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Now or Never: Long-Term Care Strategy is a podcast for all those seeking answers and solutions in the long-term care space. Too often we don’t fully understand the necessity of care until it’s too late. This podcast is designed to create solutions, start conversations and bring awareness to the industry that will inevitably impact all Americans.
Scott Rinehart: What do you
spend in a year? What do you
make any year? What are your
assets? What do you own? What
are the different types of
assets that you own? And, you
know, specifically what I see
is, especially as people earn
more money, they start to lose
track of how much they actually
spend, because that's one of the
biggest drivers of whether or
not you're going to have a good
retirement.
Caroline Moore: Welcome to Now
or Never Long-Term Care Strategy
making. themselves. with Kosta
Yepifantsev a podcast for all
those seeking answers and
solutions in the long term care
space. This podcast is designed
to create resources, start
conversations and bring
awareness to the industry that
will inevitably impact all
Americans. Here's your host
Kosta Yepifantsev.
Kosta Yepifantsev: Hey, y'all,
this is Kosta. And today I'm
here with my guest, Scott
Rinehart, CPA, financial planner
and founder of Verifi Financial,
a resource to help DIY investors
spend purposefully pay less in
tax and invest wisely. Today,
we're talking about taxes,
deductions, and everything
caregivers should know, Scott,
for so many of us caregiving is
a full time job, we start with
no training or notice from a
financial perspective, what
should families expect in
generally prepare for?
Scott Rinehart: Yeah, and thank
you so much for having me on
today. And I think the thing
that happens so often is you get
thrown into caregiving, and all
of a sudden, that's a big time
commitment, which means you are
spending more and more time away
from work, if you, you know, if
you work, so all of a sudden,
you're using up all of your sick
days, you're using up your
vacation days, and you're not
getting to spend time doing what
you want to on the vacation. So
you know, beyond a financial
perspective, like there's that
mental load that starts to add
on top of on top of it all,
which is potentially going to
hurt your performance at work.
Unfortunately, I've seen this a
few times where a client starts
helping their parents almost
full time. And all of a sudden,
they're starting to feel
pressure at work, because, you
know, they're just not quite
maybe working full time. So a
few states are starting to give
some leave for that called paid
family leave. Now it's not very
many right now. It's 13. States,
I believe. And by the way, this
is different from, you know, the
Family Medical Leave Act, that's
a federal level that one
guarantees that you're not going
to lose your job, that you're
not going to lose your benefits
for up to 12 weeks, that
separate paid family leave is
actually you can start to you
can actually receive some of
your pay without losing your job
and without giving up benefits.
So that's something to check out
for your listeners to see if
they're in a state that does
that. Then the other thing is
that potentially if you have to
just go full time caregiver, you
might have to quit work early,
which might delay your family,
if you have a spouse might delay
your retirement have been. And
I've actually seen it, you know,
it's not just from a financial
perspective, maybe you don't hit
your number quite as quick. But
it's also just from a behavioral
perspective a little bit because
I've seen where one spouse, her
parents are needing care. So she
is spending all of her time
caring for them, for the most
part, the husband, even though
they have enough to retire, they
could walk away, they would be
fine. They're good to go. He's
not doing it. Because if he
retires, he's kind of going to
be spending his days alone, not
doing things he wants to do. So
I think the thing to just be
prepared for is that if you are
going to be kind of a full time
caregiver, be prepared that
delaying retirement might be in
the cards and just be ready to
take on that reality, I
Kosta Yepifantsev: guess and you
have a strong focus on tax
planning for retirement. Can you
explain why this is such a
crucial area for families and
caregivers to understand?
Scott Rinehart: Absolutely. So
tax planning, it may honestly
not be the most important
aspects of retirement planning.
You know, I think investment
planning and Cash Flow Planning,
insurance planning those things
are, you know, the sexy ones,
they're at the top of the list,
but tax planning is the one that
I think is underutilized under
discussed, and it's something
that can make a huge difference.
Now the goal of tax planning.
And by the way, I want to
clarify the difference between
tax planning and tax
preparation. I actually don't do
I'm a CPA, but I don't do tax
preparation, I don't do
anybody's taxes. Tax Preparation
is more about looking in history
or historian looking at the
past, making sure we file our
taxes correctly, so that we get
the IRS on good terms with us.
Tax Planning is about projecting
in the short term midterm and
long term, how do I decrease my
lifetime taxes as best I can?
And the way to do that is not
necessarily to avoid all taxes,
unfortunately, we're not going
to be able to do that. But how
do I just get Uncle Sam and my
estate to take the least
percentage that I can reasonably
do. And what I see a lot is that
as people approach retirement,
they have these different
accounts that they have
accumulated. So they might have
a brokerage account at one
investment firm, then they have
their 401 K's or 403 B's, and
that's money that they haven't
paid taxes on yet. So when they
pull that out, as they start to
need it to draw income in
retirement, finding the right
mix of hey, let's pull from this
source full from that source.
Next, finding the right mix over
the short term, midterm and long
term to just try and decrease
the lifetime tax bill because
one thing that some retirees
have to worry about is kind of
you hear it called a tax bomb.
That's a little bit dramatic,
but But what can happen is,
let's say you are a pretty
frugal person, and you're living
you retire, and you live on
mostly Social Security, and
maybe a small pension pensions
are, you know, almost by the
wayside. Yes, they I don't know
those existence to basically
government workers might be the
outs, you know, a small pension,
maybe, and then maybe just from
time to time as needed, like for
a vacation or house project,
then they pull from the
investments. Now this is someone
that's usually spending less
than $100,000 a year, if they're
married, what, what can happen
is, let's say they have a 401 K,
and they just kind of let that
ride for the most part in
retirement. And they go in their
60s and up into their early 70s.
And maybe they pay very little
tax because Social Security the
way it's taxed, is it you have
to have other income to layer on
top of it before it becomes
taxable. Okay, and so they go
all these years. And they don't
even file a tax return, because
they don't need to, you know,
your first I'm going to I'm
going to round up, I'm not going
to use exact numbers, maybe your
first $30,000 Because of the
standard deduction is totally
tax free. Right? That's your
first and standard deduction.
Yeah. And then if social
security if it isn't all
taxable, then it's tax free.
Right? So they go all these
years thinking, man,
retirements, great, I pay like
nothing in tax. But then they
have this 401k that has been
building and building and
building, and maybe it's reached
a balance of a million, or 2
million, I'm gonna say $2
million, it's reached a balance
of $2 million, their age 75. And
now the IRS says you are
required, it's called a required
minimum distribution, you are
required to start drawing money
out of it and start paying some
taxes. So now, and this is a
rough number. Now they have to
pull $80,000 out of that IRA,
your 401 K, which adds to their
taxable income, which causes
their Social Security to be
almost fully taxable about 85%.
And so all of a sudden, they're
reaching, they go from like zero
or 10, or 12%, tax bracket to a
22 or even 24 plus percent tax
bracket. And
Kosta Yepifantsev: so it's so
that income is taxed at a or
that 401k is taxed at the income
tax rate. That's right,
Scott Rinehart: it's taxed at
your ordinary tax rate, you
know, other investments
investments outside of a 401 K
or an IRA to cap you're only
taxed on the capital gains.
Exactly, and it gets favorable
tax treatment, either 0% If
you're under a certain
thresholds Which I love that tax
rate, or 15%. In some folks get
up to 20. When you
Kosta Yepifantsev: when you're
talking to individuals who are
planning for retirement, and
they're doing the tax planning,
what do you tell them to do if
they have money in a 401 K or an
IRA? And they have that social
security or pension? Do you tell
them to take it when realize the
income at the beginning? Or do
you tell them there's there's
like a sweet spot when they
should actually say, Okay,
there's my $400,000 in the 401k.
Scott Rinehart: Yep. So the
sweet spot is figuring out, how
much can I take today, whether
that's taking it as income, or
doing Roth conversions? Okay,
burning money to a Roth. So a
Roth is different, and that you
pay tax when you do that. But
now it goes in the Roth, and it
grows tax free, and there's no
required distributions on it.
And so, how do you smooth out
your income throughout
retirement? How do you smooth
out your overall tax rates? So
that, hey, if I can project out
and see that you're gonna bump
up into this much higher tax
bracket, when, you know, later
on when you have to? Yeah, when
you have to realize it? How do
we realize some of it today, at
a lower tax rate, so that
throughout retirement, our tax
rate stays a little bit more
steady. without bumping up, you
know, sort of having this a few
years with a very low one and
feeling kind of falsely good
about it. Yeah. And then having
this huge bump up for from age
75 until age 90 are basically as
long as you live. So let's
Kosta Yepifantsev: talk about
tax deductions that caregivers
might not be aware of, can you
give us an overview of the key
deductions that we should keep
in mind?
Scott Rinehart: First, I'll
start by explaining the
difference between a tax
deduction and a tax credit. So a
tax credit simply is better, a
tax credit is a one for one
saving. So if you somehow
qualify for a $1,000 tax credit,
you are going to save $1,000 in
taxes, nice. If you qualify for
a $1,000 tax deduction, you're
only going to save whatever your
tax rate is. So for simple math,
if your tax rates 25%, you're
only gonna save $250 on a $1,000
deduction. That being said,
let's start with deductions. And
then I'll get to a credit. So
deductions have gotten trickier
over the years, because in 2017,
tax laws change to where the
standard deduction 86% of people
now take the standard deduction.
And for round numbers, a single
person is going to take about
15,000, in standard deduction,
and married filing jointly, it's
going to be about 30,000. And
your itemized deductions, that's
when we talk about deductions.
That's what we're talking about
itemized deductions. And so
there is a line item in there
for medical and dental expenses.
And that's, that's the thing
that caregivers need to be aware
of, possibly for themselves, but
also for their parents. So for
their parents, if they're not
treating their and when I say
parents, you know, I mean any
loved one that you're caring
for, you know, if their parents
aren't treated as a dependents
for the child, which we'll talk
about that in a second. If
they're not in their parents
need to be keeping track of all
of their medical expenses, which
that is the direct ones, like
easy ones, like hospital bills,
doctor bills, prescription
drugs, that's indirect things as
well, that's transportation to
their appointments, that is
installing ramps, stalling
lifts, installing bars in the
house, you know, anything that
adds accessibility, it's long
term care insurance premiums.
Now there's a limit to how much
each person can deduct out where
this gets tricky. And I'm going
to try not to get too into the
weeds. But there is a threshold
on top of that $30,000 standard
deduction for married filing
jointly, right? It's also a
seven and a half percent of your
medical deduction, or sorry,
your medical deductions have to
be above seven and a half
percent of your adjusted gross
income. So let's just let's
ignore the Adjusted Gross Income
term, let's just say income.
Sure. And so if you have a
$100,000 income, you don't get
to deduct the first $7,500 in
medical. Yeah,
Kosta Yepifantsev: I'll have to
pay tax taxes on that amount,
which I mean, isn't a whole lot
of money. It's, I mean, probably
you'll probably pay some around
1500 bucks, I'd
Scott Rinehart: say. Yep. Yeah,
I'd say that's, that's good.
Don't ask, but after
Kosta Yepifantsev: $7,500,
because people, so just to put
it into perspective, if you're
actually spending money on long
term care, I mean, you're
spending anywhere between
$30,000 a year to $90,000 a
year. So I mean, you're gonna go
over that $7,500 threshold very
quickly, if you're making 100k,
of course. So what, in your
opinion, though, like, what are
some of the most common
misconceptions or mistakes that
you see when it comes to senior
care planning and financial
flexibility, you've had a
Scott Rinehart: lot of good
guests on here, and I'm not
going to beat a dead horse. But
assuming that it's not going to
happen to you. That's, that's
the main one. But I'm not going
to talk about that one. Although
it is, it's an important one, I
think, a common misconception as
it relates to tax planning, is
that you don't have any control
over it. And that you are, you
know, taxes or taxes are just
gonna happen. And that's true to
an extent. But there are things
that you can do ahead of time,
to lower and the other thing is,
you know, earlier I talked about
getting rid of some of that
traditional IRA, paying the tax
ahead of time before require
distributions get in one mistake
I've seen financial advisors
make with their clients even, is
converting all of those IRAs
before they reach a certain age,
I actually don't like that,
because, like you said, at a
certain point, if you use it, if
you have long term care costs,
those are huge deductions,
right. So it makes sense to
leave some money in those 401
K's IRAs that are going to be
taxed someday, it makes sense to
leave some in there, because at
some point, you'll be able to
offset the taxes that would be
owed with the medical deductions
great that you'll have. And, you
know, on top of that, if you if
you hopefully never need it, for
long term care expenses, there
are still ways to lower the tax.
If you're charitably inclined,
there's qualified charitable
distributions. So that's one of
the mistakes I see is like going
too far with it and trying to
front load all of your taxes and
leaving nothing. In traditional
IRAs.
Kosta Yepifantsev: What do you
feel? How do you feel about like
trusts? Do you work? Or do you
have any any advice on how
people should approach maybe
doing an irrevocable trust to
try to shield some of their
assets? When they need to apply
for Medicaid or anything like
that? And also, does that have
any bearing on the amount of
money that you pay in taxes? If
you set up a trust?
Scott Rinehart: Yes, and I'll
admit Costa that gets a little
bit out of my wheelhouse. I
understand. I like to defer to,
to long term care planning
attorneys on that one, but, you
know,
Kosta Yepifantsev: there's only
10 of us in the country that
know what that word means. It's
all good.
Scott Rinehart: That's right. I
understand. And, you know, it's,
I'll give you an example though.
Chad had someone that worked
with where husband was diagnosed
with a rare disease where at
some point, he was going to need
full 100%. Care. Yeah, wife was
perfectly healthy. And the they
did not have a lot of assets.
And so what we proposed with a,
an attorney was finding a way
to, it's called a in marriage,
quadro court ordered, it's like
getting divorced without getting
divorced now, and it moved the
assets that were in his name to
her name. Now, I think another
way of doing that would have
been to go to a to go to an A
revocable trust. That is a good
point, though. Whenever you're
talking about trusts and long
term care planning and Medicaid
strategies, it's irrevocable
trusts. Revocable Trust don't
help you in that regard. You
basically an irrevocable trust,
you're kind of losing control of
the assets. And that's the only
way you'll ever qualify for any
of those things. And now,
there's a trade off. There's a
there's a cost to all those
things. But in this case, it was
going to save that couple, you
know, hundreds of 1000s of
dollars.
Kosta Yepifantsev: Yeah, and we
have some good episodes on
people that do Medicaid planning
that we talked specifically
about the different vehicles
like revocable trusts and living
wills and things like that, and,
you know, medical directives,
power of attorney, stuff like
that. But Scott, many of our
listeners are planning for their
own retirement or helping their
parents with this process. What
are some actionable tips on how
to approach retirement planning
and financial independence?
Scott Rinehart: So actionable
tips number one, is unless
you're driving right now
listening to this, get into your
calendar right now and put
something in your calendar 30
minutes to think about this
stuff. Because if you don't put
it in your calendar, you're
gonna listen to this and say,
Yeah, I really need to get to
that, make it urgent, put it on
the calendar, and spend some
time to think about it. The next
thing, once you've done that, is
really get clear on where you
currently sits, what do you
spend in a year? What do you
make in a year? What are your
assets? What do you own? What
are the different types of
assets that you own. And
specifically, what I see is,
especially as people earn more
money, they start to lose track
of how much they actually spend.
And so I want you to get
granular with this, I don't want
you to be, I don't want you to
guess I want you to figure out I
use an app, I use the men tab,
which I wouldn't necessarily
recommend I've used it a long
time. So I have all my expenses
going back 10 years, you may not
have that. But you can use your
bank account to look how much
money has gone out over the last
12 months, spend an hour
figuring that out. Because
that's one of the biggest
drivers of whether or not you're
going to have a good retirement.
And like I said, Don't Don't
guess on it get granular. Don't
be generous with it, be
conservative with it. And once
you've done that, you'll have a
little clarity on what you
spend. Now you can start to look
into, hey, we have a long term
care event. How much is that
going to cost?
Kosta Yepifantsev: And do we
have the money to cover it? And
do we have the money that I
actually, you might think this
is rather strange, but I use a
QuickBooks file for personal
income expenses. So that's
usually of small businesses and
medium sized businesses that use
QuickBooks, which I use for the
business aspect as well. I have
a different company file. But I
just thought, you know, I really
am familiar with this accounting
software, and I enjoy it. And it
communicates with my banks. So
yeah, I just started using it.
You're a sick individual.
Accounting? No, I mean, it's
really works. Yeah, no, I
really, I believe, believe me, I
actually really love accounting
software. It's rather strange.
Scott Rinehart: On West arm west
to them. Yeah, yeah.
Kosta Yepifantsev: So you've
talked about the importance of
having an intentional plan?
Could you explain what this
means and how our listeners can
go about creating their own
intentional financial plans?
Scott Rinehart: Yes, so
everybody has a plan. You know,
if you don't, if you haven't
been intentional about it, then
your family members will have a
plan for you, or the state will
have a plan for you. So when I
talk about an intent, or the IRS
will have a plan for you, when I
talk about an intentional plan,
I mean, I want you to actually
think about what you want
retirement to look like. And by
the way, we don't always get the
opportunity to make that happen.
But I found a lot that I would
be helping someone to retire,
and they would be financially
ready to, they would be
retiring, not because they
wanted to necessarily, but
because they hit a certain age,
or maybe their job forced them
out. And they had never really
thought about what am I going to
do in retirement. So I see a way
too often where someone retires,
they then spend their days
watching the news, they spend
their day scrolling Facebook,
because they don't know what it
is very terrible ideas. All
because they didn't, you know,
actually plan out, you know,
Open a document on your computer
and just type out. What would a
perfect day look like for me in
retirement? What would a perfect
week look like? How many trips
throughout the year? Do I want
to take like spend the time to
actually do that. So few people?
Do they kind of just say, Oh,
not going to work every day,
that's going to be great. And
for a few weeks for a few
months. For most people it is
but at a certain point, they're
hits that boredom points and
yes, lose some purpose. So
that's a big aspect is to
actually get intentional about
what retirement looks like. And
then, you know, the financial
side of it comes next.
Kosta Yepifantsev: So before we
wrap up, we tell us about verify
financial and how it's uniquely
positioned to help families with
their financial planning. Yeah,
thank
Scott Rinehart: you. So verify
started here in 2023, after
spending five and a half years
at a retirement planning firm,
and I started verify, because I
kept running into people who
were DIY investors, or maybe
they even had a friends or
someone that manage their money.
But they had questions about
financial planning. They had
questions about tax planning,
and they couldn't find people
who would just give the advice
give the guidance without
requiring them to move their
money. And so I wanted to
provide that option to DIY
investors where I can be an
impartial third party, gives
them guidance and connect them
to people that, you know, for
instance, if someone needs Long
Term Care Insurance, I can
connect them to people that sell
Long Term Care Insurance, if
they need their wills, maybe a
trust their power of attorney is
done, I can connect them. And
I'm not financially incentivized
to sell them a product, I'm just
paid to give them a really
strong financial plan. And since
I don't manage investments, or
sell insurance, I have to double
down on financial planning. So I
hit go really deep with my
clients, I keep kind of a
limited number of clients over
time, so I can really go deep
with them.
Kosta Yepifantsev: So we always
like to end the show with a call
to action. For anyone who is
just starting to take financial
planning for long term care and
retirement seriously, what are
the first steps that they should
take?
Scott Rinehart: So the first
steps are to get real with what
and get get real and get clear
on what the costs might look
like. So you mentioned the high
costs. Earlier, I have a
resource for your listeners.
It's at verify financial.com
backslash gift, where it's a
five step process to estimate
their future long term care
costs. Now, a lot of your
listeners probably know what it
costs today. But when you think
about what it's going to cost in
10 years, 20 years, 30 years, it
can be scary, but also it
doesn't need to be quite as
scary as it needs to be or as it
sounds. Once you run the numbers
and see what that's going to
look like you can't plan for
something if you have no earthly
clue what it actually might look
like. So, the first easy
actionable step is go use my
free resource to find out what
your future long term care costs
could look like.
Unknown: Thank you for joining
us on this episode of Now or
Never Long-Term Care Strategy
with Kosta Yepifantsev. If you
enjoyed listening and you wanna
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Long-Term Care Strategy is a
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production.Today’s episode was
written and produced by Morgan
Franklin.Want to find out more
about Kosta? Visit us at
kostayepifantsev.com