This is the Truth Network. Welcome to Finishing Wealth, 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 Wealth, we'll examine both biblical and practical knowledge to assist families in finishing wealth, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now, let's get started in just a moment. Let's get started with Finishing Wealth. Welcome to Finishing Wealth with certified financial planner, Hans Scheil, and today's show, I'm going to give you that my favorite title would be Taxes Are On Sale, or capitalize on low tax rates for 2024 and 2025. But the bottom line to that is, really, taxes are on sale. And so you may know in Proverbs 29, 18, it says, you know, where there's no vision, the people perish, or where there's no vision, the people perish.
There's no plan. And so in order to have a vision, it requires a visionary. And so, you know, in the Old Testament, many, many times, God would send prophets to tell them, certainly like the prophet Jeremiah, to say, if you don't quit sinning, you know, that Babylonian is going to come and take away your, you know, you need to turn to God, you need to repent. And so the idea was that, unfortunately, a lot of us just sit in denial all the time, like, well, things are always going to be fine, taxes are going to be low.
Well, no, they're not. And so, you know, from my standpoint, Hans, in this particular issue, to keep telling us, look, time is short, we got to take advantage of this while the kitten's good. But don't miss the bigger idea here that time is short on Earth, you know, death could happen tomorrow. And there's things that you need to know, you know, God's putting visionaries in your life to tell you, look, you need to get your life right with God, because, you know, eternity in hell would be something unbelievably horrible, and Jesus provided a way for that.
And so don't miss out on that when it comes to a vision. But when it comes to this vision of taxes on sale, Hans, we got to act now, don't we? You have a balance, you have a way to recognize income right now.
Okay? And you can recognize so much income in 2024. And then you can recognize some more income in 2025, by doing a Roth conversion.
That's one way to do it. And so, and then people have ideas about Roth, it's a good idea, it's a bad idea, you know, and I mean, that's another day, and another show, where we're going to get into that. What we're making the assumption is, is that you're somewhat favorable toward Roth conversions, or you don't know what they are.
And you're open to it. And so what it really amounts to is paying the taxes on the amount that you convert, like if we use an example of $100,000. And we did a Roth conversion. So in the taxes on $100,000, let's just say you're at the 22% bracket. And that's where you are on an additional $100,000.
Well, that's going to be $22,000. And then if you're in North Carolina, you're going to have to pay another 4.75%, or let's just call it 5%. I mean, that's what taxes are in a lot of states.
Other than California and New York, there are even more. In Florida, there are no state income taxes. But so somewhere between $22,000 and $27,000, you got to pay in tax, but the remaining, let's just call it $75,000 now, is in a Roth, and it's never going to be taxed again.
And it can grow. The growth on that $75,000 is going to be tax-free too. And then if you pull it out for income, once you're on Social Security, it's not going to drive income taxes on your Social Security. It's also not going to cause Irma in future years with RMDs. I mean, there's all kinds of reasons. So I don't want to get into so much selling you on the concept of a Roth conversion.
Today, we're talking about the timing of it. We're talking about, okay, so if you're on the fence about this, it's time for you to make some decisions. Am I for this or against it? Do I have the money to do it? And we can certainly look at your individual situation.
But if you're a couple, I just want to read you some numbers. The top of the 12% tax bracket is $94,300 in 2024. So if you make $94,000 or less, or right at $94,000, you're paying 12% income tax on your income. Now, if you did some Roth conversion, and let's say you've got $800,000 sitting in a pre-tax IRA, and if you took, let's say, $100,000 and converted it, you're going to owe $22,000, just like an example that I went through, to the feds. And that money is going to be gone. You're going to pay it in tax. Now, it would be really sweet if you got some money sitting on the sidelines that you could pay the tax with, then you could convert the whole $100,000. You still have the whole $100,000 in the Roth. But if you got to pay the taxes out of the conversion, then you're going to only have $75,000 in the resulting account. And some people have some huge problems with this, paying taxes before they have to, number one.
And number two, the value of their account just went down by $25,000. But I would tell you, the $75,000 that's in there afterward is much sweeter money, because you're never going to pay taxes on that again, or on the growth from that. And your heirs or your children, when they inherit it, is if you don't use it, they're not going to pay taxes on it either. Yeah, I was just going to say, they say, just call it $100,000, and you think that that's your balance, but in all reality, you got a partner in that $100,000, and that partner would much prefer that you wait until he gets 35% or 40% of it than you to take advantage of the 22% right now. And it's just essentially buying out your partner while the getting's good, while it's on sale, which is what we're talking about today, is let's buy out Uncle Sam while it's on sale, right?
Well, yeah. And so in 2026, the tax rate on that same $100,000 instead of 22% is going to be 25%. So the tax is going to go from $22,000 to $25,000. Still probably going to be smart, but, you know, the tax rates are, you know, the Tax Cuts and Jobs Act that went in in 2017, that started actually in 2018, they passed it in 2017, it has a sunset provision. So in other words, the new tax, the new lower taxes lasted eight years. And at the beginning of the ninth year, it's baked into the law.
Nobody has to pass anything for this to happen. The taxes are going to go from 22% to 25%. And what I would tell you with larger IRAs, people that have a larger balance, what we have many people doing, the top of the 24% bracket for a married couple is $383,900. So, you know, if you took this couple that has a big IRA and they're at $94,000, they could convert almost $300,000 of that IRA in 2024, and they pay 22% tax on some of it, 24% tax on about half of it. And those tax rates are going to be 25, the 22 will be 25 and the 24 will be 28 two years from now. So I don't want to bore you with a bunch of numbers, but that's the simplest way to take advantage of lower tax rates is to do your Roth conversions before the rates expire.
Yeah, it is a limited time opportunity. It's fascinating, you know, just the way that all of working out. But again, you know, I love the idea that, you know, by transferring this into the Roth, the idea that not only because the difference between the IRA that's, you know, not a Roth IRA is when you're making money on the money, it also will be taxed when you take it back out. But when you, when you got the money sitting in the Roth, you know, if you've, if you've made the conversion, not only will you never pay tax on the money, but you're never going to pay tax on the income. And the difference on that is huge. And the other benefit that having a Roth myself that I see the benefit in is that the sooner you get a Roth and the sooner you begin that process, then you've got that, that Roth rule.
What is it? Five years that you got to have five year rule. Yep. And so you begin that clock to tick as well so that you've got access to that Roth money, you know, without paying any pedals on it sooner, right?
Yeah. And let's talk about a single person. Yeah, a single person, you know, you pay more taxes being single based on the same numbers. So if we had a single person that had $100,000 a year as their income, and they're currently paying 22% on their marginal rate on their last dollars. And if they, they could do a Roth conversion of $91,000 and still only pay 24% federal tax because the top of the 24% bracket for a single person is $191,000. So, you know, they're compressed for single people, but somebody starts looking at this and if they had a large amount in their IRA, they might go or their 401k, they might go to a higher amount. And many 401ks these days allow Roth conversions inside of the 401k. Yeah, we can help you do that.
I mean, you're going to need a little coaching beyond the people at the company where you work or the call-in number, but we can help you do that. So some 401ks, including ours here at Cardinal, allow you to do a Roth conversion inside of the 401k. So this is something that you really need to look at and take advantage of because 2024 is going to be done here, you know, in a couple of months. And then you're still going to have 2025 to do this and so you're still going to want to look at it in 2025, but it's really nice when we can do the same amount for two years in a row.
Yeah, I'm not suggesting with most people that you convert all of it. I mean, some people end up doing that, but it's really nice to have a taxable bucket and a tax-free bucket. Well, that's a good point to pause and remind you that this show is being brought to you by Cardinal Guide, cardinalguide.com, where you're going to see the seven worries tab and today's tab would be under taxes. We're talking about taxes on sale. And so if you go to the taxes tab there, you're going to see a show right along these same lines. It's talking about capitalize on low tax rates, and that's going to have show notes and all sorts of details about what Hans is talking about. It's all there at the taxes tab at cardinalguide.com, as well as, you know, the contact page for Hans and Tom, which is a tremendous resource from my point of view, because if you don't understand a lot of what he's talking about, which I don't, then the great news is you can call them and get more information.
Contact tab at cardinalguide.com and Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement will be right back with a whole lot more on taxes are on sale. 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. Well, welcome back to Finishing Well with certified financial planner Hans Scheil, and today's show, taxes are on sale, and they really are for the next year, two years, 24 and 25. And so how we can take advantage of that is what we're talking about on today's show, and Hans, there are some important strategies we need to look at while the getting's good. You can look at this a different way, is as you look at these tax brackets as they stack up, and when you leave the ability to pay taxes at 22% rates, and you don't take advantage of this, like in the examples that we gave earlier of this couple that has an income right at $94,000, and they have this big IRA, and they say, I'm not going to do it, and then 2024 expires, well, they've just left some 22% tax rate money on the table. I mean, it's just, once the year's over with, taxes are going to go up in a year and two months, and once they go up, I don't see them ever coming back to these rates again.
Now, if the election works out, you know, one way or another, they could come in and they could make, who knows what they're going to change, but this we know for certain, taxes are on sale, it's, you know, I just want to make sure everybody's listening and that they consider this. Now, I'm going to go to another example where I have somebody that, you know, it's an example, and she basically lives off her Social Security. I mean, she just does, and she's got a very large IRA, and she's almost 70, and, you know, just pointing out and showing, you know, that in three years, we're going to get into minimum distributions and showing them what she is, she's a widow, she's paying taxes at single taxpayer rates, but she really isn't paying much taxes at all. I mean, she's got the Social Security and she's got a small pension from her husband, and you put those two things together, and she's paying almost zero taxes. And so she's, was until she met me, just very happy and content about that. And I said, well, okay, so when you get to minimum distributions, they're going to make you take out about $40,000 to $50,000 a year, and then I showed her what the tax rates, its current rates, what that would do to her taxes, is that second $50,000 or whatever is going to be taxed at a pretty good rate, and it's going to bring in taxes on her Social Security.
So we started looking at that, and I said it would be smart for you to start doing something about this now, even if we just do little bits. And I also pointed out QCDs to her, and in fact, listening to the QCD show, she's very interested. Once she turns 70 and a half, she's going to be able to start whittling down this large IRA through QCDs and giving to the church and missions, and so that's all cool. But what I wanted to get at is, I'm sitting here showing her, I said, you know, if we went to $70,000, from $50,000 to $70,000, by just drawing money out of the IRA, I mean, how about you take some of this money and just enjoy it? I mean, what would you do, and we had a little conversation about what would you do with another $20,000 a year, and she won't get to keep all of it, she's going to pay some tax, but her taxes really didn't go up that much going from $50,000 to $70,000. And so the end of that thing is, she bought a five-year payout annuity that pays her $20,000 a year, just basically out of the IRA, and it just gets her to minimum distributions, and her taxes are only another couple thousand dollars out of that. So she's just thrilled. I mean, it's a way to, just playing games with yourself, but she's able to spend a little more money, and she's going to use that to go on trips with her brothers and sisters.
She's going to pay for their part, and it's going to bring some joy to her. And all of that is around tax bracket planning, because we went in and just showed her what little change is going to be in her tax situation by taking a little more money out of the IRA. And some of our listeners, you may be in that situation, you don't really want to do Roth conversions, but we could show you that you're leaving money on the table every year because you're paying almost nothing in taxes, and taking a little more money out really isn't going to drive your tax rates up that much. Yeah, and that is the amazing thing. If you're just living on your Social Security, essentially, you know, there is a lot of room on the table to do some other things with money you have in other places, and never pay the tax, even if you want to start giving that. There's all sorts of options, right? Well, there are. You know, she's waiting for QCDs, and that's another way that we're going to deal with the minimum distribution problem of income being forced on her, because we're just going to give it away.
And those count toward minimum distributions, by the way. She can't do them until she's 70 and a half. She's not that far away. And I don't think she's going to do the full $100,000 every year.
I don't think she's going to start out there. But we'll just sit down with her when the time is, year by year by year, and just show her that, you know, if we're never going to spend this money, and you're going to ultimately leave a lot of it to the Church anyhow, let's go ahead and start giving it away through QCDs now. But we're going to use this annuity payment to just pay some of it to you, so you can... Because I believe God wants you to have some enjoyment and some extra, you know, you've accumulated all this money, and she's going to give plenty of it, way more than 10% away. So let's just go ahead and enjoy a little bit of it at very low tax rates now. Oh, absolutely. Absolutely.
That's beautiful. So historically, tax rates, I've got that in the video too, where, you know, a lot of people are just not aware that tax rates, you know, in 1945 to pay for the war, the top marginal tax rate was 94%. Now, granted, people that... you had to make over $200,000 a year to pay 94% tax rate. So that was very few people in America.
But it's still a point. Money was taxed at the highest levels at 94%. And in 1965, they were 70% at the top rate.
In 1982, they were 50%. And now we're talking about rates 22%, 24, 32. So I would propose that they're going to go up in 2026. That's the current law. But I would propose that they're going to go up even more down the road, just because we got to pay for this deficit. Yeah, that becomes glaringly obvious, unfortunately, as it just keeps getting bigger and bigger and bigger than I ever, anybody ever dreamed it would be. So, like you said, the taxes are on sale and time is of the essence, especially since we still, you know, for those who are listening to this show right now in October, we've still got two months left and three months left in 2024 to do something because if you don't do it, you're leaving money on the table, you'll never get back just in this year, not to mention next year, right?
That's right. I mean, I just don't think we're going to see tax rates in the 20s, you know, or even the low 30s. I have some very well-to-do people that are, they're going into the 32% level and the 35% level to do Roth conversions, just on that theory that they think that 50% federal taxes are coming back at some point in the future, and they're still going to be well-to-do, you know, when they're in their 70s with minimum distributions, and so they're just now getting on this. And so people that have large IRAs and large 401Ks, they're getting even more aggressive because we may look back years from now and look at 32% and 35% tax rates and think that, you know, those were the good old days. Absolutely. And it works on either end of the spectrum, right, for those who are really, really in lower income brackets, but also for those in the way up there, brackets, it's an equal deal as far as taxes being on sale. Well, they are.
And they're just as low as I've seen them in my lifetime. And maybe we'll be able to extend this thing. And I think that once 2026 rolls around, all the stuff we're recommending now is still going to make sense. It's just going to make a little less sense, okay?
I mean, it's going to be a little less sweet, let's put it that way. Yeah, because again, if you have that money sitting in those IRAs, you have a partner. And that partner is Uncle Sam. And at some point in time, you will buy him out. I mean, he has it figured in there.
And so your mission, you know, as part of what we talked about at the beginning of the show is to get a vision on, timing-wise, you know, when would that be most advantageous for you? And then certainly to think about your heirs who would be receiving this money tax-free as well, because a lot of people, that's what they're going to do with the money, right, Hans? Well, they are. And so I have some of these people that throw up their IRMA card, and they say, well, I'm going to do a Roth conversion, run my income way up, and now I'm going to have to pay IRMA to Medicare.
And that's true. But then I show them, if they don't do Roth conversions, how much their RMDs are going to be starting at 73, and then they're signing up for IRMA for life. And so that's why I want to remind you that the show is brought to you by Cardinal Guide, cardinalguide.com, and there you're going to find the seven worries tabs, and today's worry, as you might imagine, is taxes.
And so, you know, you want to take advantage of that and look at the show right along these same lines that, you know, taxes are on sale, the idea of low tax rates 2024 and 2025. It's got show notes, all sorts of informations and resources for you to see how to do these conversions, et cetera. Of course, the Contact Hans page, my personal favorite. And of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement.
It's all there at cardinalguide.com. Great show, Hans. Thank you, and God bless you.
God bless. 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 Whale is designed to provide accurate and authoritative information with regard to the subject covered. 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. We hope you enjoyed Finishing Whale 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, go to CardinalGuide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's CardinalGuide.com. CardinalGuide.com. This is the Truth Network.
