The Top 4 Tax Planning Mistakes to Avoid in Retirement

Today we are talking about the top 4 tax planning mistakes to avoid in retirement.

We want to show you these common mistakes, and solutions to avoid them so you can save more of your money.

The Top 4 Tax Planning Mistakes to Avoid in Retirement


Full transcript:


Alex Okugawa & Anthony Saffer

Alex Okugawa 0:00
Today we’re talking about the top four tax planning mistakes to avoid in retirement. We’re going to show you what these mistakes are, and how to avoid them, so you can keep more of your hard-earned money in your pocket. Stay tuned.

Hey there, it’s Alex and Anthony, from One Degree advisors, and we help you gain confidence in your retirement. So, Anthony, it’s very common for retirees to be very focused on either their investments, making sure they’re getting the right returns to meet their income and lifestyle needs. But the truth is, tax planning is a huge aspect of retirement planning, making sure that you’re keeping more of your hard-earned dollars in your pocket. So today, we’re going to be talking about the top four tax planning mistakes that we commonly see and how to avoid them.

Anthony Saffer 0:49
Yeah, that tax bill is a big one, it’s a big expense through retirement, it’s in simple planning techniques, and being aware of things can certainly save a good amount of money.

Alex Okugawa 0:57
Yep. So let’s jump into the first problem that we commonly see, which is not proactively planning your investment income.

Anthony Saffer 1:04
Yeah, it’s typical to have income that’s coming out that you’re paying tax on such as from a pre-tax IRA, maybe you have Rental property income, but then maybe there’s other sources of income, like coming from a brokerage account, where you have a cost basis that’s established, or a Roth IRA, optimizing those income sources in the amounts, oftentimes, there is some flexibility to try and find where can we be in our tax brackets so that it makes the most sense.

Alex Okugawa 1:29
So that’s talking about finding the right mixture of income to take between your different accounts, but specifically to brokerage accounts, like a nonretirement account, there are some tax strategies you can implement there as well.

Anthony Saffer 1:40
That’s right, harvesting capital losses, like in 2022, the markets down how can we get back at the market by being proactive, selling something that’s gone down in value, and buying something else that can still participate in the recovery, even if we go back and buy that original investment after 30 days, what’s often also not talked about as harvesting gains, because there is a 0% federal capital gains tax bracket, that should be taken advantage of to establish a new higher cost basis.

Alex Okugawa 2:10
And you mentioned something very important, which is 0% Capital Gain bracket at the federal level. So if you live in a state that has income taxes, that may not be the case. So for example, California does not tax capital gains differently, you’re still going to pay your normal California rate. That doesn’t mean you shouldn’t utilize this strategy, but definitely, something to pay attention to and be aware of. The second mistake that we commonly see is not watching your Medicare IRMAA brackets.

Anthony Saffer 2:42
So what causes Medicare premiums to increase? Well, it simply comes down to income. And there are these brackets that function a lot like tax brackets. If your income exceeds and goes into the next bracket, you get a letter in the mail, and it’s based on the two years prior. And so you then can end up paying more premium, at least for that given year.

Alex Okugawa 3:04
Now, the thing to remember as well is that these Medicare brackets, they don’t work like the normal tax system. In other words, our tax system is what’s called marginal so you pay taxes at the marginal bracket. Medicare is very unforgiving. I mean, you go over a dollar or two on a Medicare bracket. And all of a sudden, you’re going to be paying a lot more in Medicare premiums, potentially lowering your social security checks. So this is a really big deal for retirees to not just pay attention to their federal income tax brackets and state tax brackets, but also being aware of the Medicare IRMMA brackets.

Anthony Saffer 3:41
Yeah and for those that are just getting into retirement where maybe you had a high salary, and now your income going down due to retirement, you can submit an appeal form for reduction of income, we’ll go ahead and post that form in the notes.

Alex Okugawa 3:53
And a lot of this stuff really is so timely. So make sure that you like and subscribe to the channel, it really helps the channel grow so that we can continue to help more retirees retire confidently. Anthony, let’s get into the third mistake that we commonly see, which is not getting credit for charitable giving.

Anthony Saffer 4:09
This really started in 2018. With tax reform through the Tax Cuts and Jobs Act, the standard deduction increased quite a bit. And that meant far fewer people were itemizing, or if they were itemizing, then they were barely going over that standard deduction, which means that you may not be getting as much credit as you think for your charitable contributions. It’s important to look at it and then say, how can we make it better through charitable stacking, which is essentially supersizing your giving in one year, then going to a standard deduction, or through qualified charitable distributions.

Alex Okugawa 4:46
I just met with a family last week who was considering working with our firm and you know, we looked at their tax return and analyzed it just like we do for every person considering working with our firm and discovered that their itemized deductions were just slightly higher than their standard deduction. And so we talked about the charitable stacking strategy, how that could save them for their specific situation thousands of dollars, he also had a company stock that had a pretty substantial gain. And so we could use that company stock, fund it inside of a donor-advised fund and then give the money out over the next two years like they normally would do their normal giving. It didn’t change the amount that they gave, but simply strategizing the way that they gave, save this particular family thousands of dollars over the next several years. So good strategic planning can do that for people. Alright, then the last thing here is not hiring a pro.

Anthony Saffer 5:46
Maybe you really liked doing your taxes, maybe you also feel that you’re good at it. But for the most part, people should hire a CPA, an enrolled agent, or someone that’s licensed to do and prepare taxes. And we’re fans of that mainly because we see where a lot of times people miss a 1099. And they don’t report the income or they missed that deduction. Maybe that isn’t as well known, where a Pro can tend to catch those things.

Alex Okugawa 6:10
Well, there have been so many tax updates over the past several years. I know it’s even difficult for CPAs and tax preparers to stay on top of it. So expecting someone to become a tax expert two weeks out of the year, even for a relatively simple return can sometimes be a tall task. The other thing is this is why we partner and we have a network of trusted CPAs and referrals, right? Because no one person can be an expert at everything. And we want to partner with people that are proactive tax planners, not just reactive tax preparers. This is so important to help keep your lifetime tax bill low. And you know we talked about qualified charitable distributions. So if you’re over age 70 and a half and you have a retirement account like an IRA, and you’re giving regularly and if you’re not giving directly out of your IRA via the qualified charitable distribution strategy you really should be examining, Am I giving in the most tax efficient way can QCD benefit me will post that video. Once again, this is Alex Okugawa with One Degree Advisors and you know we’ve helped hundreds of families to and through retirement and through that process, we found several mistakes that people often make. We created a free guide five retirement mistakes to avoid you can download that guide for free in the comments below.

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