0:00:01 - Speaker 1

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

0:00:21 - Speaker 2

It's time to dive into some insider secrets of investing and retirement planning to make your retirement as smart and as elegant as possible. This is Money Chic with Sherry Rash. Welcome into another edition of Money Chic Women and Retirement, with Sherry Rash and myself to talk about common retirement planning, questions, about taxes, and it's that time of the year Well, we're winding down anyway and it's a matter of fact, it's about the time we're dropping this podcast. It is October and Halloween time. So, sherry, welcome in, and are you all set for Halloween?

0:00:52 - Speaker 3

I'm getting there. Yeah, I got my costume. The kids have their costumes. I have all the candy already, so Halloween's one of my favorites, so I'm ready.

0:01:01 - Speaker 2

Fantastic Now, since you got the new co-host and the new teammate here, does he get a costume? Does Flash get one?

0:01:08 - Speaker 3

As tempting as it is, I might as well take the money and flush it down the toilet. I recognize It'd be a huge waste to get him a costume, so he is not going to have a costume. He wears a bow tie 24-7. So maybe I'll just get him a fancier bow tie collar. But no costume for Flash this year.

0:01:30 - Speaker 2

Yeah, I'm never big on, I'm not one of those. My wife once did it and I'm like stop, she did it for Halloween. I think he's a little. He looks like a German shepherd that was shrunken the dryer. He's just a tiny little corgi German shepherd mix but he's small like a corgi but he looks exactly like a German shepherd. So we got him a little canine. She got him a little canine unit, because a lot of times those are German shepherds, little police canine unit thing.

And it's cute. It was fairly cute, but I was like no. I'm not going to let him do it to you, buddy, because you could tell he was not happy Some with you. Yeah, it's like just flush that money right down his, Because he's like trying to rip it off, you know.

0:02:06 - Speaker 1

Right, all that good stuff.

0:02:08 - Speaker 2

So I don't think you can write that off in your taxes either, but we're going to talk about no, no, okay, no, I don't think so, unfortunately.

Well, let's talk about them because as the year's winding down again, we start to pay a bit more attention to it, although really, if you're talking about the concept of retirement, you know it's really tax planning throughout the year, not just tax prep. However, let's focus a little bit and just go through some of these things. A lot of people you know kind of wonder if there are strategies that they can use while they're still working to improve their tax situation. How do you handle questions in that just general arena?

0:02:41 - Speaker 3

As far as taxes go, we want to create a strategy to try to minimize taxes. Right, who enjoys really paying taxes or writing it? Check to the government.

0:02:51 - Speaker 2

Nobody comes in and offers to pay more.

0:02:52 - Speaker 3

No, Just have me pay as much taxes as possible. So no, we want to try to minimize taxes as much as we can. With 401Ks and 403Bs, pre-tax dollars are being invested into those investment vehicles, so paying some type of tax in retirement is obviously completely reasonable to expect. But there are some other ways that we can try to minimize them with some advanced planning. But you have to do it in advance, not a year before retirement.

0:03:24 - Speaker 2

And we're going to dive into that a little bit, because I've got some good things I want to bring up on that and there's definitely confusion. Still we're in the current tax bracket that we've got since 2017. Was that the Job and Job Cut Tax Act, whatever that was under the Trump administration? And then they've yet to do anything currently, at the time we're taping this. Obviously, they could always make a change before the next election or they could leave it alone and tax rates will sunset in back in 26 and go back to what they were under the Obama administration. But people still struggle a little bit about the deduction conversation. So a common question since this is the title of the podcast is do I have as many deductions in retirement as I did while working? I think currently the answer is probably no, right, sharon, because it's just so high the deductible, but that could change, right.

0:04:12 - Speaker 3

The answer is probably no. Yeah, I mean, if you just look at your tax return and look at the deductions that you have, are they going to continue when you're retired? One of our biggest ways to reduce our taxable income are 401k403b pre-tax contributions.

0:04:30 - Speaker 2

Right.

0:04:31 - Speaker 3

When you're retired that's gone, so you no longer have that. You do get a tax break when you're over 65. The standard deduction does increase, so that's good. But a question that many clients have for me is should I pay off my mortgage before?

0:04:48 - Speaker 2

retirement Right, the itemization question, because we're not really able to itemize now unless you've got a ton right, because it's like $25,000 for a married couple.

0:04:55 - Speaker 3

Yeah, yeah. So should I pay off my mortgage?

0:04:58 - Speaker 2

Well, if you pay it off, you lose potentially that deduction, but you may be probably not getting it right now, anyway, Right, so yeah, that really changes the framework of that conversation about paying the house down Now. Again, it could change in what? Three and a half years or four years. It could go back to the other way and then itemization could be a thing again.

0:05:17 - Speaker 3

It could be. So, it's kind of preparing for what we know right now not what we expect to happen in the future.

0:05:24 - Speaker 2

And I think that's where people get into trouble. And so you mentioned earlier about the taxes just in retirement and lowering. I think most people we've grown up with this conversation, Sherry, that you pump your money and your 401K when you get to retirement you'll be in a lower tax bracket Right, and I think it's been perpetuated for so long that many people might just think it's an assumption. It's an automatic Just because I'm older, I automatically will be in a lower tax bracket. It's not really accurate at all. Now can you be in a lower tax bracket? Yes, but, like you said, it takes planning, it doesn't just happen naturally.

0:06:02 - Speaker 3

In the 80s yes, it is very likely you were going to be in a lower tax bracket because there were so many. But now the tax brackets are a mile long. So even if you're at the very bottom of the tax bracket, you're still in the same one. So it's not reasonable to expect again, the way it is right now, that you're going to be in a lower tax bracket in retirement and unless you put planning in place you need to think accordingly that you're going to be paying roughly the same amount of taxes in retirement as you do now.

0:06:36 - Speaker 2

Yeah, man, I talk with advisors all over the place all the time and, like yourself, and many of them say, yeah, when most people come in they have that thought and when we go through and get everything done, they typically find that they're not going to be in a lower one. So we got to kind of stop that assumption that it's going to have. You can get there, but it's going to take a little effort, it's going to take a little bit of work and that comes back to some of that planning you mentioned on some of the accounts. We won't get too far into that again, but people do have that common question of are all retirement accounts taxed the same? I think they're not.

0:07:05 - Speaker 3

They're not. If the retirement account is funded with pre-tax dollars, meaning money you've never paid taxes on, so money that came straight out of your paycheck went right into your 401k, 403b and it reduced your taxable income when you were filing taxes, then you are going to pay taxes on that account when you make withdrawals. But then there are retirement accounts Roth IRAs, for example that you pay taxes at the time of the contribution and then it grows tax-deferred and you never pay taxes again on it, as long as you follow the rules of a Roth IRA. So no, not every retirement account is treated the same. But what I found is that the average person doesn't default to a Roth IRA or a Roth 401k. Most people default to using the traditional versions, which then creates a tax implication at retirement.

0:08:03 - Speaker 2

Yeah, and again that's part of the conversation we just had about the current rates versus possible future rates. What's your thoughts on that? Because obviously people most of us assume that they're going to have to go up and that becomes the question about taking those traditional 401ks and maybe doing Roth conversions or those traditional IRAs and doing Roth conversions and paying the taxes now versus the rates that we understand them to be, versus what we expect them to be in the future, when they more than likely go up. And yes, it's a gamble, but again, it's the devil that you know, I suppose, in that conversation piece. But you want to do that, sherry, strategically if you do so that you do not bump yourself into another tax bracket.

0:08:40 - Speaker 3

Right, you don't want to go about it willy-nilly and convert all of your pre-tax retirement accounts to Roths and pay the taxes, because it can bump you up into a higher tax bracket, which is not a fun conversation to have with your accountant. You definitely want to have a strategy and you're right that. Swallowing the pill now and paying the taxes it stinks, but your future self may really thank you for doing that now versus having to pay taxes forever in retirement.

0:09:10 - Speaker 2

Yeah for sure. So again, it's worth having that conversation about. You know, is the Roth conversion right for me? I always feel like when I say that that I'm doing some sort of one of those you know medical ads on TV. Ask your doctor if it's right for you. You know, ask your financial professional for Roth conversion is right for you. So it definitely again a question to have with folks. Now I got to ask you about this because another common question is the whole. There's many, many ads and things out there about a tax-free retirement income right Income that's completely tax-free in retirement and people get a little. They get excited and also nervous Like how real of a thing is that? Is it possible to get tax-free income in retirement?

0:09:49 - Speaker 3

We just talked about a Roth IRA. So if you have Roth IRA money, those withdrawals so you pay the taxes at the time of making the contribution, the money goes deferred withdrawals are tax-free. So that's a way to receive tax-free income in retirement. Would it be 100% of your income? It's very unlikely that someone retires with 100% of their assets in Roth dollars, but could a portion Sure, absolutely with the proper planning.

0:10:19 - Speaker 2

Well, and you hear things about things like what IULs or whatever insurance type of products, where you can the cash value, you can turn that into an income stream that could be tax-free, right. So there's different ways to do it. But again it doesn't just happen. Naturally You've got to plan, you've got to work with a financial professional, cpa, to kind of get these things taken care of so that you can try to be tax-efficient. I don't know if anybody can truly be at zero, but I mean, if nothing else, even Social Security can be taxed up to a certain percentage.

So for a dollar a mile, but again you can get it lower, it's just a matter of taking the time and the effort to get it done and working with the pros that know how to look for these things. What about the income tax-free state conversation? That's another common one that's certainly we've seen that. Show you the last year or two right of some mass exodus from places like California, you know, with incredibly high taxes. Obviously they're the highest in the nation, I believe, and I think New Jersey might be second or third somewhere in that neighborhood People going to places like Texas or, you know, tennessee, delaware.

0:11:18 - Speaker 1

Florida.

0:11:19 - Speaker 2

Delaware right places that are doing income. If it's, if the only reason you're moving there is for tax-free income, that's probably not the best reason because they're probably gonna get you someplace else. But I guess it could be a strategy, right?

0:11:31 - Speaker 3

They're gonna get your money one way or another Somewhere right, they're gonna get it, whether it's in the sales tax. Some states will even tax pensions. So it may be great income tax-wise or be tax-free or very low taxes, but they may tax your pension, which other states do not.

So if you're only moving solely for tax purposes, you're probably gonna be disappointed in you're still paying and you're probably paying still a fair amount of taxes, so but if it's really nice weather or it's a location that you have desired, then go for it, and the tax-free-ness is an added benefit.

0:12:10 - Speaker 2

Yeah, if you're doing a pro and con check list of a state right to move to and you wanna put it on there, great, but yeah, probably shouldn't be number one. You know, no Sunshine weather, whatever. Like you know, it's the Florida conversation. For a lot of people, right? A lot of retirees, it's like this, especially if you're in the North, a snowbird thing, right. So let me move to Florida because of the you know weather and the environment and so on and so forth. And then the taxes. So anything else from a tax standpoint that I didn't bring up, sherry, that you think we might wanna address today.

0:12:38 - Speaker 3

I think also it's important when you're to do tax planning. If your tax planning is only bringing all of these papers to your accountant every February or March, you are not planning for taxes. And also it's really hard for accountants to help you plan for taxation or create strategies because they're looking in the rear view mirror, they're looking at whatever already happened.

0:13:01 - Speaker 1

Oh yeah.

0:13:01 - Speaker 3

And we need to look through the windshield, and that's where an advisor can help you to work alongside with your accountant to come up with a plan that makes sense for you.

0:13:11 - Speaker 2

Yeah, cause you're just talking tax prep when you're doing that and it's just history, you know. So you know, yes, we gotta do that every year. That's tax prep, that's the thing we gotta do. But especially as we're getting closer to retirement and even into it, you know what's the old saying it's not what you make, it's what you keep. So trying to be as efficient as possible. Two and three, retirement is another valuable bucket in all the various different buckets that are gonna make up that retirement plan and the success of it being well more successful. So do yourself a favor make sure you have a conversation. You know, get a team, get a financial team. Really, if you think about a financial professional like Sherry, a CPA and Sherry I'm sure, like for a lot of folks if they don't have one, you typically have. You know referrals or recommendations to, you know CPAs that you use or things of that nature, and so you can always get help in that arena.

0:13:56 - Speaker 3

Absolutely.

0:13:57 - Speaker 2

Yeah, so just reach out, have a conversation. Taxes they're not going anywhere, so they're gonna stick around. They're only gonna get worse, more than likely. So at $31 trillion or whatever, it is that we're looking at right now. So if you got some questions, see some help. Again, thanks for tuning into the podcast. We always appreciate your time here on Money Chic Women in Retirement with Sherry Rash. Don't forget to subscribe to us on Apple, google, spotify, whatever platform you like to use. Again, just type in Money Chic Women in Retirement into that search box of whatever app you're using, or you can find all the information at Sherry's website, greenwaywealthadvisorycom A lot of good tools, tips and resources. You can also get in touch with her that way as well. Greenwaywealthadvisorycom. Sherry, thanks for hanging out. Have a great Halloween.

0:14:40 - Speaker 3

Thank you, you too Absolutely Get lots of candy.

0:14:42 - Speaker 2

I'm trying to teach you too much. I don't want to. It doesn't sit as well as it used to, that's for sure. Have a great time with the kids everybody. Enjoy yourselves. We'll see you next time here on Money Chic Women in Retirement with Sherry Rash geht CONTRET.