1. Overlooking Tax Gain Harvesting

Tax gain harvesting involves selling appreciated assets to take advantage of lower capital gains tax rates, particularly the 0% rate for those within specific income thresholds. Retirees may miss this opportunity due to a lack of awareness.

Example: A retired couple with a substantial brokerage account can sell appreciated stocks, realizing gains while staying within the 0% capital gains tax bracket, thus increasing their after-tax income.

Seaside Wealth

2. Falling into the Social Security Tax Torpedo

The “tax torpedo” refers to the unexpected taxation of Social Security benefits as other income increases, leading to higher marginal tax rates. Retirees often inadvertently trigger this by not coordinating income sources.

Example: Joe and Sally, both retired, withdraw significant amounts from their traditional IRA, increasing their provisional income and causing a larger portion of their Social Security benefits to be taxed. Strategic withdrawals and Roth conversions could mitigate this issue.

Morningstar

3. Mismanaging Roth Conversions

Roth conversions can be beneficial, but improper execution—either converting too much or too little—can lead to unfavorable tax consequences.

• Under-Converting: Leads to higher required minimum distributions (RMDs) later, increasing taxable income.
• Over-Converting: Results in paying unnecessary taxes upfront, diminishing portfolio value.

Example: Ryan and Jolene convert a large portion of their traditional IRA to a Roth IRA in a single year, pushing them into a higher tax bracket. A phased approach over several years could have minimized their tax liability.

Kitces

Strategies to Avoid These Mistakes

• Annual Tax Planning: Regularly review your tax situation to adjust strategies in response to changes in income, tax laws, and financial goals.
• Professional Guidance: Consult with a financial advisor or tax professional to tailor strategies to your specific circumstances.

By being aware of these common pitfalls and implementing thoughtful tax planning, retirees can enhance their financial well-being and enjoy a more secure retirement.

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.

Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

The post Avoiding Common Tax Planning Mistakes in Retirement appeared first on ROI TV.

1. Medicare Open Enrollment Season: A Crucial Time for Action

The Medicare Open Enrollment period is a crucial window for individuals to make changes to their healthcare plans. During this time, beneficiaries can:

• Evaluate and switch Medicare plans: Review your current coverage to see if it still meets your needs, and compare it with available alternatives.
• Adjust your coverage: If your health needs have changed or if your plan’s costs have risen, you may want to switch to a different plan that better suits your needs.
• Enroll in new plans: If you missed enrolling in Medicare when you first became eligible, the open enrollment period is your opportunity to sign up.

Given the importance of selecting the right plan to ensure optimal healthcare coverage, it’s crucial that individuals make informed decisions during this period. Unfortunately, this is also when scammers and unethical agents actively try to exploit seniors who may be unaware of the potential dangers.

2. Scams and Schemes During Open Enrollment

Medicare scams are rampant during the open enrollment period, with fraudsters using various deceptive tactics to steal personal information and money. Common scams include:

• Phony Medicare Cards: Scammers may call or email claiming they can offer a new Medicare card or updated benefits and ask for personal information to complete the process. These are usually attempts to steal your identity.
• Offers of Cheaper Plans or Refunds: Fraudulent agents may promise cheaper premiums or even claim that Medicare is offering refunds for past premiums, asking you to provide banking or credit card details to “receive” the refund.
• Threats of Medicare Cancellation: Some scammers will create a sense of urgency, claiming that your Medicare benefits will be canceled unless you provide personal information immediately. This is a scare tactic designed to pressure you into giving out sensitive information.
• Pressure to Switch Plans: Some unethical agents may pressure you into switching plans or enrolling in plans that aren’t in your best interest, often leaving you with less coverage or more out-of-pocket expenses.

It’s critical to be cautious during this time and never share personal information over the phone or online unless you’re certain the communication is legitimate.

3. Importance of Evaluating Medicare Plans

While many beneficiaries may be tempted by promises of new plans or lower premiums, it’s important to evaluate your current Medicare plan before making any decisions. Here’s why:

• Review Your Current Coverage: Assess if your current plan covers all the services you need, such as prescriptions, specialist care, or hospital stays. If your health needs have changed, a plan that worked for you in the past may no longer be the best option.
• Compare Available Plans: Take the time to compare Medicare Advantage plans, Medicare Part D prescription drug plans, and Medicare Supplemental (Medigap) plans to ensure you select the one that provides the best value and coverage for your needs.
• Plan for Financial Stability: Consider the out-of-pocket costs associated with each plan, including deductibles, copayments, and premiums. A plan with a low premium might seem appealing, but it could come with high out-of-pocket costs when you need care.

By thoroughly reviewing and evaluating your plan during the open enrollment season, you can ensure that you make the best decision for your healthcare and financial needs in the upcoming year.

4. Identifying Scammers and Sketchy Agents

Being able to identify scammers and unethical agents is essential during open enrollment. Here are some red flags to watch out for:

• Unsolicited Calls or Emails: If you didn’t request the contact, it’s best to be cautious. Legitimate Medicare representatives will not initiate contact by email or phone asking for personal details or payment.
• High-Pressure Sales Tactics: Beware of agents who pressure you to make decisions quickly or threaten that you’ll lose your benefits if you don’t act immediately. Scammers often create a sense of urgency to prevent you from thinking critically.
• Requests for Payment or Personal Information: Medicare will never ask you to pay upfront fees or provide bank account information unless you are enrolling in a plan directly through an authorized channel.
• Too-Good-to-Be-True Offers: Be wary of agents offering plans with benefits that seem too good to be true or plans that claim to cover everything at no cost. These offers often come with hidden fees or limited coverage.

If you encounter any suspicious agents or practices, report them to Medicare or the Federal Trade Commission (FTC) immediately.

5. Taxes for Social Security Income and Medicare Benefits

It’s also important to understand the tax implications of your Social Security income and Medicare benefits during open enrollment:

• Taxes on Social Security: Depending on your provisional income, you may be required to pay taxes on Social Security benefits. For single filers, up to 85% of your benefits could be taxable if your income exceeds certain thresholds. For married couples, this threshold is higher, but taxes may still apply.
• Medicare Taxes: Medicare taxes are automatically deducted from your payroll or self-employment income. The standard Medicare tax rate is 1.45% for employees and 2.9% for self-employed individuals, with additional taxes for high-income earners.
• Part B Premiums and Income: Your Medicare Part B premiums are based on your modified adjusted gross income (MAGI). High-income beneficiaries may be subject to income-related monthly adjustment amounts (IRMAA), which increase their Part B premiums.

Next Steps for Open Enrollment

• Review and Update Plans: During the open enrollment period, review your Medicare plans for the upcoming year. Ensure that your current plan is meeting your healthcare needs and that you’re comfortable with the coverage and costs.
• Educate on Scams: Make sure you and your loved ones are aware of common scam tactics. Educating yourself on what to look for can help prevent falling victim to fraud.
• Consider Alternative Options: If necessary, explore alternative Medicare plans that may offer better coverage, lower out-of-pocket costs, or additional benefits.
• Monitor Income and Premiums: Stay informed about the income thresholds for Medicare Part B premiums and potential additional charges for high earners.
• Report Suspicious Activity: If you come across any unethical agents or suspicious behavior, report it to the appropriate authorities, including Medicare and the FTC.

The post Beware of Scams and Unethical Agents During Medicare Open Enrollment Season appeared first on ROI TV.

How Social Security Gets Taxed

Social Security benefits are subject to federal taxes based on your provisional income, which is a measure the IRS uses to determine whether your benefits are taxable. Unlike other income sources, only a portion of Social Security benefits may be included in your taxable income, and that portion depends on your total income level.

• Provisional Income Calculation: Provisional income includes half of your Social Security benefits, along with any gross income (such as wages, interest, and dividends) and tax-free interest from sources like municipal bonds. This calculation determines the taxability of Social Security benefits.
• Taxable Percentages: Depending on your provisional income, up to 50% or 85% of your Social Security benefits may be subject to federal income tax. These benefits, however, are not taxed at a separate rate; they are added to your regular taxable income and taxed at your marginal tax rate.

Provisional Income Calculation and Thresholds

To determine how much of your Social Security benefits may be taxed, you’ll first need to calculate your provisional income. The IRS has set thresholds that dictate whether 0%, 50%, or 85% of benefits are subject to federal tax.

1. Provisional Income for Singles:
   • If your provisional income is below $25,000, your benefits are not taxed.
   • For incomes between $25,000 and $34,000, up to 50% of your benefits are taxable.
   • For incomes over $34,000, up to 85% of your benefits may be taxed.
2. Provisional Income for Married Couples Filing Jointly:
   • If your provisional income is below $32,000, your benefits are not taxed.
   • For incomes between $32,000 and $44,000, up to 50% of benefits are taxable.
   • For incomes over $44,000, up to 85% of benefits may be taxed.

These thresholds have remained unchanged since the 1980s, which means more retirees fall into taxable brackets each year as inflation and other income sources increase.

Impact of Inflation on Provisional Income Thresholds

One of the challenges with Social Security taxation is that provisional income thresholds do not adjust for inflation. Over time, cost-of-living adjustments (COLAs) increase Social Security benefits to keep up with inflation. However, these COLAs also raise the amount of provisional income, causing more retirees to meet or exceed the taxable thresholds.

• Inflation’s Effect on Tax Brackets: As inflation pushes up benefits, many retirees see a higher portion of their Social Security subject to tax, even if their lifestyle or spending hasn’t changed. As a result, inflation indirectly raises taxes for retirees by moving them into higher provisional income brackets.
• Planning for Inflation’s Impact: To mitigate these effects, retirees may need to manage other income sources carefully, potentially reducing provisional income by controlling withdrawals from retirement accounts or using tax-advantaged strategies to keep more of their benefits tax-free.

State-Level Taxation of Social Security Benefits

While federal taxes apply to Social Security benefits based on provisional income, state-level taxation varies widely. Only 11 states tax Social Security benefits, and some of these states offer deductions or offsets to minimize the impact.

• States That Tax Social Security: The 11 states currently taxing Social Security include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, and Vermont. However, tax rules vary within these states; for instance, some states exempt benefits for lower-income retirees or offer partial deductions.
• Understanding State-Specific Tax Laws: Retirees should become familiar with their state’s specific tax rules to make informed decisions about where they retire or how to structure their income. Many states do not tax Social Security benefits, providing a potential tax advantage that could boost overall retirement income.

Maximizing Tax Efficiency in Retirement

Understanding how Social Security is taxed—and managing provisional income thresholds—can make a significant difference in the tax efficiency of your retirement income. Strategies like controlling distributions from retirement accounts, considering Roth conversions, and choosing a tax-friendly state to retire can help you retain more of your Social Security benefits. With careful planning, retirees can maximize their income and minimize the tax bite, ensuring a financially secure retirement.

You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns.

Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

The post How Social Security Benefits Are Taxed and Ways to Maximize Tax Efficiency in Retirement appeared first on ROI TV.

Here’s what you need to know to optimize your Social Security benefits and minimize tax liabilities as you head into retirement.

1. Understanding Social Security Benefits: The Basics

Social Security isn’t just about retirement income—it also offers a range of other benefits, including disability and survivor benefits. In addition, there are spousal benefits, which allow a spouse to claim up to 50% of their partner’s benefits if it’s higher than their own.

When it comes to taxes, provisional income plays a critical role. Provisional income is a formula used by the IRS to determine whether a portion of your Social Security benefits is taxable. It includes your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits.

For those who plan to work while receiving Social Security benefits, there are specific rules on how this will impact your monthly payments. Claiming benefits early while working could lead to reduced benefits, but suspending benefits until full retirement age or beyond can maximize your payouts in the long term.

2. Maximizing Your Social Security Benefits

One of the most important factors to consider is when to claim your Social Security benefits. Waiting to claim beyond full retirement age (up to age 70) can result in significantly higher monthly payments. Every year you delay, your benefit increases by about 8%, which can add up to a more secure retirement.

Social Security also calculates your benefits based on your top 35 earning years. If you have less than 35 years of earnings, zeros will be factored in, reducing your overall benefit. Working longer to replace lower-earning years with higher-earning ones can result in a bigger monthly benefit.

To avoid paying unnecessary taxes on your Social Security income, it’s important to manage your income carefully. Certain strategies, such as taking distributions from Roth IRAs instead of traditional IRAs or 401(k)s, can help keep your provisional income lower and reduce the portion of your benefits that are taxable.

Medicare enrollment is also an important consideration. Failing to enroll in Medicare on time can result in lifetime penalties, so make sure to plan for that aspect of your retirement as well.

3. Social Security and Taxes: What You Need to Know

Yes, your Social Security benefits can be taxed! The taxability of your benefits depends on your provisional income. If your provisional income exceeds $25,000 for single filers (or $32,000 for married couples), up to 50% of your Social Security benefits may be taxed. For higher-income individuals, up to 85% of benefits could be taxable.

To reduce taxes on your benefits, you may want to consider capital gains planning or strategic withdrawals from Roth IRAs. Since Roth IRA withdrawals are not considered taxable income, they won’t affect your provisional income, which can help reduce or eliminate taxes on your Social Security benefits.

Be mindful of how withdrawals from retirement accounts, such as traditional IRAs or 401(k)s, will impact your Social Security taxes. Large withdrawals could push you into a higher provisional income bracket, which means more of your Social Security benefits will be subject to taxes.

Finally, your income in retirement will also affect Medicare premiums. The more income you report, the higher your Medicare premiums could be. This is another reason to carefully plan your income sources and distribution strategies in retirement to avoid unnecessary costs.

Conclusion: Steps to Maximize Social Security and Minimize Taxes

If you’re nearing retirement, it’s crucial to have a plan in place for how you’ll claim your Social Security benefits. Here are some steps to help you get the most out of your benefits while minimizing taxes:

• Delay claiming Social Security benefits to increase your monthly payments.
• Work longer if possible to boost your top 35 earning years and increase your benefit.
• Consider using Roth IRAs to reduce provisional income and lower the tax on your Social Security benefits.
• Plan ahead for Medicare to avoid late enrollment penalties.
• Strategize on capital gains and retirement account withdrawals to minimize taxes on your benefits.

By following these strategies and staying informed, you can maximize your Social Security benefits and enjoy a financially secure retirement.

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 How to Maximize Social Security Benefits and Minimize Taxes in Retirement appeared first on ROI TV.

1. Importance of Maximizing Social Security Benefits

For nearly 40% of retirees, Social Security is their primary source of income. Understanding how to maximize these benefits is crucial for financial well-being during retirement. The video discusses five key strategies to ensure you get the most out of your Social Security:

• Know your full retirement age to avoid penalties for early withdrawals.
• Delay benefits to increase monthly payments.
• Plan with spousal benefits for maximum household income.

By taking these steps, you can boost the amount of income you receive during retirement.

2. Understanding Social Security Taxes and Limits

Social Security benefits are funded through payroll deductions and self-employment taxes, but there are limits on how much income is taxed each year. While Medicare taxes are unlimited, Social Security taxes have an annual cap that increases yearly. In 2025, this cap will likely rise, impacting those with higher incomes. Staying updated on these limits helps you plan for both taxes and benefits.

3. Full Retirement Age and Its Impact on Benefits

Your full retirement age (FRA) is based on your birth year and directly impacts the amount of Social Security benefits you receive. Taking benefits before reaching your FRA can result in reduced monthly payments, while delaying beyond your FRA can significantly increase your benefits. Understanding the timing of your claim is essential for maximizing lifetime income.

4. Earnings Test and Its Effect on Social Security Benefits

If you plan to continue working while receiving Social Security benefits before reaching full retirement age, be aware of the earnings test. Exceeding the earnings limit can lead to a temporary reduction in your benefits. In 2024, this earnings limit will adjust again, making it important to know how much you can earn before it impacts your payments.

5. Income Taxes on Social Security Benefits

Social Security benefits can be taxable depending on your provisional income, which includes adjusted gross income, tax-exempt interest, and half of your Social Security benefits. Understanding these thresholds is important, as they determine what percentage of your benefits is subject to tax. Being mindful of this can help you reduce your overall tax burden.

6. Spousal Benefits and Eligibility Rules

Spousal benefits allow individuals to receive Social Security payments based on their spouse’s work history. To qualify, you must be married for at least one year, and your spouse must be at least 62 years old and already receiving benefits. Ex-spouses may also be eligible for these benefits, provided certain conditions are met. This can be a key way for couples to maximize their overall retirement income.

7. Tips for Saving Money on Medicare Costs in 2025

Medicare costs can quickly add up, but there are several ways to manage and reduce these expenses:

• Choose the right Medicare plan: Regularly reviewing your Medicare and prescription drug plans can help you save money.
• Opt for generic medications: These are often cheaper and just as effective.
• Stay in-network: Using in-network healthcare providers can reduce out-of-pocket costs.
• Explore state assistance programs: These programs can help lower premiums and co-pays.
• Utilize telehealth services: They often come with reduced costs, especially for routine check-ups.
• Understand income-related monthly adjustment amounts (IRMAA): This helps you avoid unexpected Medicare costs.

By carefully planning your Medicare strategy, you can minimize your expenses while maintaining high-quality healthcare in retirement.

Conclusion

Maximizing your Social Security benefits and reducing Medicare costs can make a huge difference in your financial security throughout retirement. Understanding the rules, limits, and available strategies in 2025 will help you optimize your benefits and lower healthcare costs. Whether you’re nearing retirement or planning for the future, taking a proactive approach can lead to significant savings.

For more in-depth information, watch the latest MedicareSchool Episodes on ROI TV or go to www.medicareschool.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.

The post How to Maximize Social Security Benefits and Save on Medicare Costs in 2025 appeared first on ROI TV.