Live Retirement Q&A

Live Retirement Q&A – (0:00)

Alex Call: Let’s go ahead and get started. One of the first questions that we had actually came in a couple of days ago.

Q: After learning from the last webinar on the Big Beautiful Bill about the increased standard deduction beginning this year, the question came to mind: Is there a limit on charitable contributions as a percentage of income in a given year? I was thinking of grouping my charitable giving this year to allow me to itemize on my 2025 taxes, but can I give over 40% of my income to charity?

It’s a great question. It seems like what it’s really asking is: How much of my income can I deduct if I donate a lot of money to charity? The answer is a little nuanced. Part of it depends on what type of charity you donate to and also what type of asset you donate.

For most people, donating to a private charity, you can deduct up to 60% of your income if you donate cash. If you donate stock or an appreciated asset, it’s 30% of your income. If you end up donating more than that, you’re still able to carry forward that deduction to the following year for up to five years.

Scott Peterson: You mentioned depending on the type of charity. We might want to clarify if it’s a foundation versus a donor-advised fund versus donating directly to the charity. If you use some of these other things, there could be different rules.

Alex Call: For many of our clients, they donate to their church. That would be a public charity, which allows you to deduct up to 60% of your income if the donation is cash, or 30% if it’s stock.

Q: How do you go about calculating an annual required minimum distribution (RMD) from your various 401(k)s or IRAs? And when do the distributions need to begin?

Scott Peterson: For years, the age was 70½, but that has changed.

• If you were born prior to 1960, RMDs now begin at age 73.
• If you were born in 1960 or later, RMDs begin at age 75.

How do you calculate it? The IRS has a calculator. You plug in your year-end account balance, and it will tell you how much your RMD will have to be the following year.

Alex Call: The formula essentially means that the older you get, the higher the percentage you’re required to withdraw.

Scott Peterson: There’s often a misconception that people have to spend all their IRA money within a short period of time. That’s not the case. At age 80, for example, the RMD is still less than 10%. The required withdrawals start out around 4–5%, then 6%, and step up gradually over time.

Alex Call: We’ll send out the formula for calculating RMDs in a follow-up email, along with a link to the IRS calculator.

Q: Do you have resources to help us choose which Medigap, Part C, or Part D plan to choose?

Yes, we have a chart breaking down Parts C and D and how they work. We’ll go ahead and send that out to everyone to help explain the differences.

Q: Is there a way to set up a scholarship or a tax-deductible way to contribute to my grandchildren’s college?

Scott Peterson: The answer is no — there isn’t a direct tax-deductible way to set up college funding like that. However, for members of the Church of Jesus Christ of Latter-day Saints, there are tax-deductible options for setting aside funds for future missions for your heirs. But not for college.

Alex Call: You may have heard of people setting up scholarships, but that’s a different process. There isn’t a straightforward tax-deductible method to contribute directly to children’s or grandchildren’s college costs.

Technically, you can use a private foundation, but in most cases, it’s going to be more hassle than it’s worth unless you’re truly setting one up with significant funding. Even then, it can’t just go to your grandkids — you have to follow certain rules within that.

Q: Will you review how to get tax advantages from charitable contributions from an investment account?

The best way to do this is by donating appreciated stock or appreciated assets. That’s where you get the most benefit when donating. For example, say you bought Apple stock for $50 and it grew to $200. If you donate that appreciated stock directly to charity, you don’t have to pay capital gains tax on the $150 of growth, and you still get the full deduction for the $200 donation.

Alternatively, if you sold the stock first, you’d have to pay capital gains tax on the $150 gain and wouldn’t get as large of a deduction.

This strategy only works from regular brokerage accounts — not IRAs or 401(k)s. You take the stock that has appreciated the most and donate it directly. That’s the most tax-efficient way to give before age 70½.

Scott Peterson: After age 70½, things change. At that point, you can make donations directly from your IRA. This is called a Qualified Charitable Distribution (QCD). We’ve found that before 70½, donating appreciated stock is best, but after 70½, in almost every instance, making donations directly from your IRA is the better option.

If you regularly contribute to charities and don’t know about QCDs, reach out to us — it’s the most tax-advantaged way to donate after 70½.

Q: How does a 529 plan fit in when helping kids or grandkids pay for college?

Alex Call: Here’s how it works:

• Money you put into a 529 is after-tax dollars, so you don’t get a federal deduction up front.
• The money grows tax-free inside the plan.
• If you use it for qualified education expenses, withdrawals are also tax-free.

This makes it a great way to help kids or grandkids with college costs, especially if you start early to give the money more time to grow.

Each state has its own 529 plan. Some states offer a state tax deduction or credit for contributions. For example, in Utah, you don’t get a federal deduction when you contribute, but you do get a small state tax deduction for contributions to Utah’s 529 plan.

Q: I’ve always planned to wait until 70 to take Social Security. I don’t need the money now, but I keep seeing articles suggesting to take it as soon as possible. I expect a long life. I’m 68. Should I wait or take it now?

Scott Peterson: You should wait. Your Social Security benefit grows by 8% per year for every year you delay, up until age 70. After age 70, the benefit no longer increases.

So, if you’re 68 and wait two more years, your benefit will be 16% higher for the rest of your life. And since you mentioned you don’t need the money now, that makes the case even stronger for waiting until 70.

It’s a whole different answer if you needed the money or if your health was poor. There are other considerations. But since you expect a long life and you don’t need the money now, to me this screams: don’t take it until age 70. Absolutely.

Alex Call: One other thing I’d add is if you’re married, it’s not just your life expectancy you should take into account, but also your spouse’s. If you wait until 70, that will likely be the larger Social Security benefit between the two of you. If you were to pass away first, your spouse would continue to receive that higher benefit.

That’s where it can be really advantageous to wait until 70 — especially if one of you is expected to live a long life. The survivor benefit can really help.

To be clear, when one spouse passes away, the surviving spouse will get the larger of the two checks. That’s why if you don’t need it, and you’re married, by all means, wait.

Q: What is the break-even age if you wait until 70 to start taking Social Security versus taking it at age 67?

Scott Peterson: The answer depends on what inflation rate you plug into the calculation. That will determine the exact break-even age. Getting back to our earlier point: if you need the money to live on, by all means, take it at 67. But if not, waiting until 70 usually makes sense.

Alex Call: As a rule of thumb, the break-even point tends to be around 10 years — give or take a couple of years. So, if you start at age 70, the break-even point is around age 80.

Scott Peterson: Of course, this also depends on inflation and whether your spouse is drawing Social Security based on your earnings, which complicates the calculation. So reach out to us and we can run the numbers more precisely for your situation.

Q: I have a Roth versus a traditional IRA at a 50/50 split. I want to minimize my taxes later, which I believe will likely go up. How can I move to a more tax-efficient future? I’m 55 and would like to retire by 65.

Alex Call: First off, you’ve already done a great job. We call this tax diversification in retirement. You have some money in Roth accounts, which will be tax-free in retirement, and some in traditional accounts, which will be taxable.

It’s hard to give a perfect answer because it depends on several factors. Here are some of the considerations we look at:

• Your current tax bracket.
• Your expected tax bracket in retirement.

That will probably be the biggest factor. For example, if you’re currently in the 37% tax bracket and expect to be in the 22% bracket in retirement, then it makes sense to contribute as much as possible to your traditional IRA or 401(k) now. You’ll get the 37% tax break today, and then pay only 22% when you withdraw in retirement.

Taxes may go up in the future, but they’re unlikely to rise dramatically for people in the lower or middle tax brackets. Most of the discussion about higher taxes usually applies to high earners making $300,000–$500,000+ per year, rather than those making $100,000–$200,000.

Another consideration: if you’re charitably inclined, it’s helpful to have some money in a traditional IRA. That way, when you reach 70½, you can make Qualified Charitable Distributions (QCDs). This is by far the most tax-efficient way to withdraw from retirement accounts. You donate directly from your IRA to charity, and that money is never taxed.

So, there are a few different moving pieces when it comes to Roth versus traditional balances. If you’d like, we’d be happy to dive into your specific situation in more detail.

Scott Peterson: Sometimes people say, “I don’t want to pay any taxes in retirement. I’m going to convert everything I have over to a Roth IRA.”

The problem with that approach is that when you convert everything, you have to pay tax on the full amount at the time of conversion. People end up paying the full tax bracket rate on their entire balance. Then they retire and, yes, they have zero taxes in retirement — but they probably would have paid almost zero taxes anyway.

That’s why it’s so important to understand your current and future tax brackets before making that decision. Don’t make a knee-jerk move to get rid of all your traditional retirement accounts and move everything to a Roth. You could miss out on future tax-saving opportunities.

For example, Qualified Charitable Distributions (QCDs) are tax-free transfers to charity, which you can only do from traditional IRAs. A Roth conversion, on the other hand, is always a taxable event.

Q: Is there any advantage or disadvantage to investing more in one account versus another? Would my business retirement account — say $850,000 — have a bigger compounding potential if it were spread across two investment accounts, or does it make no difference at all?

Alex Call: The answer: it makes no difference at all. If two accounts are invested in the same way, they’ll grow at the same rate regardless of whether the money is split or not. The account type (401(k), IRA, brokerage, etc.) is just the “bucket” that holds the investments.

What really matters is what you’re invested in, not which account the investments are sitting in.

Q: How do I create a retirement budget when expenses will change during retirement?

Scott Peterson: This is one of the biggest challenges, because most people have never been retired before and don’t know how much they’ll spend.

Here’s a practical way to start:

1. Review your checkbook and credit card statements from the past year or two to get a baseline of your current spending.
2. Adjust upward for things you may do more of in retirement, such as travel.
3. Build a generous budget to ensure you’ve covered lifestyle costs.
4. Factor in inflation. Over a 30-year retirement, even a 3% inflation rate will cut your purchasing power by about 60%.

This is where our Perennial Income Model™ comes in. It helps plan for inflation-adjusted income across your retirement so you don’t run out of money or lose purchasing power. If you’d like to see how that works, reach out to us.

Q: What is your current thought on the future of Social Security?

We often hear concerns like, “Social Security is going bankrupt, so I need to take it as early as possible.” Some people apply at age 62 out of fear.

We think that’s a mistake. It’s unwise to base your personal Social Security decision on the assumption that the system is going out of business.

Here’s the reality:

• Social Security currently has about $2.7 trillion in its trust fund.
• As baby boomers retire, that fund is being drawn down.
• By 2034, payroll taxes are expected to cover only about 81% of obligations.

That means changes will have to be made — but it does not mean the system will disappear. The challenge is political: whenever solutions are proposed, the other side demonizes them, and nothing gets done.

Still, history shows that Congress has always stepped in with adjustments when needed, and there’s every reason to believe they will again.

If nothing gets done, then by 2032 or 2033 we’ll be in panic mode trying to figure out how to make up for the Social Security shortfall.

If you have any influence with congressmen or senators, encourage them to be brave, reach across the aisle, and act now. Small adjustments today could keep Social Security viable for decades to come.

For example, they could:

• Adjust the cost-of-living calculation.
• Gradually raise the retirement age for younger workers.
• Increase the wage base subject to Social Security tax (currently only income up to about $176,000 is taxed).

These types of tweaks would shore up the system.

For most of us, Social Security will remain intact. Laws may change around the edges, but I wouldn’t make decisions based on the assumption that the system will disappear.

Alex Call: In fact, it’s more likely changes will affect younger generations rather than those currently nearing retirement. For example, raising the retirement age to 70 may apply to workers under 30 today, not those already in their 60s.

Historically, adjustments have happened before. For instance, during the Clinton administration, the full retirement age was raised from 65 to 66 and then to 67. Expect similar gradual adjustments in the future.

Q: If I have all my retirement savings in one fund that targets a retirement year — for example, Vanguard’s Target 2035 — should I diversify more, or is one fund like this enough diversification?

Target date funds have become very popular in 401(k)s over the past 5–10 years, and for good reason: they make investing simple.

A target date fund is a fund of funds. Inside one fund, you get exposure to:

• U.S. stocks
• International stocks
• U.S. bonds
• International bonds

This means you are already very well-diversified.

The beauty of a target date fund is that it gradually becomes more conservative as you approach the target year. For example, a 2035 fund will slowly reduce stock exposure and increase bonds as that date nears.

For someone in the accumulation phase (still working and saving), a target date fund is a simple, effective, and diversified solution.

However, once you enter the distribution phase (retirement), it can be helpful to break things up. Having separate conservative and growth buckets allows you to live off the safer money while letting stocks continue to grow.

Scott Peterson: One caution, make sure the target date matches your actual retirement timeline. For example, if you’re 30 years old, a 2035 fund will become too conservative too early. You’d likely want a 2060 or 2065 fund instead. The target year should align with when you plan to retire, not simply be chosen at random.

Q: Should I prioritize paying off my mortgage or saving for retirement?

It depends. Do you already have a lot saved for retirement? Is your mortgage almost paid off? What’s your mortgage interest rate — 3% or 7–8%?

It usually shouldn’t be an all-or-nothing choice. Paying down the mortgage while also saving for retirement can give you the best of both worlds. That way, you benefit from compounding on your investments while working toward being debt-free by the time you retire.

Many clients are glad to enter retirement without a mortgage payment, so it’s a worthy goal. But don’t ignore retirement savings while you’re working toward it.

Q: Should I use taxable investments first and then my 401(k) afterwards?

Don’t automatically assume that’s the best strategy.

Here’s an example: a client followed his broker’s advice to live only off his taxable investments in the early years of retirement, leaving his IRA untouched. He stayed in a very low tax bracket for about 10 years. But by the time he reached age 73, his IRA had ballooned, and now his required minimum distributions (RMDs) push him into the highest tax bracket for the rest of his life.

A better approach may be to take some withdrawals from both taxable accounts and IRAs each year. This balances out taxes over time and avoids being pushed into a much higher bracket later.

These years before RMDs begin can also be an excellent time to do Roth conversions, reducing future RMDs and building up tax-free assets.

The key point is this: in retirement, the goal isn’t to pay the least tax in year one. The goal is to minimize taxes over your entire retirement.

Unfortunately, most CPAs focus only on reducing your taxes in the current year. Retirement planning requires a broader view. A thoughtful, long-term tax strategy makes all the difference.

Conclusion – (38:04)

Alex Call: That about sums it up! If you have any other questions that pop up after reading this, please send us an email. We’re here to help however we can.

And if you’d like us to cover a specific topic in more detail — maybe even in a future webinar — let us know. We want to provide the information that’s most valuable to you.

Thank you for joining us!