Bogleheads® Live
#FIRE Taxes; Tax Planning for Early Retirees
Jul 11, 2022
Sean Mullaney, a financial planner and CPA specializing in tax planning for early retirees, joins Cody Garrett, a financial planner focused on family financial education. They dive into tax strategies specific to early retirees, discussing the interplay of the Affordable Care Act with Roth conversions. The duo explores how Social Security earnings impact early retirement, and the importance of managing Modified Adjusted Gross Income. They also share insights on maximizing Health Savings Accounts and navigating state-specific tax laws for effective retirement planning.
48:17
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Quick takeaways
- Effective tax planning for early retirees involves balancing ACA premium tax credits and Roth IRA conversions based on income limits.
- Retirees should prioritize investment quality and diversification over tax strategies, ensuring they don't sacrifice valuable investments for minimal tax savings.
Deep dives
Tax Planning and ACA Premium Tax Credits
Effective tax planning for early retirees requires careful consideration of the Affordable Care Act (ACA) premium tax credits that are based on modified adjusted gross income (MAGI). If a retiree's income exceeds 400% of the federal poverty level, they may lose these valuable credits, which can significantly impact health insurance costs. A strategy often discussed involves Roth IRA conversions, especially when tax rates are low. However, it’s crucial to maintain precision in income measurement throughout the year, particularly in the fourth quarter, to avoid exceeding the MAGI threshold and losing the ACA credits.
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