Micah Shilanski  00:05

Today, we were talking a lot about dual federal benefits. We had a great group of people, and there are some really good questions, especially when we do in tax planning. Now we have this, OBBBA, right, the one big, beautiful bill act that has passed. It made us our tax laws, quote, permanent, until Congress takes up their electic ratio and kind of changes things, but at least we know what some rules are going to be for the next few years. So let’s toalk about how it’s going to apply to your retirement. Now, one of the things that I love working with with clients, is tax planning, and I get to geek out on it, because it’s such a meaningful way to make a difference. So often we think we can’t control our taxes in retirement, but I don’t subscribe to that theory. Let me show you why. Whenever we talk about tax planning, we have four different types of tax buckets. The first one is ordinary income, which is the worst type of tax they pay, because it’s the highest, anywhere between zero to 37 plus percent, depending on where you live. So the question is, what’s subject to ordinary income tax? Well, the first thing is your paycheck. That comes out on a W2 subject to ordinary income. Your retirement check comes on a 1099R whether TSP distribution, Your FERS pension, your military pension, etc. What about rent, property? Those are on a schedule E, dividends, interest, are all going to be taxed. Oh, this Alaskans, right. We got the Alaska PFD. That’s all taxes ordinary income, which is the worst type of tax event. So if we want to avoid ordinary income, got to move to our next bucket, which is tax deferred. Now, tax deferred always sounds great, right? Because, hey, I’m deferring my taxes. I want to pay less today. So instead of being taxed at ordinary income, now I get to put money inside of my TSP, maybe an IRA account. Maybe a 401K, 401 K, maybe a 403B, etc. All of these things, etc, are tax deferred vehicles. I put money in there. I lower my income today, and it grows tax deferred. But here’s the catch, when you go to pull this money out, the first place that has to stop is ordinary income, which is the worst type of tax to pay. So we need to be asking ourselves a really important question, historically, do we think we’re at pretty high tax rates, fairly low tax rates? I kind of think we’re at fairly low tax rates, and that probably means, over time, taxes are going up. So while we’re putting money in tax deferred, what’s our 10 year tax plan and how we’re going to pull this money out so we pay more in taxes than we’re trying to defer, and in order to lower taxes, we got to have that tax diversification. That means we got to be doing more than just ordinary income and tax deferred. So let’s talk about our next bucket. It’s our capital gains bucket. Our capital gains bucket is generally taxed between zero and 15% could be 24%ish depending on your situation. An example of that long term capital gains, a long term capital gain, or potentially a qualified dividend, a long term capital gain, is going to be you bought something, let’s say, a rental property, a piece of land, you open an investment account that’s a non retirement account, and you held an asset longer than a year, and then you sold it for gain. It’s now subject to long term capital gains tax. Well, if I’m in a 22% ordinary income bracket or a 15% capital gains bracket, which would I rather pay taxes on? Not a trick question, 15% is good, right? But that’s not the only place we can do tax planning. Our next tax bucket, and by the way, this does happen to be my favorite, is our tax free bucket, where we pay zero in taxes. Now there’s a lot of things that fit inside, but I’m going to give you example two, Roth IRA, which is more and more utilized with the federal community, which is fantastic because we have a Roth IRA and a Roth TSP, which we can fund, which is really nice. But in addition to that, there’s the HSA, the health savings account, and I think this is an underutilized tool. In fact, in our class, we thought that anyway, there’s only one gentleman in here that was utilizing a health savings account. It’s a great way to save money for the long term and to grow tax free. So the combination of these we can put more money away free tax, I’m sorry, more money away after tax that grows tax free. Now, if I go into retirement and I’m utilizing all four of these tax buckets, I have a little bit more control of my taxes. But it gets a little bit better. In 2026 the TSP is making a really good change that allows for internal Roth conversions. A lot of federal employees have a ton of money in their TSP, their IRA, because you weren’t allowed to put money into the Roth for many, many years. So this accounts really grown. And a lot of limitations of federal employees, the TSP did not allow you to take pre tax TSP money and put it in a Roth TSP. But that changes in 2026 they said they’re going to allow us to take money out of the TSP and convert it into a Roth TSP account. This is a really great thing. There’s one catch. The TSP does not allow you to withhold estimated taxes from this. What does that mean? If I did a like a micro conversion a small dollar amount, let’s say $10,000 and I converted it from my TSP pre tax into my TSP Roth, 10 tax comes out here. 10,000 comes out here, goes through ordinary income, that means I have to pay taxes on it, and it goes into my Roth TSP of $10,000 but I still got to pay taxes on that 10 grand. So here’s the way we’re going to work with clients. We’re going to do a tax projection for them and says, if we did this $10,000 how much more taxes would it occur? And we’re going to bump up your taxable holding throughout the year. So then, that way, we can do these micro conversions inside of your TSP and with your paycheck, we can withhold the taxes so you don’t get an unexpected surprise with the IRS. This is one of many, many strategies federal employees need to think about, maybe not implement, but you need to think about in review to say what makes sense in your financial situation. Taxes are probably one of the biggest unfunded liabilities you have in your retirement, and I want you to be proactive and take care of it. Utill next time. Happy Planning!

John Raleigh  06:03

Hi, I’m Christian with plan your federal retirement, we just had an awesome class teaching federal employees about all their great benefits. One of the things that I talked about was the Federal Employee Group Life Insurance, a really nice benefit that you have. And one of the questions came up was, when I retire, do I still need life insurance into retirement? So I actually, using this whiteboard, drew out an example to try to illustrate cash flow wise. Do we even need life insurance or not? So I use an example our favorite clients, Bob and Sue, right? And I said, Hey, Bob, let’s say was the federal employee, and now he’s collecting his FERS pension. So Bob his FERS pension, let’s just for for easy math, say his FERS pension was $3,000 a month net, after taxes, after paying health insurance, and let’s say Bob was also collecting Social Security. So Bob, his social security is turned on, and he’s getting, let’s say, 2000 a month net from Social Security. Sue, on the other hand she had a harder job. She stayed at home. She was taking care of the household. She’s claiming Social Security now, but she’s only claiming half of Bob’s Social Security. So she’s getting $1,000 a month net. So between their fixed income sources, they’re bringing home $6,000 a month. But let’s say they’re also taking retirement account distributions to also supplement the rest of their income. And let’s just say it’s $2,000 a month. So a total of $8,000 a month is coming in right now. So I said in this example, let’s say we hypothetically did a survivor income analysis to say, Bob, what if you passed away? How much income would be available to Sue? So what we did was we looked at that and said, let’s say Bob selected the full survivor benefit. So Sue’s benefit if Bob passed away, would be $1,500 that would come in as a survivor benefit for Sue. We don’t get both social securities. When a spouse passes away, you get the higher of the two. So that $1,000 goes away and that $2,000 would remain. The question was asked was, well, is that enough? And how much more could we take out of retirement accounts? And so if the goal for Sue was to still maintain a standard of living of $8,000 a month, we had to ask the question to say, does Bob and Sue, combined with their retirement accounts and all their investable assets, do they have enough to increase their retirement account distributions if Bob were to pass away? And then, of course, it will be unique to them, and to this example here, if they had a bunch of money saved up, you know, $4 million saved up, yeah, absolutely Sue can absolutely take more out of her accounts, and that’ll be just fine. She won’t run out of money. But if they didn’t have a lot of money saved up in retirement accounts, that might be the gap that we might have to fill using life insurance, Federal Employee Group Life Insurance could be one. We could look outside as well. So whenever we’re talking about life insurance, we can get over complicated, but I like to think of it as just math. What is the math say, do we need it or not? And if we do need it, well, how much do we actually need? And we can use that by going through a survivor income analysis just like this. So hopefully this is helpful, and of course, until next time, happy planning.

John Raleigh  09:26

Hi, I’m John, and we just completed a great class on plan your federal retirement. And we had an interesting question as our came up, because a lot of times things act like they’re common sense, but it really doesn’t work that way. One of the things we talked about was beneficiary designations, and beneficiary designations and where to make sure they’re being done. And we wanted you to remind you think through this, the best places to make sure your beneficiary designations are done are the things that you are allowed to put beneficiaries on, like your FEGLI. That’s very important to not only have your benefit. Through there, but the contingent beneficiary. How about your FERS? Making sure it’s going to the person that you want it to go to? How about your last paycheck, making sure you have the ability to have that money go to where you want it to go when you can’t make that decision? And then, of course, your TSP. Your TSP is lot of times your largest asset that we’re dealing with, and making sure when that money has to go somewhere, it goes where you want to go. Beneficiary designations are key. Pay attention to those four. Until next time. Happy today.

Taylon Ottinger  10:32

Hi. This is Taylon, welcome to plan your federal tournament. We just had an amazing class full of a bunch of federal employees, and we got to go over a bunch of different benefits. One great question that came up was on Medicare Part B, and of course, we’re in a classroom full of federal employees. What about non federal employees? Does that apply to them as well? And yes, that does. You do need to apply at 65 for Medicare Part B as well if you are not a federal employee. So that is very important to make sure to go over all these steps and all these different things, right, and everything is covered. So we love to answer these types of questions at plan your federal retirement. So please make sure to enter those at our website. And thank you so much and happy planning.

Luke Eberly  11:18

Luke here with plan your federal retirement. We just had a great all day session talking about awesome benefits with the classroom full of federal employees. And one comment that was made by one of the attendees was, you know, I’m thinking about claiming Social Security. I’m not sure when. I know that my spouse isn’t entitled to anything because she never paid in. Whoa, wait a second, let’s let’s dive into that. And we dove into that. Turns out his benefit at full retirement age, he was saying, well, he’s probably entitled to about $2,500 at full retirement age, but his wife never paid in, so she doesn’t get anything right? Wrong! Your spouse is entitled to up to 50% of your benefits, if they wait till full age, they’ll get 50% of his benefits. He came in here thinking, Okay, should I turn on $2,500 a month or not? She’s about the same age. Well, that 2500 for him also means that she’s entitled to 1250 that’s a $3,750 benefit, not $2,500 a month benefit. So when you’re thinking Social Security, remember that it’s not always just oh, you pay in and you get it and your spouse does not. Certainly, your spouse is entitled to some of your benefits. Until next time after planning.

Floyd Shilanski  12:43

Hi, Floyd Shilanski here with plan, your federal retirement. We just wrapped up a phenomenal hours of training and working with vets. And it’s amazing the questions that we get asked, if we go through this, we go through all the benefits, starting like with the five areas of financial planning, and one of the ones we wrap up with is estate planning. Now, estate planning is very important. The number one thing that I think you should have is nothing called a durable power of attorney. What that means is the accident didn’t kill you, you’re allowing someone like your children to make financial decisions for you. And then we get into wills, possibly trust and so on. But one of the things that came up the question today, should I avoid probate? And generally we say yes. However, are times you don’t want to avoid probate. And the reason being, we have creditors on estates. Sometimes we know the creditors, sometimes we don’t real. Real story, had a couple, married, died, did not take surviving spouse on his pension plan. The pension third party administrator made a mistake and paid for 36 months, three years surviving spouse benefits, realized they made a mistake, found out that the estate of the deceased had never been probated. Guess what they did? They went to court, forced opening up the estate, started probate again, and had to recapture all that money they paid to the spouse backwards. Had the advisor said, Let’s go to probate let’s lock this thing down, it would have started a timestamp to put it in place, even only a minimum time for the creditors to file a claim. Understanding estate planning, getting advice from a prudent advisor or state attorney is extremely important. To get more answers to these type questions, don’t hesitate to log on, but in your federal retirement com, request a consultation one of our advisors, and this is Floyd, until next time ,happy planning.