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She Didn’t Plan to Retire at 62. Here’s How It Happened.

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Today we’re trying something a little different. We’re going to walk through a real retirement story in chapters — and as each new detail comes in, we’re going to react to it the way a financial advisor would. Fran is 62, she figured a lot of this out on her own, and she’s only now sitting down with a professional for the first time. Let’s see what we find and what we might do differently from here.

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Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Marc:

Today we’re trying something a little different. We’re going to walk through a real retirement story in chapters. As each new detail comes in, we’re going to react to the way a financial advisor would for Fran. She didn’t plan to retire at 62, and here’s what happened. So let’s talk about Fran’s story.

Hey everybody, welcome into the podcast. This is another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. And if you need some help, got some questions, want to reach out to the fellows, give them a jingle, or I guess not a jingle, but find them online at pfgprivatewealth.com. That’s pfgprivatewealth.com. Of course, you can call them at 813-286-7776. We’ll have details in the show description below if you’d like to get ahold of them. And we’re going to talk about this kind of a retirement story here today, guys. Kind of break this down a little bit, so we’ll get started in just a second. But Nick, how are you my friend? You doing all right?

Nick:

Yeah, doing pretty well. Thanks.

Marc:

Good, good. Good to have you here. Good to chat with you as always. And John, how are you, my friend?

John:

I’m doing okay. Summertime started for the kiddos, which means I get to sleep in an extra 30 minutes.

Marc:

Oh, there you go. Little extra sleep is always good. Exactly.

John:

So it’s good, yeah.

Marc:

Well, let’s dive in. Let’s start with this chapter breakdown. So guys, we’ve got this story again, kind of a real case study here. So who is Fran? Whoever wants to do the setup here. Tell us a little bit about the story here.

Nick:

Yeah, so I’ll go ahead and start. So Fran, 62 and single, spent 30 years teaching in public schools kind of up north and decided wanted a change. So about five years ago, she moved south, rented a home, picked up a full-time admin job at a local office, and kind of did it from the standpoint in the sense of it wasn’t something that she loved or had always wanted to do. It was just kind of stabilize, get a job, earn some income, and be able to cover bills and figure out what she wants to do.

Marc:

Gotcha. And that’s fairly normal, right? A lot of people are going down to Florida, doing this snow bird thing. And so for a first time situation, somebody walking in, like you’re reviewing this case for somebody who’s coming in saying, “Hey, I’d like to talk to you about getting some help.” What’s a couple of things from just the story setup that stands out to you?

Nick:

Yeah. As somebody who kind of helps people plan for a living, I start to twitch a little bit just from the standpoint of it seems like the decisions being made are a bit on a whim and there’s not necessarily kind of a broad based strategy put in place. So for example, seeing somebody that had retired as a public school teacher, most likely there’s a pension involved. And we’ll learn that she had waited on the pension a little bit, but was there an opportunity to take something sooner or not? Obviously with her being under the age of 65, then there’s going to be costs associated and probably substantial costs associated with healthcare. So that’s something that would factor into the job opportunity that she was looking for.

In this case, she had rented a home, which in situations like this oftentimes does make sense dependent upon where she’s coming from, but we don’t know if she had sold a previous house or had rented before and then came down to rent as well. So we’ve got kind of variability and costs associated with a home. And then just getting a better understanding of what other sort of assets are in play and/or what’s the game plan, maybe like post 65 are all things that would help us from a planning perspective.

Marc:

All right. So let me jump in and do the next piece for you. Kind of a turning point here in the story. A few months ago, guy’s, Fran’s office restructured. She was offered a new role, more training, longer hours, not much more pay as a single person whose paycheck covers everything, taking on more of roughly the same didn’t make a lot of sense so she walked away and unfortunately she got let go, not exactly by choice but not exactly against her will either. So I guess when somebody lands in Fran’s position, retired before they planned as well, Nick, as you mentioned, what’s the most important thing to get some clarity on? How do you proceed in a situation like that? Now you find yourself without a job.

Nick:

Yeah, this tends to be a tricky one and we’ve kind of run into this where, and it seems like it’s happening more. We’ve seen this more in the last 12 months where people in their early 60s with the expectation of working a few more years and are sub 65, so have to deal with cost of healthcare and that sort of thing have been downsized, and there’s substantial difficulty whether they’re like a quote unquote highly trained or more specialized position, or in like France position, somebody that had done that previously and had shifted into a role that was maybe not as dynamic as had been and the other way. And so again, kind of having to adjust to whatever’s going on and the situation being dictated to her versus maybe being in the driver’s seat and having more options on what to do as she moves forward.

Marc:

Yeah, that’s the risk I think, to your point about not planning, is you’re not in the driver’s seat, or the catbird seat, right? You’re kind of reacting to things on how they go. To that point, what she did next is started drawing Social Security right away at 62, right? So locked that in that early. So you’re taking that what, 30% haircut right off the bat there?

Nick:

I believe so.

Marc:

Yeah. So she also picked up a part-time job at a gym she goes to. Nothing too demanding, keeps a little extra money coming in. So her monthly picture is now looking like 1,450 in social security, about 800 from the gym job, but 1,600 going out in rent before anything else. So how do you react now?

Nick:

Yeah, see that’s kind of the tough thing at that point, what do we have? 2,250 in income coming in from the social security and the job and a huge percentage of that is just going out just to cover rent.

Marc:

Yeah, not utilities, just rent. Yeah.

Nick:

Right. Not utilities, not food, not car insurance, not gas, a lot of different things.

John:

No vacations.

Nick:

Yeah, no vacations, not doing the things that maybe she wanted to do. And so this makes us rewind a little bit even further back, and in retrospect kind of look at as an example. So a conversation with somebody like Fran that we would have probably had if we had met her early on, knowing how dynamically an extra few years of working at a job that has a pension related to it, like a teacher.

So we might have had discussions and kind of doing some projections on maybe even a couple extra years as a teacher and then spending summers in the south, what that could have done to kind of ease her way into it and maybe break up the monotony of what she had been doing over a period of time, making sure that she really understood the impact of taking Social Security at 62 would have.

It’s like in this scenario, she doesn’t really have a whole lot of other options unless she would have found another full-time job. And what we start to kind of see is that if at that point in life, if somebody’s kind of let go and after a few months they haven’t had an opportunity to find another position, the freak-out factor really starts to kick in and they want to have something coming in no matter what and … Go ahead.

Marc:

No, I was going to say to that point, you mentioned the Social Security, right, or excuse me, the pension earlier, she’s just basically getting by with what she has. What she hasn’t touched, and I guess that’s where it gets more interesting and I wanted to kind of tee that up since you mentioned that earlier. She hasn’t touched that teacher’s pension, which she hasn’t started yet. 1,100 a month is going to be available but at 65, so you still got a three-year window there, right? But also the 403B with about 210 grand in it that she hasn’t touched. So now you can kind of start to factor some of that stuff in. So I guess right now she’s basically living paycheck to paycheck. So now you get a bit more of the fuller picture. How does that start to shift some things?

Nick:

Yeah. And one of the things that we will see is that people, their normal reaction will oftentimes be to avoid using any sort of investments just because they like the idea, or there’s like a psychological aspect of not touching their money, where taking Social Security at 62 is still touching your money. It’s just kind of in a different way. So kind of laddering these things together and knowing that she had some money kind of set aside, we probably would have looked at potentially supplementing the income for a year, maybe two years with the money in the retirement account.

Letting the Social Security grow a little bit more, then kicking that in and then having the pension kick in where then that would give an opportunity to take a little pressure off the retirement funds, and stop withdrawals for a few years and let that grow back. Because not only does somebody lock in a lower amount when they take Social Security early, but now they just have less money for things like the cost of living adjustments to kind of compound on in the future and that sort of thing. The big takeaway of what we see here is the fact that there wasn’t necessarily a retirement plan put together from a financial aspect.

Marc:

Right. I mean, she’s 62. Even a little planning a couple of years ahead of time might have helped a lot, right?

Nick:

Yeah. Yeah. There definitely would have been an impact on what could have happened. And the thing that also happens when we have this sort of conversation, anytime anybody’s going to make a substantial career change, like somebody like a teacher, for example, they have some of the best job security there is, and kind of being in the private world and shifting from being a teacher to the private world, it can be a little bit of a culture shock.

And just understanding that you can be let go and/or the dynamics in play can be substantially different. And so just that predisposition to what sort of field she was in probably didn’t necessarily lock in the risk taking of uprooting, moving, and even how delaying that a couple of years could have had most likely a pretty substantial positive impact on the plan, and maybe freed her up to be able to not have to work part-time for longer or have all these other variables that she’s not in control of.

Marc:

Yeah. And I think ultimately for me, like what I see on stuff like this is she figured out a lot of parts on her own, and that counts for something sure, but the difference is always like instead of doing it, reacting at that moment is doing a little bit of planning just goes a long way, right? I mean, you could still build one even in this situation, but ideally the sooner you can, the better. We’re not talking necessarily 10 years out, although that’d be great too, but don’t just wait until the last minute and then just react to stuff.

Nick:

Yeah. And the reality too is that in the short term, even though there’s a lot of moving parts kind of in that range of losing the job and shifting to part-time and taking the Social Security, really where the pinch will be felt is 10 years down the road when inflation really starts to kick in, things are feeling more expensive.

Marc:

That’s a good point. It feels that way now, right?

Nick:

Yeah. Yeah, for sure. And so it’s like that thought process of like, well, hey, the increases I’m getting on my Social Security, and maybe for her a pension, aren’t really keeping up with where things are going, maybe she didn’t have the opportunity to work for very long at the gym even and can’t find any other job and she’s just now her lifestyle, her expenses, John mentioned the opportunity to be able to travel, do the things that she wants to do. Some of those things may have been taken away, and some extra more kind of detailed planning to … Because those are the sorts of things that we would show as situations that could happen for somebody and making sure that there’s contingency plans and plan B, plan C if, hey, if these things happen, where can we go? How can we adjust?

Marc:

Yeah. I mean, stress testing different scenarios is a huge part of going through the retirement planning process with an advisor so that you can … I mean, she probably wasn’t expecting to lose that administrative job and having to go to the gym job, right? So life always throws things at us, so you want to make sure you got a strategy and a plan in place before you pull the trigger and go moving, or retiring, or whatever the case is, especially if you’re getting close to it, especially again, 60, 62, that kind of thing.

So as always, if you got questions, need some help, reach out to the guys. If her story sounds anything like something like you’re facing or could be facing, make sure you take the action now and start talking with qualified professionals and see, just sit down, have a conversation. They’re complimentary often. Most places do that, just to kind of see if they can help you out and if it’s going to be a good fit. So reach out to the guys, have a 15-minute chat, pfgprivatewealth.com. That’s pfgprivatewealth.com or call 813-286-7776. And that’s going to do it this week for Retirement Planning Redefined for John and Nick. I’m your host, Mark. We’ll see you next time here on the podcast. Don’t forget to hit that subscribe button. We’ll catch you later.

What Is A Backdoor Roth IRA?

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This week, we’re breaking down the Backdoor Roth IRA: the legal workaround that high earners use to get their money into a Roth and let it grow tax-free forever. We’ll walk you through exactly how it works, who it’s for, the one sneaky tax trap you need to watch out for, and whether it’s actually worth the extra steps. If you’ve ever been told you earn too much for a Roth, this episode is for you.

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Marc:

This week on Retirement Planning Redefined, what is the backdoor Roth IRA? Let’s talk about it. Let’s break it down.

Hey everybody. Welcome into the program. This is Retirement Planning Redefined with John and Nick from PFG Private Wealth. And this week, guys, and actually the next two episodes, we’re going to talk about the backdoor Roth, even the mega backdoor Roth. And just kind of do some recapping on the Roth in general. Why would you want to do it? What is it? How do you set them up? Is it useful? All those kinds of things that might pertain to doing the backdoor Roth, which sounds like it’s not above board, but it completely is.

It’s an actual totally legal strategy that you can use, but it’s got that kind of weird name to it. So we’re going to kind of break that down for folks this week and help people learn a little bit more about that on this episode and next episode. So we’ll get into it right now. John, how you doing buddy? You doing all right?

John:

Hey, doing all right. After four months of a kitchen remodel, it’s almost done.

Marc:

Yeah, nice.

John:

So life almost going back to normal. So I will say there’s a little more pep in my step lately.

Marc:

Nice. You can get a brand new kitchen that you still won’t use because you’re so used to doing something else.

John:

You know what? I have been cooking quite a bit with my daughter.

Marc:

Oh, okay. Nice.

John:

I told myself I’m going to use this thing. So we got cookbooks and it’s pretty cool.

Marc:

Nice. Very cool. Very good. Well, Nick, how are you, my friend?

Nick:

Good, good. Just moved into new house this past weekend with my new wife. So a lot of new stuff going on last few months, but we’re excited and happy.

Marc:

Yeah. Well, that’s fantastic. And of course, it’s a busy time of the year too, right? Springtime, all that good stuff. And conversations around tax efficiency become a big deal, hence the conversation around Roths and Roth contributions and how to do them. So I guess let’s just dive in. What should somebody know? Why would someone want to do one? Nick, why don’t you start us off?

Nick:

Sure. So for a Roth IRA, there’s a couple kind of key elements to it that we tend to focus on with people. As a reminder, the conversation that we have with people is that there’s essentially kind of three phases of taxation for accounts. When the money goes in, is it taxed or tax deferred as it grows? Is it taxable each year or does it grow tax deferred? When you take out withdrawals, is that withdrawal going to be taxable or is it not going to be taxable? So with a Roth, you’re making contributions with after tax dollars, so you’re not getting a deduction. The money grows tax deferred, so you don’t get a 1099 each year. And then when you take out the money, it’s a tax-free withdrawal. A couple of the other kind of key factors to consider when you’re doing this is that one of the benefits of having a Roth account is that Roth accounts do not require RMDs or required minimum distributions.

When funds were in a Roth 401k, they used to require having minimum distributions, but they no longer do. So no Roth money is something that we don’t want clients to have. We want to make sure that clients end up having some Roth money in retirement. One other factor to take into consideration, because the upside on Roth accounts are tax-free, that’s oftentimes where we will suggest that clients put their more growth-oriented investments for their overall allocation. That makes a lot of sense when you have a tax-free upside.

Marc:

All right. So John, so now talk to us a little bit about, I guess the Roth conversion, maybe a little recap there, and then some things to ponder.

John:

Yeah. So part of the backdoor Roth IRA strategy is conversions. That’s a step in the process. And I know we’ve talked about this in the past, but it’s always good to recap. And I think people hearing things over and over again, it really sits well with them. So how it works with Roth conversions are there are, number one, no income limits. So anyone can do it. So whether you’re making 50,000 a year or 300,000 a year, or if you’re retired, you can go ahead and do a Roth conversion. So that’s caveat number one. Some people do think they’re limited because in the past there were, I think in the early 2000s, there was income limits and those no longer apply. And how that works is Nick talked about the different phases of money. So let’s say you have some money in an IRA and it was tax deferred, everything’s pre-tax, so you did a deduction going in.

You can basically convert it all to a Roth IRA and it now turns into tax-free. How that works is whatever amount that you convert in that year, that becomes taxable income to you. So if you decide that, hey, I’m going to convert 30,000, your taxable income goes up by 30,000 in that given year. So important to really look into tax planning. We’ve talked about all this in the past, but before you do anything like this, you want to look at, hey, what does this do for my tax bracket? If you’re under the age of 59 and a half, it bypasses a 10% penalty. So you can do a conversion basically when you’re 40 or 50. So you’re not subject to that 10% penalty when you do a conversion, which again, some people just might need to hear that because they might say, “Oh, I can’t do a conversion yet because I’m not above 59 and a half.” And then also to have a count in the current year, you have to do it by December 31st.

Marc:

Gotcha.

John:

And another caveat with Roths is the five-year rule. So whenever you do a conversion amount under the age of 59 and a half, it’s subject to the five-year rule, or if you’re converting to your first time having a Roth, it’s subject to the five-year rule. So things to really take into account other Roth rules even once you convert because they still do apply.

Marc:

Okay. All right. So we got some kind of background information there on these two pieces. So Nick, what’s the backdoor Roth? As I said a minute ago, it sounds like it’s sneaky, but it’s not. I mean, you could totally do it. So what’s the deal to know here?

Nick:

Yeah. So the biggest cause or reason or most prominent reason that somebody would take advantage of using this strategy would be because their income limits or their income from a household standpoint, or if they’re single, exceed the income limits on being able to make a contribution to a Roth IRA.

Marc:

Yeah. You usually hear that, right? We make too much, we can’t do it, right?

Nick:

Yep, exactly. So for a quick kind of recap, for 2025, married finally jointly, the full contribution was if you were making under $236,000 a year, married filing jointly, then there’s a phase out period. So you’re fully phased out above 246,000. All right. For single, those numbers are 150 and then 165 for the phase out. Those numbers went up a little bit in 2026. So now married filing jointly, the phase out starts at 242,000 and then it’s fully phased out 252, single 153K for the year and then phases out at 168. So the thought process is, all right, you’re diligently saving into different accounts and you are looking for additional places to save money into, and your income exceeds the limitations. So you thought you were kind of out of not having the ability to make the contribution to the account. And that’s kind of the triggers that people should keep in mind like, hey, does this make sense to me?

It’s like, I’m higher income. I’m looking for a place to put money. I make too much money to make a regular contribution to a Roth IRA. Hey, is this something that I might be able to do?

Marc:

Gotcha. Okay. So now you’ve got the limitations, the reasons why. So now you have that understanding of, okay, is the backdoor Roth right for me? John, what’s the strategy of how to do it?

John:

Yeah, so Nick went into the income limits. And something before I go into the strategy is people understanding what an after tax non-deductible contribution is to a regular IRA. And when I get into the strategy, I’ll explain why this is important to understand. So most people, when they make IRA contribution, they deduct it, which Nick talked about the three phases, and that’s kind of the perception. hey, I make an IRA contribution, I can deduct up to 7,000, whatever the number it is in that year.

Well, you can, no matter what your income is, make an after tax non-deductible contribution. So what that means is, let’s say if you put that 7,000 into the IRA, you don’t deduct it’s after tax, and any growth moving forward is tax deferred and subject to taxes when you pull it up, but your after tax dollars are not subject to taxes. So just wanted to clarify or explain that when we go into the strategy, because this is going to be an important factor of understanding how that works.

Marc:

Gotcha. Okay.

John:

So the strategy works like this. It’s kind of different phases. So phase one is you determine what Nick said, should I be doing this? I want to save some extra money. And then you look at, okay, let me go ahead and make a non-deductible contribution to a traditional IRA. And what I stated earlier, it doesn’t matter what your income is. You can make a non-deductible contribution up to the IRA contribution limits for that given year. All right. So that’s first step is that. Then before there’s any earnings at all, because I just went over where with a non-deductible contribution, any earnings are subject to taxes. So let’s say you put in 7,000. So really that day before it’s invested, even in a money market or cash, because there might be some earnings there, you convert it to a Roth IRA. So you basically transfer it into the Roth IRA account and there’s a conversion paperwork to do and stuff like that, but you just basically transfer it in.

Now, where this works is there’s no earnings to tax. So basically what you’re doing is you’re taking that after tax contribution in the IRA, transferring/converting it to a Roth. Now it’s in the Roth bucket, and now all those earnings become tax deferred and tax-free when you pull it out. So that’s kind of the whole preface of it is that, let me do this conversion immediately, and that’s the way that you kind of do the back door.

Marc:

Okay. Right. So you’ve gone through this process, you’re thinking about the strategy. What are some considerations, Nick, to ponder here?

Nick:

Yeah. So really the cleanest, easiest, most simple way to do a strategy like this is if you do not have funds in your own IRA. So there’s a rule called the pro rata rule. And if you have other pre-tax money in a traditional IRA, and you want to execute kind of the backdoor Roth via the conversion, there are limitations on the amount that you will be able to convert without having any tax implication. So the ideal person is, let’s just kind of use an example of a couple, maybe early to mid 40s income, household income exceeding like $275,000. They’re putting a chunk of money into their 401ks and they’ve got good savings, a reasonable mortgage, and they’re looking where to kind of divert some money because they don’t have any of their own IRAs. The process is we open up a traditional IRA, we open up a Roth IRA, make the contribution to the traditional IRA, and then immediately execute the conversion.

That with the fact of them not having any money inside of their traditional IRA avoids the pro rata rule, and we just use that traditional IRA account to fund the conversions on an annual basis. So as a reminder, the contribution limits apply. For 2025, the contribution limit under the age of 50 is 7,000 per year over the age of 50 with the catch-up is 8,000. 2026, those numbers bumped up a little bit, it’s 7,500, and then for some reason they decided to pick 8,600 instead of 8,500, because who knows, why not?

John:

Keeping you on your toes, Nick.

Nick:

Yeah. Yeah. Just why not have it 600 if you can? So one kind of way, especially this time of year, that ends up, if people have free cash sitting in the bank, done this a few times this year so far, where they can make the non-deductible IRA contribution for 2025 and 2026 so we can put in 14,500 to 16,600 a bigger chunk, immediately convert it right away, and then you have the bigger amount going in. So that can be a nice way to kind of front load it and get the ball rolling.

Marc:

Gotcha.

Nick:

A quick reminder on that too is you want to make sure you file a form 8606 to report non-deductible contributions and the conversion. So there’s a tax form when you do this.

Marc:

Gotcha. So John, ultimately, I think people kind of want to know, is something like this right for me? How do I know? How do I do it? I mean, I guess the first thing I would advise is you certainly probably don’t want to tackle this on your own. You want to probably talk to professionals to help you with this because from the standpoint of even if finding out if it’s right for you, not to mention you want to make sure you do it right.

John:

Yeah, that’s 100% because that pro rata rule Nick mentioned is very sneaky.

Marc:

No, the government’s sneaky. Get out of here.

John:

Yeah. It’ll mess with you because a lot of people aren’t aware of it. If you have 400,000 in IRA and you’re like, “Oh, let me do a backdoor Roth.” You do it and all of a sudden you get a penalty from the IRS and it’s like, hey, we got you. You didn’t follow our rules. So that is number one. Definitely work with a tax advisor, financial advisor when you’re doing this type of strategy to make sure that you’re doing this to make more money and have more flexibility, not have penalties. So just do it right and make sure it’s in line. That’s number one. And then the next step is the name of our podcast, retirement planning. You want to make sure that this fits in with your plan and it makes sense. Nick gave a great example of you have some savings that is maybe not getting the best tax advantages of it.

This is a nice way to shift some money and say, “Hey, let me be more tax efficient.” Just from experience, having no RMD and retirement can be a big deal for some people, that way it’s not really forced income to them, which is nice. Having that tax diversification of assets where it’s depending on what the tax environment is, you can determine, “Hey, this is what I want my tax bill to be in a given year.” And we’ve talked about the bill last year where you have certain deductions. So again, it’s nice to have flexibility. Big one, legacy planning, which I don’t think we’ve hit yet with the Roth accounts, your beneficiaries inherited tax-free. So they get it tax-free. And with that new IRA rule, inherited IRA rule where you only have 10 years to pull it out, it’s a pretty big deal. So there’s definitely a lot of benefits.

If it works for your situation, it’s a great strategy and definitely worth taking advantage of while you can.

Marc:

Yeah. And that’s the point is finding out, is it right for you? And to the point of the complication, the conversation, as you just mentioned, they eliminated the stretch IRA a number of years ago and the IRS just got around recently to identifying exactly what the rules around that were. So it takes them five years sometimes to settle on rules for things that they put in place 10 years ago.

So having the conversation with professionals who deal with this stuff day in and day out is very important to find out if it’s the right fit for you. Again, especially, I mean, Roth conversions and Roths out there in general have been around for quite a while and so has the back door. It’s just a matter of understanding if it’s the right situation for you based on earnings and all that good stuff.

So if you need some help, as John mentioned, the name of the podcast is Retirement Planning Redefined. Get on the calendar, have a conversation and redefine your strategy with the team at PFG Private Wealth. Again, pfgprivatewealth.com. That’s pfgprivatewealth.com. Or call them at 813-286-7776. And guys, what we’ll do is we’ll talk about on the next session, the mega backdoor Roth, because that sounds even crazier, and we’ll go from there and get into that chat. So guys, thanks for breaking it down. Nick, always appreciate your time, buddy.

Nick:

Thanks, Mark.

Marc:

John, as well, thank you so much. And enjoy that kitchen, man. Get in there and make something good.

John:

I will. I’ll keep you posted.

Marc:

All right. We’ll see you next time here on Retirement Planning Redefined with John and Nick.

2026 Money Updates You Can’t Ignore

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What’s new in 2026 for retirees & pre-retirees? From Social Security and Medicare to tax breaks and retirement contributions, this year brings several updates that could quietly impact your cash flow, taxes, and savings strategy.

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Marc:

What’s new in 2026 for retirees and pre-retirees from Social Security and Medicare to tax breaks and retirement contributions? Let’s talk about some of the updates to the money matters that we cannot ignore on this episode of the podcast. Let’s get into it here on Retirement Planning-Redefined.

Hey everybody, welcome into the podcast with John, Ann, and Nick from PFG Private Wealth hanging out with me to talk about what’s new in 2026. No, they make little tweaks to things every calendar year and little updates. So we want to make sure we stay abreast of all that good stuff. So we’re going to talk with the guys about it this week. Nick, my friend, what’s going on buddy? How are you?

Nick:

Good. Got a cold snap going on here, but doing pretty good.

Marc:

Yeah. Well, that’s good. A cold snap to you guys is everybody else would take that in a heartbeat amongst-

Nick:

For sure.

Marc:

Most of the Northeast at this-

Nick:

It’s also a good reminder that I could never live in the cold again.

Marc:

Again. Yeah, for sure. I’m with you there as well. John, my friend, how are you?

John:

I’m doing all right. Not too much to complain about today.

Marc:

There you go. Well, that’s good.

John:

It is a little chilly for Florida but-

Marc:

That’s right. Yeah.

John:

Surviving here. And I have to mention here with my buddy, Nick, about the Patriots going to the Super Bowl here. So I’ve got a lot of angry texts this past weekend. So I don’t like to rub it in too much to him, but-

Marc:

Okay.

John:

I figured it was about time to let him know. I’ll send him some screenshots during the game.

Marc:

It still cracks me up that you guys are right there in Tampa and not Tampa fan, but it is what it is. Everybody’s got their fans. There’s fans for different reasons, so I get it. I grew up a fan of probably the most disliked team in the country because my dad was, but then we moved and I switched teams when I was a young kid. So I get it. So it’s always a fun little thing.

But with that aside, let’s talk about some of the financial stuff, some stuff we can agree on, whether we like those things or not either. But let’s talk about the COLA adjustments that are coming in for the new year guys. And my mom loves to make this joke. She’s 84. She’s on Social Security. She’s like, “It’s always a diet COLA because they give us a little something, then they take a little something away.” So what’s she talking about? Why don’t you guys break it down for us?

Nick:

Yeah. So made notice that there was a bit of a raise from the cost of living adjustment moving forward. It’s going to be 2.8%. So although it was an increase from previous, the increase is lower than it had been the previous couple of years, but really there’s been pretty substantial… When interest rates were really low through the 2014 through 2020 phase, there weren’t a lot of increases, but they’ve been pretty substantial now over the last four or five years. And our clients are really seeing the difference in how it impacts them from a cashflow standpoint. And obviously expenses have gone up as well, but at least it’s been close to keeping up.

Marc:

Yeah. And so they kind of do that little bit of an adjustment, right? And then where the diet side comes in, I guess that she’s always joking about, John, is it seems like they take away about half of it a lot of times with Medicare changes. So what’s happened there?

John:

Yeah. So unfortunately, although we did get a 2.8% increase on Social Security, the Medicare premiums for Part B did go up. So this coming up year, people are going to see when they get their Social Security payments, they’re going to see Medicare Part B deducted and it’ll be about $202.90, which is up about roughly $18 from the previous year, which if you’re looking at it’s actually the second-largest jump in the program history, which is pretty significant.

Marc:

Yeah. Yeah.

John:

So unfortunately people got their increase, but it was probably offset by the increase in Medicare premiums.

Marc:

Yeah. And everybody’s numbers are different, but I think I was reading that just on average, that if the average person across the country went up about $40, to your point, it took about 20 of it back. Right. So you’re only, not that much of a bump as compared to prior years. But again, they have their setups for that. So that’s some numbers you certainly want to be aware of. It shouldn’t make or break anything unless you’re on Social Security only, which obviously a lot of people are, but that’s not the retirement of your dreams. So you want to make sure you’re at least aware of those numbers.

Let’s talk about the catch-up contribution numbers too. This stuff does change every year, just about anyway, and especially from the workplace plan side, guys. There’s some interesting changes this year to be aware of. So I’ll let you guys jump in there. So talk to me about the catch-up contributions and the new super catch-up as well.

Nick:

Yeah. And the Congress is about another stage of infinite wisdom to try to make this as complicated as possible. So the straightforward part is that if you’re under 50 years old, the contribution to 401k or 403(b) went up $1,000 to 24,500. If you’re over 50, you can do an additional 8,000, which is considered a catch-up contribution. One thing for people to note is that a lot of plans do require a separate withholding declaration for the catch-up contributions. It doesn’t just… If you hit your cap on the regular, a lot of times, and in theory, from a dollar perspective, it would exceed that cap. You do still need to put a withholding percentage for most plans for the catch-up portion. So that’s important. We see people all the time kind of come in and like, “Oh, I thought I was maxing out.” And at the point that they’re over 50 and now it’s been a few years and they don’t realize that they’re not getting the catch-up.

So the super catch-up is for people age 60 through 63, they can do an additional 3,250, because why put round numbers if you can. So the total amount that they can do is 35,750. So one thing that we have found are that plan administrators for 401ks have done, from our experience, at least have done a poor job integrating this into their platform to allow people to make these additional super catch-up contributions.

So if it’s not allowing you to do it, or if you fall in that window, it may make sense to reach out to your HR department and make sure that they will allow you to do that. Again, it’s not necessarily a smooth transition from what we’ve seen for a lot of people. And then also something to watch out for, or at least to understand are that for people that are earning an excess of $150,000, and if they are making the catch-up contribution into the 401k, the plan is going to force them to allocate those dollars specifically to Roth dollars versus pre-tax dollars. So that’s something to understand.

Marc:

That’s an important piece right there as well. And John, basically, if you don’t have this available at work, you basically are out, right? You can’t take advantage of it.

John:

Correct. Yeah. So we manage a few 401k plans and what we had to do to start this year is contact the administrator and say, “Hey, are we going to be able to do this?” And if they said no, then basically the person that was higher or that’s trying to do a catch-up was unfortunately out of being able to do the catch-up. But luckily for the ones that we managed, they were able to adjust. And then on top of the administrator, this kind of is more for small businesses, but you also need to check with your payroll provider because the administrator’s going to do some of the amounts that go into their plans, but also your payroll provider needs to be able to switch over to a Roth contribution for some of these high earners.

And then also on the super catch-up, what Nick was referencing, it also needs to be able to allow for kind of bypassing the normal limits that are on there. So there’s definitely a workaround. So just check with your HR, whoever’s running the payroll on how it works for you when that time comes.

Marc:

Yeah, for sure. Yeah. So it’s an interesting little pro-tip there that you want to be aware of, especially if you’re making over 150, which again, a lot of people are, so you want to be aware of that. What about the IRA and Roth side of contributions? Any changes there?

John:

Yeah. So like Nick mentioned, these tend to go up every year. Some years they don’t, but more often than not, recently they have been kind of creeping up a little bit. So if you’re under the age of 50, your IRA contribution is 7,500. If you’re over 50, the catch-up went from 1,000 to 1,100, so your total amount is about 8,600 you could put into IRAs. And something that we don’t see it too often, but people just need to understand. That’s 8,600 between the two of them, whether it’s a pre-tax IRA/traditional IRA or a Roth IRA, you can’t do seven and seven to 14. You got to do 8,600 total if you’re above the age of 50. And as you know, people are doing some tax planning for 2025 still. Basically, you have until April 15th to make your 2025 IRA contribution, whether that’s going to be pre-tax, Roth, or potentially after tax contribution.

Marc:

Gotcha. Okay. What else is going on that we should be aware of? Any other updated numbers and things for the new calendar year, Nick?

Nick:

So for those that would like to contribute to the Roth, as a reminder, the rules when it comes to Roth, where it’s really differentiated between that and the pre-tax IRA are, it’s based solely on income limits. So those limits have gone up a little bit. For a single filer, the range is 153 to 168. For a married filing jointly, it’s 242 to 252.

Marc:

Okay.

Nick:

One thing that people oftentimes will use as an example are what’s called a backdoor Roth conversion. These can be a little bit tricky if you have existing IRAs, because it creates a ratio and just dictates on how much you can convert or not, but it’s something that if your income is in excess of the limits and you are looking for additional places to save, it’s worth having a conversation with your advisor on whether or not you can qualify and/or use a backdoor auth as an option to put money into that account.

Marc:

Gotcha. And you want to make sure that if you are a first-time RMD user, right, you want to make sure that you don’t miss that as well. Anyway, just you want to get that in place. You do have that ability, right, to kind of push it back, but then you kind of are stuck with two in the calendar year as well.

John:

Yeah. So we have come across sometimes where when someone in today’s numbers, once you hit 73, you have to take your first RMD out. And the IRS, they do allow for kind of like, “Hey, your first time doing it just in case you forget.” So we don’t want to hit you with the penalty they allow till April 1st the following year. If you don’t take it out by April 1st, there is a 25% penalty, which used to be 50. So it’s nice they actually drop that to 25% because I think 25 is high, but 50 is very high.

Marc:

True.

John:

But yeah, as you mentioned there, Mark, if you do take, like example, if you decide to defer your 2025 RMD or happen to forget it, you still have to take out, if you take it out by April 1st, you still have to take your 2026 RMD total. So you technically might have to take out two RMDs out of your IRAs.

Marc:

Yeah. And then you got to be careful if that bumps your tax bracket, right? So you have to, just want to make sure you’re managing all that, talk with your advisors. If you’re not working with some, again, and you’re checking this podcast out, make sure you reach out to John and Nick at pfgprivatewealth.com. What about HSA? It’s a great tool for those that have it. What’s some changes there?

Nick:

Yeah. So just as a reminder, to be able to contribute to an HSA, you need to have a high deductible plan at work. That is something that I would hope that they would change at some point, but-

Marc:

Right.

Nick:

That’s a different topic. So if it’s self-coverage only, the contribution limits are 4,400. If it’s family coverage, it’s 8,750. There is the $1,000 catch-up contribution, and you have until April 15th of the following year to make contributions for the previous year. A couple things to look out for that are a little bit different than like, for example, a 401k. HSA contributions, those limitations are both employee and employer contribution limits. So it’s a combined sum, which, for example, with a 401k, an employee can put in 235 or 245 with a new limit and the employer can put an additional money. It doesn’t count towards it. With an HSA, employer contributions count towards the limit. And if you are essentially 65 or older, you’re enrolled in Medicare, you are no longer, even if you’re in a high deductible plan, you’re no longer eligible to contribute to an HSA. So a couple things to look out for.

Marc:

Okay. And then final, John, any kind of little items we might have missed or any button up things we want to kind of touch on here before we go this week?

John:

Yeah. So with the HSA, it doesn’t have to be through work. You can get an individual plan. I unfortunately know that because my health insurance premiums went up way too much this past year, almost 44%. So I spent a lot of time at Florida Blue going through different options and it looks like they actually updated some of their plans to allow for HSAs on some of their plans with lower premiums to try to kind of boost it up with the… I don’t know if they did that to offset the rise and increase, but it did look like some new plans came out on their platform-

Marc:

Gotcha. Okay.

John:

With HSAs.

Marc:

All right. Well, that’s some good information to know. Any final thoughts? Any little tidbits we need to touch on before we go?

John:

So something we hit at the end of last year on our, I believe our last podcast of the year was the Big Beautiful Bill and the new deduction for anyone above the age of 65, where basically it’s a $6,000 deduction per person, and that’s through 2028. So it’s kind of recapping the numbers there. Single filer, if your AGI, adjusted gross income is above 75,000, you do not qualify it. So kind of recapping that. Anyone below 75,000 will qualify for that $6,000 deduction and married filing jointly, the number is 150,000.

Marc:

All right. So good stuff to think about. Again, whether it’s Social Security, Medicare, taxes, retirement, savings limits, whatever, there’s always little changes annually. Make sure that you’re running through that stuff. A quick review now can help make sure that 2026 works smoothly with the rest of your plan and works with it, not against it. So if you got some questions, need some help, reach out to John and Nick at pfgprivatewealth.com. That’s pfgprivatewealth.com to have a conversation and a consultation about your retirement journey and your financial numbers. The guys are here to help. Don’t forget, subscribe to us on Apple and Spotify and whatever app you enjoy using. And that’s going to do it this week for Retirement Planning-Redefined with John and Nick. We’ll see you next time.

Big Beautiful Bill Myths Debunked

On This Episode

Big tax law changes always bring big rumors. But before you assume Social Security is now tax-free or that you’re getting a $40K deduction just for breathing, let’s set the record straight on what this new bill didn’t actually do.

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Speaker 1:

The big tax law changes always bring rumors, so before you get too hyped up or worried about anything, we thought we’d have a little fun and debunk some of the Big Beautiful Bill myths this week on the podcast. Let’s get into it.

Hey everybody, welcome into Retirement Planning – Redefined with John and Nick from PFG Private Wealth. And one more time, we thought we would revisit the Big Beautiful Bill, the OBBBA conversation. I like saying OBBBA, it’s just fun. The One Big Beautiful Bill Act. Guys, just kind of hopefully maybe dispel some of these things, continue to have questions all throughout the year as we’re closing out the year we’re just trying to knock down some of those worries or some of those fears that people still have. So let’s set the record straight a little bit. We’ll have some fun with this. You guys can be myth busters on this episode, if you will. John, what’s going on my friend? How are you?

John Teixeira:

Not too much. Just wondering if Nick gave my phone number to a list because all of a sudden today I’m getting bombarded with, “Do you need a driveway cleaned?” And some random stuff. So I think I’m getting punked.

Speaker 1:

Oh man, it’s that time of the year. It seems like spam calls have gone just through the roof for the last couple of months, so I don’t know.

Nick McDevitt:

My hypothesis on that is I feel like businesses are slowing down and they’re kind of going back to their-

Speaker 1:

They’re getting creative too.

Nick McDevitt:

Yeah, they’re going back to their list client lists or different marketing tools. I feel like I’ve gotten re-added or added to a hundred new email lists in the last three weeks. So it’s interesting.

Speaker 1:

Yeah, it’s a weird thing. And the text thing and the email, it’s like they have so much access to you. Constantly getting stuff and of course the phones are always listening, so you just get all this weird stuff. But I’m with you, John, same thing. Would you like to sell your house?

John Teixeira:

No. Nick complained about it a couple of weeks ago and I was like, “I’m not getting too much.” And all of a sudden I think he’s like, “Well, if I got to deal with it, John’s got it too.” So.

Speaker 1:

Either that or your phone was listening and said, “Oh, you’re not getting it? We’ll get one, then. Here it goes.”

John Teixeira:

It could be that one too.

Speaker 1:

All right, let’s jump into a few myths. We’ll have some fun here. Myth number one, Nick, Social Security is no longer taxed.

Nick McDevitt:

Kind of for some. So just like most things, there’s nuance to it. If your income falls within the threshold of where single or married filing jointly and singles, I think the 75,000 married filing jointly is the 150, then you actually get a $6,000 tax credit to help offset taxes that you may owe on your social security income. But it’s not something that line item wise is gone. So for most people, up to 85% of their social security income is includeable in their overall taxable income. So this is a way that that amount can get reduced dependent upon the overall situation.

Speaker 1:

So technically no, they did not remove social security tax, but they’re for certain brackets in certain age groups for a couple of years, you can definitely reap a benefit. So do that. But yeah, it didn’t go away unfortunately. Myth number two, John, the new tax law means tax cuts for everybody.

John Teixeira:

Unfortunately not for everybody. Like we talked about in the last episode, the senior citizen tax deduction above the age of 65 is those single will get six, joint will get 12, but that’s not even for everyone above 65. Well, because if you income level’s too high, you also don’t qualify. So not for everybody. And then even the SALT deduction, which Nick went into last episode as well, if your state doesn’t have income tax, certain situations work for you, certain situations, and everyone’s a case-by-case scenario here. So not for everybody. Some people might not see any tax benefits from this, but some people might see quite a bit.

Speaker 1:

Okay. All right. Nick, myth number three, the tax brackets are permanent, so I’m groovy. We’re going to stay in this low tax bracket forever.

Nick McDevitt:

Yeah, it’d be nice if things work that way, but as we know when it comes to taxes or really anything involving government or legislation, we can count on there being change at some point in the future. So although if people read through documents and they see, hey, this adjustment in brackets is now permanent, that’s just kind of referring back to when they were originally reduced. There was a sunset provision that it had to get renewed at a period of time in the future. And so that’s what happened is it was essentially renewed and locked into place, but a new president or a new Congress can adjust that and change that in the future. And based upon debt and all that kind of stuff, were of the opinion that at a certain point in time there will definitely be some changes. And the reality is that most likely they will be higher taxes.

Speaker 1:

Yeah, they changed their mind as the wind blows and what they do with it. Right? So, all right, myth number four, John, we didn’t really talk about the estate tax too much on that prior episode where we talked about some things, but they actually raised it up a tick, made it a nice even number. So it’s a $15 million estate tax exemption, which means estate planning doesn’t much matter anymore because most people aren’t going to get to that level. What’s your thoughts?

John Teixeira:

Yeah, so it’s nice they made it a nice even number, just like when they changed the RMDH from a 70 and a half to a nice even number there. So we like simplicity here. But yeah, it doesn’t mean estate tax planning doesn’t matter anymore because certain states do have their own estate tax themselves. We live in Florida here.

Speaker 1:

Good point.

John Teixeira:

So we don’t have to worry about that. But depending on the state you live in, important to understand what those estate taxes are.

Speaker 1:

Yeah, that’s a federal estate. Yeah, that’s a great point. Yep.

John Teixeira:

Yep. So that’s the federal level there, 15 million. So yeah, just make sure you understand where it is. And just because the exemption went up doesn’t mean you don’t need estate planning because we’ve come across some people that definitely needed to structure their assets correctly to make sure that Uncle Sam doesn’t get all of it and also it goes to the right places. So.

Speaker 1:

Yeah, it’s much more than just the tax is a good estate plan, so definitely you want to have the other pieces covered as well. So just because the number’s high doesn’t mean you don’t need an estate plan. And you don’t have to be a Rockefeller to need estate plan. A lot of people kind of surprised by the fact of what an estate plan can do for them. Just average everyday folks, it can still be very beneficial. So something to certainly consider.

Nick, we talked a little bit about the car loan interest on that prior one, but so I googled basically just common misconceptions about this, and that’s how I’m wording these based on how some of these questions came up. So it’s like, “Car loan interest is now fully deductible,” and that’s how with the internet and everything, that’s how things get run amok. People think, “Oh, no, no, I totally saw that. Car loan interest is fully deductible. So great, I’m going to go out and buy a car and be able to write off the interest.” But that’s not the whole story.

Nick McDevitt:

For sure. There are definitely… So there’s a cap as far as the amount that can be deducted, it’s about $10,000. From a deductibility standpoint, it is a temporary thing and there are certain thresholds from the perspective of income can’t exceed a hundred thousand. And then the rules about the final assembly being the US for the vehicle. So it’s not a blanket something that, just like anything else when it comes to rules and laws, especially on taxes, the devil’s in the details and you want to make sure you have a full understanding of what it looks like. And on top of that, the reality is that a tax deduction is not usually a reason to spend money if you don’t need something. So that’s kind of like the famous last words of, “Yeah, but there’s a tax deduction.” But also if there’s a cash flow issue, then it may not make sense. So just like anything else, you want to be smart about the decision.

Speaker 1:

Yeah. And I’ll take this last one, John for a little bit. Myth number six, it was really around the itemizing. “I can skip itemizing and still get deductions for charity giving.” And I think people confuse the itemization and QCDs. And so I think there’s a little bit different disinformation there and there is some above-the-line stuff. So just hit me with that one real quick.

John Teixeira:

So you can make the deductions with charitable gifting. And it’s just recapping last episode, it’s capped at 1,000 for single in 2,000 for couples. So you can get the standard deduction and go ahead and get these additional deductions for giving to charity without itemizing.

Speaker 1:

And I think for a lot of people, especially if you’re making good money, they think, “Hey, I don’t need the RMDs,” especially for a lot of your client base. “I got to pull this RMD. I don’t want to, but I have to. The government’s making me. How can I maybe be charitably inclined but also be effective from a tax standpoint?” And that’s where the confusion with the QCD comes in. Because you can satisfy that RMD by doing a QCD.

John Teixeira:

Yeah, these are… Yeah, thanks for clarifying.

Speaker 1:

Yeah.

John Teixeira:

Yeah. These are two separate things here. The QCD is its own strategy and definitely take advantage of that if you are not, it’s a great way to do it. And just let’s kind of recap that strategy, Although it’s not part of the bill here, but what you want to do is have your… Once you’re above the age of 70, you can take advantage of it and you want the check or distribution that’s coming out of the retirement plan to go pre-tax, let’s emphasize that pre-tax, go directly from the retirement account to the charitable institution. So it has to be check made payable to that institution. They don’t need to get it directly. I have some clients that will get it mailed to their house as long as it’s written out to that institution. And the example, they go to church and they feel good about actually handing the check in.

And full disclosure, when you’re doing your taxes, I don’t want to say all, but most financial institutions aren’t basically telling the IRS what you did. When you do your taxes, you actually need to say, this is what you did. So the 1099 will kind of reflect a little bit of that, but you have to actually tell your CPA, “I did this.” Because if you do not, you will not get that tax deduction.

Speaker 1:

Yeah, no, for sure. And that’s why I wanted to ask you that because it does get confusion around what the tax law changes were with the above line charitable deductions or gift giving and the QCDs, so there was definitely some confusion there. So thanks for clearing that up. And again, that’s the whole point, right? Anytime there’s legislation, it always brings confusion. So having a good strategy, a good plan, and a good team in place to help you deal with this stuff because dealing with it every day is a lot easier than us who just only see the headlines and whatnot. So if you need some help, reach out to John and Nick, get onto the calendar at PFGPrivateWealth.com, that’s PFGPrivateWealth.com and schedule some time for yourself today. And with that, guys, thanks so much for hanging out. I hope everybody has a great holiday season. Don’t forget to subscribe to the podcast on Apple or Spotify or whatever podcasting app you enjoy. Retirement Planning – Redefined with John and Nick from PFG Private Wealth. We’ll see you next time.

IRMAA: The Hidden Medicare Penalty You Might Be Paying

On This Episode

Medicare isn’t always as free as you think. In this episode, we’ll explain IRMAA—the income-based surcharge that can raise your premiums and shrink your Social Security check. Learn what triggers it, who’s most at risk, and a few smart planning moves to help keep more money in your pocket.

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Contact info: www.legacyprotectionlawyers.com
Phone 727-471-5868

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Speaker 1:

I think Medicare is free once you hit 65. Well, not quite. If your income’s too high, there’s a hidden surcharge that can quietly shrink your social security check by thousands a year. It’s called IRMAA, and we’re going to talk about that today here on Retirement Planning Redefined. Hey everybody, welcome into the podcast. Thanks for hanging out with John and Nick and myself as we talk, investing, finance and retirement. And guys, we’re going to talk about Aunt Irmaa this week instead of Uncle Sam. Seems like there’s these two relatives that got their hand in your pocket. I’ve always been taught to call IRMAA, the Aunt Irmaa that comes by and pinches your cheeks really hard instead of the cool one that gives you candy when you’re a kid. So we’re going to talk about IRMAA, and what it is and why it exists and all that good stuff this week. How you doing, John?

John:

I’m doing all right. How are you?

Speaker 1:

Hanging in there. Doing pretty good. Looking forward to chatting with you guys about this, learning a little bit about what is IRMAA and what does it do to us. And Nick, my friend, how are you?

Nick:

Pretty good. Staying busy in the red zone for wedding planning and all that kind of stuff. And we are in football season so-

Speaker 1:

There you go.

Nick:

… I’ve had to adjust my sleep schedule a little bit.

Speaker 1:

Exactly. So between planning and football, you’re burning the candle at both ends.

John:

Monday is a little slower for Nick-

Speaker 1:

Little slower. Gotcha.

John:

… the last three weeks, especially with the Bills, how good they look.

Speaker 1:

Yeah, for sure. Yeah, my Lions look pretty good on Monday night this pastime.

Nick:

You sure do.

Speaker 1:

Yeah. Well, let’s get into the conversation a little bit, guys. What is IRMAA and why does it exist? Whoever wants to start?

Nick:

All right, I’ll go ahead and start. So essentially IRMAA is an acronym that refers to essentially an income related monthly adjustment for the cost of Medicare part B and D. So essentially back in ’03, as the plans both Medicare and social security continually get reevaluated due to the pressure that they’re under from the standpoint of expenses and flows in, they decided to put this into place where to kind of tier it where people that were earning income currently, so if you’re single earning income greater than 106,000 or married filing jointly earning income greater than 212,000, the premiums for part B start to go up. So this is something that we’ve dealt with quite a bit with clients.

It’s based upon modified adjusted gross income, which nobody knows what that means, but it is a term that everybody’s heard or most people have heard. As a reminder part A, there is no premium charge as long as you worked you or your spouse or former spouse work 40 quarters. This applies to the part B and part D. And it’s not a penalty from the perspective of how they look at it. It’s not like you’re doing something wrong. It’s more along the lines of almost just like tax brackets where lower income, lower bracket, the same thing on this, lower income, lower premium.

Speaker 1:

Gotcha. Yeah. And that interesting piece that catches people is that it’s a two year ago look back. So they’re going to adjust it based on what you made two years back. So as you move into retirement, that could feel a little… You’re like, wait a minute, why is this going up? But they’re looking at maybe the last couple of years.

Nick:

Yeah, for sure, and there is a form that people can fill out. We oftentimes help people fill them out. I think we’ve done it twice in the last two weeks where you can basically contest it. So especially if you’ve just retired and you were previously high income and they look back those two years, you can let them know that, “Hey, moving forward, this is going to be my income, it’s going to be reduced.”

Speaker 1:

Gotcha.

Nick:

Explain why, and oftentimes you can get it amended moving forward.

Speaker 1:

Okay. And John, so hit us with some numbers here. So who’s at risk paying the most? Obviously, there’s some data in here and Nick explained that the more you make, but what’s some of those guidelines?

John:

Yeah. So just looking at the base levels here, single father who’s modified adjusted gross income is over 106,000. Then they’re going to be at risk of basically, we know it’s not a penalty, but basically paying more for part B.

Speaker 1:

Right.

John:

And if you’re married filing jointly, it’s over 212,000. And the more you make, there’s different phases of it where you might pay $74 and then it’ll go up a little bit more as the modified adjusted gross income is up.

Speaker 1:

Yeah, we’ll talk about that here in just a second. So obviously it’s not hard to get to 212 for a lot of couples, so this could impact a lot of people obviously.

John:

Yeah, so no, we do see this coming up quite a bit lately, and where we see it is when someone hits RMD age, where if they’ve been sending so much money into pre-tax buckets and all of a sudden it’s, hey, you have a 50, $60,000 RMD, you have two social securities, and with the cost of living adjustments the last five or six years, some of these social security payments are getting pretty large compared to what they were about six or seven years ago, with the run-up in the market, these are getting really large. So that’s where we start to really see it come into play is high income earners have been saving a lot into their pre-tax accounts, and all of a sudden, it’s time to pull out of those. You can be forced into this.

Speaker 1:

Gotcha. Yeah.

Nick:

A couple other areas I would say too is if there’s a situation where for whatever reason there’s one spouse and a married filing jointly situation where one spouse is still working, other spouse is retired, and we’ve seen people, especially if they do it before they come and speak with us where they look and see like, “Oh, I should only pay the one 70 a month for part B,” and not realizing that there is this test and the retired spouse goes on Medicare instead of going on their spouse that’s still working’s plan, health plan and not realizing that the income is going to take them over the threshold and they’re going to pay more on part B than they would have if they were just a part of the plan at the work. And then…

Speaker 1:

It’s kind of sizable too, right? I mean, you’re talking-

Nick:

Oh, yeah.

Speaker 1:

… it could be some big chunks of money here.

Nick:

Yeah, for sure. I mean, especially if you get to… So single 167 to 200K is almost an additional $300 a month for part B and 57 on part D. So that’s another $4,000 a year on an expense aside. Married filing jointly at that same amount, 334 to 400, and we’ll see issues like this too, where maybe there’s a small business owner or self-employed or maybe them in one or two employees and their premiums, they had been running through the business and they attempted to switch over to Medicare at 65 and/or fed some issues with people almost being, not necessarily forced, but almost forced that way with their policies when they are over the age of 65, if it’s a small or a one person individual plan and not realizing that, again, that their premiums are going to be substantially higher than they expected. So it definitely happens more than people realize.

Speaker 1:

Yeah. Well, John, you talked about what triggers it, a lot of the times being RMDs, people moving into that. What are some other things that might trigger IRMAA?

John:

Yeah. So what we’ve seen in the past where people run into trouble, and this is where if you listen to our podcast, we always talk about being able to prepare for unexpected events and having a balance. But let’s say someone has most of their money in pre-tax and their dream home comes up and they really want to buy it and they got to jump through some hoops to potentially get it. They can afford it, but the majority of the money is in the pre-tax account and they got to pull it out, maybe a down payment or whatever it might be that could put your income up more than you expected. The unforeseen medical expenses where all of a sudden things are going along great, and emergency happens, you need to pull 20, 30 grand out to cover some medical expenses. That happened. I mean, oddly enough, I just had someone I think have to pull out almost 40, 50 grand for dental expenses unexpectedly, which as everyone knows typically not covered by any type of insurance, even if you have dental insurance, it’s not covering that-

Speaker 1:

Right. Right.

John:

… what you need that for. So things come up, family emergencies. Another scenario I’ve seen in the past, just trying to give people some examples of things to consider before they make any moves that are permanent. Home sales, let’s say if you had a second property, you’ve been depreciating it and all of a sudden it’s like, “Yeah, it’s time to sell this,” or you’re forced to sell it. There could be some pretty large capital gains that would actually put you above these thresholds as well.

Speaker 1:

Yeah. So basically it’s income generating items, right? That’s what’s going to trigger it. So I guess the opposite being said, Nick, is that things like Roth IRA withdrawals for example, wouldn’t trigger it, right? Because it’s tax, it’s not against your income.

Nick:

Yeah, Roth IRA withdrawals, HSA distributions, income that you might receive from a reverse mortgage and then a life insurance policy loan are all things that could be helpful. One thing I’ll say additionally is in line with this and with some of the reasons that will cause this. We’ve had clients quite a bunch recently where they’ve got substantial non-qualified money, so non-retirement money and they’re looking to get a new home and/or they’re in the process of selling their current home, looking at the new home, trying to avoid costs associated with mortgage, et cetera. And instead of selling the holdings, which oftentimes, especially over the last 3, 4, 5 years have substantial gains built in that then have this cascading effect that would impact this and that sort of thing where we’ve been using essentially what’s called a pledge asset line or a line of credit on non-retirement accounts.

So they can take a loan bridge that period of time, get the access to the funds, have to pay interest, but it’s non-taxable transaction, and then use that money, do it, wait for the sale of the original property and then just pay back the loan. And that’s a perfect example of where with IRMAA where that could be an unforeseen consequence of somebody just maybe doing a traditional way, “Hey, I’ve got this money here, I’m just going to cash out. Yeah, I’ll have to pay taxes.” But that’s in their case or their thought process, they might prefer that versus having to get a mortgage or paying a bunch of extra fees and expenses associated with the mortgage or having to go through the process of underwriting, et cetera, and this additional impact on IRMAA for a year.

Speaker 1:

Gotcha.

Nick:

So yeah, it’s just one of those things where it’s almost like a multiplier effect that falls down and just kind of a snowball going downhill.

Speaker 1:

Well, let’s talk a few strategies guys as we wrap up this week on ways to maybe avoid or at least lower IRMAA, again, if it’s income related. Obviously, John, you talked about the RMDs. Obviously, conversion could be one way to do that, a Roth conversion. Yeah?

John:

Yeah. And this goes back to the stressing, making sure that you have a plan in place to adjust to any situation. So what we find is let’s say someone retires 62, 64 when we’re doing the plan, we can estimate their taxes, what they’re going to be now and in the future. And if we see a period where it’s like five or six, seven years before RMD age is like, “Hey, we could start doing some Roth conversions here,” and what we’ll do is we’ll estimate how much of a conversion to do to make sure they don’t jump up into a higher tax bracket. So what that will do, ultimately, it’ll give them a little bit more tax-free income so we don’t trigger the IRMAA and then also it will lower their RMD. So IRMAA doesn’t get triggered by that. So again, that’s a great way to try to avoid any future IRMAA surprises basically.

Speaker 1:

Yeah. Yeah. And Nick, what’s some other ones besides that? I mean, obviously, that’s going to be probably a bigger one for many people, but I mean like tax loss harvesting, things of that nature.

Nick:

Yeah. So if you have non-qualified assets and you’re working with somebody that manages your account and/or you’re handling it yourself, you want to make sure that you’re taking advantage of tax loss harvesting in that account. Inevitably, any portfolio is going to have some winners and losers at the end of the year. If you can sell off some of the losers to offset previously recognized gains and/or get yourself some losses on paper to use to offset future gains, that’s something that you can absolutely do. The qualified charitable deduction, being able to send money directly from your IRA qualified charitable distribution to reduce your taxable portion of the RMD that you have to take can be a great tool as well.

So you just want to… We always talk about with clients that it’s really essential, should we have the time, you really want to have the three buckets of assets to generate income and retirement, those being pre-tax Roth and unqualified assets. And this is kind of a perfect example. I had a conversation with a client earlier, them just wrapping their mind around, hey, a distribution from a non-retirement account doesn’t necessarily mean that it’s taxable. And oftentimes those are some of the most flexible accounts and could provide quite a bit of a lot of different options on how to take income and reduce some of these hidden expenses like IRMAA.

Speaker 1:

Yeah. So, I mean, it’s a sneaky one that can get some folks, and again, we want to make sure we’re being as efficient as possible with anything, and that’s why a good strategy for your situation is important. I mean, these things can exist to affect all of us, but how you handle it, how you work with it, and based on your income and so on and so forth, and how you’re pulling money and where you’re pulling money and when you’re pulling money can go a long way. So it’s something worthwhile to make sure you’re sitting down and having a conversation about that hidden Medicare penalty, if you will. However, you want to look at it. It’s still something that frustrates people.

So if you need some help, get yourself onto the calendar. Don’t let it sneak up on you and eat into your income. Reach out to Nick and John and have a chat today at pfgprivatewealth.com, that’s pfgprivatewealth.com or call them at 813-286-7776. That’s 813-286-7776. Or again, just go to pfgprivatewealth.com, schedule that 15-minute chat, have that 15-minute chat and subscribe to the podcast on whatever app you enjoy using, Apple, Spotify, so on and so forth. Guys, thanks for hanging out and breaking it down. Always appreciate it. We’ll see you next time here on Retirement Planning Redefined with John and Nick.