Speaker 1 0:01
The Congress is back at it again with a sweeping new tax proposal that could reshape your retirement plan, especially if you’re a high-income earner or if you own a business. The one big beautiful bill could be a big, beautiful opportunity or a big problem. We’ll break it down today on Retire Smart Maryland Radio.
Speaker 2 0:23
Welcome
Announcer 0:24
in to Retire Smart Maryland Radio with Prashant Sabapathi.
Speaker 2 0:30
Welcome in to Retire Smart Maryland Radio. Your hosts are Prashant Sabapathi and John DeFeo, and you can find them both at Elite Income Advisors. They’re headquartered in Ellicott City, and they have a satellite office in Annapolis for your convenience, and they’re both independent fiduciaries. The website is Elite Income advisors.com It’s a wonderful resource, again, Elite Income advisors.com I’m Morgan Patrick. My pleasure to go back and forth with the advisors each and every week. The importance of having a plan and being ready for retirement, that’s what we dial in on, that’s what we focus on. And again, we’ll give you an opportunity to get on the calendar with Elite at some point during this show. Call the number, grab one of these appointments, they are complimentary, see if you’re on track for your retirement. Gentlemen, as we always do, we start off every show. How was the week, Prashant?
Speaker 1 1:21
The week’s been great, you know. It’s an interesting time right now. Weather’s getting better. I think people are starting to get out and be a little bit more active, but that being said, we’ve had a ton of activity around the office. I did a seminar at over at a local restaurant a couple weeks back, and you know, in the summertime, in previous years, I think things start to slow down, but I’ll tell you what, we had like a packed house at the seminar, which just gets me thinking. People are really kind of concerned about everything floating through Congress. I know we’ll talk about that today, the stock market income, and really just creating a real retirement plan. So, thank you to our community, to the audience, for coming out and attending these events. It’s been busy as ever around the office, and that is the way that we like
Speaker 2 2:09
it. Well, I mean, you guys are here to help, right? And it just means that a lot of people are concerned about what is coming, and that is their retirement. John, how was your week?
Speaker 3 2:18
To say it was great. I mean, a lot of people coming and going. It’s always good to have a busy office, getting into those seminars, as well as Prashant mentioned. I mean, these things are booking up. I mean, we’re having to put people on wait lists because of the attendance that we’re getting, and as you mentioned, it’s not typical this time of year. People are, you know, watching their kids graduate, they’re getting ready to go on vacation, but we’re seeing more and more people gearing up for retirement, worried about this new bill that’s about to be passed, so yeah, staying busy as always.
Speaker 2 2:45
I mean, it’s like that restaurant in town that everybody wants to go to, and you can’t get a table, and you got to wait, you got to wait, but when you get a chance, when you get that reservation, what do you do? You go, that’s all right, you get to the restaurant, so
Speaker 3 2:59
come
Speaker 2 2:59
eat, yeah, yeah, come eat about retirement again. Get to Elite Income Advisors. All right, so the tease was fantastic. We lead into the one big beautiful bill, Prashant. This is all the rage, everybody’s talking about it, everything’s still up in the air, but you wanted to get into
Speaker 1 3:18
it. Yeah, that’s right. I mean, as of this recording, nothing has been officially passed. It’s passed through one chamber of Congress, Congress. It’s in the Senate right now, as of this recording. And so I think what makes sense is to just, at a high level, cover some key objectives of the bill, and then we’ll dig in a little bit. So, when it comes to the one big, beautiful bill, it’s obviously the sweeping tax and budget proposal that was introduced by Republicans in May of 2025 and the key objectives of the bill were to number one, make the 2017 tax cuts and jobs act permanent, and that’s what we colloquially, colloquially call the Trump tax cuts, and then the new bill would introduce some new tax breaks, particularly aimed at middle-income earners and service workers, and some higher-income earners are going to get some deductions as well, drastically reduce federal spending on some social safety net programs, but also increase spending on other sides of it as well. And so, with that being said, I think the question we’re starting to hear from the people that come in to visit with us here at Elite Income Advisors is, if this bill gets passed, how is it ultimately going to affect me as a modern day pre retiree or retirees? So, we said, why don’t we do a show about this to get some of the information out there. Now, let me just preface by saying a lot of this information could change depending on what the actual bill looks like if it passes, but John, let’s, uh, let’s dive right in here to tax provisions. Why don’t you talk a little bit about the permanent extension of the 2017 tax Trump era tax? Cuts, which is of course called the Tax Cuts and Jobs Act.
Speaker 3 5:03
Yeah, absolutely. I think it’s important to understand what happened with the Tax Cuts and Jobs Act first. What it did was it reduced five out of the seven marginal brackets about one to 4% It also almost doubled the standard deduction. It limited some of the state and local tax deductions for property taxes, mortgage deductions, things like that. So it changed the tax code itself. Those are the big key points there. And what this bill is going to do is extend those tax cuts moving forward, so keeping the marginal income brackets down a bit and continuing to have a higher standard deduction. In fact, they’re increasing the standard deduction even further in this bill by an additional $2,000 for joint filers and $1,000 for single filers, so it’s going to maintain a lower marginal income tax bracket. It’s also going to keep the corporate tax rate down at 21% so that has a pretty significant impact for corporate taxes and earnings. Again, it’s going to actually increase the state and local tax deduction that was reduced with the original tax cuts and jobs act. It’s going to bring that from $10,000 to $40,000 which is going to offer significant relief for taxpayers that have either a significant real estate portfolio, you know, high property taxes, some of the higher earners. It’s going to be very, very good for them, and then finally it’s going to also continue the higher estate tax estate tax exemption. So, for those of you that are unfamiliar, if you pass away with an estate that is more than at this point would be $15 million you have to pay taxes on the assets that you leave to your heirs, or the estate pays taxes on them, right? So it’s going to actually be a $15 million per person estate tax exemption. So if you’re married, that’s $30 million that you have of assets that are exempt from tax that go to your beneficiaries. So just a couple of the things that have been done.
Speaker 1 6:56
I think what’s really interesting is going back to the state and local deduction. I think this is the one that’s going to affect most of the people that we visit with. Now, of course, everyone’s in a different situation, so we try not to make any absolute statements on this show, but the state and local going from 10,000 potentially all the way up to $40,000 is a huge additional deduction that our clients, a lot of our clients, I should say, might be able to benefit from, right? If you have a bigger deduction, that effectively means that you’re paying less in income tax on your total income, and so this becomes a really huge deal in order to understand whether or not you’ll potentially qualify for this type of thing. It all comes back to your income. Okay, so if you’re working with an advisor, or if you’re a do-it-yourselfer, or maybe you’re one of our clients who’s listening to this, you know that we put together this retirement income plan for you that’s going to help you project out your income for the rest of your life, depending on what income threshold you’re in, we should take a look at whether or not you’ll be able to capture this higher salt deduction, the state and local. So, look, if folks, if you’re unsure about how this tax bill, or even the current tax code that we’re operating in now, how that affects your retirement plan, whether you’re already retired or whether you’re just a few years away, it is a great opportunity to pick up the phone and give us a call. The phone number for today’s program is 800-653-8404 That’s 800-653-8404 When you dial that number, our team of operators will be ready to schedule you for a no cost and no obligation visit with our team of specialists here at Elite Income Advisors, we’ll sit down with you, we’ll help you address your specific concerns regarding taxes, your retirement income, and your retirement plan as a whole. That is a totally free consultation when you come in to visit. All you have to do is pick up the phone and give us a call, 806 5384 538404 When we return on Retire Smart Maryland Radio, we continue to dive in on the one big beautiful bill and what it means to retirees. That’s you. That’s next.
Speaker 2 9:24
Welcome back into Retire Smart Maryland Radio. Your hosts are Prashant Sabapathi and John DeFeo of Elite Income Advisors, and you can find them headquartered in Ellicott City, a satellite office in Annapolis for your convenience. They’re both independent fiduciaries. It’s all about helping their clients get ready for retirement. We have been diving in on the big beautiful bill and what it means to retirees. So we started talking with taxes, and now we’re going to shift to what the changes could really mean for retirees. Prashant,
Speaker 1 9:56
yeah, that’s right. And you know, I think we have to start here with. Some proposed spending increases in some proposed program cuts. Right, so the one big beautiful bill proposes some deeper spending cuts to some social programs. You know, there’s been talk of things like Medicaid, SNAP, Affordable Housing Assistance, some of that stuff could see some potential cuts. Now, those types of things don’t typically affect our clients, but they are significant nonetheless. If you are affected by it now, with that being said, on the other side of it, you’re looking at more spending, potentially on things like increased defense budget and border funding, right, and that could be border wall construction, that could be enforcement personnel, and so I think what the concern is with some folks on this is what this is going to have an impact on politically and economically, and so when we talk economically, I think one thing we have to talk about, John, is the idea that this could create a downstream impact on the national debt and the deficit, and so I think what would be important to contextualize is, okay, if there is a bigger deficit, if there is more national debt, obviously no one’s super happy about that, but why should retirees specifically be concerned about increases in deficit and increases to the national debt as a whole. What’s your perspective?
Speaker 3 11:31
Well, what we know today is that the national deficit is just shy of $37 trillion The
Speaker 1 11:36
debt, right? Right, the debt,
Speaker 3 11:38
yeah, 3036 point 9 trillion as of this afternoon, so we’re well on our way to 37 here in the next probably couple of days or weeks. So, what this says is, if you know we are effectively keeping taxes lower for a longer period of time and potentially adding to that deficit, it’s just kicking the can down the road, right? So, at some point in time, we’re going to have to pay the piper, and that could be in 510, 15 years. You know, they’re talking about these tax cuts being permanent, but we know that there is no such thing as permanent when it comes to tax cuts. It’s built out by Congress, signed off by the President. As soon as there is a new administration, maybe a different allocation to the Congress with the Democrats, they could very easily undo this bill and raise taxes down the road, and it is in our opinion that if the deficit continues to run the way that it has, the taxes will eventually have to be higher. There’s just no way to sustain this type of debt without bringing in more revenue. I mean, you heard Elon talking about how it’s not cut any of the spending, or very minimal amount of spending of what him and Doge worked on, so you know it’s obvious that even these programs that are meant to cut spending aren’t efficient enough to do it. Tax revenue has to increase in the future, so that gives opportunities for our clients now to take advantage of these lower tax codes, right? Looking at things like Roth conversions, tax loss harvesting, those types of things that help to take advantage of the current tax code that we’re in, the lower tax code, and prevent them having to take larger distributions at a higher rate in the future.
Speaker 1 13:10
And let’s dive into that a little bit, because I think you’re making a really good point here. Right? I think a lot of people don’t realize, or don’t plan for, or maybe just forget that when they get to a certain age. Okay, for most people it’s going to be between 73 and 75 years old. You start to incur what is called the required minimum distribution, right? And that applies to all of your pre-tax money, folks. So think about where Wall Street, and your employers told you to the best place to save money was for your retirement. It was into things like your 401 k, your IRA, your thrift savings plan, etc. And the deal that we made when we entered that arrangement is that we would gladly take a tax deduction for putting our money in the 401 k while we were working in anticipation of us being in a lower tax rate environment, because our income was lower when we get to retirement. The problem is that when we started on that arrangement, however many decades ago, the government didn’t have $37 trillion in national debt. The government wasn’t running a $2 trillion dollar deficit on a year to year basis. There wasn’t a trillion dollars of interest being added to the national debt each and every year. So now the worry is that when you get to that required minimum distribution age and you are now forced to take money out, what if the tax rate you pay is significantly higher in the future than what your tax rate is today, which is why I think it’s so very important to fold in tax planning as a part of your overall retirement plan, and I can’t tell you how many times we see people, and Morgan, you do shows with advisors all. All over the country, actually, so maybe you can offer some perspective on this, but I can’t tell you how many times we see people that feel like they have a really solid financial plan, but they have not ever been talked to about what the tax impact of that plan is going to be, potentially 1015, 20 years down the road. I think this is so very important.
Speaker 2 15:21
I was just going to say, Prashant, you brought up an excellent point. I mean, there’s so much focus on the saving, the accumulation, and where you’re putting the money, and so many of us have been directed into tax-deferred accounts, the 401 ks, the IRAs. There has been very, very little talk about taxes, because way back in the day everybody’s like, well, when we get into retirement, taxes are going to be lower. Well, guess what, the landscape is not showing us that, right? The landscape is showing the taxes are going to go north. So right now is the time to really sit down and start talking about, you know, if they can extend this tax benefit to everybody, that’s fantastic, gives you a little bit more time, but the planning that needs to happen now.
Speaker 1 16:07
So, John, talk, talk a little bit about maybe I don’t know if you have a recent case, obviously we’ll leave all identities out of this, but the power of Roth conversion planning, right, because you mentioned Roth conversion planning. How does that work for somebody who is considering their taxes in retirement? Why could a Roth conversion potentially be the right thing for somebody? And what do we need to know as we’re making that type of decision?
Speaker 3 16:37
Yeah, I think this is one of the most powerful tax planning strategies that you can employ with your financial plan and I do have a case study that we just just work with a client of ours that has just north of $2 million all in their pretax 401 k plan relatively young about 63 years old so they got about think about 12 years before they’re got actually have a required minimum distribution that age is 75 so if we looked at what that account would actually compound to, if we considered, you know, a six 7% rate of return over the next 12 years on $2 million they’re going to have a pretty sizable account in the age 75 right? It’s going to probably be somewhere north of 5 $6 million and if that’s the case, and we know that your first to require your required minimum distribution, as it stands, the first one is usually about 4% of your account balance at the time that you take that distribution. If they have a $5 million portfolio at 75 that’s a $200,000 distribution that they’re forced to take, whether they need it or not. So we talked to them and said, “Okay, how do we get this balance down right? How do we shift the pretax dollars into a Roth account that does not have a required minimum distribution at 75
Speaker 1 17:49
and that’s because if they had to take out in that scenario, hypothetically, if they had $5 million of pretax money, you would look at that on the surface and say, great, my money grew, which is what the whole point of this thing was, but when they take that 200,000 that all counts as additional income to them, doesn’t it? I mean, they’re gonna pay income tax on it, both federally and state, if especially if they’re living in Maryland, and then doesn’t that have a downstream impact on their Medicare as well? Potentially, it
Speaker 3 18:21
absolutely does. Yeah, so your Medicare Part B premiums are income driven, so the more money you make, the higher your premiums are, and they’re looking back for two years, so you have to pay that premium for a pretty significant amount of time. But you’re absolutely right.
Speaker 1 18:34
So, what happens if they convert to a Roth? So, they converted this thing to a Roth. What is the benefit, and what’s the downside, potentially, of doing a Roth IRA conversion? Surely there’s got to be a catch somewhere here, right?
Speaker 3 18:48
Well, exactly, there’s a couple of benefits. Number one, you’re paying the tax today at the preferential tax rate, right? We know that with these tax cuts, we’re the third most favorable marginal income tax bracket in history, so you’re paying taxes at this more favorable rate in anticipation of higher taxes down the road, and not having to pay at that higher rate, right? So you’re doing that, that’s one advantage. Another advantage is that you’re reducing the dollars that you’re forced to pay tax on down the road at all, right? So if you have a million dollars and you’re able to convert all of that to a Roth IRA, when you get to 75 there’s no required minimum distribution, so it’s a great strategy. And finally, it reduces the tax liability to your beneficiaries. So, the Secure Act introduced what’s called the 10 year rule for our beneficiaries that aren’t our spouse or someone within 10 years of our age. So, if you left that million dollars to your kids, they would have 10 years to distribute that money, that’s proportionately over 10 years, it’s 100 grand a year with no growth assumptions. That’s a lot of income for someone that might be in their peak earning years. So, you’re reducing the liability for taxes on your heirs, you’re reducing the RMD requirement. A great advantage is now one of the downsides, one of the drawbacks would be that you have to have the cash to pay the taxes now, right. It typically makes more sense to pay the taxes out of pocket, so having that discretionary, you know, income or discretionary savings to pay the taxes is important, and obviously, if the downside would be if taxes never go up, maybe we didn’t do it the right way, right, but I would actually argue if the tax rate today is the same that it is in 20 years and you’re forced to take it out today or in 20 years, the tax-free growth on the Roth IRA is where the benefit comes, right. So, when you put that money into a Roth IRA, after five years of having it in that account, and if you’re over the age of 59 and a half, you do not pay any tax on the growth. So, even if you have apples to apples tax rates are the same in 20 years, you still have a tax-free account growing for you over time,
Speaker 1 20:42
that’s really important, folks. What we are not suggesting is we’re not suggesting that every single person blindly go make a Roth conversion. Okay, but what we are suggesting is that if you believe that your future tax rate will be higher than your current tax rate, then considering a Roth conversion could potentially be the right thing for you. If your advisor has not talked to you about this, or if you just are unsure about how you should be thinking about this, or planning for this, it is a fantastic opportunity to pick up the phone and give us a call. It’s 806 53840 38404 that’s 800-653-8404 If you’re sitting with your smartphone or in front of a computer right now listening to this on podcast, you can visit Retire maryland.com You can book an appointment that way as well. Folks, when you come in for that complimentary visit with us, it’s just to get to know you. You come in, we’re going to talk specifically about the things that you are concerned about, whether that’s the market, whether that’s the threat of rising taxes. If you’re unsure where your retirement income is going to come from, you should book this appointment, come in, and talk to our team. That appointment, it’s designed to try to fill in some of your blind spots, and more importantly, it’s designed to figure out whether or not our team is even the right fit for you. For a lot of our radio listeners, I think you’ll find that there’s probably something we can help you with. For some of you, you might find that you’re in a great position and you don’t need our help at all, in which case you got a second opinion and you know that you’re on track. It all starts with that phone call, folks. It’s 800-653-8404 Book a consultation in Ellicott City, Annapolis, or Virtual
Speaker 2 22:30
Retire Smart Maryland Radio. We’ve got a lot more to talk about. Stay tuned, we’re coming back. Retire Smart Maryland Radio, Prashant Sabapathi and John DeFeo are your hosts. You can find them at Elite Income Advisors, right here in Ellicott City. That’s where they’re headquartered. They have a satellite office in Annapolis. They’re independent fiduciaries, and what do they do? They help their clients get ready for their retirement, and that’s what they do every single day. They’re planners, they’re getting you ready, being proactive as opposed to reactive when it comes to your retirement. I’m Morgan Patrick. My pleasure to go back and forth with the advisors each and every week, and we’re going to dive in on this, JPMorgan Chase conducted a comprehensive study, and they basically analyzed the spending behaviors of over 5 million current US retirees, utilizing the data from Chase households that work with them. Now, this research offers valuable insight into retirement spending patterns and also challenges some of the traditional assumptions when it comes to retirement. So, the first one, Prashant, to you, spending doesn’t stay level, it drops over time. So, what’s happening here? Why this matters, and maybe some smart moves to make.
Speaker 1 23:55
Yeah, you know, I think many people assume that their spending will stay flat, or even rise due to things like health care costs, but the JP Morgan study found that most retirees actually spend less as they age, especially in discretionary categories. Right, you have to think about things like travel, dining out, and entertainment. So, why it matters is people may overestimate how much income they’re actually going to need later in retirement, which could lead to underspending early, when they could actually afford to enjoy life more, right? Like, I have plenty of clients that I’ve talked to that are hesitant to take that big trip that they’ve always wanted to take, because they feel like they’re going to need that money down the road. I think the smart move here is to build a retirement income plan that is layered, and when we talk about layer, we oftentimes talk about things like our go-go, our slow go, and our no-go years, and I know a lot of people talk about that, but we really take that into account, we want. Think about retirement in stages, the active years, the slower pace years, and then the final phase is going to be that minimal discretionary income spending timeframe, and so we do that by customizing a withdrawal strategy, but most importantly, it’s important to reevaluate your plan on a regular basis. This is nothing more than doing plan maintenance, review your spending annually, make sure that aligns with your habits and your needs, and most importantly, make sure that you actually have the income to support the lifestyle that you, quite frankly, deserve after 30 or even 40 years of really hard work,
Speaker 2 25:40
so 5 million retirees took the survey again. JP Morgan conducted it, and they took a look at the numbers, and we’re going over the results, and we’re getting our advisors to talk about it a little bit. So this next stat for you, here it is. There’s a spike in spending, John, right before and right after retirement, what’s going on here? Why this matters, and maybe things we can do.
Speaker 3 26:07
Sure, yeah. So, right around retirement, we see a lot of people with a temporary boost to spending as they’re preparing for trips that maybe they’ve planned on taking when they retire, maybe they’re getting the house ready to sell, or to live in the way that they’d like to live it, maybe they’re even looking at starting a business for when they retire, so we see a bit of a spike right before people retire and right after retirement, right, you’re trying to fast pace get to the things that you’ve been dreaming of doing the whole time you’ve been working, so we see that a good bit, and why does that matter, but it matters because if you don’t plan for that spike in spending for this so-called celebration phase, it can lead to an early strain on your portfolio. And one thing, folks, that you have to understand, the first three to five years of your retirement, those distributions you’re taking can be the most important and can completely derail your plan, depending on what the market’s doing, depending on how much you’re taking, you know, if you enter into retirement in a pretty poor market and you’re taking large distributions that can completely derail the sequence of returns and cause you to not have as a successful retirement plan as maybe you had thought you’d had. So, you know, what are some smart moves to get around this? I think number one, build a launch fund, right, set aside some extra savings for those first few years to handle those lifestyle upgrades. Right, maybe pad your savings account, you know, plan those trips out. Don’t just assume that your spending throughout retirement is going to be the same. It’s likely going to be a bit higher in the beginning, and again, that’s what we call the ramp up period. So don’t let that short-term spike scare you. It’s often temporary. At some point you know you can only go to Ireland so many times, right? At some point you’re going to be a little bit too tired and achy to get on an airplane for, you know, seven to 10 hours. So we see this a lot, so at some point that stops. But I think using a flexible, flexible budget, planning for that discretionary fund money in the early years without compromising your future needs is extremely important, and we see that quite often. Hey, why does it
Speaker 1 28:05
feel like I’m already at that achy phase right now? I was gonna
Speaker 2 28:10
say I’m thinking of Prashant’s launch fund many, many years from now. Obviously, he’s gonna have to pad the budget for those pro V’s, right? John said you could only go to Ireland, so many
Speaker 1 28:21
times, a lot of good golf courses over, but I do agree. Six hour plane ride, not really loving that.
Speaker 2 28:30
I tell you, when we start talking about retirement, there’s so many things are going to impact you as you make your way to your retirement date, and all the way through retirement. Very important to have a plan, be proactive, have these types of conversations, so it’s not a knee-jerk reaction, it’s not a surprise. You have a plan, you have confidence as you’re moving to the retirement date, but all the way through your retirement as well. So, this JP Morgan survey, 5 million US retirees talking about spending doesn’t stay level, it drops over time, they’re finding through the 5 million, also the spike in spending right before and right after retirement, and we’ve talked about what’s going on there. So now this next one, Prashant, to you, and you guys can both chew on this. The spending patterns, they’re just different, just across the households in America. What’s going on?
Speaker 1 29:18
Yeah, you know, JP Morgan identified six types of retirement spenders, right, you get those that are kind of the steady eddies who spend consistently, and then you get certainly the roller coasters with big swings up and down. I mean, I know we’ve seen both of these types of clients and everything in between in our practice, and so you need to be aware that this behavior exists simply because the average retirement models may not actually reflect your true behavior, and you could be planning based on wrong assumptions, and that’s why I think personalization becomes so very important, like as a part of our process we. Don’t take your stuff and just build you a cookie cutter plan. We actually listen to you and talk about what’s important to you. What kind of target income do you want to have? Where are you going to be living? What’s your tax rate projected to be, and most importantly, how much risk are you comfortable taking on your portfolio? So, smart moves here. Just figure out your type. Are you the type that’s a consistent spender? Does your lifestyle vary? You know, avoid one size fits all planning. You know, you wouldn’t get a one size fits all medical plan. There’s no reason, in our opinion, to have a one size fits all financial plan, and we like to use data, I think data is so powerful. Use data driven tools to understand what real spending looks like to get a really accurate picture, and then compare that to your income to make sure that there is always more income coming in than expenses going out. Before we get to the break here, John, any any final thoughts on this segment, just in terms of planning, not just for life, but numbers as well.
Speaker 3 31:08
Yeah, I think retirement isn’t just about formulas and forecasts, it’s really about living well and adjusting as your needs, your desires shift over time, right? I think the biggest takeaway from that JP Morgan study, don’t treat retirement as a static phase. It’s a very dynamic, personal, it’s best approach with flexibility. We talk through this with our clients on a very regular basis. It’s a pretty significant psychological jump, right from a steady income to a fixed income in retirement, where you’re relying on what you’ve saved, your pensions, your social security, so it’s so important to have a plan in place, ensure that your nondiscretionary income is not uncertain, and build out a plan that covers all of the expenses that could come up.
Speaker 1 31:53
Look, folks, one of the biggest mistakes we see people make in retirement is assuming that spending will stay level year after year after year, but as we shared earlier, this JP Morgan survey and research shows that that’s not often how life works. Spending drops over time, especially on things like travel, dining, entertainment. That’s why we try to make your retirement income plan as dynamic as possible to get you through the different phases of life. The problem is, if you’re using a cookie cutter withdrawal strategy, or just clinging to some of the outdated rules, you could end up underspending in the prime of your retirement and not living life to its fullest, or worse, you could overspend upfront and panic later when markets dip or health care costs rise. The solution from our point of view: build a retirement income plan that is flexible, data-driven, and customized to how you want to live, not some national average. The phone number is 800-653-8404 That’s 800-653-8404 You call in, you book that free consultation with our team here at Elite Income Advisors. We’ll sit down with you, and we’ll help you start to build your own personalized retirement income plan. If you haven’t reviewed your spending or withdrawal strategy in the last 12 months, now is the time. We’re going to help you map this stuff out, and hopefully give you the confidence you need to retire smart 800-653-8404
Speaker 2 33:24
and remember, don’t just retire, retire smart. We’re coming back with more Retire Smart Maryland radio right after this, you We are back on Retire Smart Maryland Radio, and in the driver’s seat. Well, we’ve got two drivers, Prashant Sabapathi and John DeFeo. You can find them both at Elite Income Advisors, independent fiduciaries, all about helping their clients get ready for retirement. They’re headquartered in Ellicott City, and they have a satellite office in Annapolis. I’m Morgan Patrick. Each and every week, it’s always the retirement topics, the hottest topics, and also what you should be doing as you prepare for your retirement. There’s so many of you that have done an amazing job accumulating, putting your money away in those tax-deferred accounts, those 401 Ks and IRAs, but that is not a retirement plan, and you got a lot of things that are gonna be coming at you as you move towards retirement. Make sure you’re planning, make sure you’re being proactive. We’re gonna give you an opportunity to get on the calendar with Elite Income Advisors, and these are no-cost, no-obligation appointments, so stay tuned. It’s now time for scenarios, and these come from all over the country, and we throw them at the advisors, and we see what they come up with. So, John, you’re up first. 68 recently retired, pulling from their IRA for income, but they’re wondering if it makes sense to start converting part of it to a Roth now that their tax bracket is lower. Could paying a bit more tax now save them more down the road?
Speaker 3 35:05
Yeah, I think this piggybacks off the conversation we had earlier in the segment about the power of Roth conversions. So, it really depends on whether they think that their income taxes or their bracket are going to be higher down the road than they are today, right? So, they’re saying that they’re in a maybe a lower income tax bracket now than when they were working, it could be an opportunity to look at a Roth conversion. It just really depends on how much they’re taking out of their IRA now for income, assuming they’re drawing Social Security, what that number looks like, any additional income they have from city interest, you know, capital gains, other types of income. We have to look at all of that and see where they line up, right? So we want to take a look at the tax, the marginal tax bracket they could be in, see if it makes sense to fill up a lower bracket, you know, the 12 22% brackets typically what we look at, and if you know we think that that’s a lower bracket than what they’re going to have in 10 to 15 years down the road, then it might make a lot of sense to do that, right, another thing that we have to be cognizant of is the Medicare surcharges that that you’re going to have, because they’re income driven. If you make over $212,000 as a joint couple in terms of adjusted gross income as of 2025 your Medicare premiums are going to be increased. You have to pay more than the $185 per person as it currently stands. So we have to be mindful of that. We have to have the assumption that our taxes will be higher in the future than they are today, and if you know that is the case, and it could be a great opportunity to do it. There’s just a lot that we have to look into. It’s a case by case basis. We do this on a, you know, again on a regular basis towards the end of the year, as we add up their income, identify, you know, the assumptions, and go from there, but again, unfortunately, as many financial questions, there’s no cookie cutty answer. It’s really going to be client specific.
Speaker 2 36:48
Yeah, and when you get into these scenarios, a lot of our listeners, like, you know, what, that’s kind of what I’m going through, but remember this, it’s not exactly what you’re going through. We talk about so many things are going to impact you as an individual or a couple that’s retiring, going to be completely different from anybody else’s, so take these with a grain of salt. So, Prashant, the next one is to you. They’ve got a mix of bonds and dividend stocks, but they’re concerned that fixed income is not going to keep up with rising expenses over the next, say, 20 years. How can retirees protect their purchasing power without taking on too much risk? I’m gonna
Speaker 1 37:21
say a controversial word here in the financial industry, and that word is annuity. Okay, and the reason we’re gonna talk about this is because there are annuities out there that guarantee you income regardless of what’s going on in the stock market, and ones that totally protect your principal, so you don’t have to worry about taking risks. Now, look, if you were to consider getting an annuity, that’s obviously a highly personal decision, and you should properly evaluate the pros and the cons of purchasing such a such a tool. But that being said, one thing that we’re seeing is that if you are worried that you won’t have a reliable income in retirement, or you’re just not sure that the stock market will provide to you the income you need through dividends, or if you’re concerned that the bond market won’t provide you the income to keep up with inflation, or even outpace inflation, using something like an annuity could be the right thing for you. These things are so powerful because you put up a lump sum of money into them, and you are guaranteed an income for the rest of your lifetime, regardless of if the stock market goes up, down, or sideways. You know exactly what that income is going to be. Now, there are certainly downsides to using annuities, things like long-term commitments, and maybe your principal does not grow at an ultra-fast rate, but if it’s income that you’re after, I haven’t found too many better tools than an annuity to help you guarantee that income for the rest of your lifetime.
Speaker 2 38:59
So many people out there are headed towards retirement, and they’re not even thinking about the planning aspect of it, and part of it is just talking about your options and being flexible and working with, you know, independent fiduciaries and mapping this out, and again having these types of discussions about what you want out of retirement, and then also building that plan to get you there, all right, so scenarios continue. John, this next one to you. Their old 401 k has limited investment options, but they’re worried about fees and potential penalties if they make a mistake rolling it over. What’s the best way to handle a rollover without triggering the unnecessary costs?
Speaker 3 39:40
Well, there’s there’s two ways to process a rollover, as you would from an employer-sponsored plan. There’s what’s called a direct rollover, and when there’s what’s called an indirect rollover, right? The direct rollover is where you’re doing a custodian to custodian transfer, you’re taking the money from the 401 k, and you’re transferring it directly into an IRA or another. 401 K or 403 B or employer-sponsored plan, so it’s a straight account to account transfer. The most efficient, seamless way to do this, there’s no tax implication on the participant. It goes over very smoothly. You might have a transaction cost to close out the previous 401 k. Those typically are minimal, you know, no more than $100 for most plans. That’s typically the easiest way to do it. There are some folks that go the indirect rollover option, and this is where you actually take a distribution out of the 401 k itself, and you, you pay taxes on the distribution. A lot of 401 k plans, in fact, I think almost all of them require a tax withholding of between 10 and 20% for the federal government, state is subject to the state that you’re in. So, what that means is that if you take out $100,000 from a 401 k and they withhold 20% of that, you’re getting $80,000 paid out, right? You have 60 days to get that money back into another employer plan or IRA before it’s taxed and or penalized, if you’re under the age of 59 and a half, so that $80,000 maybe you put that in a bank account, maybe you used it for something that you were getting paid back for within that 60 day period, we’ve seen that happen before, you not only have to put the $80,000 you received back into a retirement plan, but that $20,000 that the federal government withheld for taxes, you also have to pay out of pocket in order to have that not be considered taxable income. So, not to get into the weeds of taxes, we aren’t CPAs or tax advisors, but there can be pretty considerable consequences if you go the indirect rollover route and you don’t get every dollar that you took out back into a retirement plan within 60 days, so I’d say the direct rollover is the best way to go, you know, most efficient, you know, I think you know looking at the options that you have is important, as you mentioned, 401 ks are limited to the investment options offered, IRAs typically offer, you know, much more wide variety of investment options, you know, think of these as just shelters, you know, it’s like a house, the 401 k is owned by the employer, so you’re renting that house, you can only choose the furniture that they put in it, whereas the IRA, you own, you own that account, you can fill that with whatever you want, you can put whatever furniture in that house you’d like, you own it, right, so that’s kind of how I look at the difference between an employer-sponsored plan, like a 401 k, and a personal account, like an IRA.
Speaker 2 42:24
Tell you, the scenarios get you thinking, folks. Work with professionals, there’s so many things that you need to consider as you’re moving towards retirement. And we get it, you’re busy, you’re working, you’re trying to get to retirement. Having a fiduciary advisor walk with you down this path, that’s confidence when it comes to retirement, we give you an opportunity to get on the calendar with the Elite Income Advisor. Stay tuned, we’ve got appointments for you. So, final scenario to Prashant, they’re nearing Medicare eligibility and wondering how a Roth conversion could impact their Part B premiums. How do you help people avoid unexpected costs when planning a conversion like this?
Speaker 1 43:00
This all comes back to your total income, specifically with Medicare. It’s about your income from two years ago. Okay, so your Medicare Part B premium may be subject to what’s called the income-related monthly adjustment amount. It’s also called IRMA. If you’ve heard that term before, that simply means that the higher your income was two years ago the more that you potentially pay for your Medicare premium when you do a Roth conversion, that Roth conversion all shows up as ordinary income in the year that you make that conversion, which means if you do a conversion to a Roth and that increases your income into the next Irma bracket, the cost of your Medicare two years later potentially goes up, and it could go up just a little bit, it could double, it could more than double, depending on how high that income is. So, when doing a Roth conversion, I don’t think it’s quite as simple as saying, hey, it’s going to show up as income, and how much tax am I going to owe? I think you have to evaluate not just your tax bracket, but you have to evaluate your Medicare bracket as well. You have to evaluate your tax bracket, like we talked about. I think you also have to really evaluate the investments that are in that Roth IRA, because the whole point of the Roth is to be able to grow over time. You want to make sure that making the conversion to a Roth allows you the opportunity to grow and make all that growth tax free. Okay, so a lot of moving parts of that. I would not take that decision lightly. I would work with both a financial professional and a licensed tax advisor to make that type of thing happen. Folks, if today’s show has taught us anything, it’s this: it’s that retirement is not a straight line. Your spending changes, your lifestyle evolves, and now even the laws are shifting right in front of your eyes, but. Actually, and so it’s all about creating a personalized plan, whether you’re five years away from retirement or maybe you’re already there. The decisions you make today will ripple potentially for decades, and this is now your window to adjust, to optimize, and to protect what you have built. The phone number is 800-653-8404 that’s 800-653-8404 You dial that number, you’ll be able to schedule your complimentary retirement readiness review. There’s no pressure, there’s no sales pitch, it’s just a conversation about where you are, where you’re headed, and what tools or strategies could help you get there more confidently. So, again, 800-653-8404 Last opportunity for today’s show to get into the calendar. You can also visit Retire maryland.com
Speaker 2 45:50
Another edition of Retire Smart Maryland Radio in the books for Prashant and John. I’m Morgan. We’ll see on the radio next week, you
Speaker 4 46:06
Federal guarantees are subject to the claims of paying ability of the issuing insurance company. If you withdraw money from or surrender your contract within a certain period of time after investing, the insurance company may assess a surrender charge. Withdrawals may be subject to tax penalties and income taxes. Persons selling annuities and other insurance products receive compensation for these transactions. Products are subject to fees and additional expenses. Any comments regarding safe and secure investments and guaranteed income streams refer only to the fixed insurance products. They do not refer in any way to securities or investment advisory products. Information presented on this program is legally factual and up to date, but we do not guarantee its accuracy, and it should not be regarded as complete analysis of the subjects discussed. Discussion should not be construed as an offer to buy or sell, or a solicitation of an offer to buy or sell the investments mentioned. Professional advisors should be consulted before implementing any of the strategies discussed. The investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s portfolio. Investment advisory services offered through Elite Income Advisors Incorporated, a registered investment advisor located in Ellicott City, Maryland. The firm only conducts business in states and jurisdictions in which they are properly registered or exempt from registration requirements. Registration is not an endorsement of the firm by securities regulators, and does not mean the advisors achieve a specific level of skill or ability. Content should not be viewed as personalized financial advice. Insurance and annuity products are sold separately through Retirement Planning Services Incorporated. Neither firm is affiliated with or endorsed by the Social Security Administration or the IRS. Social Security, Medicare, pension, and tax rules are subject to change at any time. Insurance annuity products are sold separately through Retirement Planning Services Incorporated. President Ozer Culhagil, Prashant Sabapathi, and Jonathan DeFeo receive commissions for the sale of insurance products as insurance agents for Retirement Planning Services Incorporated. Insurance annuity product guarantees are subject to the financial strength and claims payability of the issuing insurance company. Morgan Patrick is not a client of or affiliated with Elite Income Advisors. However, he has a financial incentive to promote our services because he was compensated for his work on Retirement Smart Maryland. The program is paid production of Elite Income Advisors.
