 You don't have to report my part but the rest we really appreciate it. So today our topic is what I call your financial golden years, managing taxes around retirement time. Now managing taxes anytime is a good idea and kind of understanding what you're doing and trying to minimize things. So what's unusual about retirement time? First, here's one of my favorite cartoons about a man on his deathbed. Okay now why is retirement income different from income at other times and one of the main things is you may have more choices about where your money's coming from and every type of income you get during retirement is taxed differently because why would they make it easy? So in other words when you're working maybe you just get a W-2 at the end of the year and it says hey you earn $30,000 and you pay whatever is the ordinary tax rate on $30,000 but in retirement when you're no longer getting that regular paycheck you're not getting a W-2 and your employer's not withholding taxes from it you then have to think about where's your money going to come from. Now the word income can mean a lot of different things and in for accounting purposes income is a very specific thing but right now what we're going to talk about is more like cash flow like where does the money come from to pay your expenses when you're retired and some of that maybe income depending on how you define retirement maybe you still have some kind of a job or maybe you have rental income or maybe you are getting social security or let's see I have a list of possible things yes if you're very very lucky you may be getting a pension and then we have social security we have investment income like capital gains and dividends and interest you may have rental properties you might be getting an inheritance but then one of the areas where you have a lot of the most choice is here if you have tax deferred accounts like 401ks and IRAs the whole point of those is you want to spend that money in your retirement you've been saving them for years and years so you can spend that money but if they were tax deferred then you're going to pay ordinary income tax when you take the money out and ordinary income tax is relatively high basically there are two rates that apply to you one is your ordinary rate one is your long-term capital gains rate the long-term capital gains rate is lower so when possible you want to spend things that you pay that rate on but your tax deferred accounts like IRAs and 401ks and step IRAs they're all taxed at your ordinary income rate so when you withdraw money from those is quite important in terms of what your tax bill is going to be so more about how these are taxed when you're working your taxed at your ordinary income tax rate plus payroll taxes payroll taxes are FICA or OASDI or Social Security and Medicare so when you're working most of your income will be taxed at 7.65% for that stuff for Social Security and Medicare plus your ordinary tax rate if you're self-employed same deal except you're actually paying twice as much in the payroll taxes because you're paying employer and employee portions pensions are usually taxed at your ordinary income rates but one little thing about pensions is usually you're getting taxed on the state by the state that you live in when you are receiving your pension so I usually use California as an example for things because they know a lot of us are Californians and also because we have very high taxes here but I don't know too many California companies that pay a pension so let's say for the moment that you worked your whole life for General Motors in Michigan and maybe you eventually earned a very high salary you have a nice pension you retired Florida Florida has no state income tax so when you're receiving those pension checks you're going to be paying federal income tax on your pension check at your ordinary rate but you're not going to pay any state income tax because you're now a Florida resident it is not taxed at the Michigan rate just because you earned that pension in Michigan so that's an important thing some people don't know but one other important point about states if you are a Florida resident for tax purposes you better really be a Florida resident the IRS does not like when you try to fake it like don't just you know open up your your little vacation condo there and have the janitor forward your checks from there or something you need to really sever your ties in Michigan move to Florida okay if you really still live in Michigan or California or New York don't try to pretend you live in Florida and by the way our California version of that is during the pandemic many people who work in California realize hey why am I sitting around in my city apartment when I'm working at home anyway I'm going to go over to my little Tahoe ski house on the Nevada side and by the way Nevada has no state income tax well too bad you're still a California resident unless you really sold your California house and you really moved okay so that was just a little side note about states your pension is taxed to your ordinary income rates but in the state when you're receiving the pension not where you earned the pension your tax deferred accounts your IRAs your 401ks your sips your 403b's everything like that it's taxed at ordinary income rates on the full amount that you take out social security is kind of tricky social security is taxed at ordinary income rates but your whole social security check is never taxed your social security tax for your social security retirement check you pay your ordinary income tax on either none of that if you have quite a low income or half of it or 85 percent of it but that doesn't mean you ever pay 85 percent tax it means that for example if your check is for a thousand dollars you will pay tax at your ordinary income rate which might be 12 or 22 percent but you will only pay that 12 or 22 percent on $850 not on a thousand dollars another small bit of good news California state does not tax your social security check i'm not sure about other states but California does not tax your social security so you may pay federal income tax on it depending on your income you do not pay state tax on that Roth accounts here's the beauty of your Roth IRAs when you take the money out you do not pay any tax if you have met the requirements now of course there are complications and and you know special rules but in general a Roth IRA you've met the requirements if you are 59 and a half or older when you start taking the money out and also if your money has been in there for at least five years we call that the five-year seasoning period now the five-year rule is a little complicated it depends on um whether it was a rollover into a Roth IRA whether it's a conversion or whether it's a direct contribution so i won't go into the details on that because it's a little complicated but if you started a Roth IRA many years ago you're probably just fine okay and well one one complication i will go into um on the Roth five-year seasoning if it's regular contributions where you're putting money directly into a Roth you're not converting you're putting six thousand or so each year into a Roth IRA then your five-year clock started with your first contribution so if you opened a Roth IRA when you were 18 years old your five-year clock started then even though you've added a lot of money in the year since don't even worry about that your five years is done so again the basic rules are you need to be over 59 and a half you need to have had money in it for more than five years if you did that you pay no tax when you take your money out of Roth IRAs that's why they're brilliant you also pay no tax when you take money out of Roth 401ks so they're quite wonderful you may want to mix them in with the withdrawal strategy that you come up with for when you're retired your other investments so here i'm talking about investments that are not part of a tax deferred or tax-free retirement plan this is just stuff you might have in your brokerage account those if you've held them for more than a year you get to pay the long-term capital gains rate which is much better usually than your ordinary rate long-term capital gains rates are either zero percent 15 percent or 20 percent depending on your income and you have to be pretty high income to get into the 20 percent i'll show you a chart of those later but basically capital gains rates are always better than ordinary income rates and the key to that is you need to hold your investments more than a year note i said more than don't wait exactly a year and then take it out because you get you pay the short-term rates if it's a year or less and the short-term capital gains rate at this point in our history is exactly the same as your ordinary income rate so whenever possible keep your investments at least a year in a day now note again that that does not apply to your tax deferred accounts even though you may have your IRA all invested in stock doesn't matter how long you hold it you're going to pay ordinary rates when you take your money out of your IRA no matter what but your other investments you might be able to get a better rate if you can keep them in more than a year your rental and royalty income you pay ordinary income tax rates if you are the recipient of term life insurance somebody died and you were the beneficiary on their life insurance there is no tax on that if you are lucky enough well i don't know if i should say lucky when it comes to inheritances i'm sorry your grandma died but if you receive money forget from gifts and inheritances there is no tax to you some people get confused because they've heard of the gift tax or the estate tax if you are the recipient none of that is your problem it might possibly in rare instances be a problem for the person giving it to you or for the estate of the person who passed away there is a very small chance they will have taxes but you don't have any taxes on what you inherit the money you get tax-free okay that was kind of long i'm going to stop for a second and ask zoe if anybody has wants clarification of this stuff so far just two questions one is the 457 tax accounts where do they go 457 accounts okay all right 457s they behave mostly like tax deferred they are tax deferred accounts so they behave mostly like your IRAs you take you get ordinary income rates on the full amount you take out the only reason i didn't list them here is there are slightly different rules about when you can take that money out but 457s are tax deferred so they behave like 401ks when you take it out what else a question i'm not sure if i understand how can i avoid wash sale tax oh everybody understands wash sales zoe right no okay a wash sale means you were trying to harvest losses okay so and you sold you re-bought some stock too soon so here's how that might work suppose i bought some let's see what's something that went down lately um well i'll use an example from a while ago i did buy some um chipotle stock right before all those athletes got sick so if i paid six thousand dollars for my chipotle stock and then at the end i'm getting near the end of the year i want to recognize some losses to lower my taxes because when you sell an investment at a loss you get to reduce your tax sometimes by the amount of that loss so the six thousand dollars i paid for chipotle now maybe it's worth only three thousand dollars so if i sell that i'm going to have a loss of three thousand dollars i get to put that on my tax return where the wash sale comes in is suppose a few days later i think oh i didn't really want to sell that i'm going to buy it back so then if i buy it back within a few days or within 31 days actually if i buy it back i don't get to use the benefit of that tax loss so um it's not really a big deal wash sales are not illegal you and you get to take the loss much later when you eventually sell it again but you might not be able to take advantage of your loss right now if you buy back the same stock or something what's called substantially identical which is not defined by the way within the next 31 days so the way to avoid wash sale problems is um don't buy the same stock that you sold at a loss within 31 days so if you want to recognize some losses december 1st or december 15th totally fine just make yourself a note on your calendar to maybe around february 1st consider whether you want to buy those back just don't buy it back the same thing too soon another thing a lot of people don't realize about about wash sales is if you recognized a gain it doesn't matter if you recognized a gain when you sold something and then you want to buy more later nobody cares you're welcome to no problem it's not a wash sale okay it's only when you're recognizing losses all right we'll go on to the next i do have other questions do you go ahead um can an IRA be converted to a Roth IRA yes an IRA can be converted to a Roth and that was one of the things i'm going to talk about for sure but we can jump right into it now so you can convert an i a traditional IRA to a Roth IRA anytime you want there is no income limit on conversions and there's no um age limit on conversions you can do it anytime you want it's great to have money in Roth IRAs the only thing you should hesitate about is the year that you convert from a traditional to a Roth IRA you pay full income tax on that the amount that you convert so if i have a thousand dollars in my traditional IRA that i've never paid tax on when i convert it to the Roth i pay tax on that thousand dollars that i'm converting so that's the thing to think about doing Roth conversions is a wonderful strategy just make sure you do it in years when your income is relatively low which it very well might be right around the time you're retiring and so that's a key strategy we'll come back to it some more as well anything else if you open a second Roth account does the five-year rule start again when you open the second account oddly enough no um no the government thinks or the IRS thinks of your Roth IRAs as if it's all one thing okay so if you put money in one Roth IRA a bank of America when you're 18 and then you forgot about it and then 20 years later you start saving in a Roth account at TD Ameritrade don't even worry your five-year your rule is met they think of it all as one is capital gain from property sale considered earned income no um it is not earned income but that's good because earned income is always taxed higher and so capital gains from a property sale will usually be taxed at your preferred capital gains rate in fact i'm going to jump down right now and show you i have some slides with tax rates that may help clarify some of that okay if you're single these are ordinary tax rates in 2021 so if you are single and you make say a hundred thousand dollars a year you are in the marginal bracket for 24 percent marginal means that your next dollar is going to be taxed at 24 percent and just for people who aren't familiar with that term marginal i just want to point out that if you're making a hundred thousand dollars and you're single you are not paying 24 percent on the entire hundred thousand dollars not paying 24 24 thousand dollars in tax what you're paying is 10 on the first 10 000 or so 12 percent on the next batch 22 percent on some and 24 percent on some so some people don't understand that and they think uh oh like i was making 86 000 last year if i make a little bit more money all of a sudden i'll be up in this higher tax bracket and i'll pay a lot more tax no you really won't you can't lose by making more money because only the new money will be taxed at the high rate your your 86 000 will still be taxed at relatively lower rates um and this is for single people here's the other most common bracket which is married filing jointly so here if the two of you together are earning a hundred thousand you're going to be in the 22 percent marginal bracket and the two of you together are earning less than about 20 000 you're in the 10 percent bracket there are a few other brackets but they're less common married filing separately head of household and there's another one called qualifying widower but that ends up being the same as married filing jointly okay so let's go back to this single person who is earning a hundred thousand a year she's in the 24 percent marginal bracket for ordinary income but now here's her long-term capital gains rate um she's single she's earning a hundred thousand a year so she's in here so her long-term capital gains are taxed at only 15 percent even though her um ordinary income is taxed at 22 percent so that can make a serious difference and look here also if she earns less than 40 400 in 2021 her capital and that means less than 40 000 all together her capital gains rate is going to be zero percent so that's all of your income you know it doesn't mean that you can suddenly sell investments and recognize a hundred thousand dollars in capital gains and pay or let's say yeah you can't recognize a hundred thousand dollars worth and pay zero percent but if you earn let's say you earn 20 000 from your job that would be a great year to sell some investments that you have gains on because if you're earning 20 000 from your job you can sell investments with up to 20 000 dollars worth of capital gains and pay zero percent capital gains tax so that would be a strategy that we call harvesting gains when you're in a low tax bracket sell things with gains buy them right back because there's you get a zero percent rate on your sale so you're recognizing capital gains for free then you can buy the same stack stocks back no wash sale problem because it wasn't a loss it was a gain then you buy them back at a higher basis so when you sell them again later there's much less capital gains tax so was there more on these topics um everybody wants to know more about Roth IRAs again oh great okay everybody loves Roth IRAs as do I so all right let's get to that sooner um let's say I think I have a slide near the end it's all about conversions um I think a lot of slides as usual okay here's one this is under a section in here that I called but what do I do so one thing you do is you do Roth conversions you do that when you're in a low tax bracket you convert some of your traditional IRA dollars to Roth IRAs and by the way you can also convert tax deferred 401ks to Roth IRAs you pay tax on the converted amount at your current marginal rate now unlike direct contributions you have to do this within the calendar year for it to count in that calendar year what I mean is if I'm making a contribution to my Roth IRA with new money I can do it as you probably know up to April 15 for the prior year so for example I recently made Roth contributions for both 2020 and 2021 because right before I filed my 2020 taxes but for conversions you have to do it by the end of 2020 if you want it to count in 2020 so with conversions I might wait till near the end of the year because I want to know like what my taxable income is going to be for that year whether I'm in a high bracket or not um advantages are once the funds are in a Roth they will never be subject to more taxes all the growth will be tax free not tax deferred and there are no required minimum distributions from a Roth IRA in your lifetime just to clarify that a little more there are RMDs from Roth 401ks oddly enough so if you have a Roth 401k at your job then when you leave the job roll it into a Roth IRA I have no idea why they're different they just are another point is if you inherited a Roth IRA you do have RMDs required minimum distributions now you don't pay tax when you take money out of an inherited Roth IRA because your ancestor who left you that they already took care of the taxes for you which is great so there's no tax on an inherited Roth IRA but there are required minimum distributions but if it's your own Roth IRA and you're still alive no RMDs now let's see more about that so you want to give me any specific questions about um Roth IRAs uh one is can investment income be put into a Roth IRA another is do you recommend a backdoor Roth for salary that's too high um the second answer is yes okay the first answer can you put investment income into a Roth IRA not exactly I mean really money is money but I'm going to show you let's see I made a lot of slides we're just going to jump around a little today to make sure we cover the right things okay earned income you have to have earned income in order to contribute to any type of retirement account that includes a Roth IRA a traditional IRA a 401k a SEP IRA you must have earned income so what is earned income wages and salaries self-employment income business income and royalties and that's about it all these other types of income are really great and some of them are taxable but they are not earned income so if all of your income this year came from interest and dividends and capital gains no you cannot contribute directly to a Roth IRA or traditional IRA what else what's the income threshold for contributing to an IRA or a Roth and will high earners be prevented from contributing okay I think I have that in my final slides here as a sort of appendix so here it is for um 2021 so that's our current year for a Roth IRA if you're single and you make more than 125,000 dollars you cannot put in the full 6,000 if you make more than 140,000 you cannot put anything directly into a Roth under these rules you'll so as usual this looks like a simple screen and yet I'm going to add a lot of different caveats so first thing traditional deductible IRAs these income limits as you'll see are relatively low they're lower than the ones for Roth but these for the traditional IRA only apply if you have access to a workplace plan like a 401k if you do not have access to a 401k and your spouse doesn't either then just ignore this completely and contribute the full amount to a traditional IRA now for a Roth IRA we don't care whether you have a workplace plan or not these income limits apply so for Roth IRAs now someone told me recently I don't pay enough attention to low income people and one of the reasons is a lot of my clients in Silicon Valley have very high incomes and it is very common for people particularly around here to make too much money to contribute to a Roth IRA and yet people who are making too much money are exactly the ones who want to start protecting as much as they can from taxes so there's this very I don't know if I could call it very simple or not there's a very common work around to people who want to contribute to a Roth IRA and are over these income limits it's a little bit complicated to do it and to understand it but it's very very common it so everybody's doing it let's say and to the point where everybody's doing it so I would hope within the next few years Congress will realize it's sort of dumb to keep having these limits because they're actually quite easy to get around so why even bother so we have talked about that in previous sessions but I'll try to explain it briefly if I can let's say you're married filing jointly you make together you make 300,000 a year so it looks like you just can't contribute to a Roth IRA so what you do is you'll notice that this up here says traditional deductible IRA there is another thing called a traditional non deductible IRA and there are no income limits for that so the backdoor strategy is you put 6,000 or in this case there's two of you so put 12,000 into a traditional non deductible IRA no income limits it's totally fine then convert that money to a Roth IRA soon afterwards okay you convert the entire 12,000 because there's no income limits to contribute to a non deductible traditional IRA and there's no income limits to convert to a Roth IRA so it's a workaround so high income people can get money into a Roth IRA now just one more warning about that if you have money already in a traditional deductible IRA the backdoor strategy is not good for you the reason is when you do the conversion the IRS will assume that you're converting a prorata amount of all your traditional IRAs so you have this new 12,000 you just put in a non deductible that's not going to cause you any tax trouble because you didn't take a tax deduction in the first place so no big deal you convert it no problem but if you could put in that new 12,000 but you also happen to have 100,000 in traditional or rollover IRA money from the past and then you say I want to convert 12,000 the IRS is going to take a prorata amount so they'll take a little bit of that new 12,000 that's not taxable and they'll take most of it out of that 100,000 tax deferred and they're going to convert that and you're going to have a tax bill so bottom line is if you have balances in traditional deductible IRAs don't do the backdoor Roth if your income is less than these amounts you don't have to worry about the backdoor it's much simpler just contribute directly but if neither of those is true the backdoor Roth is a great strategy and I know it sounds a little confusing but if you have a tax person they're very familiar with this they can help you with it or if you you know if you have a bank or a brokerage which you probably do they also they know that code word backdoor Roth and they can help you get it done what else is there an age limit when you can can convert to a Roth no no age limits for converting um you've probably already covered this but uh who qualifies for a Roth IRA anybody can contribute to a Roth IRA who has earned income and who is below these these income amounts okay uh when rollover 401 Roth when retiree is it subject to RMDs um rollover of what uh when rollover 401 Roth must be 401k Roth when when you retire is it subject to RMDs okay I think I get it um if you leave your money in your company's plan which by the way some people don't even realize you can do but when you leave your company you don't have to roll over your 401k so you can leave them where they are so if you leave the money in your Roth 401k then yes there are RMDs now remember you won't pay tax on it but there are RMDs but if you roll that money out of your company plan into a Roth IRA then there are no RMDs and by the way the IRS has a special publication just it's just a chart comparing Roth IRAs to Roth 401ks because they behave the same in the fact that it's after tax money and tax free growth those two things are the same but there's a lot of weird little differences between the Roth IRA and the Roth 401k so if you're concerned about that and wondering should I roll it into a Roth IRA you might just like google that it's like IRS Roth 401k chart or something and you'll find the comparison what else how is the program calculated um I don't like to do math on screen but because I might mess up but it means they take a portion of each based on the the amount that you have in each so let's see if I can think of a simple example if you have $90,000 in a traditional IRA and $10,000 in a well 90,000 in a traditional deductible and 10,000 in a traditional non-deductible then you say whatever amount you're going to convert they will say okay 10% of your balances are in non-deductible and 90% of your balances are in deductible so whatever you convert 90% of it it's going to be taxable um well is it better to roll over to a 401k or an IRA um I would not roll okay you know every situation is different I don't know if this person is retiring or what but in general I suggest when people leave their job don't be in a hurry to roll out of your 401k into a traditional IRA specifically for the reason we're talking about there is a chance maybe you want to do a Roth um conversion later maybe you want to do a backdoor Roth later and so if you can keep your tax deferred money out of IRAs makes that a lot easier so in general I am not in a hurry to roll over money out of 401ks into IRAs you can leave it where it is unless you really think the company's about to fall apart or something but even then you're pretty protected so usually just leave it where it is when you when you leave your job um more of these are about Roth still are you um it's still in the Roth area or do we need to move on to actually cover the topics you're going to cover or people love Roth IRAs so go for it what else we got okay um do you pay tax on the earned income before putting it into a Roth IRA yes the contribution you make to a Roth is after tax so the year that you make a contribution to a Roth you don't get any tax deduction no tax benefit and so but then again the brilliance of it is once the money is in there it's never taxed again no matter how much it grows but it's not you don't get a tax deduction the year you contribute the money so if you're in a very high income bracket right now maybe contribute to traditional stuff like max out your 401k at work or or try to get money into a traditional IRA if you don't have a 401k because it's a sort of a question of do I need the tax deduction more now or later is it taxable if you convert from a 401k to a Roth IRA yes well anytime you're going from something that tax deferred to something that's after tax you pay tax when you do the conversion if you have a 401k deferred work plan can you also do a backdoor with a company like Fidelity yes that's it just yes yep that's it I mean again this this backdoor Roth is a great loophole it's a way for a high income person to get money into a Roth and it's not affected by your your company plan okay we've got somebody who's just as hourly work as needed so is there a minimum requirement for earned income for a Roth IRA the only minimum is the amount that you're going to contribute so if you're 50 or under no if you're under 50 you can put in $6,000 this year to an IRA if you're 50 or over you can put in $7,000 so if you earn exactly $6,000 and you can afford you can spare the cash you can contribute the whole $6,000 and if you earn $2,000 from earned income but you have money to live on from somewhere else then go ahead and put the whole 2,000 into an IRA of some kind any recommendation on NUA when converting from a 401k to IRA all right that's a professional right um that's too hard sorry no I am not prepared to talk about that's called net unrealized appreciation and it's a tricky thing that happens with some jobs but I'm not prepared to talk about it sorry okay um uh someone's what's the difference between a traditional deductible IRA and a traditional non-deductible IRA I don't know what deductible means here okay deductible means I get a tax deduction in the year I make the contribution so if I make the contribution to my traditional deductible IRA right now then let's say my taxable income was 5,000 no let's make it a little higher maybe I had taxable income of $30,000 I contribute 6,000 to my IRA now all of a sudden I only have to report taxable income of $24,000 so I get to deduct it right now in the current year if I make a contribution to a non-deductible traditional IRA I don't get to deduct it so a non-deductible traditional IRA is not super valuable on its own they were almost never used before the whole backdoor strategy came in the only advantage to the non-deductible traditional if you're not doing a backdoor Roth the only advantage is that the growth on it is tax deferred so I put my 6,000 in I get no tax deduction no benefit now but the interest and dividends that are in over the years I don't pay tax on until I take the money out but I do pay full tax when I take it out so a non-deductible traditional is not a great deal unless you're doing the backdoor Roth because it doesn't save you money now the deductible traditional saves you money right now is it possible to roll a deductible IRA into a 401k sometimes that depends on the 401k so ask your company or go to your company's website and look up the 401k and find what's called the summary plan document or spd that will tell you whether you can roll your traditional IRAs into your 401k your company doesn't have to allow it but if they do allow it it helps with this backdoor Roth thing because maybe you have a lot of money in traditional IRAs and you want to do a backdoor Roth you're not a good candidate for it because it's going to really mess with your taxes but if you can roll those traditional IRAs into your company plan then they're out of the way and then you don't have to worry about that program rule so check with your company okay some of the other ones are getting kind of detailed so okay let's go ahead then and we'll talk about some of the things I had in mind and then maybe it'll trigger more of those questions let's see I'm going to jump back up to the top almost oh yeah let's talk more about social security because that's an important part of many people's many people's retirement income excuse me so we already talked a little bit about how it's taxed but another important thing is actually I want to find this chart of ages that I have uh-huh I called this talk your golden years for for tax planning around retirement and those golden years I'm thinking of are essentially the years between 59 and a half and 72 because when you're 72 your required minimum distributions begin so at that point if you have a lot of money in tax deferred accounts you're going to be forced to start paying taking that money out and to pay taxes at a pretty high level at your ordinary income rate when you're 72 you won't have control over that if you're if once you're 59 and a half you can take money out of those tax deferred accounts anytime you want with no penalties you pay taxes but you don't pay penalties so but the years between 59 and a half and 72 it's entirely up to you how much money you take out of those accounts and if you're still working if you're earning a lot of money until you're 72 then fine leave it alone don't take it out but let's say you're you retire at age 60 and maybe suddenly at age 60 you're not earning very much money or maybe none so between age 60 and age 72 you're going to be in a very low tax bracket let's say if you have savings so you have savings you can live off and you have maybe some IRAs so when you're 72 you'll start taking that money out but between age 60 when you stopped working in age 72 when you're forced to take money from your IRAs and pay income tax on it maybe you have almost no taxable income what I would do is start gradually taking money out of your IRAs and 401ks then because you're in a low tax bracket you'll be paying a low amount on it and then also when you hit 72 and it's RMD time you're going to have a lower balance in there so less money that you have to worry about being forced to take out and pay taxes on when you don't want to so one of the reasons back to social security one of the reasons that 72 it used to be 70 and a half until about a year ago um that people can be hit with a big tax bill then is that most of us financial advisors advise you to wait if you can until age 70 to start taking social security you have a choice you can take social security as early as age 62 and as late as age 70 talking about your basic social security retirement funds here's a fun fact the option to take your money out at 62 to start getting social security checks at age 62 was offered in 1956 and at first it was only available for women this was a direct part of the overall government effort after world war two to get women to go home okay they wanted women to retire they wanted women out of the workforce they wanted the jobs available again for men coming back from the war so the government took a lot of steps to try to discourage women from working but now everything in the social security system is gender neutral so also when social security was invented everybody's full retirement age nra is the same thing as fra that means normal retirement age or full retirement age everybody's full retirement age was originally 65 you hit 65 you got a social security check um that's no longer the case they started the ages have started creeping upward so for a lot of us now even people like me who are relatively old our full retirement age is 67 if you were born in 1960 or later your full retirement age is 67 if you were born in one of these other years you'll see what it is like if you were born in 1940 65 and six months okay now I just said you could start getting your social security benefits anytime between age 62 and age 70 so why not take it as early as possible and the reason is that you get less if you take it earlier here it is and you get more if you take it later so my full retirement age is 67 if I take it at age 62 that's five years early so my monthly benefit check forever for the rest of my life is going to be about 6.67% less per year than if I started at age 67 um if I wait three years until I am 70 between 67 and 70 I have three years my monthly check for the rest of my life will be 24% higher plus cost of living increases which everyone gets each year now when the system was designed to encourage people to wait it was supposed to be actuarially equivalent in other words they tried to do some math and figure out okay we're going to guess how long Heather's going to live and if she starts taking it at 67 obviously she gets three more years worth of benefits but she gets less per month than if she waits till 70 based on what they think how long they thought I was going to live when this was designed in 1983 um that was supposed to come out about the same but it doesn't come out about the same in fact for most of us who are relatively healthy and fine we're going to live long enough that we're really going to make much more money if we wait longer so if you can if you can afford to wait until you're 70 you probably should and start getting your benefits at age 70 now the advantage is even greater for people who are a little older like I said my my full retirement age is 67 so I have the potential for three years worth of 8% increases if my full retirement were 65 I would have the potential for five years in other words if I if my full retirement age is 65 and I say I'm going to wait till 70 that's five times eight I'll get 40% more plus cost of living increases there's no investment you can find that's going to guarantee to pay you an extra 40% return each year or even an extra 8% return each year so if you can wait till 70 you should the um and a recent study said the system is not balanced and it definitely favors people who delay benefits okay so that was a little pitch about waiting this is a chart about it and um a few other interesting things okay I ran this through my financial planning software I invented a person named Bathsheba her full retirement age is 67 but I did this analysis in the software that said if she wanted to take her um money at 67 and then she decided to wait until 70 over her lifetime she would get nearly $250,000 more now there are you know a few variables I said Bathsheba is 60 she stops working at 61 her primary insurance amount that's the basic number at the top of your social security statement is $3,000 and she's going to live to be 95 so if all those things were true she'd get $250,000 more now if she suddenly died at age 62 she loses um or if she dies at 65 and she was saving her money till 67 she loses that bit but you know what that's okay if she dies at 65 the you know money for the rest of her life is not her biggest problem um so one way to think of this another argument for waiting till your 70 is it's kind of like longevity insurance because if you are let's say you're 87 years old and you realize oh I'd like to have more money it's kind of hard to get a new job right and if you live to 110 you want the highest possible amount of money because you can't sort of fix it at that point so it's like an insurance against um living too long now the reason I just went into that in so much detail when this is not really a social security talk is I'm trying to convince you that you should wait until you're 70 to take social security but one byproduct of that is all of a sudden you're 70 you start getting your social security checks so maybe your annual income increases by 30 to 40 thousand dollars because you're getting social security then all of a sudden you're 70 and a half or you're 72 and you're getting RMDs on top of it so all of a sudden your income jumps way up and I'm going to show you a picture of how that works for one of my imaginary clients here we go okay another person I invented her name is Cecile she worked until she was um 65 she was earning 67 thousand dollars now Cecile has a lot of money saved in traditional IRAs which is great so she'll be able to live on that when she needs to um she also has money and taxable investments and money in the bank so she doesn't need to take any money out yet um she's going to wait until she's 70 to start taking social security but here's what happened she retired at 66 I think so all of a sudden this is her taxes this this whale this picture of a whale this is her taxes the blue part of the whale is her federal tax rate the green is her California and the orange is her FICA or social security so that stops suddenly when she stops working at 66 no more FICA but also she has basically no income here between except for maybe some dividends and interest on her taxable account almost no income between age 66 and age 70 and not so much here either not till it suddenly jumps up when she's 72 and her RMDs start so this little trough here that's the golden years I'm talking about okay um because things are going to spike around 70 and 72 so I'm going to advise you to make the most of these years now what can she do with that one thing is I would harvest some gains if my in my taxable accounts if I have some investments that have increased in value a great deal she's her capital gains rate right here you can't see all the details but I happen to know from the software that at this moment her capital gains rate is 0% because she's earning she's single she's earning less than 40,400 dollars overall so I probably harvest some gains and go ahead and sell things at gains pay 0% tax on them and then buy them back if you want to but the other big thing to do during this time is do Roth conversions so we're back now to that topic that you all like anyway do Roth conversions because when you do when you convert money from your traditional IRA or 401k into a Roth you are reducing the balance in those traditional IRAs so that means when it's time for requirement on distributions the balance that it's calculated on is lower also what she's doing because you can see she's going to be at a pretty high tax bracket at some point in her life largely because she has so much in savings in her IRA she's going to end up in a high tax bracket but if she takes this time when her income is low and she converts some of that money to Roth IRAs she will pay tax when she converts but her tax rate is relatively low her federal rate here looks like it's 12% or 10% or something so if she converts there then that money she's converted will never be taxed again which means this amount that the taxes are based on in the future that's going to be lower so here's what I did with Cecile um for between 66 and 70 okay her long-term capital gains rate was zero her ordinary income tax rate was 10% but as soon as she hit 70 her ordinary income tax rate is going to jump up to 33% so again through my software can't do this in your head but I did an analysis and said what if during those years from her age 67 to age 71 I think what if she converted enough of her traditional IRAs to Roth IRAs just to fill up the 12% tax bracket because she her ordinary rate was about 10% there if she does some conversions she's going to pay a little tax but let's just fill up the 12% bracket we can all afford to pay taxes at 12% right better than paying it at 33% later so if she did that for those six or seven years in that middle period she would end her life based on a whole lot of assumptions no guarantee but um about 1.7 million dollars richer at the end of her life when she's 95 just because of the tax savings from doing those conversions during those low income years and then here's her new whale her whale after those conversions you can see her tax rate is still lower in these years from 66 to 71 but it doesn't fall down to just about nothing and then her tax rate at the high end is not quite as high as it was before okay i bet it's time to stop for questions there are some questions here um what if you are invested in stock sep IRA how do you pull out if you want to keep stock investments okay so that person has a sep IRA is that right okay that behaves mostly at the time of taking it out and mostly behaves like an IRA it's for for those of you who aren't familiar a sep IRA is for a person who owns their own business and it's you can put more into it than you can in a traditional IRA but when it comes out it's like it's an IRA so you're taking that money out you're paying ordinary income tax on it when you take it out and i think the question is like i kind of like the investments i have in my sep IRA so now what but that shouldn't be a big deal you should be able to take that money out and pay tax on it and then reinvest it and you can choose the same investments again in your new account like when it's time to take the money from the sep IRA call your bank or your fidelity or whoever it is and say i need to take some money out of my sep IRA let's move it to my brokerage account and then reinvest it in the stocks or the stock funds that i like now once it's and again you always pay ordinary income tax when you take it out but then once it's in that new brokerage account and you've reinvested that money in stocks or stock funds then leave those in for more than a year and now that it's in a taxable account you're going to have access to long-term capital gains rates on the future growth what software did you use for betsheba oh this is my financial planning software it's called right capital but and you probably aren't going to buy it yourself it's something advisors use and many advisors use other programs there are several other great ones one is called e-money one is called money guide pro i think those are the two most popular they can all do really cool stuff like this but again you probably won't have it yourself but maybe your advisor has it what are the ways to provide income insurance should someone outlive the retirement haha outlive your retirement okay that is essentially what social security is okay social security is kind of longevity insurance because if i'm getting three thousand dollars a month when i'm say 67 i'm going to still get that money um no matter how long i live it's going to go up each year with cost of living increases so maybe when i'm 150 years old i'm going to be getting six thousand dollars a month or something but that money there it's gear well guaranteed is a tricky word it's planned that i get that for the rest of my life no matter how long i live so that's what social security is now social security is never a huge amount of money though um you know if you have a lifestyle where you're spending a lot of money every year social security might not end up being a lot because the most anybody gets is about 45 thousand a year and again in silicon valley and california in general that's not really enough to live on so social security is usually not going to be your whole income no matter what um and by the way 45 thousand a year is at the upper end a lot of people get considerably less maybe you're only getting 15 or 20 thousand in social security so you might want some other guaranteed income streams that can last for the rest of your life the one you can purchase that works like that is an annuity okay an annuity is a product sold by insurance people and it is it's it works kind of like social security basically you pay something now you might pay a lump sum and then you're guaranteed to get payments for the rest of your life so if i put a hundred thousand dollars into an immediate that would be called an immediate annuity there's various ways to fund it you can pay a lump sum now you can pay a little every year over time or something like that but you're buying a product that is an income guarantee so if i choose an immediate annuity i put in a lump sum now maybe a hundred thousand dollars and then my contract will say okay we're going to start paying out when you're whatever age i think there's flexibility on that too maybe i say please start paying me when i'm 65 years old and pay me x thousand dollars a month for the rest of my life now if i die at age 66 i lost that bet but fine i'm dead it's not my problem and everybody else in that pool gets more money because you know i'm i'm no longer a problem but if i live to 150 or even to 95 i win that bet because i have guaranteed income so that's what that's how annuities work annuities are complicated there's lots of different versions some of them are overpriced but and there's all different kinds it's all different riders but having a portion of your income that's guaranteed is a good idea for many people now um what's her name back here uh cecile she doesn't need an annuity i don't think because with three and a half million dollars in a traditional IRA she's probably going to be fine even if she made a few bad investments and even if we have inflation etc um but for someone with less in savings making sure that you have at least enough guaranteed income to cover your basic rent and food it's probably a good idea now i'm just going to mention one other type of annuity because i think it's related to what you said there's this thing that's i think a little bit on the newer side so not everybody's heard of it it's specifically called a longevity annuity and the way they work is they're not terribly expensive because you don't get a payout unless you live a long time so many of them don't start paying until age 85 so if i say now okay i'm 40 years old but i'm getting nervous i'm not 40 but if i were this is my imaginary persona i'm 40 years old but maybe i'm getting nervous i'm hearing from medical science that people are living longer and longer and i think you know i'm saving enough money but i'm basically saving enough money to know i'll be okay till about age 80 what if i live to 120 i'm scared so i can buy a longevity annuity for a reasonable price because insurance agencies depend on demographic information and actuarial tables and they know that most of us probably still are going to die by 80 or 85 but some of us aren't so they charge everybody who wants this product a relatively small amount if i die before age 85 the money's gone if i live from 85 to 120 i get paid so a longevity annuity is specifically to hedge against that fear of what if i just live too long and outlive my money what else well we're talking about cecile how does medicare stealth tax impact the roth conversion great point all right let's go to medicare okay actually as a lead into medicare i'm going to show you one of my other tables of types of income back here in the beginning you know when i was organizing this yesterday and the day before i didn't quite know what order to put everything in so i think the answer is there was no perfect order we'll just find what we need okay so adjusted gross income let's talk for a minute about what that is because that's what affects your medicare payments and for those who aren't too familiar with medicare what i think that person means by stealth tax is medicare part a which is hospitalization that's what you've been paying for your whole life through that 1.45 percent of your paychecks so part a you don't pay more when you start taking medicare part b of medicare is for doctors though and that part um you pay a premium it's partially subsidized by taxes but you also pay a premium for many many years everybody paid 104 dollars and 90 cents a month for medicare part b then they said hey wait a minute this program is very expensive to run some people have a lot of money why are they paying the same amount as those of us without much money so the medicare dot gov medicare agency put in additional tiers for part b which is doctors and part d which is prescription dot drugs note that medicare part d is one of the few things that makes any sense in its name d is for drugs so parts b and d you pay a premium each month and it increases based on your income now it increases based on your adjusted gross income or even more technically you're modified adjusted gross income or magi but for a minute here let's look at what your adjusted gross income is because your medicare payments i want them to be as low as possible and they are controlled by what your agi so he i used to be fairly simple to see this is a 2017 tax form i realize it's 2021 the reason i'm showing you 2017 is this is the last year the tax forms made any sense at all um the tax laws all changed at the end of 2017 so all of a sudden 2018 tax forms are a big freaking mess and i'll tell you off screen who to blame for that his name is ted cruz okay i gave it away all right so anyway long story about why the tax forms are all messed up but now you can't really look at your tax forms and make sense out of them because now you have a very high stack of short forms and each one has one or two numbers on it back in 2017 you could see back in 2017 whoops the um bottom line on this page which i'm sorry you're supposed to be able to see it you can't but the very bottom line says this is your adjusted gross income this next page i have here does show that notice it says this is your adjusted gross income this was the front page of your 1040 and your adjusted gross income still does appear on the front page of your 1040 but it's a little harder to find and the stuff that goes into it is not there on the front page but that's a really important number it's not your taxable income a few things happen after that but your adjusted gross income affects a lot of things so we want it to be as low as possible here are some of the things your adjusted gross income affects um how much income tax you pay on your social security benefits whether you're paying 0 percent 50 percent or 85 percent of your of of your social security um depends on your adjusted gross income the increase in premiums for medicare part b and d which you just asked about that depends on your adjusted gross income the limits the contribution limits we've been talking about for traditional IRAs and Roth IRAs those income limits we are looking at that's based on your agi um there's this other thing called a net investment income tax it's an extra 3.8 tax you might pay if you make more than 200,000 for single or more than 250,000 if you're married filing jointly that's based on your adjusted gross income so let's look back again at what's involved in that so your adjusted gross income is all basically all of your income your wages and salaries your capital gains your business income your rental income your IRA distributions your pensions your taxable social security all that gets added together to make your adjusted gross income and then we subtract these things we get to subtract our contributions to our traditional IRAs our health savings account our student loan interest our 300 charitable contributions under the CARES Act capital losses up to $3,000 all this stuff reduces your agi now what you don't see on this list is your itemized deductions your itemized deductions on schedule a or your standard deduction those come after agi but all this stuff lowers your agi so the more we can get this down the more we can get our medicare premiums down and qualify for a lot of other things so this is just a picture of some of the things that help reduce your agi your health savings account deductions your contributions to your SEP IRA your self-employed health insurance your IRAs tuition and fees deduction that's up to $4,000 for tuition but there are income limit phase outs for several of these things like the tuition and fees and the student loan interest deduction you can deduct up to $2,500 worth of student loan interest but only if your agi is low enough now this is circular right you can only deduct the $2,500 for student loan interest if your agi is below I think it's $85,000 but the $2,500 lowers your agi so some of these things are circular but still you want to reduce your agi as much as you can here's how you do it okay we already went through some of that now let's jump back to my medicare slides see if I can make some of that more visual for you okay medicare so the higher your income your agi in a given year the higher your medicare costs will be two years later here's the chart for 2021 this is medicare part b which is the most expensive part for most people and it's for doctors and if you are single or head of household and you make $88,000 or less in agi in 2019 see it says if your yearly income in 2019 was $88,000 or less what you pay in 2021 will be $148.50 per month if you're married filing jointly and let's say you have a very high income you're married filing jointly between the two of you your agi is $750,000 or above you're going to pay about $505 for medicare so you want to lower your agi now some people say well why does two years ago matter the answer is two years ago is the last time they had any solid information on you because think about it it's 2021 now you haven't finished filing your 2020 tax return but probably your 2019 tax return is already on file so that's the last time they had solid information when you say it's for doctors you mean it pays for the doctors is not a doctor plan right right it's for um yeah it's for like the medical part that's not hospitals it's to pay for doctors yes this is medicare part d similar sort of thing there are there are many different medicare part d plans and so we can't the medicare.gov which is where i got this information they can't tell you what your exact plan premium is because it depends well did you choose plan number k or plan b or whatever um but again as your income goes up you pay a little surcharge on whatever your plan premium is based on your agi um if you have more questions about medicare this book is pretty good it's by philip moeller it's called get what's yours for medicare it has many many many details there's another good book although i don't have a picture of it i found that medicare for dummies by patricia berry is also quite good and very clear if you have specific questions um what else soi um so someone is 62 husband passed away do i collect his social security or not aha okay um yes yes you're 62 your husband passed away if he was already collecting social security retirement benefits and you are the survivor now there are a lot of rules and so um if you go to a professional for advice and they say oh that's not right probably because they asked you one more question that i didn't ask but it sounds to me like probably you have a right to a survivor benefit and the survivor benefit will be a hundred percent of what your husband your deceased husband was receiving or would have received at full retirement age now one thing about that if that husband started taking his social security at full retirement age he might have gotten say three thousand dollars a month if he waited till he was 70 he might have gotten thirty seven hundred dollars a month if you are the survivor and he waited till 70 you will get that higher amount okay if he hadn't started taking it they'll assume they'll give you what he would have given at full retirement age but it's one more reason to wait longer if you can it might help take care of your surviving spouse because they will get more now this is a really good book for anybody who has questions specifically about social security you'll notice one of the authors here philip moeller is the one who wrote the get what's yours for medicare book but i have to say this one is a lot more fun the social security book it's got three authors laurence kotlkoff you may even have heard of he comments on television all the time and this book has every possible scenario for social security questions like that one and it's actually funny and it's easy to read so anybody who is about to start getting social security or trying to think about strategies i highly recommend this just make sure it says updated and revised because the first edition came out in 2015 and then suddenly they changed all the rules in november 2015 so they did revise the book but don't get the old version even if it's cheaper don't save a few bucks on that okay what else if you have other income like rentals can the fed reduce your social security amount and based on this how do you determine what to collect when to collect social security if you have other income from rentals oh okay i know what you're talking about um let's see no because rentals are unearned income i know that sounds a little weird because for those of us who own even a little rental property it's a lot of work but it is technically considered passive income i'm not talking about real estate professionals like zoe they're they're in a different category most of us are not real estate professionals and if we have just some rental properties it's considered unearned income so just going back to my list here so you can see the list okay see rental income unearned income now why does that matter for this question zoe was asking just now the reason it matters is if you take your social security retirement benefits before you hit your full retirement age and you are still earning money your social security retirement benefits will be reduced a little bit but rental income is not considered earning money so don't worry about it number two for those of you who are still working who think well i kind of need my social security but i also have to keep my part-time job this doesn't seem fair try to just at least wait until you hit your full retirement age okay because once you're 66 or 67 or whatever that age for you is they no longer penalize you for working it's only those years between 62 and your full retirement age that your social security will be reduced a little bit if you're still working what else there's still a whole bunch of stuff about ross but well first of all can you convert in kind keep the stocks without liquidating um that ask your banker okay check with wherever your account is if it's at Fidelity or Bank of America or Schwab or whatever ask them okay on your whale when you came up with a new whale chart yeah how many percent was her or her taxes reduced when she has to take out her rmd let's see um in my particular whale example the second whale the new whale yeah okay um what i did is i said um let's convert enough each year to fill up the 12 percent tax bracket so um we filled the 12 percent bracket and before that she had been in the 10 percent bracket for those few years so we got two percent more taxes in those years but then we lowered her highest rate from 33 to do i have that answer i think at some point she would still get to 33 at some point but later and she saved 1.7 million over the course of her life um but i'm not sure that's an exact answer to the question can you read the question again uh sorry i was reading other questions um in the new whale where is it here we go how many percent were her taxes reduced when she has to take out her rmd oh when she has to take it out how many percent i don't know exactly um i don't i don't think i can answer that question exactly and if i did it wouldn't be that useful because everybody's situation is a little bit different you know sisi all had some very specific issues here so like yours would be different if you had 500 000 instead of 3.5 million so i don't have an exact answer for that okay what's next um this might be very specific but please advise if the kaizen plan is a good plan for retirement kaai-zen sounds like a kaizer plan and i'm sorry i don't know um because plans do vary a great deal so i better not be plying on that okay for those of you who are not looking at the comments the library staff did post the book information for oh good so um and this might be too much of a political question but is social security going away in the future will be depleted if you're young before taking social security what happens to your benefits does it get forfeit or kind of go to your beneficiaries okay it's a little bit political but it's super important and i assumed it would come up so i do have some notes for you on that okay social security future first of all that person is right it is a political question that's important because it is not a financial question and people who tell you oh no social security is running out of money can i curse on here okay that's bull crap um social security is not running out of money the government cannot run out of money because guess who prints money the government so there's no such thing as social security running out of money there is such a thing as congressman running out of political will okay so social security will go away if you let it go away not for any other reason is it it is a political question so this is one of my favorite quotations it's from a wonderful book about the history of social security called the woman behind the new deal i have a picture of that book leader but it was francis perkins who invented social security for for franklin roosevelt and she said fdr said it had been constructed in a way that no future politician would be able to tinker with it because it would be funded by workers own contributions so the point is when social security was invented they could have designed it a lot of different ways they designed it to withhold 7.5 percent of every darn dollar you earn so that you would feel invested it didn't have to be set up that way but francis perkins and fdr wanted you to say hey wait a minute you can't take that money away that's my money that's not welfare that's my money they set it up on purpose so we would be invested so she says one thing i know social security is so firmly invested this is 1962 in the american psychology today that no politician no political party no political group could possibly destroy this act and still maintain our democratic system it is safe forever and for the everlasting benefit of the people of the united states who would guess in 1962 that she couldn't foresee how politics looks now i also like these quotations dwight eisenhower staunch republican he said should any political party attempt to mess with your social security you would not hear of that party again and then he mentions a few people texas oil millionaires he said their number is negligible and they are stupid so i think it's interesting that people are seem so concerned now that social security will go away and i'm concerned to you know there are people who are trying to get rid of it but um historically people are pretty sure they can't get rid of it because it's ours and we have a right to it and it is up to us to fight for it so if you demand it it will be there now if there are very young people here i do understand that you think maybe it won't be there when you retire when i work with very young clients for financial planning sometimes we do do their plans without social security just to make sure it works if they don't get it for older people i'm pretty sure it won't go away i mean partly the people who have the power they're pretty old so they will probably if they want to get rid of it they'll make it so it hurts people later not so it hurts old people now okay oh and speaking of social security so this is the practical book this is the one where if you have questions about what happens if my father died but yada yada or my husband died or i took social security early and now i want to remarry and my ex-husband married three other people this book will answer all those questions um these books if you're just interested in social security as i am these are great books this biography of frances perkins is also um a great history of the new deal and unemployment insurance and the shirt waste factory fire she's an amazing woman she's the first female cabinet member in u.s history it's a wonderful book this is a good history of social security and this is alan greenspan's memoir but he was in charge of the task forces in 1983 and 1993 that made a lot of major changes in social security so it's only part of this book but it's very interesting okay what other questions well there are a ton more questions but you only have 10 minutes left okay stuff that you plan to cover that you want to let's see we talked about medicare we talked about social security rmds we talked a lot about last week and some this time um no why don't you go ahead and tell me what people want to know okay um um here's one on a slightly different topic just for a little bit um i'm budgeting for retirement as a lifetime renter most retirement scenarios assume home ownership in your opinion is renting in retirement improvement strategy um i wonder where that person lives because personally i live in san francisco and i rent because because i have rent control so there's no way i could buy even a tiny home for anywhere near what i pay and so buying is just not an option for me um so you know i totally understand you have to do what you have to do while it would be a very nice would be a very nice thing to own a home but it doesn't always make sense to own a home so who is the location of this okay not surprised yeah um and you know prices in san francisco have only gotten higher and higher and higher every time they tell us they're going to come down they don't um in san francisco if you are pretty low income there's a very small renters credit which i think is good because you know federally there's a huge subsidy for people who own their homes federally they get to duck their mortgage interest insurance and their property taxes so unfortunately that's one of those regressive parts of the tax code that rewards people who can already get afforded by a house they get to pay less taxes we renters subsidize them so the answer is if you can afford to buy a house you should but don't assume that it's always the right thing to do um the new york times has a pretty good calculator that just it's it's called rent versus buy the rent or buy and if you just google it new york times and rent or buy um i really enjoy that you can plug in different numbers and say well what if i could get this interest rate or what if i could get a house at this price and here's my rental price and it may very well tell you know keep renting you're lucky you have what you have so that's the answer it's nice to own but it's not always the best idea um yeah you guys do have a weird situation out there do the feds have a rule how many years you must be married for example if seniors are getting married what if you get married and he kicks it how long do you have to be married before you can get a social security before you can get a social security um masker didn't put it like that but okay yeah i think the answer is at least see they're at least one year or at least two years but if the person dies of an accidental death it's fine um so check i didn't refresh those details i have a slide deck with it somewhere but i won't waste your time while i search for it um but uh so look at the look at the book um the social security get what's yours but it's it's i think it's only one or two years unlike if you're if it's a divorce situation and you want spousal benefits you needed to be officially married for at least 10 years okay and by the way so now i'm shifting away from the question the question was about death i'm talking about divorce just for a second um in a divorce the irs and the social security administration they do not care if you were getting along they don't care if you were living together they don't care if you'd already moved in with that other flusy all they want to know is legally how long you were married so if you're in a lousy marriage but your spouse makes a lot of money don't make the divorce final until 10 years are up because if 10 years are up then you will qualify for divorce spouse benefits under social security but for death the length of time is much less so check it for sure it's a year or two and again if it's an accidental death um it's a shorter period of time and i remember a cartoon in this book um based on there was a court case where someone died during a sexual act and that was determined um an accident and his wife got his social security survivor benefits so i think it's a pretty broad definition of what's an accident okay next question um if i retire at 62 and so i stopped contributing to social security but i wait to take it until i'm 67 will i still be eligible for the full amount yeah your social security the amount that you get is based on an average of your 35 highest earning years okay so if you stop working at 62 but you started at age 18 you've got 35 good years in there somewhere they're going to average your 35 highest years now if you continue working until you're 80 and you start taking social security at 70 they're going to keep recalculating every year like maybe your income keeps going up your amount is going to go up because your top 35 years are going to go up and they're going to keep recalculating it but it's your best 35 years so do try to work at least 35 years because otherwise they're going to average in some zeros but if you stop at 62 and start taking it at 67 that's just fine okay um there's so many questions about Roth still here's a quick one can you remind me if it withdraws from Roth IRA count against agi no problem no you can take money out as long as you've met the two requirements which are be at least 59 and a half and have your money in at least five years then you get the wonderful benefits of the Roth IRA when you take it out there's no tax on it and it does not count as income in any way so it's not going to affect your agi will the government ever readjust the 915 ssa earning taxed formula um yeah the government surprises us sometimes for a number of years i said oh don't worry about social security changing congress can never get anything done but then um in 2015 November of 2015 they snuck something into a budget bill and got it done overnight so yeah they rethink those things all the time the the calculations i wouldn't expect facts change but it could happen um let's see um got that so many Roth questions that's okay um okay well here's one when at age 72 and taking rmd can i convert traditional IRA to Roth IRA you can convert anytime the only drawback to converting is you pay tax in the year that you convert but there's no time limits on it and there's no income limits on it just do it when you want to do do it when you're willing to pay the tax somebody else says if gold is reducing RMDs at age 72 will converting a 403b to a Roth 403b accomplish this um yeah because Roths don't have well Roth IRAs don't have RMDs but yeah even if you can even if you convert from a traditional to a Roth workplace plan it won't mess with your RMDs because um because it's not tax deferred so yeah that's a good idea convert to Roths when you can so this goes back to a workplace plan what's the best strategy to reduce taxes in the future if you have a large 401k balance but are no longer with that company okay if you're no longer with that company and you want to reduce RMDs in the future um actually anytime you want to reduce RMDs in the future the thing to do is get the money out now there's basically two ways to get the money out now which will reduce your balances they're going to be used to calculate your RMDs one is just take the money out pay taxes on it and spend it the other is if you don't want the money to spend take the money out convert it so either way you pay taxes but if you need the money take it out pay the taxes and use it if you don't need the money pay the taxes and convert it either way you're reducing that balance that your RMDs are calculated on all right you have two minutes left so here's one more question do we have to wait to age uh 59 and a half before converting from a traditional IRA to a Roth IRA you can convert any age anytime um I was expecting questions like that so I might even have that summarized here about Roths why does everybody convert everything converting is good converting converting well I'm pushing converting I'm telling you you should convert uh yeah I probably have a note on that but no age limits and no um income limits convert anytime you're willing to pay the tax and the calculation for the RMD oh okay I have slides on that um one minute left so chop chop okay we can do it how RMDs are calculated okay you look at the balance the total in your tax deferred accounts at December 31st in the year you turn 70 and a half or 72 for most of us it's 72 unless you were 70 and a half before 2020 so if you're not 70 and a half yet then look at your balance at 12 31 the year you turn 72 you divide that by your life expectancy as determined by the IRS so just go to the IRS tables look at your life expectancy um it'll say you know 28 years or 30 years or something and you'll divide your balance by that then the next year do not look up your life expectancy again you don't change that as because you're older but you look at your balance 12 31 the next year and then you divide that by your original life expectancy minus one so every year your RMD is recalculated but it's based on how much was in your tax deferred accounts at the end of the prior year it's 330 okay 330 well thank you so much for coming everybody it was nice to see you all Jonathan Massey who just waved is giving a presentation soon Zoe's giving one on May 3rd Jonathan's I think I'm gonna unmute him is it April 26th when is it April 26th I'll put it in the chat good April 26th they're very helpful thank you thank you and that one's on options and um I want to thank Leah Hillman the fourth floor manager at the library and all of her wonderful staff it's been a pleasure I hope I'll see you all again thank you thank you thank you thank you thank you so much incredible thank you very much yeah another incredible program from the listed ladies so thank you and um thanks to all of you for attending and we'll see you at the next program bye bye