Jennifer, 54, plans to retire soon. Her husband, 70, is retired, on Social Security, and dealing with some severe health issues. Jennifer worries about possibly becoming single in retirement, which could result in a higher tax bracket for her.
Jennifer is considering whether to convert her traditional accounts to Roth to lower future taxes or to change her contributions to Roth 403b, even if it means paying more taxes now. James walks us through several factors for her to consider and demonstrates why her future tax situation is likely not as dire as she thinks.
Questions Answered:
How should Jennifer maximize her retirement savings in light of her current financial situation and future tax implications?
What factors must Jennifer consider when deciding whether to convert her traditional retirement accounts to Roth or change her contributions to Roth 403b?
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⏱Timestamps:⏱
0:00 – Jennifer’s question
4:46 – Retire early for tax benefits?
6:05 – Roth conversion strategy
8:43 – Consider future expenses
12:38 – Assess SS strategies
13:56 – Consider living situation
15:54 – The conversion question
17:54 – Main takeaways
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Losing a spouse is a difficult and emotional experience, and it can also have a significant impact on your financial situation, especially in retirement. As a widowed retiree, it’s important to carefully consider your tax planning strategy in order to optimize your finances and protect your retirement savings. Here are some key considerations to keep in mind as you navigate your tax planning as a widowed retiree.
One of the first things to consider is your filing status. As a widowed individual, you may be eligible to file as a qualifying widow(er) for two years following the year of your spouse’s death. This filing status allows you to use the higher standard deduction for joint filers and may result in a lower tax liability.
Additionally, it’s important to reassess your income sources and potential deductions as a widowed retiree. For example, you may no longer have access to income from your spouse’s pension or Social Security benefits, which could impact your tax bracket. On the other hand, you may be eligible for additional deductions, such as the higher standard deduction for individuals over the age of 65 or potential deductions for medical expenses related to your spouse’s final illness.
Another important consideration for widowed retirees is estate planning and potential tax implications. It’s important to review your estate plan and ensure that it reflects your current circumstances, including any changes in beneficiaries or heirs. You may also want to explore strategies for minimizing estate taxes, such as gifting assets to your heirs during your lifetime or setting up a trust.
Finally, as a widowed retiree, it’s important to stay informed about changes to tax laws and regulations that may impact your financial situation. Consulting with a tax professional or financial advisor can help ensure that you are taking advantage of all available tax benefits and optimizing your tax strategy to protect your retirement savings.
In conclusion, tax planning is a critical aspect of financial planning for widowed retirees. By carefully assessing your filing status, income sources, deductions, estate planning, and staying informed about tax laws, you can optimize your tax strategy and protect your retirement savings. Consulting with a financial professional can help ensure that you are making informed decisions that will benefit your financial future.
She's 54. Her husband's ill. She needs low taxable income in order to make Roth conversions highly advantageous. Unless she loves her job, I suggest that she seriously considering retiring. It's time. Managing a Roth conversion strategy is time consuming. She'll be plenty busy. I'm in year 10 of my 12 year Roth conversion plan. I started at age 54 and I'm 63 now. She needs to start building a retirement spreadsheet that includes her Roth conversion numbers and all future tax return numbers. It's very time consuming, but there are a huge number of variables and all the numbers need to be estimated, but as accurate as possible, in order to determine the optimal Roth conversion plan. Plus, having all future tax return numbers calculated now, it will help in the future should she become disabled. Her caregiver and accountant can simply rely on her retirement spreadsheet.
Hi James. Do you happen to recall which episode you spoke about umbrella insurance. It was quite awhile ago. It was a very informative episode like all your episodes and I need to go back and listen to this particular one. Thanks for all the great info you put out there.
Really good show.
Thanks James for another very informative video!
15:57 I would agree that this would not be a huge issue. However, the 403b has the Rule of 55 (I think), and IRA Roth conversions have the 5 Year Rule. I suppose these would impact their ability to access Roth assets in the short term, and they already have early retirement on their mind. (But it's a moot point, as in-service conversions aren't allowed.)
I had to laugh a little at the wording of the question, essentially, “I’m already a multimillionaire, am I totally screwed?”
Great Video!
She should get married again 🙂
Tried to book an appointment but the schedule was full?
Cole I sold some stocks with capital gains so making estimated quarterly payments on irs pay direct…how do we inform irs next year tax season…..that much has been paid
Thanks