Financial Considerations for Senior Missionaries

Executive Summary

Scott M. Peterson leads this webinar and is joined by his team of Certified Financial Planners™. They will each discuss different financial considerations for anyone considering serving a senior mission.

Financial Considerations for a Senior Mission – Welcome to the Webinar (0:00)

Scott Peterson: So, welcome everyone. I’m Scott Peterson, one of your hosts today, and we’d like to welcome you to another session of the 2021 Education Series. Today, we will discuss the financial considerations for senior missions and senior missionaries.

We conduct these presentations periodically to keep you informed. We have clients and friends from all over the country and from various religious denominations participating in this presentation today. Some of you might become confused if I don’t clarify a couple of items. Since we live in Utah, where the predominant religion is The Church of Jesus Christ of Latter-day Saints, and because the vast majority of us who work at Peterson Wealth Advisors are also members of the church, we are very familiar with the culture of this church.

One notable characteristic of the church membership is that we love to serve missions. We aim to teach the world about Jesus Christ and participate in various humanitarian causes worldwide. We serve missions both in our youth—you might have seen us on our bicycles—and during our retirement years. Today’s discussion is designed to instruct senior or retired missionaries on how to best manage their resources in anticipation of and during the time they will be serving their mission.

We understand that members of many Christian denominations also serve humanity in various capacities worldwide once they retire, often in many important roles. The concepts we discuss today are not meant solely for the LDS population because all denominations are subject to the same IRS rules and regulations. We believe you can glean valuable information from this presentation, even though it is designed with the LDS senior missionary in mind.

Excuse me, here. My question is, how do you serve God with all your heart, might, mind, and strength if your own house is not in order? You certainly don’t want to be constantly worrying about or adjusting your investments during a time when you should be 100% focused on your mission. At the same time, you can’t simply neglect your finances for a couple of years. Income has to be managed, investments must be monitored, and taxes still need to be paid.

Planning for a senior mission starts with a plan for retirement income, one that doesn’t require daily vigilance on your part to keep it going. A good retirement income plan integrates investment income, pension income, and Social Security benefits. It also incorporates a plan for minimizing taxes and reducing risk and is integrated into a well-defined and well-organized estate plan. A quality retirement income plan aims to provide inflation-adjusted income throughout your retirement with the least amount of hassle, risk, and tax. A solid retirement income plan needs to be established prior to serving your mission.

I know there are many non-financial considerations when deciding to serve a mission. You have to consider your health, the health of your spouse, what to do with your house while you’re gone, who will take care of your grandchildren, and possibly even leaving an aging parent behind. These are a lot of considerations, but today we’re focusing on the financial aspects.

You need answers to some of these questions: What will you do about health insurance during your mission, especially if you’re younger than 65 and not yet eligible for Medicare? How much will your mission cost? What is the most tax-efficient way to pay for your mission? Should you start your Social Security now or wait until after your mission? What is your retirement income plan?

Many of you are already clients of Peterson Wealth Advisors and are familiar with our proprietary income creation plan, The Perennial Income Model™. This plan has been a lifesaver for hundreds of families who have depended on it for income through all the ups and downs we have experienced since we created the program about 15 years ago. If you’re not a client or unfamiliar with the Perennial Income Model, please let us know, and we’ll send you a book explaining what we’re talking about.

Another important question is whether there is a way to pay for part of your future mission now while you’re in your high-earning, high-tax-paying years and get a tax deduction, but use those funds in the future to fund your mission. Additionally, are there some smart tax moves you can take advantage of during your mission in your low-income years? We will attempt to answer all of these questions during the next 45 or 50 minutes.

We will be moving fast, and if you can glean just one thing from this presentation that benefits you, it will be worth your time with us. We intend to generate a lot of questions in your mind, and while we can’t answer them all today, we have reserved time at the end of this presentation to address some of your questions. As you think of things, write your questions down or use our Q&A feature to ask questions during the presentation. You can also ask your advisor, and we offer free consultations for those of you who are not working with us yet. Tomorrow, we’ll be sending all of you an email with the recorded version of today’s webinar, which will be available to watch for the next two weeks. Feel free to respond to the email with any additional questions as you rewatch this. The email will also include an opportunity to sign up for a complimentary consultation with one of our advisors to discuss your situation in more depth.

So, I’ve been doing this for a long time. And I’m very fortunate because over the course of my career, I’ve been blessed to surround myself with a team of professionals that I think are some of the best and brightest in our industry. Some of them will be sharing information with you today, so let me turn the time over to them. Let’s start with Daniel Ruske. Take it away, Daniel.

Investigate Senior Missionary Opportunities (6:57)

Daniel Ruske: Perfect. Thank you, Scott. We understand that there are many ways to serve. However, today’s presentation will primarily focus on serving away-from-home senior missionaries and full-time away-from-home senior missions. A lot of retirees and soon-to-be retirees we talk with often have the mindset that a senior mission will be an expensive endeavor, far above their normal expenses in retirement. In most cases, as we dig into the actual costs, we find that this is not the case and that serving a mission is often more affordable than you think, and often cheaper than staying at home in retirement.

So, the question is, how much does a senior mission cost? Unlike serving a mission as a young man or woman, the cost of serving a senior mission can vary greatly depending on where you serve. The church has created a Senior Missionary Opportunity Search feature on their website that allows you to search through senior mission opportunities available away from home.

We will send a link to this feature on the church’s website in the email you will receive after the presentation. Here, you will be able to filter through all the senior missionary opportunities worldwide and select your preferences to be included when you submit your mission papers. I’ll walk through this with you briefly on the next slide to show you how it works.

When you first pull up the website, you can see on the left-hand side of the screen some of the search features available to help narrow down your search. You can sort by how critical or priority the position is, the length of service, the estimated monthly costs, and whether it is inside or outside of the United States. You can also specify if the estimated cost includes health insurance or not. For example, on the screen, I have shown three different missions in Arizona. At the top, you see an English-speaking member leader support position in Mesa, an English-speaking Seminary and Institute teacher in Fort Apache, and a Spanish-speaking member leader support in Tucson. You can see that with health insurance, the estimated costs for these missions hover around $2,700 per month for a couple.

A lot of senior missionaries find that they often spend less than the church’s estimated cost listed here. On the next slide, we’ll cover some opportunities outside of the US. This shows an English as a Second Language and Leadership Support opportunity in Mongolia, a member leader support (MLS) in Australia, and another MLS opportunity in Brazil, with the preferred language being Portuguese. When we look on the right-hand side to compare the costs in green, you can see that the costs, including health insurance, can vary quite a bit. During the time I spent on the website, I found the cheapest estimated mission to cost $1,250 per month for a couple, and the most expensive to be around $4,400 per month per couple. However, most missions hover around $2,500 to $3,500 with insurance included.

This function on the church’s website lets you know what is available. When you submit your application, you can include four to eight preferred opportunities that may interest you. So, does this mean that you can choose where you serve? Well, no, it doesn’t. It means that the church leaders responsible for assigning your mission call will see your preferences as they determine your assignment. I’ll also note that these costs are for a senior couple. The same opportunities are available for senior sisters, and the church estimates the costs for those missions to be about 80% of the listed costs here.

If we click on the additional details in blue, it breaks down the costs even further. Here we’re looking at the additional information on a family history specialist opportunity in Cambodia. In the top right corner, the estimated cost per month is $3,359. The costs are then broken down further into housing, personal expenses, transportation, and insurance. I want to talk briefly about each of these expenses.

First is housing. This portion of the senior mission is paid for through the ward and is capped at $1,400 per month. Now, this next part is very important because it is paid to the church. This $1,400 is tax-deductible, which means this portion of your senior mission is eligible to be paid for through a Qualified Charitable Distribution or Donor-Advised Fund. Later in the presentation, Carson will cover in detail how each of these tax strategies works.

The second is personal expenses. For the Cambodia mission shown, it is estimated that a couple would spend around $1,000 each month on personal daily living such as food, personal care, clothing, etc. Next is transportation. This expense refers to the costs to get around your mission area. This cost does not refer to the cost of transportation to and from your mission. That cost is typically paid for by the church if you serve for 18 months or longer, or by the senior couple for 6 to 12-month missions.

Last is insurance. Here it is listed that the insurance for a senior couple is $708 a month. I’ll go into more detail about the insurance for senior missionaries on the next slide. The type of health insurance you have on your mission depends on where you serve and how old you are. The chart on the slide shows the most common form of health insurance senior missionaries use while serving.

If you are over the age of 65 and on Medicare, you will most likely remain on Medicare if you serve inside the US. However, Medicare does not provide coverage outside of the US. Missionaries serving outside of the United States have the opportunity to purchase insurance through Deseret Mutual Benefits (DMBA) called SSMP, or the Senior Service Medical Plan. It is provided by Aetna, and the current cost per month is $708 per couple. If you are on Medicare and serving outside of the US, you have the option to disenroll from Medicare Part B, and possibly your supplement plan, to use SSMP while you are serving. The Church Missionary Department will help walk you through disenrolling and re-enrolling in Medicare Part B, but it is up to you to contact your supplement plan to determine how to disenroll and re-enroll, and if disenrolling is the right option for you.

The Senior Service Medical Plan presents some unique planning opportunities for retirees with the desire to serve. Let’s say we have a husband and wife who are both aged 63, and they want to retire and serve missions but don’t know what they’ll do for health insurance before Medicare starts at age 65. Could they retire at age 63 to serve a mission and be covered through the Senior Service Medical Plan until they file for Medicare when they get back? The answer is yes, and we have had many retirees use this opportunity to retire earlier, have adequate health insurance, and serve missions. I’ll now ask Alec to continue the presentation.

Social Security Timing Strategies (14:28)

Alek Johnson: Thanks, Daniel. Today, I’m going to be talking about Social Security timing strategies. One of the most common questions we receive is, “How can I maximize my Social Security benefits?” Applying for Social Security at the optimal time is one of the core strategies for maximizing your benefit, and your mission may provide you with the perfect opportunity to get the biggest payout that you can. Let’s take a look at why.

We know that delaying Social Security is almost always a good idea. If you claim early, for every year remaining before your full retirement age, you will lose about six percent of your full benefit. Whereas, every year that you delay your benefit beyond your full retirement age, it is going to increase by eight percent. So, if you claim at the earliest possible age of 62, you would only receive 70% of your full benefit. However, if you delay until age 70, you’ll actually receive 124% of your benefit.

You can see here the difference it will make over a 30-year retirement. If you claim at age 62 instead of age 67, you are going to miss out on over $320,000 of a lifetime payout. On the flip side, if you delay until age 70, you’ll gain another $213,000 compared to claiming at your full retirement age. You can see here the costly impact of claiming your benefits at the wrong time.

Now, this sounds great, right? Let’s just keep delaying and building up the biggest benefit that we can. But the problem many retirees face is that they are relying on the income that Social Security provides. And that’s where the benefit of your senior mission comes in handy. As Daniel has shown, a senior mission has such a low cost of living that you may have a golden opportunity to delay and receive a higher payment. If you look at this chart, you may be thinking, “Well, it’s only a one or two-year difference, right, if I serve a mission?” But when looking at the big picture and planning for a 30-year retirement, you can see that by delaying one year from age 67 to 68, you would receive another $78,000 in your lifetime payout.

Here are two more common concerns with delaying Social Security that we receive. The first is, “What if I die early?” and the second is, “The system is going broke.” Both bring on the feeling of wanting to get as much out of it as possible, and so they want to claim at the earliest age possible. However, we know that this may not produce the best outcome.

For those who are worried about an early death, it is true that there is no best age to claim for everyone. Ultimately, it is your choice, and you should make an informed decision about when to apply based on your situation and the factors you can see here on this slide, especially focusing on that last bullet point about survivor needs. Today, there’s about a 50% chance that one member of a couple will live until age 90. So, even if one spouse dies early, the other may be here for the long haul and would benefit from the higher payout.

As for the concern that the system is going broke, although nothing is certain, the Social Security system has faced similar crises in the past and knows what changes to make to keep it working for the foreseeable future. As you can see here in this slide using last year’s data, the trust fund is currently taking in more than it is paying out. It is true that unless further funding changes are instituted, the Social Security trust fund will need additional funding by the year 2034. However, there are multiple proposals currently being studied that would restore solvency to the system beyond that time.

The bottom line is that your benefits are unlikely to be affected much, if at all, and you shouldn’t make your decisions based on the notion that the Social Security system is going broke. I’m now going to turn the time over to David to talk about Roth conversions.

Scott Peterson:  Here, do you mind if I interrupt, David? Excuse me. I was just thinking about Social Security. I think the biggest mistake people make is assuming the system is going broke and wanting to get as much out of it as possible. I think that’s a big mistake. But I also wanted to add an example of what Alek is talking about now. We had a couple that were called on a mission to Africa. The gentleman had a pension and other sources of income, and he was really antsy about getting his Social Security going. Well, we sat down with him and asked, “How much is this mission to Africa going to cost?” After discovering that, we found he had plenty of money from his pensions and so forth to cover the cost. So, we said, “Please, wait until after you’re back to file for Social Security,” which he did.

Interesting thing about that, you know, they had plenty of money while they were in Africa. It didn’t cost that much. He came back and, unfortunately, he died not too long afterward. You would think, “Oh, that was a mistake. He missed out on Social Security.” No, it wasn’t a mistake. Let me tell you why. Coming back to what Alek was teaching you, when a spouse passes away, the surviving spouse gets to keep the larger of the two Social Security checks.

And so, by him delaying his Social Security check, his widow now has a bigger check for the rest of her life. So, it’s something to think about before claiming Social Security. Excuse me, David, back to you.

Roth Conversions (20:03)

David: Oh, no problem. Thanks for bringing that up. That’s great. And thanks, Alek, for touching on Social Security. So now I’m going to touch on Roth conversions and how senior missions can often present a unique opportunity to perform a Roth conversion. Ultimately, what a Roth conversion can provide is both long-term and short-term tax savings. These tax savings can benefit you during your later years of retirement or even provide tax savings for your heirs after you’ve passed.

So, the first question we’ll go over is: What is a Roth conversion? As the name suggests, it allows you to convert a regular retirement account, like an IRA or 401(k), into a Roth IRA account. You can convert either the entire account or a portion that you choose. It’s usually more common to convert only a portion, as it depends on what tax bracket you’re in. Roth conversions require assumptions about your current and future tax brackets, which can make the decision unclear. However, for senior missionaries, this presents a unique opportunity because we have a good grasp on what your tax bracket will be and when, making the decision more clear-cut.

Generally, the advice we give clients is to convert enough to get the future tax benefits of a Roth but not so much that it pushes you into a higher tax bracket, which would erase any future benefit. As financial advisors, we look at your overall tax situation, both present and future, to determine the most advantageous amount for you to convert.

So, why should you do a Roth conversion, and how does it benefit you? There are a few reasons and situations where a Roth conversion would be beneficial in the long run. As we discussed, during a mission, your cost of living is generally lower, putting you in a lower tax bracket. For senior missionaries, this fits perfectly, as your income will be artificially low for a known period. This is an opportune time to do a Roth conversion, as you’ll pay a smaller tax bill for the amount you convert. When your tax bracket rises again after you return, you’ll have saved a significant amount on taxes. These savings compound over time as your money continues to grow. This can provide benefits later in retirement by having a source of tax-free income, or it can benefit your heirs if you leave your Roth IRA behind, providing tax-free money for them as well.

Another advantage of a Roth conversion is that Roth accounts do not have any Required Minimum Distributions. For regular retirement accounts like IRAs and 401(k)s, once you reach the age of 72, the IRS requires you to take some money out so they can get their taxes. But for many of our clients with pensions and Social Security income, they may not need the required distribution money at all to live on. If you convert that money to a Roth, you won’t be required to take any money out because the IRS has already gotten their taxes. This leaves the Roth money to stay in the account and grow even more.

Just as an example of how someone would do this in the real world, let’s take the example of Brother and Sister Reed. They completed their papers and recently received a call to serve in the Cusco Peru Mission. Currently, they spend about $8,000 a month on expenses like travel, having fun, and doing activities with their grandkids. However, once they are on their mission, as Daniel showed us, their expenses are drastically lower. Their monthly expenses are now only about $2,500 per month. Not only is the cost of living in Peru significantly lower than here in the US, but they are no longer doing many of the extracurricular activities they did while at home.
Now that they need to withdraw less from their retirement accounts, their annual income drops from just under $100,000 per year to just $30,000 a year. Tax-wise, they have dropped from the 22% tax bracket to the 12% tax bracket. Given this situation, it’s the perfect time to do a Roth conversion. Their advisor determines that they can convert $50,000 from their IRAs to Roth IRAs, paying only $6,000 in taxes on the conversion instead of $11,000 if they had done it while at home—a $5,000 difference in taxes. This substantial tax saving can be achieved pre- or post-mission.

Depending on the length of your mission, if you go on a two-year mission, you could do such a conversion twice. The long-term benefit is that they could have $50,000 to $100,000 invested, growing tax-free, which over time turns into a substantial amount.

For a more near-term benefit from a Roth conversion, let’s imagine the same couple, the Reeds, after returning from their mission. They might want to celebrate their reunion with their kids and grandkids by taking them all on a trip to Disneyland. They could use the $50,000 that was converted to pay for the trip tax-free, even though they are back in the 22% bracket. If no conversion had been done and they took the same trip, their tax bill would be $5,000 higher.

So that’s a $5,000 savings in just the following year. Just imagine what you could do on a trip to Disneyland with an extra $5,000! Alternatively, as I mentioned, in the long term, that money could grow tax-free into the future. As you can see, a couple’s mission is often a great time to perform a Roth conversion as it can provide significant tax savings both in the short term and the long term. It will reduce your overall tax bill over the course of your entire retirement, provide tax-free money to your heirs when you pass, and help you avoid taking Required Minimum Distributions when you reach 72.
Now, I’ll turn the time back over to Scott, who will talk about some tax considerations for senior missionaries.

Taxes 101 (26:30)

Scott Peterson: Thank you, David. I do want to mention something about the Roth IRA. Sometimes we see people go to extremes. They say, “You know what? I like this concept so much, I’m going to convert all my money to a Roth IRA.” We’ll have Carson talk to you in a couple of minutes, and I think you’ll see why you probably wouldn’t want to do that. So again, a Roth IRA conversion should be part of an overall retirement income plan and should be well thought out. We like Roth IRA conversions, but in moderation, keeping your taxes in mind now and in the future.

With that in mind, I want to give you a primer or maybe a reminder about taxation before we turn the time over to Carson. There are two tax strategies that we will be discussing today, which Carson will introduce to you. Before we do that, I just want to make sure you understand some very basic tax information. In our taxes, in the simplest terms, as you calculate your tax liability, you first add up your income and then subtract your deductions to come up with your taxable amount. We all get deductions.

We get the greater of our itemized deductions or the standard deduction. The IRS has a list of things we can count when we itemize our deductions, such as mortgage interest and charitable donations. But the IRS also has a standard deduction number that we can use if our itemized deductions don’t add up to be more than our standard deduction. During the Trump years, there were some tax cuts, and the standard deduction for single filers as well as married couples was doubled.

Let me show you what your standard deductions are: for a single person, $12,550. If you don’t have itemized deductions in excess of that, then you’ll select to have the standard deduction. For a married couple filing jointly, it’s $25,100. If you don’t have itemized deductions in excess of that, then you’ll take the standard deduction. As you can see, there is an extra deduction amount for people over age 65.

So how does all this impact you? Well, with larger standard deductions and fewer items that are eligible to be deducted, most of us will simply forgo itemizing our deductions and will end up taking the standard deduction. Previously, about 30% of us itemized, but it is now estimated that only about 5% of Americans will itemize their deductions in the future because of this higher standard deduction amount. So how does that impact all those that give to charity?

Although gifts to qualified charities are still available as itemized deductions, most charitable donors will not receive any benefit for their donations because few will donate enough to charity to exceed the standard deduction. Therefore, there will be no tax benefits for donating to charity for the 95% of us who don’t itemize deductions. But there are still actions to be taken to reduce your overall tax liability. Carson will teach us a couple of those strategies.

Maximizing Your Tax Savings (30:10)

Carson Johnson: Great, thanks, Scott. What Scott has said is very important. The two strategies I’ll be going over today are very important charitable giving tax strategies. The first strategy is what’s called a donation in kind.
There was a time long ago when our ancestors and members of the church would make donations in-kind—donations of agricultural products like eggs, milk, bales of hay, and much more. There are charities today that will also accept donations in kind. Many taxpayers fail to recognize the huge benefits you can receive by donating appreciated assets in kind.

All charities, including churches, accept donations in kind. Charities accept almost any marketable security. This means stocks, bonds, mutual funds, and exchange-traded funds are some examples. Some may even accept certain life insurance policies or shares of closely held corporations. You want to check with your intended charity to make sure you understand what assets they are willing to accept. Just as our ancestors before us would donate, for example, apples, we too can make donations of Apple, but maybe a different kind of Apple—Apple stock.

Now, I know that’s pretty cheesy, but donating appreciated stock is a huge benefit and can result in generous tax savings. So before you write your next check to your favorite charity, ask yourself if you have any appreciated assets that you can donate and receive those tax savings.

Here’s an example. Let’s say we have the Smith family, and they have an Apple stock portfolio worth $25,000. On this slide, you will see two different scenarios. The first is if the Smith family were to sell their Apple stock and donate the cash. They would have to pay about $5,000 in state and federal taxes because of the capital gains, and therefore the charity would receive $20,000. The other scenario shows what would happen if they just donated the Apple stock as a donation in kind. There wouldn’t be any capital gains tax to pay, and the charity would receive $25,000. So here, the main benefits are clear.

First, the charity receives an additional $5,000, which is a 20% greater donation. Second, the donor doesn’t pay any tax on the gain of the stock. Third, the donor gets to deduct $25,000 as a deduction versus $20,000. Lastly, we have often seen our clients take the cash they would have paid to a charity and invest it back into a diversified portfolio of stocks, repeating the process. Over the years, we have seen how excellent appreciated assets can be for donating to your charity.

Another way you can donate appreciated assets is through what’s called a Donor-Advised Fund. Now, just so that everyone knows, this isn’t an investment. This is simply a tool or an account that allows you to donate appreciated assets into it. Donor-Advised Funds have been around for many years. In fact, there’s an organization called the National Philanthropic Trust that keeps track of these. They report that there are about 300,000 funds in existence today. Pretty cool! They are becoming increasingly popular among big financial companies such as Fidelity, Vanguard, and Charles Schwab. Fidelity Charitable reported that they received $4.5 billion in donations, topping United Way as the largest nonprofit organization measured by private donations. So, it’s a big part of the financial services.

Now, how does a Donor-Advised Fund work? The best way I would describe a DAF is that it is a charity that acts as a placeholder for your charitable donations. Let me explain with this graphic on the slide. You, as a donor, would make donations of cash or donations in kind of appreciated assets. Those would go into your Donor-Advised Fund. In the year you make those contributions, you receive a tax deduction, like Scott talked about. It’s so important to understand that if your itemized deductions exceed your standard deduction, it helps reduce your overall taxable income and, in the end, reduces the overall tax that you would pay.

When you make those contributions, they will sit in your Donor-Advised Fund until you’re ready to pay them out to your charities, whether you do that immediately or over several years. The main idea here is that you make large multi-year charitable donations all in one single year to help offset a high-income year, and then you can pay out to the charities as you wish. This is really important if you’re expecting a high-income year, such as right before retirement, to help reduce your overall taxable income by making a large contribution to a Donor-Advised Fund.

The second strategy I want to talk about is what’s called the Qualified Charitable Distribution (QCD). This is simply a provision that allows you to take money from an IRA tax-free, as long as it gets donated directly to a qualified charity. Over the years, we have seen that this is really the most effective tax strategy that can save you tax dollars through gifting. In our annual tax planning meetings with clients, we have seen that if you have an IRA and are charitably minded, this is a huge benefit. But there are certain rules you have to follow, which we will go over on this next slide.

First, QCDs are only available to those who are age 70 and a half. Second, they are only available within IRA accounts. This is important because withdrawals from 401(k)s or other types of retirement accounts are not eligible for QCDs. Third, QCDs must be directly transferred to the qualified charity. Fourth, the maximum amount you can do for QCDs is $100,000 per year.

What are the benefits of a QCD? First, it can actually help reduce the amount of your Social Security benefit that is taxed. It can reduce your overall amount of taxable income. It will enable you to get a tax benefit. Additionally, QCDs count towards satisfying the Required Minimum Distribution (RMD), which begins at age 72. The RMD is a simple requirement that you have to start taking withdrawals from your IRA unless there are specific penalties.
An important note about QCDs is that the IRS hasn’t provided a specific code for your tax return to differentiate between a QCD and a normal taxable IRA distribution. It’s important to report these correctly. The IRS has provided instructions on how to report these to them. The link you see on the slide gives those instructions. Take a picture of it, look at it, and we can post it in the chat or email it to you as a resource.

Now that I’ve gone over the two main strategies, I want to highlight the key differences. First, a Donor-Advised Fund can be done at any age, whereas a Qualified Charitable Distribution can only be done once you reach age 70 and a half. When making donations of certain assets into a Donor-Advised Fund, they can only come from cash, non-retirement accounts, or appreciated assets. In contrast, QCDs can only be done from IRA accounts.
Donations that can be made to a Donor-Advised Fund include cash, stocks, ETFs, mutual funds, and Bitcoin. There may be other assets they are willing to accept, so you should check with the Donor-Advised Fund company you choose.

Cash is the only donation that can be done for QCDs. There’s no maximum to the amount you can donate to a Donor-Advised Fund. However, there are certain limitations on how much can be deducted based on the type of property you donate and your Adjusted Gross Income (AGI). Your tax professional can help with this, or our advisors would be glad to go over it with you. The maximum for QCDs is $100,000 per year. This is a basic summary of the two strategies. Mark will now go over some examples and case studies to show how these apply in real situations.

Scott Peterson: Hey Mark, before you chime in, could I just go back to the Roth conversion again? I want to remind people this is exactly why you don’t want to convert all your IRAs or 401ks to Roth because we want you to be able to do a QCD. Think about a Roth conversion. The Roth conversion is taxable, and you have to pay taxes to turn it from an IRA to a Roth IRA. Right? QCDs are never taxable. It’s the best thing in the world when you think about it. You put money away in a 401k, get a tax benefit, it grows tax-free in your 401k, and then you turn around and give it to the church tax-free. I mean, it’s the best tax-saving opportunity out there. So, anyway, I was trying to stress before, don’t convert all your money to Roth because we can get this tax-free distribution using QCDs. Enough of that. Go ahead, Mark.

Bringing it all Together (40:15)

Mark Whitaker: Thank you, Scott. Thank you, Carson. For the next few slides, what I’d like to do is tie together all the great ideas that my colleagues have shared today. As you’re thinking about serving a mission, some of you might be thinking about all the different decisions you have to make and how to juggle them. What I hope to do is tie together some of these ideas and paint a picture of how you can wisely implement these strategies in your situation. I’ll also start by saying that the example I show may not perfectly match your situation, but I hope everyone watching can glean some useful ideas.

Let’s use a fictitious couple here: David and Lisa. David and Lisa have wanted to serve senior missions for a long time. They met in Provo many years ago in college, and since then, they’ve had five children and a growing number of grandchildren. They’d like to serve while their health is still good and possibly serve multiple missions. They’ve had concerns about when they can retire and how to pay for health insurance. They’ve been diligent savers and have had good income, but not knowing how to pay for health insurance before age 65 has been an obstacle for them. For this example, let’s say they were called to serve as visitor center directors in London. They also want to make sure they make wise decisions that will empower them to have the retirement they want and possibly serve more missions in the future. Let’s review their financial situation.

David was an executive for an aerospace defense company and accumulated quite a bit of stock in the company. He also saved about $2.5 million in his 401k and retirement accounts. He’s fortunate to have a small pension from a previous employer that pays $1,500 a month, although it doesn’t include a cost of living adjustment. His Social Security benefit, if claimed at his full retirement age of just under 67, would be $3,148 per month. Lisa, who didn’t work outside the home, plans to take a spousal benefit equal to half of David’s full benefit.

As they considered serving a mission, David received an offer from his employer to take early retirement with an additional payout. They are now seriously considering this and have applied to serve, receiving a call to London. Over the last couple of months, they’ve heard many good ideas, done research, and educated themselves on making wise financial decisions. They’ve heard about using company stock to pay for their mission, which seems appealing to David. They’ve also heard about the benefits of Roth conversions, having concerns about future tax rates. Since they’ve had above-average income, they want to know if this tool can improve their tax situation for the rest of their retirement. Of course, they want to maximize their income, so they’ve looked into different Social Security claiming strategies. They want to minimize taxes and by doing so, hope to serve more, give more, and enjoy retirement with their family.

On the next slide, I’d like to highlight the difference between implementing these ideas within a well-thought-out retirement plan versus haphazardly. The first good idea is paying for a mission with stock. If done without a plan, David might sell a large amount of stock before his mission, leading to significant capital gains taxes. And because of doing that, he ends up paying a 20% capital gains tax. Now, I will say that for these tax scenarios, I am using both federal and state income taxes. Obviously, this will be different for everyone on this call. I am using Utah state income tax rules for these slides, so please adjust accordingly for the state where you live. Based on the state where you live, capital gains treatment, Roth conversions, and other factors are important tax strategies to consider.

So, how can you do this with a plan? Well, instead of selling that stock in his final year of employment, when he has a high income plus an early retirement bonus, he could transfer that stock directly into a Donor-Advised Fund. This way, he can get the full tax deduction for the full value of the stock without having to recognize the capital gains.

Next, he’s heard about Roth conversions. In their haste to get ready before their mission, they decide to lock in the current tax laws, fearing potential changes. They convert $100,000 from their 401(k) to a Roth IRA. However, David does this in his last year working and pays an effective federal and state income tax rate of 37%. So, for every dollar he moves over, he has to pay 37 cents in taxes.

On the flip side, David could wait until he is serving his mission. In the London mission, where they are called, their estimated monthly expense from the church, including health insurance and the senior service medical plan, is about $3,700 per month. Their only income during their mission is the pension they receive. This provides an opportunity where, if they wait just one calendar year until they are serving, instead of paying 37% in taxes, they could pay 17%. This simple timing change can result in significant tax savings.

The next idea is to maximize Social Security income. Social Security is a powerful and important component of most people’s retirement plans, yet it is often underplayed and underappreciated. The difference between David and Lisa claiming their Social Security benefits immediately when he retires at 64, and his wife taking her spousal benefit at 62, versus delaying until age 70, is substantial. Over a 30-year retirement, they would receive about $1.9 million if they claim early but about $2.6 million if they delay. That’s an extra $700,000 of expected income over their lifetime. You might wonder what they will live on in the meantime. This is where the flexibility of a senior mission comes in. They don’t need the additional income while serving, allowing them to delay their claims and benefit from future higher payouts.

To reduce taxes, we discussed David and Lisa selling some of that appreciated company stock to pay for their mission. Without a plan, David might sell the stock in his last year of work to have the money ready, making regular tithing and charitable contributions. However, another approach would be to transfer that stock directly to a Donor-Advised Fund in his last year of work, thus getting the tax deduction in a high-tax year. He can then transfer funds from the Donor-Advised Fund on a monthly or annual basis to pay for their mission and other charitable donations. This strategy resulted in tax savings of over $48,000.

In conclusion, what makes a good plan? A good plan does not happen by accident. As you consider your retirement and serving a mission, it is crucial to know your numbers. Don’t make plans based on guesses. Get your benefit estimates, look at your pension details, and review your retirement savings. If you’re interested in serving, go to the church website, as Daniel recommended, and look through the available options to get a real sense of the actual costs. Talk to people in your neighborhood or family who have served missions to appreciate the nuances of those expenses. Think about what your expenses will be back home while you are serving and map those out. You need to know your numbers to have a good plan.

The next point is to make decisions based on reliable sources. Often, we can be lured into making decisions based on sensational information we see on television, in articles forwarded to us, or on social media like Facebook. We have to be wise and careful about the sources of information we rely on. For example, making a decision on Social Security claiming based on extreme ideas about a complete collapse of the system could be catastrophic for your financial situation. Make decisions based on reliable sources.

Don’t assume—run your own numbers. This aligns with knowing your numbers. Actually map it out. For example, Scott talked about doing Roth conversions and not overdoing it. From the example of David and Lisa, we see that Roth conversion was a great idea for them, but the timing and amount of the conversion were critical. Don’t just make an assumption and engage in a strategy without running your numbers. We often see clients who say they’ve heard about Roth conversions and want to convert all their money into a Roth in a single year or two. We have to run their numbers to determine what’s best for their unique circumstances. Don’t make assumptions; run your numbers.

Lastly, seek counsel from expert advisors. If you need knee surgery, you wouldn’t talk to a brain surgeon. Talk to experts in the areas where you need advice. It’s important to look for advisors who don’t have conflicts of interest, who won’t be paid extra to recommend one strategy over another. Look for those with experience working with people in your situation. You don’t want to be the first client a professional is trying out a new strategy on. You want to work with a team of professionals who have experience dealing with issues you will face.

These four points—knowing your numbers, making decisions based on reliable sources, not assuming but running your numbers, and seeking counsel from expert advisors—provide a solid foundation for a successful retirement and to get the most out of your senior mission. This way, you can focus on what’s most important: the service and enjoying time with your family.

Conclusion (55:38)

Scott Peterson: Thank you, Mark. As I was watching this presentation, I realized we didn’t even talk about wills, trusts, and powers of attorney. Although we focused on the financial aspects, having your legal documents in order is also important before you serve a mission. Make sure you have everything you need, including someone back home who can file taxes for you or handle power of attorney matters. These are important considerations, perhaps beyond the scope of our discussion today.

I know we sent a lot of information your way—it’s like drinking from a fire hose. If you have questions about your situation, I recommend clients at Peterson Wealth Advisors reach out to their advisor to discuss planning ideas and how creating a plan could be meaningful for your mission. If you’re not a client and you’re interested in learning more about the strategies discussed today, please contact our office to schedule a complimentary consultation.

For those of you who are not clients, a link to a calendar will be sent tomorrow to sign up for a complimentary consultation to discuss your personal situation further and answer any questions you might have. The most important suggestion is to figure out your own personal retirement income plan. We use the perennial income model. If you’re not familiar with it, it’s a valuable resource that helps you organize and protect your income throughout retirement. Let us know, and we’ll get you a book to help you enjoy a better retirement.

An email will be sent tomorrow with a link to rewatch this webinar. If you wish to stay, we’ll answer some questions for a few minutes, followed by a short survey. The survey helps us know how the presentation went and topics of interest for future discussions. Now, let’s go through the Q&A and answer some of your questions. We won’t get to all of them, but we’ll address the ones most relevant to everyone.

Mark Whitaker: Thank you, Scott. I’m looking at some questions coming in, and we have about two minutes left. One question is about what amount of the estimated mission expense is deductible. Whether you’re paying in cash or transferring from a Donor-Advised Fund after donating stocks, what amount of the senior mission expense can be covered through the charitable deduction mechanism?

Scott Peterson: Let’s get to your housing expenses. So, the thing about deductibility is that it has to be a portion that you pay to your board. For example, the housing expense is $1,400 per month for a couple. Now, you should talk to your CPA about this too. I know there are regulations and rules that you can’t be renting your house and at the same time collecting a housing expense deduction. Okay, so anyway, talk to us, and we’ll get into the details on that.

Mark Whitaker: Very good. Thank you, Scott. In my experience, when looking at senior mission calls with clients and planning for their missions, the housing expense is generally $1,400 as the maximum. However, depending on the mission, that housing expense can sometimes be a little lower. It varies on a case-by-case basis but will not exceed $1,400. Well, that brings us to the hour. So, I’ll turn it back to you, Scott, to close us out. We look forward to hearing from you to answer questions if anyone has them.

Scott Peterson: Yeah, please reach out to us. We’d love to help and be a resource to you. You’re doing the most important work you can ever do. If we can assist you in making your mission a little bit better so you can serve with your eye single to the glory of God, that’s our objective. We find that the most important function we serve for our missionaries is to help them focus 100% on their missions. We try to do everything we can to take care of things back home so you don’t have to worry about them on your mission. So, with that, we look forward to hearing from you and answering your questions. Thank you very much for joining us today, and we’ll talk to you soon.

About the Author
Founder & CEO at 

Scott is the founder and principal investment advisor of Peterson Wealth Advisors. He graduated from Brigham Young University in 1986 and has since specialized in financial management for retirees. Scott is the author of Maximize Your Retirement Income and Plan on Living: The Retiree’s Guide to Lasting Income & Enduring Wealth.

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