3 Unpleasant Surprises That Impact Your Retirement

3 Unpleasant Surprises That Impact Your Retirement

Today, we are talking about 3 unpleasant surprises that could impact your retirement. 

  • Higher Medicare Premiums
  • Unplanned expenses
  • Higher income taxes

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Surprise 1:  Higher Medicare Premiums

Let me introduce IRMAA. She was originally introduced in 2003. Her role expanded under the Affordable Care Act in 2011. IRMAA isn’t actually a person, it is an acronym. It stands for “Income-Related Monthly Adjustment Amount.”

This provision looks at your income from last year. If it exceeds certain thresholds, your premiums for both Medicare part B and Part D will be higher. The IRMAA surcharges range from $58 to almost $350 per month per person.

Surprise 2: Unplanned Expenses

Hopefully, you have a good understanding of your cash flow. But, we often find things don’t always as planned. Your air conditioner quits. You need a new roof. Healthcare expenses are more than you expect. Your kids need help.

Unplanned expenses happen. And, if the surprise is big enough, it can force you to alter your budget.  

3 unpleasant surprises - woman

Surprise 3:  Higher Taxes

When people retire, they expect their income to go down. And that should mean a smaller tax bill. But that decrease maybe wasn’t as much as you were expecting.

Here is the biggest reason this happens. Many people don’t realize part of their Social Security benefits will be taxable.

The thresholds for this tax trigger aren’t that high either. Couples with a modified adjusted gross income of more than $44,000 could see as much as 85% of their Social Security benefits taxed.

What Can Trigger These Events?

There are a few common events which could trigger these surprises.

Death of a Spouse

You are no longer using the joint tables and the income thresholds are much lower.

Required Minimum Distributions

For some, this might be an extra boost of income. But the impact could be bigger than you might expect.

Converting IRA’s to Roth IRA’s—

This can be a good estate planning strategy for you and your family. It might be even better with the new law eliminating Stretch IRA’s. But the impact could go beyond a one-time tax bill. Be sure to look at the potential impact to your medicare premiums and the taxation of your Social Security benefits.

Talk to a Trusted Advisor

Life is full of surprises and things rarely go exactly as we plan. You may not be able to avoid these traps, but you can be better prepared to deal with them. If you have any questions, be sure to speak to a trusted advisor.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

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Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

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Year End Tax Tips for 2019

Only five weeks remain this year.  Today we offer some year end tax tips for 2019.  On this show we talk about:

  • Loss Harvesting
  • Qualified Charitable Distributions
  • And Capital Gains Distributions from Mutual Funds

Watch: Year End Tax Tips for 2019

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Year End Tax Tip #1 for 2019: Loss Harvesting

Year End Tax Tips for 2019

Let’s start with something called “loss harvesting.” If you own an investment that has decreased in value, you might be able to sell it and reduce your taxes. Here is how this works.

First, the investment can’t be in an IRA or a 401(k). It has to be in a taxable account.

Secondly, if it has decreased below what you paid for it, this is called your cost basis, you can sell it and reduce your tax liability.

Any losses you generate will offset capital gains. But, you can also use up to $3,000 of capital losses against your other income. The rest you typically carry forward to next year. You can use it against prior years taxes, but that gets more complicated.

Here is an important thing to remember. You can’t buy the same position within 30 days of the sale. So let’s say you sold Ford stock for a loss. You have to wait more than 31 days to buy it back. Otherwise, you have a wash sale and your losses will be disallowed.

Now, here is the issue. When the investment markets have been very strong like they have this year, it can be difficult to find those losses. But you may still have them and it might make sense to take advantage of them.

Year End Tax Tip #2 for 2019: Qualified Charitable Distributions From An IRA

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The next thing to consider is a qualified charitable distribution from your IRA. There are some very specific rules for this and here are the basics.

First, you must be at least 70 1/2.

Secondly, the funds must go from your IRA directly to the charity of your choice.

How does this help you? Well you don’t have to report the distribution as income. So if you aren’t spending your required minimum distribution, this may be able to save you some money.

Year End Tax Tip 3 for 2019: Watch Out For Capital Gains Distributions

Year End tax Tips for 2019 3

This last item isn’t so much something that can save you money, but may help you avoid some trouble next spring.

If you own actively managed mutual funds in a taxable account, pay attention to capital gains distributions. These happen when the fund managers buy and sell positions in the fund. By law, they must distribute those proceeds to their shareholders.

Here is where the potential problem lies.

  1. In good years like this, those gain distributions can be large.
  2. Most of the time, investors automatically allow those distributions to reinvest. This means they buy more shares of the fund.
  3. If they are big enough, it could cause a cash crunch next spring. What this means is your refund could be smaller, or you may owe more than you were expecting.

So how do you deal with this? Unless you sell your position, you can’t avoid the gains. But you may want to take the distribution in cash instead. This can help you avoid the cash crunch and allow you to diversify your holdings a little.

Take some time in the next few weeks to talk to your tax expert or your financial advisor. Planning ahead can help you save money or avoid a potential headache later.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Financial Planning

About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos And Posts