Are you tired of paying high taxes and want to keep more of your hard-earned money? In this episode, Zacc Call and Laura Hadley break down various tax strategies to help you save money on your taxes. While they focus on tax strategies geared towards retirees, many of the tax strategies discussed can be applied at any age! Zacc and Laura discuss: Different tax strategies for retirees, some strategies that can be applied at any age, the purpose of tax diversification, how you can set yourself up for success in the future, and more.
[00:00:00] Welcome to the Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have, whether you're doing it yourself or working with a financial advisor. These episodes will help you break down complicated financial topics into practical, actionable steps. Our mission is to guide motivated people to become financially successful. Welcome back to The Financial Call. This is episode four of season four. So season four is our tax season. This is one that Zacc gets really excited about. We talked a little bit about it last episode. Today we are talking all about retiree tax strategies, so this is kind of fun. We talked about the basics of how the government calculates your taxes, Roth versus traditional. We talked about how your non-retirement investments are. Tax. Today we're talking about how we can use some strategies to help save money on taxes. I think that's what everybody wants to understand the tax so that they can learn to avoid paying more than they
[00:01:00] have to. So talking about lots of different strategies here, I think we'll just. dive right in from the beginning. Yeah. This is geared more towards a retirees tax strategies. I think many of these would apply to any age. A few of these, like social security and pension taxation, those are going to be very specific to retirees. But hey, if you're not retired or if you're not near retirement, There will be several things in here that I think you can get out of it. Yeah. And at the end we are gonna bring it all together. The purpose of tax diversifying, I guess, of how you can have an ideal retiree situation. And so you have to know that early on to know how to prepare for that situation. Absolutely. And the people that we present to. So we present at many different employer groups. We teach many different age demographics. Those who understand what the end looks like to Laura's. are usually the ones that set themselves up for the most control over their taxes in the future. So we'll talk about that concept. Some people call it degrees of
[00:02:00] freedom. I think that's an engineering term, the concept of setting yourself up so that in the future you have multiple avenues or multiple choices that are still available to you. Yeah. Um, so we'll talk about that and how you can set yourself up for success in the future. Yes. Starting with the end in mind. You got it. So let's dive in. I think this is one of the most common questions that we get. Is how your social security is taxed, and a lot of people hear the number 85% and they assume they're paying an 85% tax rate on their social security. This is a very common misconception. The truth is up to 85% of your social security is going to be taxable, meaning that portion is going to be put into your taxable account. Meaning, in other words, you're always getting 15% tax free. Now, some people might not pay any tax on their social security. It all depends on your other income that you're getting, IRA withdrawals, pension income, working income. The more other income you have, the more of your social
[00:03:00] security that's taxed. So it's something to be aware of. Maybe somebody's only. 15% of their social security is taxable to them, and they decide to do a Roth conversion or take more money out of their ira. What they don't know is as they're taking money out, more of their social security is becoming taxable to them, meaning they're actually paying a higher tax rate than they thought on that money that they're converting or taking out. So, We did talk about that in our Roth versus traditional. Did we talk about that, that a little bit? I think we did. We've done so many of these. Now that I'm, it's hard to keep 'em straight and sometimes we do 'em out of order, right? Yes. Something to know, Eric with senior Benefits did a fantastic video. Senior benefits is our Medicare company here in the office with us. We have Medicare experts here that help people get set up on that. Social security and Medicare are so IWiN. , when you sign up for Social security, it automatically puts you on Medicare Part A, for example. And it's very, very related. So we end up doing a lot of joint work with them. He did a, I think it's about 10, 12 minutes or
[00:04:00] something like that. Something like that. It's not too long. Let's make sure that we put that in the show notes of this. Yeah. Um, but that, that was a really, really great video and he does such a good job explaining how social security is taxed on the bottom line. Let me give you an example. I've run into this many times with investors who pay hardly any tax whatsoever. So someone with $20,000 worth of withdrawals from an IRA, for example, and let's say they have about $40,000 of social security income, that's $60,000 total. Okay? The way that this works, without going into too much in detail, if you are a couple, there are two thresholds that you have to worry about. 30 2040 4,000. There are two calculations, and think of it like two different paths. One path is super simple, the other path is much more complicated. The simple path is 85% of your benefits are taxable, and then the other path goes through these two different thresholds and you have to include a certain percentage over each
[00:05:00] threshold, and then you get to the end, you compare whichever one is less. That's the amount on which you have to pay taxes. To your point, it's not your tax bill, it's how much of that income you have to include. So in this example, $40,000 of social security benefits, which we see pretty regularly, and $20,000 of regular IRA or 401K withdrawals. That person only has to show $4,000 of their social security. So $36,000 of that couple's social security income just evaporates. No one has to pay any taxes on that whatsoever. They pay taxes on the $4,000 of Social Security. Now, in reality, they only show $24,000 of income and a standard deduction is 20. Wipes that out. Exactly. So that completely wipes that out. They pay zero. They pay nothing in taxes at that. But if they chose to do, let's say they said they wanted to do a $25,000 Roth conversion or take another $25,000
[00:06:00] out of their accounts or some sort of income that added $25,000 of income. This is tricky because now they don't get to sneak $36,000 of their social security out with no. They only get to avoid paying taxes on about 17,000. So now instead of including 4,000, they have to include 23,000, and then all of a sudden they have a tax bill. And so you have to be aware, like if that was a Roth conversion, it doesn't cost them nothing, and it doesn't even cost them the 10% bracket. That's what people think. Like, oh, I'm in the 10% bracket, that's the lowest bracket. That's not true. They added 25,000 of income, but it actually, for the Roth conversion, that is Uhhuh , but it actually included $44,850 total. So it's, it's amazing how that accelerates. Some people call that the tax torpedo. That's how Social Security taxation works. We built our own tools for this because so many people were misunderstanding it. Yeah, and it's just a simple Excel file we use, but it helps. We
[00:07:00] basically built it by walking through the tax forms. and making all the formulas match what the tax forms match so that we can quickly assess different strategies and know what the true cost of showing additional income is. Yeah. And they're still in the 10% tax bracket, but they're paying 10% on more dollars. You got it. Exactly. Exactly. And that being a higher effective tax rate. We talked about that last time. It's 18% by the way. So in, in other words, for that person to do a $25,000, Roth conversion, it would cost them almost $5,000, which is about 18% federal tax. Yeah, so it's interesting. So it's weird. You have to say, Hey, are you okay with an 18% tax rate? It's not really 10, even though. It feels like it's 10, like you said, it's on a higher dollar amount. Yeah, so social security up to 85% is taxable. 15% always tax free. Or you might pay $0 on your social security in taxes. So that's social security, the basics of it. Let's talk about pensions. We talked about how not a lot of people have pensions anymore, but we are familiar with a lot of employer groups in
[00:08:00] Utah that do have pensions, and there are two different types of. Someone might choose a monthly pension. We talked about this in our first season. That monthly pension, for the most part, that's all taxable at ordinary income rates. In the last episode, we talked about ordinary income rates versus capital gains, long-term capital gains rates being different. Usually pensions are taxed at ordinary income rates. Something that's different. If you take a lump sum pension, a lot of people may panic that that's going to be taxable to them in the year that they receive it. Say someone has a $200,000 lump sum. They panic. I can't do that. $200,000. I'm gonna go into the highest tax bracket, paying a crazy high rate. If you roll that into a retirement account like an IRA, it's not taxable to you in the year that you roll it over, receive the pension. It only becomes taxable to you at the time that you take the money out, so that can affect your pension decision because you can control
[00:09:00] taxes a little bit more on your pension. If you take the lump sum and roll it, maybe you don't need that income, and so you only take it out when you need it and when you want to pay taxes on it. I feel like that's one of the biggest, I think the decision, we talked about the lump sum versus a monthly, so we don't go too far into it today, but yeah, I feel like control over people's tax situation and then leaving an inheritance, it seems like those are two of the biggest factors for which, yeah, people will go the lump sum side, but that is definitely a difference and we do get that misconception all the time, right? Mm-hmm. I can't pay all that tax right now, and it's like, okay, we'll just move it to an IRA or a 401k or a retirement account, you'll be fine and you don't have to worry about it. Awesome. Okay. Tax loss harvesting. We mentioned this in the last episode. If you listen to it. So this is something that you would do inside of a brokerage or a non-retirement account, and it's kind of the silver lining of when markets are down. We're recording this in 2023, but 2022. It was kind of a rough year with the markets. We had lots of clients calling in.
[00:10:00] My accounts are down, what are we doing? And this is one of the positive things that you can do with markets being down and it's taking advantage of losses inside of your account. The way it works. You can't account for a loss inside of your account unless you sold at a loss, if that makes sense. So say your account's at $10,000, it went down to $5,000. Well, if you came back up, you didn't get to take advantage of that loss unless you sold it as a loss when you locked in that loss, if that makes sense. So you're saying if you just sit tight, there's no, you don't sell, you don't take any action. There's no. To show your taxes. Yeah, exactly. You're just sitting there waiting, right? Cause you don't ever pay taxes on gains or losses unless you sold at that time that it was up or down. So something that you can do, if your accounts are down, you can sell at a loss lock in that loss. But we like the investment. We don't wanna just get rid of it. So we'll buy it back. a similar investment. You can't buy back the same investment within 30 days, or it's considered a wash. Sales doesn't count.
[00:11:00] So you can sell the investment when it's down by a similar investment. So you can take advantage of the uptick in the market, not miss out, but when you lock in that loss, you're able to use those losses to offset ordinary income up to $3,000 of your ordinary income. Has that changed in 2023? Nope. 3000. And then you can also use it to offset gains that you had in that. Or future years, maybe you didn't have any gains in that year. You can carry over that loss and use it against future years. I didn't even think about the fact that that should change, but it's been 3000 the entire time I've been in this industry . It hasn't ever changed. Yes. I mean we're looking at like 15 years or so that I think it's interesting. It's been, I don't know how long it's, I don't know what it was before that, or if it's always been three. Yeah, that's, but it definitely should change. Yeah, that's what I was thinking. That would Nice. Notice about time. Yeah. Okay, so think about this though. So, So I had an investor once at a previous firm that I worked without disclosing any personal information, but this person had over 20 million in their investment account during 2008, and the markets had
[00:12:00] dropped enough that it was down about 7 million. So the 20 million number was after the loss. So it was closer to 30 before, and we did tax loss harvesting. So if you think about that, at $3,000 a year of offsetting income that will last so many lifetimes, that person would never ever get to use all of that back. But you can use any losses that you don't use against income. So anything over that 3000, you can carry it forward and use it against any capital gains in the. and that particular individual had used up all 7 million worth of losses within about three or four years. Wow. Because markets did so well coming out of that in 2000 9, 10, 11, and so on. And I say, well, I mean they had a lot of ground to make up after the losses from the Great Recession in 2008, but they did so well that when we wanted to rebalance, de-risk the portfolio, do whatever we needed to do to change the investment. We used up almost all those
[00:13:00] losses. Wow. Yeah. So it was, it was good though. And that saved him a lot of money. Yeah, exactly. What I think it does for the most part is it provides better risk management in the portfolio because it takes the handcuffs of taxes off. See, you don't have to worry quite as much about, oh, we really love to make this change in this portfolio. We'd love to take this investment and sell it. And last episode I talked about how I didn't sell an investment because I was worried about it being a short term capital. And I waited for four months, and in that window, the investments I wanted to buy did so much better. I would've been better off just taking that trade and making it happen. Now the reality is I should have done it anyway, right? But had I had carry forward losses at the time, I would've done it because it would've had no tax consequence to me and it would've alleviated that pressure of tax that I was concerned about. So it's really weird. It's somewhat of a behavioral thing, but having carry forward losses can actually. Change the investment management behavior and be a little
[00:14:00] bit less restricted and therefore maybe a little bit better from a risk and return. It's almost like having a gift card. It's easier to spend money somewhere if you have a gift card there. Cause you're like, oh, I have credit. You know? Exactly. I can use my credit. Exactly. That's interesting. Yeah, for sure. So it's weird, the math of it. It definitely makes sense to have at least $3,000 to show because your income rate is typically greater than your long-term capital gain rate. Because the reality is if you're selling at a loss, you're resetting that basis lower. So in the future, you're going to have to pay capital gains on that new reset basis, which is lower. And I'm moving my hands around. You can clearly not see that as a podcast listener, but, but Laura's watching, we do that a lot. We're always moving it again, like I've got my hands lower. I'm saying you reset the basis lower. You'll have to show that as a gain in the future. So some people will say, this isn't helping me at all. All it's doing is delaying the capital. Delaying the capital gain is helpful. The more money you can keep in your portfolio, the longer, the more it grows, the more you get to grow on your money before paying a tax bill. So just procrastinating. Taxes are also a great thing. Legally
[00:15:00] procrastinating, taxes, , let's throw that word in there. Legally procrastinating taxes is a great thing. taking up to $3,000 against income is trading about a 10% rate. So, not that it's huge, but it's about $300 every time that happens. It's a decent amount of money. . And then the third benefit I think is really just taking off the handcuffs of the portfolio manager and not having to worry as much about the tax burden of trading. Love that. Okay. I think that's pretty clear on tax loss harvesting. Yeah. Let's talk about wash sales really quick though. Yeah. Um, I forgot to mention this. So a wash sale, if you, let's say that you want to sell an investment, the symbol A, B, C. and you're gonna buy X, Y, Z to replace it. The tricky part is if A, B, C, and X, Y, Z are different, their performance may be different, and you can't buy A, B, C back because the government says, well, hey, you're just selling this and buying it back for the tax benefit. And we all want to say that's correct, but true. You're true. True, thank you. But the IRS says,
[00:16:00] no, you can't just do it. So you have to buy something that's somewhat different. So we're shooting for something that's different enough to avoid what's called a wash sale, so the government will allow it. But similar enough that if all of a sudden in the next two weeks the investments spike, that you don't miss out on that rally. And that can be really tricky. And when you're looking at individual stocks or individual investments, that can feel a little bit more risky. What if you miss out in that 30 day window? So for us, we will look very carefully at the client's tax situation and decide how worth it is to be tax loss harvesting, especially individual stocks. But when it comes to funds, there are like, let's make it simple like an s and p 500 fund. Provided by BlackRock is going to look almost identical to an s and p 500 fund offered by State Street, Vanguard, fidelity, all these other companies. Right? Right. So we can replace those and they are different. They have slightly different expense ratios, slightly different ways of getting those investments. So the performance of those is going to
[00:17:00] be so hard to tell. Like if you plot them on a chart, they will all look like they're the same color, cuz they're so tight to each other. Yeah. Anyway, you get the idea. Some investments are definitely. to tax loss harvest than others. On the flip side of that, if you own a fund, The average movement of the fund is less volatile than each individual part of the fund, each individual stock. So there's actually more tax loss harvesting opportunity when you own the stocks versus the fund. So there's a little bit of a catch 22 there. Yeah, because it's hard if you just have one company, it's hard to find one. Replication of one company. Right, exactly. Yeah. That can be tricky. That's a good point to bring up. It might not always be the best, you know? Yeah. Not letting taxes control all of your decisions in finance, but being aware of all the different factors, and sometimes you can buy two or three investments that replace the price volatility of one. Yeah. And so we're looking into some of those things as well and starting to do more. But anyway, that's on wash sales and that's why that is a little bit complicated.
[00:18:00] It's a heavy burden. We spend a lot of time on tax loss harvesting when we do it. Yeah. And that helps you avoid some capital gains. Another way of avoiding paying taxes on capital gains. Is to donate them. This is something kind of cool. A lot of people will donate cash inside of their account, which is great, but a lot of people don't know. You can actually donate an appreciated security or an investment that has capital gains on it. Donate that directly to a charity and you avoid paying the gains that would normally be taxable to you. And the cool thing is the charity doesn't have to pay taxes on it either cuz they're a qualified 5 0 1 . So nobody has to pay the taxes on it, which is great. So let's explain a little bit how this works. So you buy an investment. Let's say you buy a stock for $10. It grows and it's worth $15. You can donate that $15 stock to a charity. Normally, you would have to pay taxes on the $5 growth. It would be taxed at long-term capital gains, like what we talked about last time. If you held it over a.
[00:19:00] But if you donate it directly to a charity, you don't have to pay taxes. You avoid paying taxes on that gain. And then if you wanted to, you could take the cash that you were going to give to the charity, buy back that same investment at $15. Now your new cost basis is $15. You don't have any tax gains to pay on. Yeah, it's kind of like musical chairs there because most people are giving cash from their bank. They're writing a check to charity, whether it be their church or hospitals or schools. And those seem to be some of the most common. Especially if you're a regular charitable giver, then they're very accustomed to writing a check and sending it off. And if you can just send the check the other direction, buy the stock that you would give, and then give away the shares that are showing an unrealized gain, it works so much better. We see that often it's a strategy that people oftentimes don't know is available. One thing you mentioned is that long-term status, it needs to be long. You can't get the same tax benefit for a short term. And also some people will say, well, I want the tax deduction for giving the cash.
[00:20:00] It's like you still get the tax deduction. In Laura’s example, that $15 per share, you still get to deduct the $15, but you get a double benefit because you're deducting the 15 and avoiding the capital gains on the five. Right? So it's both, which is awesome. Anything else you wanna add there? No. It. I think logistically this is a little bit so no, but yes. Here we go, right? I say no and then here it is. No, but no, but I'm gonna do it anyway. Logistically, the receiving charity needs to have a brokerage. So many big institutions do, and you need to find out what brokerage account they use and send the money. Usually there's a form to fill out at your brokerage account where you sign this form and say, move this many shares of this stock. It's also helpful to say if you purchase this stock many different times, it's helpful to show your brokerage company which shares you want to give so they don't accidentally give the ones that have very little gain. You want to give the ones with the biggest gain and then you send those over. But another way of doing this,
[00:21:00] which we'll talk about later, is donor advised funds. So that's another. We won't get into that today. We've talked about that in previous episodes. Search for that. Or when we get insured, we'll give later. Yeah, we'll cover that. And this helps, uh, you know, get rid of those handcuffs that you were talking about as well. Maybe somebody had employer stock and they've owned it for years. They're taxable gains on it are just huge and they feel like they need to diversify or they wanna invest in something different, but they just feel so tied down by those capital gains. A great way to do it is to donate it and you avoid paying. So that can be a benefit for you as well if you have huge taxable gains that you just don't know what to do. Yeah. You feel stuck. You had an investor who bought stock at a very early stage in a company and they did really, really well, but the gain they have to show on that is almost the entire position is gain because they barely put anything in compared to what it's worth. They are regular tithe payers, so it just makes so much sense to be giving that stock regularly instead of them writing a check every month or however often they
[00:22:00] handle it for sure, and there's no age limit on that. So that's a charitable strategy that anybody can use despite their age. Another charitable strategy that we use are called qualified charitable distributions or Q CDs for. You do have to be 70 and a half to qualify for this. So we always joke with our clients, this is the perk of getting older. The only one, the only , the only perk. But you can do this strategy, it's one of the best strategies for giving charitably. So you must be 70 and a half. But basically the idea behind it is, Most retirees, a lot of retirees have these pre-tax or retirement accounts, their IRAs or 401ks that they've never paid taxes on, and they're taking money out of it, paying taxes on it, and then they're turning around and writing checks to charities. The idea behind the qc d is you can actually send money directly from the i R A to the charity and it doesn't even show up on your income. You don't have to pay taxes on that money that
[00:23:00] goes directly to the charity. Now, something that to remember, it does have to happen from an I R A, not a 401k. So that can be a benefit of moving money from your 401k into an IRA so that you can use this strategy, but it doesn't even show up on your. Which is fantastic. So you avoid paying taxes altogether? Yeah. One of the only ways to get money out of an IRA without showing it on your tax return. Yeah, absolutely. And something that's cool at age now, 73, it just changed. Retirees do have to take money out of their IRA accounts, those accounts, you've been deferring taxes all these years. The government says, okay, we're sick of waiting for our piece of the pie. You need to take money out, pay taxes on it so we can get our piece of it. So those are called required minimum distributions. If you are sending money to a charity from your ira, that also can satisfy that R M D. So say you have to take out 20,000, you send that 20,000 to a charity, you've given your charitable donation, and you've met your required minimum distribution. Love
[00:24:00] it. Basically, if you have investments, both IRA and non IRA, and you are giving to charities at some point, we oftentimes tell people you need to stop paying your tithing by yourself. Yeah. Like we need to be involved in this at this point. Paying, paying your tithing. Right. Or if you're giving to other institutions, you need to let us help you because there are so many ways, especially we find so many people have IRAs through their work and they should be doing qualified charitable distributions. Yeah. It's almost a no-brainer and it doesn't show up on your income, so less of your social security is taxable to you. . It's basically a no-brainer if you're over 70 and a half. So something to keep in mind, some other strategies you have, you can choose the tax bracket by controlling your deductions. Why don't you talk a little bit more about the stack? Did we cover, I think we covered standard and itemized deductions, right? Did. And how the government calculates your taxes. Okay. So if you need a refresher on that, go back and listen to that. But the bottom line is that you're adding up all of your deductions.
[00:25:00] itemizing them and summing them all up and saying, this is what I'm going to reduce my income by. Or you're just taking the standard number. The government allows for people who don't want to itemize. We find a lot of people who give to charities. Well, let me take a step back. There are three main deductions that we see. Mortgage interest, state and local income tax, charitable giving. Those are the big three, at least where we. A lot of our retirees end up not having a mortgage, so they don't have mortgage interest. State and local income tax is capped out at $10,000. So even if they have a lot of income tax, state income tax, or property taxes, it still doesn't let them deduct more than 10,000. Then maybe they're giving another $15,000 to charity. So they have $10,000 of state and local income tax and $15,000 of charitable giving. The standard deduction is actually greater than 25,000 for a couple at that age. So they get zero tax benefit for their charitable giving. Which is super
[00:26:00] frustrating for them. And frankly, a lot of people don't even know. So maybe they're not frustrated. Yeah, but they aren't True , but they don't know that, not they're dis It's frustrating for us. How's that ? It's frustrating for us that you are not getting a benefit from them. Um, a tax benefit. That's right. It's always beneficial. Thank you Laura. Good point. Um, yes, absolutely. Obviously you give for a certain reason, not for the tax benefits. Typically, there's a primary reason and that's what you do it for. But hey, if we can save you a couple thousand in the process, let's do it Now. What if you. Two years worth of those charitable donations, 15,000 and 15,000, stack 'em into one year. Now you have $30,000 of charitable giving plus the 10 of state and local income tax. Now, your itemized deductions that year are $40,000, which is greater than the standard deduction for a couple by about $12,000. So they can take 12 of the second year's 15,000 and have it sneak outside. The standard deduction. Then the next year, they just take the standard deduction, like they would have anyway, like they would've
[00:27:00] anyways, so now every other year they're getting $12,000 of additional reduction in income, right? They gotta reduce their income by an extra 12,000, which depending on their rate, may save them, I don't know, another 2000 in change or something like that. So that's super helpful. The tricky part is the timing of the money. Yeah. So some people are like, wait a second, I don't have two years worth of tagging. Exactly. Cuz they're using their retirement income to help save up, to pay their charitable giving that they plan on doing. So you can use a donor advised fund to help with this. The donor advised fund is like a little charity account that you get to control. You don't own it anymore, you control it. So that's a clear distinction when you put money into the donor advised. You have given it to a charity. So that's the year you get your deduction, but you don't have to necessarily give it away at that time. So sometimes people who are having a hard time saving up two years worth, what we'll have 'em do is we'll have 'em save up a year's worth and then wait
[00:28:00] till January one of the next year. And drop it into the donor advised fund or pay it to their charity or what of choice. And then next year they will save up and pay to their charity of choice throughout the year. The bottom line is a donor advised fund just separates when you get your deduction versus when you give your money to the final charity. And that can be a really helpful tool when you're bunching charitable. And it can help for people that have a big tax year, one year, they wanna get a big deduction, but they don't necessarily want to give that all to the charity in that year. So they can put as much as they want into the daf, get the tax deduction or the tax benefit in that year, and then maybe five years down the road you actually give it to the charity. You got it. Yeah. So then, We see this with retirees, especially like self-employed folks who make, I know a couple that were making about six, $700,000 a year and they're very frugal and they're planning on retiring and maybe showing under a hundred thousand dollars a year of income. So the tax benefit today is worth way
[00:29:00] more than the tax benefit will be in future years and beyond. Yeah. So it makes sense for them to front load a donor advised fund and any type of charitable giving they plan on doing for the next five plus years, they should really get that tax benefit today and then save it up and distribute out of the donor advised fund later. Yeah. If somebody's selling a business or selling a property, they just know their income's gonna be higher in that. That's a way to get the deduction in that year, but donate it in a different, So you mentioned in the beginning, start with the end in mind. So as we see retirees, which we call the, like the ideal tax prepared retiree, if someone is ideal tax prepared, they have money in different tax structures. They may have social security income, which isn't fully taxed. They may have IRAs and 401ks that are traditional, they may have Roth, and then after tax money and maybe some H s. We see this all the time where someone may have bottom line, I'm gonna hit the skip. Fast forward to the
[00:30:00] end. Someone may have 150 to $250,000 of income every year, and the radio Saturday radio will tell you you're gonna pay out the nose in taxes. I was talking to someone today, Tyson, one of our advisors. We were modeling someone's tax rate based on what we think we can do with their assets. Mm-hmm. 9%. We were shooting for a 9% effective rate, effective tax rate. Mm-hmm. . And we think if you're an ideal prepared retiree where you have these different sources, then we have more levers to pull. We see effective rates of 10, 11, 12%. all the time. Yeah. I was talking to somebody yesterday about this, talking about the tax rates. You go from 12% to 22% and she goes, that's a big jump. That makes a big difference. And that's the exact thing that we're doing here. Maybe we max out the 12% bracket with your pension, social security, your IRA withdrawals, and then we turn off the faucet for those income. and then we draw from the Roth account, or maybe we take some long-term capital gains or draw from the HSA to keep filling up your
[00:31:00] income with a lower tax rate, so then you can pay 9%. You got it. We call that marginal tax bracket management, and you don't think that's exciting when you say it like that, , but hey, when you save a couple thousand dollars every year in taxes as a result of it, or your money lasts a lot longer, You realize you're only paying 9% effective rates. That's pretty fantastic. That's fun. Yeah. The name might not be fun, but Well, that's not the money saved. It's not my skill set. Laura . Marketing is not it. That's okay. People care more about money savings, so. Right. All right. Well this has been helpful. Hopefully reach out to us if you have any questions on this. There are a lot of things a retiree can do. You should not be afraid of taxes. You should be aware of taxes. Thanks. This podcast is intended for informational purposes only and is not a substitute for personal advice from Capita. This is not a recommendation offer or solicitation to buy or sell Any security past performance is not indicative.
[00:32:00] Or for future results, there can be no assurance that investment objectives will be achieved. Different types of investments involve varying degrees of risk, including the loss of money invested. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or proposed by Capita will be profitable. Further Capita does not provide legal advice. Tax advice. Please consult with your legal or tax professional for advice prior to implementing any strategies discussed during this podcast, certain of the information discussed during this podcast. Is based upon
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