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 22, 2024
In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the risk and reward concept in retirement investing and how your age and life experiences will impact it. You will also learn how to avoid uncertainty and unpredictability with an investment strategy and the importance of a good long-term strategy and a diversified investment portfolio.
For a moment, you might be up and doing pretty well, but just like the stock market, things changed quickly. Risk and reward are crucial in retirement planning. You can roll the dice on investments and certain things a little more when you’re younger, but many want to limit rolling the dice when you’re 5 or 10 years away from retiring.
We were recently at a conference in Las Vegas, and it made us think about the retirement gamble. Gambling isn’t for everyone. Someone will hit a jackpot, but others simply aren’t good at it.
Murs went into the casino, and within ten minutes, he had lost the $100 he had set aside.
For a moment, he was up and doing pretty well, but just like the stock market, things changed quickly. Risk and reward are crucial in retirement planning. You can roll the dice on investments and certain things a little more when you’re younger, but many want to limit rolling the dice when you’re 5 or 10 years away from retiring.
When Does Risk Change in the Retirement Gamble?
Risk doesn’t matter as much when it’s money that you have set aside. If you put $10,000 into crypto using money that wasn’t going to be for retirement and whether you lose it or it triples, the outcome will likely feel different because you used money that was set aside. However, risk should be tamed the closer you get to retirement because you don’t want to have to be in the workforce for an additional year or two or more due to too high of risk.
Your risk tolerance can change at any time, but we often see two main circumstances where it changes:
Life experiences and milestones
Age
We have some clients in their 80s that are rather aggressive investors, and they’re often business owners who have dealt with ups and downs regularly.
Other clients are much younger and more conservative in their investments because they’ve been burned on investments in the past. These clients don’t want to deal with losses like they did in 2008.
Of course, the stock market is risk and reward, but there’s a stark difference between the risks of certain stocks. One stock may be in a dying industry, while another is a major grocery chain with less risk.
There’s no absolute wrong or right answer to the risk that you’re willing to take. We help our clients manage risk based on their tolerance so that they can be confident in their retirement strategy.
Uncertainty in Your Investments and Retirement
When people sit down and really start retirement planning, it’s common to have some uncertainties. You’ve never lived through retirement, and you don’t have experience knowing how to transition to using your retirement funds to:
Pay the bills
Derive income
Address taxes
You can have predictability and certainty in your retirement plan. Rules, just like at the casino, can help you manage your money so that it lasts the rest of your life. Plans allow you the freedom to leverage advanced tax strategies and have a steady stream of income from retirement that allows you to live the life you want without running out of the money you worked hard to invest and save.
Instant Gratification vs a Good, Long-term Strategy
Picture back in 2020, during the pandemic, there were MEME stocks, such as Bed Bath and Beyond and FOMO (fear of missing out). You would see on the news that investors were riding on the coattails of certain stocks, and everyone would follow the crowd.
Ultimately, these people who followed the crowd lost a lot of money because many of these stocks were being over-inflated.
People had a lot of fun with these trends, but as a long-term strategy, these trends ended up failing. A long-term plan is your best choice for retirement. We believe in multiple “buckets” in retirement so that all your money isn’t tied to the market.
For our longtime listeners and readers, you know we often discuss a few main buckets:
Growth
Safety/income
Safety/income buckets may make a 4 – 6% return in the next few years, and they’re not tied to the S&P 500. You can be confident that this money will be there for the next 10 – 20 years.
Growth buckets are separate from the safety and income buckets.
We can act like we’re in the casino with a growth bucket, still investing wisely, but your safety/income bucket is secure, and you can ride the ups and downs of the market. Volatility is here to stay in the market and it’s important to have a long-term strategy in place that allows you to secure your retirement and still make a nice return on investments.
Diversification in Retirement
You don’t want to put all your eggs in one basket or bet everything you have on one investment. A savvy gambler will put money on multiple games, and that’s what you should consider doing in your retirement.
For example, if your growth bucket has a high level of diversification, you hedge against losses and still have your safety/income bucket to rely on.
If the market goes down, you don’t have to stress or the emotions of the S&P 500 being down 20% because you have the money in your safety bucket to maintain your lifestyle. Your safety bucket allows you the freedom to let the stock market go back up again because history shows us that it will go back up if enough time passes.
It’s easy to see stocks down and sell because you’re down hundreds of thousands of dollars. But you’re less likely to sell at a loss and make a rash decision like this when you have other money to rely on.
Psychological Aspects of Investing
Investments are a gamble. Sometimes, people get stuck, and they say well, “I lost $1,000, but I have a good feeling this stock is going to rise.” Behavioral finance shows that sometimes people make decisions they may later regret based on what’s happening at the moment.
A sound strategy allows you to take a step back and avoid making rash decisions because you lost money in the stock market.
It’s inevitable that you will lose money in the market – periodically – but these losses are very likely to turn around. Going into the market with a plan of action and staying the course (with tweaks along the way) is better than making rash, costly decisions.
We don’t want you to gamble with your retirement.
Work with someone who will help you with investing, tax planning, Social Security and all of the other aspects of retirement. It’s helpful to have a professional in your corner who can help you navigate the different aspects of retirement.
We don’t have all the answers, but we have people on our team who can help.
The SECURE 2.0 Act changes the rules a little bit for someone who is in the middle of retirement planning and wants to help pay for a child’s education using a 529 plan. For many, funding one of these accounts is a very proud moment – and it should be.
We’re going to explain what 529 plans to Roth IRAsmean and how they work together.
What are 529 Plans?
A 529 plan is known as a college savings account, but it can also be used for private school. What you do is fund this account and then when you need to use money for qualified education expenses, the withdrawals are tax-free.
What’s advantageous about withdrawals being tax-free?
A 529 is an investment account, so if you put away money early enough and compound interest adds up over time, you don’t need to worry about capital gains. The entirety of the growth is tax-free, with the caveat that the money be used for qualifying educational purposes.
Who Should Setup a 529?
A 529 account is very flexible. You can:
Set the account up for your grandchild
Allow the parents to set the account up
Choose the right setup option for you from a convenience perspective. You can have your parents and in-laws deposit money into the 529 account, and trust me, every little bit counts.
It may be easier to have one 529 account, but if you do want to be the owner of the account, you can do that, too.
If you have two grandchildren or children and one doesn’t go to school, you can transfer the account to another beneficiary. Money that comes out of the account for non-educational purposes will lose the tax benefits of the account.
2024 Ruling on 529 Accounts
Prior to the new ruling under the SECURE 2.0 Act, you had to worry about how much you funded the account because you could wind up with this scenario:
You fund a four-year tuition, BUT
The beneficiary goes to a two-year school
Since there would be excess funds in the account, they would be taxable when withdrawn from the account.
Under the new rule, you can roll unused 529 money into a Roth IRA.
You can roll a certain amount of money into a Roth IRA for the beneficiary. The keyword here is a certain amount of money.
For example, you cannot put $100,000 into one of these accounts in hopes that you can circumvent the law and roll it into the beneficiary’s IRA.
Rules for the 529 Plans to Roth IRA Accounts
While you can convert the 529 to a Roth IRA, there are three main rules that make it more challenging than people think. Let’s go with the example that you have $100,000 in a 529 account for a beneficiary.
The beneficiary is 18 and uses just a portion of the funds.
Previously, you would have a penalty for taking the money out of the account for non-educational expenses. You can now convert this money into a Roth IRA account, but there are stipulations. Here are the requirements:
There’s a 15-year holding period, meaning that you must hold the account for 15 years before you can roll it into a Roth account.
There are annual limits for an IRA or Roth conversion. For 2023, this figure was $6,500, so you could only convert up to this amount each year.
The total lifetime rollover amount from a 529 to an IRA is $35,000.
The ownership of the 529 to the Roth IRA must be the beneficiary of the 529 account. You cannot roll the money over into a Roth IRA for someone else if there are funds left in the account.
We expect greater clarification of these rules in the future, but as of right now, these are the rules.
Remember, to fund an IRA, you need to have earned income. If the child is to roll $6,500 per year from the 529 to the Roth IRA, they need to have an earned income of $6,500.
Contextually, if you hold the 529 account for 15 years, the child is likely 20 and may have a part-time job where they already have the earned income necessary to convert their account into a Roth IRA account.
It is also very likely that the caps will rise.
Fund the 529 Account with the approach that the child may go to school or may have scholarships that cover the cost of education. We recommend funding these accounts, but it’s important to keep these points in mind so that you don’t over-fund the account.
We recommend that your child opens a Roth IRA as early as they can so that they can grow their money tax-free. Even if the child has a job as a teenager, they can open up their own Roth IRA.
Opening the Roth as soon as possible allows the money in the account to continue growing tax-free.
Since these rollovers are brand-new, we’ll be getting clarification of the rules as time goes on. Even if you put just $100 a month into one of these accounts, it adds up over the course of 15 years.
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 8, 2024
Understanding Medicare Advantage Open Enrollment in Retirement
In this Episode of the Secure Your Retirement Podcast, Radon and Murs have our in-house Medicare specialist, Shawn Southard, discuss the Medicare Advantage open enrollment. With an education background and a servant’s heart, Shawn is passionate about helping people find the right Medicare plans. Listen in to learn about the benefits of a Medicare Advantage plan and the reasons for the Medicare Advantage open enrollment period.
Understanding Medicare Advantage Open Enrollment in Retirement
Medicare is such an important part of your life as you age and secure your retirement, but it’s often overlooked in retirement planning. You may have to pay IRMAA surcharges and really need to begin planning to get the most out of your benefits. We’re happy to have had Shawn Southard on our podcast this past week to discuss Medicare Advantage Open and what it means for our listeners and clients.
Medicare is such an important part of your life as you age and secure your retirement, but it’s often overlooked in retirement planning. You may have to pay IRMAA surcharges and really need to begin planning to get the most out of your benefits.
We’re happy to have had Shawn Southard on our podcast this past week to discuss Medicare Advantage Open and what it means for our listeners and clients. Shawn works in-house for us and will be helping all our clients with their Medicare needs.
Throughout the year, there are a lot of Medicare-related things that pop up that we really need to focus on.
Note: Every month, we plan on having Shawn on the show to discuss questions that our listeners may have.
Medicare Open Enrollment Period
Medicare has quite a few enrollment periods that are easy to overlook. You can enroll when:
You turn 65 years old
You’re working past 65, retire and leave your health plan.
Annually, from October 15 – December 7 (this is when 95% of beneficiaries make changes to their plans)
January 1 – March 31st for Medicare Advantage policyholders, who can change plans or disenroll if they wish.
Medicare Advantage Open enrollment is what anyone reading this blog or who watched our episode will need to think about in January until the end of March.
What is a Medicare Advantage Plan?
Medicare Advantage plans, at a very high level, are often organized into parts by letters. But before we go into that, original Medicare is broken into:
Part A: Hospital coverage
Part B: Medical coverage
Part D: Prescription Drug coverage, optional but will incur lifetime penalty if not enrolled when eligible.
Part C is the Medicare Advantage plan. Medicare Advantage helps round out your Medicare. These are private plans that go through the insurance companies and are approved by Medicare. Each plan must offer the same Part A and B coverage as your original Medicare plan, but it is a private plan.
The Advantage plan offers additional benefits, such as:
Preventative Dental
Preventative Vision
Hearing Exams
An Advantage plan may also combine your prescription coverage into the plan, but you’ll need to review each plan to learn more about the coverage offered.
Why Join a Medicare Advantage Plan Over Original Medicare?
A lot of you may be thinking, “Why would I switch from original Medicare to an Advantage plan?” One of the main reasons to make the switch is that original Medicare is only for things that are deemed medically necessary.
Medicare Advantage plans add in coverage for:
Annual physical exams
Dental cleanings
Eye exams
Hearing exams
Original Medicare plus a Medigap plan is an option, but this option comes with a premium that ranges from $130 – $150 per month.
Medicare Advantage has many great plans that have $0 premiums.
For a retiree, an Advantage plan often makes a lot of sense because they’re on a fixed income.
Why Someone May Not Choose a Medicare Advantage Plan
Advantage plans seem very advantageous, but they’re also not for everyone. A downside of Medicare Advantage is that they are network plans:
Health Maintenance Organizations (HMOs), smaller network
You’ll need to go to someone in your network if you have an Advantage Plan. Original Medicare doesn’t have networks, so it’s easier for you to travel. You don’t need to worry about the provider being in network as long as they accept Medicare.
Medicare Advantage HMO requires you to stay in network. A PPO does have out-of-network options, but you may pay more for the services.
You need to consider the following when choosing a Medicare path (Original Medicare/Medigap or MedAdvantage):
Health
Lifestyle
Budget
Medicare is complex, and it’s easy to make a costly mistake along the way because of the amount of misinformation that exists. It is in your best interest to consult with a Medicare specialist before making any changes to your plan.
Why Someone May Want to Switch Medicare Advantage Plans
Since we’re in the enrollment period where someone can switch Medicare Advantage plans, the question arises: why would you switch plans?
Often, a person wants to switch Advantage plans because:
Doctors that they have been going to are no longer in their network, so they switch to a plan that allows them to retain the same doctor that they know and trust.
They plan to move and the new service area does not have their providers in network.
Shawn helps our clients choose the right plan for their medical needs and lifestyles. He has a strong educational background as a high school teacher and corporate trainer. In fact, his background as an educator is why he joined our team. He aims to educate each client, based on their individual needs, to find the best Medicare path.
Shawn needs to know your health/medical conditions, any prescription drugs you are taking, and your lifestyle (such as traveling) to help you select the right type of Medicare plan for you.
Medicare is complex – especially if it’s not something you work with every day.
If you want to have an in-depth discussion about your Medicare situation and ensure that you’re on the right pathway, feel free to reach out to Shawn.
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 2, 2024
What Are You Getting for the Fee You Are Paying in Retirement?
Listen in to learn about the three major types of financial advisors and what each offers you. You will also learn about categories of our Wealth Integrated Management System: specialized investment strategy, a retirement-focused financial plan, tax strategy, estate planning, and other ever-evolving elements to cater to our clients’ needs.
What Are You Getting for the Fee You Are Paying in Retirement?
You may already have a financial advisor or are shopping for one, but you may not know what you’re getting for the fee that you’re paying. We’re going to try our best to outline multiple categories of fees to help you get your head around what different advisors may charge and why.
Listen in to learn the different episodes with information about what you need in retirement, including a power of attorney, estate planning, retirement income strategies, and more. You will also learn about the episodes on long-term care planning options, plus the basics of continuing care retirement community (CCRC).
Every week, we have podcasts come out, and as new listeners find us, it can get very tedious to find all the resources we provide. This week we have prepared an End of 2023 wrap up to highlight some of the episodes from this year.
You may already have a financial advisor or are shopping for one, but you may not know what you’re getting for the fee that you’re paying. We’re going to try our best to outline multiple categories of fees to help you get your head around what different advisors may charge and why.
What are You Getting for the Fee You Pay an Advisor?
Fees vary greatly from one type of advisor to another. We’re not going into this saying one fee is good or one is bad. For example, if I said I bought a $3,000 car, what would you think? You would assume it’s not the latest model on the market and doesn’t have a backup camera, lane assist, or any of the fancy features a higher-end vehicle might have.
A $50,000 car will have all the bells and whistles, but you may not need all those features.
Financial advisor fees are very similar. Lower fees often mean that you’re doing more, and the advisor is doing less for you. But if you don’t need some services or don’t mind having a hands-on approach to retirement planning, then the lower fees are perfect.
With this in mind, let’s dive into the meat of the fee world.
Fees in the World of Financial Advisors
You may come across the following fees when working with a financial advisor:
Transactional Fee
An hourly fee is exactly what it sounds like. You pay an hourly rate in a pay-as-you-go type of scenario. The planner may also have a set fee for certain services. In many cases, you’ll meet with this person once or twice per year, and then you are responsible for executing the plan.
If you’re the type of person who does the following, transactional fees may be good for you:
Does their own taxes
Paints their own house
Does their own yard work
Many people don’t want to build their own portfolio and would rather spend time with their family, but for others, it makes more sense to have a transactional fee.
Assets Under Management Fee
In an assets under management fee structure, you’re charged a percentage of the assets that you entrust under the advisor’s management. Fees can range anywhere from .3 or .4% to 2 or 2.5%.
So, if you have $1 million in assets that the person controls, your fee at a 2.5% rate would be $25,000 per year.
Fees vary by region, investment strategy, types of assets and advisor.
Commission-based
In some scenarios, the advisor may be paid a commission for insurance products that they sign their clients up for or for stock purchases.
Assets Under Management Fees are the Most Common
As a financial advisor, we see that assets under management is the most common fee structure. While the range can be great, we see most advisors charging 0.75% – 2% fees, and the more assets under management, the lower the fee percentage will be.
What do you get for these fees?
Full-service or Concierge Service
You’ll pay the highest fee for this type of service, but you enjoy the most hands-off experience possible. You’re working with a specialist who handles your retirement planning and strategy for you.
In our business, we call this the integrated wealth management system and cover things like:
Investment-How do we invest for a return with good risk management in place?
Retirement-focused financial plan-We cover where you are today, Social Security, and whether you will have the money you need to reach your retirement goals.
Tax strategy-As you accumulate wealth, you have money in multiple buckets, and we want to pay attention to withdrawals and how that will impact you today and in the future. Minimizing your tax burden is really the goal for us in this regard. We can save some clients thousands of dollars by finding tax mistakes or employing other tax-saving strategies.
Estate planning– In this category, we’re talking about wills, trusts, power of attorney, life insurance and more.
We also cover things like continuous care scenarios or long-term care, and it just keeps evolving. Our in-house Medicare Specialist works with our clients to help them onboard for Medicare, find the best solutions for them and really ease our clients’ minds in the long term.
If you’re not sure which fee structure is best for you, consider the following:
Lower fees mean that you take a hands-on approach
Higher fees mean that you take more of a hands-off approach
For our fee, we try to cover everything for our clients, from tax planning to Medicare and estate planning. You may not need this high of a level of service, but it’s often the difference between 0.75% and 2%.
So, when searching for a financial advisor, be sure to know exactly what you’re getting for your fee because it can be substantial.
Every week, we have podcasts come out, and as new listeners find us, it can get very tedious to find all the resources we provide. This week we have prepared an End of 2023 wrap up to highlight some of the episodes from this year.
Reviewing 2023’s Episode List
Finding an episode on your respective listening platform will vary, so we’re going to provide:
Title
Episode number
Date
We’ll also link to the location on our website where you can listen to each podcast to make it a bit easier to find.
Ep. 193 – Navigating The Decision to Retire Now or Work Longer – January 16, 2023
If you’re wondering if you can retire or if you’re ready to retire, you’ll love this episode. It can be an overwhelming process, so we take some time to outline important considerations such as:
Budgeting
Health and Age
Goal and Interests
This episode helps you think through your financial readiness to secure your retirement.
Ep. 197 – 10 Reasons Everyone Needs a Power of Attorney in Retirement – February 13, 2023
Anything can happen at any time. A Power of Attorney, particularly a Durable Power of Attorney, is one that we’ve seen come up a lot this year with clients. Disability or incapacitation can happen at any time.
We outline 10 very important reasons to have your Power of Attorney documents in order, including:
Protecting Privacy
Dealing with Tax Matters
Having Someone to Manage Your Finances
A Power of Attorney is up there in importance with your will and HIPAA authorization.
You’ll learn the ins and outs of Power of Attorney documents in this episode.
Ep. 201 – Do You Need a Trust in Retirement? – March 13, 2023
We did quite a few episodes on trusts this year because they’re such an important part of retirement planning. We’ve partnered with professionals in this area so that our clients can easily have a trust put in place for them.
In this episode, we interview Andres Mazabel at Trust & Will. He addresses the common question, “Do I Need a Trust?”, to really help you understand if a trust is right for you or not.
Ep. 204 – Social Security Spousal Benefit in Retirement – April 3, 2023
Social Security has a lot of complications, which is why we brought Heather Schreiber on to explain how spousal benefits work. In our example scenario, one client has worked their entire life, and his spouse did not.
His spouse assumed that without working, she wouldn’t have Social Security, but we explained how she would receive $1,700 a month in benefits.
For many couples, an additional $1,700 in benefits is completely finance-altering. If you’re close to Social Security age, this is certainly a good episode to listen to.
Ep. 208 – Maximizing Tax Benefits by “Bunching” – May 1, 2023
If you’re charitably inclined, you can leverage “bunching” and donor-advised funds to save money on your taxes. In the episode, we discuss how you can bunch multiple years of contributions into one so that you can take a larger deduction.
Utilizing this strategy has saved some of our clients hundreds or thousands of dollars.
Ep. 217 – You Have Enough to Retire, but How Do You Create an Income – July 3, 2023
Creating income is challenging when you’re in the accumulation phase of life transitioning into the retirement phase. In this episode, we discuss how to put assets into buckets and methods that you can follow to have a consistent income.
We talk about sequence of return risks and how to really have fun in retirement.
Ep. 219 – Annuities or CDs – What You Should Consider – July 17, 2023
Last year, interest rates rose. For annuities and CDs, interest rates were favorable and therefore quite attractive to many people. In this episode, we cover what you need to think about when deciding between an annuity and a CD.
Ep. 223 – Protecting Against Cybersecurity Threats – August 14, 2023
Cybersecurity is something that you may not expect to see on this list, but it’s a crucial topic that demands attention. Around this time of year (the holiday season), threats increase dramatically.
You may receive spam and phishing threats from many directions, including texts and emails.
We outline 14 items for you to consider to help protect yourself from these threats going into 2024.
Ep. 224 – Long-Term Care Planning Options – August 21, 2023
Long-term care planning is something no one wants to think about, but it’s something that you really must dive into before you need it. Our guest Jessica Iverson talks with us about how this form of planning has evolved, the breakdown of increasing costs, and alternative options that are available.
You do have options where you’re not stuck in a “use it or lose it” scenario, which is what we cover in great detail in this episode.
Ep. 226 – Integrated Wealth Management Experience in Retirement – September 4, 2023
In this episode, we look at what integrated wealth management means and how it works in our practice. You will be interested in this episode if you want to know how we address:
Ep. 234 – Roth IRA – 5-Year Rule – Your Retirement – Part 2 with Denise Appleby – October 30, 2023
Denise Appleby was our special guest during this episode, and she discusses Roth IRAs in such great detail that it’s a must-listen. We go over the rules for Roth accounts and conversions from start to finish in a nice and easy manner.
Ep. 235 – The Art of a Risk-Adjusted Portfolio in Retirement – November 6, 2023
Risk in retirement exists, but you can use a risk-adjusted portfolio to hedge those risks. We explore determining risk tolerance and some of the strategy behind investment styles. We also take some time to define terms like:
Ep. 236 – Rae Dawson – The Basics of a CCRC – November 13, 2023
Note: Rae was also on for Episode 236 on November 27 (listen here) for Part 2.
Rae teaches a class on Continuous Care Retirement Community (CCRCs) at Duke University, and joined us on the podcast to dive in on the basics, such as:
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 December 18, 2023
Tax rate numbers for 2024 are out, and it’s important to understand them to make the necessary adjustments and know how your income will be affected.
Listen in to learn how the progressive tax system works and the importance of understanding your marginal and average tax rates. You will also learn about the 2026 tax rates sunset, long-term capital gains tax rates, standard deductions, and much more.
Tax rates are something everyone “loves.” Wrapping up at the end of 2023, new tax rates for 2024 have been released. If you’re funding your 401(k) or other retirement accounts, you may need to adjust for new contribution maximums.
We have a lot of important numbers that we’ll be going through in this article…
Tax rates are something everyone “loves.” Wrapping up at the end of 2023, new tax rates for 2024 have been released. If you’re funding your 401(k) or other retirement accounts, you may need to adjust for new contribution maximums.
We have a lot of important numbers that we’ll be going through in this article, but if you want a checklist, please send an email to info@pomwealth.net.
It’s common to assume that if you’re in the 32% tax bracket, all income will be taxed at the 32% rate. Thankfully, in the United States, we have a progressive tax code which means that different portions of income are taxed at different rates that build upon each other.
For example, a couple with $250,000 of taxable income in 2024 that are under the status married filing jointly will calculate their federal tax liability in the following manner:
10% on the first $23,200 of taxable income (which is $2,320 in tax)
12% on the next $71,100 of income between $23,200 – $94,300 (which is $8,532)
22% on the next $106,750 of income between $94,300 – $201,050 (which is $23,485)
24% on the remaining $48,950 of income exceeding $201,050 (which is $11,748)
In total, this couple would owe $46,085 in federal tax; this is much different in comparison to the entire $250,000 of income being taxed at 24% since that would result in a tax liability of $60,000. Because different portions of income are taxed at different rates, blending those rates together to calculate an average rate of tax can put into perspective what amount of income is actually paid towards federal tax. In this example, the couple’s average federal tax rate is 18.4%. What that means is for every $100 of taxable income this couple has in 2024, they are paying $18.40 in federal tax. NOT $24.
For your reference, the current ordinary income tax brackets are:
Tax Rate
Single Filer
Married, Filing Jointly
Head of Household
10%
$0 to $11,600
$0 to $23,200
$0 to $16,550
12%
$11,600 to $47,150
$23,200 to $94,300
$16,550 to $63,100
22%
$47,150 to $100,525
$94,300 to $201,050
$63,100 to $100,500
24%
$100,525 to $191,950
$201,050 to $383,900
$100,500 to $191,950
32%
$191,950 to $243,725
$383,900 to $487,450
$191,950 to $243,700
35%
$243,725 to $609,350
$487,450 to $731,200
$243,700 to $609,350
37%
$609,350+
$731,200+
$609,350+
In 2026, the tax laws are going to “sunset,” meaning that unless a major political change takes place, the 12% tax bracket will increase to 15%. The 22% bracket will move to 25%, 24% is going to 28%, etc. This will impact everyone who files a tax return.
What is the standard deduction?
The standard deduction is available to everyone and varies according to your tax filing status. This deduction decreases the amount of income you will pay tax on. In 2024, the standard deduction is:
Married, filing jointly (MFJ): $29,200
Single: $14,600
What this means is that if you’re filing under the status MFJ, you will not pay tax on the first $29,200 of income you have in 2024. For example, with gross income of $40,000, subtracting the standard deduction of $29,200 leaves $10,800 of income that will be subject to tax. If in any year, your income is below the standard deduction, you will not owe any federal tax and may not even be required to file a tax return that year. If you are over age 65 or blind, you will receive additional deductions on top of these figures. The standard deduction is adjusted for inflation.
Long-term Capital Gains
A long-term capital gain is income from the sale of an asset that has been held longer than one year. Capital gains assets include:
Real Estate
Investment securities such as stocks and bonds
Other tangible assets
Let’s say that you purchased stock at $10,000 five years ago, and today it’s worth $15,000. If that stock is then sold today, the $5,000 growth is taxed as a long-term capital gain.
Long-term capital gain tax rates are favorable because they are different from and typically lower than ordinary income rates:
With taxable income less than $94,050, you will pay a 0% tax on capital gains
With taxable income between $94,050 and $583,750, you will pay a 15% on capital gains
With taxable income exceeding $583,750, you will pay a 20% tax on capital gains
Note: These figures are for the tax filing status married, filing jointly. Rates for the other tax filing statuses vary.
Based on these examples, you may want to consider selling 50% of a stock now and the rest after the New Year to avoid a large capital gains tax all in one year. You may even consider tax loss harvesting to mitigate gains.
Social Security Taxation While Working
When you’re working and earning an income, you pay what is called FICA tax on your earnings. FICA is money that you contribute to Social Security and Medicare. After a certain amount of earnings, you no longer pay into the Social Security portion of FICA tax; in 2024, that limit is reached at $168,600 of earned income. So if you make $200,000, you don’t pay the social security portion of FICA on the amount over $168,600.
Social Security Benefits at Retirement
In 2024, social security benefits will receive a cost-of-living adjustment (COLA) of 3.2%, which is an adjusted rate based on inflation that puts more money into your pocket.
Anyone who takes Social Security before full retirement age will be limited on the amount of money they can earn, which is $22,320. If you earn more than this amount, you will have some sort of penalty on this overage.
It’s common to assume that social security benefits are tax-free, but if you have a certain amount of income, you may have to pay tax on your benefits. Your social security benefits can be:
0% taxable
50% taxable
Up to 85% taxable
The portion of social security that is taxable to you depends on the amount of other income you have. We do have a full episode on Social Security and taxes, which we recommend that you either listen to here or read here.
Medicare Premiums
If you receive Medicare Part B and Part D, you will pay a monthly premium. In 2024, the standard monthly premium is $174.70 for Part B. If your income exceeds certain thresholds, you may also pay a surcharge in addition to your standard Medicare premiums. This is called the income-related monthly adjustment amount, or IRMAA. IRMAA is another complex topic that we’ve covered in great detail on our podcast and in a blog.
If you’re married, filing jointly with income below $206,000, you won’t pay a surcharge. If you earn between $206,000 and $258,000, you’ll pay an additional surcharge of $69.90/month/person. Medicare Part B surcharges can be as high as $419.30/month/person for income $750,000 or higher. The surcharges are adjusted per year based on your income.
This is why taking IRMAA into consideration is important when planning for a Roth conversion or year with high income for other reasons.
Plan for Savings Going into 2024
Retirement planning is all about saving now so that you can retire in the future. If you automated your 401(k) contributions to max out last year and want to do the same in 2024, you will need to increase your contributions to meet the new maximum contribution. If your contributions are traditional/pre-tax, 401(k) contributions will reduce your tax liability for the year.
Maximum 401(k) contribution as an employee in 2024:
$23,000 which is up from $22,500 in 2023
Age 50 or older can contribute an additional $7,500 for total 401(k) contributions of $30,500
Age 50 or older can contribute an additional $1,000 for total IRA contributions of $8,000
Eligibility for Traditional and Roth IRA contributions is dependent on two things: having earned income and having income below certain limits. If you’re retired and want to contribute to an IRA, you must have earned income of some form; you cannot fund these accounts with your general savings.
If your income is greater than $161,000 as a single person or greater than $240,000 married, you cannot contribute to a Roth account. The deductibility of a traditional IRA varies. If your income is greater than $87,000 as a single person or $143,000 married, you cannot deduct your contributions.
Health Savings Account
An HSA is an account that you can put money into and later distribute to pay for medical expenses. HSAs are powerful retirement savings tools because they offer triple-tax benefits: you don’t pay tax on the dollars contributed, you don’t pay tax on growth if you choose to invest the funds within the HSA, and distributions are tax and penalty-free as long as they’re used for medical expenses. After the age of 65, you’re no longer penalized and can take distributions for whatever reason, medical or not, but you will pay tax.
HSA maximum contributions:
$4,150 for a single person
$8,300 on a family plan
Age 55 or older can contribute an additional $1,000 for total HAS contributions of $5,150 single or $9,300 family
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 December 11, 2023
In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the retirement issues to consider as we approach the end of the year. As the year ends and another begins, it’s important to have a checklist to ensure you have things closed out for 2023 and things set up for 2024.
Learn about tax planning strategies to look at, such as threshold tax brackets, qualified charitable distributions, donor-advised funds, and more. You will also learn the benefits of having a Health Savings Account (HSA) and contributing to 529 accounts at the end of the year.
Can you believe that we’re close to the end of 2023 already? Before the year wraps up, it’s a good idea to address end-of-year items and work your way through a checklist of sorts. You can also reference this list in 2024, so if you’re seeing this post after the end of the year, it’s still going to be relevant to you.
Can you believe that we’re close to the end of 2023 already?Before the year wraps up, it’s a good idea to address end-of-year items and work your way through a checklist of sorts. You can also reference this list in 2024, so if you’re seeing this post after the end of the year, it’s still going to be relevant to you.
We’re going to walk you through:
Things to do before the end of 2023
Things to do for a good start of 2024
Note: We do have an actual checklist that you can work through. If you want to get that checklist, feel free to schedule a call with us or send us an email.
You’ll want to work on your assets and debt issues. First, look at your unrealized investment losses. For example, perhaps you’re holding onto Apple stock and it’s a loss right now. You can sell the stock as a loss and leverage what is known as tax loss harvesting.
You can use these losses to:
Offset gains
Reduce your ordinary income by up to $3,000 a year
Losses beyond $3,000 will carry forward to offset income in future years
If you have capital gains, you can erase some of these gains by using tax loss harvesting. You can sell the stock and buy it back after a period of time.
Required Minimum Distributions (RMDs)
RMDs are something we talk a lot about on our podcast, and we have quite a few articles on the topic that you can review:
That being said, you’ll want to do a few things in terms of retirement planning with your RMDs. Based on your age, typically, if you’re in your early 70s, you’ll want to take your distribution before the end of the year.
Not sure if you need to take an RMD?
Discuss it with your financial advisor because distribution ages will vary based on when you were born.
If you inherited an IRA or 401(k), you automatically have RMDs that you need to consider. Anyone who recently inherited one of these accounts will need to be sure that the account is empty within 10 years. You will need to consider whether (or not) you want to take an RMD on these accounts before the end of the year.
Tax Planning
The end of the year signals a lot of tax planning items that you’ll need to check off your list. A few of the most important things to consider are:
Do you plan on your income increasing significantly in the next year?
You can consider maximizing your Roth contributions going into the end of the year. If you’re over the age of 50, Roth IRA contributions max out at $7,500, and the Roth 401(k) maxes out at $30,000 in 2023 and will go up in 2024.
If you’re 59 1/2 or older, you can consider accelerating your IRA withdrawals since you’re in a lower tax bracket this year. You may also want to consider converting some of this money into a Roth account to leverage tax-free growth.
The annual deadline for Roth conversions is December 31st, however, you should get started on these before the beginning of December to give plenty of time for the process to be completed in your intended year.
Threshold Tax Brackets
Your adjusted gross income can push you into a higher tax bracket or impact your Medicare surcharges. Going back to tax loss harvesting, you may be able to leverage these losses to keep charges lower or avoid going into a higher tax bracket.
You need to be aware of your potential adjusted gross income.
If you’re reading this, reach out to your financial advisor and:
Ask what your adjusted gross income may be
Plan ahead, because your income amount now impacts your surcharges in the future
Medicare IRMAA surcharges will certainly impact your budget because you’re required to pay more for Medicare if surcharges are higher.
Are you charitably inclined?
If you like to donate to charity, it’s also an opportunity to help offset your tax burden. A lot of unique strategies can be employed in this realm. People who give money to charity can leverage:
Qualified charitable distribution, for anyone who is over 70 1/2. You can use one of these distributions to lower your tax burden. For example, if you take money from your IRA and have the check written straight to an approved 501(c)(3) charity so that it is never deposited to your bank account, the donated amount will not be reported as taxable income to you.
Anyone who reaches the age of RMDs (70 ½ or older) can also use this strategy. For example, if your RMD is $20,000, you can funnel $10,000 to charity using the same method above and only have $10,000 of your RMD be taxable.
Bunching contributions or setting up a donor-advised fund is also an option. For example, if you donate $10,000 a year to charity, it’s possible that you may not exceed the standard deduction and therefore, will not receive any tax benefit for your $10,000 donation. So instead, you can combine multiple years of donations together. If you were to combine 3 years of donating $10,000 a year into a one-time donation of $30,000, you can deduct the entire $30,000 in the year the donation occurs. This would give you a greater chance of exceeding the standard deduction andreceiving a greater tax benefit by doing so.
Did you in 2023 or will you in 2024 receive a windfall?
If you receive a windfall, such as inheritance, lump sum payment, stocks, Roth conversion or some other major influx of money, you may need to make an estimated tax payment. If you don’t make one of these payments, the IRS can assess a penalty against you.
An estimated tax payment alleviates the penalty because if you’re within a certain percentage of what you owe, the IRS will be satisfied, and you can make any remaining payments at the time your taxes are filed.
A tax or financial advisor can help you with these estimated taxes.
Have there been any changes to your marital status?
If you got married or divorced, or your spouse passed on, it can have an impact on your taxes. Married filing single and married filing jointly are two very different things. Consulting with a tax professional about your situation can help you decide on how to handle your filing status this year.
You Have a Little Extra Money in the Bank
If you’ve had a good year and have made more money than expected, you may want to save some money. One thing that’s common is to put money into a Health Savings Account (HSA) if you are on a high-deductible health insurance plan.
For 2023, you’ll be able to put money into an HSA up to:
$3,850 if you’re single
$7,750 if you have a family health insurance plan
$1,000 extra if you’re over 55
These numbers will change in 2024.
The beauty of an HSA is that you can let the money in the account grow tax-deferred and then use the money for your medical needs. If you leave the money in the account until you’re 65, it can also act as a retirement fund.
401(k)
If you didn’t max out your 401(k), you can put up to $22,500 in the account in 2023 and an extra $7,500 if you’re over 50.
Roth IRA
If you’re eligible, you can put money into a Roth account. You can pull the money out of this account if you need it in the future.
529 Account
If you have kids or grandchildren and want to fund their college education, you can put money into a 529 account for them. You can fund this account with a gift exclusion of $17,000. There’s also a strategy to get up to $85,000 out of your estate and into one of these accounts, but you should work with a tax professional on this strategy.
Insurance
If you met your deductible for your insurance this year, try to get any of your medical needs met now because you won’t be paying for it. Working to get these procedures done now before you must pay your deductible again is an efficient means of using your insurance.
Depending on when you read this, don’t forget that open enrollment takes place in November and December.
Evaluate your Medicare and Supplement programs because there may be advantages to switching.
Estate Planning
Whether it’s the beginning or end of the year, you’ll want to focus on your estate plan. Review all your beneficiaries, including on your:
401(k)
IRA
Brokerage account
Savings account
Of course, this list isn’t exhaustive, but we’ve covered some main points that are really important going into the final weeks of the year.
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 December 4, 2023
Anne Rhodes – Estate Planning in Retirement – Simplified
Listen in to learn about the importance of documents like the HIPAA form, certification of trust, and why you should consider a trust versus a will. You will also learn how wealth.com is set up to reduce estate planning friction and simplify estate planning for financial advisors and their clients.
Estate planning is a topic we often discuss with our clients. If you’re in the middle of retirement planning and trying to secure your retirement, an estate plan is something you want on your “to-do” list. Anne Rhodes, the Chief Legal Officer of wealth.com, joined us on our latest podcast, where she provides a simplified rundown of estate planning for our audience.
Estate planning is a topic we often discuss with our clients. If you’re in the middle of retirement planning and trying to secure your retirement, an estate plan is something you want on your “to-do” list.
Anne Rhodes, the Chief Legal Officer of wealth.com, joined us on our latest podcast, where she provides a simplified rundown of estate planning for our audience.
What Core Documents Make Up an Estate Plan?
Everyone – no matter the size of the estate – can break their estate plan into two large buckets.
Bucket 1: Passing Away and Death: Who will step into your shoes? Who will help distribute these assets? Where are these assets going?
Bucket 2: Incapacity: Incapacitation remains a serious question because if you’re no longer able to make decisions on your own, you can assign someone you trust to assist you in this area.
Documents in a standard estate package should include a will, even if you have a living trust. Both a will and a living trust are key components of an estate plan. Even if you have a living trust, you’ll need a pour-over will.
A pour-over will is what initiates your asset transfer into a living trust at the time of your death if they’re not already in the trust.
You have a whole other set of documents that you need to think about with incapacitation:
Financial Power of Attorney: A financial document that allows someone to have signature authority over your matters for any financial documents that you must sign.
Advanced Healthcare Directive: This document may be called something else, such as a healthcare proxy or healthcare power of attorney.
HIPAA Form Purpose
A HIPAA document is a great example of a healthcare directive. When it comes to medical privacy, your agent acting on your behalf with an advanced healthcare directive does not have the power to access your private medical records unless the HIPAA is signed.
If your doctor does not have a HIPAA release on file, they cannot share pertinent information with the person that you want to make medical decisions on your behalf.
As you can imagine, if the person handling your healthcare decisions cannot access your medical information, they cannot make the best decisions for you.
Certificate of Trust
A certification of trust, also known as a certificate of trust, accompanies a living trust. This certification accompanies a living or revocable trust. What this certification of trust does is allow your bank to know that:
Your trust exists
You’re the trustee
The trust is 100% legitimate
A certificate of trust is very important for streamlining your trust and ensuring that there are no issues along the way.
Trust vs. a Will
A living trust and revocable trust are the two most common forms of a trust because they’re a substitute for a will.
If you die without a will, your estate will go through a process called “probate.” Even if you have a will, your estate may still go through probate. A judge will be assigned during probate and must sign off on asset transfers. As you can imagine, involving a judge in every decision can take a while – especially in some states.
Court systems are handling a lot of cases, and if you’re in one of these states, a trust can help you avoid probate.
Probate also goes through the public system, which allows anyone to dig in and find information on what transpired during the probate process. In terms of privacy, you can keep much of your estate planning private with the help of a trust.
You may also have a trust because:
You own multiple properties across many states
You want to avoid probate in each state where you own property
If you secure your retirement and want to keep your estate out of probate, a trust is one of the best ways to achieve this goal.
Attorney Estate Planning vs Wealth.com (or similar platforms)
Digital platforms allow us to offer a simplified process of estate planning to our clients. Some clients are unsure if using an online platform like wealth.com is the same as working with an estate planner.
Wealth.com provides access to financial planners and similar professionals, streamlining the way that people create an estate plan.
Most people in the US can use wealth.com and go through the entire estate plan on their own. You must fill in forms online, which can speed up the process to make it much faster than working with a lawyer one-on-one.
Anne’s company, wealth.com, has had 70+ platform reviews from legal professionals, ensuring everything is accurate.
You can create a trust in 36 minutes with a platform like wealth.com, breaking down barriers that exist with meeting with a lawyer.
Can all families be helped with an online platform like wealth.com?
No. There are special case examples where we cannot serve certain families well, such as special needs children. Wealth.com is undergoing a survey to better help these clients. If, during the onboarding process, you answer that you have one of these situations, you will be prompted to find someone who specializes in these areas.
Do online platforms offer any personal help?
You may have one-off questions that you need answered when forming a trust, creating a will, and so on. Many platforms will not provide direct assistance in this area, but they may have an attorney network who will be available to you.
Wealth.com vs other platforms
We’ve seen many legal platforms that attempt to help in numerous areas of law, and this is where things can kind of get messy. Wealth.com focuses on estate planning only and has built a team that can help in complex estate matters, whereas many do-it-all platforms cannot.
Since you must connect with financial advisors to use the platform, you also receive additional help you wouldn’t otherwise.
Note: You need to work with a professional advisor, like Peace of Mind Wealth, who grants you access to Wealth.com and can walk you through the process. If you just go to the website, you won’t be able to access the wealth of tools available.
Once you’ve filled out all the estate planning documents, printed them out and notarized them as needed, your estate plan is in place.
If you’re interested in financial planning and want to add an estate plan into the mix, feel free to reach out to us.
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 November 27, 2023
Rae Dawson – The Basics About a CCRC in Retirement – Part 2
In this episode of the Secure Your Retirement Podcast, join Rae Dawson as she breaks down the fundamentals of CCRC, covering everything from costs and waitlists to choosing the right time to make the move.
Ever wondered about the factors influencing CCRC expenses? Rae delves into that, offering insights on what to consider when evaluating the cost of a CCRC. Now, imagine this: How might being flexible in your requirements help you sidestep a potentially lengthy waitlist, which can stretch anywhere from 4 to 15 years?
How does the choice of location impact the cost of Continuing Care Retirement Communities (CCRC)? The expenses associated with CCRC are influenced by the contract type and community location. Living in a sought-after real estate location may come with a higher price tag compared to a more rural setting. As you contemplate the costs of CCRC, it’s crucial to factor in…
