I am 76 years old and had to make most of those hard decisions that James is talking about. I had to learn a lot from watching various youtube video and subscribing to a lot of financial newsletters over the years. James is good at what he does and he explains it in simple, understandable terms. Great job James.
Age 62 now, I plan to apply for SS, then my 403B/IRA accounts, then Roth in that order. My father died at 60 and never enjoyed a dime of his savings, working hard all those years. We never know how much time we have. SS is supposed to be for my lifetime, and what's left from hubby's account.
Comprehensive video that pulls together all the aspects of income, taxes, provisional income, Roth conversions and Medicare surcharges that I am concerned about. Many financial planners are focused on growth of portfolio and seem to be less concerned with these things, which can end up being very costly to the portfolio.
Biggest lesson i learnt in 2023 in the stock market is that nobody knows what is going to happen next, so practice some humility and low a strategy with a long term edge.
One more point about tax deferred accounts, which may only be a consideration if the amount in tax deferred accounts is significant. If you are single and die early, your heirs will have to withdraw all the money in those accounts within 10 years, which means if they are still working, they have to add those withdrawals to their work income. That means the withdrawals could be taxed at a much higher rate than if the retiree were taking the withdrawals. For example, if there is $1 million in a traditional IRA and you die with one heir (a child) and your child makes $80,000 at their job, the child would need to take at least $100,000 out of the traditional IRA every year for 10 years to draw the account down to 0. This would push their taxable income to $180,000, some of which is taxed at much higher rates. I say at least because if the traditional IRA is invested and continues to earn, the child will have to take out more than $100,000 per year which means even more of it would be taxed at the higher rates. On the other hand, a Roth doesn’t have to be closed within 10 years and there are no required minimum distributions. So my strategy is to move a portion of my traditional IRA to my Roth every year to potentially lessen the tax burden on my two daughters.
@@Old_Sailor85Right? I'm raising my kids to be self-sufficient. Any money from me will be a pleasant bonus to them. You don't need generational wealth if you have self-generated wealth built off a solid childhood foundation
this information is invaluable. the manner in which you convey is precise, easy to understand. It gives good direction on how to think differently about this whole retirement strategy. Thank you so much! Love LOVE your content!!!
Well done. I have been using these strategies for years, This video confirmed I was right. You never know what life will throw at you. I have tended to us my IRA last because as I get older my medical bill increase. Going to a nursing home would really add a lot of tax deductions, almost guaranteeing that the IRA distributions would be taxed low or zero. That would leave more cash to cover my bills and reduce the impact on my wife or my heirs.
Great info. You explained in clear simple information. You should do a fee based zoom meeting per person so you can expand your business reach. Not that you need it but there are few people out there who explain it as well as you do. Nice job
Live off taxable accounts or cash in the early years of retirement, delay Social Security and do Roth Conversions to the maximum of the lowest possible bracket possible. For most that will be the top of the 12% bracket.
@@noureddineelalam75 Doing it for my wife as my benefit is larger than hers. Maybe I go early, but given how healthy my wife is, how well she eats, and how much she exercises, she'll probably live to 100!
Thank you, James. I hope to work until I am 70 and then collect Social Security, so what you said about income coming from non-retirement accounts was meaningful to me. Keep up the excellent work.
So very helpful! 5 years from an early retirement at 60. We are pretty much our example: 62,000 pension; 1/2 million in IRAs; & another 1/2 million in investment account. We'll supplement income with investment account while we convert IrA to Roth while ensuring we stay in that lowest tax bracket.
Taxes is why I plan to start withdrawing from my 401K up to my tax bracket in pre-retirement and put those funds in my ROTH or maybe my HSA. Have another couple of years to decide that. When I retire in 10 years, I won't have to worry about a big tax hit.
If someone has to rely upon their portfolio for 50% of their income, then you also have to disclose the volatile nature of that portfolio, and the likelihood that in some years they might not be able to withdraw the amount intended. Even conservative allocations ( mostly bonds or fixed income) are susceptible to interest rate risk, and might not yield enough to meet income needs, unless it's a sizeable amount.
Clear and concise. Hopefully RMD age will be increased as we are now living longer than ever before. ROTH investments are not guaranteed to be tax free, as the fed needs money, they will change the rules, they have already done so! For example, SS payments used to be tax free, not anymore!
It was two of JoJo Cabbage Brain Biden's votes to tax, then later increase the tax, on Social Security which is taken out of paychecks BEFORE taxes. You're right......They'll go after ROTHs next.
Taxing social security or really any retirement funds is just stupid. I mean the whole point of social security is to provide income for people in retirement and then you're going to turn around and tax it?
Great video. Next, you should do a video on what investments to pull from for the actual RMDs. During bad years, do we pull from bonds or income mutual funds or growth funds, etc to meet the demands of the RMD. I assume you would want to pull from your better performing funds or stocks for your RMD income.
This was a great piece of content. Super clear, straight forward to understand with great information and answers on where and why to pull funds from certain accounts. Thank you for this.
James, Good advice overall. You hinted at the onerous trade-off between immediate income today (from an investment portfolio) and taxes, and the trade-off between taxes and continued portfolio growth and longevity (while hopefully throwing off income). Keep up the good work!
Everyone needs to understand this. Deferred comp and roth accounts are tax benefit accounts on the front and back end. In draw you would use a calculated combination of taxable and tax exempt to retain the lowest possible tax rate.
Nice summary of the issues involved but at 9:15 you accidentally referred to a Roth IRA account as tax-deferred. Realize that taxation at any point is driven solely by spending. This "typical" example that "needs" a $100K/year income is nothing but a recipe for taxation on so many of the different levels that you mentioned from LTCG/QD, RMDs and higher medicare premiums not to mention the "Tax Torpedo" and the "Widow's Tax Trap". All of which can easily be sidestepped with a lower "need of money" and tax planning. Imagine how the entire situation changes when rather than trying to minimize taxes you don't settle for anything less than a complete elimination of both federal and state income taxes and because you're spending is low there's even "head room" in your income bracket to do Roth conversions slowly and under taxable limits. Honestly, with a paid off home and no other debt it's surprising how low spending goes and how income can easily be managed to remain tax free.
Between social security and 401k and investment accounts I'll have over $100k easily. I'm thinking i should start hitting up the 401k account first while delaying SS to 70 to help later tax wise with RMDs. Currently 66 yr old. Thoughts?
Hi I have listened to a few of your videos and find the advice very helpful planning for retirement. As a single person going from a twice a month paycheck to SS and a 401k, It’s all extremely overwhelming for me to say the least! I know I will have to change location since Cali living is unaffordable even before retirement! Help please for single people options. Thanks
Great video but you did forget about the standard deduction of at least $12,550 (2021) so you can actually go higher on pulling from your taxable accounts before you hit the 22% federal tax bracket because it’s only talking about your taxable income.
What you say is spot on regarding only taking from taxable income up to taxable income of $80,250. But as you know, there is the standard deduction (or itemized deductions) that are not included in taxable income. In 2021, the standard deduction for married filing jointly was $21,500, so the real limit isn't $80,250, but closer to $101,750, yes? I'm sure you left that out for simplicity & clarity in teaching purposes so that people understand the best way to pull from various sources of income and to belie the "pull from taxable accounts first" theory that isn't anywhere near as accurate as what you're saying. But there really is more leeway there. Great video, as are all of your videos. So much nonsense out there, but you break down the basic math very well for people.
I have a quarter million in I Bonds purchased from 2000 to 2004 that because of the high fixed rate offered back then are earning in excess of 11%. They will remain where they are until they mature.
I think he is assuming that one is spending the principal base investment, but if you have the right portfolio you are only spending some of the capital gains and dividends which you take as cash. One other problem I see is the lumpy nature of dividends and capital gains which are weighted toward the end of the year, I think the other challenge is leveling income from your investments over monthly, quarterly, semi annual and annual distributions. Also don’t forget muni bond interest is typically not taxable so you can use that instrument
I agree. I have a couple Vanguard mutual funds that have significant capital gains and any withdrawals would be at least 50% taxable. So this year (getting closer to retirement) I’m investing the dividends and capitals gains in a new fund. That way if I need to withdraw funds within the next few years the tax hit would be lower.
@@Binatasj Which is why no one should live in the Bay area and expect to retire comfortably. I moved to TN and the average income here is around $30 K. Being debt free I believe I can also live on this comfortably.
@@johnd4348 I totally agree with you, but it’s easier said than done. All my family and friends are in the Bay Area, and I’m not about to move unless they start moving somewhere else.
@@Binatasj Understood, I did not move until I could no longer afford to live were I was and my parents had passed away. All I can say is SAVE , all you can.
@@NachelBeerEducation Then they cant tax it again. But you can spend it and live off of it and reduce your tax libility going forward. If I have $500K in cash. and live off of $40 k a year I can live for over 10 years and pay little to no federal income taxes. In the meantime my IRA and 401K money grows tax deferded for 10 years By that time I can live off the income of the retirement accounts.
If you had 500k ten years ago and it was invested, you’d have been able to live on 40k a year and still have 500k. I agree having a decent cash cushion is important, but ten years’ worth is ridiculous.
Great job explaining. I almost decided to move to the next video because you look so young lol. However, you've explained the options better than the older dogs lol. Go James!
Semi retired at 59 1/2 so have had a few years to do further research. Have about $375,000 in traditional IRAs I plan to convert before age 72. We give about $10,000 a year to charities and have about $12,000 in property taxes. I was disappointed that our tax advisor never mentioned opening a Donor Advised Fund as another way to draw down our traditional IRAs. Putting $25,000 a year in our DAF and converting $25,000 a year to ROTH keeps us in 12% tax bracket and will easily have it all converted in time.
Excellent job explaining the many variables at play in retirement planning! This is one of the best videos I have seen on this subject! You have gained a new subscriber here! 👏🏼👏🏼👏🏼
The critical true north should be increasing net worth. Minimizing taxes is one strategy but there are times when it makes more sense to pay more taxes because of the relative improvement in gaining net worth. Doing an IRA to Roth conversion can be an example of that. Be careful what you measure!!!
In the 'Understanding Your taxable income" you don't seem to realize that you should add at least the standard deduction on top of the $80,250. You need to study up on tax laws.
What about qualified charitable distributions? What about calculating provisional income to see how much income tax you'll have to pay on your social security?
This is my fifth year after retirement. I’ve been following the 4% rule thing, but this isn’t really how hard I expected things to be. I still have about $460k outside funds in my IRA to invest in stocks. Pls how do I take advantage of the market turnaround?
great pointers overall. Thank you! Thinking about early retirement to mobilize and invest my (401)k funds accumulated over the years for two reasons: 1. Hope the self-managed investment return generate greater income than my current salary; 2. Give myself ample time to convert the traditional IRA in my 401k plan to Roth IRA before the RMD hits. Just wondered how much I could convert each year after retirement at age, say, 62, is there a amount like the maximum contribution of $26,000 i'm currently having? Thanks
Hi Bing, There's no IRS maximimum amount you can convert. Just keep in mind the more you convert the more you pay in taxes so just be mindful of what your tax bracket is when you're doing this.
Bing, also consider the dollar amount you will pay in taxes and what account you will use to pay those taxes and remember to pay estimated taxes, which you can do at the time of the conversion.
You never include the standard deduction which allows you to draw more down from your traditional IRA before you start jumping into the next tax bracket
If you want to help and educate people, use the median income! My hubby has worked for 38 years at the same company…never have even made $100,000 on a W2. You are using examples for a smaller population of retirees.
Is this a better definition of a taxable account? Already taxed money put into an individual account, a joint account or trust account. Any investment account that you have that isn't in some type of retirement account but any interest, capital gains, and/or dividends will become taxable.
I was planning on drawing from investments first (62 years old)so my SS is at it's highest when i start collecting that. (67-70years old). Good plan or not? Plan is to pull $50,000 a year...no where near $80,000.
Very informative. One question - With RMD age going up to age 73 and so number of years having to take out RMD (assuming you die by age 85) becoming lesser, how do you plan for taxes for you and your beneficiaries?
To be honest, it would help a lot if the federal government returned to not taxing social security income. This was the case prior to Reagan’s tax reforms. But I don’t see any present or future government returning to this policy because our country’s deficit is akin to that of a drunken sailor on shore leave. So let’s all prepare to be taxed to death in the future, hence the importance of this video’s content. It’s hard to remain optimistic when facing these kinds of prospects. Nothing worse than a government that takes your hard earned money to then give it away recklessly.
Does money used for an Anuitiy count as income if money is from an IRA? IN the Obamacare subsidies calculation? Wud a $100K annuitie purchase Not the income from it count as income?
> When you read articles about financial freedom, you may hear people talk over and over again about how they spend next to nothing to be able to retire at a younger age like 30. Instead, they may have already achieved financial freedom and boast about how frugal they were in order to retire well before the typical retirement age.
At 10:00: If you have a significant brokerage account for example. So, an after-tax account, you could potentially keep your tax bracket very low. . . . Is the above, correct? Am I wrong in the statement below replacing "So, an after-tax account . . . "? The brokerage account is funded with already taxed money and any interest, capital gains, and/or dividends will become taxable. So, depending, you could be in a higher tax bracket from incurring any or all of these 3. I guess we can say it is an edge case?
I'm 62 and I have a ways to go, but when you brought up IRMAA surcharges I lost it. For God's sake....! first....NOBODY teaches you this CRAP! O.M.G.! and what do people do when they're half crocked and clueless when they get older???? Lord have mercy. I'm so damn proud of myself for staying healthy and educating myself on all things MONEY FINANCE & RETIREMENT~! F-ing government and their F-ing taxes...that's all I got to say. James.....YOU ARE A GODSEND~! and so it youtube....❗❗❗❗❗❗❗
When totaling "fixed income" wouldn't RMD's be counted like social security if you are 72 years old or more? That total would then be subtracted from your desired yearly total that would be pulled from investment accounts.
You could do it that way, but unlike social security your RMDs could go down if your portfolio value drops by a certain amount. So you can’t guarantee any specific amount from RMDs each year.
Hi James, can you please clarify / address taking money from a taxable / individual account which requires selling a stock and incurring a long-term capital gain (on a long held ETF like the S&P index) which may keep ones effective tax bracket lower than taking money from a pre-tax retirement account, but increases taxes over taking money from a Roth. How does one weigh the choice of realizing a capital gain in a taxable account vs the value of maximizing a Roth both for ones own lifetime vs for their heir's benefit?
Am a recent widow-world is upside down.Always filly married filing jointly.Any suggestions because tax will go through roof.I am lost without my loved one.
I have a SIMPLE account I’m contributing to. I also have Roth IRAs. Can I take money from my taxable investment account and transfer it to my Roth IRA?
Can’t believe he didn’t comment on fed standard or itemized deduction when considering amounts to withdraw from tax deferred funds to fill out the bracket
Something I've never heard in a YT video that I want someone to say is that there are 2 triple tax advantaged accounts (up to the standard deduction at least). HSA which everyone talks about Also traditional IRA and 401K can get contributions tax free, grow tax free, and be distributed tax free up to your standard deduction. Infinitely more efficient than Roth! (Not figuratively, literally infinity in the true mathematical sense) Granted it's only at lower amounts but you always want to have *some* traditional funds to pull from
Nice video ! I’m looking for a fiduciary advisor in California so I can meet in person. I’ve watched ur videos n subscribed. Planning to retire in 2-4 years…
Thank you! I’m a fiduciary advisor in San Diego, CA. If you’re in the area I’d be happy to help. Feel free to schedule a meeting from our website - www.rootfinancialpartners.com
The income thresholds for married filing separately are lower than the married tax brackets, so this wouldn’t help at all in most situations, unfortunately.
Hi Mary, Yes, there are so many potential variables with this that there are times when that could make sense, but for many people letting their Roth IRAs grow as long as possible is a good start.
I may have to draw from my Roth account at age 64 in order to qualify for the Obamacare subsidies. I really, really don't want to, but it may be my best option, as the subsidies are significant. I'm 60 & retired now.
Really - ? let’s assume you have a pension and social security ? Practically no one has a defined benefit plan any more and what about the millions of people retiring before full retirement age for SS ? Man if I could tap a pension and SS I’ve solved my retirement problem probably 90 percent of the time!
Not completely, my hubby was a federal employee, between SS and pension, he takes home about 3k. Thank goodness, I also worked and have my own $. 3k a month is not alot for NYC and just about covered it, but only because we own our apartment. Tip to all the ladies, have your own $.
This IRMAA “tax” is the biggest ripoff of all. It only happens after age 65. You can be frugal your whole life, and save, but the government comes in and places this enormous penalty tax on you almost as if you’re paying the medical bills for five dirt bag, drug addicted, $10,000 a year income people who never saved a dollar in their lives. The IRMAA tax is so high, it’s equivalent to a car payment for a Mercedes, every month, and whoosh, you owe it every month.
I will be eligible for ss benefit in 2024. I have gone overseas and stopped contributing for 5 years. I have not collected any stimulus check since then. Wondering if the COLA increases over the years will be padded on my account when I start collecting in 2024. Please advice. (Still abroad and planning to return to the US in 2024). ❤️❤️❤️
Good advice. What if your wife is much younger than you? Should you defer IRA then so it can grow and may get transferred to your spouse after you die?
I am 76 years old and had to make most of those hard decisions that James is talking about. I had to learn a lot from watching various youtube video and subscribing to a lot of financial newsletters over the years. James is good at what he does and he explains it in simple, understandable terms. Great job James.
Thanks Gil!
My sentiments exactly...I have limited brain cell capacity and James makes it easy to understand.
Age 62 now, I plan to apply for SS, then my 403B/IRA accounts, then Roth in that order.
My father died at 60 and never enjoyed a dime of his savings, working hard all those years. We never know how much time we have. SS is supposed to be for my lifetime, and what's left from hubby's account.
That's exactly right. We can plan all we want, but we really never know.
This is the best representation of the variables facing imminent retirees that I havd seen. Quite comprehensive. Thank you.
Comprehensive video that pulls together all the aspects of income, taxes, provisional income, Roth conversions and Medicare surcharges that I am concerned about. Many financial planners are focused on growth of portfolio and seem to be less concerned with these things, which can end up being very costly to the portfolio.
Biggest lesson i learnt in 2023 in the stock market is that nobody knows what is going to happen next, so practice some humility and low a strategy with a long term edge.
One more point about tax deferred accounts, which may only be a consideration if the amount in tax deferred accounts is significant. If you are single and die early, your heirs will have to withdraw all the money in those accounts within 10 years, which means if they are still working, they have to add those withdrawals to their work income. That means the withdrawals could be taxed at a much higher rate than if the retiree were taking the withdrawals. For example, if there is $1 million in a traditional IRA and you die with one heir (a child) and your child makes $80,000 at their job, the child would need to take at least $100,000 out of the traditional IRA every year for 10 years to draw the account down to 0. This would push their taxable income to $180,000, some of which is taxed at much higher rates. I say at least because if the traditional IRA is invested and continues to earn, the child will have to take out more than $100,000 per year which means even more of it would be taxed at the higher rates. On the other hand, a Roth doesn’t have to be closed within 10 years and there are no required minimum distributions. So my strategy is to move a portion of my traditional IRA to my Roth every year to potentially lessen the tax burden on my two daughters.
Good point.
Find the fountain of youth.
Like I care what taxes my heirs need to pay. I saved that money for my wife and myself. They can have what's left, if anything.
@@Old_Sailor85Right? I'm raising my kids to be self-sufficient. Any money from me will be a pleasant bonus to them. You don't need generational wealth if you have self-generated wealth built off a solid childhood foundation
Wealthy families stay wealthy because they plan ahead.
this information is invaluable. the manner in which you convey is precise, easy to understand. It gives good direction on how to think differently about this whole retirement strategy. Thank you so much! Love LOVE your content!!!
Well done. I have been using these strategies for years, This video confirmed I was right. You never know what life will throw at you. I have tended to us my IRA last because as I get older my medical bill increase. Going to a nursing home would really add a lot of tax deductions, almost guaranteeing that the IRA distributions would be taxed low or zero. That would leave more cash to cover my bills and reduce the impact on my wife or my heirs.
Great info. You explained in clear simple information. You should do a fee based zoom meeting per person so you can expand your business reach. Not that you need it but there are few people out there who explain it as well as you do. Nice job
Live off taxable accounts or cash in the early years of retirement, delay Social Security and do Roth Conversions to the maximum of the lowest possible bracket possible. For most that will be the top of the 12% bracket.
Spot on and ACA credits to reduce HC costs
Doing exactly the same and I'm retiring early at 56.
Be careful. You may not see much of your ss income. If you don't use it, you lose it.
@@noureddineelalam75 Doing it for my wife as my benefit is larger than hers. Maybe I go early, but given how healthy my wife is, how well she eats, and how much she exercises, she'll probably live to 100!
@@dancasey9660 You are a good man. I didn't think of the spouse expecting less, and is perhaps younger. Good luck!
Thank you, James. I hope to work until I am 70 and then collect Social Security, so what you said about income coming from non-retirement accounts was meaningful to me. Keep up the excellent work.
Thank you!
So very helpful! 5 years from an early retirement at 60. We are pretty much our example: 62,000 pension; 1/2 million in IRAs; & another 1/2 million in investment account. We'll supplement income with investment account while we convert IrA to Roth while ensuring we stay in that lowest tax bracket.
Taxes is why I plan to start withdrawing from my 401K up to my tax bracket in pre-retirement and put those funds in my ROTH or maybe my HSA. Have another couple of years to decide that. When I retire in 10 years, I won't have to worry about a big tax hit.
If someone has to rely upon their portfolio for 50% of their income, then you also have to disclose the volatile nature of that portfolio, and the likelihood that in some years they might not be able to withdraw the amount intended. Even conservative allocations ( mostly bonds or fixed income) are susceptible to interest rate risk, and might not yield enough to meet income needs, unless it's a sizeable amount.
Clear and concise. Hopefully RMD age will be increased as we are now living longer than ever before. ROTH investments are not guaranteed to be tax free, as the fed needs money, they will change the rules, they have already done so! For example, SS payments used to be tax free, not anymore!
It was two of JoJo Cabbage Brain Biden's votes to tax, then later increase the tax, on Social Security which is taken out of paychecks BEFORE taxes.
You're right......They'll go after ROTHs next.
Government thieves
The fact that you have to jump through so many hoops to keep what is rightfully yours should be illegal.
Agreed
Taxing social security or really any retirement funds is just stupid. I mean the whole point of social security is to provide income for people in retirement and then you're going to turn around and tax it?
@@user-ty2uz4gb7vmost people who really need it aren’t taxed on it
@@user-ty2uz4gb7v would be different if the non taxable amount increased with inflation.
Great video. Next, you should do a video on what investments to pull from for the actual RMDs. During bad years, do we pull from bonds or income mutual funds or growth funds, etc to meet the demands of the RMD. I assume you would want to pull from your better performing funds or stocks for your RMD income.
This was a great piece of content. Super clear, straight forward to understand with great information and answers on where and why to pull funds from certain accounts. Thank you for this.
💯 Great Advice 🥂
James,
Good advice overall. You hinted at the onerous trade-off between immediate income today (from an investment portfolio) and taxes, and the trade-off between taxes and continued portfolio growth and longevity (while hopefully throwing off income). Keep up the good work!
Thanks, Gregory!
Everyone needs to understand this. Deferred comp and roth accounts are tax benefit accounts on the front and back end. In draw you would use a calculated combination of taxable and tax exempt to retain the lowest possible tax rate.
Nice summary of the issues involved but at 9:15 you accidentally referred to a Roth IRA account as tax-deferred.
Realize that taxation at any point is driven solely by spending. This "typical" example that "needs" a $100K/year income is nothing but a recipe for taxation on so many of the different levels that you mentioned from LTCG/QD, RMDs and higher medicare premiums not to mention the "Tax Torpedo" and the "Widow's Tax Trap". All of which can easily be sidestepped with a lower "need of money" and tax planning.
Imagine how the entire situation changes when rather than trying to minimize taxes you don't settle for anything less than a complete elimination of both federal and state income taxes and because you're spending is low there's even "head room" in your income bracket to do Roth conversions slowly and under taxable limits. Honestly, with a paid off home and no other debt it's surprising how low spending goes and how income can easily be managed to remain tax free.
This is an excellent presentation with good information. Well done, sir.
Thank you
The best retirement videos I have come across. Thank you.
Thank you!
Between social security and 401k and investment accounts I'll have over $100k easily. I'm thinking i should start hitting up the 401k account first while delaying SS to 70 to help later tax wise with RMDs. Currently 66 yr old. Thoughts?
I'd say yes.
Hi I have listened to a few of your videos and find the advice very helpful planning for retirement. As a single person going from a twice a month paycheck to SS and a 401k, It’s all extremely overwhelming for me to say the least! I know I will have to change location since Cali living is unaffordable even before retirement! Help please for single people options. Thanks
Great video but you did forget about the standard deduction of at least $12,550 (2021) so you can actually go higher on pulling from your taxable accounts before you hit the 22% federal tax bracket because it’s only talking about your taxable income.
The example was for a MFJ couple, so the Standard Deduction would be $25,100.
What you say is spot on regarding only taking from taxable income up to taxable income of $80,250. But as you know, there is the standard deduction (or itemized deductions) that are not included in taxable income. In 2021, the standard deduction for married filing jointly was $21,500, so the real limit isn't $80,250, but closer to $101,750, yes?
I'm sure you left that out for simplicity & clarity in teaching purposes so that people understand the best way to pull from various sources of income and to belie the "pull from taxable accounts first" theory that isn't anywhere near as accurate as what you're saying. But there really is more leeway there.
Great video, as are all of your videos. So much nonsense out there, but you break down the basic math very well for people.
What a great video with what many retirees are facing. The detail was fantastic so thank you so much!
I have a quarter million in I Bonds purchased from 2000 to 2004 that because of the high fixed rate offered back then are earning in excess of 11%. They will remain where they are until they mature.
I think he is assuming that one is spending the principal base investment, but if you have the right portfolio you are only spending some of the capital gains and dividends which you take as cash. One other problem I see is the lumpy nature of dividends and capital gains which are weighted toward the end of the year, I think the other challenge is leveling income from your investments over monthly, quarterly, semi annual and annual distributions. Also don’t forget muni bond interest is typically not taxable so you can use that instrument
I agree. I have a couple Vanguard mutual funds that have significant capital gains and any withdrawals would be at least 50% taxable. So this year (getting closer to retirement) I’m investing the dividends and capitals gains in a new fund. That way if I need to withdraw funds within the next few years the tax hit would be lower.
I would like to know the percentage of people retiring who plan live on 100 K a year. Most people don't even make 100 K while working.
I’m not sure the exact percentage. I just use it since it’s a round number and makes it simple to do the math in my head!
If you live in the Bay Area, $100K/yr may not be enough specifically if you still have mortgage to pay on top of health care cost.
@@Binatasj Which is why no one should live in the Bay area and expect to retire comfortably. I moved to TN and the average income here is around $30 K. Being debt free I believe I can also live on this comfortably.
@@johnd4348 I totally agree with you, but it’s easier said than done. All my family and friends are in the Bay Area, and I’m not about to move unless they start moving somewhere else.
@@Binatasj Understood, I did not move until I could no longer afford to live were I was and my parents had passed away. All I can say is SAVE , all you can.
Thanks for this clear and concise explanation.
You’re welcome!
Best explanation ever!
Thank you! Good information.
Great Video! Very helpful & educational. Thank you for doing this.
4th account is CASH. If you have cash and live on that . CASH is not taxed.
Cash was already taxed (if accumulated legally)
@@NachelBeerEducation Then they cant tax it again. But you can spend it and live off of it and reduce your tax libility going forward. If I have $500K in cash. and live off of $40 k a year I can live for over 10 years and pay little to no federal income taxes. In the meantime my IRA and 401K money grows tax deferded for 10 years By that time I can live off the income of the retirement accounts.
@@johnd4348 I agree, we just have to hope inflation stays low👍🏻
If you had 500k ten years ago and it was invested, you’d have been able to live on 40k a year and still have 500k. I agree having a decent cash cushion is important, but ten years’ worth is ridiculous.
Great Information!!! New Subscriber!!!!
Great job explaining. I almost decided to move to the next video because you look so young lol. However, you've explained the options better than the older dogs lol. Go James!
Glad you stayed to watch!
Semi retired at 59 1/2 so have had a few years to do further research. Have about $375,000 in traditional IRAs I plan to convert before age 72. We give about $10,000 a year to charities and have about $12,000 in property taxes. I was disappointed that our tax advisor never mentioned opening a Donor Advised Fund as another way to draw down our traditional IRAs. Putting $25,000 a year in our DAF and converting $25,000 a year to ROTH keeps us in 12% tax bracket and will easily have it all converted in time.
Excellent video. Thank you.
You are welcome!
Great explanation! This is a topic that needs plenty of attention to reduce tax burden in retirement. New subscriber!
Thus is great information. Thanks. I was just about to make the mistake of withdrawing from my one Roth account
EXCELLENT video!
Excellent job explaining the many variables at play in retirement planning! This is one of the best videos I have seen on this subject! You have gained a new subscriber here! 👏🏼👏🏼👏🏼
Thank you!!
The critical true north should be increasing net worth. Minimizing taxes is one strategy but there are times when it makes more sense to pay more taxes because of the relative improvement in gaining net worth. Doing an IRA to Roth conversion can be an example of that. Be careful what you measure!!!
Great video 🎉 Very informative. Thank you for the hard work ❤
2k subs! Congratulations! Well deserved.
Thank you!
I loved this video.. you explained it excellently
Awesome information, James. Thank you!
You’re welcome!
Very helpful information in a simple language.
Glad it was helpful!
In the 'Understanding Your taxable income" you don't seem to realize that you should add at least the standard deduction on top of the $80,250. You need to study up on tax laws.
What about qualified charitable distributions? What about calculating provisional income to see how much income tax you'll have to pay on your social security?
This is my fifth year after retirement. I’ve been following the 4% rule thing, but this isn’t really how hard I expected things to be. I still have about $460k outside funds in my IRA to invest in stocks. Pls how do I take advantage of the market turnaround?
Great advice!
Thanks James! Well done!
Thanks Dan!
I plan on living on 25 K per year. 30 K if I travel. I'm debt free
Awesome!
Explained very well!
great pointers overall. Thank you! Thinking about early retirement to mobilize and invest my (401)k funds accumulated over the years for two reasons: 1. Hope the self-managed investment return generate greater income than my current salary; 2. Give myself ample time to convert the traditional IRA in my 401k plan to Roth IRA before the RMD hits. Just wondered how much I could convert each year after retirement at age, say, 62, is there a amount like the maximum contribution of $26,000 i'm currently having? Thanks
Hi Bing,
There's no IRS maximimum amount you can convert. Just keep in mind the more you convert the more you pay in taxes so just be mindful of what your tax bracket is when you're doing this.
Bing, also consider the dollar amount you will pay in taxes and what account you will use to pay those taxes and remember to pay estimated taxes, which you can do at the time of the conversion.
Good information to follow !!!!!!👌
Great info , thanks
excellent video, thank you
Thanks James!
Awesome! Great presentation!
Thank you, Bruce!
You never include the standard deduction which allows you to draw more down from your traditional IRA before you start jumping into the next tax bracket
Good points James, i learned a lot
I'm glad to hear that, Leo!
Very helpful!
I'm glad to hear it!
If you want to help and educate people, use the median income! My hubby has worked for 38 years at the same company…never have even made $100,000 on a W2. You are using examples for a smaller population of retirees.
Hi Traci, thanks for the feedback. I try to use round numbers for simplicity, but I’ll look to do examples with other numbers too.
Great information
Thank you!
Is this a better definition of a taxable account? Already taxed money put into an individual account, a joint account or trust account. Any investment account that you have that isn't in some type of retirement account but any interest, capital gains, and/or dividends will become taxable.
I was planning on drawing from investments first (62 years old)so my SS is at it's highest when i start collecting that. (67-70years old). Good plan or not? Plan is to pull $50,000 a year...no where near $80,000.
I would like to know if it advantageous to be in a married status at retirement ?
Very informative. One question - With RMD age going up to age 73 and so number of years having to take out RMD (assuming you die by age 85) becoming lesser, how do you plan for taxes for you and your beneficiaries?
To be honest, it would help a lot if the federal government returned to not taxing social security income. This was the case prior to Reagan’s tax reforms. But I don’t see any present or future government returning to this policy because our country’s deficit is akin to that of a drunken sailor on shore leave. So let’s all prepare to be taxed to death in the future, hence the importance of this video’s content. It’s hard to remain optimistic when facing these kinds of prospects. Nothing worse than a government that takes your hard earned money to then give it away recklessly.
Can you do this video over and speak to it from a 2024-2025 view? Pretty please.
Does money used for an Anuitiy count as income if money is from an IRA? IN the Obamacare subsidies calculation? Wud a $100K annuitie purchase Not the income from it count as income?
wow, this nailed my situation almost to a tee
Great! I’m glad it was helpful.
Very nice video. Definitely helps in getting to the full picture.
Thanks
Glad it was helpful!
Very good video
Thank you
> When you read articles about financial freedom, you may hear people talk over and over again about how they spend next to nothing to be able to retire at a younger age like 30. Instead, they may have already achieved financial freedom and boast about how frugal they were in order to retire well before the typical retirement age.
some really good info
Glad it was helpful!
$83,550 MFJ for 2022 filings to stay in 12% bracket. Great info, thanks
At 10:00:
If you have a significant brokerage account for example. So, an after-tax account, you could potentially keep your tax bracket very low. . . .
Is the above, correct? Am I wrong in the statement below replacing "So, an after-tax account . . . "?
The brokerage account is funded with already taxed money and any interest, capital gains, and/or dividends will become taxable. So, depending, you could be in a higher tax bracket from
incurring any or all of these 3. I guess we can say it is an edge case?
I'm 62 and I have a ways to go, but when you brought up IRMAA surcharges I lost it. For God's sake....! first....NOBODY teaches you this CRAP! O.M.G.! and what do people do when they're half crocked and clueless when they get older???? Lord have mercy. I'm so damn proud of myself for staying healthy and educating myself on all things MONEY FINANCE & RETIREMENT~! F-ing government and their F-ing taxes...that's all I got to say. James.....YOU ARE A GODSEND~! and so it youtube....❗❗❗❗❗❗❗
When totaling "fixed income" wouldn't RMD's be counted like social security if you are 72 years old or more? That total would then be subtracted from your desired yearly total that would be pulled from investment accounts.
You could do it that way, but unlike social security your RMDs could go down if your portfolio value drops by a certain amount. So you can’t guarantee any specific amount from RMDs each year.
Hi James, can you please clarify / address taking money from a taxable / individual account which requires selling a stock and incurring a long-term capital gain (on a long held ETF like the S&P index) which may keep ones effective tax bracket lower than taking money from a pre-tax retirement account, but increases taxes over taking money from a Roth. How does one weigh the choice of realizing a capital gain in a taxable account vs the value of maximizing a Roth both for ones own lifetime vs for their heir's benefit?
Am a recent widow-world is upside down.Always filly married filing jointly.Any suggestions because tax will go through roof.I am lost without my loved one.
I have a SIMPLE account I’m contributing to. I also have Roth IRAs. Can I take money from my taxable investment account and transfer it to my Roth IRA?
You never mention RMD’s which have to be taken.
Can’t believe he didn’t comment on fed standard or itemized deduction when considering amounts to withdraw from tax deferred funds to fill out the bracket
Something I've never heard in a YT video that I want someone to say is that there are 2 triple tax advantaged accounts (up to the standard deduction at least). HSA which everyone talks about
Also traditional IRA and 401K can get contributions tax free, grow tax free, and be distributed tax free up to your standard deduction. Infinitely more efficient than Roth! (Not figuratively, literally infinity in the true mathematical sense) Granted it's only at lower amounts but you always want to have *some* traditional funds to pull from
Nice video ! I’m looking for a fiduciary advisor in California so I can meet in person. I’ve watched ur videos n subscribed. Planning to retire in 2-4 years…
Thank you! I’m a fiduciary advisor in San Diego, CA. If you’re in the area I’d be happy to help. Feel free to schedule a meeting from our website - www.rootfinancialpartners.com
Awesome
Thank you!
That tax jump over 80K is huge. Can that be mitigated for a married couple by filing separately?
The income thresholds for married filing separately are lower than the married tax brackets, so this wouldn’t help at all in most situations, unfortunately.
James, is there any situation in which you think it makes sense to draw first from Roth accounts in retirement?
Hi Mary,
Yes, there are so many potential variables with this that there are times when that could make sense, but for many people letting their Roth IRAs grow as long as possible is a good start.
I may have to draw from my Roth account at age 64 in order to qualify for the Obamacare subsidies. I really, really don't want to, but it may be my best option, as the subsidies are significant. I'm 60 & retired now.
What about standard deduction?
Really - ? let’s assume you have a pension and social security ? Practically no one has a defined benefit plan any more and what about the millions of people retiring before full retirement age for SS ? Man if I could tap a pension and SS I’ve solved my retirement problem probably 90 percent of the time!
Not completely, my hubby was a federal employee, between SS and pension, he takes home about 3k. Thank goodness, I also worked and have my own $. 3k a month is not alot for NYC and just about covered it, but only because we own our apartment. Tip to all the ladies, have your own $.
This IRMAA “tax” is the biggest ripoff of all. It only happens after age 65. You can be frugal your whole life, and save, but the government comes in and places this enormous penalty tax on you almost as if you’re paying the medical bills for five dirt bag, drug addicted, $10,000 a year income people who never saved a dollar in their lives. The IRMAA tax is so high, it’s equivalent to a car payment for a Mercedes, every month, and whoosh, you owe it every month.
Can Universal Life insurance reduce income taxes in retirement?
I’m retiring next month. And I’m a bit nervous on how to keep up with my kids.
You got this!
I will be eligible for ss benefit in 2024.
I have gone overseas and stopped contributing for 5 years. I have not collected any stimulus check since then.
Wondering if the COLA increases over the years will be padded on my account when I start collecting in 2024.
Please advice.
(Still abroad and planning to return to the US in 2024).
❤️❤️❤️
Good advice. What if your wife is much younger than you? Should you defer IRA then so it can grow and may get transferred to your spouse after you die?