0:06 

Stephanie McCullough: Welcome to Take Back Retirement, the show for women 50 and better, facing a financial future on their own. I’m Stephanie McCullough, and along with my fellow financial planner, Kevin Gaines, we’re going to tackle the myths and mysteries of “Retirement,” so you can make wise decisions toward a sustainable financial future. Through conversations and interviews, you’ll get the information and motivation you need, to move forward with confidence. And we’ll be sure to have some fun along the way. We’re so glad you’re here. Let’s dive in. 

Kevin Gaines: So tax seasons are coming up, and you’re sitting down with your good friend, Google. And last year, you made $200,000. Well, as a single woman, you Google that and you find out that you are in the 32% tax bracket. And you think to yourself, ‘Oh my gosh, do I have to pay $64,000 in federal income taxes?’ Well, not even close.

1:05 

Kevin: That’s right, girls and boys. It’s another exhilarating tax episode of Take Back Retirement.

1:17 

Stephanie: Coming to you semi-live from the beautiful Westlakes Office Park in suburban Philadelphia, this is Stephanie McCullough and Kevin Gaines of Sofia Financial and American Financial Management Group. Say hello, Kevin.

1:27

Kevin: Hello, Kevin. 

1:29

Stephanie: Well, as we record this, it is late April, the second half of April, and the accountants are all either asleep, or they’re on the beach somewhere drowning in margaritas, because we have all just either filed our taxes or filed for extensions. So if you remember back a few episodes, Episode 33, we gave you an overview of the estate and gift tax system. And we thought to ourselves, ‘You know what, we really probably should do the same thing for income taxes,’ because they’re not as simple as you might wish them to be. Our purpose here is not to make you experts in taxes, far from it. Taxes are a reality we all have to face, they impact our financial well-being. And I do believe it behooves us to have at least a conceptual idea, understanding of how the income tax system works. Now, we’re going to be talking mostly about federal income taxes. But state taxes can be impactful too, as all those New Jersey residents here know or, heaven forbid, Manhattan, but certainly with clients, we talk about both, but today, we’re mostly going to focus on federal.

2:40 

Kevin: And why does taxes and financial planning come together? Because it’s really simple. The less taxes you can pay, the more the money you get to keep. Seems like a pretty good trade off if we can pull it off. Sadly, the IRS has a slightly different perspective of that. But hey, as long as we stay within the rules, they go, ‘Okay, you got us.’

3:07 

Stephanie: And of course, we all want a well functioning government, right? I mean, we’re not getting political today to talk about the pros and cons of taxes. But just the reality. One of the things that really was an aha for me before I became a financial planner, which as many of you know, was a career change for me 25 years ago, I didn’t really understand the tax code, either. But one of the big things to know is that a lot of the tax rules out there, and really kind of part of the reason it got so complicated is that the federal government is trying to incentivize certain types of behavior from citizens via the tax code. So we’re gonna get a little bit into some of the details of that. But basically, you need to know that whenever they give you a tax break, there’s also some quid pro quo involved. They’re gonna want some restrictions on that money or some timelines. The IRS giveth and the IRS taketh away.

4:03 

Kevin: So, understanding your taxes is important, not just for how to lessen the bill you pay. But a lot of other benefits out there are dependent on your tax brackets, such as being allowed to deduct IRA contributions, Social Security taxability. If you make over a certain amount of money, some of your Social Security benefits are going to be taxable. My least favorite woman in the world, IRMAA, which is the surcharge on Medicare premiums.

4:39 

Stephanie: That’s all affected by your level of taxable income. Roth IRA is whether or not you’re able to do a contribution, if you make “too much,” you can’t do it. So it’s important to know your taxable income amount.

4:57 

Kevin: And there’s more because not just these benefits, but there’s something called AMT, alternative minimum tax. In one sentence, if you don’t pay enough in taxes, the government says let’s tweak the rules a little bit. So we can get a second shot at a few dollars a year.

5:17 

Stephanie: One year my tax return showed an AMT bill due of $7. Like really? But hey, the rules are the rules.

5:24 

Kevin: Exactly. As well as capital gains, the more money you make, the more tax you have to pay on selling stocks, bonds and other assets. So there’s a lot of different ways these tax levels permeate all of the decisions that we might be making in our financial life.

5:46 

Stephanie: Yeah, it’s really savvy to understand where you fall. What tax bracket are you in now? What tax bracket are you likely to be in later, maybe in retirement, maybe after you stop your main job, but maybe in a couple years, if you have to take a big distribution from some type of taxable plan? Or if you are expecting a giant bonus or a commission check, that could affect your taxable income. And that could have follow-on impacts.

6:13 

Kevin: So Stephanie, are you saying that this is going to be real simple, because if we know how much money we’re going to make over the next 20 years, we can plan down to the penny, when we want to take additional income for Roth conversions or knowing when to take on Medicare or anything?

6:31 

Stephanie: Oh, if only it were that simple? No, no, no, the sad part is, while we know the tax brackets this year, we actually don’t know the tax brackets in the future, we might know what your income is going to be. Or maybe we can make a decent guess. But Congress can change the darn tax brackets anytime they please. So in fact, I was looking at a chart if historical tax levels. So today, the highest tax bracket is 37%. And if you’re married filing jointly, you’re going to hit that tax bracket, once you have taxable income above $647,000. Now, I’m not expecting you to remember that, but just remember it for the next two minutes. Because as recently as 1986, which was the year after I graduated from high school, the top tax bracket that year was 50%. And you reached it married filing jointly, once you made over $175,000. That’s a big difference. Today, 2022. If you make $135,000 as a couple filing jointly, you don’t even get hit the 24% bracket, you’re in 22 versus 50 just a couple of years ago, 1986.

7:51 

Kevin: So when Melissa’s grandmother died, my wife, when her grandmother died a few years ago, we were cleaning out the attic and getting the house ready to dispose of? Well, I stumbled across an IRS tax guide from I think 1956, 1957. And it was just funny to see this in print, because you know, we learn in class, yes, there are classes about tax history. What tax rates were and everything.

8:19 

Stephanie: Only Kevin takes them.

8:21 

Kevin: Hey, only Kevin liked them. Anyway, I actually found the 1040 guide for 1956, 1957, something like that. And the list of tax brackets were longer than my arm, first of all, and the top bracket was low 90s. I mean, like 90%, 91%. That tells you, we’ve come a long way. If you think the tax code is complicated now, just think about what we were dealing with back then. Fortunately, we don’t have to worry about it, at the moment.

8:57 

Stephanie: At the moment. Well, I’m just scrolling through my historical tax. Look, I just pulled up the 1958 top tax bracket was 91. Below that was 90 below that was 89. Below that was 87. Below that was 84. So yeah, more brackets, higher rates. So when you think about it, yes, Congress might be a little dysfunctional, they have a hard time agreeing and moving forward. So let’s say they can’t decide to change the tax rates in the next few years. Guess what? They’re going to change anyway, because the current tax law we’re operating under is set to “sunset,” which means it expires at the end of 2025. So we’re actually going to go back to the pre-2018 brackets at the end of 2025, even if Congress doesn’t take any action, and those brackets are a bit higher for the most part, than we have today. However, right, a lot of Washington watchers, looking at all of the money that the federal government has put out, both in the great recession and now the pandemic, like the spending, the deficits, the debts, many people think the most likely direction for tax rates to move, income taxes and capital gains is up.

10:14 

Kevin: However, here’s a small problem with that theory, yes, mathematically, maybe that’s what needs to happen. But politicians get elected, and they like to get reelected. And, to be brutally honest, they have this perception that it’s easier to get reelected, if they lower taxes and not raise taxes. So which means while it seems obvious tax rates are gonna go up, it may not happen, or it may not happen as fast as we think, which just makes it even more complicated. Maybe we stick with the rates we have. Complicated from a planning perspective. Year to year, it’s fairly straightforward. We know what the rules are each year.

10:52 

Stephanie: But if we’re trying to make decisions about the future, and this is perhaps a good point to make. If you’re talking to your accountant about your taxes, they’re looking at your taxes in last year, the year that you’re filing your income tax rates for, and maybe this year, right, here’s some things you can do, very often, in my experience. I’m not going to generalize across all accountants, but in my experience, they’re kind of focusing on how can we reduce your tax bill this year. However, Kevin and I, as financial planners, we’re looking at this year, and next year, and every year, you’re on the planet. We want to make sure that we’re at least informed and making decisions that aren’t necessarily going to come back and bite you down the road. For example, it’s conceivable, and we’ve seen it happen that people all of a sudden have a giant spike of income in a year, that’s not so beneficial, because they’re going to get hit with Social Security taxation, Medicare surcharge, all kinds of this stuff. It is important to, at least, if we can’t predict the future, so much of what we do, Kevin, when we’re talking to clients, we can’t predict the future, let’s try to guess anyway. Because I do think there’s value to guessing.

12:05 

Kevin: This actually feeds to a point that we’ve made in the past, which is, if you have your financial team, let everybody talk together, your accountant who’s looking at tax dollars today, and your financial planners who were looking at dollars in the future, there is definitely a benefit to comparing notes, thoughts, strategies, so on and so forth. This is just a real world example, if you will, of where this teamwork framework can benefit you.

12:36 

Stephanie: Alright, so let’s address the point that we made at the very beginning, this whole misconception is very common, believe me, I shared it for many years, about tax brackets. So Kevin, if I make $200,000 as a single person, and I am told that I’m in a 32% tax bracket, does that actually mean that I am paying 32% of my income in taxes?

13:04 

Kevin: The IRS wishes it worked that way. But it doesn’t, fortunately for us. We’ve already commented that there are different tax brackets, and each dollar gets taxed at a different rate. To that point, the lowest tax bracket is 10%. And if you’re single, for 2022, when we’re recording this, that number is $10,275. All right, call it 10,300, for simplicity’s sake. That 10% on the first 10,000 plus dollars that you earn, everybody pays that, whether you ultimately end up in that 32% tax bracket, the first $10,000 you earn, you’re only going to pay 10% of. Now, if that’s all you earned, that’s all you’re going to pay is just that 10%. But if you’re a recently single individual, say, Bill Gates, then you’re still paying 10% on that first 1,275. But ultimately, you end up in his case, probably in the 37% tax bracket, which is the highest one, but each dollar gets its own rate. And that’s the important thing. So 200,000 If you’re in the 32% tax bracket, and you earn $200,000, you’ve paid some of those dollars at 10%, some at 12, 22, etc, until you get to that 32% tax bracket.

14:38 

Stephanie: So there’s an important term to keep in mind, which is marginal tax rate. So the bracket you’re in is actually the marginal rate. What does that mean, margin on what? It’s the 32% you’re only paying on the dollars above the dollar limit at that bracket. So for a single person, the 32% bracket kicks in at $170,051 for 2022. Again, you don’t have to remember these numbers, just the concepts. So if I’m making 200,000, I’m only paying 32%, hypothetically, and we’ll explain the exception in a minute. I’m only paying 32% on the 30,000, above, that hits that bracket. That’s my marginal rate. So then there’s a concept of average rate.

15:23

Kevin: And if you’re really curious what that number is, here’s the thing, after your accountant is done with your taxes. Look at what your total tax bill is, divided by your total income. That’s your average rate. The IRS actually publishes these numbers for different tax brackets, what the average rates are, generally speaking, for most Americans who end up paying taxes, it ranges somewhere between the mid teens up to the lower 20s is actually where the average rates for most Americans work out to be.

15:55

Stephanie: Let’s now explain why what I just said is wrong. If I’m a single woman making $200,000, I’m going to pay 32% on the amount above 170,000. That’s not quite right, because we have something called deductions. Kevin, what the heck is a deduction?

16:13

Kevin: It’s why we do taxes. Because if we didn’t get the deductions again, they would just take the money, and we would never see the IRS again. But they say let’s just spend money throughout the year you have expenses, we’re not going to tax you on every dollar because you’ve got to live. This is the concept behind deductions, in addition to the point you were making earlier, which is they’re trying to guide behavior as well. But in a nutshell, they’re saying, depending on if you’re single or married, the dollar amount differs, we’re going to let you take x amount of dollars, deduct that from how much you make, and that’s what we’re going to tax you on. More specifically, that’s called a standard deduction.

16:57

Stephanie: So, it’s deducting it from your income to get to your taxable income. So back to our single woman, the amount this year is $12,900. So everybody, every single person gets to subtract that from their taxable income. So Kevin, back to your point earlier, if I only made 10,275, this year, would I actually be paying 10% on that?

17:21

Kevin: Well, you would be paying 10% on the amount over and above your deduction. Guess what you made less than the deduction, therefore your taxable income is zero, which when I was talking about the average income said for taxpaying Americans, not everybody has to pay taxes, because their deductions can actually drive their taxable income to zero.

17:44

Stephanie: So that’s the standard deduction. But Kevin, I often, you know, people talk about things that are tax deductible. Certain items, let’s say charitable contributions, or mortgage interest. Well, how does that fit in?

17:56

Kevin: There’s the standard deduction that we just discussed about, but the IRS said, you know, what, there’s a lot of behaviors. And this is really where behavior driving comes into play, as well as just acceptance that sometimes life is hard, because typically, one of the biggest itemized deductions is medical expenses. And we’ll probably get there later. But what they’re saying is, if you look at all the money, where you spent your money throughout the year, if they fit within certain categories, add up all those expenses. And if they add up to be more than your standard deduction, hey, take the bigger amount, take this itemized deduction. It can reduce your taxes even further. So you have mortgage interest, you make charitable deductions, you’ve got medical bills. I mean, there’s a lot of different ways where this can kick in. On any given year, your deduction might be over and above what that standard amount is.

18:55

Stephanie: Yep. And like Kevin said, that’s why we go through the exercise. However, we will just point out the fact that something’s tax deductible doesn’t actually mean it’s free. We hear people saying, well, oh, come on, it’s deductible. It doesn’t matter. All that means is, you’re in effect, kind of getting a discount on it, because you’re gonna pay less tax that year if you have deductions. But because tax rates are never 100%, that means tax deductible isn’t free. I often see this when people are considering whether or not I should pay off my mortgage. Now, I have a lot of feelings about that. It’s not a simple equation. But one of the reasons people are hesitant to pay off their mortgage is that they will lose that tax deduction. But you also lose paying interest to the bank for how many years. So the tax deduction itself, the tax tail should not wag the dog.

19:54

Kevin: A quick example, let’s go back to 1956, 1957. Tax rates are at 90%. Say you’re in that top tax bracket, and you’re going to deduct your mortgage interest. And that mortgage interest was $100. Trying to keep the math simple here for me. Alright, so you’re in the 91% tax bracket. That means $91 out of your $100 is the deduction benefits you but guess what, you still paid nine extra dollars that you didn’t need to if you had no mortgage. So even in a really high tax situation, that deduction doesn’t fully cover the amount of dollars you had to send out of your checking account. 

20:42

Stephanie: All right, so let’s get into some of the other things that impact and are impacted by taxes. One of the biggest things we discuss with our clients is retirement savings vehicles. The government wants to give us incentives to save for retirement because the government knows Social Security was never intended to be someone’s sole source of support in retirement. Therefore, they’ve arranged this very complicated system of tax breaks to get us to save for retirement, we’re not going to go into detail. But you can, in some instances, to get a tax break. If you save money into a 401K plan, or an IRA. And please look back to our episode 12 for more details about IRAs.

21:31

Kevin: So, why do we contribute to IRAs? Well, because for some people, I get to deduct it off my taxes. There’s that word again deduct, deduction. However, your IRA deduction is different from this standard and itemized deduction, we were just talking about. Your itemized deduction, for example, is a separate form on your tax return. However, your deduction on making your IRA contribution, if you’re allowed to, you actually just take that on the first page of your tax form. So it’s a different type of deduction. It has nothing to do with standard versus itemized, you just get to take it right off the top. No questions asked. It doesn’t impact any other decisions you’re making lower down in your tax return.

22:24

Stephanie: And that’s what’s that term, that type of deductions called Kevin?

22:27

Kevin: Above-the-line is the term they use. Of course, they keep changing the tax form. You know what it’s above and below you to the IRS, that term may not actually exist, because that line may have shifted who knows? So right now they just use it as a quick comment is, above-the-line.

22:43

Stephanie: And just like super one sentence summary, again, the IRS giveth the IRS taketh away. So if you do get a tax deduction for putting money into a 401K and IRA, know that, on the back end, when you take it out, that whatever you take out, is income taxable at that time. The opposite type is a Roth IRA, and please go back to Episode 20, for more details than you ever wanted to know about Roth IRAs. But that’s kind of the flip side of a traditional IRA, no tax deduction going in, still some rules about when you can take it out, fewer rules, because the government’s already gotten their pound of flesh. When you take your money out, no tax. So this goes back to Kevin and I take in the long view of tax planning when we’re talking to clients. The traditional advice was always defer, defer defer, defer your taxes. Stuff as much as much money as you possibly can. If you’re in a high income bracket, especially put as much money as you can into tax deferred vehicles. And if you work for a corporation, you might have other things, there’s supplemental plans, top-hat plans, deferred compensation. All of these are ways to reduce your taxable income today. And they’re going to increase your taxable income in the future. So you want to be aware of these things. There is a bit of a danger, in my opinion, to having most or all of your assets in these traditional retirement vehicles or tax deferred retirement vehicles. Kevin, if I get to retirement and I’ve got a million dollars, and it’s all in vehicles that still have yet to be taxed, what risks am I facing?

24:22

Kevin: Quite simply, the tax rates are going to be higher. It’s really that simple. But of course, there’s even more problems with them. Because, let’s say, hypothetically, it keeps you in the same tax bracket you are today. But you’re generating a lot of money, as we touched on, and we even did a whole lot, our Medicare episode we touch on, again, my least favorite lady IRMAA, which, for the record just stands for income related monthly adjustment amounts, only the government could come up with that one.

24:59

Stephanie: See episode 22 for the Medicare details.

25:02

Kevin: It’s a Medicare surcharge. If you make over a certain amount of dollars, your Medicare premiums go up, because your quote unquote rich, therefore, you have to pay, you’re going to pay more. And your Social Security benefits may be subject to taxation, likely. All these things come into play. So which gets back to understanding how much you’re deferring, then to force future taxes may not necessarily be a good thing, because there’s a lot of different ways that could increase your costs. At the same time, you still want to defer some because you don’t want to pay everything at high tax rates today. And pay no taxes in the future, let’s try to level the stuff out, would be the perfect result for us and your accountant when we’re trying to plan these things out.

25:59

Stephanie: And just to spend a second on the danger of tax rates going up. If you’re thinking about it, again, I gotta keep the math simple to do it in my head, let’s say I’m imagining, I’m going to pull $100,000 out of my IRA each year to spend. If I’m in the 22% tax bracket, well, that means I’ve got 78,000 to spend absent any state taxes or anything else. But if tax rates changed, now I’m in the 35% tax bracket, I’ve only got 65,000. It can be a real impact. But not only that, because in these tax deferred vehicles, you’ve got a tax break, the government hasn’t gotten any taxable income on those things yet. There’s another thing which again, we discussed in our IRA episode, the government’s going to insist that you actually take money out of that plan at one point, because when you take it out, that’s when you pay your income tax. So we get into this thing called required minimum distributions, which is a whole formula based on your age. It used to be, it kicked in when you were age 70 and a half, the government’s famous for having these half years in their ages. And then it kicked up to age 72. There’s some discussion of it kicking up to age 75. But at the moment, if you’re 72 years old, you must take money out of your 401Ks, IRAs. It could be that the amount you’re required to take out is more than you actually need to live on. Right, Kevin, we’ve seen this before. It kicks people into higher brackets than they need to be in.

27:35

Kevin: So it gets back to the idea of a balancing act that, think back to what we were saying earlier, if you pay the tax today, you don’t have to pay the tax in the future. And typically, that means it doesn’t count as income. It’s not going to disqualify you for certain benefits, it’s not necessarily going to subject you to premium surcharges or taxes on Social Security. So it kind of feeds into a conversation about Roths. But at the same time, what do we say? There’s these lower tax brackets, that may have a trade off of paying 32, 35% today, if you put everything in Roth, for example. But if you’re willing to put some in a traditional IRA, take the deduction today, then you’re going to have these dollars in the future that may only be taxed at the 10, 12, 22% tax brackets, assuming nothing changes. Again, this can get into a fairly deep conversation. So, don’t oversimplify, but don’t ignore.

28:42

Stephanie: And these are the conversations we have with clients. There’s this concept of filling up your brackets. So if someone seems like they’re going to have a low income year, we’ve had clients who’ve changed jobs or heaven forbid, gotten laid off, or maybe someone is retiring. If they’re self-employed, and they had a lower income year, and they’re in a lower bracket, it might behoove them to do certain tax moves. We won’t get into gory details here. But it might be a good year to do some things where you’re recognizing tax, you’re actually accelerating the tax you’ve got to pay because you’ve got, quote, unquote, “space” in some of those lower brackets. If for whatever reason, this year, I’m in a 22% bracket, maybe I’ll do some things that are taxable, because I know next year I’m back in the 32% bracket. Why not pay 10% less tax? That kind of a thing. That’s what we’re talking about taking the longer view of tax planning.

29:44

Kevin: And then there’s one more thing, just for fun, since we’re spending so much time talking about tax brackets and understanding how they work. Here’s a real world example of planning too well. There’s a particular topic, I like to discuss – well I don’t like to discuss, but it needs to be discussed – something called the widow penalty, which sounds very dramatic and scary. Well, it actually can be. The problem with what’s called the widow penalty is the difference between married tax rates, and single tax rates. So put taxes aside for a moment. A common topic we have or common concern when we’re working with couples is not wanting to see a dramatic drop in income when one of them dies. All right, it’s a very sensible concern. 

30:45

Stephanie: Protect the surviving spouse.

30:47

Kevin: As much as you can. So you know, we talk about life insurance, we talk about making sure the IRAs and retirement accounts are going to go to the spouse.

30:56

Stephanie: If you’ve got a pension, look at the survivor benefits.

31:00

Kevin: And understanding how the Social Security benefits work and everything. And you can plan this very well, so that there’s a very minimal drop in income for just the surviving spouse. And that’s all good, except there’s the widow penalty, which is the fact that the dollars earned as a married person get taxed lower than a single person. For example, we’ve been throwing around 200,000, most of this episode. 200,000, for a married couple, you’re getting taxed at 24%. However, if you’re single it’s 32%. And that’s just a simple round number, there’s actually some really weird income amounts out there, that you’re talking about, like an extra 10, 12% of taxes just on income.

31:52

Stephanie: Well, even if we’re looking at someone making 80,000 as a couple, right, a little bit more modest. They’re in the 12% bracket. But if one spouse has all of a sudden gone, and the surviving spouse is still making 80,000, 22% bracket. And we’re not saying not to do this planning by it, but it’s something to be aware of. And it’s obviously it’s not only widows, going from married to divorced has a similar impact, what as long as you’re filing single when you used to file joint, of course, divorce, your income usually doesn’t stay the same. So that’s a little bit different.

32:29

Kevin: But it’s a goal that, you know, we try to understand and try to work around. But understand that getting back to a previous point that there’s all these other benefits out there that are impacted by your income level, fine, you pay a few extra dollars in income taxes. Here’s something, visiting IRMAA yet again, if you earn $182,000 as a married couple, for this year in 2022, so you look at your 2020 tax return, you do not have a surcharge on your Medicare premiums. IRMAA is not visiting.

33:06

Stephanie: You have the baseline lowest premium. 

33:08

Kevin: However, if you earn 100 to $82,000, as a single person, you’re in the second highest surcharge bracket. Yes, it’s the government. So there’s brackets for everything. IRMAA has brackets as well, which could result in an extra $445 per month.

33:29

Stephanie: Again, not a reason not to do it. But this is something we talk about, we plan for, we need to be aware of.

33:37

Kevin: Not letting the tax tail wag the investment dog or the income dog or whatever kind of dog you have. But understand, there are trade offs to a lot of these strategies. There’s always unintended consequences, a phrase we hear frequently, they exist. Again, that is the purpose of this episode, is to make everybody aware of these things and how they can interact with each other.

34:03

Stephanie: So let’s talk about one other super happy topic, passing away. Back to my example of the risks of having all my money in an IRA. Let’s say I’m a single person, single mom. I’ve got a million dollars in an IRA and I leave it to my kids. My kids inherit this money. Well, I still haven’t paid taxes on it. So now my beneficiaries owe income tax on it. And a few years ago, the rules on inherited IRAs changed. So the kids only have 10 years to take the money out. Maybe they are in their highest earning years, and they’re at higher tax brackets. But they must take that money out and pay tax on it.

34:49

Kevin: Don’t think for a second, it was an accident that the government picked that you gotta take it out in 10 years. Oh, trust me, they looked at it. And they said, Hey, if you’re in your 80s, and you die, you can give it to your kids. They’re in their 50s, early 60s, peak earning years. You were only paying 20 something percent on those dollars. These are now marginal dollars that your kids don’t necessarily want to take. And they’re paying 30 to 35%. It’s a great investment for the IRS.

35:24

Stephanie: Basically, the short version is your kids want to inherit the Roth IRA. Trust me. So Kevin, we can’t talk about taxes and retirement savings without just briefly touching on another important topic, one of your favorites, the health savings account, the HSA.

35:41

Kevin: The HSA. I feel like every time we say that word we should get a sound effect of the angelic host from above.

35:54

Stephanie: See Episode 27 for more details.

35:58

Kevin: Because HSA in a nutshell, is, from a taxpayer’s perspective, the perfect savings vehicle. You don’t pay tax on the money going in. You don’t pay tax on the growth. You don’t pay tax when you take the money out. There’s never any tax, assuming you use it for medical expenses. You can’t use it to buy a Ferrari. But you can use it for a lot of things that are medically related. In all seriousness, HSAs are even better than vaults from that perspective, because at no points are these dollars taxed. And I got a friend, a fellow practitioner, shall we say, who actually points out that it is quadruple tax free. Because if you’re fortunate enough to have your employer contribute dollars into your HSA, it also bypasses payroll taxes.

36:51

Stephanie: Oh, nice. Hey, payroll taxes, shoot, we might have to do another episode on that.

36:57

Kevin: Well, we’ve talked about estate taxes. We’ve talked about cash which I don’t remember which episode that is. But that was a pretty fun episode as well. We’ve now covered income taxes. Hey, I think we got a winner coming up here in the future. Just a little teaser for everybody.

37:15

Stephanie: Don’t worry, there’s more tax information to come. The episode on cash, how much cash should I have, was Episode 29. So if you’re not asleep yet, we thank you very much for listening, we will put a few helpful downloads in the show notes. Because again, I think visuals can help get the concepts here. Again, don’t necessarily need to remember all the details. Hopefully a few of these key concepts have stuck with you. Talk with your people, talk with your spouse if you’ve got one, talk with your accountant, talk with your financial people, right. Have an understanding and make sure you’re being smart about taxes.

37:56

Kevin: And if you don’t have someone to talk to, visit takebackretirement.com. We got a great little page there for you to just send us a question. We’re not tax preparers. We don’t know all the ins and outs of the IRS code. Truthfully, most tax preparers don’t know the ins and outs of the IRS tax code off the top of their head either.

38:15

Stephanie: They have software. They used to have books now. Now they have software.

38:21

Kevin: Now they have software and calculators and all these weird wonderful things. But question about a concept, we’re more than happy to give you our two cents.

38:32

Stephanie: Or direct you to some helpful resources. Thanks so much for being with us. We’ll talk to you next time. It’s goodbye from me. 

38:39

Kevin: And it’s goodbye from her.

38:43

Stephanie: Be sure to subscribe to the show and please share it with your friends. Show notes and more information available at takebackretirement.com. Huge thanks for the original music by the one and only, Raymond Loewy through New Math in New York. See you next time.

38:58

Disclaimer: Investment advice offered through private advisor group, LLC, a registered investment advisor. Private advisor group, American Financial Management Group, and Sofia Financial are separate entities. The opinions voiced in this material, are for general information only and are not intended to provide specific advice, or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor, prior to investing. This information is not intended to be substitute for individualized tax advice. Please consult your tax advisor regarding your specific situation.