Business Innovators Radio - Episode #61 – Widow’s Penalty – The 15 Minute Financial Feast Podcast-With Mark Triplett & Troy Westendorf

Episode Date: March 7, 2024

We believe that every dollar has a purpose and a timeline. When and how your retirement assets will be used should be understood before making important financial decisions.The Triplett-Westendorf Purpose and Timeline 5 Step Planning Process (PT5) begins with Discovery.Understanding where you are now, and then defining where you want to go (Your Purpose) and when you want to get there (Your Timeline), programs your financial GPS. Our Purpose and Timeline 5-step process (PT5) programs your financial GPS.Learn more: http://triplett-westendorf.com/ | https://mypt5.com/The 15 Minute Financial Feast Podcasthttps://businessinnovatorsradio.com/the-15-minute-financial-feast-podcast/Source: https://businessinnovatorsradio.com/episode-61-widows-penalty-the-15-minute-financial-feast-podcast-with-mark-triplett-troy-westendorf

Welcome to the 15-minute financial feast podcast, bringing you 15-minute segments to help you retire with purpose on time. We're serving up food for thought and bread for the head. Are you hungry to learn? Here are your hosts, Mark Triplett and Troy Westendorf. Welcome to another episode of the 15-minute financial feast. Today, you are listening to the audio from a live television interview where one of our favorite local news station anchors asked us questions about a financial topic on the minds of many hardworking folks in our community who are trying to make good decisions and get ahead. Of course, losing a spouse is extremely tough. Navigating the necessary steps after your partner dies only adds to the feelings of grief and loss.

But there's a little known tax implication following the death of a spouse that can hit you right in the wallet. It is called the Widows Penalty and Local Financial Professional. Mark Triplett from Triplett Westendor Financial Group is here to tell us what. what it is and how to reduce all of the impact from that. So, Mark, first off, can you explain just what the widow's penalty is? Sure, Cheneu. So Ben Franklin famously said, nothing in life is certain but death and taxes,

and the widow's penalty actually incorporates both of those. So typically, your income tax is based off of your income that you make. And a married couple filing jointly can have more income hit their household before they hit higher tax brackets. And generally, folks plan for a retirement together. Married couples plan for their retirement years to be together, but ultimately one passes before the other leaving the surviving spouse suddenly single. And when that happens, that surviving spouse is then subject to single-file tax rates,

which are much lower so you can hit those tax brackets much higher. A couple that's maybe enjoying a retirement based off of Social Security, perhaps some pension income and distributions from IRAs, 401ks or other IOUs, the IRS, any 12% tax bracket. Well, after the first spouse passes, the surviving spouse might find themselves in a 22% tax bracket and paying additional higher effective tax rates, higher taxes on social security, maybe even affecting Medicare premiums. And Mark, of course, you know, there's a lot to this, but can you talk about how people

can reduce the impact of this? Sure. I think planning ahead is more important than anything. looking at ways to spread your taxation throughout your lifetime. Right now, we have low tax rates because of the tax cuts and jobs act, but those are going to sunset in another three years. And right now might be a good opportunity to start offloading some of that taxation by what we call stuffing brackets. Doing some strategic Roth conversions, for example, if you're in the 12% bracket and you have another 30,000, you can realize as taxable income, maybe start converting some of that money now so that later on in retirement, you have less tax. taxable distributions that are going to be forced upon you or that surviving spouse. Also, optimizing social security is a great way to make sure that you have a large percentage

of your income coming from government-backed, inflation-adjusted, and taxes-managed income sources. So we always recommend doing that. And then lastly, just making sure that your investments are allocated based on what we call proper asset location. What's the taxation of the investment? What's the taxation of the account that it lives in and aligning the money? those ups you're paying as little in taxes as possible. And Mark, for those who have a spouse who may have already passed, are you stuck paying the penalty? How does that work? So it's more difficult once a

spouse is passed, but there are some things that we can do to help that surviving spouse minimize taxes, not just now, but into the future, and maybe try to avoid some of those widow penalties from materializing or at least being as severe as they would otherwise without planning. And I'll leave you with this. If you have a spouse or yourself with a pension or you have large amounts of pre-tax IRA money that you don't plan on using, really start to think 15, 20 years down the road, how that might impact your taxes as a household, but also for the surviving spouse. All right, Mark, thank you so much. All good information there for those who may want to get in touch with you or have more questions. How can they get in touch with you?

Just visit triplet-westendorf.com. You can find out about us, our process, and other ways to contact us there if you have questions. All right, Mark. Always good chat with you. Thank you so much. You've been listening to the 15-minute financial fees podcast. Remember, every dollar has a purpose and every dollar has a timeline. If you have questions about today's topic, schedule a call with a team member. Visit www.com.com. Until next time, be sure you're taking steps to retire with purpose on time. Mark Triplett is an investment advice. representative of and advisory services offered through Royal Fund Management LLC, an SEC registered investment advisor. Nothing contained in this program should be considered an offer to buy or sell

securities. Different investments have different risks associated with them and not all investments are appropriate for all investors.