5 Tax Tips in Retirement To Boost Cashflow

Even if they feel confident that they've saved well for retirement, there is a scarcity factor when they go to retire and they start to show up as a lesser version of themselves.

Valuable content is going to be shared and we're literally impacting lives. There's been a lot happening this year with our current administration that is affecting our clients, both in good ways, maybe in some negative ways.

Hey, everyone. Welcome to this video. We're going to be doing a brand new collaboration series with my good friend Denzel Rodriguez and and for all of you in the finance geek community, I'm Daniel Ronberg and I specialize in helping people realize their purpose and step into retirement in an abundant mindset. And today I'm going to break down a super tactical video on 5 really Practical Ways that you can reduce income tax liability in your retirement. And all five of these are super simple. I've helped probably over a thousand families at this point retire. And these are five things that I've noticed that if you can just make these little adjustments right before retirement, it will have a massive impact on, on your net income. And what is the finance geek known for? What have you been learning on this channel the whole time? How to improve cash flow, how to reduce debt, how to pay things off faster. And at the end of the day, what Denzel teaches on this channel is a perfect prerequisite for retirement income. And what is it you've been learning on this channel all these years? Right. You've been learning how to improve your cash flow. What Denzel's been teaching you for years. And accelerated payoff strategies is a phenomenal, maybe the best prerequisite for getting ready to prepare for your retirement income. Now, what I'm going to do is on the back end, teach you how to boost income. And one of the ways you can do that, just like getting rid of paying high interest on debts, you can also reduce and eliminate income tax. The less tax you pay, the more income you receive. And so these are five ways that I found to really help people boost their cash flow in retirement. Okay, now, the first one we're going to cover is capital gains. Now, before I dive in all this, I just want to make sure one knows I'm not the CPA. We have tax attorneys, we have CPAs, we have phenomenal tax strategists that are part of our team. But this is just some common sense ways you can improve your income just by the way you take and set up your income. And so when I talk about capital gains, there's ordinary income Tax. There's tax you receive from dividends and then there's capital gains tax. And so if you structure your retirement savings properly, you can actually maximize these different ways that income is taxed to help you receive your income with the least amount of tax possible. So let me break this down for you and give you a really simple example. Okay? If you are in the 12% income tax bracket or less, your capital gains rate is 0%. Now that's going to be important. So now let's take a look at your income tax bracket. Let's say that you put so much income in the zero bracket and that's your standard deduction. So for example, if you're married over the age of 65 and you want to take approximately $24,000 of money out of your retirement account, which ordinarily would be taxable because you deferred tax on it, you can take approximately, it's adjusted for inflation by age each year, but you can take approximately 24,000 a year. We'll just use that as our rough number and pay no income tax. You're in the 0% bracket. Okay, well, the next bracket is 10 and the bracket after that is 12. And so if you fill up the 0 bracket with taxable income, then you have your Social Security, which is tax preferential, has its own tax rate in retirement. Everybody gets really confused by this and they're always surprised that we what's going to be their net income check when they retire? Because they think just like wages, Social Security is taxed the same way. It's not, it's tax preferential. So that means you can receive so much income in the zero bracket without paying tax, so much Social Security without paying tax on Social Security or that other income. And then if you want to incur other income and you're in the 12% bracket or lower, if you have long term capital gains, you can realize the sale of those assets without paying any additional tax. So oftentimes it's a really creative and smart way that we can intentionally set up income so that we have levels to raise your income by without increasing tax. Now, other tax advantage buckets might be a properly structured whole life insurance policy, a Roth ira, an hsa. You know, there's, there's really some other really cool tools that we can add in beyond that. But just focusing on capital gains instead of structuring all of your income as ordinary income retirement could be the missing link. And to help you realize more cash flow in retirement and less tax. Now, the second way is actually a Pre retirement strategy. And oftentimes I see people making the wrong contributions. Let me give you an example. Let's say you're making approximately $100,000 a year before you retire. Generally speaking, you're going to be in your highest earning years right before you retire. You've been working longer, you're more experienced, maybe you've moved up in your position and now you're making the most money you've ever made right before you retire. Well, once you retire, your income is going to change dramatically, like I illustrated previously. So if you're receiving primarily Social Security as your retirement income, you're going to have a 0% tax bracket. And so oftentimes I'll see people right before retirement who are making $100,000 a year contributing to their Roth IRA and maybe they're in a 22% bracket. Well, let me ask you a question. If all the income you needed the following year was going to fall in the 0% bracket, or why would you pay tax at 22% right before you retire? Another way to say that is if you're making 100 grand a year and you're intentionally saying, you know what, I'm going to put 20 of that away in the Roth 401K and I'm going to pay tax at 22% on 20 grand. But next year when I retire, between my Social Security and the amount that falls in my standard deduction, that's going to be enough to cover all my lifestyle expenses. So you're actually not going to pay any income tax. Well, then why would you voluntarily give the government 22% upfront? It may actually be more prudent for you to contribute to the traditional 401k, the traditional IRA. Get the tax deduction while you're making 100 grand at 22%, take it out the next year at 0% income tax. So paying close attention to your deductions right before retirement is very important to help you maximize your retirement income. Another key age that a lot of people lose track of is age 63. And people go, well, Daniel, why is 63 so significant? I know about 60 because you're after 59 and a half. You can start touching your retirement account without penalties. I know about 62 because you can trigger Social Security. I know about 65 because that's Medicare. What's the significance of 63? Well, a lot of people don't know about something called irmaa. Irmaa is a kind of sneaky little surcharge. It's an extra tax. You pay on your Medicare premium for making additional income above what Social Security is going to assume your income is going to be for a rolling two years. So let me break that down another way. When you turn 63, that's two years prior to receiving Medicare. From that point on, Medicare is checking with Social Security and your earnings record to see what you're reporting for your income, to see what to charge you for your Medicare premium. And so the Medicare premium can adjust every two years. They're looking at your income and if you happen to create a lot more income than you had in previous years, or another way you could trigger this is the sale of a business or the sale of an asset, like a piece of real estate, then IRMAA will kick in. It's an income related Medicare adjustment amount. And basically it's just extra Medicare premium. You don't get any additional services through Medicare, but it's like a, it's like a tax for being successful. Like if you make a lot of money, they're going to pay, you're going to pay more in Medicare premium. And this is going to happen every two years for the rest of your retirement. So you really want to be cognizant of your pre Medicare income because if you do need to realize a sale of a property, if you do need to sell a business, if there's a time you're going to need to take a large amount out of your retirement account, you want to be aware of what that's going to do to your Medicare premium. So let's say, for example, you go over that IRMAA limit in any given year, your Medicare premium will be higher based on that income for the next two years. And they're going to keep looking at it every two years to see if they can adjust it back down or if they need to increase it further. And so paying attention from age 63 on is a really key age to make sure that you're not accidentally increasing your income unnecessarily. People get so frustrated when they get that letter from Social Security in the fall going, hey, we're going to have an adjustment. And they're like, why? What's this extra tax for? It's an irmaa. And so you really want to be cognizant of how to make sure you're avoiding that when at all possible. Okay, tip number four is going to be how to do Roth conversions properly. Now when you go to do your Roth conversion, everybody goes, okay, I got to get my money into the Roth. I don't want to pay tax forever. I know that the tax free bucket's the best way to go. The money's going to be tax free for me, the money's going to be tax free for my heirs. And you got to get into Roth, right? People over convert all the time. So just like I illustrated in that other point about making proper contributions, sometimes you can over convert to your detriment. Let me give you an example. Some people are going to take what's called a required minimum distribution from their retirement account. It starts at age 73. For some people, it's all the way up to age 75. It's depending on when you were born. But if your lifestyle needs are met with an example that I illustrated earlier, just a portion of your retirement account coming out your Social Security, maybe you get a tax free pension, maybe you have money from life insurance. Whatever the case may be, and let's say you're in the zero bracket for the rest of your life, even with your required minimum distribution, you have to take one day. Well, then again, why would you convert to a Roth? Why would you intentionally pay tax at maybe 10 or 12 or 22% when if you just stay on the course you're on, the RMDs will be sufficient for you to take very tax advantage income already. So sometimes people will rush to convert. Another big mistake that I see people make when converting is whenever you do convert and you have to pay the tax on that money. Okay, so let's say you have traditional ira, you pay the tax on that money. Now you can convert it to Roth ira. Well, sometimes what people will do is they will do withholding and so they'll actually send money from their IRA to the government immediately to cover the tax. Well, that's okay because you have to pay the tax, but now that money's out of the tax free account. So when you do go to convert, you really want to be mindful of how you're going to pay your tax. Oftentimes I think it's much more efficient if you can be proactive and you can create a really good deduction that's going to be moral and legal and ethical. But if you can have work with a tax strategist to say, okay, we're going to create a deduction strategy so that we can do the Roth conversions instead of just forking over money from your tax free bucket to the government immediately, I think that's a much more efficient way to use conversions. Another great way is you can use the bonuses on annuities. So some Lifetime income annuities that are going to provide cash flow will come with a pretty large upfront bonus. So sometimes you can actually withhold the tax and then have the bonus, recoup that money and go right into your Roth. So there's phenomenal ways to convert to Roth. If you're thinking about doing Roth conversions, you really want to make sure you sit down with a strategist prior to that. So that way you can make sure you convert the right way. And bonus tip number five is going to be using non qualified annuities properly. Now, a non qualified annuity has some really unique privileges when taking cash flow. And so just like the capital gains example, sometimes you can use a non qualified annuity or an immediate annuity to be able to take pretty tax advantage income for a duration of time. So for example, if you said, hey, you know, I want to take some additional after tax income and you set up a non qualified annuity, you may be able to create a pretty unique bridge for a period of time in your retirement where you can do Roth conversions efficiently. And, and you can still realize income from your non qualified annuity without paying that ordinary income tax because you're utilizing the majority of your basis in the early years of the non qualified annuity that's going to leave room in your taxable bracket for other tax to be incurred, such as Roth conversions or just realizing other taxable income, reducing it from your tax advantaged account or tax deferred account later on in retirement. So again, typically what we see is a combination of all five of these to make sure that you're optimizing everything. And, and these aren't even really that advanced of strategies. They're really just some of the basics that you really want to pay attention to when setting up your retirement income. So if you don't have a tax strategist and you would like to meet one, or if you just want to sit down and go through your cash flow in retirement, you've done such a great job preparing and getting your cash flow in the right place pre retirement. You know, it deserves some time to set up your back end strategy. And that's what we do. For Denzel's Channel. We are the retirement army that helps people make sure that they're maximizing that cash flow in retirement. And not just so that you can realize more money and spend more in retirement, but says you can show up as your best self. My personal mission is to help you realize your purpose in retirement. And what that means to us is showing up as your most abundant self, being able to give to the causes you want to give to, being able to spend the money you said you were always going to spend and being able to enjoy that phase of life and retiring to something new that you can really embrace and give yourself permission to to spend and enjoy the way you deserve. And so that's the purpose of maximizing that cash flow. I think we all need to take time to do that, and these are just some of the little basics we do. But we would love to invite you to do sit down with me personally and do a deep dive on all of your retirement strategies and income and make sure that we're maximizing and creating those efficiencies that you've come to know and love from the finance geek. We're going to help you do that on the retirement side. So I really appreciate you watching this video. Please comment subscribe with some suggestions on other videos you'd like to see. We really want to make sure these are extremely valuable and tactical things you can take immediately and improve your cash flow. And if you have any questions or you want to reach out, click the link below. You can set up time with me personally and I'd be happy to go through everything for you. Complimentary. Thanks so much for watching and I hope to see you in the next collaboration video.