2024 Tax Information and Tips
How do income taxes work? What is ordinary income vs capital income? How much do you actually pay in taxes and how can you reduce that amount by maximizing your deductions? Join Ryan to learn timely tax planning tips for 2024.
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Um, couple of housekeeping items.
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Tara is silently here in the background.
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She's tracking, uh, the text chat.
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Um, we'll be doing q and a at the end.
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She may even send a poll question
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or two for you to answer along the way.
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I'm gonna talk for about 30 minutes, 30 ish minutes,
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and then we'll open it up to q and a
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and you can do a hand raise and we can unmute you
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or you can type your question
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or you can just, uh, uh,
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yell at me via chat, whatever you like.
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So this is my 22nd year going on 23 years now.
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And the longer I'm in this business, the more I, I realize
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how much there is to learn,
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but especially when it comes to taxes.
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Um, I, I googled the tax code this morning
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and it's over 44,000 pages
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and there's over 750 forms and schedules.
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And so it's a very, very complex system.
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Um, probably one of the most complex systems in the world.
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And for a lot of us, there's, you know, there's gold
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that can be mined in there that maybe we're not aware of.
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So today we're gonna go through and,
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and kind of peel back the onion on some of this stuff.
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Um, we're gonna start out really high level,
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and then we're gonna get more granular
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until we get into some, some, some specific strategies.
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And the first part is gonna be more about, um,
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just an overview of taxes.
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Oh, there's my disclaimer.
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I'm not a CPA, I'm not giving tax or legal advice.
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These are just my interpretations.
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Please consult with your tax advisor
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before making any tax related decisions.
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So we're gonna, we're gonna talk about how taxes work, um,
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what extras are included, what you actually pay,
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maximizing deductions and, and some other strategies.
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All right? So we will, we'll get rolling here. Okay.
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The, the biggest, I guess, complaint that I hear
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and I've experienced with taxes is
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I just found out how much I owed.
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And it's a lot more than I thought.
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And so the, the highlight
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of this slide is, you know, we wanna plan.
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So we're not surprised. Um, there are a lot of ways
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to mitigate taxes, but most of which has to be done, um,
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beforehand, right?
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It, there's some stuff you can fund at the last minute,
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but usually you need to do it in
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before the end of the year to try
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to maximize those deductions and opportunities
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and you wanna plan so you're not surprised.
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So here's, um, a couple of brackets.
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The way they work in the US
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and I'm gonna focus, uh,
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these are different ways you're gonna file your taxes,
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but we're gonna focus on either single
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or married filing jointly.
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'cause that's 99% of our clientele.
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So the US tax system is progressive,
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and what that means in short is the more you make,
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the more you pay, both in terms of a dollar amount
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and a percentage, you start out at a very low rate of 10%
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and then it goes to 12 22, 24, 32, 35, 37.
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Now, we'll get into tax history later, but
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although that's more than any of us wanna pay,
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it is actually historically lower than whoops, than
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what we've seen, uh, in the past.
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But just to kind of walk through this,
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because a lot of people get confused
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about their marginal rate,
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which is the highest rate they fall into here,
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and their effective rate,
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which is really like the average rate they pay.
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So a married couple on their first $23,200
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of taxable income is gonna pay 10%.
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Okay, on the next chunk, 23 2 to 94 3,
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they're gonna pay that 10%, that flat amount, 2320,
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and then 12% on everything over the extra.
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So in that, in this case, they're,
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they're in a 12% marginal tax bracket,
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but their effective rate is probably, you know, 11.
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Um, next chunk you get into 22, 24,
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and so on and so on.
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Now you start getting towards the bottom part of that,
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and you'll notice it's, it's getting substantially higher.
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Uh, you'll also know,
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if you look at the single taxpayer rates,
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they're not perfectly half, but,
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but they're roughly, you know, you jump to the next bracket,
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it it right around half of, of the next one.
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Um, so a lot of times there is a, there's a little bit
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of benefit to, to being married from a tax perspective,
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um, but not always.
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Uh, and again, this is based on, so we talk about, well,
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what is this tax debt?
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These ordinary income tax rates are taxed on ordinary
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income, which is essentially anything that is, you know,
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a W2 salary, a a 10 99, uh, tips, bonuses,
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commissions, rents, royalties, short-term capital gains.
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And I wanna make a couple points here.
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Non-qualified dividends and interest income.
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So, um, now
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that savings accounts are actually paying us interest,
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again, keep in mind if you got 5% on a savings
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account, so you got a hundred grand in there, $5,000,
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that's all gonna be taxable at ordinary income.
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So for some of you, you might give up, uh, close
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to 40% of that in taxes.
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And that's why we want to talk about deferral strategies.
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Okay? What's not considered ordinary income. Alright?
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Um, so long-term capital gains
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and qualified dividends, we're gonna talk about this later.
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Um, that's a good one.
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Uh, tax-free income from Roth IRA
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and Roth 401k municipal bond interest.
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Certain types of, of income from
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annuities and life insurance.
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Uh, money from scholarships,
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certain inheritance inheritances or gifts.
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So if somebody, you know, a friend or family
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or someone were to give you $10,000,
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that's not considered ordinary taxable income.
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Um, alimony payments for divorces after 2018.
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Child support payments, most healthcare benefits.
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Um, and there's a few other ones that
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get a little more specific.
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Uh, but those are not considered ordinary income.
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Now, there may be some tax to some of those,
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but for the most part, no.
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Okay, so we talked about ordinary income tax.
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Now we're gonna talk about
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social security and Medicare taxes.
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And again, for those of you still working,
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these are much more applicable.
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Typically, when you're retired
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and you're drawing income, uh, you're drawing your pension,
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you're drawing social security,
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you're drawing from your IRA, social security
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and Medicare taxes don't apply.
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But for those of you who still have earned income, uh,
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you are paying social security and Medicare taxes.
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So for 2023, the limit is 160,000.
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This is slide shows
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twenty twenty four, a hundred sixty eight, six hundred
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of your, your first
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a hundred sixty eight six hundred of income.
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They're gonna take 6.2% from the employee.
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And if you work for an employer,
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the employer pays the other half.
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So if you're self-employed, lucky you, I know there's a few
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of you on this call, you get to pay the full 12.2,
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or excuse me, the 12.4% yourself.
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So that's just shy of $21,000.
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You get to pay to good old social security.
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Now the key here is this is per person.
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So my second point there, if you're a married couple, if
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one person earns 150
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and one person earns a hundred,
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they're gonna take the 6.2% off.
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Both. You don't, you don't, it doesn't stop
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for a married couple at 1 68.
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Um, and then in addition to that, uh,
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we've got Medicare and Medicare starts at 1.45,
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2.9 for the self-employed.
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And there is no cap to Medicare.
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If you make $10 million,
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you pay Medicare on the full 10 million.
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In fact, you'll see some, some brackets down there
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where it actually increases
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and it could be up to, um, uh, a 2.9
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or even 3.8.
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So you start adding all that in there.
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And we've got, you know, up to 37% federal tax rate.
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Um, you've got Medicare, you've got social security, uh,
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but wait, there's more.
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Okay, we got state income taxes.
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So most of you watching are in Michigan.
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Michigan, we have a flat tax, which is 4.25%.
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So, you know, once you get a little bit of a deduction
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and stuff, um, basically it's 4.25%.
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It's, it's fairly straightforward, so it's kind of nice.
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Um, I put Indiana in there, Illinois in there.
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Um, now I don't think we have any clients in
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California or New York.
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Um, but just for sake of understanding the,
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it could be worse factor.
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Both of those states have what they call a progressive tax,
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just like our federal tax.
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So they'll go up to 12.3, they'll go up to 10.9.
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So those are very, very highly taxed states.
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Um, and then on the other side of that,
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there are nine states.
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I put them in here, they don't have any state income tax.
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So Florida, Texas, Alaska, Nevada, New Hampshire,
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South Dakota, Tennessee, Washington
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and Wyoming have no state income tax.
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So I, I just googled this this morning.
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Um, Joe Rogan, who many
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of you know the famous podcaster comedian, uh, uh,
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UFC commentator, he, um,
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makes $30 million a year as a podcaster.
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And I don't know if it was two years ago,
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but a couple years ago he relocated.
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And some of this was political reasons,
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but from California, Southern California to Texas.
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Uh, so he saves $3.7 million a year
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in state income taxes that he used
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to be paying in California.
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And so I'm sure the state of California misses him.
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Um, but you know, some of you watching are retired
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and a lot of our clients we talk about, you know, what,
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if you wanna, um, where are you gonna live in retirement?
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Uh, and now a lot of our folks are in Florida
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and a lot of that is for the weather.
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But yeah, it is nice.
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I mean, once you claim state residency in Florida,
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you can eliminate that 4.25% in Michigan.
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Um, now this question gets asked every year.
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So I'll just mention now, can you just buy a condo down
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there and, and, and, and claim and get that?
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No, you do have to have residency,
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which is typically defined as six months
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or more of living there.
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Um, but once you can do that
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and people do it all the time, you know that
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that is, that is a strategy.
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Uh, i I would say I wouldn't move there just
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for the tax savings.
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It, you know, you want it to be somewhere you wanna live,
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but it is certainly an appealing benefit of, of living and,
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and the state makes a big difference.
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Okay? So just kind of, this is a, a, a paycheck, you know,
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names, uh, blacked out to protect the innocent.
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Um, just to kind of show, you know,
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all these things that come out.
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So this person did max out.
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They were at like, uh, high three hundreds.
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So they maxed out their, that,
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that was the Maxwell security last year.
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Took their, their Medicare,
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they had federal state withholding on there.
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Um, they probably had some time in, in two states,
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'cause they had a little bit of
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Arizona and some Michigan tax.
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So you can see all those,
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all those taxes coming out of there.
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Um, now again, if you're self-employed, it's,
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those numbers are gonna be higher,
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but you get an idea of all the things they take out
252
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of the paycheck.
253
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Um, 4 0 1 KI do wanna mention 401k contributions.
254
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Um, do not avoid social security and Medicare.
255
00:11:16.575 --> 00:11:19.715
There is, there is no way around that. Okay.
256
00:11:19.855 --> 00:11:21.915
So let's talk about some ways that,
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that we can reduce taxes.
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Uh, standard deductions.
259
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So these are the standard deductions for 2023 and 2024.
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What's worth noting here is the tax laws changed, uh,
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in 2020, I'm sorry, 2018.
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And the standard deductions were in essence doubled.
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And the idea there was
264
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to get most people away from itemizing to try
265
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to simplify this 44,000, uh, tax page, tax code.
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And, and to some degree it's worked.
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About 87% of Americans as
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of A-U-S-A-U-S-A today study in 2020
269
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do take the standard deduction.
270
00:12:01.195 --> 00:12:02.215
Uh, so what does that mean?
271
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Well, if you have a hundred thousand dollars
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of earned income and you're married filing jointly in 2024,
273
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you can check the box, take the standard deduction,
274
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that's going to deduct $29,200 of your income.
275
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And that is not taxable.
276
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And so for most of you, that's a great way to go.
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However, if you have a lot of qualified expenses,
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and that goes beyond the scope of today's discussion,
279
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you may choose to itemize,
280
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which is simply just listing out all your deductions.
281
00:12:32.805 --> 00:12:34.945
And most good tax preparers will ask you about
282
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this and, and help you.
283
00:12:36.325 --> 00:12:37.865
And if your itemized list
284
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gets you more deductions than the standard deduction
285
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you can choose itemize.
286
00:12:43.125 --> 00:12:45.705
We itemize every year 'cause we have a, a lot of deductions.
287
00:12:46.125 --> 00:12:49.145
Um, so just wanted to walk through that.
288
00:12:49.485 --> 00:12:52.185
Uh, there are also what's what are called exemptions
289
00:12:52.535 --> 00:12:53.545
that if you have children
290
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and your income qualifies,
291
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you may even get some exemptions on there which further
292
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reduce your taxable income.
293
00:13:02.295 --> 00:13:05.505
What else can you do? Well, we've got all kinds
294
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of pre-tax savings accounts.
295
00:13:07.005 --> 00:13:08.105
So here's the jargon.
296
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401k, 4 0 3 B, 4 57 sep, simple.
297
00:13:13.465 --> 00:13:15.265
IRA deferred compensation plans.
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00:13:16.285 --> 00:13:18.865
One key point with all of these, and
299
00:13:19.065 --> 00:13:23.065
'cause I think this is missed, this is tax deferral.
300
00:13:23.365 --> 00:13:25.745
You're deferring the income tax to later.
301
00:13:26.005 --> 00:13:29.745
It doesn't mean never the government is gonna
302
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want their pound of flush.
303
00:13:31.445 --> 00:13:34.985
So it may make sense to defer that and pay later.
304
00:13:35.525 --> 00:13:38.825
You may be in a lower tax bracket, the word may,
305
00:13:39.525 --> 00:13:41.065
but it is going to be taxable.
306
00:13:41.285 --> 00:13:43.185
And if you don't spend the money, it's gonna be taxable
307
00:13:43.185 --> 00:13:44.265
before it goes to your heirs.
308
00:13:45.305 --> 00:13:48.915
The other side of the fence are these post-tax,
309
00:13:49.175 --> 00:13:51.995
tax free options such as a Roth 401k.
310
00:13:52.375 --> 00:13:55.035
Now there's a Roth 4 0 3 B and a Roth IRA.
311
00:13:55.145 --> 00:13:56.475
They're all different plans,
312
00:13:56.935 --> 00:13:58.635
but they work the same in the sense
313
00:13:58.635 --> 00:14:00.475
that you don't get a deduction now,
314
00:14:00.895 --> 00:14:02.755
but the money grows tax deferred,
315
00:14:02.975 --> 00:14:04.635
you don't pay any tax on the growth
316
00:14:05.375 --> 00:14:09.275
and you get the distribution, the gain tax free.
317
00:14:10.175 --> 00:14:12.395
So you're kind of balancing the, uh,
318
00:14:12.695 --> 00:14:14.235
the two sides of the coin there.
319
00:14:15.985 --> 00:14:18.925
Uh, here are some of the limits for 2024.
320
00:14:19.225 --> 00:14:21.445
And this is probably gonna look like a bunch of googly gunk,
321
00:14:21.665 --> 00:14:23.685
but I'll just point out a couple of highlights.
322
00:14:23.875 --> 00:14:26.405
4 0 1 Ks this year. 23,000.
323
00:14:26.865 --> 00:14:30.765
For those of you 50 and older, you've got a $7,500 catch up.
324
00:14:30.765 --> 00:14:34.965
So you can personally put in up to 30,500 into your 401k.
325
00:14:35.185 --> 00:14:38.205
That's a great way to save for retirement.
326
00:14:38.255 --> 00:14:40.245
Defer taxes, the whole nine,
327
00:14:40.715 --> 00:14:43.085
that does not include your company maps.
328
00:14:43.085 --> 00:14:46.485
So if you work for an employer, they can go up to that.
329
00:14:46.545 --> 00:14:49.165
If you're a sole employer, you can actually, uh,
330
00:14:49.315 --> 00:14:52.645
it's $69,000, uh, this year plus a catch up.
331
00:14:53.145 --> 00:14:56.685
Uh, again, you know, you've got things like IRAs, subject
332
00:14:56.785 --> 00:15:00.045
to income restrictions, uh, $7,000
333
00:15:00.345 --> 00:15:02.725
for those under $58,000
334
00:15:02.785 --> 00:15:05.845
for those over 54 50 sevens
335
00:15:05.845 --> 00:15:09.485
or the 4 0 3 Bs, which is the kind of the um, uh,
336
00:15:09.485 --> 00:15:11.525
nonprofit version of the 401k.
337
00:15:12.395 --> 00:15:13.895
Uh, same and similar limit.
338
00:15:17.105 --> 00:15:20.395
Okay, so we're gonna look at a scenario,
339
00:15:21.095 --> 00:15:22.195
and this is,
340
00:15:22.615 --> 00:15:26.115
is a household couple under 65 making
341
00:15:26.555 --> 00:15:28.635
$150,000 each.
342
00:15:29.015 --> 00:15:33.645
See if my hyperlink works. Oh, here we go. Good job, Tara.
343
00:15:34.075 --> 00:15:36.085
Alright, and this may be small print.
344
00:15:36.085 --> 00:15:37.725
Let's see if I can make this a little bigger.
345
00:15:39.435 --> 00:15:41.055
Uh, so the first scenario,
346
00:15:41.555 --> 00:15:46.135
the couple makes no retirement contributions, uh, $300,000.
347
00:15:46.445 --> 00:15:48.255
They take the standard deduction.
348
00:15:48.805 --> 00:15:51.935
They have 270,000 of taxable income.
349
00:15:52.245 --> 00:15:56.775
They pay $51,527 in federal tax.
350
00:15:57.685 --> 00:16:00.835
Their marginal rate, highest effective rate is 24.
351
00:16:01.365 --> 00:16:03.275
Their average rate is 19.
352
00:16:04.015 --> 00:16:05.155
And if I keep going down,
353
00:16:05.215 --> 00:16:09.395
we can see then they've got another $12,282 in
354
00:16:09.605 --> 00:16:10.715
state income taxes.
355
00:16:11.905 --> 00:16:13.635
Okay, so 51
356
00:16:13.895 --> 00:16:18.675
and 12 roughly, they're at $63,000 in change.
357
00:16:19.795 --> 00:16:22.165
Okay? Same couple,
358
00:16:22.865 --> 00:16:26.445
but they decide to maximize their 4 0 1 Ks.
359
00:16:27.255 --> 00:16:29.355
Uh, assuming they have that ability, they do.
360
00:16:29.655 --> 00:16:31.955
So that's gonna be $46,000,
361
00:16:34.015 --> 00:16:36.425
therefore they're taxable wages
362
00:16:36.425 --> 00:16:39.625
because that comes off now become 254,000.
363
00:16:40.465 --> 00:16:43.435
Okay? So that 46 comes right off the top, um,
364
00:16:44.705 --> 00:16:45.765
by paying themselves.
365
00:16:45.985 --> 00:16:48.565
Now, they've reduced same standard deduction.
366
00:16:48.865 --> 00:16:51.365
Now their total tax is $40,000.
367
00:16:51.665 --> 00:16:54.685
So they just shaved $11,000 off their tax bill.
368
00:16:55.735 --> 00:16:59.825
They did the, the trade off is they, they set aside,
369
00:16:59.825 --> 00:17:01.225
they didn't spend that extra money.
370
00:17:01.225 --> 00:17:03.065
They set aside $46,000,
371
00:17:03.685 --> 00:17:06.545
but they shaved it right off their tax bill
372
00:17:07.285 --> 00:17:09.625
and reduce their Michigan State tax a little bit
373
00:17:11.335 --> 00:17:12.435
by about $2,000.
374
00:17:13.825 --> 00:17:17.975
Third option, same couple, uh, $300,000,
375
00:17:18.155 --> 00:17:19.895
but we'll say they own a small business.
376
00:17:20.395 --> 00:17:23.055
And so through a bunch of strategies of deductions
377
00:17:23.665 --> 00:17:27.455
maximizing 4 0 1 Ks, et cetera, they get their tax bill
378
00:17:27.455 --> 00:17:28.615
and income down to one 50.
379
00:17:30.615 --> 00:17:34.265
They're at 16,000 6 82 in taxes
380
00:17:34.925 --> 00:17:36.585
versus the original 51.
381
00:17:37.345 --> 00:17:39.645
So you can really see how, you know,
382
00:17:39.645 --> 00:17:41.365
being strategic about this can,
383
00:17:41.425 --> 00:17:43.645
can really make a difference in your bottom line.
384
00:17:44.505 --> 00:17:45.565
Uh, here was the numbers.
385
00:17:45.625 --> 00:17:49.165
The first one, the total was 63 8 0 9, state and federal.
386
00:17:49.985 --> 00:17:53.885
The second one, uh, saved 21%, $13,000.
387
00:17:54.425 --> 00:17:58.445
The third one paid $40,000 less in tax.
388
00:17:59.225 --> 00:18:02.525
So again, the key takeaway to be strategic about it,
389
00:18:02.625 --> 00:18:06.205
you know, pay is, is a little as legally possible
390
00:18:06.585 --> 00:18:08.965
and really explore the code to get opportunities.
391
00:18:09.065 --> 00:18:11.565
And if, and if you're not aware of it, then then talk
392
00:18:11.565 --> 00:18:12.805
to some folks who are,
393
00:18:16.315 --> 00:18:17.685
okay, additional strategies.
394
00:18:18.065 --> 00:18:19.885
Uh, health savings account, you know,
395
00:18:20.185 --> 00:18:21.565
we don't talk enough about this.
396
00:18:21.715 --> 00:18:23.885
This is probably like the eighth wonder of the world.
397
00:18:24.385 --> 00:18:26.045
It is the only thing you can do
398
00:18:26.495 --> 00:18:28.565
where you can get a deduction going in.
399
00:18:28.985 --> 00:18:30.245
You can get tax deferral
400
00:18:30.465 --> 00:18:32.445
and you can get it tax free on the backside.
401
00:18:32.785 --> 00:18:34.885
Now the caveat is you have to have a,
402
00:18:35.045 --> 00:18:36.685
a high deductible health plan to qualify,
403
00:18:37.345 --> 00:18:39.925
but if you do, uh, these are no-brainers.
404
00:18:40.225 --> 00:18:43.495
Um, I mean you can put money in, get the deduction,
405
00:18:43.995 --> 00:18:45.855
you don't have to take it at a certain age.
406
00:18:45.855 --> 00:18:48.135
You can let it grow. You can do all kinds of great things.
407
00:18:48.615 --> 00:18:50.135
Excellent, excellent idea. A lot
408
00:18:50.135 --> 00:18:53.455
of places now are also allowing you to invest that money.
409
00:18:53.475 --> 00:18:55.015
So if you're gonna build the account instead
410
00:18:55.015 --> 00:18:55.975
of just putting it into savings,
411
00:18:56.075 --> 00:18:57.055
you can put it in the market.
412
00:18:57.925 --> 00:18:59.455
It's a really, really cool feature.
413
00:19:00.115 --> 00:19:01.415
Uh, flex spending accounts.
414
00:19:01.915 --> 00:19:05.655
So these are not h uh, health savings accounts.
415
00:19:05.995 --> 00:19:07.215
Um, you can put up
416
00:19:07.215 --> 00:19:10.695
to 3,200 a year in the key there is you have to use it
417
00:19:10.755 --> 00:19:12.095
for the most part within the year.
418
00:19:12.715 --> 00:19:16.015
Um, but a, you know, a no brainer for this is if you're,
419
00:19:16.155 --> 00:19:18.015
you know, you have kids and they're in daycare
420
00:19:18.275 --> 00:19:20.455
and you're spending thousands of dollars a year on daycare,
421
00:19:21.515 --> 00:19:23.295
put that money in a flex spending account,
422
00:19:23.715 --> 00:19:25.655
and then use a flex spending to pay for the daycare.
423
00:19:25.795 --> 00:19:26.815
And you're essentially paying
424
00:19:26.815 --> 00:19:28.735
for your daycare on a pre-tax basis.
425
00:19:29.875 --> 00:19:31.455
Uh, and then five 20 nines.
426
00:19:31.455 --> 00:19:32.975
Again, not gonna get into the weeds.
427
00:19:32.975 --> 00:19:34.255
I think a lot of you're familiar with that,
428
00:19:34.315 --> 00:19:36.615
but this is, you know, college savings plan
429
00:19:36.615 --> 00:19:39.975
that works like a Roth, IRA, uh, you can also use it for,
430
00:19:40.515 --> 00:19:43.335
um, um, primary school up
431
00:19:43.335 --> 00:19:45.415
to $10,000 a year, kind of a new rule.
432
00:19:45.915 --> 00:19:47.975
And, and those are good strategies to look at.
433
00:19:49.695 --> 00:19:52.225
Okay, I told you I'd come back to this, this,
434
00:19:52.575 --> 00:19:54.145
this capital gains taxes.
435
00:19:55.245 --> 00:19:58.185
So we're gonna call this an after-tax investment account.
436
00:19:58.865 --> 00:20:02.345
A KAA managed account, a KAA brokerage account.
437
00:20:02.795 --> 00:20:03.985
Let's just keep it simple.
438
00:20:04.215 --> 00:20:08.425
It's not an IRA, it could be in, in, in John Smith's name,
439
00:20:08.455 --> 00:20:10.545
Jane Smith's name, Jane and John Smith.
440
00:20:10.545 --> 00:20:12.545
Joint tenants, the John Smith Trust.
441
00:20:12.865 --> 00:20:15.185
Whatever, it's, it's not an IRA, it's not a 401k,
442
00:20:15.185 --> 00:20:17.385
it's just a, a a, a brokerage account.
443
00:20:18.765 --> 00:20:21.945
The big advantage you have of this, in addition to the fact
444
00:20:21.945 --> 00:20:24.345
that you can make a very good return in equities over the
445
00:20:24.345 --> 00:20:28.425
long term, is if you're invested in equities, stocks,
446
00:20:29.165 --> 00:20:32.225
um, you have two ways they grow, right?
447
00:20:32.255 --> 00:20:34.025
They grow by capital appreciation,
448
00:20:34.025 --> 00:20:36.745
which is you buy the stock at $10, it grows to $12.
449
00:20:37.085 --> 00:20:41.145
That's growth. And, and then you have dividends.
450
00:20:41.685 --> 00:20:44.545
And dividends is, you know, can be taxable.
451
00:20:44.885 --> 00:20:47.405
But a lot of growth stocks don't pay a lot of dividends
452
00:20:48.175 --> 00:20:49.395
and they get their growth a lot
453
00:20:49.395 --> 00:20:51.395
of times from the share price appreciating.
454
00:20:52.135 --> 00:20:54.315
Now in that scenario, you don't pay any tax
455
00:20:54.815 --> 00:20:56.675
unless you sell the stock, right?
456
00:20:56.735 --> 00:20:58.035
So for a lot of you, you're not gonna
457
00:20:58.035 --> 00:20:59.235
sell the stock until later.
458
00:21:00.055 --> 00:21:01.795
And if you hold it 12 months
459
00:21:01.795 --> 00:21:03.595
or longer, the sale of
460
00:21:03.595 --> 00:21:05.995
that is considered a long-term capital gain.
461
00:21:06.375 --> 00:21:09.795
So this is 2024 long-term capital gains rates, uh,
462
00:21:09.925 --> 00:21:14.275
let's focus on this married joint at the 15% here.
463
00:21:14.335 --> 00:21:18.355
So this in encapsules a lot of people, if you're
464
00:21:18.355 --> 00:21:22.235
between 94,580 3000, you only pay 15%
465
00:21:23.165 --> 00:21:27.425
versus what could be 37% for ordinary income.
466
00:21:28.235 --> 00:21:31.175
If you can get under 94,000, you don't pay anything.
467
00:21:31.675 --> 00:21:34.455
And even if you're, you know, very, very, you know,
468
00:21:34.845 --> 00:21:38.255
high income, 37%, the maximum rate right now is 20%.
469
00:21:38.755 --> 00:21:41.175
So many of you may have heard the comment over the years,
470
00:21:41.195 --> 00:21:42.415
Warren Buffet says, well,
471
00:21:42.415 --> 00:21:45.095
my secretary pays more in taxes than I do.
472
00:21:45.995 --> 00:21:49.615
The truth of that statement is his secretary pays a higher
473
00:21:49.795 --> 00:21:51.095
tax rate than he does
474
00:21:51.095 --> 00:21:52.895
because he gets most of his wealth
475
00:21:52.895 --> 00:21:55.495
through capital gains sales, which is a maximum of 20%.
476
00:21:55.915 --> 00:21:57.855
And I would assume Warren Buffet's secretary is,
477
00:21:57.925 --> 00:21:59.295
it's probably in a 24
478
00:21:59.315 --> 00:22:02.495
to 37% tax bracket, probably paid quite well.
479
00:22:02.955 --> 00:22:04.735
So that's, that's what he was inferring to.
480
00:22:05.565 --> 00:22:09.585
So again, the brokerage account, um, great, great option.
481
00:22:10.005 --> 00:22:12.945
And you know, there's no minimums, there's no maximums.
482
00:22:13.405 --> 00:22:15.825
Um, you can build this money and accumulate
483
00:22:15.845 --> 00:22:19.185
and then kind of control your taxes to some degree
484
00:22:19.805 --> 00:22:20.865
for, for down the road.
485
00:22:23.185 --> 00:22:24.645
Uh, two other strategies,
486
00:22:24.705 --> 00:22:28.245
and again, just just sort of high level deferred annuities.
487
00:22:28.545 --> 00:22:30.805
Um, these are gonna offer tax deferral.
488
00:22:31.515 --> 00:22:34.205
They are predominantly, I'll say for retirement only
489
00:22:34.205 --> 00:22:36.645
because you can't really touch that money to 59 and a half
490
00:22:36.665 --> 00:22:37.685
or you have penalties.
491
00:22:38.145 --> 00:22:41.405
Um, but right now with interest rates, we can get 5% plus.
492
00:22:42.025 --> 00:22:44.685
Uh, and people are asking a lot about CDs.
493
00:22:44.705 --> 00:22:47.765
I'm not a big CD fan. Here's, here's the big difference.
494
00:22:47.825 --> 00:22:50.645
If you did a deferred annuity, you get the 5%
495
00:22:50.785 --> 00:22:52.725
and you don't pay the tax every year.
496
00:22:53.225 --> 00:22:55.965
So you get additional growth by not having to pay that tax.
497
00:22:56.425 --> 00:22:58.445
You get 5% in a savings account.
498
00:22:59.325 --> 00:23:02.835
Let's say you're in a, you're in a 35% tax bracket,
499
00:23:03.335 --> 00:23:06.995
you know, your net is closer to 3.5% after you pay the tax.
500
00:23:07.055 --> 00:23:09.595
So every year you get that 10 99 from that,
501
00:23:09.595 --> 00:23:11.715
that interest taxable from that CD
502
00:23:11.715 --> 00:23:13.955
or that savings, you're not getting the
503
00:23:13.955 --> 00:23:15.115
full, the full benefit there.
504
00:23:16.015 --> 00:23:17.995
Uh, another one is permanent life insurance.
505
00:23:19.015 --> 00:23:22.205
Lot of caveats to this.
506
00:23:22.205 --> 00:23:24.885
One has to be done correctly, has to be funded correctly.
507
00:23:25.425 --> 00:23:28.885
Um, you know, generally this is gonna be for higher earners
508
00:23:28.905 --> 00:23:31.045
who are already maxing out other plans.
509
00:23:31.505 --> 00:23:34.005
Um, but you can generate a, a pretty nice rate
510
00:23:34.005 --> 00:23:35.885
of return on these if they're structured correctly.
511
00:23:36.505 --> 00:23:38.885
Uh, many states they're also credited, protected.
512
00:23:39.305 --> 00:23:42.045
You don't have to wait till 59 and a half to get the money.
513
00:23:43.025 --> 00:23:45.525
And in, in most of the programs,
514
00:23:45.525 --> 00:23:46.845
depending on which one you're using,
515
00:23:47.115 --> 00:23:48.485
they're never gonna go backwards.
516
00:23:48.745 --> 00:23:51.085
So they don't have that market risk component to 'em.
517
00:23:53.135 --> 00:23:55.825
Okay, so, uh, let's get into
518
00:23:57.355 --> 00:23:58.515
retirees now, right?
519
00:23:58.655 --> 00:24:00.675
Uh, you're retired and you're still paying taxes.
520
00:24:01.175 --> 00:24:03.555
Yes you are. And, and you know, it's that old expression.
521
00:24:03.555 --> 00:24:05.875
Nothing is certain except death and taxes.
522
00:24:06.735 --> 00:24:08.795
Um, yes, that is very true.
523
00:24:10.055 --> 00:24:12.475
So this is where I wanna come back and,
524
00:24:12.475 --> 00:24:13.595
and do a little bit of history.
525
00:24:13.655 --> 00:24:15.995
And this is one of my favorite nerdy charts.
526
00:24:16.535 --> 00:24:18.875
Um, what you see on the right here is the
527
00:24:18.875 --> 00:24:20.075
history of income tax rates.
528
00:24:20.535 --> 00:24:23.835
And, and in the seventies, up through the mid eighties, some
529
00:24:23.835 --> 00:24:26.835
of you may remember this, the highest bracket was 70%
530
00:24:27.015 --> 00:24:28.995
and there were over 15 different brackets.
531
00:24:29.655 --> 00:24:31.675
And since then, you know, we've had changes.
532
00:24:31.775 --> 00:24:33.595
But we've predominantly, if I were to draw a line,
533
00:24:33.595 --> 00:24:37.915
we've come down, highest bracket was 39 20 18 cuts
534
00:24:37.915 --> 00:24:38.955
that made it down to 37.
535
00:24:39.335 --> 00:24:41.675
And there were about five brackets, okay?
536
00:24:42.335 --> 00:24:45.235
At the same time, this little red line,
537
00:24:45.865 --> 00:24:47.835
this is the national debt, okay?
538
00:24:48.765 --> 00:24:52.755
And so what, what I would submit to you
539
00:24:53.375 --> 00:24:55.275
is this is where tax rates were.
540
00:24:55.825 --> 00:24:57.075
This is where they are.
541
00:24:58.015 --> 00:25:00.635
Do you think they will go down, go up
542
00:25:00.735 --> 00:25:01.875
or stay the same in the future?
543
00:25:03.235 --> 00:25:04.995
I don't know any anything's possible,
544
00:25:05.695 --> 00:25:08.355
but the, you know, the assumption of the,
545
00:25:08.915 --> 00:25:10.875
everyone will be in a lower tax bracket than
546
00:25:10.875 --> 00:25:12.075
they re when they retire.
547
00:25:13.455 --> 00:25:15.655
I would question that it's gonna work for some people.
548
00:25:16.135 --> 00:25:17.495
I don't think it's gonna work for everybody.
549
00:25:17.595 --> 00:25:20.015
And that's why you kind of wanna plan money on
550
00:25:20.015 --> 00:25:21.095
both sides of the line.
551
00:25:21.115 --> 00:25:25.375
You know, some deferred pre-tax, 4 0 1 KIA,
552
00:25:25.805 --> 00:25:28.855
some tax free, is it Ross Insurances, et cetera.
553
00:25:29.795 --> 00:25:32.455
Uh, okay, back to the slide.
554
00:25:32.755 --> 00:25:36.295
Um, where you get income in retirement matters
555
00:25:36.715 --> 00:25:38.735
and how you layer that in structure matters.
556
00:25:39.195 --> 00:25:40.215
I'm gonna give you an example,
557
00:25:40.755 --> 00:25:43.415
but let's just walk through some of these income sources.
558
00:25:43.855 --> 00:25:48.675
Pensions, some of you have 'em, um, federal employees,
559
00:25:49.395 --> 00:25:51.875
teachers, firemen, policemen, uh,
560
00:25:52.265 --> 00:25:54.315
very few corporate corporations these days,
561
00:25:54.315 --> 00:25:55.515
but some of you have pensions.
562
00:25:55.655 --> 00:25:57.995
Uh, all our electrician friends, God bless you.
563
00:25:58.455 --> 00:26:02.235
Uh, not very nice pensions, a hundred percent taxable. Okay?
564
00:26:03.105 --> 00:26:04.835
IRAs 4 0 1 Ks, 4 0 3 Bs.
565
00:26:05.065 --> 00:26:08.605
Taxable social security benefits up to 85%.
566
00:26:08.955 --> 00:26:13.165
Taxable rental income, taxable gonna go work part-time
567
00:26:13.875 --> 00:26:16.085
taxable income, and you'll probably pay some FICA
568
00:26:16.925 --> 00:26:18.245
required minimum distributions.
569
00:26:18.555 --> 00:26:21.085
What are those? When you hit your mid seventies now
570
00:26:21.385 --> 00:26:24.005
and they make you start taking money out of your IRAs,
571
00:26:24.005 --> 00:26:26.695
4 0 1 Ks and you gotta pay taxes on it.
572
00:26:27.635 --> 00:26:32.355
So these are all taxables, okay? Uh, what does that mean?
573
00:26:33.605 --> 00:26:37.115
Well, we're gonna go with Grandpa John and grandma.
574
00:26:37.305 --> 00:26:41.895
Grandma Jane. Scenario one, they want a retirement income
575
00:26:41.895 --> 00:26:43.205
of 150,000 a year.
576
00:26:43.555 --> 00:26:46.605
They get $70,000 from Social Security.
577
00:26:47.365 --> 00:26:50.015
They take $80,000 from their IRAs.
578
00:26:50.065 --> 00:26:54.735
Their net after tax is 13,690. Um, not bad.
579
00:26:54.985 --> 00:26:57.855
Total taxes of $15,000, only 10%.
580
00:26:58.515 --> 00:27:02.935
Um, but, and I, I had this hyperlink
581
00:27:08.465 --> 00:27:11.445
or maybe I don't, uh, if we did another scenario,
582
00:27:12.605 --> 00:27:14.375
same couple, same gross income,
583
00:27:14.375 --> 00:27:18.815
but this time on, uh, from their $80,000, uh,
584
00:27:19.065 --> 00:27:22.035
40, this has a typo in it.
585
00:27:22.035 --> 00:27:23.555
So this time they want $80,000.
586
00:27:23.865 --> 00:27:26.155
Only 40 of it comes from a taxable.
587
00:27:26.235 --> 00:27:27.235
IRA 40
588
00:27:27.255 --> 00:27:31.075
of it comes from tax resources like a Roth or something like that.
589
00:27:31.945 --> 00:27:36.055
This is gonna reduce the amount of social security
590
00:27:36.055 --> 00:27:38.575
that's taxable by over 27,000
591
00:27:38.765 --> 00:27:40.535
because there's a special threshold for that.
592
00:27:40.995 --> 00:27:45.135
So the same couple, uh, taxes owe drop from 15,000
593
00:27:45.195 --> 00:27:47.215
to only 43 42.
594
00:27:47.595 --> 00:27:49.815
So that's a 60% reduction in taxes,
595
00:27:50.045 --> 00:27:54.375
roughly an extra $11,000 in their pocket every year
596
00:27:54.995 --> 00:27:57.975
or, or not paid to the IRS every year in retirement.
597
00:27:58.595 --> 00:28:01.495
Now the point of this is just to illustrate that
598
00:28:01.495 --> 00:28:05.015
where you draw your money from in retirement matters and,
599
00:28:05.115 --> 00:28:07.015
and it's important that it's not as simple
600
00:28:07.035 --> 00:28:08.215
as just splitting a switch.
601
00:28:08.275 --> 00:28:10.815
You can't just, um, convert these.
602
00:28:11.445 --> 00:28:14.135
Technically you could convert almost everything in a year,
603
00:28:14.315 --> 00:28:15.935
but you'd pay a monster tax bill.
604
00:28:15.955 --> 00:28:17.775
So a lot of times it's important
605
00:28:17.775 --> 00:28:19.655
to have these discussion years in advance
606
00:28:20.035 --> 00:28:23.175
and strategically move money over, over time
607
00:28:24.035 --> 00:28:26.975
to just give yourself the as many options and,
608
00:28:27.235 --> 00:28:29.135
and things in retirement as possible
609
00:28:29.135 --> 00:28:30.815
because the tax code's gonna change.
610
00:28:31.155 --> 00:28:33.455
And that's the one thing we know it is gonna change.
611
00:28:33.515 --> 00:28:35.455
And that's why we look at this every single year.
612
00:28:35.755 --> 00:28:37.375
Run numbers every single year for folks.
613
00:28:38.945 --> 00:28:41.035
Okay, a couple other pitfalls
614
00:28:41.075 --> 00:28:43.035
and then I'm gonna open it up to questions
615
00:28:43.295 --> 00:28:44.875
and uh, we'll see.
616
00:28:44.935 --> 00:28:46.835
You guys can stump me. It probably won't take much.
617
00:28:47.505 --> 00:28:48.635
Corporate executives.
618
00:28:48.735 --> 00:28:52.355
Uh, we, we work with a handful of Stryker folks, um,
619
00:28:52.655 --> 00:28:55.435
and some other corporate executives, um, around the country.
620
00:28:56.055 --> 00:28:57.755
And if you're an executive, you know, one
621
00:28:57.755 --> 00:29:01.995
of the benefits is an nice bonus sometimes and stock options
622
00:29:01.995 --> 00:29:04.995
and RSUs and with a lot of these companies,
623
00:29:05.065 --> 00:29:07.635
they typically are not going to withhold enough tax.
624
00:29:08.015 --> 00:29:11.675
Um, Stryker for example, always withholds about 22% tax
625
00:29:12.215 --> 00:29:13.755
and from almost everyone, that's,
626
00:29:13.755 --> 00:29:14.755
that's nowhere near enough.
627
00:29:15.175 --> 00:29:17.675
And so if you're not proactive, you end up
628
00:29:17.715 --> 00:29:19.875
with a really big tax bill on penalties at the end.
629
00:29:20.055 --> 00:29:22.075
And so planning ahead is really, really important.
630
00:29:23.035 --> 00:29:25.015
Uh, another one is business owners.
631
00:29:25.595 --> 00:29:27.175
You know, if you sell your business
632
00:29:27.195 --> 00:29:29.655
or have a monster income year, you get ready
633
00:29:29.655 --> 00:29:33.135
for a monster tax bill un unless you can do some planning
634
00:29:33.155 --> 00:29:35.135
and avoid it and, and getting out in front of it.
635
00:29:36.195 --> 00:29:40.015
And then the retirees, um, this one we have all the time.
636
00:29:40.135 --> 00:29:42.925
I always tell everybody, and, and please take me up on it.
637
00:29:42.925 --> 00:29:44.925
If you're gonna want a chunk of money, it's your money,
638
00:29:45.425 --> 00:29:46.445
but please call us
639
00:29:46.445 --> 00:29:48.325
and let's talk about where to take it from
640
00:29:48.675 --> 00:29:51.045
because certain things, like I showed you
641
00:29:51.045 --> 00:29:53.885
that example a minute ago where you take the money matters
642
00:29:53.985 --> 00:29:56.005
and sometimes, you know, you may not think about it like,
643
00:29:56.005 --> 00:29:59.205
oh, well I wanna grab 25,000 for this one time vacation
644
00:29:59.505 --> 00:30:00.605
or this one-off expense.
645
00:30:01.185 --> 00:30:03.725
It can, it can really bump up all your
646
00:30:03.725 --> 00:30:04.965
taxes if you're not careful.
647
00:30:05.825 --> 00:30:08.685
And then there's a really sneaky little deal that some
648
00:30:08.685 --> 00:30:12.565
of you, uh, are in, uh, this Irma Medicare surcharge
649
00:30:12.565 --> 00:30:15.605
where if you make too much income, it can have you paying up
650
00:30:15.605 --> 00:30:19.245
to an extra $400 plus a month for, for your Medicare.
651
00:30:20.265 --> 00:30:23.085
So, um, again, just be mindful of those.
652
00:30:23.465 --> 00:30:25.165
Um, they're, they're very specific
653
00:30:25.305 --> 00:30:27.645
so there's not a general one size fits all advice,
654
00:30:27.945 --> 00:30:30.325
but it's something we'd be happy to, to discuss with you.
655
00:30:32.135 --> 00:30:34.185
Okay. Alright, we whip through that.
656
00:30:34.685 --> 00:30:38.345
Uh, I'm gonna stop the screen share
657
00:30:38.345 --> 00:30:42.065
and uh, Tara, I don't know if you wanna open up the lines.
658
00:30:43.115 --> 00:30:44.615
We will see if there's any questions
659
00:30:45.035 --> 00:30:46.055
and we'll go from there.
660
00:31:09.435 --> 00:31:12.115
I must have just answered every question ever known on
661
00:31:12.115 --> 00:31:13.155
the face of the earth for taxes.
662
00:31:19.355 --> 00:31:22.395
I have a question, Ryan, what is the, um,
663
00:31:23.055 --> 00:31:24.355
income limit for the Roth?
664
00:31:24.455 --> 00:31:27.115
You had mentioned that, um, income limits apply
665
00:31:27.215 --> 00:31:29.715
for contributing to a Roth and I'm curious what that is.
666
00:31:30.275 --> 00:31:31.965
Yeah, great question. And uh,
667
00:31:32.065 --> 00:31:33.325
you got me right outta the gate.
668
00:31:33.325 --> 00:31:37.045
It's like I gotta Google it. It is, it is around 200,000.
669
00:31:37.955 --> 00:31:39.655
Uh, I need to google the exact number,
670
00:31:39.715 --> 00:31:42.255
but for a married couple that's around 200,000
671
00:31:42.275 --> 00:31:44.095
for a single person, it's about half that.
672
00:31:44.925 --> 00:31:49.295
However, there are strategies if you're over that,
673
00:31:49.295 --> 00:31:50.815
which a lot of our clients are,
674
00:31:51.355 --> 00:31:53.095
and it may not work for everybody,
675
00:31:53.155 --> 00:31:54.655
but it's called a backdoor Roth.
676
00:31:54.875 --> 00:31:57.335
And it's, it's probably beyond explaining in this webinar,
677
00:31:58.035 --> 00:32:01.255
but just because you're over the threshold doesn't mean you
678
00:32:01.255 --> 00:32:03.655
can't do a Roth IRA in a sense.
679
00:32:04.475 --> 00:32:06.495
You just have to be a little more strategic about it.
680
00:32:06.495 --> 00:32:07.775
There's a, there's a few steps
681
00:32:08.245 --> 00:32:10.895
that still allows most people to be able to do it.
682
00:32:11.435 --> 00:32:12.495
And I also wanna mention,
683
00:32:12.895 --> 00:32:16.655
'cause you brought up the question that does not apply in,
684
00:32:16.655 --> 00:32:17.895
in a 401k.
685
00:32:18.275 --> 00:32:23.135
So, so a lot of employer plans now are offering Roth 401k
686
00:32:23.135 --> 00:32:24.215
or Roth 4 0 3 B.
687
00:32:24.715 --> 00:32:27.975
The great thing about those plans, there is no income limit.
688
00:32:28.555 --> 00:32:29.575
So people have been like,
689
00:32:29.575 --> 00:32:31.415
well I saw I had the Roth in my 4 0 1,
690
00:32:31.415 --> 00:32:32.535
but I make too much money for that.
691
00:32:32.645 --> 00:32:34.335
Doesn't matter. Doesn't matter.
692
00:32:34.555 --> 00:32:38.735
Um, inside of 401k, there is no income limit like there is
693
00:32:38.735 --> 00:32:40.805
for a traditional Roth IRA.
694
00:32:40.985 --> 00:32:42.765
So good question Tara. Thank you.
695
00:33:00.275 --> 00:33:03.135
Oh, well, I'm gonna assume everybody is, is just shy
696
00:33:03.395 --> 00:33:06.615
and I, I know the participants on here have our information
697
00:33:06.795 --> 00:33:09.815
so, um, if we don't have other
698
00:33:10.015 --> 00:33:11.215
questions, I'm gonna wind it up.
699
00:33:11.315 --> 00:33:12.655
Let everybody get back to their lunch.
700
00:33:13.395 --> 00:33:16.215
As always, we are here as a resource for you,
701
00:33:16.245 --> 00:33:17.295
your family and friends.
702
00:33:17.395 --> 00:33:19.175
Please don't hesitate to reach out.
703
00:33:19.755 --> 00:33:23.455
Um, if you would like a copy of this video, please reach out
704
00:33:23.455 --> 00:33:26.375
to Tara or this recording rather and we can get you that.
705
00:33:26.835 --> 00:33:28.535
And, uh, hope you all enjoy the rest of your day.
706
00:33:28.555 --> 00:33:30.415
Thanks for tuning in, spending some time with us.