Navigating Tax Withholding – A Guide for Retirees

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Taylor Wolverton joined us on our podcast this week, and for those who don’t know, she’s our go-to person for everything taxes. This week we’re discussing tax withholding, which can change considerably when you retire.

While you’re working and earning a salary, your employer handles tax withholdings. When you retire and transition to multiple sources of income, it’s worth reviewing your tax situation to be sure you’re withholding enough to avoid any surprise payments and/or penalties due at the time you file your return.

What is Withholding vs Estimated Tax Payment?

There are two main ways to pay taxes (you can do a combination of both) which include:

  1. Withholding from income sources
  2. Making estimated tax payments

For our first method, taxes can be withheld from pensions, social security, IRA distributions, etc. Once you have your withholdings set up properly, this option requires the least amount of effort to maintain.

Estimated tax payments are another option and are due quarterly. At the time your tax return is filed, it’s common for your CPA / tax preparer to help you estimate how much you’ll need to pay every quarter with vouchers listing the amount to pay and when you need to pay it. You can go to IRS.gov and your state government website to make your quarterly payments.

The payment due dates are not even quarters and are:

  1. April 15th (for tax due on income received January 1 – March 31)
  2. June 15th (for tax due on income received April 1 – May 31)
  3. September 15th (for tax due on income received June 1 – August 31)
  4. January 15th (for tax due on income received September 1 – December 31)

The IRS requires taxpayers to ‘pay as you go.’ For example, if you sell highly appreciated stock before the end of March, the IRS requires that you make an estimated tax payment for the tax due on that sale of stock by April 15th of the same year. If you sold the stock during the month of November, your estimated tax payment would be due by January 15th of the following year. The potential consequence of not making estimated tax payments on time is underpayment penalties from the IRS which will be determined and reported on your tax return once it has been filed.

What You Need to Think About: Social Security

Social Security is something we review with our clients annually. You might receive your benefits immediately and your spouse years from now, so there may be a transition period for some families to consider.

The default withholding amount on Social Security is 0%. If you don’t make an election to have federal taxes withheld from social security, you may need to pay quarterly taxes on the income. We have an entire episode on taxation of social security benefits (listen to the podcast or read the blog post) if you’re interested.

Most benefits will be taxable on the federal level, but each state varies on whether they will tax social security benefits or not. The state of North Carolina does not tax social security.

If you want to withhold taxes from your Social Security, you can Google “form W-4V” or go to the IRS site (here). It’s an easy form to fill out and will allow you to start withholding taxes, with options for:

  • 7%
  • 10%
  • 12%
  • 22%

Once you fill out the form and submit it to the social security administration office, taxes will automatically be withheld. If you want to stop withholding taxes, you’ll fill out the same form again but ask for the withholding to stop.

It is not possible to withhold state tax on social security.

What You Need to Think About: Pension Income

Not everyone will have a pension, but if you do and want to begin withholding taxes from your pension, you’ll need to fill out Form W-4P. You’ll often receive the form from where your pension is coming from, such as the government or a union, but you can also find it publicly available online.

Unfortunately, the form is not as straightforward as the social security withholding form, and it’s more of a guide to approximate withholding taxes.

We recommend using the IRS Tax Withholding Estimator, which will help you fill out the form.

What You Need to Think About: IRA Distributions

An IRA is an interesting form of income because you contribute to your IRA for so long, and then in retirement, may begin withdrawals to cover expenses, and/or be forced to withdraw through required minimum distributions (RMD).

Clients turning 73 begin RMDs for the first time and will owe federal and state tax on those distributions. The amount of the RMD, the associated tax liability, and appropriate rate for withholding is a conversation we often have with clients.

If you’re starting recurring monthly distributions from an annuity, the most common default federal tax withholding is 10%. You can fill out Form W-4R to withhold an amount other than 10% or not withhold taxes at all.

What You Need to Think About: Income Not Eligible for Withholding

Some forms of income are not eligible for withholding. Some of these sources of income include interest (from a money market account, CD, checking account, and/or savings accounts) dividends, capital gains, sale of property, rental income, self-employment income, royalties, alimony, etc.

For a one-off income event such as the sale of property or sale of highly appreciated stock, you may consider making a one-time estimated tax payment.

However, if you have income not subject to withholding that recurs more regularly such as self-employment or rental income, you want to consider paying quarterly taxes before each due date during the year.

To review your situation in-depth and determine whether any adjustments to withholdings are needed, you will need to review all sources of income, determine the annual dollar amounts expected to be received, and review all current tax withholdings.

Every client’s goal is different. You may want a refund every year, or you might prefer to make a payment at the time your tax return is filed.

Your financial professional can help you set this up properly to align with your goals.

If you’re unsure about taxes in retirement, just reached retirement, or want to adjust your withholdings so that you’re not hit with a surprise tax bill, feel free to give us a call and we’ll be more than happy to help you through this process.

Schedule a call to speak with Taylor Wolverton.

March 18, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for March 18, 2024

CLICK HERE TO WATCH THE UPDATE

Investing in Uncertain Times During Retirement – Election Edition

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the possible impact of the presidential election on your retirement investments. Political uncertainty causes increased volatility in the short term, and the idea here is to maintain security and peace of mind regarding your retirement plan.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

Investing in Uncertain Times During Retirement – Election Edition

It’s that time that comes around every four years – presidential elections. There is one question that inevitably pops up: does the presidential election impact the stock market?  Retirement planning can provide peace of mind because you’ll prepare for the election’s influence on the market. 

CLICK HERE TO READ THE BLOG

Investing in Uncertain Times – Election Edition

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It’s that time that comes around every four years – presidential elections. There is one question that inevitably pops up: does the presidential election impact the stock market? 

Retirement planning can provide peace of mind because you’ll prepare for the election’s influence on the market. 

The Short-term Effects of a Presidential Election 

Volatility in the short term is certain. You have economists and investors clamoring to figure out this one important question: if this candidate gets into office, what will their policies do to the market? News headlines are also all over the place, and these headlines and breaking news stories that happen every day will cause volatility. 

If you look back to the 1900s, we know that the election won’t impact markets in the long term. 

Where will the world be after the election year? Where will the U.S. be? Investors will be asking these questions all year, and it does weigh on the market. 

Long-term Effects of a Presidential Election 

Since 1900, data shows that in the long term, a party change does not impact the markets. We do have up and down markets across the board, regardless of who is in office or if there’s a party change. 

If we were going to wrap this up right here, we would say yes: presidential elections do affect the market in the short term. 

But we’re not going to be wrapping things up just yet. 

What Can We Do to Have a Portfolio That Is Agnostic to the Election and Economy? 

Investing in uncertain times is best when your portfolio is agnostic, meaning that the economy and election will have little-to-no impact on the performance. Of course, we’re not saying that this is the “perfect portfolio.” 

We’re going to describe to you a way that we recommend structuring your portfolio for peace of mind. 

If you were to go out and speak to 100 financial planners, you would find that there are two big camps for portfolio management: 

  1. Passive: A passive portfolio is created on the basis of risk tolerance and is adjusted once in a while as your risk tolerance changes. The market will not have much bearing on the portfolio allocation. 
  1. Active: An active manager will adjust the portfolio regularly based on the current market environment. 

Both camps will argue that either the passive or active portfolio is best. Our growth portfolio combines both camps to offer what we believe is a well-rounded portfolio that you can rely on during good and bad times in the market. 

Inside Look into Our Growth Portfolio 

Our “growth portfolio” cuts an account in half, with the first theme being the strategic core, and the second theme being the tactical portion. 

The strategic core model is equity-based, and we buy ETFs. Our theme for the strategic core is based on where the market is going in the intermediate term. The strategic core will be invested at all times and consider where the market is and where it could be going based on the fundamental analysis. 

Today, the strategic core is invested in equities that tend to do better un an economic slowdown or recession. 

But as the sentiment behind a recession continues to weaken, we plan to make a shift based on fundamental analysis.  

Our tactical side of the portfolio considers what’s working well right now: 

  • Large Cap stocks 
  • AI and Technology 

The tactical portfolio looks at what’s working right now and is more active. We might make a trade every 4 – 6 weeks based on the trend changes that we see. We find that the tactical side of the portfolio works very well to mitigate risk during times of market deterioration. 

If you go back to when the market wasn’t performing well in 2022, the tactical was invested in lower-risk assets, such as government treasuries. 

When the market is working well, the tactical is invested in equities, but when there is some pullback, we can adjust the tactical portion of the portfolio. 

Portfolios based on Risk Appetite  

If you’re in or very close to retirement, you want stability, right? You’ve worked hard and you can’t stomach the dramatic ups and downs of the market any longer. We have many folks come in and want a portion of their portfolios to provide stability that the stock market cannot provide on its own. 

For these folks, we created the “Moderate Growth Portfolio.” 

For a moderate growth portfolio, we take 24% of the portfolio and put it into structured bank notes. What we do is: 

  • Approach big banks: Morgan Stanley, Citibank, Barclays, etc. 
  • Structure an instrument based on an annual percentage coupon rate 

At the time of this article in March 2024, the coupon rate is about 9% annualized. The goal of this type of portfolio is to lower the risk even further for the portfolio to have some fixed income coming in. 

We can also reduce risks further with the addition of fixed-income investments such as bond funds. 

The idea is that the portfolio is based on fundamentals (i.e., strategic core), what’s working right now (i.e., tactical), and stability (i.e., structured notes and bonds). If you’re reaching retirement, a portfolio like this provides you with peace of mind that your retirement is secure. 

Using this type of portfolio allows us to minimize risks by not putting all your eggs in one basket. 

We try to combine tried and true strategies so that if one is not working great, the other can help support the portfolio. 

If you want to learn more about our investment strategies or how we can help you minimize risk in your portfolio, feel free to reach out to us and schedule a call. 

March 11, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for March 11, 2024

CLICK HERE TO WATCH THE UPDATE

How To Keep Your Mobility in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Mercedes Fernandez about keeping mobility in retirement. Mercedes is the founder of Movement, lead Geriatric Physiotherapist, a certified senior fitness instructor, and an authorized CPR/First Aid responder. Listen in to learn the most common mobility issues in older adults and the good habits you can develop to reduce them as you age. You will also learn how maintaining movement with simple stretches and following the right instructions with mobility aids and exercise can diminish pain and prolong your mobility ability.  
CLICK HERE TO LISTEN TO THE PODCAST
 
CLICK HERE TO WATCH ON YOUTUBE

How To Keep Your Mobility in Retirement

As you get older, changes go well beyond the monetary side of things. Mobility in retirement is one such change that can have a dramatic impact on a person’s life. We spoke with Mercedes Fernandez, Geriatric Physiotherapist and Adapted Exercise Expert, on the show this week to discuss this very topic.  
CLICK HERE TO READ THE BLOG

How To Keep Your Mobility in Retirement

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While we focus on finances and investing to help people in retirement planning, we try to have experts on our podcast to discuss lifestyle changes, too.

As you get older, changes go well beyond the monetary side of things. Mobility in retirement is one such change that can have a dramatic impact on a person’s life. We spoke with Mercedes Fernandez, Geriatric Physiotherapist and Adapted Exercise Expert, on the show this week to discuss this very topic.

Mercedes focuses on the study of human body movement. She grew up with her grandfather and works primarily with older adults. She saw that this field primarily focused on the young generation and not those who are older or elderly.

Her purpose is to help older adults stay mobile, get rid of the aches and pains, and still have the mobile freedom that allows them to live an independent life.

What are Some of the More Common Mobility Issues for Older Retirees?

Neck pain, lower back pain, and upper trapezoid pain are the most common areas Mercedes sees in older adults. For some folks the pain comes from walking with a cane or walker, but it can also come from sitting on the couch too much, looking at phones more often, or other reasons. Stretching can help to alleviate the tightness that often leads to neck issues.

StretchLab is a franchise that many people are using to help with mobility. They have flexologists that offer assistive stretching to alleviate tight muscles and the pain it eventually causes.

Simple stretches help ease pain and discomfort that many people don’t even realize is abnormal until they stretch on a regular basis. You can even do some of these stretches when:

  • Sitting in the car
  • Watching television
  • Standing at the counter

If you do have a mobility device or are considering one, you’ll want to read through the next section carefully.

Mobility Devices and the Risk That They Pose

You may have seen mobility or assistive devices on television and think, “Well, how hard can it be to use these?”. You need a little help with mobility, and one of these devices seems like the perfect fit for you.

But if you use them improperly, it can lead to Kyphosis, which is the rounding of your upper back or what many people call “hunchback.”

Using the incorrect device or the correct device improperly can impact your:

  • Posture
  • Tightness
  • Mobility

For example, when you see someone with a walker, pay close attention to how they reach for it. Often, the person will have the walker too low and will need to lean slightly down to pick it up and move it. Over time, the person will begin to hunch over to use the walker. Their feet may eventually become out of alignment and will try to keep up with the rest of their body in motion, which is a recipe for an eventual accident.

If you’ve considered ordering a walker on Amazon, it may be more convenient at first, but keep in mind there is no one to help you get started correctly.

You’ll also find that the world isn’t as accessible as it could be, so you’ll see some people dragging their walkers up a flight of stairs, which is a major safety hazard.

If you do need a mobility device, speak to a professional who can set it up correctly for you so you’re not hunching over and show you how to use it properly to reduce the risk of falling.

Hazards Inside of the Home

Little things that are hazardous are overlooked until something happens. You may have items of sentimental value in your home near walkways or sitting areas. Imagine if you use a walker or cane. Now, there is a possibility that as you navigate these tight spaces, your device could get caught or slip on them. As your mobility changes, consider the placement of your special items so they don’t become a safety risk.

Bathroom rugs are notorious for this because if you use a cane and lean on it, the rug slips and so do you.

You may also realize that it’s harder to:

  • Reach the cabinet above your exhaust fan in the kitchen
  • Pots and pans in the bottom cabinet

Unfortunately, homes aren’t always set up for mobility caution. Even if you’re 50 – 65 and you don’t currently have issues with walking or balance, it’s worthwhile thinking about prolonging your mobility and setting your home up properly now.

You should consider installing grab bars in the bathroom in case you get dizzy or lose your balance. Carpets or rugs that slip can have adhesives put on them to prevent unexpected movement. In the kitchen, something as simple as moving your heavy pots and pans to an easier location can make a dramatic improvement in your day-to-day life.

Preventing Mobility Issues or Prolonging Your Existing Mobility

You may be 65 and walk great with no balance issues at all, but in the future, a simple injury can change this in an instant.

Mercedes recommends that you keep moving. Walk more, sit less. A little exercise is good for you, no matter where you are. Wiggle your toes, lift your ankles, squeeze your bum (it’s good for your back) and even moving your neck side to side will help you remain mobile. Make sure to stretch often.

Even small things, like practicing reaching above the stove can help. If you don’t like lifting weights, that’s completely fine. You just want to keep moving and stretching as much as possible every single day.

Working With Mercedes and Her Process

To learn more about Mercedes, her process, and other resources on this topic, looking at her website is the best option. She offers customization for special groups, such as those who have had a stroke or brain injury. An exercise or health plan is created based on your:

  • Goals
  • Needs
  • Medication
  • Limitations

She also works with caregivers to assist them with helping aging parents or loved ones.

You’re aging every day, and the small changes that you make today can help you stay mobile in retirement. If you would like to reach out to Mercedes, click here to access her website.

And as always, if you want to discuss anything retirement-related with us, feel free to schedule a call with us or explore one of our books on Amazon.

March 4, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for March 4, 2024

CLICK HERE TO WATCH THE UPDATE

Retirement Tips For Gifting and Loaning Money to Children

There are tax and financial implications when it comes to gifting, but you can do it right when you understand all the legalities. Listen in to learn the importance of understanding the purpose of gifting money to your kids to help you structure it and think of the implications. You will also learn how to navigate the legalities of loaning money or co-signing a house with your kids.
CLICK HERE TO LISTEN TO THE PODCAT
 
CLICK HERE TO WATCH ON YOUTUBE

Retirement Tips For Gifting and Loaning Money to Children

You’ve done well in retirement planning and you’re living a good life.  You may have plans to leave money to your heirs, and many of our clients want to learn about providing gift donations, too. Why? Gift donations may be used more immediately, so clients get to see how their gift donation plays out while they’re still alive. If your gift is used to buy your grandchild…..
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Tips For Gifting and Loaning Money to Children

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You’ve done well in retirement planning and you’re living a good life.  You may have plans to leave money to your heirs, and many of our clients want to learn about providing gift donations, too.

Why? Gift donations may be used more immediately, so clients get to see how their gift donation plays out while they’re still alive.

If your gift is used to buy your grandchild their first car or for a downpayment on a house, you might want to join in on the celebration. You may want to loan money to your child at a nominal interest rate or even co-sign on a house for them.

We’re going to tackle a lot of these things that you might be thinking of after you secure your retirement and want to help others in your life.

What is the Purpose of the Gift?

There are a million reasons to consider a gift donation. Sometimes, you want to help a child who needs some financial assistance. You might want to give them money every month, or you give them money outright.

Do you want your child to pay this money back?

Keep in mind that you need to maintain your own financial stability, too. Your financial plan may look great, and you run the numbers and you find that you have funds to consider a gift donation.  In one scenario, let’s say the need for a gift donation is not urgent and you decide not to make a gift donation. Keeping those funds would give you and your financial plan an opportunity to have higher earning potential and possibly greater financial stability down the road.

Another scenario to consider is you give your children money right now and without the prerequisite that they’ll be able to give it back if you need it. If you’ve reviewed your financial plan and gifting money with this prerequisite is not something you are comfortable with, it may be best to wait. Most folks want to avoid a situation where a gift donation now puts them in a hard financial position that would affect their children in the future.

Carefully reviewing your financial plan before making a gift donation will help secure your retirement.

Potential Tax Implications of Your Gift

Gift donations may have a tax implication, which is something you really want to consider, too. Consider asking:

  • Will there be taxes due from this gift donation?
  • Will the money exceed the annual gifting amount?

In 2024, you can make a $18,000 gift donation without any tax implications per donee. For example, if you have three kids, you can gift $18,000 to each child. If you exceed this amount, you need to fill out an extra document and attach it to your tax return to document how much you are gifting over your lifetime.

If you leave behind more than the current estate tax limit of $13 million, documentation will be more important.

For most people, you can gift $18,000 without issue. You:

  • Will NOT owe estate tax on the gifted amount
  • Will NOT owe federal tax on cash gift donations
  • May be subject to federal and state tax if you sell stock to gift the proceeds of that sale
  • Will owe federal and state tax if you withdraw from your IRA to gift money

Be strategic and be aware of the gift’s source of funds, because you might be hit with a Medicare surcharge (IRMAA) or move into unfavorable tax brackets. Another good reason to review your financial plan before gifting money.

When it comes to the donee, there are no tax implications for receiving a gift donation.

Family Dynamics and Your Legacy

For a family example, we’ll discuss a family with 2 children. Child 1 needs some financial help now. Child 2 doesn’t currently need financial help, so they will not receive a gift donation now. If Child 2 finds out that you’ve been giving Child 1 $18,000 a year, Child 2 may not feel like this is fair at the time of inheritance.

One option to address this is to document the gifts that you’ve been giving and reduce it from the Child 1’s inheritance to balance things out a bit.

Let’s look at some example numbers for this family:

  • $1 million estate (pre-gifting)
  • $200,000 gifted to Child 1
  • $800,000 estate (post-gifting)

In this case, for a “fair” inheritance, Child 1 would receive $300,000 and Child 2 would receive $500,000. Reviewing your financial plan and your estate plan documents on a regular basis is important to keep these numbers up to date.

How Can You Help a Child Buy a Home?

Co-signing is something that we don’t recommend. If you co-sign for your child to get the home, you’re still financially tied to the home. If the child defaults on the home, you may have to step in and buy it or deal with the credit ramifications of it all.

If you have reviewed your financial plan and don’t mind paying for the home if your child defaults, this is obviously something that you can opt to do.

Co-signing comes with a lot of risks and is the least desirable option.

Some other options for helping a child to buy a home are loaning or gifting the child money. We had a client who wanted to loan their child $10,000 for a downpayment, and this was the easiest option. If your gift remains under the current $18,000 gift limit, you can write a check to the child and your spouse can do the same.

But if the gift is higher than the exclusion, then you need to do some planning.

If you loan $100,000 (not a gift), you will need to:

  • Structure the loan properly
  • Keep legal documents on the loan
  • Require monthly payments

Loans are a way to avoid potential tax implications tied to gifting. However, you do need to meet a minimum interest rate, which your tax professional can help you determine.

If you charge 0% interest, the government will view it as a gift, and require additional documentation to file with your tax return.

You can charge an interest-only payment, or you can amortize it. In your loan agreement or estate planning documents, you can have a stipulation that upon your death, the loan is forgiven. Loaning money offers you:

  • Potential source of income from interest
  • Easier loan option for your child over banks or credit unions

You might be able to give your child a loan without closing costs and at a favorable interest rate compared to today’s market. But, as with a mortgage or other loan, you do want to keep an interest in the home if your child doesn’t repay the money to maintain the legitimacy of the loan agreement.

Step-up in basis is something to consider, too. Let’s say that you have your own house and a beach house. If you gift your beach house while alive, you need to think about the potential capital gains tax on the property for the donee.

If you would like to chat with us about gift donations further, feel free to reach out to us.

Click here to schedule a free consultation with us to discuss gifting in your unique situation.

February 20, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 20, 2024

CLICK HERE TO WATCH THE UPDATE

Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs have Shawn Southard, our in-house Medicare expert, talk about Medicare’s doughnut hole. Learn about the four stages of how Medicare Part D works, plus strategies you can take yourself to avoid the doughnut hole.
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Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole in Retirement

A doughnut hole is part of Medicare prescription drug plans. It is found in either standalone Medicare Part D plans or Part D plans that are bundled within Medicare Advantage plans. The doughnut hole is a temporary limit on what the plan will pay for the cost of the drugs. Technically, the doughnut hole the “coverage gap” stage of Part D plans.
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Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole

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Shawn Southard, our in-house Medicare specialist, joined us on our latest podcast to discuss Medicare’s Doughnut Hole. If you don’t know what this means or how it relates to you, don’t worry – we’ll explain everything.

What is Medicare’s Doughnut Hole?

A doughnut hole is part of Medicare prescription drug plans. It is found in either standalone Medicare Part D plans or Part D plans that are bundled within Medicare Advantage plans. The doughnut hole is a temporary limit on what the plan will pay for the cost of the drugs. Technically, the doughnut hole the “coverage gap” stage of Part D plans.

What is Part D?

Medicare started in 1966, and up until 2003, there was no prescription coverage until Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act. Basically, the Act went into effect in 2006 to help beneficiaries cover the cost of prescription drugs.

As part of the Act, there is a penalty if you don’t enroll in a prescription drug plan when you turn 65 or retire.

There is a 1% penalty for every month that you didn’t enroll when you were supposed to be enrolled. The penalty is monthly for as long as you are enrolled in a Part D plan, which could be the rest of your life. For example, if you don’t enroll in a Part D drug plan for 2 years (when you were first eligible to enroll), you will have a 20% Part D late enrollment penalty. This penalty is monthly and will be in effect for as long as you are enrolled in a Part D plan. The 24% late enrollment penalty is based on the national average Part D premium, which in 2024, is $34.70. This penalty is added to your drug plan premium automatically by Medicare. 

Even if you don’t take prescription drugs, be sure to enroll in a Part D prescription drug plan to avoid the late enrollment penalty. 

Medicare Part D plans have 4 stages. Theses stages are the same for standalone Part D plans and Part D plans that are bundled into Medicare Advantage prescription drugs plans.

  1. Deductible Stage. If your plan has a deductible, you start here. You are paying 100% of the drug cost up to your deductible amount. The maximum for Part D plans in 2024, is $545. Depending upon your zip code there could be several Part D plans that do not have a deductible.
  2. Initial coverage Stage. The initial coverage stage is reached when your deductible has been met or if your plan does not have a deductible. In this stage, you pay roughly 25% of the cost with co-pays and co-insurance. The co-pay depends on one of the five tiers in the drug plan. Tier 1, the lowest tier, are drugs that are preferred generics that either have zero ($0) or a co-pay of a few dollars. Depending on your medications and their tier, you may be paying more. The initial coverage stage starts when your out-of-pocket costs reach $546 and goes to $5,030. Note: if your plan does not have a deductible, you start at the initial coverage page. You reach the doughnut hole stage after reaching the $5,030 out- of-pocket limit.
  3. Coverage gap stage. This is the “doughnut hole”. It is reached when out-of-pocket drug costs exceed $5,031 and goes to $8,000. In this doughnut hole stage, for brand name drugs that you take, you’ll pay no more that 25% of drug costs and the drug manufacturer pays 70% of the drug costs.  This 95% (25% paid by you and 95% paid by the drug manufacturer) goes towards getting you out of the doughnut hole quicker. 95 % is True Out Of Pocket (TrOOP). If you are doughnut hole stage and taking generic drugs, you pay no more than 25% of the drug costs. NOTE: only the amount you pay (25%) goes towards TrOOP.
  4. Catastrophic Stage. This is the doughnut hole exit point. This state is reached when you have pay $8,000 out of pocket for your drugs. Moving forward, you pay $0 toward any additional prescription-related expenses. But, at the end of the plan year, out of pocket costs reset back to zero. Restarting at Stage 1 starts at the beginning of the year.

If you’re in Medicare’s doughnut hole for one year, and your drug regimen stays the same, there is a strong possibility you will be in the doughnut hole next year.

Inflation Reduction Act

Under the Inflation Reduction Act, there is some very promising news. One of the changes in 2023 was that you paid just 5% when you hit the catastrophic phase and now you pay 0% in 2024. In 2025, the next stage of the Inflation Reduction Act, it   will put a cap on TrOOP at $2,000.

If the Act remains as it is, in 2025, people will reach the catastrophic phase when they spend $2,000 out of pocket. For Medicare Beneficiaries who reach the doughnut hole each year, this is a significant change that will provide immense financial relief.

In 2026, Medicare will begin negotiating the prices of 10 brand-name drugs downward. While manufacturers are fighting back against this, many Federal judges are siding with Medicare.

Are There Other Strategies to Navigate Medicare’s Doughnut Hole?

Yes, there are generics that your doctor may be able to offer you. Generics will help you save on costs. Doctors may be able to work with you to find drug alternatives that can push your costs down.

If you’re really struggling economically, you may be able to qualify for:

  • Extra help
  • Low-income subsidies

Anyone on these programs will never go into the doughnut hole and will have their costs significantly reduced.

If you want to talk to Shawn about your Medicare, call our office at (919) 787-8866.

February 13, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 13, 2024

CLICK HERE TO WATCH THE UPDATE

Beneficiary Best Practices in Retirement – A Yearly Check-In

In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Nick discuss beneficiary best practices and what’s discussed in a typical beneficiary’s meeting. Things can change in a year, and that’s why we believe it’s important to update or change beneficiaries annually.
CLICK HERE TO LISTEN TO THE PODCAST
 
CLICK HERE TO WATCH ON YOUTUBE

Beneficiary Best Practices in Retirement – A Yearly Check-In

Nick Hymanson, a financial planner who is also part of our team, joined us on our latest podcast to discuss something very important: beneficiary best practices. If you work with us, you know that this is something that we have covered during our financial planning strategy meeting.
CLICK HERE TO READ THE BLOG

Annual Financial Planning Strategies- Beneficiary Best Practices

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Nick Hymanson, a financial planner who is also part of our team, joined us on our latest podcast to discuss something very important: beneficiary best practices. If you work with us, you know that this is something that we have covered during our financial planning strategy meeting.

What is a Financial Planning Strategy Meeting?

In the financial planning strategy meeting, we cover:

  • How your accounts did this past year
  • Beneficiary updates
  • Daily living changes
  • Expenses and income
  • Budgets 

We look at your financial plan as a whole during the strategy meeting. A lot of people think that the most important part of retirement planning is the end goal, but if you don’t know where you are right now, it’s challenging to navigate your way to retirement.

You need to know your milestones ahead and what to do with Social Security, Medicare and your estate plan.

Your estate plan is where beneficiaries really come into the equation. If you have a “will,” you may assume that you have everything in order and you know who is getting what. The problem is that you have a variety of other accounts that have beneficiaries listed, such as your 401(k), IRA, life insurance and even your bank accounts.

When the terrible time comes and you need to put the estate in process, proper beneficiaries on your accounts will make the lives of your heirs much easier.

What We Do to Prepare Before Discussing Beneficiaries with Our Clients

Our team reviews all your investment accounts and will call insurance companies to verify:

  • Primary beneficiaries
  • Contingent beneficiaries 
  • Percentage allocations

You may have multiple people listed as a primary or contingent beneficiary, or you can have one or two. We’ll gather information on all your financial and insurance account beneficiaries and separate them by account to make it easier to determine who is the beneficiary on what accounts.

We then present the accounts in the meeting to help you understand if your account needs to be updated.

Why do we review beneficiaries annually?

Of course, we have a lot of real-life examples of accounts that people seemingly forget to update during crucial life moments.

  • One client got divorced and didn’t remember to fix all the beneficiaries. It doesn’t matter who he is married to today. If he passed, the account would have gone to his ex, even though he is remarried.
  • Someone has a child who is in a lawsuit, so maybe you don’t want money to go to this individual based on the current circumstances.

A quick, annual review of your beneficiaries can help you better manage them because life changes can impact who you want to be named as a beneficiary on your accounts.

Common Example of Husband and Wife

Couples who have an individual account will, in most cases, have their spouse being 100% beneficiary of their accounts. If the person isn’t alive when the other person passes, the account would then go to the contingent beneficiary, who can be one or more people.

For example, if you’re married and leave your wife as the primary beneficiary and she passes before you, the contingent beneficiary would be “next in line.”

Joint accounts work a little differently.

On joint accounts, you’re both co-owners of the account, but you can have beneficiaries listed on the account.

Spouse and Three Kids

While you’re free to do as you wish, it’s most common for a person to leave their spouse as the primary beneficiary of their accounts. You should also list your kids as contingent beneficiaries so that if your spouse is no longer living, the account will go to your children.

It’s most common to offer an even percentage to each child, in this case, 33.33% share to each of the three children.

In certain cases, one of the children may receive 0.01% extra to make an even 100%.

Spouse and Two Kids Who Each Have Children

Every scenario is a bit different, and we really want to illustrate the importance of following beneficiary best practices. If you’re like most couples, you’ll:

  • Name your spouse the primary beneficiary
  • Name your children as contingent beneficiaries

Let’s assume that each of your children has a child, so you have two grandchildren. Your eldest child dies. What will happen to your grandchild? Does all the account go to the sole, living child?

You can put measures in place that allow you to pass the funds to your grandchildren. You can even pass the funds to children who may not be born at the time of naming your beneficiaries.

A strategy to use is called Per Stirpes.

What Per Stirpes does is allow for the funds, which you name for Child 1, to flow down their family tree if they pass away. You don’t even need to list the grandchildren on the account when using per stirpes.

Per capita can also be used, which means that the account goes to your kids only. In this case, if you have two kids and one passes, the other child will receive 100% of the account. You can also opt to give one child 75% of the account or 10% – it’s up to you. Certain clients opt to do this when one child makes significantly more money than another or they have a medical condition.

Children do have a right to disclaim their inheritance, which, if the benefit goes down the lineage, can have its tax benefits. Perhaps your child wants their children to inherit the money, so they disclaim their portion, and it goes to your grandchild.

If your grandchild doesn’t make any money or is in a lower tax bracket, this can be beneficial.

Annually, you need to review and update your:

Major life changes are a good time to review these documents, too. If you get married, divorced, have a child or grandchild, it’s a good time to look through your beneficiaries and be sure that everything is in order.

Schedule a 15-minute call with us if you would us to help you review your beneficiaries.

February 5, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 5, 2024

CLICK HERE TO WATCH THE UPDATE

Preparing To File Your 2023 Taxes in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Taylor discuss how to prepare to file for the 2023 taxes. The first things you should be looking at include your different sources of income and tax forms connected to that income. Listen in to learn the importance of working with a professional tax preparer to avoid misreporting different income taxes.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

Preparing To File Your 2023 Taxes in Retirement

Taylor Wolverton sat down with us to discuss prepping your taxes in 2023. Taylor helps our clients with a focus on tax planning, and she shares a wealth of information in our recent podcast that you’ll find invaluable. Waiting until the last minute to file your taxes is stressful. The earlier you begin, the less anxiety and stress you’ll experience. What do you need to be thinking about when preparing to file your 2023 tax return?

CLICK HERE TO READ THE BLOG

2023 Tax Planning to Tax Preparation in Retirement

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Taylor Wolverton sat down with us to discuss prepping your taxes in 2023. Taylor helps our clients with a focus on tax planning, and she shares a wealth of information in our recent podcast that you’ll find invaluable.

We’re going to be covering all the insights she provides in the podcast below, but feel free to listen to the episode, too.

Waiting until the last minute to file your taxes is stressful. The earlier you begin, the less anxiety and stress you’ll experience.

What do you need to be thinking about when preparing to file your 2023 tax return?

Gather Tax Forms

  • Report all 2023 Sources of Income; to name a few:
    • W-2 from your employer
    • Self-employment income and all amounts reported on 1099-NEC (nonemployee compensation)
    • 1099-INT for interest income 
    • 1099-DIV and/or 1099-B for investment income
    • 1099-R for IRA/401k/annuity/pension account distributions
    • SSA-1099 for Social Security benefits
    • Documentation of rental income
    • Any other income that applies to your situation

With money market interest rates around 4% – 5% this year, the interest reported from those accounts will likely be higher than you’re used to. If you made transfers to and from accounts in 2023 to take advantage of higher interest rates or for any other reasons, be sure that you track down your tax forms from both institutions. 

Rental Properties

Rentals are popular and allow you to make an income from properties you own throughout the year. We have many clients with rentals who will need to report this source of income on their tax return. Supply your tax preparer with as much documentation as you have available; deducting expenses associated with your rental property will lower your overall tax bill.

If you have an Airbnb or long-term rental, consider the following:

  • Work with a CPA/professional tax preparer to not avoid misreporting information
  • Maintain documentation on your rental income
  • Maintain documentation for all expenses relating to the rental
    • Include mortgage interest from your form 1098

Standard Deduction vs Itemization

Everyone who files a tax return can at least take the standard deduction. If you had certain expenses during the year that add up to a value greater than the standard deduction, you can use that value as an itemized deduction instead. If those expenses add up to less than the standard deduction, you’ll take the standard deduction since that will offer the greatest benefit in lowering tax liability.

Itemized deductions include:

  • Mortgage interest
  • Real estate property taxes on primary home
  • Personal property taxes
  • Charitable donations (subject to dollar limitations)
  • Medical expenses (subject to dollar limitations)

It can be a lot of work to gather the above information, but especially if you’ve just started working with a tax preparer that is new to you, it may be worth submitting all of these documents to see the outcome. If you took the standard deduction last year and these items haven’t changed much, you probably don’t need to supply all of these documents. Every person is unique and there’s no right or wrong answer for everyone.

Note: For the year during which you turn age 65, your standard deduction increases. Verify your date of birth with your tax preparer to be sure you are receiving the additional standard deduction; otherwise, you may be unnecessarily overpaying taxes.

Reporting QCDs on Your Tax Return

Qualified charitable distributions (QCDs) are something we talk a lot about because they’re such a valuable tool for anyone who is charitably inclined. You can donate to whatever charities you’d like to support while reducing your tax bill in doing so. As an example, let’s assume you’re in the 22% tax bracket and made a $1,000 QCD. As long as you meet the requirements, you’ll save an immediate $220 in federal tax. 

Overview on QCDs:

  • Must be over age 70.5 when the donation is made
  • Donation must be distributed directly from your IRA and be sent to a 501(c)(3) charitable organization
  • Limited to donating $100,000 through this method in 2023
  • The donated IRA distribution is completely federal and state tax free because you won’t claim the distribution as income on your tax return

QCDs are reported as normal distributions on form 1099-R from your IRA. For that reason, you will need to be the one to provide the additional context to your tax preparer by letting them know the dollar amount of the QCD. For example, let’s assume you took $50,000 in distributions from your IRA and also made a QCD of $5,000 from the same IRA account in 2023. Your 1099-R will show $55,000 in distributions with no specification that $5,000 went to charity. You need to be the one to let your tax professional know to input the $5,000 as a QCD. Otherwise, it may be reported as a fully taxable distribution which negates the whole purpose of QCDs and may result in an unnecessary overpayment in taxes. 

Reporting Roth Conversions and Contributions on Your Tax Return

Like QCDs, tax forms reporting Roth conversions will not differentiate Roth conversions from normal distributions. It is true that whether it was a distribution to your checking account or a conversion to your Roth IRA, the distribution is taxed the same; however, not specifying that it is a conversion can have other consequences. 

If you’re under age 59 ½, you cannot take a normal distribution from an IRA without penalty (unless you meet certain exceptions), but you are eligible for Roth conversions at any age. It will be helpful for your tax preparer to know the additional context around the dollar amount of the Roth conversion to eliminate any unnecessary penalties that would otherwise attach to early distributions from an IRA. 

The second important specification is not just that it was a Roth conversion, but WHEN it was processed. If the WHEN is not communicated to the tax preparer, it could put you in danger of owing unnecessary underpayment penalties. For example, one of our clients did a Roth conversion in November and paid estimated taxes in November. Since the IRS is a pay-as-you-go system, they want you to pay taxes at the same time you’re receiving income/distributions, so the timing is another detail that will be important for your tax preparer to be aware of.

Context matters!

Reporting Contributions on Your Tax Return

Roth IRA contributions will not impact your taxes and are not reported on tax returns at all. You will receive a form 5498 from the account you contributed to, but oftentimes, this form isn’t available until May. You don’t need to delay submitting your tax return until you receive this form as it is just to show the contributions that you made.

If you do have any questions and are a client of ours, feel free to give us a call and we’ll help clarify anything that we can.

Want to schedule a call with us?

Click here to book a call or reach us at (919) 787-8866.

January 29, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for January 29, 2024

CLICK HERE TO WATCH THE UPDATE

Cybersecurity Safety in Retirement

Listen in to learn the importance of staying informed and taking precautions when using the internet instead of avoiding it. You will also learn the importance of having strong passwords, changing passwords when you suspect maliciousness, setting up two-factor authentication, and more.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

Cybersecurity Safety in Retirement

On the Secure Your Retirement podcast, we had a very special guest to discuss cybersecurity safety in retirement. You’ve worked your entire life to retire one day, and with how everything is digitally connected, it’s scary how in a split second, someone can steal your identity.

Retirement planning in the digital age really requires a discussion on cybersecurity and what you can do to protect yourself.

CLICK HERE TO READ THE BLOG

Cybersecurity Safety in Retirement

Written by

On the Secure Your Retirement podcast, we had a very special guest to discuss cybersecurity safety in retirement. You’ve worked your entire life to retire one day, and with how everything is digitally connected, it’s scary how in a split second, someone can steal your identity.

Retirement planning in the digital age really requires a discussion on cybersecurity and what you can do to protect yourself.

Joseph O’Donnell of Terrapin Technology Group was happy to sit down with us and answer a lot of the questions that we had about cybersecurity.

Note: Our employees and firm must go through training to protect our clients and maintain our license. We all train in cybersecurity to better protect clients and reduce the risk of working with us financially.

Phishing Emails – A Growing Concern

Phishing emails, voicemails, or text messages can be fraudulent. Scammers hope that you “take the bait” when they call or send these messages. For example, you may receive an email that appears to be from someone you know asking for money or from your child asking for your bank account password.

The emails may match up to the person’s email and look 100% real.

But someone may have hacked into your child’s email account and is now trying to “phish” for you to take the bait so that they can steal your identity and/or money.

Phishing emails often have:

  • Threat
  • Urgency

You may click on a link that looks like Amazon, enter your credit info, and then submit that information to the hacker without even knowing it.

It’s common for these emails to say things like:

  • Someone accessed your credit card account. Can you verify it?
  • Your Amazon package is missing. Please log into your account. 

In either case, links in these messages never lead to a legitimate website.

Determining What is Phishing and What’s Not?

Text messages, calls, and emails have become so convincing that it’s very challenging to know what’s real and what’s not anymore. Even tech-savvy people and those trained in cybersecurity may be tricked into handing over their information.

How do you tell what’s real or not?

If you think, “I have an anti-virus, I’ll be fine,” you’re not safe. Phishing emails do not fall under the umbrella of the anti-virus. Phishing emails are difficult to protect against because human responses are involved. If there’s a “threat,” such as you’re over balance, it’s a threat in the sense of urgency.

If you find yourself receiving an urgent message like the examples we’ve shared, it’s important to:

  • Step back from the computer or email app
  • Call the bank or lender directly (not using the info provided in the email)

You should consider everything as being unsafe when it comes to emails like this and fall back to traditional phone calls or other forms of communication.

The minute you trust an email, it’s a foothold for the hacker to have you:

  • Send information
  • Fill in your passwords

Even if you receive a call saying, “Your Amazon card has been charged $3,220,” hang up and call Amazon. You always want to call:

  • The number on the back of your credit card
  • The number of your bank

Never, ever click on the link in the email or call the number in the email because these can all be made to look legitimate, but in reality, be very elaborate fakes.

The “I Fear All the Problems of Being Online, So I’m Just Not Going to Be Online” Attitude

We have clients in all age groups who are afraid to be online and tell us that they’re just not going to participate because the risks are too high. This response is similar to driving a car: you may be in an accident, but do you stop driving?

Often, you continue to drive or ride in cars but remain diligent and take necessary precautions, such as:

  • Insurance
  • Braking early
  • Checking each direction twice

Your best security is to be informed because even if you don’t use the Internet, when you go into stores to use a credit card, there is a data point created on you.

Plus, staying off the Internet also makes it more difficult to find information or interact with the world.

Fraud happens online and offline, and we’re seeing more texts and phone calls come in that are phishing for your information. You may receive a very convincing call about your bank account and provide things like your last four digits of your Social Security Number. But what’s really happening is:

  • The person is logging this data
  • The person plans to call your bank using this data
  • The person wants to steal your identity or transfer your money to themselves

Unfortunately, we live in a world where there are scammers who will leverage anything they can for financial gain of some sort.

Navigating Data Breaches and What Happens If You’re a Victim

Data breaches happen a lot. If you become a victim, there are often millions of other names on the list who are also at risk of their identities being sold. We also only have so much time. While you may know that you should have different passwords for all your accounts, it’s not uncommon for people to use the same passwords across multiple accounts because it’s easier.

The problem?

One password can unlock multiple accounts in a data breach if you reuse the password often. Even Joe has reused the same password across multiple accounts, and when that happens, you risk the password hitting the dark web at some point.

23andme had a recent data breach, due to a weak password, and it had a cascading effect on other people’s information being stolen. The hacker used the person’s password, which was likely a:

  • Kid’s name
  • Password1234
  • Anything else that’s easy to guess

If you do receive a notice to change your password or are notified of a data breach, be sure to change this password on all accounts that it’s associated with. Hackers may know your 23andme password, but if it’s the same as your bank and email account, they can also gain access to these accounts.

Whether the account is your Facebook, email, bank, or something else, be sure to enable two-factor authentication.

Yes, it’s an extra step to take, but it will safeguard your account.

If you don’t know what two-factor authentication (sometimes multi-factor, MFA or 2FA) is, it’s when the website will send you a text to verify that the person logging in is really you. Since a hacker won’t have your phone, it’s one of the best security measures that you can take.

Effectively, two-factor authentication will require you to enter your email and password, and then it will:

  • Call your phone, or
  • Send an email with a password, or
  • Send the code on an authentication app, or
  • Send you a text

Hackers are stopped cold in their tracks when you have two-factor authentication in place.

Using Password Managers

You may have heard of LastPass, Bit Warden, 1Password, Google’s password manager and others. These managers allow you to use sophisticated, complex passwords on multiple accounts and you only need to remember the password to the manager.

If you do use a password manager, you want to be sure that the data is encrypted.

Joe doesn’t recommend that you use a browser password manager unless it’s for something that isn’t really important, such as your New York Times account or something like that.

Cybersecurity is a topic that we’ll be discussing throughout the year to help you protect your accounts and identity online.

Click here to schedule a call with us to talk about securing your retirement.