How to Reduce the Widow’s Tax Penalty - 501
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Should Susann in michigan due rock conversions in twenty five and twenty twenty six? Since she's widowed and won't be married filing jointly, how should I pay the tax on her conversions? Jennifer er, in washington state is fifty five and her husband is seventy.

Should SHE retire now? Endo, aggressive of conversions before her husband passes. We're talking about the windows tax today on your money, your wealth podcast number five or one, plus answers to questions from our youtube viewers. What's a broker account? What's a good way to pay tax on R.

M how does the ten year rule work on inherit dirs? What are extended market index funds fell is also spit ball on the four percent rule for retirement withdrawls listen in your favorite podcast APP or watches right now on youtube r spotify to ask a money question or get a retirement spitball analysis of your own click to ask joe and big al link in the episode description i'm executive producer andy last and here are the of your money your wealth jill Anderson, C F, P. And bigger globes cpa.

Jane from washington state regs in I joke pig o oping, you can give me a little spud because we turn a podcast, rarely consider my situation, then she's big listen a bunch of retire my part .

and they don't really address her situation so let's see what we can do and Brown.

twenty eighteen super ruo cross check, not washington, you know?

Yeah, that's really good.

Every washington, right? Or causing with the world super rule.

that is a common of vehicle. Colorado ity. A lot of super rules. And my .

drink of choice is diet coke. Not right. Let's see what china has got here.

Fifty five salaries, two hundred fifty thousand. My husband is a lot older. Seventy explanation point this retired alright, sixty five and seventy.

He gets about twenty five hundred dollars a month from. So he got three point three million dollars across all my retirement. Zy husband lost all of his day trading.

so this old .

name lose IT all our money. No retirement podcast. That can be my situation. I can be in his name.

And the best of majority is in my employers for three b pretext, my employer doesn't allow implant conversions. So I can be right, conversions on that tell separate my poyor. My employer also doesn't do the rule of pity pipe. So I would have to do a seventy two t tax election. How did SHE know about a seventy two t has .

been little listens to retirement podcasts.

Seven two t so what that means for everyone else, yes, like all of us.

is that you can take .

a separate equal period payment out of a retirement ment account in a played the ten percent penalty.

yes. So you still pay tax on IT. You just pay a .

ten percent penalty if you. But I read something this week is that millions of people avoid or like didn't pay the ten percent billions and billions of them. No, I gave some to the new article.

I probably should have. I had got IT get IT. Okay, all right. My expenses are fifteen thousand dollars a month, but I expect that to decrease in a few years when my eighteen and becomes independent. But they for all these expenses because I wanted to focus on graduating from high school and thank think he's got allam expenses school.

So there's gift more expensive when they go to college yeah right. And then when they come home after school.

he goes to college. If he goes to college will partly be a unity college with a four from forty thousand thousand and five thousand and nine in a house with about nine hundred thousand and the hundred thousand on the mortgage, and the kind of with six hundred gram but no mortgage. Here's the problem.

And because .

my husband is fifteen years old to me and he has health problems, he is likely to die much earlier than I will. Boy, here again, a little more bit.

Yeah, a little bit.

When he dies, I will have to file single, which will raise my taxes a lot.

X I .

think he so concerned about taxes. Um I want to return sometime between tomorrow in age sixty six for your fifty five. But the retirement calculator says I can retire fifty seven and live to one hundred but even with significantly worse than average economy, if you were played with the .

old fidel .

retirement calculations. Agger, I have a yeah, no. I have an either no. How is the reticular late? Now, the worst about economy. I don't even know what that means, but i'm not sure how he's calculate in the taxes because I will be married for part of the plan, in single for part of the plan. Am I crazy for willing to be .

tire wanting.

wanting, wanting to retire a year or two? Or should I retire immediately? You do aggress broken versions before my husband passes.

wow. Uh, for keep keep working uh working is always a Better choice.

Particular what is is that a dep IT?

Well.

just say he's got health problems and seventy problem and he spent all of his .

money on day .

trading so wants to be SHE still passed about the way .

she's 孙子 the condo that's paid off the need the other .

way but the marriage yeah let me let me refer that if if .

you if you want to retire to be with your husband whose older and has health problems， go for the situation looks right, except for you don't have access to most your money. So that's that's a little bit more of a chAllenge if you want to if you want to retire just because you wanted to raw conversions instead of not no, that doesn't make any sense. I an the longer you work, the legally dip in your savings, which is actually not really available that much .

because you here's how you can get availability of of her savings. SHE retired SHE rose the four or three b into, you get another job.

okay, but now okay, you have you start to work.

but SHE can work for like a move. yeah. SHE rose the port three into a pool. And k, that allows eight, fifty five distribution created.

I like that that doesn't work. Or you started your little .

consulting company, my a care facility for for your husband because.

oh, why? Well, that that there might be a .

so SHE could start around four cake. Yeah, you just roles IT right into that bad boy.

So the concept is you got a four one k you can roll your four three b the four one k the four one k will have the ability to have you retire and you'll fifty five or older and then be able to excess set money without penalty.

But here's here's the cross is that she's fifty five. He wants to spend fifteen thousand dollars a month. Might be a little bit lower. Um SHE needs probably five to six million, well probably .

four and half million to support that lifestyle.

He said incomes a SHE does .

not say so you take .

away the current from SHE is got a huge age if he retires at fifty five, he said at sixty seven thousand twelve years at fifteen thousand, one hundred eighty thousand for the next twelve years yes, two million dollars that she's going need for her living expenses, bus tax and and she's got three point three million so you put a little bit of growth and the that that does work .

for me um IT IT IT all depends upon how much less he can spend when her send leaves and when that I don't I don't know how .

all this is seventy, seventy.

no husband .

and eight? Yeah yeah .

yeah no oh yeah. Eighteen year so maybe yeah we need to know how much to reduce but them yeah it's time.

So no, I don't retire tomorrow to do rapping versions. I get IT she's she's worried about the widow of attacks.

right? It's a valid concern.

Yeah SHE is got three point three million doors at a time ago yeah yeah and so it's all in a retirement account. And so when he pulls them out to live up for fifteen thousand and ten thousand, one hundred thousand years, a single pair, she's not the twenty two. She's in the twenty four, potentially gone to the twenty eight.

So she's gna lose a lot more and potentially in taxes because of her tax racket. So you continue to work, you continue to save um or you can roll the money into an ira. You can do conversions there or or into your new jobs, work a couple of page x, start your own business.

I'm not sure. Does he have any pretext? I mean, ah after tax I H what that looks like. So that makes IT harder to deal conversion yeah you .

have no cash to pay the tax for right? Um yeah all this is the issue right? Fifty five at three point three million dollars. So he was a hello sabor so congratulations her chinese er this is a problem that we quite a bit on the show is that you know most of the savings are in the retirement account and they want to be conversions, they want to be more diversified. But then they don't necessarily have the the the access liquidity of the cash .

to pay the tax to do so. right?

So well.

so this just do the math. The most conservative say three point, three, what to say? Three million at three percent distribution ninety. But let's say he could pull hundred thousand from the portfolio, disregarding the fact that is all in itself taxable with potential penalty.

But chick pole hundred husbands one I mean that such security that's another thirty ay so one thirty that's probably the number instead of one eighty yeah but that he can pull out. Maybe he could stretch IT to one forty, even one fifty, one eighties, a bit rich if you want to retire right now, if that's the goal. Other, otherwise you work a few more years and you maybe even to fifty nine and a half or close two if .

you don't have this problem .

retirement coming .

that um but and that depends upon what .

your expenses are really going to be. We don't know what what .

that figures 明明 是。 Yeah, her money is locked until he retires or SHE leaves that job and finds an another job to roll the money into another plan. Yeah, that's that's a pain in them.

IT is just for that.

for that, right? I D really.

I think I seventy. T I know .

it's because you can get .

as much as you need. Yeah.

can't stop IT.

And you you're only pray how much you get forty thousand yeah yeah.

He needs a hundred eight.

right? Because that's space to find life .

expectancy right to you like, but still all yes.

So so that's a little tRicky. Yeah I think you if he has retired, either spend less or you you get another jobs somewhere. We can roll the four one k that's not bad. The actually .

well really sorry to hear about your husband um hopefully lives a long life um and thanks for uh thanks for the question for good look uh we got to he writes in from michigan hey guys and Mandy and sixty five retired to january recently without so sixty that's one that our retirement accounts have been combined into my area that are taxed at two point three million dollars in the house or two hundred thousand and i'll be taking my husband security about twenty three hundred dollars a month the plan to switch to mine at eight seventy years to me at thirty five hundred hours a month I A very little liquid cash and been taking about sixty five hundred dollars pretax per month I expect that going forward i'll need about one hundred ten thousand dollars year pretext but are estimated age for this years one hundred sixty five due to seventh in vacation payout from my job.

I'm wondering if I should convert some of my taxi ira this year and probably in twenty twenty five, not just because I expect rates to increase in twenty twenty six, but also because I won't be able to file jointly for twenty twenty five. If yes, how much don't have the cash to pay the tax, any conversion would have to be growing up or taxes. And I concerned that converting too much, converting too much will push me into higher erman a couple years when i'll be paying more.

Unfortunately, uh, due to what I hear about the windows tax, essentially higher taxi because i'm not single, have a ninety seven shady. Twenty five hundred truck, twenty five hundred and by twenty five hundred. Is that my saying there?

Right bag? thanks.

I never heard of that. Have been twenty five hundred ninety seven ninety months .

of the ada.

It's twenty twenty four today, right? I think so look at right my college room had barely and .

my sister.

there's more now tiny um my drink of choice is a lemon water. Thank you for the show. I've learned so much and thank you for your help with this question.

What are pressure about the windows? Um the windows weekend here at your money will he had paid attacks, but he is filing jointly in twenty twenty four. And the estimated A G I um she's taking for this year is going to be a hundred and sixty five thousand dollars.

So you attract the standard production for married and whatever you put into a four one? K I don't know. I guess that's gonna.

yeah. Could be under twenty? Yes, yes, yeah, yeah. That's twenty .

two percent.

yes. The top of the twenty two for mary couple is two hundred thousand. Two hundred thousand.

Top of the twenty four percent is about three hundred eighty thousand. I here's the tough part as there's no cash to pay the tax. I yes, it's a little tough. I do like idea converting this year because the rates are lower. Maybe you go to the top of the twenty two.

twenty, twenty two.

you know that two hundred thousand and .

so maybe he could leave sixty seven.

That's right. Yeah, you have to figure out the convert. You let you say you convert sixty. You probably only to convert to forty five thousand.

Go on the rough and the rest goes attacks, not something we Normally like to do, but given your circumstance, uh you might want to consider IT pass. If you do that, uh you would stay in the lowest um arma category so that that wouldn't affect that. But then after that IT gets gets tough, right? Because you say you going to be single rates.

yeah, hundred ten thousand dollars here. Most of them is gonna tax. That ordinary income for single taxpayer, the top of the four percent tax bracket is about seventy thousand .

in two percent. Yeah have .

that well for .

single? Yeah, I have that for married united for single forty .

yeah so fifty thousand and then um so she's going to be in twenty two percent tax active yes, moving forward yes so so and that's na pop up. So I would have twenty four. Probably the math make sense, but that's a huge buying tax that you have to pay the tax to pay the tax. I yeah, you have to pull money out, pay tax just to pay the tax. man.

Well, I maybe here's another way to think about IT. So SHE spending one, ten, thirty years, years, twenty eight thousand and so short fall eighty two. And if he were an army age today, the ARM d would be about ninety two. My my point is the armory is mostly paying for expenses, so the arc is not going to throw into higher bracket. So I like the idea of converting, but maybe you don't have to be super gressier.

right? Okay, i'll sorry about your loss. Enjoy that limit water and the shady that all .

track and that he has to be at.

This is one on the weekends of the maze with the top down.

Did you see that document that biga reference twenty was talking about tax rates? That is the twenty twenty four key financial data guide. And along with their email list and their twelve financial calculators, that single two sided sheet is a must have for john big out to be able to spit ball for you.

You should download a free copy for yourself from the link in the episode description. IT shows at a gLance this year's tax brackets and capital gains tax rates, retirement plan contribution limits, tax on social security, medicare premiums s and all the current deduction, credit exemptions, distributions and exclusions, all the numbers that affect your financial strategies as you plan for retirement. What listener said that basically this guy alone is worth the Price of admission to Y, M, Y W. In other words, it's Priceless. Just put the links in the episode description to downtown, the twenty twenty four key financial data guide to ask, join big, how your money questions and to share, why am I W with your friends?

Anyone kind of open this thing up for us? What do we do here .

now that we are doing the podcast on video, on youtube, we are getting comments like crazy, which we've been getting for quite some time. And so there's a number of questions they have racked up. And I thought IT be good if we could get through some of those that we could get answers to the folks on youtube. Thank you for watching. By the way.

we're answering questions from our youtube listeners is what we're doing, right?

Actually, there are youtube viewers, but yes.

yes.

technically they do .

listen that could read, yeah.

that capture transcript out the script.

OK not right. A U right him. What is a broker fund? Alright, I ask if we have to do RMB soon. And I keep hearing, roll over to a broker account.

Is that tic broken age firm show fidelity band guard, when IT comes time to do an RMB, can you paid, require taxes with cash on a hand and then just roll over the entire amount into a broken account? okay. Yeah, really good question though. I want to where is he hearing that from.

though I don't know so but that that SHE SHE basically wants to take a required minor distribution in stock or mutual shares as opposed to cash IT depends.

So if it's in the four one n ky, the answers no, uh, the distribution from a four one one k will come to cash and then from cash you will lend by the start.

So so the shares have to be sold inside the four .

one kid unless you're doing N U A, which means that you have company stock with the and you that and do a thers topic for another day. So um if you have the an account, a broker account is yes, sw fdl ity bangui. So let's say you have your I ra cho swap and you have to take your R M D of twenty thousand dollars and so you can go in kind the twenty thousand dollars shares of X Y Z mutual fund and move that directly into a program and Charles swap and pay tax on the twenty thousand dollars so yes, if that's what you want to do you then you're .

good to go yeah and a broker account really is nothing more than an account outside of retirement and a broker house like swap. For example, banker, they allow, they hold the kaolians, they hold the stack shares for you.

Alright, thanks.

What else we can?

We got G M, G, M, two, one, seven, nine, or do to get matters where the tax or a conversion is paid from. If I could pay the tacks without a penel the automatic traditional area baLance, I would convert a hundred thousand dollars this year and next. At the end of the day, all that matters are the final baLances.

Would you be Better off having one hundred thousand pretexts, seventy thousand dollars wrong? That's what matters. Jim, I love IT. I knew you're gna .

love this one.

but I don't think sometimes the math always works out that way.

Well, I put upon your brack IT and you have to be fifty nine and a half to do this without penalty.

He said, yes. So what would you rather have a seventy thousand and eight or one hundred thousand?

And I R A me, personally, they have a seventy thousand. Roth, if those are the two choices.

yeah, me too. Because seventy thousands of mine, thousand continue, still have to pay the tax out of the account. But if you're paying tax out of the retirement account, you just have to do the map, you pull the money out, then you have to pay tax on the distribution then to give IT to the tax.

Man, so you're paying tax to pay tax. I hate tax, so you don't want to pay tax to pay the tax on the tax, pay the tax so you get the you get the point right, jim. Um but yeah in this scenario with your mattheo, that's thirty percent.

So you're going to pay thirty percent all in in tax as you with hold. Yeah I mean, sure that I think there's a lot more to this. But but that's if we're in a bubble, if in the youtube bubble up by .

IT and that's all the matter OK.

okay, we get invitation right that .

if we roll over .

here and I say there isn't a tenure rule, the tenure rule is only for withdrawal, correct? As a child to a past parent. Ah so he's a child, so his parents passed. Depends on how does this china, I wanted vitus well.

probably old enough to write our show. So i'm going to seem I believe .

in victis is thirty five in victis comments quite frequently and I believe he said that in another .

comment is all thirty five, thirty five OK thirty years, not a minor right?

Qualify you for the Normal stretch. I don't believe self, I don't think so. So the ten year role is only probably draws, correct. Well, the ten year rule means that the money has to come out of the inherent array within ten years.

correct? So that would be if you inherit an ira and and it's not from your spouse, non spouse. Maybe another way to say that.

correct. So from your parents and there's a few exceptions. If you are minor or of your ten years and less than ten years Younger than the person that passed away.

More than ten years or less than ten years.

ten years less, let say that so.

uh, he doesn't have to take an army bean for the next ten years, but depends on the required beginning day.

Yes, ban who .

you are. how? What was your parent when when your parent passed where they already taken rm? Or have they not taken on busy?

yeah. And if your parent, the the original area holder, if they were taking our of these, you have to take an annual R M D yourself based upon your life expectancy. But still all has to come out within ten years.

阿爸 给 老板。 I get the question rules are .

so still I get the question because when you look up the rule IT is so complicated. You need like a then diagram because you if this, that, if that this, this, that if that this. And then you still.

I know you're. Going, okay, let's go to the next one year after twenty years, each twenty four and forty four, okay, after twenty years. So from which twenty four or forty four I am only have access to a traditional four one k which I max out every year.

Now forty four and access or one cake, and I will max that out every year. I make too much for a rough area and i'm considering doing a back to a rock and some of my existing porn cake. But I would be tax at the thirty five percent margin tax rate. And wondering why would draw this post tax in the bird would be enough to keep my taxes down and retirement. I'm wondering if my withdraw mix, kay, I don't when he retired, he forty forty once to work for home .

is think ahead. I think he doesn't have .

enough and say he works until sixty four from the number twenty years yeah and he's .

got all this money in rough and I guess as well as different.

I think guess if you have the specification so that the concept of tax, the specification is the hand money in rough in your pretax bore case and then some money in a broken account. So as you're taking distributions from the account, it's all not locked in your retirement ment account because then you're just stuck at ordinary income rates.

And the more money that you take out, that take for trips or vacations or for inflation or whatever the case may be, the more knowledge that come out, the more tax potentially you're going to pay. So if you have money in different areas, you can control your tax brackets more easily because you can pull your retirement account in staying whatever bracket, and then you can pull from your broker account or rap account and stay in those lower rates. So having at the first mix of rough in borwick hours is key. He's forty four, so is still very Young. If he's onna, work for the next twenty years yeah max on all rough and from earth .

yeah I like that. And in the reason why this works, it's not like you're going to take half out of one and a half out of the other. You're gona fill up whatever tax break you're in, probably with the defect part pay taxes on and maybe do the rough for the baLance course that there's a lot of variations on this, but that's the concept, right? You can control your taxes by how much you take out of account.

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to get let's see hi any big out and all knowing joe.

how to pat you on the back .

question for you am I love IT.

This would make every monday of mind so much up here, but just read this. great.

What I get out to read, please know.

I have a question that I would love if you maybe touch on what are extended market index pants? Why should we have or not have them in our portfolio?

Kay.

on knowing you, no club, no idea.

Let me tell you when extended.

marked and oh, you some research here. So I don't read any other stuff in the Allen spends like months.

I have no other job. An extended market.

I can make some money. no. Well.

here's what IT is. Extended market just simply means it's an index fund that favors like smaller and value things that are not in the S P. Five hundred. So who mean that up?

I don't know because that's much.

Yeah, I already have IT.

Okay, I understand an extended, so extended outside of money.

you can do the get same thing. Russell OK, yeah, what you?

So, yeah. All right. What's the knowing now? Um all right, we got one more. We yeah right. So um perhaps I missed the nuance here, but IT makes me a little nervous that there were some hesitation in your place that taking less than four percent distribution would be sustainable for forty past years.

This was specific to a question where somebody asked whether not they could afford to have a forty year retirement. But the rest of their question is, is very important here. okay.

I was under the impression that lesson four percent might be on the conservative side, considering that other financial advisers might recommend as sustainable. I do not appreciate that you mention .

that you appreciate.

oh, I I thought this was to be a negative. I do appreciate that you mention that future market performance and lack there of can make a major factor in the longer m success of the retirement. However, also thought that the longer to spend of time, the more chance you would take advantage of averages in market gains.

Thanks for the great content. This just common, yes, but forty years time and at four percent, yeah, you're probably right that you over that time here, you're going to receive the market averages. But averages don't mean anything.

They go IT. It's just map as you're taking dollars on of your account, you're retired. So that means there's a domain and for the portfolio. So as your accumulating averages are great, like some years you get five percent, some years you get negative seven, some years to get positive twenty and so on.

So four, over your ten, twenty year period that take the average eight percent, the average eight percent IT doesn't matter windows m or windows market returns hit the account, you average eight percent because you were taking dollars from IT. But what happens is called reverse dollar cost, the averaging. And when you start taking dollars out over a forty year time period, averages mean nothing because IT, lets take you take out your four percent, which l and I thought would be more aggressive or we didn't feel comfortable with that over a forty year time period.

Maybe it's closer to three. So let's see you a million dollars, hypothetically, if you take three percent out or thirty thousand dollars out of the account, but then IT drops twenty percent, right? So if IT drops twenty percent and then the next year gains twenty percent, most people then, K, I got my money back.

原来 only took three percent out， so i'm fine. And if you lose twenty percent, how much do you need to ditch your money back? It's not twenty .

about twenty five percent of them because .

you're working at a law baLance twenty percent of a million. Is that right in that or is at eight hundred thousand or right?

Yeah at twenty .

percent eight hundred percent of .

eight hundred and is not a you're there and then .

you are also taking your thirty thousand dollars out of the account to live off. So you need a lot higher radar return to get cup back up. So that's why you look at a lower distribution right now.

If markets go up for you know A A consistent period of times three, four, five years or right, you could take probably a little bit more maybe you stuff a little bit more in the cash where you can kind of cushion your your lifestyle. Why retirement in complaining is so different than like accumulation? Because you have all certain different types of risks. That's called sequence of return risk. So I know I just boil down.

I think you did pretty well. So I just one more quick thing. And this when we talk about the four percent rule or three percent of you retire Younger, this is just a guideline to figure out if you're close to being on track.

The real truth is when you get to retirement and you're pulling money out, IT should be a more dynamic approach. Meaning is something you look at every year to pay upon, what the market is done, what you want to spend, what you're invested in. There's a lot of things that can affect this. The four percent rule is not necessarily that magical, is just a guideline to tell if you're kind of .

track that IT for us today.

That is IT for you too. yes. Thank you very much for answering those all over youtube. Viewers are going to appreciate.

alright, we will see all next time folk shows got you, your money, your you .

tired this show.

that is your money your well wouldn't be a show without you love that you're a part of IT power and li and illinoi brand and michigan and and and in safranbolu a eliza's and connective join big house ball for you next week in episode five o two when you share Y M Y W with your friends and leave your honest reviews, comments and ratings for your money, your wealth on youtube, apple podcasts, spotify and alike.

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