According to Joe Elsasser, Covisum founder and president, 80% of investors feel their advisers should concentrate on decreasing their clients’ tax burdens, particularly in retirement, according to a recent Orion research. As a first step, he reviewed Social Security taxes, which he suggested should be done by financial experts. On the topic of tax issues that might arise, he also addressed capital gains taxes and Roth conversions.
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To decide when Social Security payments are taxed, the IRS uses a metric known as “provisional income.” Calculated by using
- Half of Social Security benefits as a starting point
- A regular source of income, such as a salary or an IRA distribution
- Capital gains and dividends
- Interest on capital gains that is not taxed
Elsasser also pointed out that a retiree’s capital gains tax rate might be impacted by regular income. The 0% capital gains tax bracket in 2021 was $83,350. Couples can earn up to $112,050 in combined capital gains and regular income before being subject to capital gains taxes.
If a customer had $100,000 in capital gains and $28,000 in regular income, Elsasser said, that would be a problem. As a result of the “stacking” of regular income below capital gains (above $112,050), the gains are taxed at a 15% rate.
While working with customers on their tax plan ideas, he added, “There is an interaction we want to pay attention to.”
Surcharges on Medicare Premiums
The monthly Medicare Part B premium in 2022 will be $170.10 for a couple earning up to $182,000 in combined income. The IRMAA fee is imposed on clients whose monthly income is even a single dollar more than that threshold.
If a couple earns $182,001 a year, their Part B monthly payment rises to $238.10, and their Part D monthly cost is $12.40 more than the plan’s suggested monthly cost, for example. Surcharges for IRMAA membership climbs in tandem with an individual’s income.
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