10 Tips for Maximizing Your Financial Plan in 2023: Tip 7- Tax Bracket Management

Hello, Matt Blocki with EWA. Today we are talking through ten tips for 2023 and how to maximize your financial plan. Tip number seven for maximizing your financial plan in 2023 for clients that are approaching retirement or in retirement, there are some brackets that have been adjusted pretty significantly for planning around taxes, planning around Roth conversions, charitable contributions, et cetera.

So the ones to make note of if you are single, the 22% tax bracket cuts off now at 95,375 and the Medicare Part B, as long as you keep your income below 97,000, this is adjusted gross income basis, then you’re going to pay the lowest Medicare Part B premium if you go $1 above that.

And this looks two years prior. So 2022 tax return will determine two years later your Medicare Part B premiums, that will start to get surcharged and it goes up pretty significantly in these different brackets.

So these are just the no brainer brackets. Again, double those amounts. If you’re married filing jointly, your 22% rate gets cuts off at 197 50. Your Medicare Part B gets surcharged above $194,000. So just hypothetically, for a married filing jointly couple, if your shown income is $100,000, we have a runway.

We want to respect both of these rates. I’m going to pick the lower of the two. We basically have a runway of 90,750 to play with. For example, if we want to do a Roth conversion, if we have a large amount of pretax money, we can guarantee to swing that money over at a 22% tax bracket.

Also keeping your Medicare Part B premiums low in coming years and get that tax liability out of the way forever. Then depreciation grows tax free, and it comes out tax free either to you or to your children when you pass.

Now, one thing to note if it’s two of you when you’re retired and we don’t do these Roth conversions and all of the assets pass over and now you’re filing as a single person because one spouse is left morbid scenario, but very important part of financial planning is if now we’re planning for a widow.

Generally speaking, the highest of the two Social Security stays. If a pension election was taken to pay the survivor that stays, all of the assets will go to the surviving spouse. So generally speaking, the income that’s coming in to one versus two spouse is going to be about 90% of what it was when both spouses were there.

However, the brackets for paying low taxes and then also paying lower Medicare part B premiums, those get cut in half. So even if you don’t have a want to pass money on or your children aren’t in a higher tax bracket than you, a Roth conversion can still make a ton of sense when planning that one of you will most likely outlive the other.

And the Roth conversions can really save those rates getting cut in half. If you’re a single taxpayer versus a tax clear merit filing jointly where the rates are double.