Retirement Planning Education (formerly Retirement Planning Demystified) teaches you all about IRAs & Roth IRAs, employer retirement plans, taxes, Social Security, Medicare, portfolio withdrawal strategies, annuities, estate planning and much more!
I hope you find this information educational and useful. Enjoy!
-Andy Panko, CFP®, RICP®, EA
DISCLAIMER: These videos are only helpful hints and education. They are not specific tax, legal or investment advice. Before considering acting on anything you see in these videos, first consult with your tax, legal or investment advisor. While the information expressed in these videos is believed to be accurate, neither Andy Panko, CFP®, RICP®, EA nor Andy Panko EMC LLC make any guarantees to its accuracy.
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I can't even believe you have to pay federal income tax for social security payments. Ridiculous.
I am a dividend investor and retired early. I hold VYMI which has a P/E of less than 10 and Yield close to 5%. Its sister ETF VYM (American) has 18.5 P/E and around 2.7% yield.
Thanks for the great chat, Victor and Andy. Well done!
Usually, I never comment on videos, but your video is so convincing that I am unable to stop myself from doing something about it. You’re doing a great job Man, Keep it up.
Thanks, I appreciate this! That means a lot :)
A 50% result shouldn’t be interpreted as a coin flip as to whether or not you’ll be successful. Rather, should be interpreted as there is a 50% chance you’ll need to make some changes along the way ( perhaps large , perhaps modest) in order to be successful. And those changes might be rather modest such that success is easily obtainable provided you make changes. As this individual indicates, this is largely within our control.
Precisely. But those who sell products or strategies based on fear, will distort how to interpret Monte Carlo to scare people into buying what they're selling. Such as saying a 50% Monte Carlo is synonymous with having a coin flip of a chance of getting on a plane and having it crash (and everyone dies) en route.
Hi Andy I have one more question I have $400K in Roth IRA Also $500 K in high yield savings account I’m living in apartment which I like very much without all the hassle from Owning home But rent is kept going up and I was Thinking buy $400K Condo Am I making right decision ? I’m 65 and 75( husband ) retired I need your advise Thank you always
Thanks for the question but, sorry, I can't give specific advice on things like this. Without knowing the entirety of your financial and life circumstances, I can't say what the best choice would be for you
Hi Andy If both of us ( husband and wife ) has only social security income Do we have to pay tax ? If so what will be the maximum amount for No Tax ? Looking forward your answer Thank you always
If Social Security is truly your only source of income (no pension, annuity, interest, dividends, capital gains, 401(k)/IRA, etc.) you won't have any federal tax obligation on your Social Security. As for state income tax, it depends what state you live in. But, chances are, even for states that do have income tax, you similarly may not have any tax obligation at the state level, either. But I can't say for sure since I don't know what state you're in.
As someone who is trying to start as young as possible (23) this was very helpful to understand what is going on. I don't have enough experience reading complex legal paperwork to understand the breakdowns online on what each thing is, so I can make the best informed decision. This video was very helpful in understanding what each ira means as l try to transfer from my first job with a 401k!
Can you give a sense of scale on this? What is the normal annual tax % for just holding an s&p500 or global all world tracker through vanguard
For index funds, it’s usually tiny, if anything. It’s more so actively managed mutual funds that could have sizable capital gain distributions. They could be like 5-20% of the funds size in a year.
@@RetirementPlanningEducation thank you for your quick response :)
@@RetirementPlanningEducation thank you for your quick response :)
Why? Are they hiding?
So which ones should I buy? Please only give us the stone cold lead pipe locks. ;-) If you look at a chart of the relative value of the US dollar over decades and when international beats domestic, you'll quickly realize that that international vs. domestic is really mostly a bet on the direction of the US dollar and that other than that, the large multi-nationals tend to perform about the same as the other companies in their sectors. The real hang-up here is the inappropriate fixation of "cap weighting" all your funds and allocations to match exposures to the world at large. That really has nothing to do with one's individual investing priorities, so there is no reason to believe than trying to cap weight everything to effectively overweight large cap multi-national companies results in a better portfolio for any particular purpose (and it doesn't). Modern best practices written about by Larry Swedroe and many others in the past decade suggest that domestic vs. international is just not a very good primary differentiator, especially when everything is cap weighted, and that using Fama-French factors as primary differentiators provides a superior approach to diversifying a stock portfolio. Rather, international vs domestic works best as a secondary differentiator, and organizing portfolios around strict cap-weighting should be discarded, as its just not a very useful framework. Yet there is almost a fixation in personal finance circles that we have to keep using the approaches some Great Guru person in days of yore came up with 15-20 years ago because they have talismanic Boglehead or other significance. Frankly, a lot of DIYers and advisors are just intellectually lazy and don't want to update their knowledge bases as long as they can get away with not having to do so, because "Personal Favorite So-and-so Guru Person said something once." But this slavish adherence to outdated ideas is not a good approach to investing, or really anything else that is personal-finance related. It is better to treat personal finance not as a religion with gurus to follow, but as an evolving technology that gets better over time if the newer best practices are adopted.
Germanish? 🤣
It’s only a matter of time until Oxford’s adds it to their English dictionary!
Good video. Personally I think international stocks add complexity to a portfolio without necessarily adding to the performance or stability. I hold a small international position, but you could argue that it's not large enough to move the needle. One decision I made about 6 or 7 years ago was to try to remove any direct exposure to so-called emerging markets. I'm not saying there's not the potential for opportunity there - I'm saying that there are huge uncompensated risks. I made this decision when I realized that around half of all so-called emerging market equities were at that point incorporated in China or Chinese based. The problem I have there is that this means a Communist totalitarian state had direct control over the fate of a non-trivial portion of my portfolio. In fact many so-called emerging markets are run by fascist dictatorships or other problematic political structures. This realization has led me to conclude that investing in these markets makes me culpable for how they treat their citizens and it also puts my retirement at the mercy of these governments. Being in either position is simply unacceptable, so I cannot invest in any investment that invests in emerging markets.
Loved all your points!
Thanks!
The pure math is that a pension payout of 6%, the breakeven is 25 years if you can get 4% on the lump sum (based on lump sum of annuities which should be very similar to pension lump sum). So if you are 65 today you would need to live to 90+
You mention pension as less risky but There is risk in pension. Risk of dying and inflation risk. You can buy life insurance to mitigate the first but not the second.
Good video. After weeks of calculating the break even I ended up taking the lump sum for the following reasons 1. I did not want the forced income on top of SS and RMDs. 2. Ability to pass it on to my heirs. 3. I will delay SS to 70, providing some inflation and longevity protection. 4. I don’t need the money to meet my expenses so will invest it.
Good video. You bring up good points. Some ate unlikely such as IRMAA surcharge being an issue due to RMDs. Unless you have significant income other than RMDs and SS you will not have an IRMAA surcharge issue. IRMAA limits increase annually for inflation. The tax time bomb catch phrase is stolen from Ed Slott and is a made up thing with no basis of fact. For most people taking advantage of the standard deduction and low tax brackets, both adjusted annually for inflation, RMDs can be paid slowly over many years at a lower effective tax rate. The expiration of the current tax brackets may or may not happen in 2026, no one knows for sure.
thank you man you´re the one 👍
Thanks!
Thanks for this video. I'm in the process of renewing my life insurance license. Part of the study for the exam is about Qlacs
Hopefully you found the video helpful!
Excellent video as usual! But I think maybe you miss the point with these pitches. People that sell these Roth conversion "Plans" are probably basing their pitch on the fact that if you convert everything to Roth now, you will avoid taxation on all the future earnings that account might have. This GUARANTEES you will pay substantially less in taxes over your remaining lifetime. It's even possible this could be on the order of a million or more. The reason it's a scam is that the fact that you pay more taxes in total is IRRELEVANT to the analysis of your Roth conversion strategy. The only thing that is important is how much of that money you ultimately KEEP over the remainder of your life. If you do Roth conversions over the course of one to a few years, you could easily wind up in much higher tax brackets and therefore send a higher percentage of your total distributions to the taxman. This leaves you with LESS money. In fact you get to keep LESS money in part BECAUSE you paid the taxman LESS! The reason these scams are so attractive is because so many people are focused on avoiding taxes at all cost. Often the don't see that avoiding the taxman in the future could be harmful to their own success.
$10,000 is outrageous for a Full Financial analysis and plan for your total picture.. let alone just a Roth conversion plan.. New Retirement is a software you can get a free trial on or pay about $120 a year for great analysis. It is only as good as the numbers you put in.. you have to decide the rate of return you are likely to get in the future, the inflation rate, the tax brackets going up in 2026 like they are set to do now.. your longevity, and that of your wife too.. lots of factors. But it is the same estimates that the planner will have to guess on and you save 10 grand.
Does child family benefits received under the wage earner social security gets added to social security disability income received? If I receive a seperate ssa1099 for my son with his name and social security number if so is that considered as earned income,?
I learned so much. Thank you for fantastic video and providing handouts! Watching this replay for my new accountant in the hopes it will help him since he wasn't familiar with form 8606 and how it relates to the pro rata rule! Very frightening!! Only kept him because he started my taxes and I was forced to file an extension. When I went to sign my return on April 13th, he asked me a question as to the backdoor roth and that put up a red flag. Wanted me to contact Fidelity over the weekend. Needless to say, I requested he file an extension since nothing would be accomplished in 2 days. As soon as my taxes are filed, I'm firing him!
I’m glad you found this helpful, thanks!
Good video. Very balanced. I do believe that a Roth conversion can make sense to avoid the widow trap or if tax rates rise in the future AND cause you to pay a higher % tax when you or your heirs otherwise take distributions. I can’t make the math work otherwise, although I do plan on spending down my tax deferred account as much as possible to leave the brokerage, life insurance, house and cash to grow, all tax free with step up in basis to my heirs. If I die early before drawing down the entire IRA that will be icing on the cake for my beneficiaries. In my lifetime I just don’t see the benefit. If you are 60 years old today your first RMD is 15 years away. Since the standard deduction, tax brackets, and IRMAA surcharge limits adjust each year for inflation, even the year 1 RMD on a $5m IRA will be less than $200k. If you plan your finances properly so you don’t have much income other than RMDs (for example stocks you don’t sell or cash value life insurance) those RMDs are not going to create a problem and in 15 years is likely what you will need to live on (at least in MA). I am not advocating waiting for RMD age before withdrawing and living off the money to enjoy life. I am just saying I don’t see a benefit in withdrawing extra and paying tax up front in your highest marginal rate or higher to convert to a Roth. Remember even if you are in a higher tax bracket later and pay more tax, you can still come out ahead by deferring if the AVERAGE tax % paid is less than your current marginal rate. For example, if you are in the 32% tax bracket today 6% state and convert you pay 38% on the entire amount. If you are in the 35% bracket when RMDs take effect, you will pay the majority of tax at lower rates so the average will be less than 30%. If you have retired to Florida or another tax free state, the savings could be significant, as much as 40% more tax to convert in an example I just ran (38% conversion vs 27% not).
Great points and thoughts! I agree with what you said
While there are certainly financially sound scenario's where it makes complete tax liability sense to perform Roth conversions to limit the total taxation amount, I think the variables involved and the timeline make those projections at best a bit questionable and at worse are totally inaccurate. I am performing Roth conversions less from a pure financial soundness and tax liability perspective and more from the flexibility I like in having monies in the Roth IRA that I can use at any time for any purpose/use without having to even consider how the withdrawal and use impacts my current year taxation. For example I recently took out 220k from my Roth IRA to purchase a vacation townhouse. Obviously having that amount become taxable income this year would have completely thrown a wrench in whatever my current year income and tax planning strategy was (I did not necessarily plan on purchasing the townhome this year, but the planets aligned so I did it). If I did not have those funds readily available in the Roth IRA, I may not have been able to do what I wanted to do. Many people think of Roth IRA's as simply long term investment vehicles that will never be used (realistically because once you get into that mindset, you literally will never use those funds as it becomes ingrained that you should never touch them, same mindset as occurs with taxable retirement accounts over decades of saving with them). Therefore, I have now broken that mindset. It becomes much easier the more you have in the Roth IRA because you no longer are worried about it not growing because it can still have a sufficient amount in it to grow if that is your primary purpose for it. Obviously if you have 50k or 100k in one, taking out 30-50k of it would not feel good and would greatly impact your future growth of it, but if you have 500k or 1M in one because of already converted monies that have grown, taking out 200k does not feel nearly as bad even if the percentages can be the same (and it does not have nearly the negative impact from a future account growth perspective). I now think of my Roth account as a big savings account that I can draw from whenever I want. If it turns out I don't need the full amount, or decide to take more from taxable accounts as my taxation situation allows, I have 60 days to do a rollover (once per year) to put some or all of the money back. While not the most flexible in that regard compared to say a savings account, it does allow some flexibility.
Andy, I did not see the link to the Roth Conversion article. would you add to the video. Thanks
just saw the link in one of your responses
@@williamburns7075I just added it in the notes, thanks for pointing it out. Sorry!
Thanks, Andy. That was an excellent article you wrote on Roth conversions. Recency bias, or what we see a lot of in the present on social media, can nudge us in a direction that may not be advantageous to our future financial selves.
Andy is my favorite - hands down. Qualified and caring. ( I’m not seeing a link to your “proud of” article, which you cited. I’d like to read it.)
Right, good point…sorry! Here’s the article: rethinking65.com/2022/04/07/why-trying-to-quantify-the-value-of-roth-conversions-is-futile/
Related question. Suppose a couple is filing jointly and is under the $240,000 MAGI, limit, jointly. If both are working can both individuals contribute up to the maximum ($7,000 I think) or can the couple only have one Roth IRA between them?
After I got slapped with WEP reduction on my social security, I opted out of asking them to figure a taxation reduction. I let my tax person figure it out. Lol.
👏 👏 👏 for the LEGO aside from the retirement content. 😀
The retirement planning stuff is just filler. The LEGO is the real star!
This didn’t help
Thanks for the feedback. What in particular were you hoping would be shared in the video?
for me it depends on your income sources and mindset. So many people are used to living paycheck to paycheck and having tax withholding on auto-pilot. To have to manage that process and understand taxation and how/when to pay income taxes is daunting to many. If your sources of income are basically pension, social security, and/or annuity income and you have the ability to have withholding done from any/all sources, that may make the most sense for you if you are very comfortable with that since it mirrors what you did your entire working life. If your primary source of income in retirement will be withdrawals from your investable assets (retirement and non-retirement accounts), it may make more sense to have withholding done when withdrawals are made, particularly if you are challenged in understanding when/how to pay tax quarterly. So it's very specific to the individual and their situation and how much they want to manage the taxation process.
well said!
Too bad they don’t take Medicare out first and then calculate the taxes 😕
None, but pay estimated taxes instead based on the prior year's income.
I've seen max withholdings of 22% available.
Don't forget to determine your tax bracket too... AND filing status (single, jointly with Spouse, etc....)
I was first introduced to Ikigai by Dr. Daniel Lee who’s also a Lifestyle Medicine physician Love your show Andy. Thank you. 🎉
Love all your videos, what is your favorite bread crumb?
Panko breadcrumbs, without a doubt
Nothing, don’t pay tax on my social security
None SHOULD be the answer!!!!
About 10-12% for around 70% of people receiving SS
AARP has a great estimator on line.
It is safe to have multiple type of money. Cash, bank account, credit card, crypto, gold/silver.
30%
For some people, it would be nice if that much could be withheld. But that’s not an option to do that much
Most people will fall in the 10-12% Federal tax bracket
Thank you!
How come no one can explain what federal law governs these taxes?
The US income tax code is the Internal Revenue Code, which is Title 26 of the United States Code, which is the country’s main collection of governing laws
Yes before direct deposit, ATM , and the rest of the nonsense... spread it around... and still do....
Good job man !
Thank you!