Taxes In Retirement

Taxes In Retirement – Welcome to the Webinar (0:00)

Carson Johnson: Good afternoon. Welcome, everyone. Thank you all for joining me.

I’m so excited to be with you on this beautiful, technically still spring, afternoon to talk about the exciting topic of taxes.

I know you probably think I’m crazy for finding this a fun topic, but I actually do enjoy taxes. It’s interesting that when it comes to taxes, retirees always find it a big and important topic.

While we’re waiting for everyone to join, I’d like to quickly introduce myself. My name is Carson Johnson. I’m a Certified Financial Planner™ and one of the lead advisors here at Peterson Wealth Advisors. Joining us virtually today and manning the Q&A and chat is Josh Glenn, one of our Certified Financial Planners™. If you have any questions, feel free to use the Q&A feature at the bottom of your Zoom application, and Josh will get to your questions as they come up.

A couple of housekeeping items: We’ve received a lot of interest in today’s webinar, so I expect the presentation to be about 30 to 40 minutes, with a short Q&A afterwards. For anyone who can’t stay for the entire time, don’t worry. We are recording this webinar, and there will be an email sent out tomorrow with the link to the recording.

At the end of the presentation, there will be a survey. Thank you to those who have been filling these out; it’s super helpful for us to get feedback and improve our presentations. It also helps us understand the topics you want to hear about.

Another quick disclaimer: The information we discuss today is not considered tax, legal, or investment advice. All information discussed is for general informational purposes only. It’s important to remember that everyone’s situation is different, and you should discuss any ideas you glean from our conversation today with a qualified professional or tax advisor.

Let’s go ahead and jump right in. Today, my hope is to cover five main areas regarding taxes in retirement:

  1. How retirement impacts your taxes
  2. The taxation of different types of retirement income
  3. The taxation of different types of investment accounts
  4. What Roth conversions are and when you should consider them
  5. Other tax traps and planning strategies to consider in retirement

How does retirement impact your taxes? (3:10)

First, how does retirement actually impact your taxes? This is a big topic that is usually top of mind for retirees. For some, the impact may not be significant, but for others, it could be. Many studies say that taxes can be one of the largest expenses in retirement, so it’s a topic that shouldn’t be overlooked and should be carefully thought through.

Retirement Income Sources and Tax Implications

One of the major changes upon retirement is where your income comes from. Before retirement, income primarily consists of wages earned from working for an employer. In retirement, income usually comes from various sources, such as social security, pensions, rental income, or income from your portfolio, including IRAs, investment accounts, and Roth IRAs.

These different sources of income can present some challenging tax situations in retirement but also offer important planning opportunities. While all income sources eventually flow through to your tax return, not all are taxed in the same way or at the same rate. Retirees may be able to structure their income to minimize taxes and create a more tax-efficient income stream. However, without careful planning, they could end up with a less tax-efficient income stream or pay unnecessary taxes.

Today, we’ll discuss some of the rules to be aware of. By understanding some basics, you can significantly impact not only your retirement outcome but also how long your assets will last in retirement.

Changes in How Retirees Pay Taxes

Another major change upon retirement is how retirees pay their tax bills. Many retirees are used to having taxes withheld from their paychecks by their employers. In retirement, this responsibility falls squarely on your shoulders. It’s important to understand what taxes retirees are subject to and how they pay them.

Payroll Taxes and Retirement

One tax that goes away upon retirement is the FICA tax, which stands for Federal Insurance Contributions Act. This U.S. federal payroll tax consists of two parts: the Social Security tax, which is 6.2% of your gross wages up to a cap, and the Medicare tax, which is 1.45% of your gross wages with no cap. Upon retirement, you are no longer subject to these taxes because FICA tax pertains only to payroll taxes, leaving many retirees having to pay only federal and state income taxes. We’ll discuss one other category that retirees may be subject to in just a minute.

Also, as a quick note and an important distinction related to payroll taxes and deductions: once you’re retired, you’ll likely no longer be contributing to a 401(k) or an employer HSA, or have other deductions that you might have had during your working years. Even though these additional deductions aren’t taxes per se, they are expenses that will likely go down in retirement.

Methods for Paying Your Tax Bill in Retirement

So, if you’re no longer associated with an employer, how does a retiree pay their tax bill? Ultimately, there are two methods that retirees can use to pay their tax bills.

The first method is called tax withholding. Tax withholding is money that is withheld and sent directly to the IRS or state from one of your retirement income sources. This is similar to the elections you make on your paycheck, where you can specify a specific dollar amount or percentage to go towards taxes. This can be a great way to cover your tax bill, as it is fairly easy to set up and manage.

However, it’s key to be aware that you need to specify a certain dollar amount or percentage, so you’ll have to do some thinking and calculating to determine how much you should be withholding to cover your tax bill at the end of the year. Examples of where tax withholding might apply include pensions, IRA and 401(k) distributions, and Social Security. Note that Social Security only allows federal withholding, not state.

The other method to cover your tax bill is through estimated payments. This method is generally used by self-employed individuals who don’t have the other sources of income listed above. They typically have a non-retirement account and are probably already used to paying taxes this way. With this method, you pay taxes to the IRS throughout the year on a quarterly basis. This method can be more cumbersome than having tax withholding, as you have to send money in either by mailing a check or setting up a direct deposit on the IRS.gov website.

Importance of Timely Tax Payments

As a general suggestion, tax withholding is generally easier to manage. Although this may seem like a small adjustment for many of you, for some retirees it is a big change. You have to think about how much to withhold because some might think they can just wait until the end of the year to pay their taxes and figure it out then. Unfortunately, our tax system works differently; it’s a pay-as-you-go system, meaning it’s important to pay your tax bill in a timely manner throughout the year to avoid underpayment penalties.

These penalties are essentially an interest rate that the IRS charges on the amount you underpaid. Currently, with higher interest rates, this penalty is about 7-8% and can be substantial. The goal of withholding is to withhold enough to avoid underpayment penalties, but not so much that you end up with a big tax refund. A major misconception is that a tax refund is a gift from the government, but it’s actually just a refund of your own dollars that you overpaid. There’s no reason to give the IRS an interest-free loan when you could be using those funds for something else.

Ordinary Income Tax for Retirees

Moving on to the next topic, I want to discuss the two categories of taxes that retirees are generally subject to. The first is taxation on ordinary income. When I refer to ordinary income, I mean income sources such as wages, taxable withdrawals from retirement accounts, taxable Social Security benefits, annuity distributions, pensions, and more.

Each of these income sources is taxed as ordinary income, meaning they are taxed based on your tax rate or federal tax brackets. We have the tax brackets for single filers and married filing jointly, showing based on your income what the tax brackets are. Our tax system is progressive, meaning not all of your dollars are taxed at one rate.

For example, if you’re a married couple with a combined ordinary income of $180,000, the first $23,200 is taxed at 10%, the next $71,000 is taxed at 12%, and the remaining portion of that $180,000 is taxed at 22%. It’s important to figure out your tax rate and the average or effective tax rate among these blended rates to make informed decisions. This could be for determining how much to withhold on your pensions and Social Security to cover your tax bill or for making other decisions such as whether to do a Roth conversion or other tax planning strategies.

There are calculators online that you can use to figure out your effective tax rate, or you can work with a CPA or financial advisor who can project this out for you.

Capital Gains Tax in Retirement

Now, the second category of taxes a retiree may pay is called capital gains tax. This tax only applies if you’re selling an investment or an asset in a non-retirement account, or if you’re selling other assets such as a business interest or investment properties other than your primary residence. So, if you only have a 401(k) or an IRA account, this won’t apply to you. However, some retirees do have non-retirement money, and I think it’s important to go over this.

So, what is a capital gain? Simply put, a capital gain is when you sell an asset or property for more than what you originally paid for it. For example, let’s say you buy Apple stock for $50,000, and over time it grows to $120,000. If you then decide to sell it, you would report the difference of $70,000 as capital gains income on your tax return.

Capital gains are taxed at different rates depending on how long you’ve held or owned that investment. There are two categories to be aware of:

Short-term capital gains

These are gains realized on investments or assets sold after holding them for less than a year. The tax rate for short-term capital gains is the same as your ordinary income tax rate.

Long-term capital gains

These are gains realized on investments or assets sold after holding them for more than a year. Long-term capital gains are taxed at preferred rates of either 0%, 15%, or 20%, depending on your income level.

It’s important to understand a couple of key rules. First, short-term and long-term capital gains must be reported on your tax return in the year that you sell the investment. Second, capital gains only occur when you sell an investment for a profit. For example, if you hold Apple stock in your brokerage account and it appreciates in value, you won’t pay taxes on that growth until you actually sell the investment.

Short-term capital gains are taxed at your ordinary income tax rate. So, wherever you fall in the tax brackets we discussed earlier, that rate will apply to your short-term capital gains. Long-term capital gains, on the other hand, get preferred treatment and are taxed at lower rates.

Tax Strategies for Short-Term and Long-Term Gains

A common issue with short-term capital gains is that some retirees or investors may own investments that generate significant short-term gains, leading to higher taxes. For instance, mutual funds managed by fund managers who buy and sell investments frequently can result in substantial short-term capital gains being passed down to shareholders, causing unnecessary tax burdens.

One strategy to mitigate this is to be cautious of mutual funds and other investments that generate short-term capital gains. Holding investments long enough to qualify for long-term capital gains rates can significantly reduce your tax liability.

Understanding Tax Loss Harvesting

Another related tax strategy is tax loss harvesting, which can be very beneficial. Tax loss harvesting allows you to sell an investment in a non-retirement account at a loss and use that loss to offset other taxable income on your tax return.

For example, let’s say you bought Apple stock for $50,000, and the stock market drops, reducing the value to $40,000. You could sell the stock, report the $10,000 loss, and use that loss to offset other capital gains or income, potentially reducing your overall tax bill.

Some might think that selling an investment at a loss is not a good idea, which is true to an extent. However, the goal of tax loss harvesting is to strategically use losses to your advantage by offsetting gains or income and lowering your tax liability. This strategy can be especially useful in volatile markets where some investments may experience temporary declines.

Reinvesting After Tax Loss Harvesting

Remember, the key to successful tax planning in retirement is understanding how different types of income are taxed and using strategies like tax loss harvesting to manage your tax liability effectively.

So the other part of tax loss harvesting is not to just stay out of the market, but to take those proceeds from what you just sold and reinvest them into another investment. In this case, I mentioned Johnson & Johnson as an example. This is not a recommendation, but just to illustrate the point.

The reason for this strategy is that once you sell the investment and immediately reinvest, you can stay invested and benefit when the market bounces back and recovers. This allows you to take advantage of the losses while still staying invested over that period of time.

Now, an important rule to be aware of with this strategy is that whatever investment you’re buying back has to be substantially different from what you just sold. You can’t simply sell Apple stock at a loss and then buy back Apple stock later. This is due to a rule called the wash sale rule, where the IRS may not allow you to take advantage of those losses if you do that. So, whatever you’re buying back has to be substantially different, but it can still be a great way to reduce taxes and other income that you report on your return.

Taxation of Social Security Benefits

Now let’s move on and talk about the taxation of Social Security—another big-ticket item that a lot of people have questions about. In many instances, more money can be saved by minimizing tax on Social Security than strategizing on when you should claim your Social Security benefits. This is not to say that you shouldn’t do your homework and run some analysis on whether you should claim now, at age 67, or at age 70, but the focus today should be more on how you can minimize tax on your Social Security benefits themselves.

I won’t go into all the nitty-gritty details of the taxation of Social Security, but the IRS has a formula that states the more money you make outside of your Social Security benefits, the more your Social Security benefits will be taxed. For example, let’s say you’re married filing jointly and your provisional income—which is your combined income plus half of your Social Security benefit and tax-exempt interest—is under $32,000. In that case, none of your Social Security will be subject to tax. If your provisional income is between $32,000 and $44,000, then up to 50% of your Social Security will be subject to tax. If your provisional income is over $44,000, then up to 85% of your Social Security is taxable. I’ve also listed the single-filer version of income as well.

A couple of key takeaways here: First and foremost, not all of your Social Security benefit is taxable, unlike other sources of income such as pensions or IRA withdrawals where 100% of those distributions are generally fully taxable. This can be a consideration as you’re creating your income stream. Another point to note is that the way to reduce tax on Social Security is to reduce other sources of taxable income.

Strategies to Minimize Taxes on Social Security

I want to give you a couple of examples of how you can minimize taxes on Social Security benefits. First is to reduce other income with tax-advantaged investments. If you’re generating a lot of interest, for example, in a bank account or investment account, you may want to consider investing in higher interest-earning investments in an IRA where you’re not taxed on the interest you earn, only on the withdrawals. This can help you avoid taxes on Social Security benefits.

Sometimes people think you should invest in municipal bonds, but remember from the formula, tax-exempt interest from municipal bonds is also included, so you can’t avoid that with municipal bonds.

The second way is to anticipate your Required Minimum Distributions (RMDs). If you have an IRA or 401(k), at some point you’ll be required to withdraw a certain amount of money from those accounts, which is currently at age 73. If not properly planned for, RMDs can turn into a big tax nightmare later on, pushing you into higher tax brackets or impacting other aspects of your retirement.

The third strategy is to delay Social Security. By reducing the number of years your benefits are subject to tax, you can ultimately reduce the overall amount of taxes paid. Delaying Social Security might also give you more time to implement other tax strategies like Roth conversions, tax loss harvesting, or others.

Lastly, consider doing a Qualified Charitable Distribution (QCD). We’ve discussed this in past webinars, but it’s worth mentioning again. A QCD allows you to withdraw money from an IRA tax-free as long as it goes to a qualified charity. If you regularly give to charities or churches, this can be one of the best ways to reduce the amount of tax you pay on your Social Security benefits. You have to be at least age 70½ to do this, but it can be a great strategy to consider later on.

Taxation of different account types (25:11)

Now moving on to the next area of taxes in retirement: understanding the taxation of different account types.

So before you can begin creating a tax-efficient stream of income, you need to understand the basics of how your investment accounts are taxed.

Broadly speaking, there are three types of accounts, each with its own unique tax advantages:

  1. Tax-Deferred Accounts: These include accounts like 401(k)s, traditional IRAs, and similar. Contributions to these accounts are made pre-tax, meaning you get a tax benefit by reducing your taxable income in the year you make those contributions. Once you make those contributions, you can invest those dollars, and the investments grow tax-deferred. This means you’re not taxed on any gains, interest, or dividends earned while the money is within the account. However, you will eventually be taxed on those dollars, especially when you start taking Required Minimum Distributions (RMDs). Withdrawals from these accounts are 100% subject to income tax.
  2. Tax-Free Accounts: These include Roth 401(k)s and Roth IRAs. Contributions to these accounts are made with after-tax dollars, so you don’t get a tax benefit in the year you make those contributions. However, the investments in these accounts grow tax-deferred, and if you meet certain conditions, withdrawals from these accounts can be completely tax-free. The conditions typically include being over 59½ and having held the Roth IRA for at least five years.
  3. Taxable Accounts: These include bank accounts, high-yield savings accounts, and investment accounts at institutions like Fidelity or Charles Schwab. These accounts are funded with after-tax dollars and provide flexibility since you don’t have to wait until age 59½ to withdraw funds. However, you pay taxes on dividends, interest, and any gains from selling investments for a profit in the year they are earned.

Generally speaking, because taxable accounts are funded with after-tax dollars and you’re only paying taxes on the growth, these accounts, along with tax-free accounts, are generally more tax-efficient. However, it’s important to remember that no single account type is inherently better than another. It takes careful consideration to determine which accounts you should contribute to and how much you should contribute.

Every person’s situation is different with their pensions, Social Security, and investments, so it requires individual analysis to determine the best contribution strategy. As general advice, it can be beneficial to have a mix of all these account types to provide flexibility and tax diversification, allowing you to structure your retirement income in the most tax-efficient way.

It’s important to remember that a retiree can’t and often won’t make good decisions about reducing taxes in retirement without first mapping out and projecting what their future retirement income will look like. Towards the end, we’ll go over a case study of how we do this with our Perennial Income Model™, our proprietary way of handling retirement income. But before that, let’s hit on a few other important items.

What are Roth conversions and when should I consider them? (29:40)

Next, let’s move on to Roth conversions. What are Roth conversions, and when should you consider them? This is another big question that comes up regarding taxes in retirement. You hear about Roth conversions in the news and media, and sometimes retirees get carried away with this strategy. So, it’s important to understand the basics and why we do them.

As we discussed before, virtually all retirement accounts are classified into one of two categories: pre-tax money (like IRAs and 401(k)s) or post-tax money (like Roth IRAs and Roth 401(k)s). For most retirees, it’s common to have retirement accounts that are pre-tax dollars. A Roth conversion allows you to take pre-tax money and convert it to an after-tax account like a Roth IRA or Roth 401(k). Keep in mind that pre-tax means you haven’t paid any taxes on that money, so whatever amount you choose to convert becomes taxable to you in the year of the conversion.

Because of this, it’s uncommon to convert an entire IRA or 401(k) to a Roth account all at once, as it would create an unnecessarily large tax bill. The advice we give is to convert enough to gain the future benefits of the Roth account but not so much that it pushes you into a higher tax bracket. This involves some projections, whether on your own with online calculators or with the help of an advisor or CPA. You need to project what your retirement income will look like and what your tax rate will be today versus later.

Ultimately, the decision boils down to whether you want to pay taxes at today’s rate or wait and potentially pay at a lower rate in retirement. This is why understanding and projecting your future retirement income and tax rates is crucial.

Converting Pre-Tax to After-Tax Accounts

Now, I want to leave you with three last considerations when thinking about Roth conversions:

First and foremost, consider where you will live in retirement. This might seem like an odd consideration, but some states partially or entirely exclude certain retirement incomes, such as distributions from an IRA or Roth conversions. Some states may not have any state income tax at all. If you plan to move to one of these states, you might want to wait to do Roth conversions until then. Alternatively, if you currently live in a state with no state income tax, like Texas, Florida, or Nevada, you might want to consider doing more Roth conversions now to avoid state taxes if you later move to a state with income tax.

Location and State Tax Considerations

The second consideration is to identify who will benefit from the Roth conversion. If the goal is to create a tax-efficient stream of income for yourself, focus on your specific situation, tax rates, and how the conversion will affect you. If the goal is to leave money to heirs or if your spouse is likely to outlive you, think about how Roth conversions can benefit them. This context will help guide your decisions.

Lastly, while we’ve discussed tax rates extensively, it’s also important to consider how Roth conversions can impact other aspects of your retirement plan, such as Medicare premiums, which is commonly overlooked.

Many people don’t realize that Medicare is not free; there is a premium that you must pay. Moreover, Medicare premiums are based on your income. The more income you report, the higher your premiums will be. Medicare looks at your income from two years prior. For example, your 2024 Medicare premiums are based on your 2022 income. The thresholds work like tax brackets, where higher income can move you into a higher IRMAA (Income-Related Monthly Adjustment Amount) bracket, resulting in surcharges.

Everyone pays a base level premium for Part B, which is $174.70 per person per month. However, this can increase depending on your total combined income. Excessive Roth conversions can push your income higher and thus increase your Medicare premiums.

If you’re just getting onto Medicare and were in your highest earning years two years ago, it might feel punitive to pay higher premiums. Remember, it adjusts yearly based on your income from two years prior. However, Medicare recognizes life-changing events that might reduce your income, such as marriage, divorce, death of a spouse, or work stoppage. You can request relief from Medicare by filling out form SSA-44 if you expect your future income to be lower.

For example, I had a client who was a retired Delta pilot with high earnings nearing a million dollars. When he retired, Medicare sent a letter indicating his premiums would be in the highest IRMAA bracket, about $1,200 per month for him and his wife. We filled out form SSA-44, estimated their future income, and submitted it to Medicare. They accepted it, and it saved him hundreds of dollars per month, amounting to a few thousand dollars by the end of the year, simply by being aware of this rule. So, be aware of it; it can be a huge tax-saving opportunity.

Case Study: Structuring Retirement Income

We’ve covered a lot of strategies here. I know we’re coming up on the hour, so I want to wrap up with a case study to illustrate how you can properly structure your retirement income.

So, for those who aren’t familiar with this plan on the screen, this is an example of our retirement income plan, which we call our Perennial Income Model. I won’t go through all the details of how it works, but if you want to learn more, there is a video on our website that you can watch for a detailed explanation.

Ultimately, this plan matches your current investments with your future income needs. For example, when you take your investment portfolio, we spread it across different segments, each representing five years of retirement income.

Let’s say we have a married couple with a million-dollar portfolio, which is split across three different accounts: a taxable brokerage account, an IRA, and a Roth IRA. The income generated from these investments per month, plus their Social Security, equals their total monthly income.

By running this plan, we can project what their future retirement income will be and what their tax rate will be in retirement. A common question is, “Where should I be drawing my income from?” In this particular case, the clients are 67 years old, and most of their portfolio is in an IRA, which would push them into higher tax brackets once they are required to withdraw money at age 73.

So, we may want to do some Roth conversions in the early years. We decided to live on the taxable brokerage account for the first five years. This account has very low taxes, providing more flexibility to do Roth conversions, which will be taxable.

Then, we decided to use IRA money for segments two, three, and four because, at age 73, they’ll be required to withdraw money due to Required Minimum Distributions. They can also take advantage of qualified charitable distributions, withdrawing money tax-free from IRA accounts as long as it goes to a qualified charity.

Lastly, we chose to use Roth IRA accounts towards the end of the plan to maximize tax-free growth for 20 to 25 years. This can benefit the client if they live longer than expected or if they need funds for long-term care.

You can see that this plan can be adjusted in many ways. For instance, you could draw part of your income from the IRA and part from the taxable brokerage account and Roth IRA throughout your retirement to stay in a low tax bracket. It requires some thought on how to organize your accounts and understanding the taxation of your retirement income sources.

To summarize, tax planning is incredibly important for retirees at all stages of life. However, ages 55 to 73 are crucial for planning. There are major milestones during this period, such as claiming Social Security, Medicare premiums, accessing retirement accounts, and Qualified Charitable Distributions.

Take advantage of these planning opportunities to create a tax-efficient stream of income.

Here are five key insights to remember:

  1. Retirement may change the way you manage your tax liability.
  2. Understand how your investment accounts are taxed and organize your retirement income plan in a tax-efficient way.
  3. The amount of your Social Security that is taxable is based on your combined income.
  4. Roth conversions can minimize taxes in retirement with proper planning.
  5. Be aware of retirement tax traps that might impact other aspects of your retirement, such as Medicare premiums and short-term capital gains.

Question and Answer (42:45)

That’s it for today. Thank you for bearing with me. I apologize for going a bit longer. We’ll now leave the next few minutes for any questions you may have. If we don’t get to your questions today, please send us an email. We would love to address them.

Let’s see if we have any questions. One question is, “If I’m still working and my spouse retires, can I keep my spouse on the work health plan, or is it mandatory to go to Medicare?”

You do want to make sure that once your spouse turns 65, they apply for Medicare Part A to get that started. However, it is not mandatory for them to go on Medicare if they can stay on your work health plan. You can still have your spouse be covered by your work plan if you want to if it’s more cost-effective that way. Good question there.

Is the Medicare premium a monthly premium? Yes, it is a monthly premium.

What happens when you sell stocks at a loss? What’s the maximum you can claim on losses? Good question. You can actually harvest an unlimited amount of losses, but the way you use those losses works a little differently. You can offset as much capital gains as you have with as many losses as you have. However, if you don’t have any capital gains to offset those losses, you’re limited to offsetting $3,000 of ordinary income, such as Social Security or IRA distributions.

Is there a date when the RMD will change to 75 years old? Yes, in 2033, the RMD age will move to 75.

If your spouse is a retired military member and can go on TRICARE at age 60, how does that impact Medicare? Vicki, please send us an email about that. There are a few things to consider, not just the cost of Medicare and TRICARE, but also ensuring you apply at the right time and that it’s considered coverage for Medicare purposes.

Another question: Don’t you have to sign up for Medicare at age 65, or do you lose benefits? You don’t necessarily lose benefits, but if you don’t sign up at the appropriate time at age 65, your Medicare Part B and D premiums could be penalized. That’s why it’s important to be covered by your employer’s health insurance plan or sign up for Medicare at age 65.

What is the current range for Medicaid premiums? If we’re talking about Medicare premiums, the range depends on your income. Whatever you show on your tax return will determine your Medicare premiums. Medicare premiums do adjust for inflation, so the base amount of $174.70 will adjust over time.

How is the sale of my primary residence treated for capital gains? There’s an important rule for primary residences. If it’s your primary residence, you can exclude part of the capital gain. I believe it’s $250,000 if you’re a single filer, and $500,000 if you’re married filing jointly. For example, if you bought the house for $100,000 and it’s now worth $1 million, you would have $900,000 of capital gains. Since it’s your primary residence, you can exclude $500,000 if you’re married or $250,000 if you’re single. It works differently for your primary residence.

We’ll take one last question here, and then we’ll wrap up.

Can you provide additional information and rules on QCD, the Qualified Charitable Distribution? You can withdraw money tax-free from an IRA account as long as it goes to a qualified charity. A couple of rules to be aware of: you have to wait until you’re exactly 70 and a half years old before you can begin using that strategy. You would work with your IRA provider, like Fidelity or Schwab, to fill out a form that allows you to do that. The other important rule is you can’t do a QCD from a 401k account; it must be from an IRA account. There is also a maximum of $100,000 that you can do, but we don’t often see people reach that maximum.

One last question related to the residence: if it’s a secondary residence, how does it work for capital gains? Generally, you can only elect one primary residence. If it’s a secondary home, it’s probably not your primary residence, so you don’t get that exclusion. Look into it a bit closer; there may be ways to apply for both depending on how long you’ve lived in each of those homes.

Thank you, everybody. Great questions. Thank you for participating. Again, there will be a survey, please fill that out. Thank you all for joining me, and I hope you have a great week. Thanks.

About the Author
Lead Advisor at 

Carson Johnson is a Certified Financial Planner™ professional at Peterson Wealth Advisors. Carson is also a National Social Security Advisor certificate holder, a Chartered Retirement Planning Counselor™, and holds a bachelor’s degree in Personal Financial Planning and a minor in Finance.

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