Income Tax 62+  

You're listening to the Truth Network and TruthNetwork.com. Welcome to finishing well brought to you by Cardinal God� Certified financial planner belonged to Schild, best-selling author and financial planner helping families finish well over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes.

Now let's get started with finishing well well it's 2020 is ever great talk on taxes today show is actually income tax 762+ actually what were titling the show but you know I was certified financial planner hung Schild today on fishing well is that no income tax 62+ but before you get too stressed out were actually using this from Proverbs 29, 18, which you may be familiar with is where there is no vision the people perish, and cast off restraint, but blessed are those who keep the law which you know the beautiful thing about that passage which when you think about it is that this is talking about a proactive life like I'm in a sea what God has in mind through the Torah for my future which the Bible is pretty clear on who's wins in and in you know where that's going in and in structuring my life according to the future rather than doing a history lesson on the past and in the same can be said right Hans for doing taxes that CPAs look at taxes as a history teacher will yeah typically they're not giving a lot of tax advisors are not saying you know, based upon doing your return this year. I think you know to do this differently and I think you ought to do this or think you do that they're going to be slow to do that and they're certainly not going to project that way into the future which is not their job and I'm a financial planner and so what my job is is to not infringe upon their territory.

I have CPA do my own taxes.

So I go to somebody to do this is my job is to look into the future and plan for your retirement. So were sitting here in now 2020 and you work with your Gentile vision right yeah I were thinking about 2025, 2030 and every year in between were thinking about how much taxes you pay or really more importantly how much you can have left after you pay taxes, and so when you're in retirement. You are have much more control over the ebb and flow of your income that make sense to you it does to me, but I arty know the subject matter but so you know, maybe from the listener standpoint that will wow when once you have different income sources like in Alonso and fifth.

I'm working for truth broadcasting my income to be taxed based on this money that's coming in, but now once I going to retirement my income sources come from Social Security or come from an IRA where it comes from other over and then eventually an IRA or other investments which you've already paid taxes on so urine effectively when it comes from your own savings you're in control of will you pull money out of their not to laugh. So the first thing on the essay is that your now in control of your income or insert link control part of it so you really need to have a plan and that's the beauty of these tax lots right now right was sure.

As a start that you have for us today which I'm very excited about sharing yeah and so when we get into retirement accounts were most people that have savings and retirement. Many of them that's their only savings for their only significant savings is in an IRA or still in the 401(k) or its in some hunk of money that they haven't paid taxes on but they're going to and then it's from that that they pull out money to live if they need now many people when there is in their 60s, especially employee money on hiring just because they don't want to pay the income taxes so it sits there and which is what were here to explain it. But today really is that a lot of folks in their 60s and the tax-free zone are leaving taxes on the table that they wouldn't necessarily have to play pay if they cast a vision for the future. Yet they just took a small amount of their IRA small is a relative term. Just in terms of their income of the people that are basically living off their Social Security everything is paid for. I can almost heal and they got some IRA money which is traditional IRA money it will benefit them to take out 10 to $15-$20,000 pending whether single or married, and they can do that with a very low tax rate that you can have people who are in the same age group but yet they're already pulling out 30 or $40,000 out of their IRA to live off of cluster Social Security and they need all that are not paying a lot of tax on that additional 30 or $40,000. All I'm stating is you may benefit by taking more or you may benefit by taking less if you don't need it. You may benefit by converting your Rossiya issues me your traditional IRA money or taking your 401(k) rolling it over into a traditional IRA and then converting it to an offer to put flesh on that so person that is like saving their 62 years old. Okay. And they retired early okay and their living on their souls.

And they got up IRA that's got $250,000 and they're like oh goody I on Lynn my muscle security and pay no income tax whatsoever. How much could I possibly have taken out of my IRA and maybe converted it over to a Roth IRA based on your chart, you know, could I have taken and added the mine, still paid no income tax is this person married or single, they are married. Okay so then is there spouse retired and collecting Social Security to yes so we get to Social Security checks right and they've got $250,000 in their IRA does their spell 70,000,050 1R is the one IRA and the attorney 50 grand. Now is her house paid for. Now there there may still making mortgage payments out of the so security to write these folks are living close there still give money to the church know which they need to do. They're called to do so when I would tell you is what most people like to do is that they can get by without taking everything and leave all 250,000 right in that IRA and they're gonna let it grow and then until they all of a sudden have spent 20 grand on something like one of their kids gets an accredited HVAC runs out in our house again or something and then all of a sudden need some money there to all of a sudden pull it out of the IRA, which is the only place they can go forward and they immediately are creating the tax problem so one goal I'm in I have for these people if they don't already have some other savings is to get some money sitting in an account. It's called an emergency fund where you've already paid taxes on the money. So her first goal with these people is going to be to move some of this $250,000 over into a bank account or a Roth IRA so they can get added an emergency and not have tax ramifications make sense.

Of course, but again what I'm a do with these people Xoma find out what their priorities are, so words can make some assumptions here is these people want to hang on to this money as close as they can, you know, because when one of them dies right the other ones going to have to live off of one Social Security check the survivor so they don't need this money to live. Now they're gonna need it at some point now from a tax standpoint these people as they sit right now they are no income taxes my neck, obtaining other so security so that's that money that they can spend now if we look at this tax chart here in this is a married couple or not. 65. Yet so there standard deduction is $24,800 so therefore they get that much of a tax deduction. They don't need to keep track of their mortgage payment anymore.

They don't need to keep track of their donations does not get the tax deduction for many more. Just every married couple filing a joint return is 24,800 right up there so first thing we can know is we can pull out $24,800 or to say $25,000 in her taxes on that are to be zero words that one year when they were 62 they could literally take 6.20 $5000 out of this traditional IRA move after a Roth IRA show that is income that neither which it will shows income on their income taxes yet they would pay no tax on that.

That year and now they've got some resumes immediately have an emergency fund, with no tax ramifications and they don't have 225,000 left in their future taxable fund right but it's a bit if they did that for 10 years and nothing to be empty. It would be empty, and now they never Roth IRA with $250,000 in it. Plus whatever the income was not slick. The simplest way to explain what were doing right. So now they got totally $250,000 of tax-free for the wife and I writing I'm in the middle of this. Then he comes in he says all its mama coming in right now. Yeah.

Or she is.

She's coming in from work.

Oh I thought you told me she's retired to not know she works over the Harris Teeter and she's the you know, okay� You make doing that and so it's never that simple. Okay, so now the sun she's got income she's gotta keep that lower than the 17,000 a year for souls. There are so many moving parts of this whole thing so I don't want to complicate them on the show here the whole, the whole idea of the example that Robbie just brought up his you know if you got money sit in an IRA balance in its taxable money whenever you pull it out and so you got that in the do not touch department and then you're living off your Social Security. All I'm saying is you're in control when you pull money out and when you show that on your tax return. So I want to just dual talk and this is how we think, when were going through and holistic.

I still think about my couple right that the you know they're not doing too well yeah and and and does the word annuity like if they were to take that 25,000 rather than put it in a Roth IRA that created an annuity would that make any sense. Or you could do both things you can actually put it in a Roth IRA that is an annuity right so II would mean creating hook up up an income for my wife as long as she ever lives with disability so I would say oh yeah we she's going to continually get her social security and with this annuity.

It would be tax-free to write consent regarding pay tax on it.

We moved it over so well if I was in that situation begin to have a vision rather than in a look back at wow I save taxes when I was 62 and I had a plan and some other things so today show right taxes for the 62+ income taxes. It's brought you by Cardinal guy.com are subject to date taxes is obviously one of the seven ways please Cardinal guide to planning for living retirement there Cardinal guy.com is all about family back morons taxes. Hans and I would love to take our show on the road to your church and Sunday school Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hahn's expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care. Just go to Cardinal guy.com and contact Tom to schedule a live recording of finishing well at your church Christian or civic group. Contact Tom to Cardinal guy.com that's Cardinal guide.com welcome back to finishing well today show doesn't sound all that interesting but phenomenally interesting to me. It's it's income taxes and I was just a horrible word income taxes in a 62+ life changes and we went through a bit of a scenario, there in the last segment organ change things up a little bit. Probably a little more common in this time we got same thing couple 62 years old. We this time they're not retired their nonsense. They're both working right. And in this case he's got an IRA, a 500,000. She has a 401(k) that's you know what her job so he rolled his money into an IRA that he had gotten and he did really well, that is, is a pretty good investor in her case, she still has her 401(k). She's got 250,000 between the two they've got. He has a different job now that I was making less used so he he he makes 50,000 she makes 70,000. So combine their income is 620,000 and oh by the way their house is going to be paid for when there 65 73 years right ready go so you know when I sit down with these folks or when they call in their you know that with that type of example I mean, the first thing were looking at is $120,000 annual income, and so they rent all the staff in their thinking will may be we could get by on 80% of our pre-retirement incomes of the got hundred 20,000 they're making now and they probably need that. Otherwise he wouldn't be working at this job that he's making less than used to make and there's going to work in their way toward retirement but they haven't really nailed down like how much money are we going to need to retire so I asked them a simple question there to tell me all we need to hundred thousand dollars a year. And when I'm Italian is first of all, you probably need to replace the whole hundred $20,000 because expenses don't necessarily go down in retirement, especially people making that this income level, because now you get to people a lot of free time on their hands, but how much of that hundred $20,000 to they really get to keep because they're paying Social Security taxes for making 401(k) contributions there still paying for health insurance. There's paying for health insurance immune 866 so I would almost guess were pretty educated guess 72,000 or $6000 a month is with their spendable income is and I'm a tell you that if they can wait till their 70 to start again so security or even wait to like 67 or 68, and a lot of people these days work that long anyhow they're going to be pretty close to that number and Social Security payments alone can't. So if they need 6000 is laws that 6000 is tax-free so it's a net 6000 a month is what they got to live on. There can almost be able to pay for their retirement, at least out-of-the-box. Just on there so security now that could some people pretty excited. But that's assuming a lot of things okay and and so what were I'm going with this is there able to plan.

Let's say that one of them or maybe both of them lived to 92 in a live another 30 years so we can plan out income taxes. That's my job from 2020 to 2050. Now that's a lot easier to predict. Like 2023's and it is 2043. I'm guessing but still the biggest bogey that they've got their biggest source of income. In addition to Social Security is that $750,000 that they have in water qualified not Ross or traditional either IRA or 401(k) accounts. They're not have to pay taxes on that money at some point either when they start drawing it out a little bit of the time, and if they just did their financial planning on their own and they retired and they had 6000 a month the Social Security or come in they probably just start drawing out 4000 a month to see how it goes for a while and there you have to pay taxes on that 4000 a month so on and so forth.

What I like to do with folks that we still got some time in the 60s is consider a Roth conversion and with that simply means is working to take some of that 500 grand in his traditional IRA and were going to move it over bit by bit year-by-year over to a Roth them.

So we got pay the income taxes now. I didn't sound very good friends.

I wait for the end of the story. I get a lot of accounts of people or accountants themselves that they shut this conversation down me you you you expect me to pay taxes now that I could when I could wait till 2025 to pay. That's exactly what I'm saying and so if you look at the text to women to show you is these folks are in the 22% tax bracket all the way up to $171,050 and that hundred 71,000 number is after deductions, and they got a standard deduction of the 20 $24,800. They really could convert well.

In other words, they could they could withstand an income of $200,000 and only pay 22% federal tax and that's there's some effect on the other. Some of those dollars would be a 12%.

In other words, tax rates are at historical lows, and these people are in the position that I would certainly consider wanting to get some of this money that's in the traditional IRAs with traditional 401(k) over the Roth by paying the taxes now and I'd like to do that, hereby year-by-year so that when we get to retirement in five or six years if we did that it $75,000 a year working.

Have a good bit of their money sitting over there in a Roth that they can draw from tax-free. So if they wanted to take her 6000 a month to 7000 a month they could pull that they would have to pull out additional money to pay the taxes. One of the things about this tax chart that I just did not know that that they may take advantage of is this whole idea of when you go up in a tax level with this with these new tax laws. It's not a cliff like you now all your income taxes third level so if you went over the little bit.

You're still most of it would be taxed at the lower right� Take these folks as an example. Okay there first 24,800 is tax-free is that there standard deduction. Now you have to write off your home interest in all that first 24,800 tax-free. Then their next 19,750. So now were up to about 45,000 that.

Let's call it 20,000 is only taxed at 10%. So there to pay $2000 in taxes on that 20,000. Then the next. There, the amount from 19,700 80,000 for the next 60,000 is taxed at 12%. So you know that's about 7 g. So now these folks is made hundred and $5000 and the only paid about $8000 in taxes and that's true even when they go up to 200,000 through these Roth conversions so this is not a cliff. A lot of folks think that income taxes are such that when you cross one dollar over into that next bracket you pay that higher rate on all your money in it is the opposite of a cliff. It's like a stairstep so the first dollars or tax-free. The amount your deductions the next dollars are the lowest bracket the next dollars at the next bracket and so it's only the marginal dollars, which would be the Roth IRA conversion that would be taxed at 22% so and 22% still is a lot of money. It's really hard for people to part with that money and you tell me this is a good idea.

The answer is once we've made sure that there can be safety answers yes they now are in an account which is tax-free for life. So let me ask would you if you are really. If I was this guy, would you look at it annuity for me since what I really just wanted was that additional money that I want to get to 7000 instead of 6000 would you recommend taking that is that 25,000 creating an annuity over period of time. The big advantage to the annuity when it's inside of an IRA inside of Roth IRA. The biggest advantage is that it can guarantee you an income which can outlive and you can do that on two lives by the way, so you can put the husband and the wife both of these examples in there and we can create an income that you can turn on at any point in the future that you want so we can have a lot of certainty to your retirement planning. Number one where you're not gonna lose money on annuities not to go backwards in any given year, any year in second go backwards.

Once you earn it So that's one level certainty.

The other level of certainty and this is why people are reluctant to pull from the principal of their IRAs or their savings account.

Is there further outlive their money and with an annuity, you can add certainty that you know there's always going to be a check coming in matter how long you live and and or you could buy either long-term care insurance.

Or you could buy a life insurance policy with long-term care write with any other market do that and you can also do that inside of an annuity intake has annuity and you can put a long-term care benefit on that as well. Okay so I don't get off on that word were talking about tax planning here is its beneficial.

I study these things and I don't want to make all the shows talk about numbers that I actually I don't think it's well you I know you call it tax planning, but it really is what you said earlier it's income planning this right. How much money do we need and then structuring it in such a way that will that we pay minimum tax on our income and have that available. I like zero tax yeah and there is a way for this couple to go through and take the pain.

No swellable, no and they can look forward to a retirement still was some money in a traditional IRA that they can do few CDs out of they can also take advantage of that standard deduction. Tax deduction and pay no income taxes and return.

That's my plan regarding listing to finishing well, a certified financial planner hard child. Today's show income taxes, and 62+ will be income tax parts on the seven worries at cardinal guide to guide him after Cardinal.com.

There you will see the seven words We have see a PDF of the whole chapter on income tax and those kind of things from the book the complete carnal guide to planning for and living in retirement, which is available just all you do is is is biased like robots or some jerk at an hour you can go on Amazon get the Kindle version really really expensive so again, thank you for listening was so much fun and will talk to again next week.

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