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Retiree Tax Bracket Planning

Finishing Well / Hans Scheil
The Truth Network Radio
June 18, 2022 8:30 am

Retiree Tax Bracket Planning

Finishing Well / Hans Scheil

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June 18, 2022 8:30 am

Hans and Robby are back again this week with a brand new episode! So you're retired, you've saved your money over the years, now what do you do with it? Hans and Robby are here to help you.

Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on CardinalGuide.com for free!

You can contact Hans and Cardinal by emailing hans@cardinalguide.com or calling 919-535-8261. Learn more at CardinalGuide.com.  Find us on YouTube: Cardinal Advisors.

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This is the Truth Network welcome to finishing well brought to you by Cardinal guy, certified financial planner belongs Shiloh best-selling author and financial planner helping families finish well for over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started with finishing well, finishing well is a general discussion and education issues facing retirees guide.com Cardinal advisors on trial CFP some insurance this show does not offer investment products or investment advice welcome to finishing well, a certified financial planner Han Shiloh and and today show is retiree tax bracket planning that may not sound like a lot of fun to you but it actually worth our job today to make that as much fun as possible and this really really need that when you think about Moses wrote the 90th Psalm and here's this guy.

He's certainly at this point in time a little bit older and so you know, because he didn't even start get them out of Egypt until he was 80. So the boy and I merit the 90th Psalm he wrote verse 12, which says that teach us to number our days that we may apply our hearts unto wisdom at and so like that's exactly what we're talking about today planning in ins we turn our hearts to say okay let's slow down we been doing this. Putting this money and IRA are we been setting the savings account interest accumulating money since we were kids. But now let's let's apply our hearts to wisdom and wisdom from Hebrew standpoints really neat word because it has to do with like that and and it has to do with God. Actually, the father kind is showing you insight into what really is going on like.

Here's why you put that money as I hear was the plans that that that really he had for also. Annika, although now I do. You know that's it and and if we apply our hearts to that it gets its a beautiful, wonderful things are going to ask Hans today to help us apply our hearts to wisdom as far as these tax brackets because it did is no time like right now to do that because it's just a window of opportunity right Hans and every year you had where you didn't take full advantage of the low tax rate for 2022 is almost half over, and there are things you can do during 2022 and then 23, 24, and so on and so forth.

And the whole point of this thing is the very top for a married couple of the 24% tax bracket federal tax bracket is $340,000 so that sounds like a lot of money, a lot of people and it's probably well more than a lot of people make in a given year. Let's say between you and your wife or your you and your husband. There is a married couple. Maybe you make $150,000 a year to you and you're still working and your going right along. And so my point is, if you have substantial IRA money or 401(k) money and it's all in the traditional pretax and you are interested in Roth conversions and I'm going to probably make you interested in Roth conversions coming to see me here.

You listen to me and if you have an income of $150,000. So you're leaving on the table at the end of the year hundred $90,000 of income or Roth conversion that you could've done at the 24% bracket. Once the year expires. That opportunity is lost for okay now if you're single and you may let's say $80,000 a year and it's the same scenario that the numbers are $80,000 is what your income is in the top of the 24% bracket is $170,000.

So if you have the single person which you don't have a spouse you have a substantial IRA or 401(k) and you've got $90,000 of additional income in 2022, or that you could do a Roth conversion with that and pay taxes at the 24% federal rate. Pay taxes on this money sooner or later and later is really tough to the older and like a lot of people just stolen up and harbor it and they pass it on to their kids and when they pass it on to their kids, their kids cashed it all out at one and pay you know, 40, 50% taxes on the money is all done one year. So this is an opportunity to Roth conversions to still hold onto the money to get the taxes paid on and then make any future earnings tax free, and to do that is pretty low rates. It's kind of like you can pay me now or pay me later like to old Fram oil filter guy. If you pay later it it's it's substantially more that gets back to just that original question. What's the money for right Hans will go with the painful. Why should I pay taxes now when I couldn't wait to pay taxes will get the money there in different places. You put in contact with your avoiding taxes early avoiding of your owning what you did as you you you have this silent partner in your silent partners name is Uncle Sam and he's with the division of the federal government called the IRS and he's a silent partner because he doesn't remind her that he's there all the time you don't get any tax reporting companies. There is very patient Uncle Sam is unique in a way all the way till your 72 and then when you get to be 72 and you get the minimum distributions he's going to make you take a little bit and pay them off and then delete really getting hit it big payment when he died he can get paid off by your kids great equity deal. And so what with this is buying your silent partner just getting rid of in your life little bit of time at the most favorable rates that you can different aspects for different ages and so the neat thing about this show will give you an idea if you're 40 or if your 75 there's there's plans on all angles of that because really, for all of us. And boy I wish I had when I was 30.

You know had the wisdom to number my days in and realizing things back then but here we are. When you have 72 if you're that age and you have money in a 401(k) or an IRA substantial money during this week for Rutgers and the reason you're in the sweet Roth conversions is because your 59 and you can actually pay the taxes out of the money that you're converting so we go back to your example you're the single person you make $80,000 a year, or 61 and you can convert 90,000 out of your 401(k) into a Roth IRA and you pay the taxes on an extra 90 grant at the rate of 24% and said that in sound very appealing but if you're 61. You can actually pay the taxes out of the 90 grant that you convert the downside of that is your only going to have 70 grand in your law IRA you have less than it is you sent some of into your to the government pipe.

You can do that between the ages of 59 1/2 and 72 when you get over 72 and now you start to wake up to this problem, you, you can still do these conversions, but you can't convert your minimum distribution.

Can you take that attack and take that money and is now out of the IRA. But then you can do amount above that, so you can still do these at any age. And if you're younger than 59 1/2. You can still be Roth conversion, but we don't pay the taxes out of other money so that in a further limit you meaning that if you're the single person that made 80,000 you had this IRA you want to get into the raw thing and you converted that $90,000. You couldn't pay the extra income tax out of the IRA money because you face a 10% penalty and that would kill so if you do that is younger than 59 1/2. You do not have to have the taxes that and on the sideline to pay them out of some separate money or you need to limit your conversion amount until two in amount that you can afford to pay the tax out of safety in a big refund coming or whatever it might be a good year to look at. Oh, I can convert this over right because you know you got the refund to help you offset the taxes that you pay that your I know you're still paying it but it's it looks like it's you know just reduce the money that you didn't necessarily have to have client like a number of clients now want to really accelerate and go about 24% bracket the married couple that are doing this and I can think of one particular guided wheat we brought them all the way up to $431,900 position and he is salary is about $250,000 a year.

Is it the income they spent taxes on so we converted like 187 grand this year.

We just did it one to bring them right up to the top of the 32% bracket because once you really studied is that 32% federal income tax. Now, given what his income is going to be later is it's worth doing. That's a very competitive rate. So, and for a single person the top of the 32% bracket is 215,000 like some of them try to save it makes sense for everybody's forgiven financial planning advice over the radio.

One-size-fits-all necessarily for everybody. It's just what I want people thinking about if they come into me and hire me to do financial planning or consultation.

I'm scanning point out that we got a deal with the IRA money we get a game plan together of the 401(k) money which is a lot of people that most of their money we collected a plan to get out of there and pay the taxes. The earlier we started that the better and we pull it out of there does need mean we need to spend is if you don't need or want to spend it. Now we do a conversion still there is the taxes are paid on and then were not can I have any more taxes on the grow any more taxes on it for the rest of your life.

So we got a break. I'm afraid so when we come back really give you more on these right retiree tax brackets remind you always show his gratitude by Cardinal guy.com finances guide to planning for and living in retirement.

It's all there.

Cardinal guy.com right back. Hans and I would love to take our show on the road to your church and Sunday school Christian or civic room. There's a chance for you to advance the kingdom through financial resources by leveraging Hahn's expertise and qualified charitable contributions veterans aid and attendance, IRA, Social Security, Medicare, and long-term care. Just go to Cardinal guy.com and contact Tom to schedule a live recording of finishing well at your church, Sunday school or civic contacts on Cardinal guy.that's Cardinal guide.com welcome back to finishing well certified financial planner.

Hahn's silent today show were talking about retiree tax bracket planning and that taken the time to plan the say what you know what, what are we really hoping this money will do and what's the best way that we can give it the most leverage for the kingdom and so you know there's there's so many aspects to this that that are really helpful and just. Besides the tax brackets right Hahn's lesson is that to consider a multiyear Roth conversion strategy that you can do some of this over a number of years and it start with in our plan the very top of the next tax bracket or the top of the 24% federal tax bracket 24% of our so that which happens to be hundred and 70,000 of annual income for a single person 340,000 for a married couple filing jointly so that a good number. Start with and to consider converting amount of your IRA that is overly regular income that will bring your whole income to that amount than what we are talking about. Then the next question comes up is do you have the money sitting on the sidelines in an account is not an IRA regarding pay taxes you pay taxes out of the savings account or brokerage account or do you have to pay the taxes out of the IRA money that you convert and for a lot of people. That's true and then you don't want to be older than 59 1/2 to start the strategy of that case because if you pull money out of the equation of a taxes you have for penalty. Penalties make this throw the whole thing lopsided that really work well so then we will look at the top end of the age is once you get the RMD and by the way, there are no RMD required minimum diffusion at 72 on raw so that an advantage to converting your Roth is you don't you not required to make distributions in any age, your heirs will be but you're not on any of the Roth money but once you get to 72 and you still have money in the traditional IRA you're going to have to do RMD and you can convert your RMD, and the only way you can avoid taxes on RMD's is to turn them into a qualified charitable distribution and you can give the money to the Lord and I can help you do that back to what were talking about, you can still do Roth conversions 72 and over. You just can't convert the RMD amount is just one of the real benefits of having a Roth is is that not only you know are you not obviously not have to pay tax. If you take the money out but you not have to pay tax on the income so that the fact that you're not having to make in the required minimum distributions right means that you can leave that money in there and and actually are leaving in a lot of people's cases right all the money that they've made over the years in this thing and so it's all growing.

The whole time rather than to begin to take the money out which kind of takes the growth potential away right and you know people reason you're doing this pain now for a better future or delayed gratification or the low end of words that you can come up with. This is doing something in the present that might have some pain so that you can have a better future and so the whole want. All reasons were converting to Opera is that we won't have to pay taxes for much taxes, or any taxes on that on Monday we pull out of the raw and furthermore the way Medicare and Social Security are the IRS calculate taxes on Medicare and taxes on Social Security is through an equation with your other income and if your other income comes out of a raw, it doesn't count as other income so little bit complicated to explain but essentially you could have a retirement future where pay no taxes on your Social Security paying the minimum amount for Medicare and then you have a supplemental income coming out of a raw that has no taxes on that. You basically just barely any taxes at all. That's pretty sweet retirement slays obviously in doing this and taken advantage of the 24% that really all that painful and still set yourself up for a bigger future or your family or whatever you know if you're given the money. However, your work and what you're gonna do the money. You know, obviously it it helps that that you're not having to give so much midback taxes and women are referred earlier in the session to buying out your silent partner Uncle Sam but you could take that you could say just another way to save money on me. The people that have the money in the 401(k) and the IRA their favors.

You did the right thing years ago when a number of people that were your competitors.

They didn't. They spent the money they didn't contribute as much. They withdrew it they spent they don't have you do okay and you've done the right thing and that was painful. When you did mean it was you. You did without so that you could save for your retirement will now you there and you get this big balance and you sort of fallen in love with me. You just got it.

You've probably been having some tough times over the last few months of the stock market has been going the wrong direction that's been bothering you but that aside when we start talking now is paying the income taxes on the money in a very smart way now is just another form of savings for the future exactly so and then you are. You demonstrated your saver and some people really look at me, rewrite, and spent all his money you have spent all this money you wouldn't have meet your favorite and your think in your planner and so now I'm just opening up to a little different area of thinking you're effectively going to spend some of that money to have a better future and a tax-free future or a tax-free inheritance and so we just found a good bit of this money is for your kids and grandkids and their inherited beneficiaries and a whole lot better than Eric Artie paid tax money that is taxes due money it it just it just is. And you know if you really want to do something for your kids do these conversions and then which are given on they can have the option to either take some of it now. None of it. Now they got emptied over 10 years that they can leave it there for another 10 years of tax-free and then pulled the 10 year and or they could take it all the first year tax-free if they really needed. So there are some good reasons in the numbers anybody wants to have a numbers discussion.

I'll be more happy to have that with you. I can I can show this with hard numbers for a lot of folks this makes sense. Some clients that really have taken advantage of it right. Oh yeah, yeah, I have been doing it long enough to have people really getting the benefit side of that which is the withdrawal later on for the people passing in the getting the inheritance, but I certainly have seen the opposite of that. And I think about my own mother-in-law went when she passed away she left a substantial amount of money to the church which is God bless her just in the church meant a lot to her and she gave that knowledge is regular money and then she she gave my wife and the grandkids money that beneficiaries on the IRA and so we had to pay tax and it was we we we just we can spread it out.

We just took it. The tax and enjoy but if she were to reverse that if you elect the IRA money the church and given the regular money or my wife. Then we would have no tax on them.

We would've gotten more money and easier access and the person pay taxes any of the church doesn't care what kind of money. It is so you want to leave taxable IRA money to the church and pretax money or post-tax money Mycroft like life insurance, like land, like money in a savings account or CD you want to give that to your kitchen drink. That's that's part of the idea of having a strategy then you know to do that nurture charitable distributions now as part of reducing that IRA you know you have all those strategies that all worked in several life insurance right so all other way than the raw to take or alternative or if you want to spread it around a little bit is to take some of the money that you would be converting into the raw and putting into the raw you could take it for taxes and then pay a premium into a life insurance policy which has to be spread out over a minimum of seven years, to make all the tax to but a lot of people right sweet spot and then creating first of all, a pretty sizable cash value account that's accessible to you if you needed but what ends up happening with that of my own money the same way you don't end up drawn out adjusted there and that you got this much larger life insurance benefit payment after you die, which hadn't happened yet for me just it it it didn't mess with your kids. You can get.

And that's just totally tax-free beautiful absolutely.

Well, unfortunately, again with the amount of time before we ran I was. But you know obviously there's there's a lot of good stuff here and you know it's complicated. So in a pretty easy go to Cardinal guide.com and just get a hold of Hans and talk about it. You are not the cookie-cutter approach that actually what it would be with your IRA or with with your individual situation and I'll just like honestly I just this little earlier today.

My brother need some help and I was just wonderful to know 1/2 I have. I know I guy I know you guys are you know a guy because you listen to finishing well and it's all there@cardinalguide.com as well as Hans's book the complete Cardinal guide to planning for and living in retirement. Thanks, Hans you finishing well is a general discussion and education of the issues facing retirees Cardinal guide.com Cardinal advisors upon trial CFP some insurance this show does not offer investment products or investment advice. We hope you enjoyed finishing well brought you by Cardinal guide.com visit Cardinal guide.com for free downloads of the show or previous shows on topics such as Social Security, Medicare and IRAs, long-term care and 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 shows to get Hans book go to Cardinal guide.com if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word. Once again that's Cardinal guide.com Cardinal guide.com this is the Truth Network


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