Tax expert, Andy Panko, joins me today to discuss taxes in retirement. Andy and I know each other from his Taxes in Retirement Facebook group. I figured he would be the perfect person to have on the show to help me answer several questions about this topic. Retirement is one time in life when you can plan for taxes in the long-term, so you’ll want to do as much tax planning as you can. Listen to hear the different types of tax questions that people have about retirement.

Retirement is one time in life when you can plan for taxes in the long-term, so you’ll want to do as much tax planning as you can. Share on X

Outline of This Episode

  • [2:22] Do spouses have to calculate their RMD’s separately?
  • [8:32] An IRMAA question
  • [15:09] Bill wants to know about the 5-year rule
  • [20:36] How do RMD’s work?
  • [25:10] It’s not what you make it’s what you keep

An IRA question

Wouldn’t it be easier to combine a husband and wife’s assets and just take one RMD? If a husband and wife have separate 401K’s and IRA’s even though it would seem easier to take those RMD’s together, they must be taken individually. The RMD is based on your age and each IRA and 401K has its own calculator.

One way to simplify the various retirement accounts is to take a rollover whenever you leave an employer-sponsored 401K. Remember the RMD penalty is steep, 50% of the required amount. So, if you can find a way to simplify your retirement accounts then do it.

If you can find a way to simplify your retirement accounts then do it. Share on X

An IRMAA question

The next question is actually from me. Normally I help my clients stay within the $174,000 income limit that IRMAA allows. But I recently discovered a case in which a client should go over that limit. Are there cases where people should deliberately go over the IRMAA limit?

If you already have a large pot of tax-deferred money it makes sense to pay those taxes now rather than later. We are experiencing all-time lows in tax rates and those rates are subject to change at any point. It may make sense to pay the $70 extra per month in Medicare costs rather than be stuck with a large tax bill later. Listen in to hear what the next IRMAA income cap is.

What are the rules of converting a Roth IRA?

If you are already over 59.5 and the Roth account has been open more than 5 years then you are set. You can withdraw funds from that account without penalty. Any money that comes out is a qualified distribution. However, if you do not meet those requirements there could be a penalty. There are further rules and regulations surrounding Roth IRA’s and they can be very confusing. To ensure that you don’t encounter any problems with your Roth IRA, open one as soon as possible and fund it with a rollover.

You and Uncle Sam see your IRA in different ways. Share on X

How do RMD’s work?

When you save into your IRA you are saving into a tax-deferred account. The RMD is simply there to make sure you pay the income tax on that money. It’s important to remember that the money isn’t entirely yours, you need to split it with Uncle Sam. You want to maximize the amount that you get and minimize Uncle Sam’s portion.

You and Uncle Sam see your IRA in different ways. You see that account as an asset and Uncle Sam sees it as (untaxed) income. It won’t allow you to put it off paying those taxes indefinitely. The RMD is simply the government’s way of ensuring that you pay the taxes owed on that money.

Press play to discover the answers to all of these listener questions and help realize all the tax planning opportunities that retirement brings.

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