Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, how to retire on time, which you can grab today on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, how to retire on time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all. So that said, please remember, this is just a show.

Alright? Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team by going to www.yourwealthanalysis.com. With me in the studio today is my esteemed colleague, mister David Fransen. David, thanks for joining me.

Hey. Thanks for having me.

Now David's gonna be reading your questions, and I'm gonna do my best to answer them. Please send in your questions right now or anytime during the week. Just save this number, 913-363-1234. That's 913-363-1234. Or you can email questions to hey mike at how to retire on time.com.

Let's begin.

Hey, Mike. Can you explain how picking a Medicare plan can affect my taxes? I don't believe that's a true statement. Oh. Man, calling us people out here.

I like when they're a bit accusatory. Yeah. So, 1st and foremost, everything's connected. So, yes, your Medicare plan or whatever health care plan you are. So maybe it's Affordable Care Act because you're not 65 years old yet.

But these things can affect your taxes. Why? There are certain limits that you need to be cognizant of when it comes to your taxes. So, for example, if you have a smaller amount of IRA assets, maybe you have a smaller amount of income that you want in retirement, you may be able to optimize your Social Security in such a way that you're not paying Social Security taxes. But let's say that you have a health care situation and you have a higher health care costs.

And what do you do? Well, you have to pull it out of your IRA. Maybe you pull a little bit more out than you thought. And now you've crossed the Social Security tax threshold and you went from 0% of your Social Security being taxed to 50%. Well, that's a bill that you're gonna get when it comes tax season.

Or maybe you cross and it's out 85% of your Social Security. That could be a $7,000 bill in addition to your unexpected health care costs. Or maybe you were being aggressive with your IRA to Roth conversions. So let's say you're a couple, and you've converted you you spent, let's say, $100,000 and you converted a 100,000 from IRA to Roth. K?

So that's 200,000 of taxes. And there's a health situation that you have to deal with. Okay. It happens. Right?

No one plans to go to the hospital unless you're giving birth, I guess. Right? That should be That's the plan. Yeah. But car accidents, strokes, be heart attacks, people don't plan for these things.

No. And let's say that there wasn't a maximum out of pocket expense or deductible or whatever the situation is. Now you have to pull, let's say, 20,000 out of your I'm just making up numbers here. But you have to pull a certain amount out of your pretax accounts, and so you do it not realizing that now you've crossed the IRMA threshold. The, IRMA is the surcharges for Medicare.

And now you've got an extra couple $100 you have to pay every month for the next year. Mhmm. Or capital gains. Let's say that you have non qualified assets. You've generated income by selling long held positions, so they qualify for long term capital gains.

And maybe in your situation, you sell just a little bit too much and you go from the 0% long term capital gains to 15%. That's not a progressive tax situation. That's a oh, you crossed the threshold. Now you've got this large tax bill or the 20%. Not many people in America are are worried about the 20% long term capital gains situation, but these things exist.

My point being is when you are shopping for health care, whether it's in the Medicare space or it's affordable care act or maybe you're 67 years old and you're worth an employer, having the ability to limit your maximum medical expenses has a benefit. Original Medicare isn't really built for maximum expenses. It's in a simplistic form. It's like paying 20% of whatever the costs kind of are. That is over generalized, but you get the point.

Supplement plans cost a lot of money. They have low deductibles, but there's a premium associated with it. So you need to understand that. Advantage plans you can have a maxima out of pocket limit, but can you get an advantage plan for nothing? Do they have those?

Yeah. So everybody pays something for for Medicare, whether you have original Medicare or you have part c, which is the advantage.

Everyone's paying part b

Yes.

And part d.

That's right. You're gonna pay that. So with a part c, however, there there's no additional premium. There can be. We can wander into the tall weeds here, but many of them don't have any additional premium beyond what everyone pays for part b.

K. So if you're gonna walk up to the line with your tax planning, why wouldn't you wanna plan that in coordination with your health care plan? Let's say you have a max out of pocket of $10,000.

Okay.

So maybe you you do a 180, a 190,000 of total taxable situations if you're really aggressive with the IRA to Roth conversions, and you have a $10,000 buffer. So that if you max out your health care situation, your health care costs, you hopefully won't go too far over and create all sorts of issues. There's a ripple effect with this. So in my opinion, yes, it may not directly affect it, but you may leave yourself exposed to a certain risk that could have a a domino effect of additional expenses that could be triggered if you're not planning these things 1 in conjunction with the other. Did I explain that okay?

I think so.

So when it all comes down to it, it's very simple. It's all connected. Yeah. Can I say that more clearly?

Yeah. People may not realize how, connected everything really is.

The income that you want can affect your your health care policies, the tax planning that you wanna do, how how aggressive you wanna get from converting pretax dollars to after tax dollars, your legacy planning, how you're structuring your assets to pass tax efficiently to the kids. It's all connected. So now that we're in open enrollment season, people are shopping plans, be aware of oversimplified advice. I'm still surprised that people are hearing from friends absolute statements like this is always a bad situation. Anytime someone says always, you should raise the red flag and say, well, hold on.

Right.

There's no such thing as a perfect investment product or strategy. When should this be applied and when does it not make sense? There has to be a reason when it would make sense or else it would not exist. It has to exist. And until you understand the benefits and the detriments, it's really hard to make a decision.

So as you're approaching the health care season, open enrollments, whether you're 65 or older and choosing your new plan, or you're gonna retire soon and you're looking for Affordable Care Act insurance to to bridge the gap from when you retire to when you're 65 years old. Make sure you understand how your health care and your tax minimization strategies could work together. This is something many people don't think about, but it makes a difference. And this is a critical component of any comprehensive plan, in my opinion. These are questions that need to be answered if you're looking at it from a holistic and comprehensive standpoint.

That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility.

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