0:00:00 - Speaker 1

Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra, sipc Advisory Services through Cambridge Investment Research Advisors Inc. A registered investment advisor Cambridge and Greenway Wealth Advisory are not affiliated.

0:00:20 - Speaker 2

It's time to dive into some insider secrets of investing and retirement planning To make your retirement as smart and as elegant as possible. This is Money Chic with Sherry Rash. Hey everybody, Welcome into another edition of the podcast. It's Money Chic Women in Retirement with Sherry Rash, financial advisor and money coach at Greenway Wealth Advisory. Find her online at GreenwayWealthAdvisorycom. If you've got questions or concerns, need some help on your own situation, she's there to help and you can reach out to her at GreenwayWealthAdvisorycom. And this week on the podcast, we're going to talk about some top tax questions for retirees to ponder In 2023, retirement certainly comes with lots of questions and taxes are one of those. So on this episode, we're going to hopefully give you a few things to think about, to take to your financial professional or CPA and if you need help again on these, let Sherry know and she'll be able to schedule some time, talk with you and help you through some of this stuff. But that's what we're going to share with you this week here on the show. Sherry, what's going on? How are you?

0:01:20 - Speaker 3

I'm doing great. It's my favorite time of the year tax season.

0:01:23 - Speaker 2

Everybody's favorite.

0:01:25 - Speaker 3

Yay, yes, yes, it's very busy, lots of questions.

0:01:30 - Speaker 2

Yeah, for sure.

0:01:31 - Speaker 3

But also don't forget, though, we also have Flashrash joining us as well, that's right he may make his presence known. He's walking around. He was sleeping all morning, now he's walking around a little bit.

0:01:43 - Speaker 2

Sounds like I'm getting a little bored, getting a little antsy.

0:01:46 - Speaker 3

He may say hi, he may, that's okay, we like.

0:01:48 - Speaker 2

Flash. So let's jump in and knock out some of these. I got a list here. We'll see how many we can plow through and give some folks some things to think about, sherry. So we'll just dive in and start tackling these and see what happens. And if Flash has any comments, he's welcome to join in.

0:02:03 - Speaker 3

He really enjoys talking about taxes.

0:02:06 - Speaker 2

I think he does. Yeah, exactly Number one. What are the tax implications of withdrawing money from the different kinds of accounts? So that's a confusing bit for people. Sherry, is not every retirement account is taxed the same, or has the same tax? I guess, wrapper.

0:02:21 - Speaker 3

Right. So if we're thinking of just traditional tax treatment of money that is pre-taxed so traditional 401Ks, traditional IRAs you're obviously taxed on the entire amount when you withdraw it right.

Because you've never paid taxes on that money before. Right. But also with those accounts, if you make a withdrawal prior to age 59 and a half, in addition to paying taxes on the entire amount, you're also paying a 10% penalty. Okay, so that's with the traditional pre-tax retirement savings accounts. With Roth IRAs, you are funding the Roth whether it's a Roth IRA or Roth 401K with after-tax dollars, so you're paying the taxes upfront and then you're making the withdrawal, and when the withdrawal happens, it's then tax-free. Yeah, as long as you follow the rules of the Roth IRA.

0:03:17 - Speaker 2

Yeah, and the first one really the tax implications share of which accounts you're pulling from really affects the second one, which is social security. Can social security benefits be taxed? Well, the quick answer is yes. So how you set up your income strategy will affect how much. Is that a way of looking at that?

0:03:35 - Speaker 3

Yeah, because federally, you will pay taxes on up to 85% of your social security benefits. So up to 85% of your social security benefits will be taxed if, at an individual level, your combined income exceeds 25,000. At a joint, your combined income exceeds 32,000. So what is combined income? It's your adjusted gross income, tax exempt interest income and one half of your social security benefits. So half of your social security benefits get added to this combined income calculation and then you could be paying taxes on up to 85%. So if you're if I'll make these numbers real simple if you receive $10,000 worth of social security benefits, you could be paying taxes on $8,500. Not that you're paying $8,500 in taxes.

You're paying taxes on that $8,500.

0:04:40 - Speaker 2

Yeah, so it's your tax bracket, though right that you fall in. Yeah.

0:04:44 - Speaker 3

Yeah, right. So if you have a large amount of pre-tax retirement accounts and you are funding your retirement primarily with pre-tax dollars, here, when you make those withdrawals, you're paying taxes on everything that could affect the taxation of your social security benefits, because that's part of that combined income calculation, right, yeah.

0:05:07 - Speaker 2

No, that's definitely the strategy at all right. So taxes obviously are an issue that we have to do constantly. It's not just the annual tax prep thing, which is really revisionist history of the prior year. Tax planning is really looking at this stuff down the road, and how you structure your income will have a big impact on how your taxes play out. So certainly those two work together. So that's why they're kind of the top of the list here on the questions that we're going through to ask your financial professional or CPA.

0:05:37 - Speaker 3

And so we're just talking about federal. There could also be a state tax on your social security. Thankfully, 38 states and DC do not tax social security benefits, but that means there are some states that do so. Just something to be aware of. And you're absolutely right If you're only thinking about taxes when you file, you're looking essentially in the rearview mirror when it comes to tax planning. You have to look through the windshield. So we need to think about these things and talk to your advisor and your tax professional about these topics so we can actually tax plan. Because if the only time you're thinking about taxes is when you file, so this time every year, the first handful of months of the year, we're not doing tax planning.

0:06:25 - Speaker 2

Yeah, not at all. And thanks for that tip on the state side as well. So that's a good little extra bit to be aware of. So good stuff there. So what about pension income? Is that taxed differently than other forms of income, if you're looking enough to have one?

0:06:38 - Speaker 3

So if you're lucky enough to have one, yes, that's a good note. Pensions are taxed at ordinary income at a federal level because most of the time pensions are funded with pre-tax dollars. So you can expect to pay ordinary income tax on at a federal level on your pension. But then your state may also tax the pension as well, so you could also pay state tax on it. An interesting fact pensions are not taxable by the state in which the money was earned. So that's interesting. But there's only a handful of states that do not tax pension income Alabama, illinois, hawaii, mississippi and Pennsylvania. Other than that, you can expect to pay ordinary income tax at the state level on your pension.

0:07:34 - Speaker 2

Wow, very interesting and obviously that's going to be the case with some other questions when it comes to what states don't have income tax right, we all think of Florida or Texas or something like that. So it's certainly interesting when it comes to that pension aspect. So thanks for clarifying some of that. Okay, let's go to our next one here Any special tax deductions or credits available for retirees. I mean, I know it's kind of hard under the tax code that we're under now, but is there any tax anything to be aware of in that arena?

0:08:05 - Speaker 3

So the biggest one is that when you're over 65, the standard deduction increases. So, since we're filing 2022's taxes right now, the standard deduction for 65 and older is $14,700. So the benefit of that is that's usually the best option and it also eliminates the need to itemize your deductions.

0:08:31 - Speaker 2

Which has been where many of us have fallen here recently. For sure, we'll see if that all changes in 26 when they change the tax, when it goes back to where it was, but for now, yeah, that's certainly good to know. And since I just mentioned it, why don't we just go ahead and get into that next one about possibility of tax changes Should you move to another state? I find this question really interesting. Recently there's been a lot of conversation about, well, I'm going to move to a tax-free or a tax favorable state. I don't know if I would make the move just because of the taxes, but I think if it's, it certainly could be a high factor in, like, maybe, your decision-making process, because it could be significant depending on where you're coming from and where you're going to.

0:09:11 - Speaker 3

My thinking is they're going to get your money one way or another. So if it's a low income tax state or a no income tax state, there could be high property taxes or there could be high sales taxes or the cost of living could just be higher. So, one way or another, you don't want that to be your primary driver, just a benefit of relocating. So, yeah, your state may be income tax-free. The state may or may not tax your pension or social security. You could have potentially lower property taxes. And then some states don't tax inheritances or the estate as well.

0:09:52 - Speaker 2

Yeah, and so I think it's an interesting. I mean, obviously we've seen a lot of Exodus, Sherry, from places like California or New York or New Jersey very high tax states to other places, and some of it is like the snowboarding thing, and I get that right you just want to go from where it's no longer cold, but some people do want to just leave the high tax states and again everybody's situation is different. So it could make an interesting wrinkle in your retirement strategy. So it's certainly worth the conversation if it's on your radar.

0:10:17 - Speaker 3

Yeah, if you want to get out of the cold and you want to relocate, then we can see the benefit of where you want to relocate to tax-wise. Yeah.

0:10:27 - Speaker 2

Yeah, and you've got clients all over the place, so certainly as many advisors do. So if you need some help with that, as always, you just got to let them know if that's something you're thinking about so that they can help you in the new state as well. So, yeah, all right, and let's go to our next one here. Let's see where I'm out on my list. Tax benefits to charitable contributions Anything to think about there? Often, I think of the QCD as an option for people, but what do you think?

0:10:52 - Speaker 3

Yeah, why don't we talk about that first? Sure, so well, one you can always deduct contributions, charitable contributions. You can only deduct those 60% of your adjusted gross income. But then one benefit is if you have to take distributions from your IRA when you're hit, required minimum distribution age, RMD age, which will now be 73, thanks to the Secure Act 2.0. But you could send that RMD or a portion of it or any deduction from your tax-qualified retirement plan straight to a charity and then you are not taxed on that amount that you withdraw. So that could be a great way to, especially if you don't need that RMD income. I have clients all the time that say I have to take this withdrawal, but I don't need this money. Well, you could instead send it to a charitable organization of your choice and not pay taxes on that withdrawal. Oftentimes we may just write a check out of our checkbook to a charity, but instead we could just not end up paying taxes on that money in general if you're sending it straight from your IRA in retirement.

So, that's a great strategy to implement.

0:12:13 - Speaker 2

That's a great and that's typically what I like people kind of think of. So good to consider that, good to talk with your financial advisor about that, as well as your CPA and having that kind of team helping you in this area, which you should be doing anyway. What about gifting? So what is it? 17 grand, I think you can give to a family member or something like that. So is there any tax considerations or things to ponder if you want to give I don't know X amount of dollars to kids or grandkids or whatever?

0:12:41 - Speaker 3

So you can gift up to $17,000 each year to a beneficiary of your choice without having to worry about paying a gift tax. And what's important to understand is it's 17,000 per gift or two each recipient. So if you have a grandchild, grandma and grandpa can both gift $17,000 each year to every grandchild they have without having to pay gift tax.

0:13:13 - Speaker 2

And if you got a lot that could wipe you out.

0:13:20 - Speaker 3

If you have a lot of money and you want to give it away to the next generation, that's one way to do it, so you can spread out your gift and it's per gift and giftee. So 17,000 per gift to each recipient.

0:13:36 - Speaker 2

We were just having a conversation the other night in Sherry about the family sizes and stuff like that. Both of my grandparents one had 11 children and the other had 12. And then my wife and I have one. So it's very interesting. It was a different time period. Obviously, some people still like to have big families, but it's good to know Again if something like you were doing that and that's even the same thing you could do for your own children. Right? So it's not just grandkids. So if you're a retiree or a pre-retiree and you're thinking about some tax efficient strategies, you can also gift your own child. It doesn't have to be a grandchild. So something to ponder. Okay, let's see if we can. Let's not get one more here. We talked a lot about the individual, your small business owner. Anything to ponder there for tax things to think of for folks who maybe have a small or a side business, especially retirees, now that they're doing a lot more. You know kind of many retirees are doing like a little side hustle, if you will, in retirement.

0:14:38 - Speaker 3

Side hustle or even a hobby. If you're picking up a hobby and that hobby can create a stream of income for you, you can deduct it. So you can deduct many, many expenses when you run a business or a side hustle or have hobby income. So advertising expenses, cost of a website, marketing supplies, home office expenses, if you hire someone to be in a consultant or an employee to help you run the business, books about business ownership, attending a conference you can deduct all of this. If you have a business and or a hobby that can generate some type of income for you. So you know whatever you plan to do, what keeps you busy and you have fun at it. Could it become a business for you? Something to think about because it could help you tax wise.

0:15:31 - Speaker 2

Yeah, absolutely yeah. So lots of little things to ponder there. Anything I miss, sherry, that we want to throw in on this list as we were kind of running through some top items to think about.

0:15:40 - Speaker 3

Well as we were preparing, I think of many clients. One big question I get all the time is should I sell my home? Should I sell my home or rent? Or sell my home, purchase a new home? How could that affect you tax wise? So some things to just think about is if you were to sell your primary residence and rent so not buy a home because you want the flexibility, you don't want to have to keep up with the cost of maintaining a home, you want to downsize If you were to take that lump sum of cash that you get and invest it, does that result in having higher capital gains, higher income?

And if it does, it could result in maybe paying more taxes, income taxes all around, taxes on your social security. It may result in you paying more for Medicare as well, if that big lump sum that you're receiving from selling your home and then investing it, if it results in you receiving more income. So just something to think about. Also, if you were to sell your home and rent, you're no longer having that up to $10,000 in property tax deduction as well. So especially if you were maxing that out so you lived in a high property tax state- that could make a difference as well.

So it's important to weigh all the pros and cons of every decision. There's not just one cut and dried. This makes more sense. Let's look at all angles of how it could affect you. Tax wise.

0:17:20 - Speaker 2

Yeah, it's all part of having a good strategy in place, and it's not just income. We talk a lot about those kinds of things. Obviously, when you're thinking about retirement, income is king. We've got to have that check coming in. But tax efficiency is also hugely important. It's probably the second most important piece of everything, because it's not what you make, it's what you keep all that good kind of stuff. So make sure you're having a conversation with your financial professional and CPA.

If some of this stuff kind of sparked an interest or got you thinking about something, and if you need some help, as always you can reach out to Sherry. She's certainly here to help you at GreenwayWealthAdvisorycom. That's GreenwayWealthAdvisorycom, and don't forget. If you'd like to, you can subscribe to us on Apple, google, spotify, find us on all the major platforms. Type in Money Chic, women and Retirement in the podcast search box or just find all that information again at Sherry's website, greenwaywealthadvisorycom, and that way you can get Money Chic yourself. Sherry, thanks for hanging out with me. I always appreciate your time. Thanks for the tips and I hope you have a great week.

0:18:18 - Speaker 3

Yeah, thanks. I know taxes are not the most exciting topic, but it affects all of us and it is important to you. Don't necessarily have to understand everything, but at least know who can help you. So if you stuck with us for this long, thank you, flash did not. He is now asleep at my feet, so hopefully you found this exciting enough and this did not put you to sleep.

0:18:41 - Speaker 2

That's right. There you go, you know what? That's a great way to wrap it up because, yeah, taxes are not the most fun thing in the world, but it is something that hugely affects us all, and how we're efficient with it can really make a lot of times. Literally. It's not hyperbole. It can make or break a retirement strategy. So definitely have a conversation with a financial professional like Sherry Rash, financial advisor and money coach at Greenway Wealth Advisory. Again, greenwaywealthadvisorycom. We'll see you next time here on the podcast.

0:19:14 - Speaker 1

Discussions in this show should not be construed as specific recommendations or investment advice. Always consult with your investment professional before making important investment decisions. Securities offered through registered representatives of Cambridge Investment Research Inc. A broker-dealer member, finra SIPC advisory services through Cambridge Investment Research Advisors Inc. A registered investment advisor Cambridge and Greenway Wealth Advisory are not affiliated.

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