Are You Tax Planning for Retirement?

This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com, with certified financial planner Hans Shile, best-selling author and financial planner, helping families finish well for over forty 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. Welcome to Finishing Well with Certified Financial Planner Ron Shile, and today's show is: Are you planning? Are you tax planning for retirement? That's an interesting thing.

You know, it doesn't sound terribly interesting when you say it that way, but I got to tell you, this is a Fascinating study that we're going to get into today because taxes actually are like the long fingers of retirement. They touch every single thing, and we're not talking about how to figure your tax return. We're talking about how to plan your retirement based on how taxes affect all the different. You know, we talk about all the time the seven worries of you know retirement, and so taxes touch all of those. And so Solomon, you know, had this tremendous wisdom, and so you'll see in First Kings chapter seven that he he he acquired a man by the name of Hiram to help in all the different.

He was a he was a A skilled worker that had worked for generations in this idea of brass, and since brass was such a big part of all the different utensils in the in the altars and all the things that were in the temple, this one man's wisdom touched all these different areas, so that you could get the complete picture. And and so it's kind of cool. Like this, this may sound dry, but it's really amazing to see the wisdom that's available. That will, again, you pay less taxes and you get to spend more money, or you have more money to disperse for the different areas that that you're sowing into your family, or whatever that may be.

So, you know, we're all about keeping as much money as we can, Hans.

Well, we are.

So, are you tax planning for retirement? I'm going to tell you a story of a gentleman and his wife who really didn't do much planning for retirement. Because they really have to. They've got two Social Security checks, and they've got two pensions. And between between those two Social Security checks and those two pensions, they have more than enough to be very happy and live happily ever after.

So, and you know, one of the ways he did tax planning for retirement. I'm not going to take any money out of that IRA. Till I have to, because I got to pay taxes.

So that's my tax planning is put it off as long as I can, and then when it gets here, then I'll worry about.

Okay.

So this same guy bought Medicare supplements. He and his wife bought Medicare supplements from them from us eight years ago when they were sixty five. And how they found us? I think they found us on YouTube, and were watching those and. Really impressed with that, and they they they didn't come in in person and meet us, but they bought them over the phone, and then we started sending them videos every week.

They've gotten a video every week, and they've studied, and they've been very good students. Really, I don't think ever planning. They didn't feel like they need. They do all their own investing. These people are very well off.

I don't think they really ever thought that they need us. But the one thing that she got. Down pat, really well is Irma.

Okay, is is boy, she just so she's been a great Irma student. She's learned everything there is, and she's we're going to keep our income below two hundred eighteen thousand dollars, our combined modified adjusted gross income, because we don't want to pay any Irma. And they've been successful. They haven't. I mean, so so they get their two Social Security checks.

Their two pensions for eight years, and that's more than they can spend. They've been paying their taxes, and by the time you put all that together, it's like a hundred and fifty thousand a year, something like that, or maybe a hundred and seventy. And then they pay some tax, and then they just the whole meantime, this IRA is just spinning and growing, which is a real blessing. What the markets done over the last years. But she's learned that.

Boy, she was real vocal about that. You know, don't want to pay any Irma, and she wanted to teach, teach me what she's learned. And then I'm sitting there. I say, so you've taken nothing out of your IRA, and now you have to because you're 73, and she's going to be 73 next year.

So the three fourths of the money is in his IRA. The other fourth is in hers, or it's something like that. And it's over four million dollars, so, so you haven't taken anything out of there. I said.

So what's this money for? You don't need it. And I just shut up. What's this four million dollars for? And neither one of them could give me a good answer.

And I said, so the answer is, what about your kids? Oh yeah.

Well, we're going to leave it to our kids.

Okay.

Yeah. And then okay.

Well, at least we got a purpose here behind it. And so, I don't want to go through all the details of that, but just so so I think that was a problem for them. It was a good problem to have. Is their four million dollars, which they've been saving all their life and protect, it had no real purpose behind, and it's still.

So so that became our first goal. They also brought up that if they need long term care, they're just going to pay for it out of the four million dollars. And I said, you certainly can do that. I mean, you got more than enough to pay for it, but then I showed them the tax problem that's going to create for them whenever long-term care would happen, and that kind of got their attention.

So what we're doing on today's show is we're going through all seven worries, and we're using this couple as an example, and we're going through.

Social Security, Medicare, Long Term Care, IRA, four hundred one k, income planning in retirement, estate planning, and then income taxes is the seventh one, and it's really what the show is about—the seventh one. But we're going back and showing you the tax implications of the other six, and really building a tax plan around that makes sense. Yeah, I love it. It's actually a retirement plan that you know takes full advantage of the tax laws. That you know what you can do in retirement if you plan around it.

Right.

Well, yeah, especially for people with an IRA.

Okay.

So that's where I went to right away is worry number four, IRA, four hundred one k, which is untaxed money, and they had a little bit. They have a little bit of raw, but just an itsy bit of of that four point four million or something like three hundred thousand of it is raw, because they've been doing little bitsy amounts because they wanted to, relative to their four hundred one k or their IRA. Because they wanted to stay under that, it was Irma at all costs, and so we're going to go right to worry number two, is that Irma is is a tax, and for you know we calculated for them because he wanted the number, it's it's about seven grand a year, per person at the highest level.

So what we're talking about doing is he's going to have. If he does starts doing Roth conversions as part of this tax plan, which he's all committed to do, can't wait to do, and he's hired us to tell him how much we need to right away add fourteen grand a year to the tax bill because that's going to be created by the Roth conversions and. They didn't like that, and I said, "You're not. If you don't like that, you're really not going to like the tax bill created by these Roth conversions either." So there's a lot to not like about Roth conversions, but in proper planning.

So we've been back and forth with these people and showing them a lot of the numbers, and they're slowly buying into this because. But they they really don't like having to pay Irma because that's the main thing they understand. That's that's the dangers. With a lot of the financial planning we do is people under. I mean, ERMA is confusing, but once you watch a few videos, meet with us, you got it.

And then our software even shows them what it is.

So, you know, what we're going to tell you is long-term ERMA. If you don't start taking distributions out of your IRA and you don't do Roth conversions, you're going to have huge ERMA. When you're 80 years old, okay. I mean that's once I showed them that that what we're going to do is accelerate this thing, so that we can get a hold of it.

So in your older ages, you're not sitting here worrying about Irma.

So they like that, um, and that's really the only tax in worry number three. Worry number two, which is Medicare. Let's back up and talk about Social Security tax. And so they're already paying social security taxes, and you're going to pay some so unless social security is the only thing you got, and most people have social security, and then they've got some withdrawals from their IRA, some other income from somewhere, those two things together are going to drive tax on social security, and that's kind of a tax for life. Not much we can do about that, but it's something to acknowledge.

That if you have a big increase in income, you're not only going to pay that extra tax on the increase in income, but they're going to get you backwards and take more of your social security check back in taxes.

Okay, it's like a triple whammy, right? And that's why the planning, because you got additional taxes to your social security, and you have the Irma, you know, along with it, you know, so you. That's just the beginning. Tax on Social Security, tax on Irma, and then the third area is long-term care. A lot of people don't even think about.

But if you use your own money for long-term care, you know, and you pull it out of an IRA, you're going to have to pay tax on the money before you have the net money to pay the nursing home bill or the long-term care bill. Or the home health care bill, and so let's say you need ten grand a month, or one hundred twenty thousand dollars a year.

Well, you're going to need to pull out one hundred eighty thousand dollars, pays sixty thousand in taxes, twelve, one hundred twenty thousand left to actually pay the bill.

So, that's just not a simple fix. And I've inflated these numbers. These are high net worth people, but this applies at all levels. Because long-term care, you really, if if you get long-term care insurance, and you properly plan that, you're going to have a tax-free benefit. Or in other words, when the long-term care insurance policy is paying the long-term care bill, you're not having to pay tax on that money coming.

Okay.

Yeah, that's got to be huge.

Well, this be a really good place to point out that this show is brought to you by Cardinal Guide, CardinalGuide dot com, and at CardinalGuide dot com, there are all these seven worries that we've been talking about, all involved in tax planning, and obviously today's worry, being taxes, is the seventh. And so, if you click on that particular link, you're going to see. There's a wonderful video with with a board and show notes, all sorts of details on what we're talking about today, because this is. This is really some fundamentals here that are just awesome as far as setting up your retirement plan through tax planning, and so you can go to CardinalGuide.com find that as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the wonderful workbook that goes that. Of course, my favorite, the contact Hans or Tom Page or now Drew.

It's all there at CardinalGuide.com. We'll be right back with a whole lot more on our you tax planning. Planning for retirement. We'll be right back. Investment advisory services offered through Brookstone 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. Welcome back to Finishing Well, a certified financial planner, Han Shile, and today's show is are you tax planning for retirement and all that's involved in that. And so you were talking about right before the break, and I.

I guess we've talked about long-term care insurance. You know, I don't know many times over the years, Hans, but I don't think I ever got what you just said until you just said it. And so I want to highlight it again. That oh my goodness, if you are paying for your own long-term care. Right, and a lot of people like these people that have millions of dollars think, well, yeah, I'll just pay for it.

And if you're paying for it out of an IRA, a traditional IRA where you haven't paid tax on that, oh my goodness, what a benefit to have a long-term care hybrid or something along those lines. Because I'm sure what you're doing with them, that here comes. Like you said, that's one hundred and twenty thousand dollars that that goes back into your income. It's going to hit you for Irma. It's going to hit you for a lot of stuff.

That that like what a what a crying shame! There you are in a nursing home. You got Alzheimer's or something, and your taxes are going through the roof. Oh, and you know where I can take that to the next level as well. This is I've been there.

Many times is sitting with this person in their eighties, and I usually have their adult children are the ones that brought me in there.

Now we're now we're meeting with mom or dad, or maybe we're just meeting with the adult children because mom or dad can't meet mom and dad, and we're trying to figure out how to pay for long term care, and the long term care in many cases is home health care. Is this thing is just getting started?

So now we're going to talk this very wealthy, older person who's avoided taxes for years, been very safe with their money and close with their money. We're going to try to talk them into pulling their own money out of their account, paying taxes, and then sending it. They have these people brought into the house that they don't want there anyway. I mean, you know, and I just. When these people tell me, "Oh, we'll just pay for long-term care ourselves," yeah, that's going to be real fun to watch.

Twenty years from now, twenty-five years from now, watching you, watching somebody trying to talk you into paying your own money and paying taxes.

So I don't want to get off on a tangent there. The tax ramifications for long-term care are a couple. One is if you're pulling the money out of an IRA, which a lot of people do, you've got tax implications. Of that, probably at the worst possible time. The second place is we can use part of your IRA to buy long-term care insurance.

I mean, that's and that's what we're doing with these people. That's what we're recommending because a big chunk of the IRA, like three hundred thousand dollars, we're talking about moving out of the IRA, putting it at the insurance company, and then using that to fund a long-term care policy over ten years. And where that meets out very well with him is that thirty-seven thousand dollars a year removal from the IRA counts as an RMD, which he's already there.

So I don't want to get too deep into that, but we can construct long-term care insurance for people using IRA money. And create a creates a tax, but it also has a tax benefit of getting it out of the IRA.

So, next subject is IRA 401k.

So we kind of lead into that. That's that's what the people really hired us for. They came in, they watched enough videos, they watched enough planning going on in the videos, and they they said, "Okay, we want to hire you to deal with this tax problem being created by RMDs." And the first thing they needed to learn is their RMD by the time she hits the year is going to be about a hundred sixty thousand dollars a year, so they they need to just pull out a hundred sixty thousand, and that hundred sixty thousand is going to cost them in taxes probably fifty sixty grand, and they're going to have a hundred to a hundred ten thousand dollars left of money they don't know what to do with that they don't need. And it's probably just going to go in their savings account if they didn't look to hire us, okay? Which already has about eight, nine hundred thousand dollars.

It's growing, okay? And they use that to take vacations, give to their kids. But these people have a problem. A lot of other people would like to have, but they're really bound up about it. I mean, they're really like troubled about it, and it's like, okay.

And we're back to the purpose. What's this money for? I mean, if it's not for anything, then what's the big deal paying some taxes? I mean, it just and so I even went that route with them. Let's just run RMDs, do no Roth conversions.

Let's just run RMDs out, save the difference, and then you give that to your kids, whatever. I mean, so we're showing them all those scenarios. They didn't like them, but but so now if we get back to Roth conversions. What we're going to do is figure out. We've figured out three strategies for them: the aggressive strategy, trying to take care of it in about six or seven years, of getting all that money moved over to Roth, so that they will have no RMDs by the time they're seventy-nine or eighty.

And if their kids inherit it, they don't have a huge tax bill to go with the. Yeah, there'd be no tax, right? And so, that's attractive to them.

So, I mean, we're get we're making some progress, but that's the aggressive. But boy, you should see the Irma bill on Medicare for doing the aggressive strategy. It's it's that fourteen grand a year or seven grand a person, besides the regular Medicare part B payment. They don't like that, but they're going to have to learn how to live with it. And the way we're paying the taxes.

Or some of the taxes on the Roth conversions, we're just using the net of the RMD. I mean, they're going to have a hundred thousand dollars left over that they don't need, so they have to take the RMD before they do any Roth conversions.

So that's that's the bad news. Is those RMDs are there until we get that balance down? But anyhow, so so then we got a less aggressive strategy, which is like ten, eleven. Twelve years, and then we got the strategy kind of like they're on, which is probably going to take them twenty years, and then we compared all the results, and we're still in the middle of all that. But they're favoring the aggressive strategy, and the big Irma, and just kind of get it over with.

There you go.

Now, the thing I wanted to get to was the widow's tax. When I showed them that, is let's say that. God has a different plan, and one of you dies, and you're going to have the same RMD because these two two IRAs just get combined for the survivor. But now you're going to be paying at single taxpayer rates, and that's what kind of pushed them to the aggressive strategy. Is we want to get through this Roth conversion strategy while we're still living.

Okay.

Well, we can use married filing jointly tax returns, and the place I really wanted to get to was QCDs, and I'm not sure that these folks are going to do this. But I mean, you can give a hundred thousand dollars. It's actually a little more than a hundred thousand dollars because it has an inflation thing. Let's just use a hundred thousand dollars straight to charity, okay? And you can do it each because they have two separate.

IRAs, and so and that counts as the RMD.

So that's an alternate strategy for people. And all these numbers apply with people, which much smaller. I'm just it's nice to take an example that just kind of blows everything out of proportion. But if you've got 10 percent of the money that they have, 20 percent of the money they have, all of this stuff still applies. And one of the ways to Make the RMD and not have it that you don't need anyhow.

You know, if you're in that boat where you really don't need all of it, but you can take some of it or all of it, and you can donate it to the church or some other qualified charity, and it'll never show up on your tax return. I mean, how great is that?

So that's a provision put in the tax code right by God, and. You know, when you come to us and you want a strategy, this is one of the questions we ask: that do you have charitable intent? And they do have some, but not as much as I'd like to see. But I'm not—it's their money, not mine. And so we're going to factor into their plan the amount they told us of QCD.

Okay.

Now, next next point, I got to move quick here. Is spendable income doesn't include the tax, but They don't have this problem. I mean, because because because they got all the income they need out of their pensions and their social security, and they don't have a desire to spend more.

So that's another.

Some people do; these people don't really.

So they they they just don't want to take more than they need, which is great. But that means their money is for their kids, and and to pass on to their kids.

Well, now we're solving a tax problem for their kids, and you know we we don't need to spend a lot of time on number five here, estate planning.

Well, that's that's the whole thing is inherited IRAs and the ten year rule, and we don't need to go over all of that. But now that we're focused on the kids and it's an estate planning issue, we want to have as much of this in Roth. As we can, then to pass on to the kids, and you're not giving it to them till their death.

So if you've somehow needed this money or you changed your mind, you could actually tap the Roth IR, and wouldn't have a tax impact.

So, and the seventh worry is taxes. That's what we've been talking about through the whole show.

So I know I've been rambling, but just pass it to you, Robbie.

Well, yeah, and to me that. Again, the estate planning part of it, when you look at it, is that money being in that Roth, from a standpoint of their kids, you know that is a godsend. I mean, it's huge because, you know, I you know I certainly saw what happened with my siblings when they inherited regular IRA money and and the tax implications of all that versus if these. These children got the money, and not to mention that it's, it's in that Roth at that point in time. Do they still?

They at some point do they still have ten years to get it out of there? That's correct. They can leave it all there for the whole ten years, and then draw it all out at the end of the tenth year, so they could get more tax-free growth during the ten years after their second parent passes. But that's a nice thing. Yeah, that's that was my question.

Essentially, you know.

So let's just take a round number, and I know that they're going to get way more than this. But say that somebody got one hundred thousand dollars in a Roth IRA. Then they could keep that hundred thousand dollars in that IRA for ten years, you know, for their own retirement or whatever, and say it grew. What would it grow to? One hundred and one hundred eighty, one hundred and eighty.

So now, at the end of ten years, it's grown eighty thousand dollars.

Now are they going to have one hundred and eighty thousand dollars tax free? Correct. Which they can put into an investment.

Well, I hate we ran out of time again before we ran out of show, but we want to remind you the show today is brought to you by Cardinal Guide, CardinalGuide dot com. If you go to CardinalGuide dot com, there you're going to find the seven worries, and the last of those is taxes. And so, we touched on all of the seven worries today, but this show is found the the video, the show notes, etc. All the details under the taxes section there at CardinalGuide dot com, and. Of course, a CardinalGuide.com.

You have Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the easy peasy way to get involved and all this planning that can come together for you is to do just go to the contact Hans or Tom page there at CardinalGuide.com. Great show, Hans. Thank you. The opinions expressed by Hans Shile 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 result. Any strategies mentioned may not be suitable for every Everyone, Information Express 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 Brookstone Capital Management LLC, abbreviation. 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. 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 Hans' best-selling book, *The Complete Cardinal Guide to Planning for and Living in Retirement*, and the workbook. Once again, for dozens of free resources, past shows, or to get Hans' book.

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