Winning in Retirement

4 Taxes To Avoid

• Akers Financial Group

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Brian AKERS and Alex Monk, both Certified Financial Planners, discuss strategies to avoid taxes in retirement. They emphasize the importance of proper financial planning to minimize lifetime tax burdens. Key points include avoiding federal income tax by maximizing deductions and Roth conversions, avoiding mistake taxes like excess IRA contributions and estimated tax penalties, and understanding penalty taxes on early withdrawals and inherited IRAs. They also highlight the benefits of tax-efficient investing, such as tax harvesting and using tax-advantaged accounts. AKERS Financial Group offers free consultations to help individuals plan for their retirement.

Unknown:

The following is a pre recorded Show. Welcome to winning in retirement with your host Brian AKERS, Certified Financial Planner, professional and founder of AKERS Financial Group, now helping you win in your retirement. Here's Brian AKERS,

BRIAN AKERS:

welcome to winning in retirement. I'm your host, Brian AKERS, from AKERS Financial Group. I am the president and founder. I'm also a certified financial planner practitioner, and here today with me is Alex monk, a CFP certified financial planner, professional practitioner. There's a lot of P's in there, right, right?

Alex Monk:

Alex sips, yeah, tough letters, man, and you sell yourself short. Man, like it. How long you been doing this? Doing this, finance,

BRIAN AKERS:

radio financing. I think the year was 1987

Alex Monk:

Oh, man, how's a great year, though, wasn't it out?

BRIAN AKERS:

Basically, market crashed pretty heavy in October that year. But, um, it was an interesting year to get started as an as, oh, my start at the low end, and moving my way up the year I started as well, being born for life. Alrighty. So as you're listening to winning in retirement, you understand that we are financial advisors from AKERS Financial Group, and what we're doing, our show about is called, called winning in retirement. Our concepts is this, we want you to win in your retirement, if that's right now or if that's in the long distance future. We think financial advice will guide you in proper planning to be able to reach the goal of being able to retire and where you're winning each and every day in your retirement years, not fretting or not having a bad retirement because you did not prepare enough,

Alex Monk:

worrying all day long, right? Like, what do you do? Watch the news, stay inside. Like, how do you I don't even know, or

BRIAN AKERS:

if people have to retire early and they weren't prepared, or whatever situation they're in, if you say general Americans, general Americans are not prepared for their retirement. We can't count on our company to provide for it anymore. We can't count on the government to provide for our retirement. We need to save money in certain ways. Now. With all that in mind, Alex and I put together a show about four taxes to avoid. This is like, generally, in retirement, you want to avoid these taxes, but these can be applied anytime in our life.

Alex Monk:

Yeah, I believe avoiding taxes is always good.

BRIAN AKERS:

All right, so the word avoid taxes is we are trying to pay less tax. We are talking about legal options, deductions, deductions. Ways of doing it. We're not just avoiding to avoid the problem, right?

Alex Monk:

So it's not a Wesley Snipes where you just don't file, and they figure it out, like pay tax eventually

BRIAN AKERS:

taxes is how they always get. The more on criminal minds like Al Capone, I believe, was caught on the tax problem,

Alex Monk:

yeah, well, you got to file your taxes.

BRIAN AKERS:

Absolutely another show. Don't worry about that. When we use the word for taxes to avoid we just don't want you to have these taxes hitting you. It's gonna be a little funny at times. It's gonna be like, what is that? I need to call AKERS financial find out how that applies to me. Hey, that does apply to me. I need an advisor. That's the reason we do a show like this well,

Alex Monk:

and it's a big deal too. Like, if we're talking about 10% of your money, like a 10% difference, like, that's a big number.

BRIAN AKERS:

Have you ever read the disclosure on a normal brokerage account? It says we are not doing legal and tax advice when they do your money.

Alex Monk:

I met with a guy this week, and he had been with the same CPA for like, six or seven years, trying to meet with the guy, okay, couldn't get a meeting, like, offered to pay him, right? Because he wanted to, you know, a plan, like, talk about it, yeah. And all the guy wanted to do is get his documents, put it in and spit it out, yeah. And he was wrong

BRIAN AKERS:

on how he on how he spit it out, right? And so financial planning, one of the aspects of planning is, yes, we do ask your tax returns. We do want the last three years. Why do we look at the last three years?

Alex Monk:

Alex, so the last three years you can go back and change, amend,

BRIAN AKERS:

amend, and if there's a positive outcome, you will get the money back. Yeah. I mean, I wouldn't, well, yeah, you know, get a refund if it's a negative outcome. We we do fix them too. It's not fun to tell someone, oh, they forgot some income, but it is the right thing, because if you don't pay your taxes, there are things called penalties and interest for not paying them that accumulate at a very fast level.

Alex Monk:

And the clock is ticking. It ticks every day. You may not even know it, but it's ticking

BRIAN AKERS:

all right. So taxes, taxes are something that we all pay now. We all pay and and now at certain levels of income, you might be able to say, hey, I don't pay tax until I I make more money, but you're going to pay tax at some point in time. And those taxes, we can be wise with them, and pay less taxes. Correct? Less taxes means more money in your pocket.

Alex Monk:

And I think my biggest thing with taxes is not, I don't want them to just show up like they're not a surprise, like they're always

BRIAN AKERS:

not supposed to be a surprise. But we have people who bring in their taxes and they go, Yeah, I got a 10,000 or$15,000 capital gain. I didn't know. Anything about where I bought mutual funds, and mutual funds are thrown off dividends on 1231 and I didn't even know it's going to happen. And also I kicked to another bracket. My Medicare taxable. I got all these problems. And we're like, it's because things are set up wrong, right? The fundamental process of planning hasn't been followed.

Alex Monk:

And then it's like making those decisions at the right time too, right? Like in your life, like you got to group stuff together for that year, or, you know, it might take you two years to get yourself to that efficient tax point. All right, so

BRIAN AKERS:

we're only doing four taxes to avoid, but you're gonna see when we get to number two and number three, we might have sub points of 20 or 10 extra sub points? Well, it's just like taking notes with at home

Alex Monk:

your tax return, right? They're like, Oh, it's really simple, yeah.

BRIAN AKERS:

Well, if your tax turns very simple and there's one entry, I would say there's more lines there that we can use. The more lines we use, we're probably saving money. Yeah.

Alex Monk:

I mean, you want to use it to your advantage, but the key is knowing how it fits you.

BRIAN AKERS:

All right, I got to read this one. I wrote this. I thought was pretty nice. Let's go Alex, let's talk taxes and how one can keep more of their money throughout their retirement years. I say that with good enough emotion that

Alex Monk:

was good, and I am passionate about this. And why are

BRIAN AKERS:

you excited about tax? Isn't this a boring and painful topic.

Alex Monk:

I was thinking about this driving and I'm like, Am I that nerdy that I just love taxes? And it turns out that, yeah, because your brain works.

BRIAN AKERS:

But when you win, though, and win by lowering the tax or, like, when we look at someone's return, hey, if you've done this because you just told me your whole story, because you've never actually spoken to your tax preparer, like you talk. Just spoke to us. We can then go back and fix these things and do it a better way Correct. All right, so let's get going. We're gonna talk about federal income tax, the one big, beautiful Bill locked in the brackets. So we know, we know the parameters of our brackets we're working with. One of the things that we want to cover is this, yes, we want to avoid taxes, but sometimes you got to avoid future tax by paying tax today.

Alex Monk:

Yes, oh, man, so, like, that's such a hard thing, right?

BRIAN AKERS:

That's painful, but that's not a normal accountants way of doing your return.

Alex Monk:

No, no, no, because they don't see that, that million dollars in your 401, k, that is all pre tax. Yeah, they don't see that 300,000 belonging to the US government, right? Like, and when I see that account, that's what I see. It's like, how do I get them out of your pocket?

BRIAN AKERS:

It would a taxpayer will do is, I'll call you hey, if you do a deductible IRA, you can get you won't have to owe your $400 right? And I'm like, pay your 400 bucks, put in a Roth, and never pay taxes again. So there are, there are certain things on planning, where, if you are too short term focused, you won't be long term focused. And so the tax to avoid is all the tax in the future on a decision you make today, if you have to decide between paying tax now and making it Roth and it's tax free later, or getting a quick deduction for one year where the brackets are decent because of this bill making it permanent. Why?

Alex Monk:

Right? Like, don't be scared to pay tax. Like this is the time to do it. Like we can look at all these charts, but marginally, tax rates have never been this good, right? Our big fear with before Oba, which is a weird thing to say, fear before Oba, but you play the Oba. You know that my wife did play the oboe oboe?

BRIAN AKERS:

Yes, I think that's insurance. All right, this is a financial show. Yeah, we don't need to offend musicians at all. We love musicians,

Alex Monk:

but we thought they were going to 25 they stayed at 22 and then, oh, they get a little bit worse at 24 but you got miles before you jump to 32 right?

BRIAN AKERS:

3235 some of the fundamental things we find is that while people are married and jointly, they might be at 12% bracket, but when one person passes away, that survivors at 22 to 24 that's a doubling of your federal tax bracket. So why can't we do something about it? And we can through Roth conversions, rothification. We have so many shows about that. We have one. We're gonna do one next week. You and I will do one about that too.

Alex Monk:

It's great. Like, I mean, why wouldn't you prepay an expense? Like, people buy prepaid funerals. They buy prepaid everything, right? Like, why wouldn't you get your at least part of your taxes done? All right?

BRIAN AKERS:

Is there any way to avoid federal income tax? Generally, if you buy Maryland state bonds, if you live in Maryland, triple tax. Triple tax free means no federal income tax, no state or local because you're buying the municipal bond in the state that you live in. If you have state bonds around the country, it's federal tax free, but you have to pay tax in Maryland because that's another state's bond, not theirs.

Alex Monk:

Yeah, and it depends, like on the low side, like the less money that you make, it's possible to avoid taxes, but then you don't have money to spend, right? So, like, it's a give and a take.

BRIAN AKERS:

How about what someone says I make so low money in my 60s, so that I don't even have to file tax returns, but I got this large IRA, so when I'm 7375 my RMD is going to make.

Alex Monk:

We pay tax later and hire Medicare, etc, etc. How do you

BRIAN AKERS:

respond to someone that says, Oh, I don't pay any tax. I don't even have to file but you know, they have a future problem.

Alex Monk:

I'm like, You need to get here immediately, because we got to fill those buckets up. Those are my favorite years. So fill the buckets. Explain, fill the buckets. All right. So like, let me just give you a little scenario, right? If you're pre Social Security or pre required minimum distribution, yeah, and you have enough cash, cash, or you don't have any bills, or, you know, whatever it may be, and you're not taking any IRA money, those are years where you need to pay some tax. You gotta pay something, right, something you want to fill up depending on, you know, zero

BRIAN AKERS:

is not a hero. If you're showing zero income, that's not proper tax planning.

Alex Monk:

Some people, if they need health insurance, then we do subsidy planning for our taxes, right? Like, okay, we want to show 90,000 net deductions, you know? So we get a $300 tax credit. That's one way. But no matter what, we got to fill those buckets up, because in the future, tax tax rates could change, but we know for sure that withdrawals are going to

BRIAN AKERS:

happen, right, because that person has a savings that's deferred pre tax, so it's coming in this case. Now, if there's no savings, no tax, there's nothing to plan for, because there's nothing to plan for. So the idea is, how can we do better? One of the amazing things at the lower income level, if you put money in a Roth IRA, there's actually some matching from the federal government.

Alex Monk:

Yeah, you get a tax credit, like savers tax credit. So, like, there's ways, like, regardless of where you are, there is tax planning that you can do.

BRIAN AKERS:

So federal income tax we're not trying to avoid all of it. We're trying to pay the fair amount and pay less over a lifetime, through proper planning, getting a deduction this year might not be the wisest thing for

Alex Monk:

the future. You No, and you need to know that tax rates could get worse. Absolutely.

BRIAN AKERS:

So AKERS Financial Group, we're local. We're independent. We don't report to a big company on Wall Street. We report to you. We do have offices in Forest Hill and Lutherville, and we meet clients all around the mid Atlantic region, all around the country, and even a few around the world. It's so easy to begin winning in retirement. Just give us a call and schedule your free meeting with one of our team of advisors. Call 833 win retire. That's 830 3w. I n, r, e, t, I R, E, we'll give you a call on Monday to schedule your free in person meeting. Go to AKERS financial group.com or call us at 833-946-7384, to start planning for your retirement now, it would be a mistake to pay this tax. We will explain when we return in a moment,

Unknown:

you're listening to a pre recorded Show. Welcome back to winning in retirement. Call 833, win retire now to schedule a visit with Brian and his team and begin winning in retirement. Once again. Here's Brian AKERS.

BRIAN AKERS:

Welcome back to winning in retirement. I'm your host. Brian AKERS, President, founder of AKERS Financial Group. Here with me today, is certified financial planner practitioner, Alex monk, we're talking about four taxes to avoid. It's one of the favorite topics of AKERS Financial Group. And Alex monk, so good morning, Alex, welcome to second quarter.

Alex Monk:

Oh, I love it. I love this stuff. Yeah, I know you love it. So weird, but I love

BRIAN AKERS:

it, it. I mean, I believe it's a topic that no one wants to spend time on, but then we can add value very quickly by helping to avoid taxes that people are paying or they're going to pay in the future, and they just don't understand

Alex Monk:

well, and it's not a ministry, right? Like they tell us the rules where they can, and they decide when they don't know the rules, but they're not like taxes is not something you just want to stick your head in the sand like you want to go and figure out what your tax issues are and solve them

BRIAN AKERS:

right now, we bring in some CPAs, sometimes on the really hard issues for small business and sophisticated situations, but general financial planning, there's some basic, fundamental tax planning that we apply at all cases and make sure that we're not wasting money by paying taxes on money that we should do now that wasting money leads to our topic this quarter is going to be all about it would be a mistake to pay this tax. What's the tax we're talking about?

Alex Monk:

Oh, man, what's your what's your favorite mistake? I got some good ones.

BRIAN AKERS:

Well, this category so number two is going to be called mistake taxes. Whoops, I made up the word mistake rather than a unknown or whoops, a daisy tax. It's not just one tax. It's just surprise, surprise, surprise. You know where that's from. You're not a Gomer Pyle fan. Yeah, that's, that's real old school. All right. So the surprises and taxes is, you do something and then, oh, you owe taxes on that. You owe extra tax on that. And then,

Alex Monk:

like, a couple years later, you might even owe another extra tax through Medicare, anything that's means tested, so you

BRIAN AKERS:

get that little letter, usually two years after the fact. Hey, yeah, I think you forgot this. We, we got this record, and the record says you owe us another 400 bucks. You're like, why? Congratulations on your success. It pretty much well. You've said that to people, right? You've done so well. You have to pay tax. But do we really have to pay all that tax? Now let's talk about mistakes that people make that we can try to avoid. Let's start with a simple one called Do you know that if you put too much into your IRA or too much into your Roth, there's a penalty,

Alex Monk:

and it's a ticking time bomb too, right? Like, why is it a ticking time bomb? So they charge an excess contribution penalty based on, you know, if you don't get it out by, I think, April of the tax the following tax year, like, when you file,

BRIAN AKERS:

when you file, right? You have to get the tax, you got to get the contribution out and any growth it had out,

Alex Monk:

and the earnings, and they have to be separated. It can be rolled forward, and different things can be done with it. But it's it's messy. It's not something you want to keep doing.

BRIAN AKERS:

It's just situations. We take over an account for someone, and they're putting money into an IRA automatically, and then they had another advisor, and then he put money in that one, but didn't tell the other advisor about the other one, and all sudden, they're a couple 1000 bucks over contributed. And we're like, that's going to cost you 6% of being over of just another tax. You have to get it out. But if you don't, it keeps growing.

Alex Monk:

That's assuming that they told the accountant that they were putting it in an IRA. Oh, and that's happens all that happens all the time, and then people might have to pay double tax. It drives me crazy.

BRIAN AKERS:

Well, we get this form in May about your IRAs that actually show the contributions. It doesn't come in tax season. Why would that happen? Why? Why don't they provide in January? So we're talking about a lot of different things here, but the simple idea is this excess contribution. So let's say you're 48 years old, and someone says you can put 8000 in your Roth? The answer is, No, you can't. You can put seven, but if you put in eight, you have to fix it. How do you fix it? Well, you can't just say, oh, that's for next year. Oh, you can't now, before April, you can say it's for last year, if for proper coding, right? You can reclassify and you can do that inside of a fund. We've had to do that to fix someone's situation, but generally you have to pull that out, and then you have to get a calculation done by the place you have your money, and they calculate the gain on it, and you got to take the 1000 plus whatever gain and comes right back out

Alex Monk:

to you, yeah, and so, and usually the gain or whatever is taxable too, yeah.

BRIAN AKERS:

Now excess contribution is not something that happens a lot. It's just something about communication. When you have multiple advisors, or you're just trying to save everywhere, and

Alex Monk:

all of a sudden you have a year, right? Or something happens. You have a capital gain, you have this, you have that, and your income changes, and you don't realize what that does to everything else you're doing.

BRIAN AKERS:

Oh, you made too much money. You can't even contribute to a Roth IRA, pull the whole thing out,

Alex Monk:

be made too much. You can't save spend it all, and that gets

BRIAN AKERS:

caught a couple years later, not not the year you do it all. Right? The next one is a simple thing called an estimated tax penalty. We're not gonna go through all the rules of estimated tax penalties, but there's this idea that you owe taxes and then on your tax return, they charge you a penalty for not paying them in. How? How does this happen? Alex,

Alex Monk:

based on the Voodoo calculations that you select the year before, on how you want to calculate your estimated tax right, like certain percentages need to be paid in throughout the year, right, if you have a giant, whatever windfall, typically, taxes are due in that quarter, the quarter

BRIAN AKERS:

when you had the windfall or a big sale, you make a big profit on a stock sale, you sell a second home with a capital gain that quarter, you need to pay your

Alex Monk:

tax right. And if you're already on, like, an estimated payment schedule and things change, you know, they might be tracking interest from the first quarter because you paid it six days late. And you know, you might have $4 on that. And it's this big, giant, a

BRIAN AKERS:

lot of times this happens in retirement because someone they sign for Social Security. Well, Social Security doesn't automatically take tax out, and so federal income tax, I know, one big, beautiful bill says no one pays tax Social Security. The issue is, if you do really well, you might pay tax on your Social Security. 86% don't, but there's 14% do. That means they make more money than probably 152 50, and they lose that senior tax deduction. So the idea is this, you might be a surprise. There was not enough tax withheld. Happens on we have clients when they knew people as they come in the year before their prior advisor would just take 10% federal income tax on every withdrawal.

Alex Monk:

Well, that's what they say. If you're checking out on your own online, you know, yeah, it just, they just different places, 10, 10% 20 for everyone you know,

BRIAN AKERS:

at a certain institution that we've dealt with, they take a 10% out on your Roth also, I said automatic. So, all right, so what I'm trying to joke about here is this. It's not really a joke. Estimated tax penalties are when you don't pay in enough tax during the year, and you owe if you owe too much, they cannot charge another penalty on top of that, saying that you should have paid over the quarters of the past year.

Alex Monk:

Weird. And what I see a lot is like, you have two people that are working right, and they're both making pretty good money, right? They're both the top of the 12% bracket. If they were the only one earning money, yeah. So you combine those two incomes, they jump to 22 and they're both 10% short. Why do we always owe? Why do I always owe? It's it's just how the payroll systems work, right? So, yeah, nobody's responsible for this, but you

BRIAN AKERS:

the quick calculation I do. I look at your federal tax I look at your taxable income, and I do a little division. I had this one case where husband was withholding 8.8% the wife was at 13% and the combined meant they're going to owe 1000s of dollars at the end of the year. And I said, well, the husband needs to raise it this many dollars, and then the wife needs a raise, because we got to get to a 15, because when you stack them up, they're heavy into a 22% bracket. Effective rate, like 15. Yeah, effective rate 15. So cheap. The wife moved up a little bit. Hasn't moved up a lot, and we did it right away so that they're going to be better off and not have this big surprise. Because people hate owing 1000s of dollars, and then, especially when they don't understand why, right?

Alex Monk:

And then it's like, well, I know I got this big check coming, so I go on the payroll system and make them withhold less taxes,

BRIAN AKERS:

Oh, wow. 2025 The next mistake is going to be, is this, you never tracked it? It's going to be the comment, Hey, did you track your charity? You know, you take charity in 2025 taxes. Did you track your assault deductions? That means you're staying local real estate tax on the multiple properties that you have as a residence?

Alex Monk:

Did you make your Maryland payment before the end of the year?

BRIAN AKERS:

Yeah, all these things are actually, you might actually be able to use it this year, if you have enough,

Alex Monk:

and if you're listening and you have high wages, right? Your salt deduction just went up 30,000 you're in the state of Maryland, or somewhere around here, you're probably paying a nice chunk of tax.

BRIAN AKERS:

It's under 400,000 you're going to have a salt sought state and local tax deduction used to be 10. We capped out that law changed up to 40. There's some room there, but you got to get the information.

Alex Monk:

I've been finding it's tough for people over 65 with the extra credit, like it's still because typically they don't have mortgage interest at that age, you know, etc, but for people in that high earning, high debt, true, it's time. All right, I

BRIAN AKERS:

got to run through some more mistakes. We've seen charity not even tracking it? Well, you need to track it, because there's gonna be a separate line item for 1000 per person, $2,000 per couple, that you above the line on standard deduction. But my tax guy doesn't ask me for that anymore. Well, well, that's what's happening. Over the last few years, we got a little lazy on our itemized deductions. They don't even fill out the paper when they when the account sends you this big pile of things to fill out. Add, I'm standard anyway. Don't worry about it. Eric, the warning is this, track them. You never know, at least,

Alex Monk:

and then at least you have the history of it, right? So if they ever come back and want to know, we

BRIAN AKERS:

got to hit this next 180 606, form. This is a common mistake. The client puts money in a non deductible. Ira, it's not deductible. Why don't you tell me tax person, and then nothing happens in it with something called double taxation in retirement. Because what's the reason there?

Alex Monk:

Alex, well, it's because they're putting money into a quote, unquote, pre tax account. Yep, and their tax return does not reflect that, because if you're doing this on your own right, you're not having your payroll withhold it. It's up to you to tell right?

BRIAN AKERS:

You got to track it for the rest of your life. If you do an A basically non deductible IRA, you got to track that money in an 8606, form, which is a cost basis, so that when you pull out your IRAs later, you you get a, basically get credit for paying the tax on that money.

Alex Monk:

Yeah, I see this a lot, and it's like the first thing that I fix, right?

BRIAN AKERS:

We got to go back and fix it, all the way back to whatever decade day the tax problem started,

Alex Monk:

get it out of there, make sure it's right. But you never want to pay tax twice, all

BRIAN AKERS:

right, so if these are happening to you, non duct IRAs, if you want to do something called a backdoor Roth, these are things we must communicate to our tax preparer and your financial advisor needs to guide you how to talk to the tax repair,

Alex Monk:

and don't expect your tax preparer to know all these things they may not know if it's not their wheelhouse, especially the lower the

BRIAN AKERS:

fee you pay. If they're doing it quick, if they're doing it by hand, it's not gonna pop up, not gonna be a question. If they don't ask you questions, you gotta question it. Any contributions to retirement, make sure your accountant knows it, so they can do the return the best way

Alex Monk:

for you? Yeah, and it's information so that down the road, we can prove that we've done it correctly.

BRIAN AKERS:

Ever all of these mistakes will cost you money, paying more tax than you really had to pay, and that's the reason we're talking about four taxes to avoid. Now we all know retirement is wonderful, where the best part of retirement is getting your time back, where you decide how to use it, because before retirement, you're tied up with all these things, all these commitments, you know, like mainly your job, a lot of that goes away. In retirement, your time is now consumed by things that you want to do. It's so easy to begin winning in retirement. Just go ahead to our website, AKERS, financial group.com, scroll to the schedule meeting section and let us know you'd like to schedule your free. Consultation with one of our team of advisors. That's a k, e, r, s, Financial Group, comm. Or you can call us at 833 wind retire. That's 830 3w, I N, R e, t, I R, E, we'll give you a call on Monday to schedule that free in person meeting. All right, you hit that website. Or you can call us at 833-946-7384, to start planning for your retirement now. Don't pay taxes alone. We will explain when we get back in a moment,

Unknown:

you're listening to a pre recorded show, welcome back to winning in retirement. Call 833, win retire now to schedule a visit with Brian and his team and begin winning in retirement. Once again, here's Brian AKERS,

BRIAN AKERS:

welcome back to winning in retirement. I'm Brian AKERS, and here with me today is Alex monk. We're both certified financial planner practitioners from AKERS Financial Group. Our show here is called winning in retirement, because we want you to win in retirement, even if it's not right now, it's in the future. We want you to win whenever those times come for you, at AKERS Financial Group, we put on this show, this radio podcast, so you can understand how we work with people and make sure everyone understands that with planning in mind, you'll then make the best decisions for you and your family, for your future. Today's show is called Four taxes to avoid. We've covered the first one was federal income tax, how to avoid certain things, how to minimize that over time, even through maximizing what you pay now and then. Last quarter, we covered mistakes. Mistake taxes, this was a daisy. Mistake taxes, yeah, yeah. So now this show, this quarter we're talking about, don't pay taxes alone. Now, why would we do this?

Alex Monk:

Alex, I mean, for me, like, if you had, like, a big issue in your life, let's call it medical, I don't know, right? Yeah, you probably get an opinion from somebody that knows about it, right? You try to you would hope he could read a brochure, yeah? I mean, you could Google it, WebMD, but then, you know, you have whatever you Googled. So why wouldn't you do the same thing with your finances? Like, if you're about to write a huge check to the government, wouldn't you want to make sure you're doing the right thing? And it's never easy, like I spend most of that year in having people pay taxes. It's like, hey, how do we how we do this year?

BRIAN AKERS:

Well, doing Roth conversions, and then we owe the tax on it when we do it, right, right? So we're here, we're

Alex Monk:

paying tax, and essentially I'm trading pre tax money for never tax money and using bank cash to pay the tax. But it's all, it all fits together, right? And knowing why am I paying the tax now, is this right for me?

BRIAN AKERS:

Like, well, the hard part is some people make assumptions right on things when it comes to investments or quick decisions, when they make these quick decisions later on, the ramifications of that decision is sort of, oh, I owe tax now where, if there was a pre planned talk conversation might have led to a lot less tax or no tax or no tax. One situation I got to talk about is a client who they came in and they said, Ah, we sold our Delaware house, bought a bigger one, nicer house. I said, Well, did you do a tax free exchange to the new one? Now, this is not their residence, their second home. No, they sold it. I said, Well, what was cost basis on it? Oh, we did, great. Bought it for a couple 100,000 we sold it for 600 I said, Well, that's 400,000 of income, capital gain. Oh, yeah, it is. Will you a tax on that? Did you pay estimates? Talk to your accountant? Oh, not yet. We're going to tell them when we go turn a return or stuff in.

Alex Monk:

That's a big number to have the clock ticking on in the background.

BRIAN AKERS:

And I said, all we had to have done is, if you're going to buy another house, that's your second home, because our residents, we can avoid gain, but not on these second homes, not on rental properties. We have to do tax free exchanges. They're what called 1031,

Alex Monk:

31 and, you know, it's a like kind exchange. A lot of rules to it, right? Lot of rules, a lot of caveats, but,

BRIAN AKERS:

but you've been helping a lot of our clients with that exact situation. I think

Alex Monk:

it just really makes a lot of sense. And where I've been seeing it is people that own rental properties as they get older, you know, it's, it's not in their you know, retirement plan. Winning in retirement for them is not being a landlord. So when the opportunity happens, we switch it over to something else, either something they can enjoy, or something that, you know pays in, gives income where they don't have to really fret every day over it, right? You know, if we can get your cash flow the same, keep your you know, your capital intact without losing some from paying taxes. And then nobody pays taxes if you keep it till you die, say that again, nobody pays taxes if you keep it till you die. Why is that? It's called a step up in cost

BRIAN AKERS:

basis that that, and that's under the current tax law. So if you own something with highly appreciated asset, and let's say you're 80 years old, hang on to that. And it's you don't have to sell it if you want to keep it. And if you can keep it, you would avoid tax altogether, through, through just giving it upon a death.

Alex Monk:

Right now you have to die, which is the tough part. Obviously you don't get to use the money. So if you need it, then obviously we got to do other tax planning. But there are ways to make sure that nobody pays tax. Yeah, if you have charitable inclinations, and it depends on what you're giving, situations like, you know, all these different things, but

BRIAN AKERS:

well, that situation, yeah, I'm sorry I interrupted. I would say that the situation happens on stocks too, yeah. And like, I had a client who they called and said, Hey, I want to give some money to a charity that have something at their church. And I said, Well, we're not 70 and a half yet, so you can't use your IRA, but we have highly appreciated stocks. You spent 10. It's worth 50. We can move the 50,000 straight to charity. You won't pay tax on it. You get the full deduction. It's more than the 30 standard. It works out very well for you tax wise.

Alex Monk:

And you're giving it to a charity, right? So they don't pay tax either. It's a great thing, right? More money to the cause that you want, just by planning, like you're giving 20% more to your charity.

BRIAN AKERS:

Yeah, so if you are doing large gifts right out of a checkbook, we think there's a better way. Oh, yeah. And so we got to find out where your money is, how you're doing it, depending on age and account types, there could be a better way to give the charity and not pay tax on the money that you're giving the charity. Yeah.

Alex Monk:

And there's a bunch of different strategies. It's one of my favorite things to plan for. Is like grouping your charitable giving in certain years to realize other income, like things that you're already going to be doing, like, we can use these to your benefit. Like, the tax code really works for you if you apply it to yourself.

BRIAN AKERS:

Yeah, all right, so let's talk about five to nine just real quick. So five to nine that your kid, you have a little argument with your kid. They won't go back to college. You're not going back to college. You have a five to nine and you're a little mad at them, and you're like, Hey, I'm cashing your five to nine plan out. And then you cash your five to nine plan out, and you get the money. And then you tell your you tell the advisor later, hey, I cashed it out. And then you then the advisor says to you, because you're the custodian, you're gonna pay tax on the growth, and there's a 10% penalty for that unless the child is disabled. That is true, and pulling that money out. Now I would say, if you want to give the money to the kid, put it in their name first. Let them cash it out. Let them pay tax at their level. We've done that for a kid who wanted to buy a house. The new secure Act allows people have had a 4529, for 15 years that you can, basically, over time, use 35,000 of it and spread it into Roth IRAs for the child, yeah.

Alex Monk:

And it can pass between beneficiaries, like in the bloodline.

BRIAN AKERS:

But sometimes these emotional decisions will actually trigger these penalties, because we we act so quickly,

Alex Monk:

well and right, like it's the five, two nines is funny. I'm gonna take my kid off, we got an argument or whatever, and

BRIAN AKERS:

they can put a niece or nephew on for a while, and they flip it back to them if they want to, or at

Alex Monk:

least go back to school yourself. I mean, versus giving it all away.

BRIAN AKERS:

But the idea there is, there's a penalty on if you don't use it for qualified tuition, qualified schooling, there's a penalty for it. The rules

Alex Monk:

have gotten much better. So there's a lot of things. There's a lot more reasons to use them, because you're not pigeon holed as bad as you used to be.

BRIAN AKERS:

Just but still, be careful with over funding. Be careful how much you're putting in, if, if grandma on both sides putting money in and you're putting money in. Make sure you know those totals. So it's not over too overfunded, where in the the tax advantages goes, goes away, yeah. And then you got this big All right, got some more. I gotta do some more. So, um, people do roll overs wrong, okay, they check the wrong box. They do death benefit claims wrong, causing, um, basically full taxation,

Alex Monk:

yeah, so the death benefit thing is tough. Like, if somebody passes and the recipient is non retirement age, and they need money, you need to make sure you get out what you want before you move it into their name. If their spousal rules,

BRIAN AKERS:

or they say to people, hey, just some send me a check. And then you have to pay IRAs. If it's inheritance, you got to pay tax on the whole thing. If it's a pre taxed Ira Roth, IRAs can be tax free for you.

Alex Monk:

If it's pre tax, just know somebody's paying tax, unless it goes to a charity, right?

BRIAN AKERS:

So if you're inheriting some something, ask them, Is it taxable? If they say yes, you say, what are my options? IRAs can go to inherited IRAs. That's not a bad thing. It gives you the ability to spread it out over 10 years.

Alex Monk:

Yeah, and my favorite thing to do is, like, in a situation where you're younger, you inherit money and now you have these forced withdrawals. Well, let's do it over time, and use that time to fund whatever accounts you have, get it into your. Name so it can grow tax free, or pre tax, like, depending on the scenario, but like, let's get that money into your name.

BRIAN AKERS:

There's penalties for all kinds of things, early withdrawal. Or, let's say you left a company and it was a small amount in the end, the 401 K, and they basically send you a form, and you just postpone it, and before you know it, they send you a check.

Alex Monk:

Yeah, force out under 5000 and yeah, they force out a check

BRIAN AKERS:

to you. It's fully taxable and a 10% penalty, when all you had to do is you call AKERS financial and say, Hey, I got another roll over to throw in my account. We do the forms for you. We get you on the phone, we get that money moved in. You pay

Alex Monk:

zero tax until later, and it's just about the logistics and paperwork. And I see it all the time. It's, like, some of the things are, you can't go back. Like, that's the worst. It's not just that. Oh, I paid a little bit more tax, but so you can't undo it. You can't put the money back into that. Benny IRA,

BRIAN AKERS:

oh, yeah, that if you cash that, Benny IRA, a BBA, you can't put it back. That's for Roth or any of these pieces. So the quick decisions or just accepting whatever the parents or the uncles and advisor says here, just take the money. No, know what it is. Call your advisor. Here's some statements. What should I do normally? We're going to guide you. Hey, get an inherited IRA. Where it is. We'll move it over to inherited IRA here, and then we'll slowly take money out based on what's right what's the right thing each year for you, yeah.

Alex Monk:

And that way you can use the tax code to your benefit, if not like. And what about this one? Brian, and leaving the IRA to the estate?

BRIAN AKERS:

Oh, my. So if you leave it to an estate, you basically made it taxable fully in the year of a year, or the right after the year that person that passed away, you don't even get the options to pull it out, because you didn't name the beneficiaries, writing them down. And it's just wrong,

Alex Monk:

and it's at a highest tax rate available, non human rate. It's the top rate.

BRIAN AKERS:

Yeah, that's a shame it state or a trust, unless the Trust has an IRA clause to flow it through. That's a more sophisticated idea. So the idea is this, four taxes to avoid our number three ones avoid penalty taxes. Penalty taxes normally means that you didn't get advice before you did something. Understand we need to do that. We love doing this. We love helping you make decisions and guiding you with how to handle your situation, no matter how difficult you might think it is, we will figure out a solution as best we can when it comes to avoiding the tax. But normally they're going to pay some tax. We just want to pay too much tax. So AKERS Financial Group as financial planners, we are doing investments, we're doing insurance. We're doing financial planning. We're doing the tax planning tied into the decisions. We're talking about, the why, the how and making it happen for you, that's a key difference in financial planning and just investing. So go ahead and help us by calling us. We love to meet you for that free meeting with one of our team of advisors. By calling said, At 11833, win, retire this 833 win retire. Go to our website, AKERS, financial group.com and check us out right there. What's the best tax to pay? Well, we'll explain when we return in a moment.

Unknown:

You're listening to a pre recorded Show. Welcome back to winning in retirement. Call 833 win retire now to schedule a visit with Brian and his team and begin winning in retirement. Once again. Here's Brian AKERS indeed.

BRIAN AKERS:

Welcome back to winning in retirement radio podcast put on by AKERS Financial Group. That's a k, e, r s Financial Group. Our website's AKERS financial group.com I'm Brian AKERS. Here with me today is Alex monk. We are financial advisors from AKERS Financial Group, and the day show's called Four taxes to avoid. We've covered three. First one was federal income tax, how to avoid that, or at least pay a lot less, the mistakes on taxes and then penalty on taxes. And number four, how to avoid capital gains tax. That's gonna be positive. This is our winning game, our fourth quarter.

Alex Monk:

We're on the like, these are the good taxes. Like, it's so hard to say, yeah.

BRIAN AKERS:

So the concept is, what is the best tax, and even though we might want to avoid it. So it's a weird thing for me to say, I want to avoid a capital gain, but it is also the best tax. Is that? What? That's the answer. The best tax is capital

Alex Monk:

gains tax. If you have to pick, yeah, I guess that's what I would go with.

BRIAN AKERS:

So if I had to pick, it's lower than your bracket, generally, typically,

Alex Monk:

yeah, yes, it's always going to be lower than your bracket, nice, because it's either zero, 1520, right? And then the other brackets are stair step differently, the 20 starts at the 12, et cetera, et cetera, all those things that are on the backside of the return that you never look at and all those pages. But it can cause trouble, because it is added to your overall income. It calculates your tax bracket. It can create. Create waterfall taxation.

BRIAN AKERS:

If you're Timeout, timeout, what's waterfall taxation? I mean, they're taxing the waterfalls. I know they tax rainwater

Alex Monk:

with a water tax. I mean, what's a waterfall tax? So waterfall tax, right? It's a you the capital gains triggers taxation elsewhere. So for example, if you had very low income and you were not paying tax on all of your social security, yeah, so you didn't have any withheld. Well, now it went from 50% taxable to 85% of its taxable. You might have to pay tax for the first time. I mean, it can do all kinds of things

BRIAN AKERS:

because it counts as income and it pushes other money to a higher bracket, and it's a waterfall, means that it's draining you, yeah?

Alex Monk:

It means it once it starts, it just keeps going, okay? I mean, it splashes everywhere, and it can get messy, like a waterfall, yeah. But absolutely do not like waterfalls.

BRIAN AKERS:

I love waterfalls. Normally, I'm far away looking at them. I mean, waterfalls, the small ones are fun, but large ones are little scary

Alex Monk:

at times. They're violent at the bottom right, and major tax return to be like that. Yeah, we don't

BRIAN AKERS:

want tax returns violent. So for tax to avoid, we avoid waterfall taxes. I'm sorry, that's a funny one. All right, now we're gonna do a fancy topic called Tax harvesting that we've done waterfalls and don't go chasing waterfalls. Now we're talking about tax harvesting on. Here we go. I can't say farm to table, yeah, tax harvesting. We could explain it by farm to table. You can explain any

Alex Monk:

way, like So earlier, we were talking about, if you hold something until you die, you get a step up in basis. Yep. What we didn't mention is that when you die, anything that had a loss, yeah, goes away.

BRIAN AKERS:

It's a step on basis. Means it steps down in basis, correct? And you lose the loss. So if someone calls says, I'm not doing well, we look at their accounts. If there's a loss, we take the loss immediately.

Alex Monk:

So the loss typically take an IRA distribution. But, yeah, tax harvesting is about selling your losses to either one offset your gains or two, just to as a reason to clean up your portfolio. You want to do it and realize the loss

BRIAN AKERS:

absolutely so when you look at your your statements and your your individual taxable accounts, and they say, Hey, realize capital gain this year is 15,000 you're like, oh, that's taxable income. And then you say, what? There's a couple stocks I've had a long time, but they just always lost. And you're like, Well, if I sell those, I could offset that gain with that loss. That'd be a very good thing to do called Tax harvesting,

Alex Monk:

yep, and it's a good way to trim out your portfolio too. Like, I think he said earlier, some other time, like when you're gardening, yeah, you know, whatever died or the rabbits ate, you get rid of it, and

BRIAN AKERS:

you pull the weeds, let your other stuff grow. Prune the good, good plants. You still trim them, but the idea there is watching your taxes, watching how you're doing, making sure you get long term capital gains versus short term. Why? What's the rules on that, sir, long term you want me to explain that? No, I got it. I got, I got, I got, all right, one year, one year, a year and a day, a year and a day. If you own a stock, let's say as an example. Lt long term. And you sell it long term capital gain is capital gains rate. If you sell it two days before the year and you write those dates properly on their tax software, it's short term capital gain, which is full bracket, no capital gain rates. It's full ordinary income tax bracket. Yeah, that could get you 7% higher or 27% higher paying or what bracket, or no, 17% higher thing is the highest jump? Yeah, but it's brutal when you trade, or if you're in an account that trades,

Alex Monk:

have your own mutual funds like

BRIAN AKERS:

you, Joe, ahead you're allowed to do mutual fund talk.

Alex Monk:

I mean, I see news coming, I know, but I mean, just end of the year, here comes a giant dividend, capital gain distribution that you had nothing to do with, and you can't stop it.

BRIAN AKERS:

Yeah, well, it's like, they're back in 2223 mutual funds were trading. When they trade, they take their gains now the portfolio, and when it went down that year, and then you get a capital gain taxable report on 1099, and you're like, what's this? I lost money, and I'm paying

Alex Monk:

tax, and if it was reinvested, you never even saw the money, right? And then you had

BRIAN AKERS:

money on your checking account and and people are like, what's going on here? Well, the con, the idea is that in a mutual fund, when you buy a mutual fund, you can actually know what's inside of the inside of that fund that's already capital gain waiting to pay out, even though you put in 2000 bucks or whatever. Doesn't matter, you can end up paying capital gain on what they've done in the past. So you got to watch that now. There's better ways now, through exchange traded funds, which have a process of the way they trade their stocks to lower and. And postpone capital gains long term.

Alex Monk:

Yeah, so they just have a tax code where they don't realize the gains until the individual sells, which I prefer, right? Like it's our tax plan. I want to be the one driving the bus. I don't want year end grenades coming out of funds. And usually these funds are older and have some tax issues themselves. So that's why we would hold them, if at all.

BRIAN AKERS:

And many of the older funds are becoming ETFs, and so there's a whole transition from mutual fund ETF that you can do what you gotta pay taxes as you do it, you have to watch out. There's certain games there. We love tax tax advantage, tax efficient investing on taxable accounts, because why pay taxes on money you're not using? Why pay taxes when you don't need to be more efficient? Keep your money, let your money work for you. Is why we're talking about four taxes to avoid. And capital gain is a great tax. It's a low rate. But too much of a good thing can be a bad thing, right? I mean,

Alex Monk:

too much taxes is no good for anyone unless you just

BRIAN AKERS:

made a lot of money. And if it is what it is, let like, you just signed your contract for the seven year contract or whatever.

Alex Monk:

Yeah. I mean, there's just no way around that. Yeah, congratulations. You did really well. You got to pay the tax. But how do you incorporate? Like, for me, those type of things we can't avoid. They're just windfalls. The rest of it. Like, through planning, we can probably lower your lifetime taxes by five 10%

BRIAN AKERS:

just by spending. And I've had people like, I don't take an IRA withdraw. So what for? Well, I'm gonna buy a house in Pennsylvania. That's good. Why don't you get a home equity loan? And then after you move to Pennsylvania, come a resident take it out of your IRA, and it's not taxable in Pennsylvania. It's taxable in Maryland. You just

Alex Monk:

save that person eight grand on every 100.

BRIAN AKERS:

Yeah, look at you. And that's just about the timing of when you took the withdrawal.

Alex Monk:

And it has nothing to do with the federal tax either, right? So there's other Yeah,

BRIAN AKERS:

and then there's the concept of you're moving to a different state to be resident somewhere else. There's all these decisions in life, that you got it, that you have a taxes are a piece of it. So when we talk about four taxes to avoid, we make categories federal income tax. We want to maximize our brackets so that we can minimize our lifetime tax to minimize. Wow.

Alex Monk:

See that write down like that, but that that's important, like you're already in your tax bracket, right? Yep, let's just fill it up.

BRIAN AKERS:

Fill it all the way up. No, understand what that is for 2025 and 2026 makes you understand all the rules there. Or 27 Medicare limits. Oh, that's another topic.

Alex Monk:

So you got to pick a target too. Like, what are we shooting for? We shooting for tax bracket. We shooting for Medicare limits. How old are you? What's your scenario? Yeah. And then we pick a number, and usually get pretty close. I mean, it's it's not as hard to predict your your income as many people make it, yeah.

BRIAN AKERS:

So the four taxes to avoid federal income tax, and then we cover something called mistake taxes. These are things that are just common mistakes people made, like excess contributions, not paying their taxes throughout the year, and they have an estimated tax penalty, not tracking their deductions or their charity and not being prepared with the tax person not doing a proper Ira non depot, Ira 8606 cost basis form. That's a normal thing. A third type of tax to avoid is penalties, penalties on early withdrawals, penalties on five to nine withdrawals that are used in a certain way, understanding there's penalties for a lot of things. Just be careful what you're doing and when you're doing it. And then the fourth one we've been covering is avoiding and paying the best avoiding capital gains tax in certain ways, and also accepting capital gains tax in certain ways depending on your situation. Well, situation,

Alex Monk:

well, and if you can structure it right, like if you pick CDs, let's just say, for example, yeah, that's good as your investment. If you put that CD in your taxable account, you're paying ordinary income on that interest just 4% you

BRIAN AKERS:

pay tax on the 4% so and so I got a simple case where I explain what a treasury bill is. Same interest rate as a CD backed by the federal government. You don't pay Maryland tax on the treasury bill despite the way it's set up,

Alex Monk:

or you put it in a Ira like have your money that have your CDs, have your CDs in an account that's tax deferred, have your qualified dividends, your capital gains, things like that in your taxable account, because qualified dividends are the same tax rate as capital gains. Our favorite ish tax

BRIAN AKERS:

so if you have a stock that pays you to own it, the dividends the stock, they might do really well recently, but the dividends that are coming to fund cash flow very little tax, less tax than the CD. Interest would be, yeah,

Alex Monk:

you're gonna pay less tax than the CD. You might not pay anything, depending on what you got going now, one

BRIAN AKERS:

of the things about early retirement is about knowing your taxes and where you're heading on your taxes by avoiding these. Taxes throughout your lifetime, you'll pay less tax in those retirement years. That's truly going to help you win in retirement. That's why we did this show. Thank you very much. Alex monk for putting up with me on these four taxes to avoid. I agree it was taxing. Brian, of course, it was for us, but hopefully everybody listening enjoyed it. This show was called Four taxes to avoid. Thank you for listening. Today we covered all those tax items I just reviewed. We do look forward to meeting with you. We want you to win in your retirement by taking advantage of the opportunity to begin playing with us at AKERS Financial Group to schedule a free meeting with one of our team of advisors. Go to our website at AKERS financial group.com scroll to the schedule a meeting section. Let us know you like to schedule your free meeting. That's AKERS financial group.com or you can call us at 833 when retire as 830 3w, I n, r, e, t, I R, E, we'll give you a call on Monday to schedule a free in person meeting with one of our team of advisors. Start planning for your retirement now. Go to AKERS financial group.com or call us at 833-946-7384, thank you for listening. I'm Brian AKERS from AKERS Financial Group, and we want you to be winning in retirement.

Unknown:

You've been listening to winning in retirement with your host, Brian AKERS of AKERS Financial Group, AKERS Financial Group offers securities through arcadios capital. An SIPC and FINRA member firm. Advisory services are provided through arcadios wealth. AKERS Financial Group and arcadios do not share any common ownership, neither arcadios nor AKERS Financial Group provides tax or legal advice. Advice given on winning in retirement is general in nature, and one should seek further advice from their financial advisor, broker, attorney andor tax accountant before investing, be sure to read each prospectus carefully to understand all the risks associated with each investment. Examples and scenarios shared are meant to be for illustrative purposes only. Past performance is not indicative of future results.