It's a very sobering experience when you realize not only could you maybe avoid paying $10.12, $1,520,000 dollars a year in taxes, you're also decreasing your healthcare costs. Welcome to the Retire On Time q and a podcast. I'm Michael Decker here with David Franson from Kedric Wealth. As always, this podcast is really about answering your questions, not the oversimplified advice that you've heard hundreds of times. We wanna answer the questions and give you more context and clarity than maybe you'd usually get.

That said, remember, this is just a show. It's not financial advice. Keep doing your research. Now you can always text your questions to 913363, and we'll feature them on the show. First come, first serve, and let's just see what we got.

David, what do we got today?

Hey, Mike. I'm having a hard time understanding how income planning affects health care planning. Can you elaborate?

So you have this kind of intersection of planning that a lot of people will miss. And the reason I think is what people are most concerned of is where they will favor. So your income planning is going to affect your tax planning. Your tax planning is gonna affect how much income you need from your portfolio. Do you see how those two intersect?

Yeah. Yeah. So if I take more income, then I have I pay more in taxes. Maybe. Okay.

But I mean, you take your income, let's say one year from a brokerage account, and you only realize long term capital gains, the 0% long term capital gains bracket is rather forgiving, and you're only paying taxes on the basis. So that one year, you might actually need to take less from your portfolio because no taxes would be paid. That's a 20% difference on your distribution, roughly speaking, for that year, potentially at least. And so so you've got these two variables. Mhmm.

You know, it's like whack a mole. You know, you hit one, then the other one pops up, you have to kind of move it around, and that's just income and taxes. Then you bring in health care planning. Health care oftentimes is heavily influenced by your modified adjusted gross income. So that's not just how much you took in there.

It's not just your standard deduction. The modified adjusted gross income is going to affect other parts. So you have you have to kind of consider other aspects of it. And if you can do your income planning seasonally and your tax planning seasonally, you may be able to have a lower health care cost for Affordable Care Act, at least, if you're before 65 years old. And then after 65 years old, you may want to strategically limit your IRA distributions or your IRA to Roth conversions for tax planning purposes so that you don't trigger IRMA, which is the post 65 year old situation where you're paying extra in health care premiums.

Maybe you're just stuck with IRMA, and you just have to pay it. So now it's mitigating the benefits and detriments of how much IRMA you're gonna pay versus the IRA to Roth conversions versus your income and so on. But it is you can't separate these different aspects. And then Social Security is another, you know, part of the whole conversation they have to consider as well. You turn out Social Security, that's a tax efficient income stream, but that might get in the way of your IRA to Roth conversions, and it might triggers and so it all comes together.

Yeah. Okay? So what was the question again? Yeah. The question.

That's the premise of this health care question.

Set the stage here. Lots of different things to consider. Lots of acronyms just mentioned by you. So how does income planning affect health care planning? And and so what so under the health care planning, like, heading here, what falls underneath that?

What what is health care planning? What what costs are are we talking about when we talk about health care costs?

I'm assuming that this is talking about your health insurance.

Okay.

So Affordable Care Act health insurance before '65, Medicare afterwards. It could talk about long term care insurance planning, hedging against future health care expenses, and so on, because Medicare doesn't cover long term care, really. I mean, are some things that Medicare will cover, and I'm gonna leave it very generic because those things change often. Medicaid's its own thing as well. But generally speaking, long term care or certain medical expenses, you'll be paying out of pocket.

So let's do that one second. Let's first do the normal health insurance. Seeing a doctor, you break your leg or whatever. So the reason why I think this is important and why they do really influence each other is because many people want these simple, just turn on their income streams and call it good. Yeah.

And so you're gonna see someone that says, I'm gonna retire at 64 years old or 63 years old. So I'm gonna turn on Social Security then just so I have an income stream coming in. I'm going to then take x amount from my portfolio, and I'm gonna split it between my IRA and my brokerage and and whatever. Maybe it's just IRA. Maybe it's IRA and brokerage.

And that's kind of it. They might say, well, I'm gonna leave this much money for long term growth, but I'm gonna buy an annuity. So at 63 or 64 years old when I turn on my social security benefits, I'm also gonna turn on lifetime income from an annuity, which isn't bad, it's just a tool. Mhmm. But you can't do much tax planning, you can't do many adjustments when you just retire and turn on these income streams.

They're kind of a rigid formulaic structure, and whenever you have rigidity, you lack the flexibility to implement other strategies.

Okay.

So what if, for example, someone decided they want to retire at 63 years old. Alright. And instead of turning on Social Security at 63, instead of turning on their IRA distribution at 63, what if they turned both of those on at 65, and they had enough in their brokerage account that for those years 63 and 64 years old

They took it all from a brokerage account? Here's kind of what you could be getting. You could take it from let's say the markets are up, so you're you're taking it from stocks. Like, you know, you bought Apple forever ago, and, you know, there's there's a low basis, so it's hard to get it out tax free. Well, maybe you just sell the Apple, and the basis is below the 0% tax bracket.

Look up how capital gains work. Ask your favorite AI. Claude, ChatGPT, Grok, Gemini. Have I missed any? Does DuckDuckGo have their own AI yet?

I think they use ChatGBTs, but yeah. You got all the big players.

Yeah. But ask them how long term capital gains work, and even go to retireontime.com, okay, and go to the tax planning calculator and play with it. It's a very sobering experience when you realize that not only could you maybe avoid paying $10.12, $1,520,000 dollars a year in taxes, let's say, which is a savings, that leaves more money in your portfolio to grow. Okay? So more money in your portfolio, it grows, there's a compounding effect in your favor.

Yeah. But you're also, because you structured those two years to be income in a very specific way, you're also decreasing your healthcare costs. So instead of paying whatever ends up being $67,000, or whatever it ends up being in your state for your situation, in the Affordable Care Act you want, you might pay $67,000 less that year, which means you need to take less income or you're just gonna spend more in different ways, maybe for travel or whatever it is. So not only are you lowering your tax bill because you did income tax and health care planning correctly, but you're also lowering your health care bill because you did income tax and health care planning correctly.

Oh, and how did they lower their health care bill? I may have

just Yeah, said it's the subsidies.

Oh, okay.

See. So the super subsidies have gone away, but the original subsidies, if you're within the 400% of the federal poverty line, so it's like around $86,000 for a couple kind of a situation, or somewhere around there. The numbers keep changing, this is a video, so do your research, find the updated information, don't go off of this. But if your income, not your effective tax rate income, right, that's based on your modified adjusted gross income, but if that is within a certain threshold, you could get some subsidies, which means you're paying less.

Yeah. Basically, this is what the premium would be. You apply the subsidy, and now your premium is only this much.

Yeah. I mean, it could be very, very cheap.

Significant. It could be up to half off or more or less.

Yeah. It's a deal. It's a good deal. It's a good deal.

So the We like deals. Yeah.

Deals with a z too. Yeah. Three z's.

Yeah. Three z's in this case too.

That's extra good. Yeah. But but so do you see how we're we're lowering tax bills, we're lowering health care costs, and we're retiring earlier because we had multiple layers of planning and strategy implemented?

Right.

And we didn't use the income stream options. We had kind of one year bucket, two year buckets to realize those funds, access to those funds while everything else was able to grow. Mhmm. So it's this kind of coordination that can make a really big difference. Now, you might say, okay, well, let's say I do that.

How do I get the money? The subsidies.

Oh, yeah.

There's really two ways you could take it. One is you could just tell them, tell the government to say, hey, this is what I expect my my modified adjusted gross income to be this year, and then they can lower the premiums. And if you're right, then you're good to go. If you're wrong, you're gonna pay.

Yeah. You'll have to pay them all back.

Or you could just wait until you file your taxes, and then you would get the tax credits or the refunds, or you can use them as as you see fit.

Oh, right. Right.

So it's not like you can do this and, oh, I forgot to tell someone. It shows up.

The tax return's kind of the gatekeeper of payday or pay up day. Yes. Just made that up.

That was good.

Yeah. Pretty good. But that so that's how it works when it comes to Affordable Care Act planning. Mhmm. Medicare, whether it's Medigap, meta or advantage plans or traditional Medicare, that's more of just what kind of coverage do you want.

They're all pretty affordable. You pay for what you get for. So if you want extra coverage, you go to Medigap plan. Don't think advantage plans are gonna solve everything. They're not.

Mhmm. They're just a different way to to slice and dice the same thing. Right. You're not cheating health care with Advantage Plans. And but that leads to the next conversation of long term care insurance, additional health care costs that may not be covered by your traditional senior health care benefits.

Okay.

And in that situation, have to ask yourself, okay, well, where would I access the funds later on, and then how would that disrupt other parts of my plan? So you might say, you know, I I wanna fund a long term care policy. I wanna fund life insurance, then access the death benefit if you qualify. Or maybe you're just, you know, more old school like I I see more often than not, where maybe if if you needed something, you would just spend money from brokerage accounts, utilize long term capital gains, or you'd spend it from your Roth because that doesn't disrupt your income planning and your tax planning with all of that. So just kind of understand the different seasons before 65, between 65 and 80, and then after 80 when a lot of the expenses typically creep up, and how do you wanna pay for it, where's the income gonna come from, how do you how do you access those funds, how are they gonna affect your taxes.

That's a it's a nuanced multi layered problem, and these conversations need to happen. Right. Do you think we answered it?

I think we did answer it. And and you can talk with someone like like us here at Kedric Wealth. You can you can have a conversation with prompts and and the AI, and just prompt the heck out of the too. Like push it, push back on it, question it. Right?

One of my favorite prompts is what questions am I not asking that would lead to a conversation that may change my opinion? Or you could say, what don't I know that would change my opinion? Yeah. And it might be like, oh, that's an interesting fact, but my opinion still stays the same, or it might be that my opinion's now changed. AI is not trying to sell you anything.

It just wants to give you good information so you keep paying that subscription. Yeah. Or maybe you're doing the free version. I don't know. But that's that's a beauty.

It's a benefit of AI. The detriment is it can hallucinate, it can misquote tax law, it's still not perfect, it's getting really, really good. Yeah. But just be careful that you may not ask all the right questions. It's a great starting place, it's a great place to confirm what you're being told, but it may not yet be everything that you need.

And there's an emotional aspect to it too you wanna consider because the markets just don't make 6% every single year or 7% every year. They're gonna go up and they're down. There's gonna be other factors they'll need to consider on the holistic side of of your retirement plan. So that's all the time we've got for this question. If you enjoyed the question, don't forget to like and subscribe to the channel or wherever you get your podcast.

Lastly, I wanna invite you to either download the book, retireontime.com. You can grab a copy of the book, the workbook, the AI prompt list, the checklist, or attend one of our workshops where we actually build plans live and answer your questions along the way. All that's available by going to retireontime.com. We'll see you on the next show.