Income Taxes: 2022 Tax Rates for Retirees - YouTube

So today's Cardinal Lesson, we're talking  about the 2022 Income Tax Rates for Retirees.  

And you know the rates are the same for  people under 65 as they are over 65,  

but income taxes in general are going to play out  very much differently for people in retirement  

than they do while you're working. So we're  going to talk about, so so why does this  

stuff matter? Is, these are the current tax  brackets for both the married filing jointly,  

um and for the single. And the the tax, but you  can make a lot more income together as a couple,  

and pay at a lower rate, than a person by  themselves, okay. So when we're planning  

around tax rates, and that's what we do is  financial planning, retirement planning.  

Where we're sitting down and we're right in  2021- the end of 2021 and coming up on 2022-  

and we're going to plan out probably through 2030,  2040, 2050. I mean the the numbers get less exact  

when we get past five years, but we want to look  at the potential for the whole of retirement.  

And when we're talking about a couple,  we're also going to plan for the fact  

that one of them might pre-decease the other by  a lot of years. So if we have the one spouse pass  

away at 80, and the other spouse live on to 90-95.  Then, we have a lot of years as a single taxpayer  

for that person, for the widow or widower.  So you say, ‘Well what does this have to do  

with anything?’ Well it has a lot to do for  retirees, because when you've been working,  

most people view this stuff as pretty much  out of their control. It's like I'm going to  

be in a certain tax bracket, and I'm just there  because of my work, and because of my income. So  

a lot of tax bracket stuff is a history lesson.  I mean you're just in April, you're looking back  

when your CPA or your Tax Preparer does your Tax  Return. You're just looking back. Do I get some  

money back or do I have to pay money? Because  of what happened in the past, there's nothing  

we can do about it. What we do as financial  planners is we sit here and we're looking now.  

First of all, is there anything we want  to do for our retiree clients during 2021-  

what's left of it. To perhaps increase their  income for this year. And go ahead and pay  

some tax to make future years better than they  could possibly be. And then what's the plan for  

next year? And the year after that, and the  year after that? Because when you're retired,  

if you have money in a 401K or an IRA or some  type of Pre-tax account, you are in control  

of when you distribute that money to yourself  and pay taxes on it. And you say, ‘Well duh,  

I I kind of knew that.’ Well you know it is a duh  that you're in control, most people know that,  

but the general philosophy that most people have  coming into me is I want to pay as little taxes as  

possible every year. And specifically this year.  So if I have a choice between paying more now and  

less later, or less now and more later. I'm going  to take the less now and more later. And that's  

what people have done, and that's why they'll have  a big account. But when you shift into retirement,  

now that's what that account is for, is to  distribute it to yourself over your retirement.  

And you don't want to distribute too much, because  if you spend it all- what's left after taxes-  

you're going to be out of money when you're  80 or 85. And we certainly don't want that.  

But when we do planning, we don't necessarily plan  for the spending of all of the net distributions.  

Some of that you're going to spend and  live off of. But there's many times a  

big balance of that that we're going to convert  either into a Roth IRA or a Tax-Free Account,  

that stays Tax-Free for the rest of your  life. And to your heirs. Or we're going to do,  

and or we're going to do a combination,  where we're going to buy some Life Insurance  

that is going to be there because it's going to  be Tax-Free to the beneficiaries. And it's also  

through the accumulated tax cash value, you  can borrow some of that money if you need it  

Tax- Free. So there are a lot of advantages  in Retirement Planning to paying taxes now,  

to reduce taxes later, or to  create more of an ideal future. So  

when we're sitting down with a lot of couples- um  just had some in this week. Where we're, you know,  

they're looking and we're looking in people-  a lot of times in retirement or anticipating  

retirement- are going to find themselves  either in the 12% bracket or the 22% bracket.  

Somewhere in there. And a lot of them  haven't really stepped back and said,  

‘You know that's a pretty good rate.’ I  mean you've got to add State Taxes to that,  

and if you live in a High-Tax State. That could be  a lot, some of you have chosen to live in a No-Tax  

State. And so the Federal Income Tax  is pretty much all you're dealing with.  

So you look at this, and then you say ‘Well how  high could I raise my Income, and how much Taxes  

would I have to pay on that raised amount?’ And  this is where we get into the Roth Conversion  

game, where people take a look at this. And we  just had a guy in here, a couple in here this  

week, that it was kind of like a no-brainer.  That they're gonna, they were in this category  

right here. About a $120,000 is what they need  to live off of, of income, in all the planning.  

And then we have just put together a plan, where  they're going to go ahead while it's still 2021,  

and they're going to convert about  $220,000 into a Roth of their significant  

IRA or 401K Balance. So then he wanted to  take it to the next level. He said, ‘Well  

what would happen if I went to the top of the  32% rate?’ So it'd only be on that extra $90,000.  

They would pay 32% Income Taxes.  The other taxes would be the same  

on the Roth Conversion and so on and  so forth. So we're able to look ahead  

and plan out Roth Conversions according to where  they want to fit on this tax thing. And you say..  

I have some people that listen to this or look  at this, including my own CPA, and just said,  

‘What are you doing? Why would you choose to  pay this much tax now, when you could just  

avoid it for another year, perhaps many years?’  And the answer to that is paying taxes now  

for some people- this is a personal decision-  

allows them to have the money over in a Tax-Free  Account. I'm not talking about tax deferred, I'm  

talking about Tax-Free. So as they get into later  retirement, they have this increasing account  

that has no minimum distributions on it: is  called a Roth IRA. All the growth is Tax-Free,  

and so they can access that money later in  retirement. And they don't have to show it  

at all in their Tax Return, okay. Really nice  and especially if you've got the survivor,  

the spouse that lives the longest, this is a  single taxpayer. It's.. it's a nice it's it's a  

nice situation. And then if they don't access that  money and they pass it on to the next generation,  

the next generation, or their kids, their  adult kids are going to inherit this money  

out of a Roth Tax-Free, if they're  successful. On the other hand,  

of avoiding the taxes and just rolling it,  and then they pass along a large balance  

in their account to their kids. Their kids, in  order to access the money are going to have what's  

called a Tax Bond, and they're going to pay a  huge amount of taxes from a lifetime of work, all  

at once. With some proper Tax Bracket planning,  especially when you're in your 60s, you know and  

you do that all the way up for quite a while and  you get this moved over into a Roth, then you're  

going to have a tax-free account available for you  and your spouse. And then ultimately to pass on  

to your children, and it's all going to be  Tax-Free. So that's the biggest place that  

the rates come into being prospectively, where  we're looking at this going forward. Now for the  

rest of us that don't have these huge balances,  and they don't have these gigantic tax problems,  

they're for people that have their Social Security  check. They have some money in a traditional IRA,  

but yet they, they don't have enough that  they're going to play the Roth Conversion game.  

Although, sometimes it makes sense, but a lot  of people are just, ‘Well I don't really have  

enough of that. So I just want to plan this  out, but I still want to plan out my taxes and  

my distributions in a way that makes sense.’ So  it isn't all about Roth Conversions. It can also  

be about just simply having a significant income  that comes into you. And that significant income  

is really where there's no taxes  on the significant income. And  

a lot of this comes through the Standard  Deduction. This is something that was passed  

in the Tax Cuts and Jobs Act (TCJA). Where the  government was just giving you a certain amount of  

tax deduction, or deductible expenses. Everybody  just gets to put a big number on their return. Now  

if you have more than that, then fine you're going  to deduct whatever it is you have. But when you  

look at people over 65, a married couple, you get  to put $27,300 of deductions on your tax return.  

Just no matter whether you have them or not. And  about the only thing for most people that would go  

on the deduction area is Mortgage Interest, and  that's limited now. Taxes, Property Taxes, Real  

Estate Taxes, and then Charitable Contributions.  And you know it takes a lot to exceed this  

$27,300. Or another way to look at it, let's just  say that people have been going along and they've  

got $10,000 of all that stuff I just named. Well  instead of putting $10,000 on their Tax Return,  

they're able to put $27,300. And for a single  person, that number is $14,700 for people over 65.  

So, why does that matter? Well, first of all, your  Social Security- which you receive every month,  

and if you're not receiving it yet, you will at  some point in the future, because you'll elect  

to delay. That doesn't get, that, the taxes on  Social Security are calculated by your other  

income. So when we have people that are down in  these brackets, right here. There's some real  

good that we can do for people to get their Tax  Bill very very low. And we can do that through  

having strategic Minimum Distributions, okay,  and I don't necessarily want to get into the  

math of all of this. But there's just a lot  of people that are, you know, perhaps making  

$50-60-70-80,000 a year in retirement,  including their Social Security. And they really  

don't realize, if they're a couple, that they have  this kind of Standard Deduction. And, which pushes  

them down into these lower tax brackets, and  then you start applying the percentages to that.  

It, it you know, it's a very low amount and then  you apply the Social Security formula. We have a  

lot of people in retirement that just don't pay  much in Taxes. That's a good thing, but it still  

requires some planning to get there. And it also  requires some planning, that if the Savings that  

they do have is over in an IRA- and a lot of folks  are looking at that as their Savings Account.  

What we don't want is all of a sudden, they have  a future year where they need a hunk of money  

for some emergency. Perhaps something for their  kids, something for their house, just something  

where you got to come up with a big bunch of  money. And you go draw that out of the IRA.  

And because it's there, you throw this whole  thing into a mess in a future year. So,  

we we like everybody, regardless of your level  to to slowly start moving some of that money  

that's in an IRA, a Taxable IRA, into  either just a Savings Account or a  

Brokerage Account. Or to get it over into a Roth  or some Life Insurance Cash Value that could be  

borrowed on. Something where you can go access a  hunk of money and not throw your whole tax plan  

out of sync. So if you're a married couple, you  got $27,000 that you just put down as Deductions.  

For a single person, almost $15,000. And  I can't tell you the number of clients I  

have that keep track of all the stuff, all their  Charitable Contributions, and they keep track of  

all these receipts that have been historically  deductible. And they don't add up anywhere near  

to this amount, and they really don't understand  that. So if people get that out of this video:  

is you you really don't need to keep track of  that stuff, if it's not anywhere near here.  

And it's all, it's all in your Checking Account,  anyhow. So, then let's move on and let's talk  

about Long-Term Capital Gains and Qualified  Dividends. So what what what applies here?  

I mean, so generally speaking, if you incur  Capital Gains you're going to pay smaller Taxes  

on the Capital Gains than you would over  here at ordinary Income Tax Rates, okay.  

Now when you look at this thing from:  $0 to $83,350 of Adjusted Gross Income.  

So if if your Adjusted Gross Income is less  than $83,000. Your Capital Gains Tax Rate  

and your Qualified Dividends Tax Rate  is zero, okay. Then you go from $83,000  

to $500,000 of income, which covers a whole lot  of people, capital gains are at 15%. And 20%  

is for the people over that, in Adjusted Gross  Income. So we have a lot of retired people that  

are sitting on property, perhaps a farm. Not  going to get talking about your house today,  

but they're they've got some significant  asset: either a farm, or a business, or  

something that they own, or they inherited  that they really could use the money  

from that to fund their retirement. And yet  they don't want to sell it. Their kids don't  

want it in an inheritance because if they  kept it till they die, their kids are going  

to get a Stepped-Up Basis. They're going to  inherit it without having a Capital Gains Tax.  

But when the stars align properly and people's  Adjusted Gross Income is from here backwards,  

okay. For a couple, or here, so they're in  this category. We can make a sale in current  

Capital Gains and pay taxes at the 0% Capital  Gains Tax Rate. So I don't want anybody making  

decisions off of a video. I'm just trying to  give you a taste of the things that we do.  

So we look at all this stuff when we're  planning out your income streams and  

your retirement income planning. So I'm Hans  Scheil and I thank you very much for listening.