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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
The conversation starts with the 10 forty, and then it dovetails into implementation of tax planning and tax strategies to try and get more out of your money overall. Not just this year, but overall. Welcome to how to retire on time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is all about the nitty gritty.
Mike:That said, remember this is just a show. It's not financial advice. So make sure you take it with a grain of salt and figure out what's right for you. As always, text your questions to (913) 363-1234, and we will feature them on the show. David, what's the question we got for today?
David:Hey, Mike. What should I be looking for this year as I file my taxes? And if you're watching this later, we're talking about 2026.
Mike:Yeah. So 2026 filing season for the 2025 tax year, I would say you're already too late. It's it's a it's not a bad question. It's an unfortunate question. And the reason is what happened has already happened.
Mike:There's very little you could probably do at this point, if anything, because filing taxes, you basically say what happened, and then maybe maybe you can do a Roth contribution or something like that. Yes. Like, they're they're really you don't like, all the deadlines are December 31 unless you have a different tax season. I've never met someone that had a different tax season personally. I don't I don't even know if you could do that.
Mike:Yeah. I think you can. I don't know.
David:You can just make like estimated tax payments or like qualified retirement contributions up all the way up until like April 15. Is that right?
Mike:Well, yeah. I mean, those
David:are those are contributions. Yeah. But beyond that.
Mike:But I mean, a company can do a tax tax calendar year that's different. But but people, it's December 31. That's it. So here's what I would say. When you file your taxes, be very aware of what's going on.
Mike:Your ten forty is one of the most interesting financial documents that you get every year. Mhmm. Yet, it's often gleaned over because it's like, okay. Well, yeah, there's my taxes, my CPA or my enrolled agent, my tax preparer, they fill it out. That's what it is.
Mike:Whatever. I'm not I'm not the billionaire that has all these loopholes, like, it is what it is. That's a kind of a losing mentality. And the reason is if you understand how to go through a ten forty, you can start to pick apart the efficiencies. So for example, lately, modified adjusted gross income has become a more important metric to keep track of.
Mike:So when the one big beautiful bill came out, they were like, oh, you know, modified adjusted gross income that, MAGI that, MAGI that, K? I don't know if they did it because MAGI is like MAGA or whatever. But Close. But MAGI Yeah. Is a more important metric to keep track of.
Mike:Well, how do you keep track of that? Well, a big part of it is on your ten forty line two a. That's your tax exempt interest, which is going to affect your Social Security, and it's also going to affect your other, you know, your one big beautiful bill deduction, for example, or rather your your Irma, so your health care deductions. If you're younger than 65 years old, it may not be that big of a deal.
David:MAGI wouldn't be a
Mike:big But for not as big of a deal. It still affects, you know, Roth contributions and other aspects, but it's not as big of a deal as it is for a retiree in my opinion. Okay? So a lot of things start at 65 years old that become very important. So you could argue 63 because the modified adjusted gross income that year is what's gonna affect your Medicare Oh, for Irma.
Mike:Yes. But I digress. So two a is an important metric. Two b, that's your taxable interest. So think of your high yield savings, your your checking savings account, things like that.
Mike:K? The reason why you want to keep track of these things is that if you're doing things up to the line, like, just let's just kind of paint an example. Let's say that IRMAA, your modified adjusted gross income, which affects your health care and your Medicare premiums, is just for easy math, 200,000. It's more than that. Okay?
Mike:And then adjust adjusts every year, but it it just for easy math, it's 200,000. K? And let's say that your high yield savings, because you had some emergency cash that you put in there specifically for the reason of an emergency
David:Yeah.
Mike:But you didn't touch it this year, put you $1 over on your modified adjusted gross income. You're now cross or $2. Let's say, so you were at $199,999, and now you're at $200,001. You're now paying hundreds of dollars more a month. Well, not hundreds of dollars, but you're paying more every month.
Mike:Yeah. This is
David:a pretty significant amount more.
Mike:You went $2 over. You went from a dollar under to a dollar over. So you have to be aware of where your money is and the taxable situation that it's creating. A lot of people don't pay attention to those kinds of things. They'll say, well, you know, cash is king in the down market, but cash is trash in the up market.
Mike:Yeah. That's all fine, and you need to acknowledge those things. But how is it also affecting your tax return? $1 can make a difference. Now I'm being a little hyperbolic.
Mike:How often does that really happen? Not very often. Yeah. But it does happen.
David:It could. It does happen. Yeah.
Mike:So then you got lines three a and three b. And you know what? It's interesting. If you just ask ChatGPT or Grock or Claude or I think it's just those three. It's always three.
Mike:Why is it three? There's always three.
David:Google has one. Right? We never talk about Google.
Mike:Gemini stinks.
David:Gemini.
Mike:Gemini is the best Uh-huh. Because Google is on YouTube and has picked up on this.
David:That's right. Yep. Thank you, Google, Gemini.
Mike:Gemini is the best. Yeah.
David:We think so.
Mike:All hail Gemini. Mhmm. These rank us better. But Gemini, I think, is just equipped for a different conversation. Summaries of results or something.
Mike:I don't know. Maybe it's better. But anyway, if you not necessarily upload your tax return to AI, but if you start feeding it numbers, it can explain these things to you. You wanna be aware of why is there a number in that box. So three a and three b, these are ordinary dividends, which is three b or qualified dividends, which is three a.
David:Okay.
Mike:I did that backwards. Depending on how you invest in dividend investing, that you're gonna be taxed on the dividends either as long term capital gains or or your ordinary income. Well, that makes a difference in your tax return too. Do you wanna be taxed at 15% or 22%? Now you might say, well, Mike, you're kind of you know, you're you're you're laboring over these little details.
Mike:Well, these little details add up. The little details, you know, a little bit here, little bit there, little bit here, little bit there, create hundreds if not thousands, if not tens of thousands of dollars depending on your situation of a difference in your tax return. And the difference, you can still get a similar yield or similar return just by making adjustments to your portfolio. But unless you know what's showing up on your ten forty, you can't know what you should do in your portfolio. So, I mean, you did your tax returns way back before you got into finance.
Mike:Like, you just did them by hand.
David:A long time ago, yeah.
Mike:Now knowing what you know, will you file tax returns now? Would you ever even try to do it by hand today?
David:No. I don't think so. You file you're
Mike:a tax preparer here, so you Yeah.
David:It was a lot simpler, obviously, back then as a young person who was a student. There's a lot more considerations now.
Mike:But you itemized, didn't you? Yeah.
David:I did actually. I did itemize back in the day. I still itemize now, but I wouldn't wouldn't try and do it by hand on paper anymore. No.
Mike:Yeah. Oh. So look at yeah. You wanna you wanna see the results of the very complicated tax filing calculations. Look at them and say, why is that number there?
Mike:And what if I could make an adjustment to my portfolio to get a similar yield or a similar outcome, whatever that investment objective is for that investment or product? And how could I do that differently in here? So something else to consider too for those that are preparing for retirement. What is it? Line five?
Mike:I think it's five a or five b. It's the pension annuity payments. Mhmm. Be very mindful of the lifetime tax burden of lifetime income from pretax annuities.
David:Okay.
Mike:If taxes increase, your income decreases. So you wanna keep you wanna keep track of these taxable lifetime situations and understand, do you have an out? So some of the annuities will allow you to do an IRA to Roth conversion. Maybe you you do that. Maybe you don't do that.
Mike:But you you need to be aware of what's going on. There are many strategies that you may or may not be aware of that could be implemented, but it all starts with looking at your ten forty. And in my opinion, if the adviser, if the friend, if whoever you're working with, if yourself, if you're not taking your ten forty and looking at it every year and saying, what could I change to potentially get a better result? Not necessarily paying less in taxes because you might realize, shoot, I've got a lot in my four zero one k. I probably should start doing more conversions, or I should probably increase my taxable income now at the current rates and get more money into the after tax side in your four zero one k or the the Roth.
Mike:But it's the conversation starts with the ten forty, and then it it dovetails into all sorts of implementation of tax planning and tax strategies to try and get more out of your money overall. Not just this year, but overall.
David:Yeah. It feels like too that and and you maybe you can explain why. Like when we're younger, like the big benefit is lowering your taxable income like in an IRA or a four zero one k. Mhmm. Then as we shift towards retirement, we want more money in Roth.
David:So at what point are we looking to make those conversions or shift more into after tax?
Mike:Yeah. Let's use the analogy. I'm making this up as we go, just kind of on the fly here. But if you have a calorie surplus,
David:what happens? Oh, man. You can just look at my body and see what happens. Exhibit A right You pack on the pounds.
Mike:Yeah. If you have a significant calorie deficit, what happens?
David:Oh, yeah. You'll shed some pounds.
Mike:Is it possible to have too much of a deficit?
David:Yeah. Yeah. You wanna stay within a healthy range, right?
Mike:Yeah. Yeah. There's a healthy balance. Now you might want a subtle deficit just to lose some weight. You may want a subtle surplus to gain muscle mass.
Mike:It's not a perfect number. There's a target amount, and then there's a range of slightly more or slightly less. That's the finesse of tax planning. Based on current tax rates, the tax environment, you may want to pay a slightly higher amount each year in taxes because it's at an efficient rate.
David:Oh, I see.
Mike:So the it's just and then if taxes go up, then you might back off. It's not about being scared and just going all in on something. It's about understanding the finesse and going slightly one way or the other with a long term as in, like, a ten year plus period mindset.
David:I see.
Mike:So, anyway and one reason this is why we recently published our tax calculator, our tax projector. It's not to simulate tax returns, but questions like this, you you you'd go, shoot. I wish I would have known. Well, if you just had a tax calculator to play with, not a full simulation of a tax return, but you were to say, well, what if I had 50,000 from my long term capital gains as opposed to 50,000 of short term capital gains? What would that really look like?
David:Yeah. Get some actual real numbers on the screen.
Mike:That might change your your ideology on how you invest. What if you took Social Security now versus you did IRA to Roth conversion? That's going to change your your ideology or your your preferred strategy on how to move forward, but you don't know unless you know, and unless you can get in there on something you can't really break, but you're just putting in numbers and you're seeing the results. That's kind of a fun part about being human is we just like to play with stuff. Yeah.
Mike:We just want to get in there and just explore. Just experiment. So this is recently you can go to retireontime.com and just look for the tax planner that will let you play with this stuff. Very, very fun, very informative. It's not a tax simulation.
Mike:It's not an actual filing of the return, but it really could open your eyes to understand, well, what if this, what if that, what would it actually look like? So I think we also have a straight direct domain, freetaxplanner.com if you wanna go directly there. That's freetaxplanner.com or just go to retireontime.com. You can get all sorts of calculators there. So if you enjoyed this show, make sure that you consider telling a friend, leaving a rating, subscribing to it whether you wherever you get it.
Mike:The best experiences are on YouTube, so make sure you subscribe via YouTube or go to our newsletter, retireontime.com, so we can give you this information, send you the videos, and keep you informed of all the different updates that are happening in the retirement space and more. Also, if you want help putting a plan together, you can always give us a call. Go to Kedrick dot com, kedrec.com, or go to retireontime.com. Either way, you can get ahold of us to put your plan together, whether that's a onetime plan and or an ongoing relationship for a flat fixed fee. Not 1% of your assets, but a flat monthly fee.
Mike:Real simple, real transparent. Retireontime.com for that. We'll see you in the next episode.