You can’t rely on Congress to keep their word, so you must be proactive and take steps to keep more of your money. To pay as little tax as possible along the way you need to turn taxable accounts into tax-free accounts that I call "forever tax" to one’s that are "never taxed".

Uncle Sam can tax up to 85% of your Social Security Income. Some retirees refer to this as a "double tax", since the income was originally taxed to begin with.

Provisional Income is a measure used by the IRS to determine whether and how much of your Social Security benefits are subject to federal income tax. It includes your adjusted gross income (AGI) plus certain non-taxable income and half of your Social Security benefits. Here is how it's calculated:

  Deferred Retirement Income (401(k), IRA, 403(b), Pension, etc.) 

+

Employment/Business Income 

+

1099 Interest Income

+

Rental Income

+

Muni Bond Income

+

50% of Social Security Income

The IRS uses provisional income to determine if a portion of your Social Security benefits will be taxed:

• Individual Filers:
  • If provisional income is between $25,000 and $34,000, up to 50% of Social Security benefits may be taxable.
  • If provisional income exceeds $34,000, up to 85% of Social Security benefits may be taxable.
• Married Filing Jointly:
  • If provisional income is between $32,000 and $44,000, up to 50% of Social Security benefits may be taxable.
  • If provisional income exceeds $44,000, up to 85% of Social Security benefits may be taxable.
• Married Filing Separately:
  • If they lived together at any time during the year, up to 85% of Social Security benefits may be taxable, regardless of the provisional income level.

Understanding your Provisional Income can help you estimate your tax liability on Social Security benefits and plan your finances accordingly.

Ask us how you may be able to reduce or eliminate income taxes on SSI.

The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge that people with retirement income above a certain amount must pay in addition to their Medicare Part B and Part D premiums.

IRMAA is an additional charge on top of your standard Medicare Part B and Part D premiums, based on your income. Here's how it is calculated:

1. Determine Your Modified Adjusted Gross Income (MAGI):
   
   • The IRS uses your MAGI from two years prior to determine your IRMAA. For example, your 2024 IRMAA is based on your 2022 MAGI.
   • MAGI for IRMAA purposes is your Adjusted Gross Income (AGI) plus any tax-exempt interest income.

2. Income Thresholds:

• The Social Security Administration (SSA) sets income thresholds to determine IRMAA. These thresholds change annually and are divided into several brackets.

• Individuals with MAGI (2022) of $97,000 or less / Joint filers with MAGI (2022) of $194,000 or less:
  
  • No IRMAA; standard premium.
• Individuals with MAGI of $97,001 - $123,000 / Joint filers with MAGI of $194,001 - $246,000:
  
  • IRMAA: $68.00 per month added to the standard premium.
• Individuals with MAGI of $123,001 - $153,000 / Joint filers with MAGI of $246,001 - $306,000:
  
  • IRMAA: $170.00 per month added to the standard premium.
• Individuals with MAGI of $153,001 - $183,000 / Joint filers with MAGI of $306,001 - $366,000:
  
  • IRMAA: $272.20 per month added to the standard premium.
• Individuals with MAGI of $183,001 - $500,000 / Joint filers with MAGI of $366,001 - $750,000:
  
  • IRMAA: $374.20 per month added to the standard premium.
• Individuals with MAGI over $500,000 / Joint filers with MAGI over $750,000:
  
  • IRMAA: $408.20 per month added to the standard premium.

• Individuals with MAGI (2022) of $97,000 or less / Joint filers with MAGI (2022) of $194,000 or less:
  
  • No IRMAA; standard premium.
• Individuals with MAGI of $97,001 - $123,000 / Joint filers with MAGI of $194,001 - $246,000:
  
  • IRMAA: $12.20 per month added to the standard premium.
• Individuals with MAGI of $123,001 - $153,000 / Joint filers with MAGI of $246,001 - $306,000:
  
  • IRMAA: $31.50 per month added to the standard premium.
• Individuals with MAGI of $153,001 - $183,000 / Joint filers with MAGI of $306,001 - $366,000:
  
  • IRMAA: $50.70 per month added to the standard premium.
• Individuals with MAGI of $183,001 - $500,000 / Joint filers with MAGI of $366,001 - $750,000:
  
  • IRMAA: $70.00 per month added to the standard premium.
• Individuals with MAGI over $500,000 / Joint filers with MAGI over $750,000:
  
  • IRMAA: $76.40 per month added to the standard premium.

• Notification: The SSA will notify you if you are subject to IRMAA, based on your MAGI from two years prior.
• Annual Adjustment: IRMAA brackets and amounts are adjusted annually for inflation.
• Appeal: If your income has decreased significantly due to a life-changing event (such as retirement or divorce), you can appeal the IRMAA determination.

Understanding these brackets and how your income affects your Medicare costs can help you better plan and manage your healthcare expenses.

 Required Minimum Distributions (RMDs) are mandatory withdrawals that must be taken from certain retirement accounts starting at a specific age. These rules are put in place to ensure that individuals do not defer taxes indefinitely. 

Here’s a detailed overview of RMDs:

1. Applicable Accounts:

• RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, and most employer-sponsored retirement plans, such as 401(k), 403(b), and 457(b) plans.
• Roth IRAs do not require RMDs during the original account owner's lifetime, but beneficiaries of inherited Roth IRAs must take RMDs.

2. Starting Age:

• For individuals who reached age 70½ before January 1, 2020, RMDs begin at age 70½.
• For individuals who reach age 70½ after December 31, 2019, RMDs begin at age 72 (due to the SECURE Act of 2019).
• The SECURE 2.0 Act of 2022 further adjusts the age for RMDs to 73 starting in 2023 and 75 starting in 2033.

3. Calculation:

• RMD amounts are calculated based on the account balance as of December 31 of the previous year divided by a life expectancy factor provided by the IRS (found in IRS Publication 590-B).
• For example, if your account balance was $500,000 and your life expectancy factor is 25.6, your RMD would be $500,000 ÷ 25.6 = $19,531.25.

4. First RMD:

• The first RMD must be taken by April 1 of the year following the year you reach the RMD age (70½, 72, or 73, depending on your birthdate).
• Subsequent RMDs must be taken by December 31 of each year. If you delay your first RMD to April 1, you will have to take two RMDs in that year.

5. Taxation:

• RMDs are taxed as ordinary income, except for any portion that represents nondeductible contributions to your IRA, which are not taxed.
• If you fail to take the RMD, the amount not withdrawn is subject to a 50% excise tax. Starting in 2023, this penalty is reduced to 25%, and further reduced to 10% if the missed RMD is corrected in a timely manner.

6. RMDs for Beneficiaries:

• Beneficiaries of inherited retirement accounts must also take RMDs. The rules for inherited accounts vary based on the relationship to the deceased and the date of the original account owner’s death.
• Non-spouse beneficiaries typically must withdraw the entire account within 10 years of the original owner's death, but some exceptions apply.

RMDs are required withdrawals from certain retirement accounts starting at a specific age, calculated based on your account balance and life expectancy. These distributions are taxed as ordinary income and must be taken annually to avoid substantial penalties. Understanding and adhering to RMD rules is crucial to managing retirement funds effectively and minimizing tax liabilities.

The likelihood of both spouses passing away the same year is highly unlikely. Once your spouse has passed, this will substantially reduce your Standard Deduction, as you move from Married/Filing Joint to filing Single. This, along with losing one SS check and possibly a percentage of pension income, can put the surviving spouse in a financial bind.

Becoming a widow can lead to an increase in taxes due to several factors:

Filing Status Change:

• For the year of the spouse's death, the surviving spouse can file jointly, potentially benefiting from lower tax rates and higher standard deductions. However, in subsequent years, the filing status changes to single or head of household (if there are dependent children), which generally has higher tax rates and lower standard deductions compared to married filing jointly.

Income Levels:

• As a single filer, the income thresholds for higher tax brackets are lower compared to those for married couples filing jointly. This means the same level of income could push the surviving spouse into a higher tax bracket.

Social Security Benefits:

• If the surviving spouse begins receiving survivor benefits, these benefits can be taxed based on the survivor's income. As a single filer, a smaller portion of income can lead to a higher percentage of Social Security benefits being taxable

Loss of Exemptions and Deductions:

• Joint filers can claim two personal exemptions (if applicable before 2018), and a higher standard deduction. As a single filer, the widow loses one exemption and receives a lower standard deduction.

Required Minimum Distributions (RMDs):

• If the surviving spouse inherits a retirement account, they might have to start taking RMDs, which are taxed as ordinary income, potentially increasing their taxable income.

Capital Gains and Investment Income:

• The thresholds for higher capital gains tax rates and the Net Investment Income Tax (NIIT) are lower for single filers compared to joint filers. This means that the same level of investment income could be taxed at higher rates.

Estate and Inheritance Taxes:

• While federal estate tax exemption limits are relatively high, some states have lower thresholds for estate or inheritance taxes, which could affect the surviving spouse.

Overall, the change from joint to single filing status, coupled with the possible increase in taxable income and the loss of tax benefits available to married couples, can lead to a higher overall tax burden for a widow.

Without careful planning and analysis, you may unwittingly pass on a tax problem to your kids. A growing untaxed retirement portfolio could, once inherited, bump your kids into higher marginal tax rates causing them to have to pay higher taxes on their income.

Non-spousal inherited IRAs (Individual Retirement Accounts) have specific tax rules that beneficiaries must follow. 

Here's an overview:

Required Minimum Distributions (RMDs):

• The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 requires most non-spousal beneficiaries to fully distribute the inherited IRA within 10 years of the original owner's death. This is known as the 10-year rule.

Taxation:

• Traditional IRA: Distributions from an inherited traditional IRA are taxed as ordinary income in the year they are received. The beneficiary must include the distribution amount in their taxable income.
• Roth IRA: Distributions from an inherited Roth IRA are generally tax-free if the account was opened for at least five years before the original owner's death. If the five-year rule is not met, the earnings portion of the distribution may be subject to taxes.

No Early Withdrawal Penalty:

• Unlike distributions taken by the original account owner before age 59½, distributions from inherited IRAs are not subject to the 10% early withdrawal penalty, regardless of the beneficiary's age.

Distribution Options:

• Lump Sum: The beneficiary can withdraw the entire balance at once, which may result in a significant tax bill.
• Periodic Distributions: The beneficiary can take distributions at any time and in any amount, as long as the entire account is emptied by the end of the 10th year following the original owner's death.

Special Exceptions:

• Certain beneficiaries, such as minor children, disabled individuals, and those not more than 10 years younger than the deceased IRA owner, may have different distribution rules, allowing for a longer payout period based on their life expectancy.

Understanding these rules is crucial for non-spousal beneficiaries to manage their tax liabilities and make informed decisions about their inherited IRAs.

 When the Tax Cuts and Jobs Act (TCJA) expires at the end of 2025, several changes are expected in the tax rates and brackets:

INDIVIDUAL INCOME TAX RATES

• The current lower tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% will revert to the pre-TCJA rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

STANDARD DEDUCTION

• The standard deduction, which was nearly doubled under the TCJA, will decrease. For example, for 2024, it is $13,850 for single filers and $27,700 for joint filers, but it will revert to the lower pre-TCJA levels adjusted for inflation.

PERSONAL EXEMPTION

• The personal exemption, which was eliminated by the TCJA, will be reinstated.

CHILD TAX CREDIT

• The child tax credit will decrease from the current $2,000 per qualifying child to the pre-TCJA amount of $1,000 per child.

STATE AND LOCAL TAX DEDUCTION

• The $10,000 cap on state and local tax (SALT) deductions will be lifted, allowing taxpayers to deduct more of their state and local taxes.

ESTATE TAX

• The estate tax exemption will decrease from the current $12.92 million (2023) per individual to around $5.49 million, adjusted for inflation, as it was before the TCJA.

These changes will result in higher tax rates and lower deductions for many taxpayers, increasing the overall tax burden compared to the current TCJA provisions.
"Taxes will never be lower than what they are today." ~ David M. Walker, Former U.S. Comptroller General