Income Tax Rate 12%, 22%, 24%-Leaving Money on the Table?

This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.

Now, let's get started with Finishing Well. But welcome to Finishing Well with Certified Financial Planner Hans Scheil. And today's show: Income Tax Rates: 12%, 22%, 24%, leaving money on the table with a big question mark right there. Let's not do that. And so, you know, what I was thinking about this is I watched the video and I was thinking about this from a biblical standpoint.

Actually, being a Christian car guy, I couldn't help but remember there used to be this Fram oil filter commercial where this guy had this blown engine and he was standing there with his Fram oil filter and he was just pointing out to you, you know, you can pay me now or you can pay me later. And the idea being a whole lot less expensive to pay for an oil change than it is to pay for a whole engine. And of course, Jesus made the same point in a different kind of way in Matthew 5, 25 through 26, where he said, settle quickly. He said, come to terms with your accuser while you are still going to court, lest your accuser hand you over to the judge and the judge put you in prison. Again, the point being that the sooner you can bite the bullet on things, the cleaner your slate is, the better your life can be, whether that's confessing your sins, like the quicker you do that, the better your relationship is with people and with God, most importantly.

Or how about forgiveness? The quicker you do that, the quicker that you can come to terms with that. And putting those things off only makes things worse. It doesn't make them better. And so with Uncle Sam, he's got this big hand.

He is not going to come asking for less later. It's just not the way you worked if you're familiar with the way the taxes have been over the years. And so while the tax rates are where they are, right, it's a great time to settle matters quickly, right, Hans?

Well, it is, and it's just Yeah, we Have this concept of leaving money on the table. And so we'll. You know, what what that means is that if In 2024 You know, I could be just sitting here as a married filing jointly, and I. kept my income. You know, below 96,000, or I just.

Took what was coming to me, and I can live off of that. I didn't pay a lot of taxes. I was paying 12% tax rate. On my Uh the the last dollars, I mean, it's just Yeah, and and you know, perhaps had to give a little something to the state. But taxes are pretty low.

Even on an income, married, violent, and joint, that's almost $100,000 a year. And so people are thinking, man, why would I want to do anything with that? They haven't. My point is, is that if you you don't have much in an ira then just celebrate it just spend it and enjoy it and You know, go on your merry way. But if you have a lot of money in an IRA, and people say, How much is a lot of money?

Well, if you have. $500,000, $700,000, $1 million. We have a lot of people come in that never thought they'd have this much money, but they got over a million dollars, some of them two, three million dollars. simply because they've saved so well in their 401k for all their work in years and then what the stock market's done in the last four or five years. And they haven't paid tax on any of it.

And it's just sitting there. And a lot of people in retirement are able to live off of other money. that they have and just not touch it till they have to at minimum distributions. And boy, do they have a surprise coming at 73. when minimum distributions hit.

And the surprise is... You know, if you've got a large IRA, you're going to all of a sudden be forced. into a higher tax bracket. even on money that you don't need because you got an RMD or required minimum distribution every year for the rest of your life.

So We've had lots of shows on that. And what today's show is about is: let's sit here where it's now August, September. It's kind of in that move. You've got three or four months left of the year. And you, if you're close to retirement, in retirement.

and you have a large amount of an IRA, you're able to pick your tax fret. You're able to pick the level of income that you're going to recognize for the year 2025. Right here.

Now, why not plan out 2026, 27, 28, at least into the future? Yeah. The the place that I'm suggesting Possibly. We don't suggest this for everybody, we don't recommend it for everybody, is to do some Roth conversions. up to an acceptable tax rate for you.

Does that make sense, Robbie? Yeah, I love it. The way I said it after I watched the video, it's kind of like: pick your poison, because, again, nobody likes to pay taxes. But it's really a neat opportunity when you really think about it from a planning standpoint of creating this poison. Protected income, that idea is that money rolls into a Roth of having your future.

income and the growth also being tax-free actually on past you know your own life. Yeah, so you know, if I'm going to put my own personal views into this. Yeah, I'd rather you wait till you're 70, not take anything out of your IRA, and start giving generously to the Lord. through Q C D's. And give it to your church, to missions.

And two, because If you want to deal with a future tax problem and do it in a very effective way, then that doesn't even come onto your tax return. You're just able to give it away. and give away the tax portion of it. And so I'd suggest that if we do a plan together, we're going to put together a little piece of that if that's what your desire is. But a lot of people aren't going to give it all away.

And so they're sitting here and they're effectively hoarding their IRA. looking at it, watching it grow, enjoying it, but they haven't really looked at the fact that the government's got to lean against that money. And whoever caches it in. is going to pay a pretty hefty tax rate, especially if they do a lot of it in one year. Whether that's you.

Your surviving spouse, or your widower, widower, or it's your adult children when they inherit this, and they go for a large amount of money. which a lot of them do because they need the money. All of a sudden we're going to pay a gigantic tax rate. What we're doing today is just talking about, I mean, I'll just give you some numbers. If I go back to that married couple, let's say their taxable income is about 90 grand.

Okay, yeah, and they're living just fine on that. And then they got this big IRA of a million dollars sitting over here on the side or Um and they know they got to do something. We can do a Roth conversion. up to some acceptable level to you. For example, we could do $100,000.

of Roth conversion. This year, which in 2025, which would raise your income to $190,000. Again, on that $100,000 Roth conversion, you're going to pay about 22% federal tax. On that, if you're a married couple filing jointly, and you say, and plus, you're going to pay some state tax.

So about a fourth of it is going to go to taxes. But then the remaining 75% is going to now be in a tax-free account. That you can either spend in your retirement tax-free later on if you need it, you can leave it to your spouse. And your spouse can spend it if they need it, tax-free, or you can leave it to your children. and th they can inherit it tax-free.

take out any amount that they want. Um So For people that are a little more aggressive. And maybe have millions. Or even at a million, we could take you all the way to 394,000. taxable income in 2025 and take about 300,000 and convert it.

And we wouldn't pay any more than 24%. federal taxes. on on on that last two hundred thousand of the Roth conversion.

So I mean that's that's a little Bit of overbite there, but I'm just somebody that wants to take care of this in a hurry. There's That would be about as high as I would go. I mean, we typically. stop at the 24% conversion. unless we have people at a very high income now.

But they have a lot of money in their IRA and they want to get going with this.

Well, then we get up into the 32% or the 35%. Um But this is really your choice when you come in. We just simply. Show you the math, and then we give you a recommendation of what we would do if we were sitting in your shoes based on what we heard. But in the end, this is going to be your decision.

Yeah. All I want to point out is the business of leaving money on the table. Once I show this to people, they're generally going to do something. Um if they're in a situation similar to what we just described. Yes, absolutely.

And the idea that you have this partner that has got his hand out, named Uncle Sam, and we know from past experience That the sooner we can settle with him, you know, you know, you're going to be in a whole lot, a whole lot better shape. But the other thing you guys do beautifully, because there's another consideration, and I think that's just how thoughtful you guys are and how clear you want to be in all the ramifications of what you're doing. Is there's a tax on Medicare called Irma that we've done many, many shows on, but all this affects that as well. And so, you know, you're disclosing all these things right up front. Oh, sure.

And a lot of times when we bring up Roth conversions, We have already educated people on Irma. They learned it from us. And now They're so upset about Irma. And which a lot of people do. And I I'd suggest don't get upset about it.

Just understand it. And it's just if you're a well to do person, sure, this is a penalty tax for being well to do, but Um you know you gotta remember at the end you're well to do so um I wish so I'd pay it too. And it's extra money that you pay for Medicare. And it's based upon your tax. taxable income.

So Sometimes these Roth conversions are going to push people into Irma. And then now you're going to pay a little bit more than that 22% or 24% bracket because you're going to pay some extra for your Medicare. Based on that one year. The sooner you do this stuff, the better. And again, that's a good time to point out that, you know, you need.

All these resources to do that, and you can get them at cardinalguide.com.

So, if you go to cardinalguide.com, there, you're going to find the resources, excuse me, you're going to see the seven worries tabs. And of course, one of those seven worries tabs is, in this particular case, would it be taxes? Yeah. It's yeah, income taxes is actually the one that you would click. And then you're going to find this entire video on this whole idea of tax rates 1222 and 24%, which gives you all sorts of show notes and details of what we've talked about today.

Again, tremendous resource there at cardinalguide.com. Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, you know, sort of the textbook on the whole thing. And then, of course, the contact Hans and Tom Page. It's all there at cardinalguide.com.

So we'll be right back with a whole lot more income tax rates, 1222 and 24%, leaving money or don't leave money on the table as the case may be. We'll be right back. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM. a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.

Well, welcome back to Finishing Well with Certified Financial Planner Hans Scheil and today's show income tax rates 1224, excuse me, 1222 and 24%, leaving money on the table. We want to help you from doing that. And so, Hans, we got an example with just a single filer. Yeah, and so let's start with a pretty well off single, maybe in the same situation as the couple we talked about earlier, around 65 going on Medicare. And perhaps their income is right at $100,000 a year or just under that.

And they live pretty well on that. And maybe they've got Social Security, they've got a little pension. They're pulling a little money out of their 401k, whatever it is that leads up, or maybe they're still working or working part-time. But this is a well off single that's living well on A hundred thousand dollars a year, and they just got this IRA money tucked aside. over here because I don't really need it.

And it's a pretty good-sized IRA. And the point I'm going to make. Here's They could go all the way up to $199,000, $197,000 without violating the 24%. Bracket.

So they could do a $100,000 Roth conversion. and just pay about 24% plus some to the state. Yeah. you know, you might say, well, gee, that's That's That's a lot of tax to pay when I don't have to, but It you know, it's Somebody's going to pay probably more of the tax than it could either be you. getting access to this money later on.

Or certainly your heirs or your kids, adult kids that you're leaving this to. Even for affluent people, Um This makes sense in a lot of situations.

Now, Let's take the person who's in their 70s. They're single. Maybe they're, you know, the top of the 12% tax bracket is 48 grand a year. And that partially includes Social Security, but it's just For purposes simple, they earn less than the $48,000 a year. Um But they live fine.

And then they've got this IRA that may not even be all that large, but. Just because of that, that's their savings. They never paid tax on it. And they don't really intend to take anything until they get to minimum distributions. And even if they're at minimum distributions, it's probably small.

Because they're A town is not that large. But I just want to point something out: if you pass away, you're single. You leave this to your kids. your kids are probably in a higher tax bracket than 12%. And so they're going to inherit this thing.

or maybe they're going to split it between two of them. And so if it's 200,000, they're going to get 100,000 each. And that $100,000, the only way they can get at any of it is to withdraw it. And if they're in a pretty high tax bracket themselves. For a moderate one, they're going to be shot up in one year just to get at the money.

And so my My point is, is that we maybe ought to systematically look at doing a little bit of Roth conversion for you so that you can leave this money to your kids. um without a tax without a big tax liability. Yeah, and I, you know, oh, it makes perfect sense because I saw certainly what happened. you know, in my dad's case when uh you know, he I guess came in up in an era where they didn't even really understand that Roth IRAs had come out, what the benefit of them was, and those kind of things. And so some of my siblings, that's exactly what they got.

And it led to the tax liability and stuff that I know my dad would have loved this strategy.

Now, knowing him as I knew him, I mean, if he'd have heard this and understood this, you know, back when he was in his 60s, he would have been all on top of doing these conversions. I know he would have.

Well, you can do rough conversions in your eighties. On amounts above the RMD. You got to take the required minimum distribution, but And we have people that age do them. No, no, I wi I I didn't mean but I mean when he was in his sixties and he was really in the planning mode, by the time he got in his his late eighties he he'd kind of gotten set in his ways and You know, he thought he was on the strategy. I didn't mean that he couldn't have done it.

It's just that, you know, as people, and that's part of the reason I think that we got to do things when we're a little bit younger, as soon as possible. 'Cause when we start to get hardened in our ways, it it's a little different situation. Oh, it is. It's hard to talk somebody in their eighties into doing something that could be real good for 'em.

So now let's talk about this whole idea of Increasing your income. to do a Roth conversion. and to get the money in a tax-free account. And what that does. to Irma the Medicare tax.

And so for a single person in 2025, IRMA starts at $106,000.

So that example that I gave of the well to do single that was around 65, that increased his income or her income from you know, 90,000 to 190,000, they're going to be into Irma.

So besides paying the tax For 24%, they're going to pay, and they're going to be in a bracket where they're going to pay about another $300 a month for their Medicare. And they're going to be real upset about that. if they don't know about it. And you know it it So so sometimes It doesn't make sense.

Okay, and and we're gonna you know, we're just throwing this in there and they're also going to pay tax on their social security. at a little higher rate if they're getting Social Security.

So there's some other factors that come into play that we got to get out on the table. The um But too often people learn about this Irma and they've not heard about it before and they learn about it from us. Then they start studying it. It really bothers them. And so they turn all their financial planning upside down.

to try to get their income lower than the Irma. Through appeals and all this, just bothers them. And they go over year after year after year after year. And they have us help them and we help them. But I always try to get them aside and say don't let A little bit of Irma stop you from doing something that's for your long-term good.

or it's a little bit like the tail. Wegg and the whole dog. Um, doing all your financial planning about around Irma because the Irma. Surtex is only for one year.

Okay, so it's not for the rest of your life. And the tax savings from a Roth conversion is going to go on for the rest of your life. And then maybe into your Children, adult children's life. They can leave it in the Roth for an additional 10 years tax-free.

So There's this call for some balance in these decisions. I've just taken it to the extreme to get people's attention. What we do in financial planning is just run all the numbers. and we bring out the concept and then we show you all the downside. to doing this.

And then we show you. all the upside and then we make a decision. Yeah, I love it. I love it. And I think that again, that's Nothing you want to try at home.

You know, when you the beautiful thing is, is that you have Tom and Hans to help you put your figures into their computer and lit it. you know, run the numbers that you know, maybe you can stretch it out a year and go down to the twenty two percent rate and it's and not have the Irma. Or or maybe in your case, it's it's better to to jump up to, you know, even the uh What's the one thirty five percent after twenty four? is 32%. No, 32%.

It wasn't on my list, I'm sorry. But you know, you know, it was just again, it's not a cookie cutter thing. But the beautiful thing is that it's a beautiful thing to to help you with your planning. And as I said, my dad loved that kind of thing where he knew like, man, look how this is going to play out for everybody and how it's going to play out for my ears. And so so much of how you finish well, right, can be in these decisions sooner rather than later.

Sure. I've got this heart surgeon. That has been watching my videos and he's, you know, just use his as an example. He practiced till he was 70. Yeah.

And never took a dime out of his 401k because you can delay 401k withdrawals. past RMD age. if the money's in the 401k and you still work there. He's got like six million bucks in his 401k, and when he rolled it over to Fidelity. they took out the age 75 RMD.

And he didn't even know it. I mean, he just. Sky's so well off that He didn't even miss a couple hundred thousand dollars because he got a 1099 for it and when he was calling me I figured it out backwards. I said that's exactly what that was. And yeah, you got the money and you spent it.

or you invested it somewhere else.

So now he's just crazy about RMDs. And he wants to do Roth conversions because he doesn't want his kids to pay all the tax, wife, and all that kind of stuff.

So it just, and we're going to do it for him. And he's up in these high brackets. Yeah. You know, I showed him the estate taxes. that are going to be involved in all that and it's just You know, it just, and he kind of gave the old um, well, I wish I would have met you 10 years ago, you know, and it's just well.

Okay, but you didn't, but you do now, and let's go and let's just make good decisions from here forward. Yeah, and again, the interesting thing is that the stakes for him. May not be near as high. In other words, the people that are in lower incomes, those decisions become more critical, right? And then chances are their kids are in a tougher position too, right?

Well, yeah, and where we're going to end up going with him is is life insurance. I mean instead of roth conversions.

So we're going to just take the RMDs and create an income for his wife and him, pay the taxes. And then With some of the leftover, we're buying survivorship life insurance and we're putting it inside of a trust. And he's going to gift the premium to his kids and to the trust so that it doesn't hit estate taxes. Money's money. I mean, it's tax-free money, the payment of that life insurance at the end is the same time they're going to get that, they would have gotten been the beneficiaries of these big.

Roth conversions.

So we still haven't decided which way we're going to go, but I think he's leaning toward. buying the life insurance. Yeah, that's beautiful. And again, you know, as you said at one point in the show, you know, if if you want to take and donate those, you know, to your church, again, that's a good way to not pay any tax. Is there at the end?

Just make the church the beneficiary, and nobody's going to pay any tax. It's a beautiful thing, how we can fund it.

Well, it is, and you can use Q C D's before you die to lead up to that.

So if you want help doing that, you know, we're here. I love giving money to the church. And they're there at cardinalguide.com.

So if you go to cardinalguy.com, you know, you can see in this case, we're just talking about the contact Hans and Tom page. If you're trying to get those things set up for you personally, of course, if you want to watch more on this idea of the 12, 22, 24, and 32%, as I just found out, leaving money, there's a video there under the income tax tab, those seven worries tabs. Income tax, you can watch that video, the show notes, all those details, as well as I'm telling you, Hans's book, The Complete Cardinal Guide to Planning, Foreign Living, and Retirement. It's the primer on the whole idea of how to finish well. And so, again, Hans, it was a great show.

I really had fun with it today. And God bless. And God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be.

Relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone.

Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Well is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security. Security Administration or any other government agency. We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's best-selling book, The Complete Cardinal Guide to Planning for and Living in Retirement and the Workbook.

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