#8. If you name your heirs as partial beneficiaries of your traditional IRA, they can spread out distributions over 10-11 years to reduce taxes and surviving spouse faces less of a widow tax penalty due to RMDs. Of course, spouse needs to plan to cover remaining lifetime needs.
Question: The challenge for us plebes is how to build (accurately) on of the tax graphs you show. Where's the tool? I try to think in this way, however, know that I'm calculating the right chunks of income correctly is a crap shoot. Any suggestions of how to model this for our own situations so we can accurately make decisions around things like conversions or taking SS?
Build a spreadsheet to mimic your finances for the rest of your life, including all calculations for your future tax returns. Any future financial planning is a crap shoot, but not estimating future financial events is an even worse crap shoot. I built a spreadsheet and it's essential, as there are a ton of moving parts to keep track of. I'll monitor and adjust my spreadsheet for the rest of my life. Financial advisors, like Eric, can't build a detailed spreadsheet like I recommend, because it's not economically feasible (for most of us with moderate wealth). If we were decamillionaires, then it would probably make economic sense to pay an advisor to develop and monitor said spreadsheet.
@@larryjones9773 Larry is 100% right. I suggest starting simple. Put the next ~40 years as column headers, and start adding data rows for things like SSI income, W2 earnings, 401k distributions, etc. I built mine up a little at a time over many weekends. It is now pretty remarkable; I feel like it rivals paid software. It is customized for my state (for state income tax) and my family situation. Once the framework is built, you can alter variables and compare results. YOU CAN DO IT! 👍👍
I noticed that everything is designed for you to get the short end of the stick the moment you start making any sort of taxable income in retirement. So you either spend a lot of time and energy trying to report no taxable income, or make so much money that taxes don't even matter to you. I want to be in the latter category and play around with taxes savings just for fun.
This seems self-obvious to me, but I've had heated discussions/arguments with people who insisted that the only thing that matters is the effective rate or even just "the amount of taxes I pay." I find that incomprehensible. The only reason I can guess at, is they do not care to manage their income and/or taxes, in spite of assertions that they do. How, buy guessing? Who knows how people that cannot follow a strict logic step process arrive at their decisions.
It depends on what they are referring to when they use the term effective rate. Let me explain. A key decision point is the marginal tax rate you will pay on your conversion compared to the marginal tax rate you will pay on your RMDs. Some people will say if you are in the same marginal bracket now vs later you end up in the same place but that is not necessary true. That is where effective rate, if they are using the term to mean average rate comes into play. In the case of conversion you know your current tax bracket now, let’s say it’s the 12% bracket. So if you convert $100k some will be in the 12% bracket and some in the 22% so the effective (average) rate on that conversion might be 18%. Conversely, let’s say you are still in the 12% bracket when you take your first RMD and your $100k is now worth $200k. Since the year one RMD is only $8k, all of that could still be in the 12% bracket, so the effective rate paid on just the RMD is 12% compared to 18% when converting, even though you were in the same marginal bracket before each withdrawal.
This video would have been so much easier to follow if the years and occasional ages were on the charts. Trying to guess by a dotted line that should mean age 65 for Medicare and then trying to understand the related years is very confusing. Are they close in age? Only one chart showed the dates and I don't believe that was the recommendation due to high RMD's. Your video's are usually much more detailed and easier to follow.
I wish your company would do these sort of tax calculations for a fee, as I don’t want an overall money manager
They don’t, huh? That’s too bad. I was considering contacting them for a checkup but if they want to manage the money… no.
@@NatesRandomVideo yeah, I asked them- they want to manage your money
#8. If you name your heirs as partial beneficiaries of your traditional IRA, they can spread out distributions over 10-11 years to reduce taxes and surviving spouse faces less of a widow tax penalty due to RMDs. Of course, spouse needs to plan to cover remaining lifetime needs.
Wow I hadn’t thought of that one. Good idea.
Great info Eric. I often adjust my tax plan based on new information presented on your channel. Thank you!
Thanks. Seems like Medicare expenses are a lot less sensitive to income than ACA expenses, so hold off on big Roth conversions until on Medicare.
Thanks Eric--great information as always!
Very good, complex but good. Will watch again.
Cheers
Great video as always, Eric! Thanks!
Question: The challenge for us plebes is how to build (accurately) on of the tax graphs you show. Where's the tool? I try to think in this way, however, know that I'm calculating the right chunks of income correctly is a crap shoot. Any suggestions of how to model this for our own situations so we can accurately make decisions around things like conversions or taking SS?
Build a spreadsheet to mimic your finances for the rest of your life, including all calculations for your future tax returns. Any future financial planning is a crap shoot, but not estimating future financial events is an even worse crap shoot.
I built a spreadsheet and it's essential, as there are a ton of moving parts to keep track of. I'll monitor and adjust my spreadsheet for the rest of my life.
Financial advisors, like Eric, can't build a detailed spreadsheet like I recommend, because it's not economically feasible (for most of us with moderate wealth). If we were decamillionaires, then it would probably make economic sense to pay an advisor to develop and monitor said spreadsheet.
@@larryjones9773 Larry is 100% right. I suggest starting simple. Put the next ~40 years as column headers, and start adding data rows for things like SSI income, W2 earnings, 401k distributions, etc. I built mine up a little at a time over many weekends. It is now pretty remarkable; I feel like it rivals paid software. It is customized for my state (for state income tax) and my family situation. Once the framework is built, you can alter variables and compare results. YOU CAN DO IT! 👍👍
I noticed that everything is designed for you to get the short end of the stick the moment you start making any sort of taxable income in retirement. So you either spend a lot of time and energy trying to report no taxable income, or make so much money that taxes don't even matter to you. I want to be in the latter category and play around with taxes savings just for fun.
This seems self-obvious to me, but I've had heated discussions/arguments with people who insisted that the only thing that matters is the effective rate or even just "the amount of taxes I pay." I find that incomprehensible. The only reason I can guess at, is they do not care to manage their income and/or taxes, in spite of assertions that they do. How, buy guessing? Who knows how people that cannot follow a strict logic step process arrive at their decisions.
It depends on what they are referring to when they use the term effective rate. Let me explain. A key decision point is the marginal tax rate you will pay on your conversion compared to the marginal tax rate you will pay on your RMDs. Some people will say if you are in the same marginal bracket now vs later you end up in the same place but that is not necessary true. That is where effective rate, if they are using the term to mean average rate comes into play. In the case of conversion you know your current tax bracket now, let’s say it’s the 12% bracket. So if you convert $100k some will be in the 12% bracket and some in the 22% so the effective (average) rate on that conversion might be 18%. Conversely, let’s say you are still in the 12% bracket when you take your first RMD and your $100k is now worth $200k. Since the year one RMD is only $8k, all of that could still be in the 12% bracket, so the effective rate paid on just the RMD is 12% compared to 18% when converting, even though you were in the same marginal bracket before each withdrawal.
Great as usual. Contacted you about becoming a client.
Cheers,
Jef
Thank you so much Eric. BTW, sounds like there is bill in the works to increase SS payroll tax and jack up NIIT from like 3.8% to 16.2%. YIKES!!!!!
This video would have been so much easier to follow if the years and occasional ages were on the charts. Trying to guess by a dotted line that should mean age 65 for Medicare and then trying to understand the related years is very confusing. Are they close in age? Only one chart showed the dates and I don't believe that was the recommendation due to high RMD's. Your video's are usually much more detailed and easier to follow.
This is way too difficult to understand. I need it explained as a beginner or someone who doesn’t have a finance degree.