The 3 Big Tax Mistakes EVERY Retiree Makes (Real World Examples)
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- เผยแพร่เมื่อ 6 มิ.ย. 2024
- You've worked tirelessly your whole life, diligently saving for retirement. Every time you hear someone discuss tax strategies, you get excited, only to realize they mainly apply to business owners and real estate investors. But here's the thing: even in retirement, there are plenty of tax planning opportunities that can save you a significant amount of money. Oftentimes, retirees don’t take advantage of these strategies and instead make big mistakes with their taxes. Today, James explores three common tax planning mistakes retirees make and shows you how to avoid them.
➡️ Tax Gain Harvesting
Tax gain harvesting is a powerful strategy that many retirees overlook. It involves taking advantage of the varying tax brackets for capital gains. The bottom tax bracket for long-term capital gains is 0%, meaning if your income falls below a certain threshold, you pay no taxes on these gains. The key is understanding the tax thresholds and using them to your advantage. By doing so, you can create a tax-efficient retirement income strategy that minimizes your tax liability.
➡️ Social Security Tax Torpedo
Many retirees are unaware of the Social Security Tax Torpedo, which can significantly impact your tax liability. Social Security taxation is based on provisional income; as your income increases, more of your Social Security benefits become taxable. To avoid this tax torpedo, it's crucial to plan your retirement income sources carefully. Understanding which income streams are included in provisional income and how to optimize them can help you minimize the taxes on your Social Security benefits.
➡️ Roth Conversions
Retirees often struggle to strike the right balance when converting traditional IRAs to Roth IRAs. The goal is to convert enough to optimize your taxes without overpaying. Under-conversion can leave you with a higher tax bill in the future, while over-conversion can lead to unnecessary upfront taxes. To find the sweet spot, project your future tax brackets, consider your other income sources, and adjust your Roth conversions accordingly.
Maximizing your retirement income through smart tax planning is essential to ensure you keep more of your hard-earned savings. By avoiding these common tax mistakes and being strategic with your retirement income sources, you can enjoy a more comfortable and tax-efficient retirement.
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⏱Timestamps:⏱
0:00 Intro
1:19 Tax harvesting
5:16 Example
8:07 Social Security tax torpedo
10:59 Example
13:27 Roth conversions
14:21 Example
19:23 Outro
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i’m a smart retired engineer and i spend hours with spreadsheets trying to dial this in every year. 90% of people aren’t smart enough to do that. it shouldn’t be this hard. our tax system is a pain in the ass.
I’m pretty good with financial spreadsheets, but I let Fidelity run the numbers for me on this stuff. Takes seconds. ;)
It's not that hard - unless you have too many assets in IRA's - then it's just a matter of keeping RMD's from becoming a tax bomb. He also doesn't mention the "means testing" of Medicare - which you must consider. The other issue not mentioned - there is NOTHING you can do about taxes in your taxable account with regards to regular income, i.e. dividends and interest. Those taxes must be paid regardless of whether you take the money out to spend.
Exactly. There is a whole set of industries created to deal with a problem which should not exist in the first place. Set all of these people to growing cheap health food instead.
@shawnbrennan7526 Could you please tell me how to do that?
The hardest part of monitoring spreadsheets is getting your initial formulas set up. Once you have your formulas you can manipulate your numbers to determine your next move or whether to do anything this year. I download the tax tables each year, set up formulas then decide how much to withdraw to keep our numbers within our target tax range.
Great info. I just retired in 2023 at age 67 and my wife is 6 years younger, so she's still working. With the standard deduction our AGI is a fair bit below the 22% threshold, so we use our end-of-year estimated tax to find the magic number we can convert from IRA to Roth and stay in the 12% bracket. With my wife working, we'll never avoid social security being taxable. But we believe we can convert about 1/3 of our traditional IRA to Roth over the next 7 years @ 12%. It's important for us to convert as much as possible because odds are that my wife will outlive me, possibly by more than 2 decades, and once I check out she'll be filing her taxes as a single person, so her 22% threshold becomes much lower and those RMDs get expensive!
This video taught me important stuff about taxes when you retire. It showed me how to avoid common mistakes. I liked how they used easy examples to explain complex ideas. Understanding tax gain harvesting, being careful with Social Security taxes, and not converting too much into Roth accounts can save you lots of money in the long run.
Thanks for sharing this helpful info!
Great video. One thing to note is that Congress, in their infinite wisdom, did not index the Social Security provisional income thresholds to inflation when they were instituted 40 years ago. This means that a greater proportion of Social Security recipients get hit by the “torpedo” every year. That $25,000 threshold in 1983 is equivalent to almost $80K today. Hence, back then very few retirees had to pay taxes on their Social Security income, while nowadays most probably do… and as the years go by this becomes worse and worse due to the fixed nature of the thresholds.
True. A huge oversight (on purpose).
The SSI torpedo was no accident.
Yes, truly intentional. At the time, SS was broken, so the govt determined a way to fund SS with so many baby-boomers getting closer to retirement.
@@karmennash7479
Blame Ronald Reagan, who robbed SS and made it taxable income.
What a clear and succinct communicator you are. Have seen this topic covered in many retirement tax videos, but yours pulled the info together in a comprehensible way. Thank you. Subscribed.
Best video that walks through the scenarios instead of just rambling without a detailed analysis.
Great job, thank you. I had stumbled across all of these tax issues before but have not seen them laid out as well as this.
Your videos are always informative. Can you please do a video on how to take advantage of tax gain harvesting, Roth conversion and ACA subsidy? Thanks!
Excellent video!!! Your descriptions and demonstrations are always so clear. Thank you! Thank you! Thank you!!!
This was really informative with useful examples. I hope you plan to revisit this topic every year, or when substantial changes affect post-retirement tax planning. Thank you!
Here's an idea - since we already paid taxes once on our earnings, how about none of our Social Security income gets taxed again? Perhaps Congress should erase any Federal tax liability from any future Social Security earnings, or even just raise the taxable limit so that Seniors could get most, if not all, of their retirement money tax free? IRAs, pension, etc. would be taxed, but not Social Security.
Social Security income was not taxed until the 1980s. Then Congress changed the rules. There are various suggestions within Congress about how Roth accounts might become taxed or have RMDs in the future.
That makes too much sense. Since Social Security was entirely designed to provide average citizens, who do not make enough money to set aside much in retirement savings, to be able to avoid retiring absolutely desitute, which is what 90% of Americans did before Social Security was created. Reducing those crucial funds by taxing them is entirely counter-productive. Who wants to tax Social Security? The same people who reduce IRS funding and focus that funding on scouring the use of Earned Income Tax Credits by the poor rather than the ridiculously complex schemes used by the rich, which are incredibly effective at hiding and evading taxes. These high-end specialists are more expensive accounants, though they still get paid much less than they do in industry. Because of round after round of IRS funding cuts, there are far too few high-end analysts. The returns of most wealthy people aren't reviewed at all. Instead, the poor are examined for fraud, and Social Security is taxed...
There is a bill out there that would do just that but it also means they would add a income tax of income over 250K. You know the rich will not go for that.
@@izzytoons So sad.
The employer contribution of 50% of SS withholding is not taxed. Since it is effectively a deferred wage it should be taxed. The 85% doesn't matter to people who live just on social security, and was intended to make SS more progressive without changing the factors which go into the primary insurance amount. That part was sneaky, but was an attempt to keep all wage earners invested in social security, which has been a core principle from the beginning.
Exactly what I was looking for. Explained beautifully. Clear and concise. Thank you. You got a new subscriber today :-)
James you out did yourself today! A triple treat of 3 concise and uber important topics in just one video. You are an outstanding citizen! Best Regards Rich
Thank you, Rich! I’m glad you liked it.
@@RootFP Excellent, perhaps some examples for same sex married folks (Bob & John, Sarah & Linda). Same examples, just change the names.
I retired from 35 yrs financial services and am looking for software similar to what your using for on what ifs on income planning and withdrawals. I really enjoy your details on planning. Any suggestions on software you’ve looked at?
@@larryjones9773 Larry, I'm sorry to be a pain, but you should make your own videos if you want to do that.
@RobBenshoff-ui8rj try newretirement software.
Great video. Regarding Roth conversions, I think the sweet spot is the years between retirement; say 65 and start of Social Security at 70. You also need to consider the changes in the tax rates after 2025. The other consideration, if you are lucky enough to not worrying about outliving your portfolio, is to pay lower taxes while living rather than leaving large taxable IRAs to you heirs while they are likely in their maximum tax bracket years. Your gross estate may be smaller but your after tax estate will be larger for your heirs.
Exactly - do you want to risk driving your kids into higher tax brackets due to them having to withdraw 100% of your traditional IRAs within 10 years?
And while good retirement planning software takes into consideration the higher taxes of a surviving spouse now filing single… and encouraging you to convert more taxable retirement account funds into Roth IRAs… if that surviving spouse is less sophisticated, financially, there can be a nice peace of mind simplification to mostly removing tax complexities for them. You make life simpler for them.
Stop saying "lucky enough" when it comes to having money. Unless we're talking about old money no one is "lucky enough". They made good decisions throughout their entire life to have that money. Everyone needs a little luck. Kids get cancer. Planes crash. But an adequate financial portfolio that wasn't inherited is mostly good decisions and discipline.
Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.
Exactly, our (R) and (D)... which should be (E) for Enemy of the People - are going to let the tax cuts expire. Guaranteed.
70 for SS? Try 62.
James, you're incredible. Your videos are very accurate informative and helpful.
What an eye-opener. Thank you!
Thank you, this is very informative.
Good overview. My wife and I are in our mid 70s. I've been converting a chunk of my traditional IRA to Roth each year. We converted my wife's years ago while we were both still working. This reduces the amount you need to withdraw each year to meet the RMD requirement. Something else to consider for married couples is the impact of RMD when one spouse dies. Social Security income is reduced, the RMD stays the same however now Federal income tax is individual not couple, so a double whammy for the surviving spouse.
Great point. You can also get screwed on capital gains when selling the house if you wait too long after your spouse dies.
@@shawnbrennan7526 you can just pass the property to your children with living trust
Thanks for all your videos James! Question...I visited your root financial website but couldn't find information I wanted without having to provide information and probably get on your mailing list. Specifically, does your firm charge AUM type fees or fixed fees for specific advice tailored to a client's situation? Thanks again and keep doing what your doing.
Great job explaining clearly. Thank you!
Thanks for an informative video. Will do some more research based on your recommendations.
2020 and 2022 were tremendous years for Tax Loss Harvesting. I have used $3,000 annually for the last 3 years. I still have $11,853 remaining for future use.
I "bit the bullet" in 2020 and 2021, and moved $100K each year from Deferred to Roth accounts. I was able to use cash flow to pay the taxes, so 100% of the funds were converted. I retired in January 2024. This year, on $100K of income, I will be in the 10% bracket. In 2025-2026, I will most likely be in Zero % bracket, depending on what Congress does in 2026.
My RMDs are used as QCDs so I have no additional Income because of RMDs.
Great Video James.
Another helpful and clearly presented financial video from you. Thank you!
Your videos are always the best! Thank you!
Thank you for the spectacular and informative content. Plus I see you are keeping up with your workouts. You are looking jacked!
Always boggled me that you work and earn it, pay tax on it, pay tax on anything you buy, take all the risk on the investment, and they still want a chunk should you actually come out ahead, including even property. Then they tax everything you ever had after you die.... They have no problem deferring the tax, knowing full well they'll get more from you later
This is very useful info! Thanks!!!
Great video James. Is the calculator tool you used a public website or your own private tool? If public can you please share? Thank you
Amazing video! Thank you.
Very helpful. Thank you
Thanks for your work!
Yes, Roth conversions, not too much, not too little. I've been working on that this week. Thank you for all of your insights on it.
Great example of explaining the Roth conversion feature in RightCapital. I noticed that you also use the Holistiplan retirement planning software as well. Which retirement planning software do you like the best?
Great points!
Your videos are always superb and informative. There are so many tax implications to various strategies and you present very practical ways to navigate them.
Thank you, Thomas!
@@RootFP James Here is an easy Question: $20,000 social security and $20 ,000 Qualified Dividend income…what is the Tax if any?
Great Video!
This was a good video. Very interesting. Lots of information. I would add only one key point that might have been mentioned. The example assumes married joint filing, which is a good assumption. But that is likely to change when one partner, sadly, passes on. An "average couple" sees a husband about 3 years older than his wife, who also has a life expectancy 5 years less than his wife, meaning 8 years when the wife will likely file as a single. This would mean a lower social security threshold, but most income would still be in the portfolio, meaning much higher provisional income and higher tax rate. To the extent that one spouse is much older than the other (usually the husband, not always) and much sicker (again usually the husband, but not always), this factor would strongly call for more conversion while the two spouses are alive. The whole topic is perhaps too macabre to raise in a video like this, but it is relevant. Perhaps a separate video might be made, so that those who wish not to consider this can shut it off. Larry M. Goldstein
If you’re doing Roth conversions you must also watch out for IRMAA. The Medicare premium surcharge for higher incomes.
I watched my mother be pushed into a higher tax bracket due to RMD’s. The Roth was created too late to help her.
Great video James, I enjoy your presentations. One complication to Roth conversion strategies in the "low income" years is if you don't have employer health care coverage and are purposely keeping your income low in order to qualify for generous ACA healthcare subsidies. As you know, the cost of health insurance can be quite high for those in their late 50's-early 60's before Medicare kicks in at age 65. I'm looking at trying to calculate the trade off of keeping my income low to save a lot of money now on healthcare, vs doing Roth conversions to fill up the tax bracket in order to save on taxes later, at the cost of high healthcare now. Would you consider addressing that particular topic in a video? While I realize that healthcare may be outside your normal scope, I think that this topic might be of interest to lots of people wanting to retire before age 65. Thanks again for all you do, you make what is normally a dry, boring topic interesting!
I did keep my income low in order to qualify for generous ACA healthcare subsidies back when the law said I had to have it, Saved me $9600. But if I would have maxed out CG 0% with no SS, I would have saved $14,800. So, when the law changed, I went with a major med only and did the CG thing. Yes, James, this topic might be of interest to lots of people wanting to retire before age 65.
You may well end up adding 8.5% to your marginal tax bracket. So 22% goes to 30.5% until you pay back the entire subsidy.
Ouch. That scotched my Roth conversion plans for last year. This year I'm on Medicare and just have to avoid the IRMAA limit.
Good video ! Thanks…
Nice explanation, when I try to talk about this with my coworkers, the just can’t seem to understand what any of it means. It’s frustrating to see how clueless most people are about finances.
Some subjects need to be off limits. There’s no win-win. Don’t frustrate yourself.
We converted some of our IRA to a Roth, up to a specific tax bracket. We did this when the market was low so we move more stocks at a lower value. What we didn’t expect was for some of our investments they skyrocketed and thus what we did barely made a dent in anything! What happened now is that when we take our RMD we remake that amount back in usually 3-4 months. If you’d have suggested we might ever been this blessed I’d have wanted to test your coffee!
Great video.
Thank you James. 😎
Medicare Part B: This can be very pricey if you allow your income to reach one of their high brackets, as you are then paying for your coverage plus others' coverage. This could affect Roth strategy, since it might be the easiest way to keep your apparent income down, if you don't buy securities. This (2023) was a bad year for me because of high CD interest rates generating unforeseen but phoney "income", so Medicare B is top of mind for me. I'm too old to correct some errors but I will advise my children and grandchildren to adopt some strategies earlier in life, and especially when they are making low wages or in a down year.
Quite a good explanation
Great job, young man.
Great video, I like the 3 simple examples showing the concepts for long term capital gains, SS income and Roth conversions. I would appreciate making it more realistic, add the SS income to the zero tax example as a 4th, then Roth conversions for a 5th. All with the $10,000/month spendable income. How are you comparing the long term estate value with Roth, IRAs and after tax accounts?
One way to mitigate income taxes is through Asset Location, where you hold higher potential earning assets (e.g., stocks) in taxable and Roth IRA accounts and lower potential earning assets (e.g., bonds) in tax-deferred accounts. In addition, one needs to look at the tax efficiency of those assets and place the most tax-efficient assets in taxable accounts.
I need to be reminded of this as I get close to social security
As a recently retired CFP, James explanation is well done. The chart brought forth at the 17 minute mark is an excellent expression of how those at or near retirement should be thinking about managing their income and taxes to minimize taxes through their retirement years. Know how each of your sources are taxed: savings, brokerage account, Traditional IRA and for those with enough wealth to take the risk, borrowing vs. using other sources of income can also be a tool to convert from a Traditional IRA to a Roth: because 5 to 7% (today's interest) is a lot better than having your tax bracket jump from 12% to 35%. Since there is risk when borrowing when your future income is tied to investment performance, I would only recommend this to those who have significant padding to how much they plan to spend for their retirement needs and wants.
New to the channel (and just sub'd). I'm nearly 50 and am trying to make sure that I am doing all the bookkeeping necessary so that I fully understand cost basis, profits, etc. in retirement - specifically to minimize taxes. One, quick example: I pay all our medical bills out-of-pocket and then digitally save all receipts so that I can reimburse myself through my HSA decades down the line. That way, my principal works for me tax deferred in my HSA, and I get it back tax free in the future through receipt reimbursements. I'd love to see videos with your insight on preparing paperwork, receipts, etc. for people 10, 15, 20 years from retiring. Basically, what can we do (and record) now that will make tax avoidance much simpler in the future? Thanks!
Glad to hear that someone else has figured out that they can let money pile up in their HSA, keep reciepts, and have a big wad of tax free cash someday!! Too many people use their HSA debit card for medical expenses - cut it up!!!!
Wow. I had no idea you could wait for years to reimburse yourself from an HSA. There's no tax impact to that?
My dad used to be great at all that kind of stuff. As he aged, it got harder.
Unless your spouse is completely up to date on all your bookkeeping, consider whether your approach is actually worth the hassle/risk.
The only other item to add to this list was a discussion about IRMAA. Lots of people get hit by it because it's based on income 2 years before medicare eligibility, and when they start thinking about medicare, well then it's too late. Thank you for another great video. You're the best!
good video
A couple of things to add...IRMMA can affect your Social Security payments. ROTH conversions are counted as income for your Medicare deductions and if you use Part D for drug coverage this is also impacted. For a couple this can be some serious money ($500+) each month. A slightly different topic is NUA. I was able by using NUA to pay tax on stock I had purchased at $15 a share but was now at $100 a share. Because these gains were now long term gains I was able over several years to pay 0% on the gain and tax on the original $15 as ordinary income.
For a certified financial planner, not named Arnold, that shirt looks great on you. I'm subscribed now. Of course it is all about the content,...
I thought I had a handle on retirement taxes, withdrawal/distribution strategies. I was wrong! This is an amazing video. Thank you so much. 🙏
Nice job as usual James! 👏🏽👏🏽
Semper Fi!🇺🇸👍🏽
Excellent analysis. Too many people try to maximize money and not life, the reason they saved to begin with.
Dang James, go easy on the bicep curls.......LOL
Your videos are very educational. Would love to see you breakdown taxable income for people like us who did very little brokerage/IRA and instead invested in rental real estate. How will this type of income impact the Social Security tax torpedo? Would love to see the calculations you come up with for this scenario!
It is sad that our tax code is so blasted difficult, and after paying taxes for 40-50 years, you get to 70 and find out your income (from all that sacrificing and going without to build investments, etc) is added to social security, throwing you into a danger zone, only to have the government come after it again in taxes. So many of our senior citizens are eating peanut butter and jelly sandwiches, or keeping the thermostat at 60, etc because they barely make enough to survive, and here comes Uncle Sam, with his hand out saying "Uncle Sam wants your dough too".
And the funny thing is that so often the very people who complain about high taxes are the same ones who vote Democrat so taxes will keep be raised even higher! I know people like that.
What is that app you’re using to do these estimates sites? I would like to use it for my own estimates.
This is really good, but in the IRA conversions (discussion #3), given the long intervals of time between paying taxes now vs. later, it seems like you need to reflect the time-value-of-money (discounting everything to today's dollars). If those graphs already do that, then kudos!
The other reason to keep the income below that threshold is subsidized heath care premiums for those under 65 years of age. We retired at age 60 and saved over $100,000 in health insurance premiums until age 65 and medicare using that strategy.
Subscribed. 😊
Thank you James. Great video and explanation. Great strategy. Anyone know if there is a web site that do the actual computations? Else i will write my own macro. 😊
Free or readily accessible, no. I think it must be too corner case for most to think about and want. RightCapital has it for professionals and if you have an advisor maybe they subscribe and will run it for you or let you run it with your numbers. NewRetirement might, but I haven't got deep enough into it yet (still on the free version).
I don’t think most people understand that the percentage RMD increases each year and that this can push you into having to pay IRMAA for the rest of your life. Another reason for a married couple to do more Roth conversions early is that when one spouse dies the thresholds for income tax brackets and IRMAA drop and financial plans based on both of you living a long life no longer make sense.
One way to avoid paying estimated taxes throughout the year is to have taxes withheld when you take a distribution from your IRA. This can be done as late as December without having any underpayment penalty imposed. Withholding can even be taken from your RMD amount. However, your RMD MUST be taken before any Roth conversion is done.
James, another great video, I see you use tax software that does much of the work for you. Is that software available to ordinary people and would it make sense to purchase it and do our own or does it make more sense to work with an advisor like yourself?
Great content as always. What I am struggling with, and I think you allude to here in this video, is I can live in the 12% bracket, but thinking it is better to "fill up" to the 22% tax bracket by pulling IRA money into a Roth, but staying below IRMAA. At 65 years old and retired, my plan is (round numbers) live on $120k, pull about another $100k from IRA, and convert $50k of that to a Roth and take the other $50k as "extra income" that we can save, invest, or spend without the 5 year Roth waiting period. I haven't come across this discussion yet.
James, new sub here, seriously great video! Is there an online software you would recommend for the individual to use to plan all of this out?
Thanks for subscribing! You could check out NewRetirement and see if you like their tool.
James. Excellent job and well explained. Curious how you view the 55yo retired couple who fall into BOTH the 1st and 3rd example ?? Obviously zero tax on the 120k is fantastic but what if you are also in the position where you need to be converting to Roth bc your taxable 401k/regular roth is a million + ??
Yes you raise the right point. The goal shouldn’t necessarily be $0 taxes in the current year. It should be minimized taxes over the course of all years.
Great video. But the missing part is factoring in “time value of money” taken from investment accounts to convert to Roth IRAs and paying those taxes. Would love to see that analysis.
Great stuff. Wondering what modeling program he is using... Anyone?
Super super helpful video. I always thought I will be high income (relatively) and thus high taxes unavoidable, but now at least I have a lot room to reduce the damage. At the same, super frustrating why government makes such things so freaking complicated that it requires a PhD to figure out!!!!!!! damn!
As long as they are in the 0% LTCG, sell more and what you don't need you are basically resetting the cost basis just avoid the wash sale rules. On Roth conversions, for diy(ers), that is a tough spread sheet. Good Conversion strategies also help avoid those tax torpedeos for both SS and LTCap Gains when RMDs kick in. But there seems to be a sweet spot on net worth and amount of IRA that makes conversions more useful. IF you are really poor it don't help and if you are really rich, it becomes nuisance (or noise) to the overall finances.
Agreed, sell all as free gains at that point! Buy again and you are reset.
James, I have some savings that I am considering putting into a self funded pension plan. Can you tell me pros and cons of doing this?
👋 What’s the name of the software you used to input that info for Sally & Joe?
Yes its good to have a healthy taxable portion in your portfolio.
What software are you using to do the tax estimates?
What are your thoughts on converting 401K to Trad IRA to take advantage of NUA on company stock in plan. I’d like to do the conversion but worry about losing the protection from creditors offered on 401k.
James for the third point would you want to convert at least up to the standard deduction annually?
In example 3, what rate of market return are you using for over/under payments?
Hello, James; in your Step, Tax Harvesting scenario, you identify a recognized long-term gain amount of $67,500; what specific IRS tax form of the Form 1040 preparation would one use to specify the basis from games to show the $67,500?
I would suspect that the Tax Software used to prepare Form 1040SR would only accept the $90,000 and not recognize the 75% portion.
Finally, what is the scenario software you use in your video?
I have a old inherited stretch traditional IRA which is has RMD's of 50 to 60k from ages 60 to 67. Likely I will wait until FRA to take SS to avoid 85% of it being taxed prior to FRA.
That is also what I’m thinking of doing now after watching this video! Was leaning on getting SS at 62 or 65 before watching the video. Now I feel I have to pull from trad 401K (I have around 50-50 trad and Roth) in addition to the pension and withdraw SS at 67 maybe even up to70.
The color palate of this video is beautiful.
Most Americans find it hard to retire comfortably amid economy downtrend. Some have close to nothing going into retirement, my question is, will you pay off mortgage as a near-retiree, or spread money for cashflow, to afford lifestyle after retirement?
I was unaware of carefully selecting where we pull money from our investment account and the IRA ROTH conversion. It is all further complicated by the unknown amount of ordinary taxable dividends. Yup. Off to make an appointment down with my financial advisor....
Biceps are poppin in this video bud!!
Love your videos. I think we need to consider final portfolio mix. If you do a lot of early Roth conversions... and it leaves a larger mix in final portfolio Roth accounts... could that not be beneficial to your heirs? A slightly smaller ending value would be OK legacy-wise if more is in Roth? Agree?
Question.. When you use Turbo tax does the program pick up on these thresholds? We are both over 65 and only income is from a federal pension and social security. Only about 60k in brokerage accounts
Turbo tax will correctly calculate your taxes based on the inputs.
Turbo tax will not really help you plan how much to convert or help you calculate capital gain harvesting.
hi, can you do a video about what happens if you move your 401k money into an immediate annuity? Can that be done in a roll-over (so it is not taxed then) so that you only pay tax when your payments are sent out from the annuity? Is that how it works?.... and then combine SS $ with that... no one ever discusses this scenario....
Great video. Can you give more examples on single people?
Those who trade in and out of their stock portfolio in a taxable account, holding for less than 1 year, might want to look into stock index futures contracts. They are taxed as 60% long-term capital gains and 40% short-term capital gains.
You can fully fund each contract and avoid the dangers of margin. You do have to roll to a new contract or contracts every 3 months. You can keep your funds in T.Bills and receive interest, currently about 5%, or collect interest on cash from most brokers.
Micro S&P 500 contracts control about $25,000 at the moment.
This might be even be worth considering vs holding for a year or longer, if you expect tax rates to be higher in the future.
great job. thanks. please define “provisional income”. got lost in the translation for me.
Helpful video. Can you include one more factor on the calculus of how much to convert to Roth: the impact on medicare premiums? Many of us who aren't super-wealthy have limits on what we can switch to Roth in our ages 62-65 because of the three-year look-back period for Medicare, otherwise we spike our future Medicare premiums. Is this in your spreadsheet? Just don't want people to be blind to that factor.
Well done, but be aware that topic 1 and 3 interact and influence each other. For every $ that you convert to a Roth, you maybe losing a $ of cap gains taxed at $0. So, your marginal tax rate might be 12% for ordinary income plus 15% for car gains. You might still be better off converting a portion to Roth, but the hurdle rate may be higher than you think. This stuff is stupid complex. Layer on Medicare and the optimization calculation gets even worse.
I have to admit...at the 5:00 mark I started getting a headache and had to bail. I'll check back in a few years when I have to take social security.
Your first example seems to imply that, when calculating taxes on long term capital gains, the long term capital gains are included in the calculation of taxable income (whereas they are not included in taxable income when calculating taxes on regular income) - is that correct?
Is there a version of the software "ROOT" that is available for DIYers?