John, WGN, IRA discussed on Wintrust Business Lunch with Steve Bertrand


WGN clean dot com Exams, joins us now wealth manager and head of the widow's practice group. This is interesting. I'll give you the website the minute he's got some letters that sounds similar. So be ready to write it down. And hey, welcome to the show. How are you today? I'm great. Thanks for having me on John. Let's talk about the widow's tax penalty. I read that 80% of wives outlive their husbands. I guess that sounds about right, huh? Statistically right, And we all know we don't know how long we have on this earth. But statistically 80% of wives outlets lived their husbands. And so this widow's tax penalty that we talk about here beady, often. One of the latest articles that Johnny Chung wrote for Our firm talks about the fact that there are planning opportunities when you go from filing a joint return to a single return, as well as before That event happens, eh? So that's that's really what we're talking about with the widow's tax penalty, knowing that's coming. What should people do? Right. So we look at individuals throughout their careers and look for places of time that are opportunities. So, for instance, somebody who might retire early we would deem retired early as before collecting Social Security or other sources of retirement income. Maybe in a really low tax bracket in those years, and they might be very excited about paying low taxes. We may look at that as an opportunity to say in future years, you're definitely going to be in a higher tax bracket. Let's look at some considerations for this. Let's just call it a few year window to potentially think about things like Roth conversions or recognizing capital gains on some appreciated investments during that period of time. Well, let's just walk through some of the basics. If the husband precedes the wife and death and 80% of the time that happens, she loses usually a lot of income right. Her husband's maybe Social security. Some retirement plans to set up so that you now get 50% depending on how was set up right? You maybe 75%, Maybe 25%, but ah lot of income falls off the table, right? Not necessarily. So if there are investment assets or your retirement accounts, those aren't lost. And so you thought you find yourself in a situation where that retirement income right which an IRA we know we have to take required minimum distributions. At some point in the future that surviving spouse at 72, the IRA says. You have to take a certain amount out of that account. Well when she then starts to take money out of that account, and she filed as a single filer. She is going to be in an accelerated income bracket at a much lower income rate. Married filers have preferential treatment in terms of you know, they can earn more money and being the same tax bracket as a single filer. So that's where the opportunity comes in. But if there's a loss of earned income, Absolutely, John, you're right Then you know, then the income would be would be cut because it wouldn't be household income. Yeah, I mean, I'm McCall filling out some Pension plans or one little pension that I have and how much of it do you want to get while you're alive? And how much would be there? If if you pass before your spouse and You know you You want to enjoy the money, But then you don't want your spouse to not have as much money So it's a calculation, isn't it? Right. That's called the Survivor benefit for a pension. And so you would look at that. And you know for your situation. Look at a combination of a lot of different factors, right? You look, it may be your health. You look at your spouse is how if you look at other investment assets that you have and and put that together in in a plan that makes sense for for your household, but Yeah, You're absolutely right. But the widow's tax penalty that we're talking about. Isn't Germaine to that, though, is it Not know. Right? And so then what should our listeners do specifically about this now? Other than calling a professional, maybe like yourself, But I mean, where does their money go? Or what should they be doing now? Yeah, So I you with with our with our clients and as ah, part of the widow's practice group, right? We we work with clients who are married before you know, one spouse dies or we might be in a situation where you know somebody hires us. After a spouse dies, and you know if you have young kids at home, you may be able to file a joint or qualifying widow or return for a couple years. And so these are real opportunities after somebody dies, But we would look at things like Windows of time where you may be able to do a Roth conversion prior to retirement or, like I said, accelerating income and also just being mindful of of income that is recognized on your tax return, where you can Lot of people don't realize that you know, Medicare premiums are based on income and widows are file as a single filer and really get penalized for that. So we need to be very cognizant of the amount of income that goes on a tax return. If we can plan for that, Yeah, um So, Yeah, I was just going to ask you about that and again. I'm not in this position yet. So some of this sounds a little foreign to me, but a widow's Medicare premium may increase because their spouse preceded them. So what happens is that your Medicare premiums are based on your income. And They calculate them differently for an individual filer than for a married filer. And so as an example if there's an individual filer who earns $150,000 a year versus a joint filer, who are $150,000 a year That individual may pay more than a couple $100 more per month for their Medicare premiums. And so just being mindful of of what that looks like on their tax return for things that we might be able to control for them. This is related, maybe tangentially, but the common advice is to delay as long as possible. You're receiving Social security, right? Right. You can delay your social security to your age 70. We can't wait any longer than that. They make you take it at age 70, But yeah, so every year that you that you delay your so security, it continues to grow right so that zone a return on that investment. So again, right? We're talking about longevity. How long we're all gonna live Death. We don't know that. We don't know how long we're all gonna live, But, um, at our firm. What we do is we take a lot of things into consideration for for our clients and One of those things are taking a real look at our health to say Okay. What? What's the longevity like been in my family? Or what is my health like? Because if you told me how long you were gonna live, John, I could tell you when to collect so security, but no kidding. And what's yes, States which you can begin to receive it. Well, your full retirement age is around 66 right now on day so you could take it a little bit earlier than that. We would. We would not recommend that clients do that. You do you you can get the money, but then it's going to be less. And if you could just wait a little bit longer. It will be substantially more and the the ideas than to live long enough to realize the difference to appreciate the savings, right? Exactly exactly. I know a lot of people have that mind sense of. I paid into this. I want to get my money out of it at this point now, but the reality and what we're looking at with a lot of our clients and a lot of the things that we're studying right now is a firm or that people are living longer and people who have Sources of income and investment assets have access to good health care. They're living even longer, And so that's just the reality of what's going on within our society and something we've spent a lot of time talking about studying and so by delaying it. If that does come to fruition, we all do live longer. You have been better off waiting to collect your soul security. David Shams is the wealth manager and head of the widow's practice group. It at Balata. Denver. No faults and the website is b d f l c dot com Did I get that right?.

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