Let’s start with the basics. Most retirement accounts like 401(k)s and traditional IRAs grow tax-deferred, meaning you’ll pay taxes when you take money out. Once you hit age 73 (or 75, depending on your birth year), Required Minimum Distributions (RMDs) kick in. These are mandatory withdrawals that count as taxable income. Miss one, and the IRS hits you with a 25% penalty. Ouch. But there are ways to reduce your tax bill, like using standard deductions, itemizing when possible, and making Qualified Charitable Distributions (QCDs) to donate directly from your IRA.

Next, let’s talk tax brackets. Many people think all their income is taxed at the highest bracket they fall into. Not true. We have a marginal tax system. That means your income is taxed in layers: 10%, 12%, 22%, and so on. That also means there’s room to be strategic. For example, you could do Roth conversions to fill up lower brackets before tax rates go up in the future (as they’re currently set to do).

Speaking of Roths, they’re a powerful tax escape hatch. Unlike traditional retirement accounts, Roth IRAs offer tax-free withdrawals and aren’t subject to RMDs. Plus, they don’t count as provisional income, which helps when it comes to Social Security taxes and Medicare premiums.

Social Security benefits themselves can be taxable depending on your provisional income, which includes half your Social Security, your adjusted gross income, and even tax-exempt interest. Couples earning over $32,000 could find 50% to 85% of their benefits taxed. And since these income thresholds aren’t indexed for inflation, more and more retirees are getting caught in the tax net.

Then there’s IRMAA—the Income-Related Monthly Adjustment Amount. This affects your Medicare premiums if your income from two years ago was too high. Single filers earning over $106,000 or joint filers over $212,000 will pay more for Part B and Part D. Roth conversions, tax-efficient investing, and proper withdrawal strategies can help reduce your IRMAA exposure.

Capital gains are another important area. Long-term capital gains are taxed at 0%, 15%, or 20%, depending on your taxable income. Real estate can be tricky here. While you get exclusions for a primary residence ($250,000 single, $500,000 married), rental properties are fully taxable and subject to depreciation recapture. However, a 1031 exchange can defer those taxes.

Retirees often forget that no one is automatically withholding taxes for them anymore. You may need to make quarterly estimated tax payments. Miss those, and the IRS charges penalties—currently about 8% annualized interest.

Watch out for IRA rollovers, too. A direct rollover avoids taxes, but if you take possession of the funds even briefly, 20% gets withheld. Fail to redeposit the full amount within 60 days, and it’s taxable and potentially penalized.

Mutual funds outside of retirement accounts can generate tax bills from capital gains and dividends—even if your investment value goes down. Consider using ETFs or index funds instead. They’re generally more tax efficient.

High earners need to be aware of the 3.8% Net Investment Income Tax (NIIT), which applies to interest, dividends, and rental income over $200,000 (single) or $250,000 (married).

There’s also the widow’s penalty: after one spouse passes, the surviving spouse files as single, which could push them into a higher tax bracket on the same income. Planning ahead with Roth conversions and income splitting strategies can soften the blow.

Lastly, think about where you live. State taxes vary widely. Alaska is the most tax-friendly, while New York tops the chart for retirees with a tax burden of 12.3%.

The bottom line? Don’t wait until retirement to start tax planning. With the right strategies in place, you can avoid the worst traps, stretch your savings further, and enjoy the retirement you worked so hard to earn.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

The post Retirement Tax Traps appeared first on ROI TV.

Investment Strategies: Timing and Misconceptions

A common misconception is that it’s either too early or too late to start investing. Consider the example of two investors: Jane begins investing at age 25 for 10 years, while John starts at 35 and invests for 30 years. Despite investing for a shorter period, Jane’s early start allows her investments to grow to $2.2 million, surpassing John’s $2 million. This illustrates the power of starting early and the impact of compound interest.​

Additionally, small daily savings can accumulate significantly over time. For instance, saving $4 daily on discretionary expenses like coffee can grow to approximately $132,000 over 30 years, assuming a 6% annual return. This highlights the importance of mindful spending and consistent saving.​

While the stock market carries inherent risks, historical data shows that from 2001 to 2020, the S&P 500 had an annualized return of 7.5%. However, the average equity investor earned only 3% due to emotional decision-making and market timing. This underscores the value of a disciplined, long-term investment approach.​

Understanding Social Security Benefits and Taxation

Social Security benefits may be subject to taxation depending on your combined income. For single filers, if combined income is between $25,000 and $34,000, up to 50% of benefits may be taxable. For incomes above $34,000, up to 85% of benefits may be taxable. For married couples filing jointly, these thresholds are $32,000 to $44,000 for up to 50% taxation, and above $44,000 for up to 85% taxation. ​SmartAsset+1Penn Wharton Budget Model+1Penn Wharton Budget Model

Combined income includes adjusted gross income, non-taxable interest, and half of your Social Security benefits. Implementing tax planning strategies, such as Roth IRA conversions, can help manage and potentially reduce the taxable portion of your Social Security benefits.​

Strategic Timing for Claiming Social Security Benefits

The age at which you claim Social Security benefits significantly affects the monthly amount you receive. Claiming benefits before reaching full retirement age results in reduced monthly payments, while delaying benefits increases them due to delayed retirement credits. For example, claiming at age 62 may yield a monthly benefit of $1,400, whereas waiting until age 70 could increase the benefit to $2,480. Factors such as life expectancy, financial needs, and tax implications should be carefully considered when deciding the optimal time to claim benefits.​SmartAssetSocial Security

Medicare and Anticipating Healthcare Costs

It’s a misconception that Medicare fully limits out-of-pocket healthcare expenses. Without supplemental insurance, there is no cap on these costs. Healthcare expenses are projected to rise, with estimates indicating that by 2040, nearly half of couples aged 65 and older will spend over 20% of their income on healthcare. A Fidelity study estimates that a 65-year-old couple will need over $300,000 to cover medical expenses in retirement, excluding long-term care. Planning for these costs is essential to ensure financial stability in retirement.​

Maximizing Health Savings Accounts (HSAs)

Health Savings Accounts offer a tax-advantaged way to save for medical expenses. Contributions are pre-tax, the account grows tax-deferred, and withdrawals for qualified medical expenses are tax-free. For 2025, the contribution limits are $4,300 for self-only coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution for individuals aged 55 and older. It’s important to note that contributions to HSAs are not allowed once you enroll in Medicare, typically at age 65. Investing HSA funds can provide long-term growth, making them a valuable component of a comprehensive retirement plan.​Optum Bank+4Fidelity Investments+4Wolters Kluwer+4

Personalized Financial Planning with Pure Financial Advisors

Pure Financial Advisors operates on a fee-only, fiduciary model, ensuring that clients receive unbiased, comprehensive financial planning. Their collaborative approach integrates certified public accountants and financial planners to address tax planning and investment strategies tailored to individual needs. With offices in multiple locations, including Irvine, Los Angeles, and Seattle, they are committed to providing personalized financial advice to local communities.​

Accessing Retirement Planning Resources

To assist individuals in preparing for retirement, resources such as the Retirement Readiness Guide are available. This guide offers insights on Social Security, taxes, Medicare, and investment strategies, serving as a valuable tool in developing a personalized retirement roadmap.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

The post Financial Facts vs Fiction appeared first on ROI TV.

Social Security plays a pivotal role in the financial stability of many retirees. Approximately 40% of men and 42% of women depend on Social Security for over half of their retirement income. Given its significance, understanding how to maximize these benefits is crucial for a secure retirement.

Factors Affecting Social Security Benefits

Several elements influence the amount of Social Security benefits you may receive:

• Work History: Benefits are calculated based on your 35 highest-earning years. Years with no or low earnings can reduce your average, leading to lower benefits.
• Age at Claiming: You can begin claiming benefits as early as age 62; however, doing so results in a permanent reduction. Conversely, delaying benefits until age 70 can increase your monthly benefit by up to 32%. blog.ssa.gov
• Marital Status: Married individuals may be eligible for spousal or survivor benefits, which can impact the optimal timing and strategy for claiming.
• Life Expectancy: Considering your health and family history can help determine whether it’s advantageous to claim early or delay benefits.

Claiming Strategies for Social Security

Determining the right time to claim Social Security benefits requires careful consideration:

• Early Claiming (Age 62): While you can start receiving benefits at 62, this results in a permanent reduction of up to 30% compared to your full retirement age benefit. blog.ssa.gov
• Delayed Claiming (Up to Age 70): Delaying benefits increases your monthly payment due to delayed retirement credits. For each year you delay past your full retirement age, your benefit increases by approximately 8%. blog.ssa.gov
• Individual Considerations: Factors such as health status, financial needs, and other retirement income sources should guide your decision on when to claim benefits.

Spousal and Survivor Benefits

Understanding benefits available to spouses and survivors is essential:

• Spousal Benefits: A spouse can receive up to 50% of the higher-earning spouse’s benefit if claimed at full retirement age. Claiming earlier will reduce this benefit. hartfordfunds.com
• Survivor Benefits: Surviving spouses are eligible for 100% of the deceased spouse’s benefit if they claim at full retirement age. These benefits can be claimed as early as age 60, though at a reduced rate.

Break-Even Analysis for Social Security

A break-even analysis helps determine the age at which the total benefits received from delaying surpass those from early claiming. Typically, the break-even point is around age 80. If you expect to live beyond this age, delaying benefits may result in higher lifetime income.

Taxation of Social Security Benefits

Social Security benefits may be subject to federal income taxes:

• Provisional Income: This includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits.
• Tax Thresholds:
  • Individual Filers: If your provisional income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. Above $34,000, up to 85% may be taxable.
  • Joint Filers: For combined incomes between $32,000 and $44,000, up to 50% of benefits may be taxable. Above $44,000, up to 85% may be taxable. www-origin.ssa.gov

Bridging the Gap Before Claiming Social Security

If you choose to delay Social Security to maximize benefits, consider these strategies to cover expenses in the interim:

• Utilize Retirement Savings: Withdraw from 401(k)s, IRAs, or other savings accounts to meet living expenses.
• Part-Time Employment: Continuing to work can provide income and may increase your Social Security benefits if additional high-earning years replace lower-earning ones in your benefit calculation.

Free Social Security Analysis Offer

To assist in making informed decisions, we offer a complimentary Social Security analysis tailored to your unique circumstances. Visit our website to take advantage of this service and receive personalized recommendations on the optimal claiming strategy for you. www.purefinancial.com

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

The post Max Out Your Social Security appeared first on ROI TV.