less at a high level how this works um if at the end of your tax year if you owe less than ,000 in tax um you for the most part you don't really have to worry about paying any underpayment penalties however um the the IRS has something that we call a safe harbor which says if you do these things for the most part you can you don't have to worry about any underpayment penalties and that depends on how much income you earn in the prior year so going down the First Column if last year if you earned less than $150 ,000 for your AGI then the you can either pay 100% of the tax shown in the prior year or 90% of the tax for the current year whichever is less now what's interesting about this is that we know what 100% of last year's tax is because we know what last year's tax is we don't really know what 90% of this year's tax so we have to do projections and if we're if we're choosing that route we just want to make sure that we're being metic in our accounting and Records so that so that we don't get hit with an underpayment penalty um now if you're over 150,000 from the previous year instead of 100% it's you either pay 110% of your tax or 90% of the current year again that's whichever is less yeah and Oscar I wanted to to pause I know you and I were talking as we were preparing for this webinar about some things we've seen an example Le is you know as you're transitioning into retirement as you mentioned you you don't know what this year's taxes are going to be and I have seen cases where the CPA the software they use will automatically schedule out quarterly payments that someone's supposed to make but those are always based on last year's numbers and so I've seen cases where someone had stock options or you know usually it's options or some big income event and the CPA is saying well you need to make 30 or $50,000 a year of quarterly tax payments this year and we're the ones going wait a second no you know they've retired now so this calendar year is going to look completely different and we really don't need to lend the the government that much money throughout the year um assume you you're seeing that or you've seen those cases also absolutely yeah I mean I mean the extreme cases is someone someone wins the lottery right so they have to pay a huge tax bill and that's an extreme case but it does happen and the following year you don't want to have to pay 100% of the lottery year's tax right so you you just have to make sure that you're staying on top of that yep absolutely now um I'm I don't know how many here on the webinar today have played the famous game Monopoly but if you recall right every time you go around the corner you collect your $200 right uh so the the tax system is similar to that the way uh income taxes are paid they're actually supposed to be paid throughout the year as you earn the money and as the year goes um and so again when you're working and you're getting W2 you're not really thinking about this but when you're not working it becomes something that you have to put a little bit of thought into and and and the way for the most part it works is that for the most part you have to pay an equal installment amount at each of these dates that are shown um here on the screen and so um so that by the end of the year you would have paid your taxes uh evenly now sometimes um for whatever reason or another we don't make the right amount of estimated quarterly payments or whatever it may be um sometimes it might be an error it might be that you were uh you you were in a disaster area where things happened you couldn't set it up or in other cases you might have had something going on uh in the family a death or an illness that prevented you from making payments um and so one trick that you may not be aware of is that most of us most of you are going to have retirement accounts and if you um take a distribution out of that retirement account and let's just say it happens at the end of the year you can actually have 100% of that distribution from your retirement account withheld and go directly to the IRS and what the IRS will say is okay they they're going to assume that that distribution and that withholding was paid evenly throughout the year so it'll help you to stay out of um underpayment penalty land if that ever happens um osar oh yeah I got actually uh as as you're talking about this this seems to be a a Hot Topic uh because there are four questions uh actually more now related to the underpayment penalties um okay and I'll and I'll start with how stiff are the underpayment penalties I'll be honest with you they're not the stiffest penalties around um I mean there's a cap I think of up to 25% I mean it is stiff but but in order for you to hit the cap number it takes it probably takes several months before you you you hit the the maximum amount um now I will I want to add to that they're while they're not stiff because interest rates are higher now we are seeing that those underpayment penalties are coming in larger so there's an interest rate component to uh that underpayment penalty and so with higher rates they're larger than they were uh a few years ago yeah and there uh is another question kind of related to that and and the questioner says I don't get this what has the previous year got to do with the current year I've never had to pay taxes based on what I did last year only what I earn this year yeah and again I think that's a function and a byproduct of the fact that you know if you're working a traditional job the company's handling that for you so you don't really have to think about it but once you're retired and you don't have a a company payroll system doing that on your behalf um the and that's the IRS has these rules that they say if you pay at least what we're showing here on the slide if you pay at least that then you don't have to worry about underpayment penalties and and so that that's the numbers there for your own personal reference okay yeah and just to clarify that you know it's not so if you paid in 100% of last year you know you avoided the underpayment penalty and if you don't end up owing that amount when you file you will get a refund so you know as Oscar is describing Safe Harbor just like you said that just they're just saying this is one way to to be exempt from any underpayment penalty okay and the last question Oscar on this uh would be you I think you you already touched on it but how can you avoid underpayment penalties if you do a large Roth conversion late in the year and only pay the taxes due at the time the conversion is made and that would be through withholding potentially some Ira or or just um paying it at the end of the year well and and so we're going to talk about this in a little bit um because the reality is that hopefully as you're going through the year you're you or CPA or your financial advisor is helping you look at how much needs to be how much needs to be paid to the IRS and and helping calculate what the uh amounts on Roth conversions how that's going to impact the uh pay that you make but I will say I will say this and I had a personal experience with this um if if you get into an under payment penalty scenario you can uh in that sence appeal to the IRS you file form 2210 and uh if you had some some unfortunate event happen in your personal life and I'll give you a personal example when my son was born in 2021 it was kind of a chaotic moment uh for me for for my son and my wife a lot of hospitalizations and all that and I actually ended up missing one of my my Q2 payment um for the second quarter and when I filed my tax return I just pretty much let the IRS know like hey here's what happened here's why that H here's why I didn't make that Q2 payment and and as long as it's something relatively reasonable then you know for the most part you would be okay so just know that that's something that's in the back of your pocket if it ever happens yeah and I want to go back to the Roth conversion question too because like as Oscar said you're working you know with a planner or you know you're doing the planning yourself when you talk about pay as you go so there is a form where you can allocate the income by quarter and so if your income all occurred in the fourth quarter then you could pay that portion of the tax on on January 15th for that Court Q4 payment now we have seen cases where the the that happened but the person preparing the tax didn't know how to do that it's you know I don't I don't know if you know the name of the formas or I can't think of it well it's the annual the annual income installment method and it's actually filed with that same form 2210 okay yeah I've seen cases where it was missed and so someone owed an underpayment penalty that they shouldn't have actually paid if someone took the time to fill out that form and allocate the income by quarter anything else on that yeah yeah there there is one more that uh that's I think especially relevant can Oscar re-explain end ofe retirement withdrawal holding yeah let me give you an let me just give you an a very simple example because I think that'll that'll bring it to life suppose suppose that your tax for 2024 is going to come out to be 20,000 for the year let's just use that as round numbers in most cases you're paying $5,000 at each of these different quarterly dates right 5,000 April and June September and then again in January so that at the end throughout the year you pay 20,000 and it's all good suppose however that you didn't do that and and it's December 25th as you're opening Christmas presents and you realize holy moly I I haven't sent any payments to the IRS what can I do well so if you happen to have an IRA a retirement account you can take a distribution from that and let's just say you're going to take a $20,000 distribution or or whatever the number is and have it sent to the IRS totally in that particular case that move of using your retirement account and and sending the check directly to the IRS um will count as if you would have made payments all throughout the year and therefore it would have helped it it would have helped you to avoid any kind of underpayment penalties so it's just a little it's just a little trick that uh that allows us to have a little flexibility in helping you avoid that if that happens to you yeah and just to you know for those who've never done it before for you know when Oscar says like have the check sent to the IRS you aren't sending the check the custodian is so you know it's a box you check when you're doing the distribution yes I want tax withholding 100% And it's getting sent from whoever your custodian is they are paying it to the IRS for you and at the end of the year you will get a 1099r tax form and it will show that that withholding happen so that tax form you know gets turned in or collect with all the rest of your tax documents so you don't take the check and send it in your your custodian sends it right to the IRS for you awesome these are good questions keep coming uh Dana back to you yeah yeah so moving out of the basics that really aren't always so basic and on to the opportunity years this is that time frame that we Loosely Opportunity Years describe as between about 55 and 75 where there can be a lot of opportunities to squeeze more you know to lower your lifetime tax bill and and that's what we want to talk about here now this um page you're looking at is available as a handout so somewhere in your goto meeting control box there is a way you can download handouts you should see this page and also chapter four of my book control your retirement Destiny which is the chapter on taxes so those are both available to anyone attending as downloads this is Loosely describing all of the things that happen so at 50 and 55 55 for most people if you were to leave your employer during the year you turn 55 and leave your funds within the plan there is a special provision that would allow you to take withdrawals exempt from the early withdrawal penalty tax and sometimes with with planning there's some reasons to do that that provision can apply as early as age 50 for certain Public Safety workers at 59 and a half you have the first time that you can withdraw from IRAs or other retirement type of counts 403bs seps simples and so on without being subject to that penalty tax 60 the earliest age widows or widowers can start Social Security 62 the earliest that we can each claim our own retirement social security 63 now there's nothing really special about 63 it's just uh we'll talk about in a minute how the medicare premiums work and they are means tested and so they will look back at your tax return two years prior always on a rolling basis but this is the first year that happens so your tax years the year you turn 63 is what's going to determine your medicare premiums when you turn 65 6 five is where Medicare starts for most people it might be an exception if you're still working for an employer with over 20 employees 66 to 67 full Social Security age 70 that's where you get your maximum Social Security and then now required minimum distributions begin at 73 um depending on your date of birth if you're born 1960 or later they begin at 75 wow like that's a lot of stuff happening in this you know what we might call 20-year time frame and so there's you know all kinds of tax opportunities where you might be able to take IRA distributions at a lower rate you might be able to just take an IRA withdrawal you might be able to realize capital gains at a lower rate you might be able to qualify for something called the health care tax credit so if you retire pr65 and you can keep your income lower there's a a tax credit that can help help you pay for Health Care up until you turn 65 so as we dig into some of those um Oscar is going to talk a little bit more about the details Oscar so I often get the question like how do I win at the tax game and the way I say it is okay the first thing we have to do is we have to try to lay out your tax picture your long-term tax picture as best as we can obviously we won't have it total to the penny 30 years from now but but we just want to see an overall picture of what things look like and it it is very common that when we work with retirees their long-term tax picture looks something like what we're showing on the screen that when they're working they're up in the higher income tax brackets and that that's obviously going to vary depending on your job and your income and all that but as a general rule when you're working you're making more money than when you're not working um I know that sounds kind of obvious but um and then on on the Other Extreme and what happens is okay yeah what happens is you stop working and your income drops kind of off a cliff um and then at some point you start taking social security so it might creep up a little bit in those kind of later years and then at some point you have to start taking money out of your 401ks or your IRA right and so now now your income and your tax brackets go up again and so what happens is uh there it create this scenario creates the opportunity to lower your lifetime tax bill now how do we do that um because often times when we're thinking about saving money on taxes we're thinking about how do I save the most money on taxes this year but in reality is how do we save the most money on taxes over the course of your lifetime and so what do we do well if you happen to be working um at that particular point in time we want to try to get as many deductions as we can saving as much as we can into our 401ks as an example once we retire and our tax bracket drops what we want to do is we say hey in about 8 to 10 years I'm going to have to start taking distributions from my uh retirement account and when that happens according to just this illustration I'm I might be in the 33 or 3 5% bracket at that particular point in time so what we want to do is say hey if I have the opportunity to pay it at 10 or 12 or 22% in this kind of window you will you will end up saving taxes over your lifetime two two ways number one you end up paying less taxes on those same dollars and by doing that you're also reducing your future tax bill um and so what we're what we're trying to ultimately do is find that equilibrium where we're paying the least taxes kind of over our projected lifetime now I want to talk a little bit about some of these opportunities that Dana mentioned during our retirement years one of those opportunities is if you happen to retire in advance of uh Medicare age so so so earlier than age 65 so let's just take 62 as an example um and you say okay I need health insurance but I'm not eligible for Medicare what do I do in many cases people end up going to the to the Health Care exchange the Affordable Care Act to buy a policy and the rule and like Dana mentioned earlier you're the government depending on your income gives you uh premium assistance towards your uh health insurance premium depending on your income now the what we're illustrating here is the old Rule and it's important because the old rule will also become the rule again in 2026 so you know we just want to talk about it but the way it used to be is that let's just take a household family size of two right the rule was if you earn $1 over 400 you you'll get assistance as long as you stay within below 400% of your federal poverty level and that's the that's the chart that we're showing you here and it varies depending on your household size size how many kids you know are in your household how many people and all that but let's just say a family of two right it used to be that if you earned $1 over that amount that uh we're pointing at you would lose all the assistance to your to your um to your premium tax credit and you would eventually have to you would have to pay it back and we're going to talk about that in a minute that was the old rule so the old rule was you can get a tax credit towards your health insurance as long as you stay Within these income levels now that has changed for the years 2021 through 2025 with some of the things that uh uh President Biden has implemented so what are the new rules the new rules say this you depending on where your income Falls relative to the federal poverty line the government says you are responsible for paying that particular percentage of your health insurance premium and and we'll and we'll pick up the rest and so and so they base the assistance that they give you for your health insurance on these income lines but the one thing that you want to uh note is that there's no longer a cliff after the 400% of the federal poverty line and we're going to give different examples so that um we can illustrate it but in essence over these next 2024 and 2025 and unless they extend it again they a lot more people can receive help on their health insurance premium through the uh healthcare.gov so this is an example I'm based out of Tampa Florida and so at a high level if your income and we're going to talk about income in a minute was $50,000 for your household um and this is uh for Hillsboro County and Tampa it's going to bury depending on where you live and the ages of the applicants but in this case we have a 60-year-old couple and if they earned $50,000 the subsidy that they would receive towards their health insurance is $2,636 for the whole year um and you can see that as they make more money earn more income the subsidy goes down but it's not as bad as it used to be whereas if you made over if you were a household of two and you made over 81,000 you pretty much lost all the health in this in this today's rules you still get help but they just go down until eventually you make too much money and you you don't get any more help now again this is a very specific thing that applies to people that are not on Medicare But ultimately if you need health insurance and you go uh get health insurance from The Exchange they're going to ask you a series of questions including what's your estimated income and you know uh you know I always say do your best at estimating the income because what what happens is they're going to base your assistance and your subsidy based on what you put in that form but then when you file your tax return there's this form that you have to fill out form 8962 which will reconcile what you said in the application and what in the assistance you received to the actual income that you earned for the whole year and then if you uh understated your income then you might have to pay back some of the subsidy that you received and vice versa if you overstated your income then you know they'll give you more money but they they ultimately reconcile this on the tax return and Dane I think you had you had a case study on on on this slide I did this is actually a screenshot from a you know a real tax return um and you know it's a client that'll be 65 64 this year in 2024 this was from a prior year $3 million portfolio and they take 12,500 a month out which is1 150,000 a year that's the cash flow they have so we talked about cash flow but their modified adjusted gross income is 46824 and a lot of that's accomplished because when the portfolio was structured as Bonds mature in their brokerage account when a bond matures that's not taxable income you know the principal amount matures and and and that doesn't cause a tax event there's interest income along the way depending on the type of bond and so we're not taking any Ira withdrawals and everything that's taxable is included here but there's a big discrepancy obviously $100,000 between the cash flow they're receiving and their modified adjusted gross income and so they were able to qualify for 17,7 n tax credit um now that's what was allowed uh the year before this was the advance of the tax credit was 18, 588 and so this difference would just be recaptured essentially what they owe when they file their tax return to pay back any credit that they were Advanced that they weren't actually eligible for now it could have gone the other way too right they could have gotten a lesser credit their income came in lower and so there could be an additional refund due to that as Oscar said this is where the reconciliation happens now before you move before you move on um yeah I was going to say this is so important because even though the current rules are a little bit more forgiving they're scheduled to end at the end of next year and I'll give you a quick thing that I I actually saw and this is why it's so important to consider when you're doing your financial plan your retirement plan to think of all the various levers that are impacted by every little move that you make but I'll give you an example under under the olden rules um that where I mentioned if you went $1 over the limit you lost the whole subsidy well an advisor I saw an advisor incur some capital gains they sold some stocks at at a gain and it tipped them over the edge by a few bucks and they had to pay back $116,000 and trust me you know they were not very happy about that so just keep be mindful that these things are out there um and then seek help if you need if you need to yeah and it's an excellent point because they all interact with each other right it's it's like a giant jigsaw puzzle where if you move this there's this trickle down effect and it might impact this and this and this um Oscar I think you were also going to talk about uh all of the forms of of mhi so throughout this conversation we've talked about income income income well the version of income that's often used is is what the IRS calls modified adjusted gross income now you would think that there is just one of such things but the reality is that depending on the context it changes and so just a minute ago we were talking about the healthcare tax credit or the premium tax uh assistance right and so the way they calculate income is not just your adjusted gross income they also add back uh part of the Social Security as well as any tax exempt interest so if you happen to have municipal bonds um you may not be paying federal taxes on that but for purposes of calculating your modified adjusted gross income for the health care tax credit they add that back into the formula so and then what's interesting though is that if you look at say the last bullet point um which is dealing with Medicare um the way they Cal modified adjusted gross income is a your AGI plus your tax exempt interest right so and then in the first two bullet points the point that we want to make here is that there's different calculations of modified adjusted gross income that you just have to be aware of as you're in this retirement phase yeah and you know we will sometimes you know ideally if somebody's working with us they will email us and say hey what is my mag AI for you know specifically what they're looking at like if they're looking at medicare premiums versus healthcare tax credit usually we know what they're looking at and we can say okay here's what the number is that you would use on on this form the other thing is we were talking about everything being in Connected if you claim Social Security early that's now going to impact your ability to qualify for this healthc care tax credit so they they definitely all tie together um we've talked a little bit about what we call Irma premiums income related monthly adjustment amount is what Irma IR MAA stands for and these are means tested meaning the higher your income the more you pay so this applies once you're on Medicare and claiming Part D part B and D and so here we see that if you're single and your income is less than 103,000 I think my um this should be zero oh no sorry I I'm all of a sudden I was thinking they're off a line but they're not so if you're single and you're paying less than 103,000 you are going to pay zero for your part D premiums and you're just going to pay the Baseline 175 for Part B but as your modified adjusted gross income the specific formula that applies to to this premium goes up you're going to start paying more so after you cross this 103 threshold and these thresholds are index to inflation but after you cross these then uh for a married couple you'll start paying 244 for Part B and $113 for Part D and so on and so you can see these these thresholds go up and you know there's interesting Christine Ben from Morning Star just had a an exp poost about this today where she was saying you know she sees a lot of focus on this and if you're making you know over half a million a year is this such a a big amount and I agree you know it's it's it's not going to make or break your retirement plan uh at that point at the same time if you're in these income thresholds and we can be aware that you may be close to going over one of these these limits and say let's take a little bit less out of your IRA this year or you know let's not do quite as much of a Roth conversion or let's not realize those capital gains until January now each one of those decisions requires pros and cons it's not there none of them are you know clear absolutely do this or don't do that type of decisions but you can be thoughtful about it and so sometimes you can avoid crossing over into one of those next Irma thresholds I'll give you an example this is a client um Oscar and I just met with about two weeks ago and they had retired but their at most of their uh workplace plan had rolled into an IRA but sometimes what happens is the next year the employer still has a profit sharing contribution that they have to make for all the employees that worked there the year prior so they ended up with this extra $6,500 suddenly in their old workplace plan and they asked us you know should I just cash this in or roll it over you think it's only $6,500 like why go to all the hassle to do the rollover except that when we looked at where their income thresholds were that 6500 might be the thing that pushes them into this next threshold so in that case we said you know what let's not worry about that let's just roll it over next year in 2025 you don't have this Deferred Comp payout that you're receiving now so your income will be less and so that would be a better opportunity to have any extra taxable income and now one more thing on this particular slide um sometimes you know she mentioned it earlier when she was looking at the chart of the various things that happen at various ages but let's just suppose that you just retired and you're 65 and you get the letter and you you get the letter and they it says hey your Your Part B premiums are going to be 349 bucks based on what your income was from two years ago and you might say wait a minute what my income just dropped and now I have to pay a higher uh Irma amount to Medicare well so there is this form called uh form SSA 44 and in essence is if you've got it's seven to eight different life changing events that they call so like marriage divorce death or work stoppage or work reduction for example if any of these apply and your income's going to change fairly significantly or it doesn't have to be overly significant but but you you can submit that and and and Ence petition them to make your premiums lower based on that kind of whatever event uh appli to you so I just just keep that in the back of your mind as you transition to Medicare yeah and that's an excellent point because a common question we'll get is well you know can I get an exception because I realized capital gains or sold a business or did a Roth conversion no you cannot however let's say we realize capital gains and that coincided with work stoppage well then there is a case to to file that form and say my income will be a lot less and so this higher premium should not apply there's also required minimum distributions that we've talked about and this is a simple example that says for every $100,000 that you have in a tax deferred qualified account that would be a 403b 401k Ira here's what the IRS says you have to take out each year and so it's a divisor based on your age each year you get older the divisor gets smaller so you have to take out a higher portion of your remaining balance that's recalculated every year so every year you look at your December 31st balance from the prior Year and that tells you the amount that you have to take out in the current year and so that grows substantially of course by 94 uh you're taking out over 10% of your remaining balance a year but this is what can cause some delayed tax consequences or sometimes um you know we'll talk about how could your tax rate actually be higher later in life well it can be and Wade fou had a LinkedIn post on this I believe it was just this week it might have been actually the tale of last week and he posted this graph that I am using uh attributing it to him and here he's talking about the formula between how Social Security is taxed and how your other income comes into play so across the horizontal access you see ordinary income not including taxable Social Security and across the top you see an effective marginal tax rate now that is a completely different thing than the effective rate or than the marginal rate so we're throwing in a whole new term here calling it your effective marginal rate and uh this yellow line is your ordinary income tax rate so that would be what we were previously calling your marginal rate and what he's showing is that for every dollar of extra income that flows in in many cases it's making more of your Social Security taxable and for a single person this can create this this WI window or these Pockets where you're paying you know almost 50% a tax rate on on the extra dollars of income in this range and so again where we see this apply in real life Oscar and I were on a joint meeting with a client that we have worked with or I've worked with since 200 I believe six they are 88 now and in their projection model we're always planning for you know what happens if one spouse passes before the other and so in their case what happens is they both get Social Security and the surviving spouse will only keep the higher Social Security amount so they will lose about 20,000 a year of Social Security when the first spouse passes in addition there's a VA Pension so if the spouse with the VA Pension passes first they will lose that $10,000 of income and on top of that the required distributions stay the same because you have all of the combined amounts between both IRAs and the surviving spouse still has to take them according to that formula and so they're now filing at a single tax rate and so when all of that happens even though they would lose $30,000 of cash flow from Social Security and the VA Pension their tax bill would double and it would cost them 10,000 a year more in taxes so that's a $40,000 Delta difference uh in total cash flow for the year simply based on the way that the tax code stands today so that's how we see uh these kinds of you know it's called sometimes the tax torpedo that's how we see it impact people uh in real life Oscar anything to add to that yeah the the other thing that I would just add is yeah so and and if you go back to some of the earlier slides I don't I won't say go there now um you'll see that the the tax rate for single person you move up the tax brackets a lot quicker and so um it become it's very common that when one of the spouses dies that your tax rate tends to go up everything is Case by case depending on how what types of assets and income you have but in many cases when one spouses dies you might find yourself in a higher tax bracket yep and that brings up the you know the question is well what if I'm already single and we go well those higher rates already apply to you and they become part of that planning process I have seen cases where uh Roth conversions did not make as much sense for a single person uh simply because of the way that the tax rates play out now that's not always the case but know that if you're single the same strategies that apply for a couple uh may not apply or work as well for you when you're planning for this phase this is an example of what it can look like so here we have a a sample couple and you see their ages at year end and and this is how their tax rates will play out so when we look at this schedule it's telling us how much room is remaining in each bracket so their income for the year fills up the 10% bracket it fills up the 12% bracket and we have $63,000 remaining in the 22% tax rate now we might say great if we were you know looking at this projection all the way out into the future and we could see that by the time they're both in their mid toate 7s this tax rate um may be much higher if we could see that we might say great let's withdraw 63,000 this year at 22% or do a Roth conversion and that will allow us to pay at this lower rate because we're going to expect you're going to be in a higher rate later maybe you'll be at the 28% rate uh a few years from now but there's a second consideration down here we have the Medicare premium and so if we did the full $63,000 of Roth conversion it would push them over the first ear a threshold so we might say well what if we only do $30,000 of Roth conversion now we've done this analysis many many times and in many cases despite crossing a Irma threshold it does still make sense to do the Roth conversions but not in all cases and so you can run that projection model out and say okay where is the tradeoff or the break even sometimes we've done Roth conversion analysis and I've said well if you live long enough right then this will work in your favor but the break even point isn't for 22 years or 25 years and somebody might look at that and say um you know that's a long time other times we've done an analysis and and the break even Point might be seven or eight years down the road where we say wow this is um something that can really add value to your financial situation you can also see in here uh the capital gains and qualified dividend tax rates so the 0% rate is full um and there's $439,000 of room in the 15% cap gains rate before it would bump into 20 so this can be applicable if you're exing exiting out of a concentrated stock position or selling a piece of real estate that has a lot of embedded capital gains just to see okay if if I can do this in a year where most of it's taxed at 15 instead of 20 again that's a little bit of tax savings an extra 5% we'll take that anywhere we can get it Dana and Oscar let me throw this out to you uh it's a understanding that each case is different how much in general might a typical retiree expect to save in taxes through good planning I so we might have different answers on that I have seen cases where it is substantial like up to half a million dollars or more and I have seen what I would call your question more the average retiree right where it could result in the equivalent of 50 to $100,000 of in today's dollars tax savings so that's that's about the range where I see it you know for me $50 to $100,000 just from planning is still a meaningful amount when as if you retired with an extra 5050 or $100,000 in the bank I I I think that makes a difference Oscar what do you see no I've seen similar numbers uh and even sometimes you know higher you know it really depends on the more dramatic the ups and downs of the various tax brackets over your lifetime are the more you're going to end up saving by by doing planning so if you're like for I'll give you an example if you're like in the 37 % bracket and then you retired you're like in the 12% bracket and then at some point you're going to be in the 37% bracket again or something right that's dramatic from the top to the bottom and all that you're gonna you're going to be able to save a good amount of money um and the other thing that I'll say is there's two there's actually two components to that number one is how much money am I will I save over my lifetime that's what we just mentioned but then because I'm saving that much money over my lifetime my wealth because I'm not paying that much more money to the IRS my wealth is now going to be able to compound so the actual effect on your total wealth is going to be greater than just the tax savings so just keep that in mind excellent point another one for for I'm sorry here's another one for both of you how does the government set next year's tax brackets for income taxes dividends long-term capital gains and Irma tax brackets is it based on inflation or some other methodology are there any rules of thumb to forecast my taxes manually in Excel Oscar you want to take that one or you want me to well the well it's based on inflation but you know it's interesting because just like there's various uh income modified income amounts that are used for different things inflation what we tend to hear in the news it's not always the same inflation that gets used for these various items so so uh just be aware of that now I think it's fairly hard I mean I I guess if I had to put a number on I mean you can look at long-term inflation somewhere in the three to 4% range and say that but now what's but I will say that if you're projecting your own taxes remember that our current tax system is scheduled to expire at the end of next year and we'll go back to the old tax brackets like they used to be before 2017 or in you know in 2017 so just be mindful the brackets are going to jump and and all that so you know it's at this particular point in time it's a little hard to do but you just have to kind of know what the old numbers were and kind of project them forward uh it's an exercise that that'll that'll take you quite a bit of time if you're just doing it on your own yeah it will we as Oscar was saying so here you'll see 22% and then in parentheses it says 25% starting in 2026 because as it stands now you know income that falls in the 22% threshold will then be taxed at 25% starting in 2026 however also built into the these thresholds behind the scenes we are using a 2% indexing on the various components of the tax bracket and to complicate it any even more they're not only like tied to the Consumer Price Index but there's certain thresholds kind of like your IRA limits go from you know you can contribute 7,000 and all of a sudden it goes to 7500 so each component of the tax code will have a threshold amount that's rounded to you know a nearest 100 or nearest $500 amount and so we actually built all of that into the model that we use um and then every year you have to update it based on reality so for several years 2% was too low um and and that was fine because it was actually taxing more of the income at a higher rate and so we would rather be more conservative in that if inflation averages 3% um then great what that's going to mean in the model is that less of the income is going to be taxed at at these higher rates so we try to air on the side of uh being more conservative in those projections when we do that there are some online tools um there's a website called dinky town and that's actually a town I believe in Minnesota that has a a tax projection tool I don't know if it has future years but it does do an excellent job job for your current year and there's also tools that advisers use like holista plan uh you can subscribe to that it's about $1,000 a year um to me relative to the tax savings that you could have that's um you know not that much and that would allow you to do um still not a full multi-year projection but you could do several years at once um and then there's all kinds of online tools there's one called new retirement.com where you could put in your full retirement project C and again it's not going to do a a tax projection but it is going to accurately calculate the taxes for you moving on I it's amazing um how we run over but we're going to talk about Strategies strategies and of course we're going to leave time for Q&A at the end and so as we're moving into the last component of the webinar when we think of strategies there's some things we've talked about like Roth conversions like taking Ira withdrawals um out during the where you're in a low tax bracket there's things called qualified charitable distributions and there's an overview of the different buckets that those fall in and Oscar you want to talk a little bit about these yeah so the reality is there's there's there's a there's a multiple components that go into having a good uh tax strategy one of those is how do we actually manage our investments and we're going to get into this uh a little deeper here in a second but you know the the types of investment that you're investing in that affects your your tax situation quite a bit the mutual funds or whatever uh Investments you choose and not only that where you put those Investments right because you can have those investments in a 401k account or you can have the same investments in a taxable brokerage account and and that's going to provide a different tax uh situation depending on what investments you have and where you you put those Investments um and then obviously we're talking about gains and losses how do we manage that throughout the lifetime of your portfolio um that's very critical uh because again like we've talked about throughout the the presentation one choice impacts so many different things that you just want to be mindful now so the Investments that you have and we're going to get into that more shortly that's kind of one thing but also how do you handle your cash flows if you're working are you maximizing your 401k contributions right looking looking for ways to squeeze more um out of your retirement plan if you're retired right you you know oftentimes people retire with multiple buckets of money right we might have an IRA or 401K we might have Roth IRAs and we might also have a brokerage account right how you take money in the combination that you use to take money out of those various accounts will impact the longevity of your portfolio and your tax situation quite a bit and as a matter of fact there's research out there that shows that doing that right at number one can save you a good amount of money in taxes and because of that you can in essence extend the longevity of your portfolio by an extra few years just by being tax Mark in the way that you withdraw funds from your various accounts now I think it's it's important I think if you take anything away today one of the things that you have to do if you want to do this right is make sure that you have a projection at least a long-term projection because everybody's situation and even though there are generalities there are very particular instances in everybody's situation that changes things based on what's happening in your particular life so if if you haven't done it uh try to project uh as much as you can based on your own situation so that you can get at least a sense of where my tax situation is headed um so now we've talked about how we manage the Investments where do we draw the money from or what accounts we contribute to um and then there's a lot of other things we've talked about Roth conversions we've talked about health care credits you know Medicare Part B and you know one thing that we haven't touched on too much today is charitable right many many of our clients have some sort of regular charitable uh activities that they're doing are we doing that in the most tax efficient way we've talked a little bit about qualified charitable distributions but in essence what that means is once you reach 70 and a half you can start using money out of your IRA and send it directly to charity and the benefit of doing that is that it lowers your income um in that particular year so so that that can be a very good strategy if you're already giving the charity um we might want to look into doing that um when the time comes for others of you you've been invested in the stock market over the past 15 years and and you have a lot of a lot of gains in your stock portfolio and if that's the case and say you're giving money to charity what I sometimes see is people are just giving cash because it's easy well we might decide hey why don't we instead of giving cash give the highly appreciated stock for example to the charity instead and it does a few things number one it helps you avoid having to pay any capital gains if you were to sell it um so you're being a little bit more tax efficient there um and you're still meeting your charitable goals there and the other thing um every now and again I depending on your particular situation you might have random years that where your income is way high it's either because you're working and you're earning a lot of money or it could be because you're exercising stock options or you have deferred compensation plans that are coming into play in a particular year and what happens is you'll see your income shoot up and if you're already giving the charity you might decide hey I give already whatever the number is a charity 10 15 20K why don't I take three or five five years worth of charitable contributions and do that in one year you could either do that in one year uh directly to the charity or you could use a donor advice fund where you don't have to give the money to charity right away but still get the tax deduction in the current year so if you happen to have one of these unusually large income years you might say hey I'm already given a charity I'm just going to do two three four five years worth of charitable contributions in one year to try to lower my tax bracket and then the reality is whatever else comes up right life is very Dynamic right we have homes some of you guys have rental properties businesses and there's a lot of different complexities that come up when you start selling those right and so um so so these things are that's part of what we have to consider um as we're doing a tax plan yeah and I'm glad you brought that up you know I'll give you an example you know a lot of the clients we work with are coming out of corporate America but we have some clients who are self-employed I had one who was starting a new construction business and the first year had a large net operating loss which that presents an opportunity to convert an IRA to a Roth IRA and pay no tax so if that kind of coordination is going on between the tax planning and the financial plan there can be some big opportunities for substantial tax savings looking at some of these more specifically um because we're we're past the hour I'm going to go through these pretty quickly but we talk sometimes about something called a tax loss Harvest or tax loss harvesting and this is an example from Yahoo uh of using a Vanguard index fund and a Schwab index fund and you can see that they track very closely so one's the green line one's the blue line and there could have been an opportunity if you bought the fund here or here to do tax loss harvesting at one of these low points where you would exchange One Fund for the other you would capture the loss to be used on your tax return but as the fund recovered you wouldn't have actually realized an investment loss now Oscar and I were having a conversation before this just about you know the IRS rule that you're supposed to exchange between Investments that aren't substantially equal and so would these two funds um be considered substantially equal and a case like that hasn't made it through the tax courts that we're aware of is that right Oscar I'm not aware of any particular tax cords it's a it's a little bit of an untested principle in the sense that we don't totally know exactly what the IRS means by substantially equal Investments so you know we kind of have to make some judgment calls there in the meantime and if there's ever any guidance that comes out that's a little bit more specific then we'll be certain to make the adjustments yep now where this shows up on your actual tax return are a few places so this is a Schedule D and first we see capital gain distributions so that is from mutual funds and sometimes as Oscar was saying you can own a fund that is not very tax efficient I had a case last year so a client transferred in a very large um trust portfolio it was about 5 million and we go through and if we can we restructure Investments but if someone's in a high tax bracket we can't sell some of the Investments they own because that would generate a very large tax event not what we want to do so there was one particular fund that had a you know over a $100,000 of embedded capital gains we didn't sell it well come year end 2023 all of a sudden there was this $100,000 gain distribution so that fund distributed all of its gains that year and that became a taxable event through no action of our own now interestingly enough that allowed us to then sell the fund immediately and realize a loss which is kind of a strange situation um but it allowed us to at least offset some of those gains with a loss but if you own mutual funds that have a lot of turnover um you will see these gain distributions flow through and I mean if you own them in a non IRA account and you have no control over that so placing the investment um in the accounts according to their tax impact makes a difference here is where the tax go ahead Oscar I was just going to say on that particular point you just have to be very careful of what you own because I've seen clients that have had funds that pay 10% plus annually in capital gain distributions now what's interesting is you're not selling the security you're not selling the mutual fund but yet you're getting this huge kind of tax bill that that flows through on this tax return right there and so you know you just want to be careful that what you're hopefully that what you own is as tax efficient as possible absolutely and here you'll see this is where if you had realized a tax loss this is where it flows through and then the two net each other out uh if you don't have any other gains to offset this what happens is $3,000 of it can used be used against ordinary income and the rest of the tax loss will carry forward to the next year so it's not lost it carries forward and you would have let's say $634 available on the next tax year to offset any gains now the last thing in this section we want to talk about is asset location versus asset allocation so here you're seeing asset allocation and this is a very simple example of someone that has a a million dollars and that is spread across three accounts a brokerage account for brokerage accounts you get a$ 1099 each year where you you know claim the interest dividends and capital gains an IRA account and a Roth IRA and each account is allocated the same now we just use three asset classes bonds large cap small cap in reality there would probably be many more asset classes and some are more tax efficient than others for example a large cap Index Fund is generally going to generate qualified dividends and so I would want to own that in my brokerage account whereas a a small Cap Fund if it were actively managed is going to have a lot of those gains distributions that we talked about so I might want to own that in my IRA or my Roth if I own a real estate investment trust it's going to have a lot more taxable interest income so I might want to own that in my IRA not in my brokerage account and generally when we are doing these projections we see that most of the time the Roth assets aren't going to be tapped for a long time maybe you know much later in life maybe they're an asset that is is intended to be passed along to the Next Generation and so we really want the things with the highest potential for growth inside the Roth and so if you were doing asset location it might look like this at a household basis the account is the same it's a 640 split right we have 60% in stocks large and small cap or index funds 40% in fixed income but now all of the large cap or a lot of the large cap um know this is small cap is in the the non Ira we have large cap we have a little bit of bonds the majority of the fixed income or bonds are in the ira along with small cap or large cap and I'm getting my colors all mixed up and then we have all of the small cap the asset class with the most growth potential that's in the Roth now this is not a recommendation this is just a sample so one of the things to consider is this sample doesn't take into account specific cash flows needed so if I were just looking at this allocation I would say oh this person must be taking most of the cash flows they need from the IRA and that's why we've stacked the fixed income up inside the IRA however if I had someone who was taking most of their current cash flows out of the non-ira account I might have more fixed income stacked in here and so there's some industry research and articles on this that show you know I could choose to allocate across the household or locate Assets in a perfectly tax efficient way but cash flows should supered that so first I want to look at where do the cash flows need to come from to support the the lifestyle needs and retirement and once I've outlined that then I can apply a a location framework to keep the portfolio as tax efficient as possible the last thing we're going to talk about before Q&A are just some mistakes to avoid so these are things that we've seen and we do a tax review for most of our full service clients every year we've seen people make non-deductible contributions but they don't track those on a form 8606 so now when they take an IRA withdrawal they're paying taxes on the full amount of the distribution when they shouldn't have to um we've seen 1099 RS report the gross amount of the distribution unfortunately this is standard practice so if you made a qualified charitable contribution out of your IRA it is up to you to say hey you know I took $50,000 out of my IRA but 20,000 of that went right to charity the 1099 will not support that um we've seen rollovers that were incorrectly reported or 1099 are Income I we've seen people who it was their very first year of retirement and they just didn't even know to look out for the 1099 are so they completely missed the $60,000 they took out of their Ira or they missed the fact that their pension was now reporting a taxable income or people who move they don't update their address and so the tax forms don't reach them and there's also PR taxation that applies to Roth conversions and so you if you had non-deductible contributions then every dollar that you converted to a Roth well a portion of that should not be taxable because some of it would would be basis not going to go into the complexities but those are a few of the things there's some others Oscar are there things that you've seen yeah I mean so you know obviously when you're retiring you're likely moving funds from various accounts you're your 401k into an IRA and sometimes you know I've seen people take the check from the 401K into their own name individually um and then end up having to pay a huge tax because maybe they they just weren't aware and they they were just going through the paperwork and sometimes the paperwork can be a little bit confusing so if you don't know what you're doing you can make a mistake and have a huge tax um no I mean other than that I think this is right on you know as you were talking there was others so I know uh another one we've seen is self-employed people missing the self-employed health insurance deduction once they're 65 so they're paying their part B premiums and um you know they just didn't know that they could still take a deduction um and we've also seen uh business owners one unusual case where the qualified business income deduction was missed two years in a row where had been on the tax return of previous years it was just kind of bizarre but it was like a $24,000 tax savings for the person so it was not a a Dom Minimus amount so there's just you know things that that you have to look out for unfortunately there's I got one more I got one more um if you have a 401k and you've been making after tax contributions to that 401k right so now in essence your 401k has pre-tax and after tax funds normally what we would do is say hey all the pre-tax funds we're going to roll it into an IRA and the after tax funds we're going to roll it into a Roth IRA but if you don't do that at the outset in essence you're going to end up paying double tax on the same funds so you just want to be sure that when you're making those moves that you know what you actually have in your retirement accounts that's an excellent point I hate seeing people pay double tax it's the worst somebody once Saidi want to pay was legal to the IRS but I don't want to leave a tip and I just kind of love that saying I like that um wrapping up we we've talked about all of these you know how do you locate Assets in a way that consistently reduces the the reportable taxable income use and gain loss harvesting we've talked about IRAs and withdrawals during low rate years Roth conversions and why it's important to to draft a you know a projection that helps you see where these opportunities are um Oscar anything else you want to add to a wrapup before we open it up to Q&A no the reality is there's a lot of moving pieces and so you know I think these takeaways are perfect try to try to lay it out and then and then you you all are going to have little things that come up here and there that we probably didn't talk about um but just because we didn't talk about it doesn't mean that they're not there so as always consult with a professional um or just seek advice if you have any particular questions love that um well we're gonna open it up to Q&A Nancy's gonna come on and she's going to do her best to read all your questions um I also want to let you know our next webinar is going to be on October 24th it's going to be on how to plan for health care costs in retirement and we have redesigned our website if you go to the learn page you go to sensible money.com and the learn page and you scroll about halfway down you will see a box where you can register for the next webinar if you are signed up for our financial sense newsletter which you can sign up in the footer of our our webinar um then you will all or the footer of our website then we will also uh always send out you know announce ments of of when the next webinar is going to be Nancy I know I've seen questions rolling in yes yes you have so Dana let Q & A me start with um this is a wee bit over my head is there a good precursor program that explains more in depth the strategies well that's a great question I mean this is why there's financial planners and in in you know retirement specialist because it is very complex so in terms of a a course um no I'm not aware of it you know Michael kites does a lot of courses for advisors and he does have a specific course that has um in case that is an adviser asking the question we do get advisers that um attend you know he does have a specific course on tax planning I don't know I haven't attended it so I don't know the depth it gets into in terms of of retire income planning what about uh the Great Courses would that the Great Courses I mean certainly my Great Courses you know I talk about all of this stuff much like we have today um it's broken into phases so it's a little bit more life cycle oriented you know what do you need to think about your early years of retirement your mid years your late years of retirement and definitely I I talk about taxes you know I I that might be a little bit more introductory mhm okay uh Oscar for you going back to your comments on the 401K what about plans that have both 41k traditional and Roth in the same plan then roll uh roll over after tax into the Roth every year sort of the the mega backdoor concept what's the question exactly I'm not sure it's the what is uh on the the question is um what about plans to have both 401K traditional and 401K in the same and I'm sorry and Roth 401k in the same plan then roll over after tax into the Roth every year so you're doing almost like in plan conversions distributions not in service distributions but iner like um in service conversions yeah yeah that's kind of a that's kind of that's a little bit of a new thing to be you know the kind of the Roth and the Roth conversions inside of the plan um what I would recommend you know I'm a big fan of having different buckets of funds when you retire so having IRAs and Roth IRAs and brokerage taxable accounts because that gives you flexibility because sometimes what happens is you end up with a big O 401 k and Ira and you need to some emergency comes up and you have to take all the money that's taxable and then at that particular point in time it kind of a a nice little hit um so I'm a good I'm a big fan of diversifying your sources but you also want to double check and say hey if I'm in a very high tax bracket now it'll probably just be better to maybe not do the Roth it all depends on where you are relative to where you're going to be down the line if you're going to be in a higher tax bracket later than doing the Roth the mega Roth and all that I think that's great but if if it's the opposite where you're going to be in a much lower bracket then you probably want to do as much pre-tax as possible so that you're getting the deductions that are mean more meaningful when you're in a higher ragged I asked my CPA about tax harvesting she made it sound complex and easy to do often um what variables need to be in place to do that I think you probably just want to know what funds options you have and right you know I so there is something called a wash sale Rule and we it was in our notes but we didn't touch on it today and so the wash sale rule basically says you know if you were to buy the same security that you sold either 30 days before the the tax loss or 30 days after and so including the day of the sale you have a 61 day window then that can disallow the tax loss so it's called a wash sale rule and uh Oscar and I were talking about this before the webinar if you have you know accounts in multiple places and they own the same security you could trigger that wash sale Rule and you know a part of your tax loss could be disallowed so there is some complexity to it but if you just own you know a simple portfolio of funds and you're exchanging and they're all in one place and you didn't just buy those funds um then it becomes a little simpler the other complexity that can come about uh is dividend reinvestment so when you have dividends that are reinvested into a fund that dividend reinvestment would say oh I just bought shares of that fund now I turned around let's say 25 days later and I sold it to generate a tax loss well the portion that was just bought from the dividend reinvestment that portion of the tax loss would be disallowed so yes there is always additional complexity um you know for some people it is a very simple situation to do tax loss harvesting for for if you own individual stocks for example it's a lot simpler um if you run into some of the situations we just talked about it can be more complex another question Dana and Oscar regarding uh the planning it itself so before I do a plan I want to understand the costs involved do you do only AUM or is a fee for only the plan an option yeah so we have an unusual um structure where everybody does a plan first for a fee and generally that pricing is 6900 it can be as high as 8,900 if it's a very complex plan with a lot of moving Parts but for the average person we see that pricing it at about 6,900 and then at the end of that planning process you have the option to move into our AUM service where it's more holistic and then we view it as our job to make sure that retirement pedcheck that's laid out in the plan is realistic and and ongoing and so on and so we have people that do plans um and that might come back later and and then move into the full service uh we have some people that will come back every few years to do plans in general we find most of the people inquiring or at some point looking to delegate so that plan allows them to see the level of detail that we get to and you know the the level of sophistication that we bring and through that process they can decide do they want to move into the AUM process or not I really like that process I um have been in this industry since 1995 and that idea that you would have one meeting with someone and then here's all my money to manage it you know always seemed a little backwards so that the plan you know is definitely a standalone option it allows you to really get to know us and what it is that we do and so someone is asking AUM question mark so could you talk a little bit about assets under management I should have used a sorry we use our lingo it's called assets under and so um it's a it's a very common pricing structure for advisors where we charge a percentage of the assets that we manage and in our case it's what we call our juicing plus service so our plans are called juicing our our full service that includes investment management is called juicing plus and that is at a a percentage of assets and it includes the ongoing planning every year uh more of a comment uh Dana Wade F's book retirement planning guide book newest edition is great for planning I think this is a followup to the question about um resources also retirement researcher. comom has an Academy with lots of content uh emails and podcasts YouTube videos are are useful as well so I wanted to mention that um question I'm in the transition period where work income is gone but unfortunately holding a lot of tax inefficient funds in my brokerage account I'd like to do Roth conversions but assume I will have to first bite the bullet and sell some of those funds to get to my uh to get my taxable income down any other suggestions Oscar well I would just say that that's one of those things that you know you kind of have to see what it is that that you are actually holding under the hood uh because sometimes we talk we talked a lot about Roth conversions but Le let's just use a very extreme example suppose you just have a bunch of uh let's just say bad Investments right that takes priority right kind of safeguarding the nest day we sometimes in the industry we let the tax Tail Wag the Dog and so some but sometime we have to be a little bit more holistic and say number one what am I holding is it like potentially bad and obviously we're not going to get into details here um to make that determination because it might be that um the risk management on the portfolio might be a little bit more important than the Roth conversion part depending on what you're holding now on the other side you know you could do it little by little part of it is like if you have a a tax projection like we've outlined you know we can see where you're going to potentially pay 0% capital gains on some of those Investments and if you have that opportunity take take take it and um the other thing that I mentioned earlier was if you if you contribute cash to charity instead of selling the Investments paying the tax and then contributing the cash to charity you might consider just giving portions of those Investments to charity directly and then reinvesting your cash that you were going to give to charity but actually putting that into your portfolio so in Ence you're getting rid of the inefficient uh Investments and then your your new cash is going to towards more efficient Investments so sometimes it's a tradeoff and you kind of have to run the numbers and and it's a case by case where you you have to decide what's more important the Roth conversion or the uh or kind of getting my portfolio into better shape so this what what crossed my mind as you were talking Oscar was just that you know what would we have to know how old are you are you single or married what's your other sources of income right is there a way you could prioritize as Oscar said get some capital gains at 0% tax rate now and then maybe in two years do the Roth conversions like there's we just you just don't know without projecting it all out I find myself often times saying one of um one of my favorite quotes of yours Dana which is you know you can have you can do anything you just may not be able to do everything right at the same time um question for you both on underpayment penalties again how can you avoid underpayment penalties if you do a large Roth conversion late in the year and only pay the taxes due at the time the conversion is made so okay so yeah there's a series of things I will say number one sometimes just because you've made an estimate so Dana mentioned this earlier just because you made so let's just use an example suppose you've made uh four estimated quarterly payments of $55,000 each but your tax bill at the end of the year is $10,000 instead of 20,000 then that means you overpaid throughout the year and if that's your particular situation and then you convert at the end well that's fine because you've covered your tax you you've overpaid your taxes throughout the year so in that particular case you don't have to worry so much um and then so then the second thing I would say is it if your tax is less than a th000 from all less than $1,000 from all your various contributions um if the the difference between your tax and your estimated payments is less than a thousand you don't have to worry about the uh penalties and then lastly it's one of those things that hey if you make a Roth conversion towards the end then you know you can't go back three months and make a payment right so you could only really go forward and so I would almost like don't worry too much about what you didn't do and then make the payment now this is a good plug for one of the strategies we mentioned earlier maybe you take a distribution out of your IRA and have 100% withholding and depending on your the makeup of all your assets there's there's a thing that we call the 60-day rollover rule that you can do once per year with your IRAs so it so the way that would work is suppose suppose the tax you needed to send to the IRS was $10,000 so you take a distribution from your IRA $10,000 but you have it sent directly to the IRS 100% withholding and then suppose you happen to have $10,000 laying around in your savings account or whatever it may be you can contribute that back to your IRA um to kind of make you whole so you covered your tax and then you you know you're made your IRA is made whole with that 60-day rollover rule so Dana I don't know if there's anything else you want to contribute to that um Oscar one other thing and hopefully I'm not putting you on the spot but is would this be a case where you could allocate the income by quarter so if that Roth conversion happened in the fourth quarter or does income from the Roth conversion attributed to the entire year also well you could potentially do that you could potentially do that but normally if you're going to choose to do the uh income by quarter then it's it's best to uh to do that throughout the whole year as opposed to switching up tax systems all the way at the end got it that makes sense is a Tax Advisor separate from a financial advisor or can one person do it all um so they can be two separate things what we see is when it's self-employed you know business owners I feel like Tax Advisor that have expertise in that space add a tremendous amount of value when it comes to people and all we're doing is retirement income planning you know a lot of the things that a Tax Advisor would do you know we're not giving tax advice we're simply projecting it out and telling you what's going to happen whereas a lot of times tax preparers are always looking in the rearview mirror at last year and just basing your estimated payments on the current year so I've encountered you know practitioners all over the place some that very actively do projections where you know they do the projections that we would normally do and all we're doing is sending them their estimates on capital gains dividends so on they're plugging that into their model and they're they're working with the client but I would say the majority of time I see that we are doing that kind of work and and often times kindly you know coordinating with the tax prep to say you know we don't think the client actually needs to make those large quarterly payments because their income's going to be less this year here's our estimates what do you think and so um it it's just the nature of of of if they're rear view looking uh then they're not you know seeing all the changes that are coming up that we are clearly aware of how many years out from retirement oh go ahead I want add one thing to that is that you know it's funny I'm a CPA and I am constantly frustrated with CPAs because a lot of times they're focusing on that one particular tax year they're not looking at the future tax year some some do so I'm not going to throw all of my colleagues under the bus but I'm just saying that you you want to be careful it's rare that someone can just absolutely do it all I think you can have professionals that are more versatile in that sense but um I had a lot of encounters where we're doing Roth conversions and then the CPA is telling the client that that's a bad move because they're paying more taxes this year than necessary so sometimes they're they're just not seeing the big picture in some cases because they're just looking at the current year so just be be aware that that can happen okay so let me ask uh a couple of more questions here what is the incre what are the incremental tax factors and rates you use for long-term planning um well so we I was going to say we use the what's currently the system which is like 10% 12% 22 24 uh what 32 or 35 and then 37 so it it they're published out there we use what's currently in place and then we use what we know is currently baked into the law that will change uh in 2026 unless something happens and it gets extended or what have you yeah so those rates are here um you know the the rates we showed in the basic section inflated every year and then we're assuming that under current code they go up in 2026 so that that's what we're currently using Okay um when is the next class the next class let me get back is October 24th it's on planning for health care costs in retirement and I will have two guests joining us one joined us last year um that works specifically in the Medicare health care and Affordable Care Act space and another one to to talk about long-term care and so that will be uh as we said October 24th at the same time we're going to do this 1 pm Arizona a time which is 4:00 eastern time um you touched on how cash flow can influence asset location but how do you decide which type of account to withdraw from for regular cash flows and expenses um we use that that tax projection model that shows us how much income flows into which rates and then you know it's like a jigsaw puzzle so right we we might say oh I I have this opportunity to take out more from the IRA this year and so we're filling in that jigsaw puzzle as we describe it we're solving first for all the non-investment levers that can improve the outcome that might be Social Security claiming when you do deferred comp you know the asset tax efficiency of of how the portfolio is is structured um where withdrawals are coming from so we've paid out those withdrawals to First be you know the the way that looks like it's going to save you the most taxes over your retirement years and then we're aligning the portfolio up to that withdrawal pattern uh what is your assets under management rate it starts at one and a quarter perc and then it tear down as the asset level goes up um talk about life insurance as a legacy tool as an income tool is it something that makes sense well I guess it always starts with do you have current life insurance number one do you need life insurance right um that's a different question than should I buy life insurance if I currently don't have any um if if you if you have have a policy and it happens to be a permanent policy um what I what we have done in many cases is we say hey we may not necessarily need the life insurance component as much anymore because we have more savings and investment accounts so we so if I passed away my family will be taken care of but what becomes a little bit more of a concern is um as we age is long-term care what would happen if I need to go into a nursing home or assisted living or what have you so if you happen to have a permanent life insurance often times there's something that we can use called a 1035 Exchange from the tax code to potentially transfer that policy into a policy that has long-term care benefits without any kind of income tax um so that's something that can be done now um the other side of that question was about the the income part of it and all all all I'm going to say there is you know some in many cases uh the initial illustration that you might receive from a life insurance agent kind of looks very Rosy and beautiful but when you actually buy the product and you go to use the income years later it's not what you thought it was that that's been my experience I'm not saying that it's a bad strategy I've seen it used semi okay but in many cases what the income you thought you would be able to pull out later is not what you can actually pull out when you actually get there so um Dana I don't know if you have anything else to add on that you know I agree with everything you just said I'll say you know there are cases with very large Estates where you know life insurance can form a function of you know helping to pay the estate tax on a a closely held business or a farm or an asset that you really don't want to have it be liquidated to go to the Next Generation Um for the average retiree we don't see those scenarios and so um that makes it you know a tool like all tools that have some very special use cases where it works really really well and then a lot of other cases where you know maybe it's not the Ideal tool for the job and so it it really has to be evaluated yes everything we say on an individual basis Oscar you know any thoughts on this one are there any general rules for the best time to get married to save taxes 16 2y old 160 not taking social security yet well you know the first thing I will say is I mean d you and I are both married and I think we would probably both agree number one don't make a marriage decision to save taxes so let let's probably get that out of the way right um but beyond that if you're already like hey this is what we want to do the reality is um when you're filing tax returns right like if you're Mar if you get married like December 31st like the last day of the year you you know even though it's like one day for that year you could actually file marry filing jointly so if you're looking at that and you're towards the end of the year like you don't have to get married on January 1 to be able to file married filing jointly so from that particular perspective you know as long as you get married within the year you you could already start reaping the benefits of some of the uh the tax bracket advantages that married couples have over single couples so hopefully that answers d I don't know if you have anything else to add on that um no I mean I we've done this analysis for many couples and that is a complex situation because we have to run it privately and or privately we have to run the projection like as if they're both single and then at a certain year they become married and it changes the tax rates then we have to combine the results um in many cases I would say most cases there is tax savings to getting married but not all and so you know as your income goes up you know if you had one spouse that had no income and one spouse that had income there you know there can be some cases in there where it's not a tax savings but it's it's very rare most of the time there's there's a tax savings to to getting married um I hear I see a question am I hearing one can pay all their annual taxes at the end of the year so this has come up a few times you know as we were saying if you withheld it all from the IRA distribution at year end then that is considered as if it was paid throughout the year um Oscar in our conversations called it one of the last freebies that you get um so yes that believe it or not that that is possible um what Oscar was just talking about in terms of the December 31st was if you got married on December 31st that would allow you to you know file married for the whole year did I I got that right Oscar yeah yeah yeah okay um you know the last question you know I'm going to address and then we're going to wrap um is does your website show a sample of a juicing plan or more details we do complimentary introductory meetings and those run usually about an hour and a half in length after that meeting we send you links um that you can download and look at samples uh we're not salesy there's no cost or obligation to those meeting so if if you want to take a good look at that we would say you know fill out our pre- meeting questionnaire and you can set that meeting and certainly learn more um but they're very comprehensive I've had other planners go through them one recently um she is uh you know near retirement age and was just you know she was astonished at the level of detail that we got to and how useful it was versus the typical iCal planning that just kind of shows you a graph and and says yeah you have a 98% success rate no like you have to get down to the granular level of detail of what year and month you know are these various cash flow sources going to turn on and off and how much is going to taxes and and all of that so you know to to do that transition right that that granular level of detail is is certainly needed um thank you everybody you know our apologies if we didn't get to your questions I know Nancy goes through the questions afterwards and and tries to follow up with them one onone but we really appreciate all of your time and hopefully we'll see you again on the next webinar everybody hi everybody