PODCAST 82: What Opportunities Are There to Reduce Tax Burdens in Retirement?


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Below is a transcription of the Ask Gregory Podcast 82 – What Opportunities Are There to Reduce Tax Burdens in Retirement?

Gregory Ricks  00:00

Hey, welcome. I’m your host Gregory Rick’s a financial advisor here to answer your questions and help you win with your money.

Podcast Intro / Outro  00:10

On this week’s episode of the Ask Gregory podcast, we’re joined by Nicholas Rohde, a Wealth Advisor here at Gregory Rick’s and Associates. Today, Nicholas and Gregory are gonna discuss important opportunities that you may have to reduce the tax burden in retirement. We also have a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast82. Again, that is gregoryricks.com/podcast82.

Gregory Ricks  00:34

I was recently having a conversation presenting to a group and a couple came up afterwards. And one of the things they said is, where did you get that information? You know, the sunsetting of the tax cut Jobs Act that was passed what 2017 under the Trump administration. And I shared with the group, you know, when this is going to sunset, and they came up, like, where did you get that from? How do you how do you know about? Because we don’t know. And I shared actually most people don’t know. And it’s going to sunset, January warm 2026. So where we are right now is we have a stand for a couple married filing jointly, we have a standard deduction of $25,900, personal exemptions eliminated. What’s interesting about that is two tax brackets in particular, is the 22% tax bracket is $83,551 to $178,150. And for 2%. More, the next bracket at 24% is that $178,151 through $340,100. So you’ve got 2% that SAP separates a perfectly wide swath of money. You know, when if you’re looking to shift some assets and get it into a tax free world? What’s going away? Well, in 2026, it reverts back to what it was before the tax cut jobs act bill was passed. So that 22% tax bracket is going to be 25. And they’ve narrowed the range of it will go back to $75,901 through $153,100. And the next one is a 3% bump up at 28. And it’s narrowed as well. Its range is $153,101 to 233,350. So they’ve dropped off, lowered that by that will. And I say they’ve lowered that that’s what it was. And that’s what it’s set to sunset too. So that’s more than 100,000 reduction in that bracket. Because then you bump up to 33%, which is a 1% increase over how that bracket is presently, you know, gives you an opportunity to maybe do some tax strategy planning with this window before it gets higher. And it’s just one of the things don’t waste margin. What is that? That’s that’s leftover room before you jump to the next tax bracket that you should be looking at that I’m aware of that maybe what’s the opportunity, you’re talking about taking advantage of converting some money to Roth in these lower tax bracket times because they’ve signaled they’re going up, they’d like to do it before that I just don’t think they got the votes to do that. But in 2026, it’s already baked in the cake. So Nicholas, some of the things you’ve been talking about lately, are Roth opportunities.

Nicholas Rohde  04:23

Yeah, Roth money is one of my favorite types of money. And it’s actually only 25 years old. So we have a lot to credit back in. I think it was what 1997 The Roth was actually introduced. So it’s really not that old of a financial tax qualification. But there’s definitely some awesome opportunity. A lot of unknown details about Roth’s, and I find that, you know, as advisors where me personally, I’m in about 20 meetings a week, every week. And it’s actually pretty surprising that I would say, roughly half of the meetings I have when we’re talking about tax efficiency as part of our process. A lot of times I get a call Question, What is a Roth, or I’ve heard, you know, I don’t want a Roth are too aggressive or too conservative. So it’s about just educating people.

Gregory Ricks  05:07

It’s not an investment strategy. It’s a tax qualification inside of a Roth, like, you know, stocks, bonds, ETFs, mutual funds, annuities can be inside of those Roth accounts, but the opportunity is, is growing money tax free, inside of the tax code. And a fundamental thing on setting up a Roth account, kind of one magic thing you need to do is get a is open an account and contribute to it, get a contribution in it. And even if it’s just $50, why something we start, the clock started, there’s this magic thing that it needs to be established for five years. So then, you can reach a point, say, at age 59, and a half that growth can be taking out without taxes and without penalty. Correct there. And one thing neat about a Roth, though, if you contribute, you’re contributing after tax dollars to it. And those, those dollars can be taken out before age 59 and a half, but the growth cannot. So it’s got two parts, it needs to stay there to 59 and a half. And it has to have five years since the account was established. And generally that’s not a problem you but but they need to understand that if they’re wanting to do a conversion or contributions is getting that clock started.

Nicholas Rohde  06:50

And we have a lot of questions to about just well, how can I contribute? Or can I even because there are income limits to contributions on a Roth IRA. And actually, this week, I ran into a case where just depending on your tax filing status, you may or may not be able to contribute to a Roth, and a bass, the tax filing, if you do a married filing separate, and you earn more than $10,000, this is directly from the irs.gov, you actually cannot contribute to a Roth. But that does not take you out of the option of having Roth money, because we have conversions we can talk about and look at there’s different tax efficiencies to get more money into that status. And we just, again, I mentioned, it’s one of my favorite types of money. So I’m always looking up information about Roth IRAs. And there’s actually some really neat information that came from the study back in 2018, by the investment company Institute. And what they found was that only about a third of all Ira investors that they had surveyed, even had Roth IRA money. So this is something that kind of caught my eye and just concern me a little bit that only a third of people investing have money in this status. And most people that have Roth’s are actually under 40, which is great. But that also kind of makes me think that since it’s only 25 years old, maybe people think it’s just a newer type of investment account or investment tax qualification you can have, but we find opportunities for this for any age. That’s what part of that process is and getting that tax return. Because no matter what your age is, there could potentially be some awesome opportunity to get money into this status.

Gregory Ricks  08:30

You know, one of the obstacles is is a tax bill on contributions, it’s after tax dollars. So it’s not impactful, like a Roth conversion is on shifting money from traditional to Roth, when you’re doing a Roth conversion. There’s that’s a taxable event. But if we factor time in time can help solve for that for if you’re converting, let’s say $20,000. And you might convert that, but you also have to account for the taxes, and that might come off of some of that money that’s converting over, right?

Nicholas Rohde  09:11

Yes, it’s I find there’s two ways to do a Roth conversion. And the first way is just what you said, if we figure out hey, where is your tax bracket, since we know this is taxable income, we want to make sure we just run the report to see how much we can stand on the tax bill that comes in either have the custodian withhold those taxes for you. So if you want to do a $20,000 conversion, you know, you’re in the 22% federal tax bracket. And let’s say you’re in the 3% state. You could have the custodian withhold 25% Right there. So you’ll have a little bit less going into your Roth but your tax bill is taken care of in advance.

Gregory Ricks  09:47

Yeah, it’s taken care have in today’s dollars got in the future dollars with the expectation of taxes going up because it’s a part of the conversation. It’s already set. to go up because the tax cut jobs act, Bill is sunsetting. Those tax decreases in January one of 2026. So we have a window. And but with those two particular tax brackets, depending on your situation, there’s some cases where we talk to people that they don’t even have much income at all right when they retire. So there’s a unique opportunity to take advantage of that versus using money later at higher tax brackets or being forced to because of RMDs, or leaving money behind decades from now, when you move on. And all those should be a part of the conversation.

Nicholas Rohde  10:42

Yeah, that’s what I love about it is that it’s such a personal conversation, because it’s exactly what you said, some people I found, they’re not worried about themselves, but this is legacy money for them. They don’t want the kids do have to pay taxes at potentially higher rates when the kids inherit it, and have to spend that money down within 10 years in other people they’re looking at Hey, well, you know what, I would like some extra income tax free in retirement. I mean, there’s just so many reasons for it, but they’re all great reasons. It’s just finding what the purpose is for that money. And if we can get it out to keep more with the family I think everybody wins. Yeah, I think we can we have the farmer conversation about this we’re like a 401k a pre tax account is like you’re getting help from the government on your seeds and you’re planning your field but whatever you grow that’s not all yours you know, Uncle Sam gets a piece of that.

Gregory Ricks  11:31

Yeah, the raw and he can move they can chase and more of a PC can do so

Nicholas Rohde  11:38

yeah, he controls it. But with a Roth, you’re getting no help on your seeds, you’re buying everything’s it’s after tax money. But whatever you grow, that is your family’s field. That’s your crop. So I kind of love that example. Because it’s like, yeah, it’s kind of like helped me now hurt me later. Or don’t do anything for me now, but it helps my family

Gregory Ricks  11:56

it goes back to that pay me now or pay me a lot more later. There. I’d rather pay less now and keep more for later. So you know from tax planning standpoint, that we do at our firm with people is assessing the taxable nature of their current holdings strategizing ways to include tax deferred or tax free money in a plan. Strategize which tax category to draw income, from first to help reduce the tax burden once again, looking for efficiencies and leverage your qualified money to potentially leave tax free dollars to your beneficiaries. Because you start thinking about leave behind money in the situation that puts them in you could cause their brackets to be higher, which means more taxes

Nicholas Rohde  12:50

and less of your legacy being left on.

Podcast Intro / Outro  12:53

Thanks, everyone, for tuning into this week’s episode of the Ask Gregory podcast. We’d like to give a big thanks to our guests Nicholas Rohde for joining us on this episode. And don’t forget, we’ve got a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast82 Again, that is gregoryricks.com/podcast82.

Gregory Ricks  13:13

Thanks so much for listening to Ask Gregory, where we answer your financial questions. You can find us anywhere Podcasts can be found and on YouTube and Facebook Live every Saturday from 10 to one. If you love this podcast, subscribe, leave a review and tune in next time.

Podcast Intro / Outro  13:31

Gregory Ricks & Associates is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Gregory Ricks & Associates are not affiliated companies. Gregory Ricks & Associates, The Total Wealth Authority is our trademarked tagline, it does not promise or guarantee investment results or preservation of principal nor does it represent a certain level of skill. Investing involves risk, including the potential loss of principal. Any references to protection, safety or lifetime income, generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. This radio show is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Gregory Ricks & Associates is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. The information and opinions contained herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Gregory Ricks & Associates. Any media logos and/or trademarks contained herein are the property of their respective owners and no endorsement by those owners of Gregory Ricks & Associates is stated or implied Gregory Ricks & Associates has a strategic partnership with tax professionals and attorneys who can provide tax and/or legal advice. AEWM, Gregory Ricks & Associates, WJ Blanchard Law, LLC, J Heath & Co. and Mortgage Gumbo are not affiliated companies. This show is a paid placement.