If you don't have a tax plan, you don't have a retirement plan. In retirement, you not only want to maximize your income, but you also want to minimize your tax bill. In this video, John Iammarino and Erin Kennedy break down three strategies that will help you keep more money in your pocket, including:

1. Roth Conversions: take advantage of today's historically low tax rate

2. Have an RMD Strategy: consider earlier distributions or Qualified Charitable Distributions

3. Explore Health Savings Accounts: the only triple tax-advantaged retirement account that can help with what's often your biggest expense in retirement, healthcare

VIDEO TRANSCRIPT –

Erin Kennedy (00:05):

John, good to see you. Today, we are talking about three ways to maximize your retirement income and minimize your taxes. We've said this before. If you don't have a tax plan, you don't have a retirement plan. So this video's for everybody who's nearing retirement age. We're breaking down a few strategies that everybody should be considering now. And first on your list, John, Roth conversions. Why is that?

John Iammarino (00:28):

Yeah. Well, before I get to Roths, Erin, I would like to talk about what you said in the intro about income and taxes. And really, this is the foundation of our planning with clients. It all starts with the three pillars of income, taxes, and investments and how they're all intertwined. So why are Roth conversions so important? Well, because, doing tax planning, just like with investments, you're mitigating that future tax risk.

(01:01):

And for the vast majority of the thousands of people that I've educated over the last decade, 99% of people believe taxes will be higher in the future. So, what the Roth conversion allows us to do is buy out the IRS at a tax rate that you understand and are willing to pay. The power of the Roth conversion is you're taking money, as the famous Ed Slott says, from "always taxed or forever taxed to never taxed." And that has a huge effect on the future growth of that money and the income stream from where it goes. And again, it has a trickle effect down on what we'll talk about a little bit later on in required minimum distributions.

Erin Kennedy (01:47):

And John, just to point out the obvious, we are living in a historically low tax rate right now, and when we look back historically, that rate could go much higher because it has.

John Iammarino (01:57):

Yeah. One thing I like to point out is when we look at that historical rate when World War II ended that the highest marginal tax record, which right now is 37%, it was 94.

Erin Kennedy (02:11):

Yikes.

John Iammarino (02:11):

An interesting correlation between those two times is we haven't seen our debt to the GDP ratio this high since that time. So there's plenty of tax professionals out there and economists that say, "Hey, listen, we can only kick the can so far down the road. The tax bill will come due, and you better be prepared.

Erin Kennedy (02:34):

Right. Exactly. All right, next on your list here, carefully plan your RMD strategy. You may think you turn a certain age, you start taking those RMDs, but that could leave you with quite the tax burden.

John Iammarino (02:46):

Yeah. And Erin, we've done so many videos on required minimum distributions. I recommend that people go back and look at some of those videos. But required minimum distributions are one of the big tax torpedoes for retirees. And yes, the secure Act 2.0 changes the RMD age from now up to 73 or 75. However, that's also going to mean you're going to be taking your RMDs at a higher withdrawal rate because it's age-based. So as I said with the Roth conversions, if you're able to convert more money, that means you have less RMDs to take out. And why is that important? Because the RMD diminishes your power of money in the investment. You have to take a distribution whether you need it or not. So, you lose the power of money in your investment accounts, and you obviously have to pay tax on that money.

(03:44):

So let's say your income stream you're fine, but you have to take out 40,000 or 50,000 of additional dollars to satisfy your requirement distribution. Well, that's going to just add $50,000 onto your tax bill, and that's a huge problem. So, again, the Roth conversions can have a huge effect on reducing your RMD. Also, even if you don't do Roth conversions, but if you delayed social security and you spend down some of that IRA money or 401K money, that can reduce your RMDs also.

Erin Kennedy (04:20):

Yeah, I really enjoyed that strategy video we chatted about, John. I definitely recommend it. I learned a lot there. Last, healthcare is often the biggest expense that we have in retirement, which is why you suggest that people consider a health savings account because they are uniquely triple tax advantaged.

John Iammarino (04:37):

And unfortunately, not everybody has access to the HSA.

Erin Kennedy (04:42):

Right.

John Iammarino (04:43):

If you are one of the lucky ones, take advantage of the HSA because it truly is the triple whammy of tax-preferred investments. Your contributions go in tax-deductible. The growth is tax-free. And then, as long as it's for a qualified medical expense, your withdrawals for those expenses come out tax-free in retirement. And again, managing those tax brackets in retirement are huge. Now, the other thing I'm going to say. If you don't have an HSA, let's just make sure you are taking care of your health. Because if you're taking care of your health, that means your probability of having health issues are reduced, and health issues are a huge expense in retirement. And what drives taxes in retirement? Expenses. So the least amount of expenses you have, the least amount of the tax bill you're going to have.

Erin Kennedy (05:50):

Right. John, thank you so much for talking through these ideas with me. If somebody has questions about anything that we've covered or, again, if they want to visit your old videos, what's the best way to find you?

John Iammarino (06:00):

Well, the best information we put out is on our website. So visit our website, www.gosecurus.com. And from there, we have a ton of resources on the website. If you want to make a 15-minute phone call to answer any questions or a complimentary consultation, you can either sign up for an appointment on our website or you can give us a call at the office (858) 935-6210.

Erin Kennedy (06:29):

All right. John, thank you very much.

John Iammarino (06:31):

Thank you, Erin.