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. Welcome to Finishing Well with certified financial planner, Hans Scheil, and today's show, a very cool 2025 income tax and the seven money worries. You know, really, really interesting, because that's kind of the basis of many shows we've done over the years.
We go in that order, the seven worries. And as I was thinking about how Hans starts this video, which corresponds with the radio program, he talks about how people get so hung up on taxes that they forget the big picture. I was relating it as I thought about that, that, you know, Jesus clears the temple.
It was a pretty famous scene of how angry he got at the money changers and the people, you know, selling doves and all those kind of things. And the way I relate that to this situation is, you know, Jesus told us that our bodies are the temple of the Holy Spirit. And thus being the case, since we're inside or the temple of where he now resides, we need to get rid of our own money changers. And honestly, in order to finish well, which is what this program is about, yes, it's money, but money is a resource to finish well. And so, you know, making all your plans around taxes and all those kind of things are actually one of Hans' pet peeves, because he really wants to plan this thing so that you can finish well. And using your resources, leveraging your resources to do what God intended them to do, as well as building the kingdom. And so with that, Hans, what you got?
Yeah. I mean, when we're just talking about my pet peeve, you know, we've got the seven worries and, you know, I'll just rattle them off. Social Security, Medicare, long-term care, 401k, IRA, income, estate planning and taxes. Those are the seven, you know, things, items, worries.
And when we do financial planning for retirees, we're going to look at all seven of those and we're going to apply them to you if you're the client that's coming into us and having us do financial planning. And what my pet peeve is, is that people that come in and they see me as the Mr. Law or the tax guy. And so they come in, they're generally mad about taxes or somewhere between upset and mad. And they're just going to want to start talking about taxes.
And taxes are the beginning, the middle and the end. And I'm going to make them wait until we get to the seventh worry to talk about taxes. And we're going to talk about the other six worries leading up to taxes.
And that's kind of how I laid the whole process out. So what we're going to do on the show today is talk about how taxes or how income taxes affect each one of the other six worries. And we're going to start with Social Security and say, how do income taxes affect Social Security? And I'm going to answer my own question is with Social Security, if that's all you got, and you're living off Social Security, you're not going to pay any income tax. If you have Social Security, and a little bit of income, you're still going to pay no income tax. And if you have Social Security and a moderate income, you're going to pay some income tax on your Social Security and by some, not really that much when I talk about a moderate income for a single person, you know, maybe 30 $40,000 a year $20,000 a year plus their Social Security, when I'm talking about a married couple, I'm talking about 50 $60,000 a year $40,000 a year plus their Social Security, they're going to pay some tax on their Social Security, but not a lot. And people with a high income other than Social Security, 85% of it's going to be taxable. So not much planning there is if we just if I'm giving you an assessment, I just told you if you do no planning, you make no adjustments. Like we're going to talk about, and we talked about on the show, it's kind of like the Social Security income tax is already figured out for you.
But there are levers that we can pull their strategies that we can get started with as early as possible. So that when you get around to Social Security, and you're collecting it, you don't pay a lot of income tax, because your income is sheltered. Your, you know, your other income or your income besides Social Security is some of it's coming out of a tax shelter, or a sheltered tax, like a Roth IRA, or life insurance withdrawals. So, I mean, that kind of sums up everything with Social Security.
So respond to that, Robbie. Yeah, I love the way that it all kind of fits together like a puzzle that, you know, Social Security starts out the process. And the reason we that you started with that originally in your book, as well as you know, the shows is that for most of us, now that I'm in this class, you know, our one of our major sources of income is Social Security and everything kind of fits around that from a strategy strategy of what what am I going to live on, you know, what am I going to, you know, how am I going to survive for the rest of you, but also, you know, what kind of tax basis you're going to have is based on Social Security and what can I do what, you know, some of those levers that you're talking about pulling with your Social Security, especially the older you get, the more those levers will end up helping you to finish well, from my perspective, with Social Security being one of the first building blocks that you build your financial plan. And clearly, I've always seen that in this in the way that you work this together, because as you say, this financial plan doesn't happen in a vacuum. It's not just Social Security without all the others. It's very much as connected to Medicare, very much connected to income and estate and all those things.
Well, yeah. So, I mean, one strategy for people is if you're in your 60s, and you haven't taken Social Security yet, you're planning to retire or you are retired. And we're going to delay Social Security. People that are delaying Social Security, obviously, they usually have money in an IRA, and they don't need to take their Social Security right away so they can let it build up. We can start living off of taxable money out of the IRA to get you to 70. So you can delay.
I mean, I'm not giving this advice for everybody. I'm just kind of laying out the strategy. And then we can do some Roth conversion and drive your income up substantially, but still be at low tax rates. So that when you get to this Social Security at 70 with a high amount of Social Security, a higher amount, and then your other income or your other taxable income. We don't want that to be high because that's going to cause a lot of tax on the Social Security. So we can start making withdrawals out of different accounts that are either tax-free or tax-deferred.
So it's all part of a strategy. And I don't want to lay the whole thing out in the video, but income taxes affect all six other subjects, all six subjects, and that's kind of how it did with Social Security. So let's move on to Medicare. And with Medicare, the income tax effect here is IRMA. And IRMA, for those of you on Medicare, those of you that are coming up on Medicare, it's for the high-income people. You got to pay a whole bunch extra for your Medicare Part B and Part D. And when I say a whole bunch extra, as much as $5,000, $6,000, $7,000 a year for each of you if you're a married couple in increased Medicare premiums because of your high income. So that's an indirect tax or a surtax, and there's planning that you can do around that.
And you can go to other shows. I mean, one of the simple things we can do around that is if you're just retiring or planning to retire, we can file an appeal to IRMA, where it's appealing to the tax people because you're saying your income is going to be lower after you retire, and we can actually plan your income if you're doing a plan with us and help you with the appeal so that we can say, sure, I made a lot of money two years ago, but right now, and going forward, I'm going to have less money, get you in under the IRMA thresholds and make it go away. So what do you have to say to that, Robbie? Well, yeah, the whole Medicare thing, you know, when it comes to taxes, I mean, therein lies the deal that IRMA is the tax on Medicare, and I never heard of it, right? And the idea that Medicare would be taxed seems ludicrous to me, but actually what it is is a way for essentially the really, you know, underprivileged folks to be able to get, you know, health care. And it's kind of, you know, however you want to say it, it's an equalization factor of the whole Medicare program for the people that really can't afford it or having to pay higher premiums on their Medicare, but at the same time, from what I've seen, the people that are actually paying IRMA, and you can speak to this better than I do, that, you know, they're a whole lot better off with Medicare than they would be to pay outside insurance company prices.
Yeah. And, you know, in my experience as an advisor, trying to make people feel better about IRMA is a little bit of a lost cause. But that is correct. I mean, I pay a lot of IRMA, and I do very well, and I don't resent any of it. And I can't file an appeal because I'm not retired, and I don't really intend to retire. So it's just the answer for my wife and me is just to pay it. But to dovetail on what you just said, we're much better off with Medicare, a supplement, and IRMA, in terms of coverage and the benefits that we have than we certainly were under individual insurance or group insurance through my company. It's less cost and it's better benefits. Right.
It's something I've experienced. I don't pay IRMA, but I just know that Medicare is like a godsend for the elderly, period. Especially, in my opinion, the elderly that have a Medicare supplement that really covers situations when they're going to the hospital back and forth, ambulances and emergency room visits and stuff like that that would just break the bank on so many people's inheritance were it not for Medicare.
So to me, the whole package, it makes all kinds of sense, but tax is part of it. This would be a good time to remind you that this show is brought to you by Cardinal Guide, cardinalguide.com, and there you're going to find, if you go to cardinalguide.com, these seven worry tabs, and that's one of the focal points of the website. And if you click on taxes, then you're going to see a video along the same lines of the show today as well as all sorts of resources on taxes in retirement. And of course, you'll also find at their site Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, and the all important contact Hans or Tom page where you can get the information on your individual situation so that you can finish well.
We'll be right back with a whole lot more 2025 income tax and the seven money worries. 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 with certified financial planner, Hans Scheil, and today's show 2025 income tax and the seven worries. And we just finished up Medicare. I guess it's time to get to long term care.
Well, yeah. So we're looking at the tax implications of the seven worries, the income tax implications. And so when we get to long term care insurance, the first one is if you own a business, even a small business that has some revenue, it's possible to actually make a tax deduction out of your long term care premium.
So we'll save that for another show. The more important tax implications are that the benefits coming out of a long term care policy are tax exempt. And so a lot of these folks that, you know, try to convince me of the logic of doing what they call self insuring or self funding, where they're just they have enough money, they're just going to pay for it themselves.
They're ignoring a big tax benefit that comes out of long term care is that you you don't pay any taxes on up to twelve thousand dollars a month of long term care benefits coming out of a policy. Did you know that rally? I did not know that. You know, that's outstanding.
Really think about it. But I can assure you that there's a lot of people that are getting twelve thousand dollars worth of. And it's shocking how much that kind of stuff can cause.
Oh, it is. And even for people that have a lot of money who a lot of them will get pretty soft on the idea of buying long term care insurance because they don't want to pay the premium. But, you know, it's really hard to get people who are 80 some years old, 90 some years old to part with their own money to pay for care for themselves.
I mean, I just you know, we've been over that a lot. And the whole concept of buying a life insurance policy that also pays for long term care and doing it with a lump sum premium, possibly even of IRA money. And then knowing that the benefits coming out of the policy for long term care are going to be tax free or if you don't use it for long term care, you use it at the end of your life. It passes on to your heirs tax free.
It all makes real good economic sense. So and then, you know, I think with long term care, it's really not about the taxes, but we kind of skip over that when we're talking about it because it's about so much more. But there are some tax benefits baked into a long term care insurance. And I think that, you know, even the strategy that you talk about for so many for the hybrid, it has everything to do with taxes because when they use that IRA money to pay for their long term care, right, that's taxes they won't be paying on their IRA money.
Well, yeah, it is. But they got to pay the taxes on the IRA money coming out of the IRA and going into the life insurance over 10 years. So there is a taxable effect to it.
But ultimately, when the policy is paying off, there's no income taxes. Right. Okay. Okay. So, so we look at the tax implications of 401k and IRAs. I mean, let me put it to you this way. If we didn't have income taxes, there would be no such thing as a 401k and an IRA.
Okay. They're all about postponing the income taxes. It's about saving on a tax deferred basis for your retirement. So that's really what a 401k is. And an IRA is just a function of the tax code.
So distributions from your 401k are taxable, unless it's coming out of a Roth. So just know that is that you've postponed taxes your whole lifetime on the principal and the growth. And then if you're in a traditional IRA, or 401k, and then when you reach minimum distribution age 70 to 73 7475, you're going to have to start taking money out each year.
And it's really interesting that the government requires you to do that. And we're generally in favor of people starting to take out their money well before 73 simply because you want to smooth out the distributions over your lifetime. Because you don't want a big spike in your taxes and put you in a gigantic tax bracket.
So a lot of our practice is all about trying to help people in a smooth manner deal with the taxes in IRAs and 401ks and, you know, in pre tax money. And it just amazes me how much people have accumulated, and then how unwilling they are to take anything out of it. When, you know, I'm always asking people like, what's this money for? I mean, you saved all this money way to go. And you've avoided taxes to this point. What's the money for?
And it's really hard to pull out of people. It's for my retirement. I mean, people will come up with all kinds of things. What's for they say, well, I'm gonna give it to my kids, you know, and maybe I'm going to use it for long term care if that happens to me. And then if I don't, then I'm gonna just give it to my kids after I die. And that's not a very effective plan for your 401k IRA. I mean, if it's your plan, I'm not going to call it ineffective. I'm just going to challenge you a little bit that it might be better to do some planning and pay some of those taxes now while you're alive to stop your kids from having a huge tax burden on. So absolutely.
Yeah, that is the plan. Because, you know, I saw it, unfortunately, in my own case, you know, with my brothers and sisters that, you know, that was how my dad handled his IRA. And because of no tax planning, you know, I'm sure he would have appreciated if they were able to enjoy more of it. And there would have been things he could have done when he was younger. But again, I, unfortunately, I don't think there was a whole lot of understanding of Roth IRAs and things like that.
You know, when he was in his 70s. So I'm so thankful for this program, actually, because a lot of that structure is amazing at what it's going to help to people to finish well. People that are only taking merit minimum distributions, they're a married couple, they have a large IRA balance, a lot of them don't even think about the fact that one of them is going to die before the other. And then the survivor is going to be a single taxpayer, much higher tax brackets, and they're going to have the same minimum distribution. So this is a problem that we want to get ahead of.
Well, both of you are still living in the interest of the survivor and then the, you know, the next generation as well. So when we talk about the fifth worry, which is, you know, your income and investment, you know, and your income, Social Security is partially taxable. You control your IRA distribution, so you get to make the decision year to year of how much and what portion of your income is going to come out of your IRA. We try to help you with those decisions year by year in our planning, our financial planning, our tax planning.
We're a big proponent and when it makes sense for Roth IRA creation through conversions, depending on your age and your tax situation, that can give you a source of tax free income for a portion of your money. Interest and dividends are taxable if they're, you know, they're just whether you spend the money or not. So we want to plan them and we really want to plan spending that money because there's no point in paying tax on money that's accumulating.
Life insurance loans, which can be another source of income are tax free and building spending and income plans from the bottom up. We generally start with how much money do you need and want to live on in retirement. We come up with a monthly and an annual amount, and then we build the taxes on top of that. And the taxes are going to be dependent on what good of a job we do of planning and the timing of receipt of income. And the opposite of that is just saying, well, I need $100,000 a year to live in retirement and that's before taxes and I'm just assuming I'll pay 30% taxes. So we do it the other way. We start with the amount you need and then build the taxation on top of that. Right. I love the way that, you know, everything kind of, the whole plan is, it's got a, you know, a step by step. We do this and that allows us to do that, et cetera, et cetera, so that, you know, the building blocks are put together on a firm foundation.
Yeah. And really the sixth one that we haven't talked about yet is estate planning. And I already talked about the widow or widower tax, which is a single survival, survivor of a marriage. The one that lives the longest is going to pay tax at individual rates.
We need to plan for that. IRA and 401k are the least desirable asset to pass through your estate. I'd rather you give what's left of that to charity because they don't pay taxes and leave your other assets to your kids or a mix or leave your Roth IRA to your kids.
Capital assets get a step up in basis. So if you've held some land or some stock all the way for the whole of your life to your death, then, and you never sell it. You haven't paid tax on that gain and then neither will your inheritors.
They will get a step up in the basis to the amount on the day you died. So that's something we take into account in our planning and life insurance benefits, go tax freedom, most beneficiaries. So, you know, there's the income tax is a very relevant issue to estate planning. And it's like you said, is that people that are all focused on taxes in the beginning are really not looking at these other six things.
And they're the first things we're looking at. Then we're going to put together the tax plan. Number seven is the income taxes, which we've been avoiding talking about all along.
But in reality, we've talked about it through each one of the worries. And I think that the place here is I've got it on the video. If you go to YouTube, I've got actually the tax charts and the tax brackets. And I've just noticed when people are in my office looking at these, when I put this chart in front of them, they go immediately and study it for a minute and figure out what tax bracket they're in.
And that's exactly what I wanted the video viewers to do. Yeah, we've gone through the video and we've talked about each one of the seven worries individually and the tax implications. But I'm going to tell you that as soon as we start making decisions in one area, like Social Security, we start building up our tax free income source for when we're collecting Social Security. We do that through Roth IRA conversions.
Now we're driving up our taxable income in the present. This show is brought to you by CardinalGuide.com. And if you go to CardinalGuide.com, you know, you'll see the seven worries tabs, the seven, the worried tab on taxes is today's show.
And as Hans said, a wonderful video has those tax rates and all that stuff in that video, right along the same lines, there's lots of resources on taxes, as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. And of course, the all famous Contact Hans and Tom page, which is a way to get your custom plan, right? Because it's not a cookie cutter approach. But we want, you know, obviously you all to finish well. So thanks for listening.
Thank you 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 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 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, go to CardinalGuide.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 CardinalGuide.com. CardinalGuide.com.
