Avoiding the Medicare Surcharge: What You Need to Know About IRMAA

Reaching Medicare eligibility solves one of the most expensive retirement problems for many retirees: healthcare. Once you’ve made the adjustment and selected all the various Parts and plans, the convenience and affordability of Medicare are one of the benefits of turning 65. However, Medicare is means-tested. If you make over a certain amount of income, surcharges on the Medicare Part B and Part B premiums kick in.

Making it a little more painful, it’s not a flat increase. The surcharges go up as incomes get higher and at the highest level can amount to hundreds of dollars a month in additional costs.

The key to avoiding or minimizing the surcharge is to control income levels. In early retirement, this may be reasonably easy to do. But if you’ve amassed a retirement nest egg in a traditional tax-deferred 401(k) or IRA account, once you hit 72 and required minimum distributions (RMDs) kick in, you can find yourself with a very hefty bill.

Continue reading

Cash Flow Planning When You’re Thinking About Retirement

Pre-retirement planning is one of the most challenging stages of your financial journey. You’re still fully engaged in your career, but you’re also looking ahead to a not-distant future when your life and your source of income will radically change.

Retirement means you’ll be making choices about where you want to live, what your retired life will look like, if it will include work, travel, charity, a hobby – all the things you always wished you had time for will now be yours to choose from.

But you’re also going to need to ensure you have enough saved to fund the retirement you want, and that the income stream you’ll be able to generate from all your sources of income in retirement is tax-efficient.

Continue reading

Planning for 2022: The IRS Has Increased Several Key Deductions and Exemptions

The spike in inflation we’ve seen this year has impacts beyond having to pay more for goods and services. The IRS uses consumer price inflation (CPI) to determine certain increases to exemptions and deductions for federal tax purposes. These are automatic and calculated from the rise in CPI. That means that the increased inflation this year may actually end up saving you money. While the changes are for 2022 and you won’t be paying the associated taxes until 2023, it’s a good idea to be aware of the new limits.

You may be able to make changes as you go that can help you maximize the benefit. For example, the amounts for Flexible Spending Accounts (FSAs) and the commuter benefit increased, so you may want to have more taken out of your paycheck. This saves you money by paying with pre-tax dollars.

Continue reading

More Money More Problems? Complex Compensation Requires a Different Kind of Advisor

The benefit of becoming a high earner is apparent: more money. You can go beyond creating financial security for yourself and your family and start making choices that may have been out of reach. Not having to worry about covering the basics can also provide you with a measure of peace of mind. It can help you operate from a mindset of abundance, and not scarcity, which can free you to actualize your financial and personal goals.

But before you get to that state of satori, you need to get all the money you’ve earned into your financial plan in a reasonably efficient way, while minimizing the taxes you’ll pay across your lifetime, and creating a diversified financial plan.

And if that’s not complicated enough, being a high earner very often means your compensation is unpredictable, lumpy, or you’re no longer a W2 wage earner. Whether you have deferred compensation, restricted stock, stock options, an annual bonus, or you own your own business, high income levels can equate to situations in which you have very complex compensation.

Continue reading

Retirement is About Income … and Taxes

You’ve figured out your budget, your retirement nest egg is substantial, and you’re ready to make the transition to living on income from savings instead of income from work. But have you thought through the tax implications? It’s very common for tax planning to be overlooked, under the assumption that you’ll be in a lower tax bracket and Social Security payments aren’t fully taxed. In fact, a recent study found that 57% of Americans rarely consider the taxes they will pay/are paying in retirement.1 This can be an expensive mistake, and it has implications for other retirement benefits.

Continue reading

Value Your Business Like it’s Your Retirement Plan, Because it is.

Building a successful business can take decades. While working to grow, it’s common to use all available assets above the salary you pay yourself to fund future expansion. Where does that leave you on the retirement side of things? For most business owners, the retirement plan is some form of exit and monetization of your investment.

As you get close to a transition, valuing the business is paramount. The value comes first, and then the sale, and only then do many business owners think about how the sale proceeds will fund retirement.

There’s a better way. Start with the amount of money you need to live the retired life you want. That’s your benchmark of the value you want to get for your business. Then work from there to create the value you need.

Continue reading

GMB Ep #95: We Have a New Tax Bill [And It’s a Whopper]

 

The House Ways & Means Committee recently released proposed tax reform legislation that brings major changes to the current levels of taxation, including reversals of several provisions introduced in the Tax Cuts and Jobs Act of 2017. We dedicated this episode to exploring what this new proposal includes and some of the key aspects of the proposal that may interest our listeners. Throughout the episode, Grant dives deep into proposed provisions related to retirement, new tax brackets, business tax, tax on cryptocurrency, estate planning, and more.

 

 

Show Notes

[02:19] Background and Progress – Grant starts the conversation with a brief review of what led to this new proposed piece of legislation, its current status, and the path to getting it signed into law.

[08:16] Roth IRA Conversions – The proposed tax bill calls to prohibit Roth IRA conversions on after-tax contributions, which has been a very convenient maneuver for tax planning. Grant shares his thoughts on what to keep in mind if you’re considering a Roth IRA conversion.

[12:35] High-Income Earners – The new tax bill also brings provisions to restrict high-income earners from doing any Roth IRA conversions starting from 2031. Grant dives into the reasoning behind this, why this provision is proposed to come into effect ten years from now, and some other restrictions that apply to high-income earners.

[16:27] Mandatory Distributions – How the proposed new legislation mandates taking money out of your retirement accounts if the total value of all your retirement accounts exceeds a given threshold.

[20:00] Tax Brackets and Rates – Grant dives into how the tax brackets and applicable tax rates are updated in the proposed legislation and proposed changes to taxation on capital gains.

[27:47] Ultra-high Income – Grant shares his take on the 3 percent surtax proposed to apply for people who make over $5 million.

[29:47] Surtax on Trusts – The proposed legislation also brings provisions to add a surtax on trusts. Grant talks about the proposed tax brackets and rates related to trusts and what you should keep in mind when considering estate planning.

[31:08] Business Tax – How the proposed tax bill affects businesses depending on the type of business entity and some of the planning opportunities that emerge with the new proposal.

[35:35] Business Income Deductions – The new proposed legislation reforms a set of provisions related to business deductions that are introduced in the Tax Cuts and Jobs Act of 2017. Grant explains some of these reforms and what business owners should keep in mind about tax planning.

[39:02] Cryptocurrency Assets – Some of the tax-related legislations that apply to other assets such as stocks and bonds do not currently apply to cryptocurrency assets. Grant shares his thoughts on how that may change in the new proposed tax bill and what crypto investors show know about the new tax bill.

[42:26] Estate Planning – Another provision in the proposed tax bill brings some significant changes to taxes related to estate planning. Grant dives into what these updates include and what you should keep in mind about taking advantage of the current thresholds and exemptions.

 

Resources

https://waysandmeans.house.gov/media-center/press-releases/chairman-neal-announces-additional-days-markup-build-back-better-act