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Snowbirds & Taxes: Where You Owe and the Mistakes That Cost You · Retire and Thrive

• 0:00
  If you're a snowbird and you live six months in, say,
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  somewhere N Minnesota, North Dakota, whatever, six months
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  down in Arizona, where do you pay your taxes?
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  So we often find that clients of ours find states that maybe they
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  want to go to and they basically look at the state tax and say,
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  wow, it's it's much, much lower. Where does charitable giving
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  come into play, especially for folks who are in that retirement
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  age? Welcome back to another edition
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  of Retire and Thrive, where we help you live your life with
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  purpose, wealth, and confidence. I'm Tammy, and this is Dan.
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  Thanks for joining us this week. We drop podcasts once a week
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  here to help you with your financial situation, especially
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  those who are in that retirement age.
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  And today, we are continuing our theme here of taxes because it
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  is that time of year. And today, we are focusing on
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  three main ways that retirees can pay less in taxes, meaning
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  more money stays in your pocket. Dan, how you doing this week?
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  Everyone doing very well. Good.
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  Good, let's get right into it. We have these three money moves
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  that folks can make. What's move #1?
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  First one Cammy would be to control where your income shows
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  up on your taxes. OK, So what does that?
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  Mean, so having control, I mean, obviously taxes are over a
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  calendar year, so January 1st through December 31st.
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  And having control basically means knowing how much income
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  you want to report. Now this is mainly for retirees
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  because once you are working or as you are working, you don't
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  have a lot of control over your income, especially if you are an
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  employee W2 wage earner, you're going to earn what you earn.
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  And so you don't have a lot of control other than as we've
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  talked about before, you know, contributing more towards your
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  pre tax retirement account will certainly reduce that.
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  But having control where your income shows up is really about
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  once I'm retired. And if you remember last week we
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  talked about the three different types of taxes, pre tax after
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  tax and and the Roth. So having control is simply
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  saying how much income do I want to show this year, for example,
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  and how do I stay within the certain marginal tax brackets?
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  So that really is what I refer to as control, you having the
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  choice. And again, if you remember, we
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  talked about you asked one of the biggest mistakes or what was
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  the one mistake last episode and that was simply just randomly
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  throwing money in retirement accounts and not necessarily
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  knowing. So what having control over
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  where your income shows up is knowing do I pull out of the
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  retirement accounts? Do I pull out of the after tax?
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  Do I pull out of the Roth? So that is controlling your
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  income within certain brackets. OK, Moving on to Money move #2
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  using that Roth money strategically and not randomly
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  is Money move #2 what does this mean?
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  I know we talk about the Roth so often.
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  Yeah, we do talk about the Roth often and I can't think of where
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  it's more applicable than for retirees.
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  And when we talk about using it strategically, not randomly,
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  that would be let's just not say, hey, I want to pull out
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  30,000 bucks from my Roth account because I know it's tax
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  free. Let's be intentional with when
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  to pull it out of the Roth versus when to pull out a pre
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  tax and when to pull it out of the after tax.
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  Again, using those three types so strategically simply means if
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  I'm going to be pushed into the next tax bracket, maybe it makes
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  sense to pull out of the Roth if I have these one off items or if
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  I'm pulling out so much out of my retirement accounts and you
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  know pulling out any additional amounts going to push me into
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  the next brackets. So that's more of the strategic
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  side of it. Sure.
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  Do you see what are some of the mistakes you see with handling a
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  Roth? Well, let's just again kind of
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  use a real world example. If I've got $500,000 in an IRA
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  account and I've got $200,000 in a Roth account and I'm pulling
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  money out of that $500,000 to supplement my Social Security
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  and, or pension or whatever it might be.
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  And maybe, maybe you're pulling out $2000 a month out of your
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  IRA account and you want to purchase a bigger ticket item.
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  Let's say you want to go out and buy a new car.
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  But when we add everything together, if you're pulling out
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  2000 from the IRA account and maybe you've got money coming
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  out of your pension, maybe you've got Social Security
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  that's kicking in. And we start doing the math and
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  all of a sudden we're like, Tammy, between all income
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  sources, between you and your spouse, you're right at the edge
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  of the top of that 12% tax bracket.
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  So if you want to buy that new car and you want to spend
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  $50,000, does it make sense to pull the $50,000 out of the IRA
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  account or should you tap the Roth account?
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  And so that would be the strategy as opposed to just
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  saying, you know what, I'm going to just pull out, instead of
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  $2000 out of my IRA account, I'm going to pull 1000 out of my IRA
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  and 1000 out of my Roth. And when we see that, I'll
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  simply ask why are you pulling out 1000 from your off?
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  And the answer is usually like, I don't know, it's tax free, but
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  does that help you from a tax standpoint?
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  And oftentimes people are like, well, I just want to pull some
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  of it out. Now that's random strategic
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  would be let's do it based on tax brackets.
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  So I don't know if that answered you.
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  It does. It does.
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  And to know the tax brackets typically.
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  Maybe these folks are working with someone, but they can do it
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  on their own as well. Yeah.
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  I mean, you can go online, you can look at, you know, tax
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  brackets and you just basically say what are the current tax
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  brackets? And again, we're referring to
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  the federal tax brackets. Each state is going to have
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  their own taxes unless there's some states that you know, have
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  no tax, no state income tax. And a lot of states, by the way,
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  this really isn't part of your question, but a lot of states
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  have gone to a flat tax, which is kind of interesting as
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  opposed to a marginal bracket or the more that you make.
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  So is that? Newer.
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  Yeah. I mean, obviously I don't follow
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  every state, but we have clients in lots and lots and lots of
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  states. But one that just happened three
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  years ago was the state of Arizona went to a flat 2 1/2%
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  tax bracket. And of course, you've got states
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  like Florida and South Dakota and some of the other states
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  that have zero. And a lot of people think, well,
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  if they pay 0, then I'm going to move there because I don't want
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  to pay any income tax. But they do tax other things, be
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  it clothing or groceries or whatever so or property taxes.
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  This may be a dumb question because I'm not totally aware on
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  this, but if you're a snowbird and you live six months in say,
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  somewhere N Minnesota, North Dakota, whatever, six months
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  down in Arizona, where do you pay your taxes?
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  That's actually not a stupid question.
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  That's a great question. It depends on where you become a
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  resident. OK, so.
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  Can you be a resident in both? No, you can be a resident in one
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  state and. Then your second home is in the
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  other place. You're right.
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  Now, again, not to get too granular here, but I know you
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  like the Twins. I do.
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  What's interesting is when you talk about professional athletes
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  and I think more football, but it would apply to baseball or
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  any but every state that they play in that state will tax them
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  on the earnings given the time that they were in that state.
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  So if you take the Twins and they have a series in New York
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  and they're playing the Yankees and it's a 5 game series, out of
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  how many, how many games they play for that year, maybe it
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  represents 3% of their total income for the year.
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  They literally have to file a tax return in the state of New
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  York to report that income. Yeah, so no wonder they're
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  working with people to manage their money, Yeah.
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  So and again, you know baseball way more than I do, so I don't
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  even know how many different states that they would play
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  games in, but it might be it might be 15 if they're.
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  Having and if they're really money savvy, they look at the
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  schedule the next year and say, oh, OK, OK, probably not, but
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  maybe some do. That's very interesting.
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  So back to your question about residency.
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  So we often find that clients of ours find states that maybe they
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  want to go to and and they basically look at the state tax
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  and say, wow, it's, it's much, much lower.
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  Now it again, this really wasn't part of the discussion, but you
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  asked the question. So I want to clarify this.
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  I met with a client of mine last year who had sold his business
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  for a lot of money and him and his wife came in and I said, if
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  I were, you know, maybe, maybe talk to your accountant about
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  seeing because you're spending so much time down South, see
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  what the tax bracket and, and savings would be.
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  And so we kind of went through all the numbers.
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  And I remember she looked at me and she said, but isn't
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  lifestyle part of the equation too?
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  And I said, what, what do you mean?
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  And she says, well, we don't. We have more of our family and
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  kids and everything else is up here.
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  So is it really worth it? And I said, well, that's your
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  personal decision. I'm just coming at it from a
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  financial standpoint. But yeah, we do see that
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  frequently where people will to become residents of other states
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  simply to reduce their overall income tax.
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  Yeah, makes sense. Money move #3 has to do with
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  charitable giving. When it comes to taxes, where
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  does charitable giving come into play, especially for folks who
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  are in that retirement age? Yeah, charitable giving can be
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  very, very complicated. We have someone in our office
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  here who is kind of our, what we refer to as our subject matter
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  expert on something called donor advised funds or better known as
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  Dafs. And I think we can do an entire
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  episode or two. We'd probably do a series on
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  donor advised funds. You know, Fidelity is the
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  biggest donor advised fund firm in the country.
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  You know, it's just a very, very robust program that they have.
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  And this is not about touting Fidelity, but it's the tax
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  implication. So donor advise fund is one way
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  the retirees can reduce their overall income.
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  I'll come back to that in just a minute.
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  And the second part of the charitable is something called
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  QCDS and that's qualified charitable distributions.
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  So what that is, is remember last time we talked about that
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  RMD you referred to at age 73, instead of taking that RMD, you
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  can actually give it to a charity.
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  Now you don't get a deduction for that, but you don't claim
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  that as income. And then whatever the charity
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  receives is 0 taxes to them. So back to the, the, the tax
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  planning side of it and the charitable side, I think there's
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  two different types that we utilize most, the donor advice
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  fund. And think of it this way again,
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  if we get feedback from the audience that they want to dive
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  deeper into or have us to have a deeper discussion about donor
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  advice when I'd be happy to do that.
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  We could also bring in Luke, you know, we could have him talk a
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  little bit more about it too. But conceptually, here's how
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  what it looks like. Typically you want to gift an
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  appreciated asset. So let's say that I bought a
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  stock and I put 50,000 bucks into a 10 years ago and it's now
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  worth $300,000. So what I can do is I can take
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  that stock and I can give it to a donor advice fund.
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  I get the deduction based on how much income I have either all
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  upfront or spread out over 5 year period, again depending on
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  income, how much my income is. And again I won't go into the
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  numbers today. But the point is if I donated
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  $300,000 to a donor advised fund and I'm able to take that
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  deduction, whether it's upfront over a period of time, I pay no
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  tax on that gain. I get the deduction and I give
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  the full 300,000 to a donor advised fund and then they get
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  to use that money, they sell the stock.
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  And the great thing about a donor advised fund is I can
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  choose how much or how little I want to give every year to
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  different charities. And Fidelity's example has its
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  own portal. Our clients would have their own
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  portal would be the donor advice fund portal.
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  Again, in that example, we give the $300,000 stock, it gets
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  sold, gets diversified, gets invested.
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  If I want to give away $1000 to hospital and if I want to give
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  $10,000 to a church or to a school or whatever it might be
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  long as their nonprofit 5O1C3 it's literally click the drop
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  down arrow, find my charity and I can gift away.
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  So in that example, with a $300,000, I could be giving that
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  $300,000 to whatever charity is near and dear to my heart.
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  And I could do that over, you know, a decade or even longer.
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  OK, so that's the, that's the donor advice one.
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  I know we went a little heavy on that.
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  There's a lot to it, and a. Lot of stuff.
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  That people don't. Understand.
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  But think about this for a minute.
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  Even if the numbers are smaller, even if I invested 25,000, it's
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  worth 100,000 and I'm able to take that $100,000 deduction.
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  I mean, now you can basically compound the impact because my
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  income just got reduced by $100,000.
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  Now I can convert from IRA to Roth because I'm still in that
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  lower bracket. So you can use donor advise fund
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  and couple it with Roth conversions to ultimately stay
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  in lower brackets and ultimately take the tax deductions.
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  Very interesting. Now back to QC DS qualified
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  charitable distributions. So we talked about the
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  challenges with, you know, people just delaying their RM DS
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  until age 73. But if there's charities that
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  are near and dear to their heart and they don't need that RMD
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  amount, they can take that amount up to that amount.
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  If their required minimum distribution is $20,000, they
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  don't have to do the full 20. They could say I want to give
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  $10,000 to this church or I want to give it to this school or
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  whatever it might be, or they could do multiple.
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  We've got clients of ours that have a required minimum
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  distribution and rather than take the income themselves, they
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  might have a list of four or five different charities and
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  they'll tell us specifically this is the charity, this is how
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  much we want to give them and the checks just get sent out.
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  There is one caveat I want to just mention here because we've
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  had people that have had this happen to them.
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  When this QCD is done, you still get a 1099 that shows that you
• 14:03
  had the distribution. So you have to make sure that
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  either if you're doing it yourself or if you're having
• 14:09
  your accountant make them aware that you didn't take possession
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  of that. In other words, when the 1099
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  comes out, it doesn't say that we gave it to this school or
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  this hospital. It just shows the distribution
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  was made. You have to prove you've got the
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  receipt for the donation to the organization.
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  So those are the 2 main charitable tax savings that you
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  can do the QCD's to reduce or eliminate your required minimum
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  distribution and the donor advice fund.
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  And we use both fairly aggressively.
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  And we've had a lot of success, like I said, because then we can
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  control that tax bracket, reduce the income and potentially look
• 14:49
  at doing, if it's of interest to them, doing some of those Roth
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  conversions. OK, I know it's a little heavy.
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  It's good though. It's good information.
• 14:55
  Absolutely. Anything more that you'd like to
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  add? Otherwise, we covered our three
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  money moves. I think I'm good with the three
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  money moves, Cammy. OK.
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  All about saving you an extra buck or two or a few. 1000 here
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  and there and. Doing good?
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  What are you talking? About charity, yeah, doing good.
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  I was going to say the charities like you guys.
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  A little bit the icing on the. You, you get to help people out
• 15:16
  too, so that's fantastic. Thanks so much for joining us.
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  You can follow us along. Each week we drop a new podcast.
• 15:21
  Wherever you get your podcasts, have a great week.
• 15:25
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• 15:28
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  prospective clients where Fortress and its representatives
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• 15:36
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• 15:38
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