welcome to the 85th edition of the bogleheads on investing podcast in this episode we're going to talk about the new tax law changes under the one big beautiful bill act with questions about the new tax law sourced from the bogleheads community both from the forum and elsewhere on social answering our questions is none other than ed slot cpa a nationally recognized ira distribution expert professional speaker television personality and best-selling author ed is known for his unparalleled ability to turn advanced tax strategies into understandable actionable and entertaining advice he has been named the best source for ira advice by the wall street journal and usa today wrote it would be tough to find anyone who knows more about iras than cpa slot hello everyone my name is john luskin filling in for the normal host of the bogleheads on investing podcast rick ferry and since we're changing up the host of the episode why not change up the format too if you're listening on youtube you already know what i'm talking about we have video so if you'd like to watch this podcast on video go to bogelcenter.net where we'll have the video linked or just jump straight to youtube at the bogleheads page this episode as with all episodes is brought to you by the john c bogle center for financial literacy a non-profit organization that is building a world of well-informed capable and empowered investors visit the bogle center at boglecenter.net where you will find a treasure trove of information including transcripts of these podcasts while there you can make a donation to support the mission of financial literacy at boglecenter.net before we begin a special announcement tickets for the 2025 bogleheads conference are now on sale at boglecenter.net slash 2025 conference this year's conference will begin at noontime on friday october 17th running through noontime on sunday october 19th we will be at the hyatt regency san antonio riverwalk hotel you can find a list of speakers at boglecenter.net as well as a full agenda soon i look forward to seeing many of you there lastly a disclaimer the following is for informational and entertainment purposes only it should not be relied upon as tax planning or investment advice and now the 85th episode of the bogleheads on investing podcast with head slot cpa ed thank you for joining us for the bogleheads on investing podcast it's great to be here with you today as you know we're going to talk about some of the changes under the one big beautiful bill act we got some great questions from the bogleheads community beforehand but before we dive into the questions maybe let's talk about some of the highlights of the one big beautiful bill act some things that you may see are opportunities or challenges in light of those recent changes there are big items that really some of them will apply to everybody and the interesting part because of the budget gimmickry some things start in 25 some provisions start in 26 some provisions end in 28 some provisions end in 29 some provisions are permanent not only are so what we really have is a tax code that has devolved into a game of whack-a-mole you get one benefit but then you may lose something else or you get that one and you lose this one a perfect example when we get into it the six thousand dollar senior deduction that sounds good on its face but it faces out at relatively low income rate many people may want to raise their income to take advantage of still lower brackets for a Roth conversion and they may have to concede on the six thousand which is not really six thousand it's a six thousand deduction but the largest bracket you'd be in because of the income levels that you would get is about 22 percent comes out to about thirteen hundred and tax savings over the long haul you may do much better with a Roth conversion even if you have to concede this deduction john luskin jumping in for a quick post interview note to provide some helpful context ed mentioned the new six thousand dollar senior deduction twelve thousand dollars for joint filers available through 2025 through 2028 it phases out starting at seventy five thousand dollars of income for singles and a hundred and fifty thousand for joint filers and has gone entirely at a hundred and seventy five thousand and two hundred and fifty thousand of income respectively roth conversions increase taxable income which could push you into the phase out range and even wipe out the new deduction entirely ed's view on this for many it's still worth skipping the deduction to get more money into roth accounts and now back to the show it's a lot of delayed gratification that's the key to all tax planning by the way you want to give up something now to get something bigger and better later yeah i know you're a big fan of roth conversions and for folks in the audience who aren't familiar with your work now they know and certainly a big part of that is based on that assumption that tax rates might go up there's other assumptions you don't need me to tell you ed that goes into calculating the quote-unquote value of roth conversions what your investment returns are going to be what inflation is going to be your life expectancy how do you think about those other considerations when doing roth conversion planning well as you said i am totally biased i love roth conversions because i love anything tax-free to me that's money in the bank you never have to worry about the uncertainty of what future higher taxes could do to your standard of living and spending ability in retirement so you can't assume you'll always be in a lower bracket in retirement you may have less income but taxes may be higher so you really have to plan that's why i love the roth conversion you lock in today's rates now but that means paying taxes now but here's the secret to all good tax planning i shouldn't even give you the secret but since it's a great show i'm going to give you the secret the secret to all good tax planning always and it's one of my it's in every one of my books always pay taxes at the lowest rates that's it it's that simple if you always pay not at the rates at your rates because rates could be high but your rates personally because the deductions could be low or rates could be low but your rate is higher because you had to increase business or personal income so always pay at your lowest rates even if that means and here's the part that gets people why they blow my always roll even if it means paying a tax before it's required and that's where the roth conversion comes in people don't like to pay a tax before they have to many people have this minimum mentality i call it they focus on rmds required minimum distributions which means i am not touching my ira till you know they take me out screaming and kicking and force me to take it out at age 73 but then look at all the years of low rates that you blew you never want to waste a low tax bracket the sweet spot really is people in their 60s the key to the roth conversion is when you convert you control your tax rates by converting certain amounts looking at the brackets you can convert and control the taxes you want to pay and given today's low rates i would make sure that nobody wastes 24 bracket or lower these are historically low brackets now that means converting some money now using up those brackets because if you waste those brackets if you don't fill up a low tax bracket you don't get credit in the future years in fact over the years my cpa colleagues used to tell me they said they would be so happy they'd say ed you're not going to believe it but i kept one of my clients in a zero percent tax and you know what my answer would be oh i'm sorry to hear that that means you wasted the ten percent the twelve percent the income you could have got out or i'll give you another example this happened during covid a lot of small businesses suffered huge losses a lot of small business owners had these passed through entities like s corps and llcs and partnerships and they had huge losses which were deductible on their taxes in some cases they even had negative income yet nobody thought of converting in those years when they could have converted a lot of their ira and almost no tax so you have to look at getting money out while tax rates are the lowest you'll always end up with more so the benefits of the roth you're in control of your tax rates and you get to use the lower brackets and hopefully by the time you get to rmd age you won't have much in iras where you're forced to take money so you're getting the point i love roth ira's absolutely one reason i ask about those other variables when it comes to tax planning bill richtenstein he's a co-creator of income solver income strategy and this is and i'm sure you're familiar with it for those folks who aren't it's some tax planning software looks at roth conversions and one thing that's interesting about it is that it lets you move the levers on terms of life expectancy investment returns future tax rates and even if you leave that future tax rate lever alone just increasing life expectancy or increasing investment returns makes a case for roth conversion so even if tax rates stay the same roth conversion still might make sense in some situations absolutely true see the roth conversion decision comes down to a very simple concept it's one big giant bet on where you believe your future tax rates will be when you're forced to take that money out if you don't convert and for most people again like me that believe in math i gotta look at the numbers and say you know i gotta believe tax rates will be higher all right let's jump to some questions from the bogleheads community for you ed about the new tax law change we got a couple related questions from the bogleheads forum username five cane eagle 33 both wanted to know about some misconceptions misunderstandings that you've maybe seen about the new tax law change what folks are getting wrong oh yeah so the big misconception or things that were actually wrong and even in the professional tax services on the new deductions the whole business or whether they are above the line or below the line let me explain what that means above the line means it will reduce agi your adjusted gross income that is the key number on your tax return that will tell you if you qualify for certain benefits credits deductions like a lot of these deductions have income limitations that's the key number but these deductions do not reduce that number it's after that number so they're below the line they reduce taxable income but not adjusted gross income so i'll give you one which actually the misconception was right on the social security website there's the six thousand extra deduction for seniors it was book that nobody pays tax on social security has nothing to do with social security nothing to do just an extra standard deduction for people 65 or over that meet certain income limitations like i talked to you about before basically it's 75 000 for individuals 150 000 for joint married couples after that it phases out so it's a six thousand dollar deduction that can reduce all taxable income even if you have no social security income and it's only for 65 or over so somebody collecting social security say early at 63 they don't get this deduction or somebody who waits who's 66 and would qualify but they didn't take social security i think smartly waiting till age 70 where they can get the maximum check they still get the deduction even though they're not taking social security so it does not reduce the amount of your social security benefits that are taxable here's a good way to think of agi on a tax return i'll use a football analogy football has two hands the first half and the second half so does a tax return tax return has the first half and halftime is agi adjusted gross income let's say you're losing the game you're way down at halftime right but you have an amazing comeback you got five touchdowns in the second half does the score at halftime change no the score at halftime is what it was at halftime you just did better in the second half or worst that's what a tax return is agi is halftime no matter what happens after that the second part of the tax return it doesn't reduce agi those are called below the line deductions that's what most of these deductions are they do not reduce agi they're below the line so i'm talking about the 6 000 one i'm talking about the misnamed in the law no tax on tips no tax on overtime that money is still included in income but you get a deduction that can reduce all income so the deductions that's the biggest misinformation out there that i've seen i think a lot of that's been corrected by now but the big deductions people are looking at do not reduce adjusted gross income whatever that is that's the number you're going to still have to use to determine if you're eligible for some of these big benefits yeah i've seen that as well i think another thing that i've seen a lot is misunderstanding that the no tax on tips and no tax on overtime and it's only for a limited amount right right is is the issue yeah so here if you this is the actual law you see what i highlighted here the name of that section can you read it there you can do tax tips oh wow it's called that that's not what it does the same thing with overtime if you look at the section of the law this is the actual law the name of that provision what does it say there no tax on overtime all right that's the title it doesn't do that let's take the tips for example and this income limitation it's a great provision you just have to understand what it does if you're in the tip business you know a waiter or waitress something like that could be great for you you can get a big deduction but here's the catch to get the tip deduction you would have to report that it has to go on w-2 your tip income and most tip income actually is on a w-2 unless you're working off the books when i'm talking to people if they're thinking oh they're working off the books and they get a deduction no the tips have to be on the books and for most you know upstanding places the tips are on the w-2 and you have to pay payroll taxes like and medicare taxes on those tips but you do get a nice corresponding deduction but it doesn't mean there's no tax on those tips you get a deduction related to the tips which is nice but it can reduce all income same thing for overtime and ed mentioned a social security claiming strategy delayed till 70 generally the high earner does definitely want to do that for those folks who want to dive into that topic a little bit more i'll link to some interviews we did with mike piper a social security expert so folks can check those out that'll be in the show notes right that's a no-brainer i think for most people waiting till age 70 to get a larger check for the rest of your life yep yeah at least that higher earn right two-person households lower earner what they do they have some options higher earner always wants to delay until 70 lower earner are going to inherit that higher earners benefit if that higher earner passes first that's why that higher earner wants to wait until 70.

but let's go back to abba the big winners are a lot of people in businesses so they have that qbi qualified business income deduction was retained that's a big 20 deduction for a lot of businesses so you know the big items are there increased depreciation if you're a small business owner would pass through income you do great on this with respect to qbi i'm curious to hear what what your thoughts are on making a and gosh i think i know this answer given you know your pro roth approach but given that in some circumstances if you make a traditional contribution you're going to lose that qbi deduction those self-employed folks like myself if they make a roth contribution to an individual workplace retirement plan like an individual 401k they get to keep that qbi so that is argued for at least personally or for some other self-employed folks i really like making a roth contribution for that reason because you get to keep that qbi deduction i'm curious to hear what your thoughts are on that you are brilliant most people even the accountants don't pick up on this this is one of the few provisions where a roth conversion can actually increase the deduction it's counterintuitive because if it's based on income limits for those people if you're a writer a performer a accountant attorney you know not a manufacturer they don't have the income limits but it's mostly professionals like i said accounts attorney all of that they're subject to these income limits anyway the roth conversion why what you said is brilliant the roth conversion is one of the strange items that can either increase the qbi and that stands for qualified business income deduction it's a 20 deduction off your based on the taxable income of your business and here's the key or your taxable income on your return whichever is lower so you can have a high taxable income on your business but if you have a lot of other deductions and your taxable income on other stuff is low the qbi goes to your lower amount so a roth conversion can increase your other taxable income and increase the deduction but watch it if you do too much of a roth conversion you go over the limit and you lose the 20 so this is why i say what you picked up on is brilliant because the roth conversion has to be really projected so make sure it's a balancing act you want to convert enough to maximize the 20 qbi deduction but not so much that you lose it and remember roth conversions cannot be undone anymore they cannot be re-characterized you have to know your business income or have a good projection of it by year end let's say you think your business income is going to be i don't know three hundred thousand so you may be in line for a twenty percent sixty thousand dollar deduction and let's say your income is getting close and you're subject to the limit getting close leave yourself some breathing room don't over convert to a raw thinking i'm going to go right up to what that number is because all kinds of wacky stuff happens at the end of the year like you get capital gain distributions from mutual funds you have other sources of income you didn't count on you know anything can happen at year end especially that first week in december and as a tax preparer i used to have a cpa tax practice i stopped that a few years back but people used to come in and say what are all these capital gains you know well in the funds you have throw off capital gain distributions at the end of november early december the funds report them so when it's a year like this those numbers could be pretty big gosh yeah quick tangent there that's why sometimes when folks come to me and they have all these actively managed mutual funds in a taxable account and they have gains on them and they don't want to sell the funds because of the gains the downside is well those funds are going to keep spitting out capital gains for as long as you hold them so it really is worth considering to sell those things sooner get rid of that annual distribution you're going to get from those funds you mentioned roth conversions with respect to the qbi issue is there anything distinct between making a roth conversion or if i'm just going to flat out make a contribution to my individual 401k because naturally i can do yeah yeah i'm not a big fan of that but it gives you a deduction but here's why i'm not a big fan of 401ks anymore first of all this has nothing to do with the other bill but people say well isn't a 401k good no and they say well you get a deduction like you just said people call it a deduction it's not a real deduction it's a fake deduction why do i say that because you have to give it back what i call a real deduction is your mortgage interest you deduct it you keep it charity you deduct it you keep it now state local taxes you deduct it you keep it when you make a 401k contribution and get this so-called deduction all you're really doing is taking a loan from the government that will have to be paid back at the worst possible time in retirement when the last thing you want is a big tax bill at who knows what rates then so i don't like taking those deductions anymore i think most people should now contribute smartly to a roth yes give up the deduction again always pay taxes at the lowest rates if you go back to my theme there remember you shouldn't remember because i told you to keep it secret always pay taxes at the lowest rates in tax planning you want to take deductions when rates are high not when rates are historically low like they are now you want to take income when rates are low so you're better off with the roth 401k that people say but ed the match you know i get the company match that law changed now you can have the match and catch-up contributions in your roth 401k young people especially should only be doing roth iras and roth 401ks at work that's my two cents thanks for answering my questions selfishly i appreciate it whatever questions you have i will answer in person where john at the bowhuts conference this year that's in let me check my schedule i speak on the 18th october 18th i'll be there and i'll give you the skinny on all of this in person and i'll stick around for all your questions we're going to have a great time you're going to hear things from me like on john's program here that you never heard anywhere else and it will make you money i'm telling you everybody says they can make money in stocks stocks go up and down there's a lot of uncertainty you can make bigger money in good tax planning the other thing you can lose more money if you don't do good tax planning because with stocks if the stock market goes down all right it'll recover you'll get your money back if you lose money to taxes you're never getting that money back that is a loss and the full days for the bogus conference this year are the 17th through the 19th so we're going to have you right in that middle day ed and that's going to be in san antonio this year folks go to bogus center dot net slash 2025 conference to register and gosh one thing that i do love about the conference is that you do get to ask your questions to the speakers on a one-on-one it's phenomenal i think a few years back i cornered clark howard for a little while and got to pick his brain since i'm a huge clark howard fan yeah oh that guy's great all right let's jump to some community questions we have two related questions about roth conversion case studies first one is from jock doc from the bogus forums he writes my income in retirement is over 75k as a single filer what does ed think about the value of roth conversions in this lower income period also known as gap years in retirement first doing no roth conversions to maintain a low income to get the highest extra senior deduction so we touched on this a little bit but if there's anything else you'd like to add please go ahead personally i would concede the senior deduction it's only a six thousand dollar deduction which relates down at about 22 to about 1300 actual tax savings if you give up that and convert more to roth using the 22 and 24 brackets i believe you'll be in much better shape down the line when rmds start and you don't have any so you keep your future income low and your money starts building tax free we are in an era of the lowest tax rates in history and it's going to continue at least for another few years and you don't want to lose out on any one of these years to take advantage of the low brackets so in that case if he was sitting in front of me i'd say concede concede on the six thousand yes interesting clark howard talked about how excited he was to sell a rental property that he had that was no longer fit for his goals and that's because tax rates for him with his long lifespan he had seen much higher rates he was excited to sell that rental at the 15 long-term capital gain rates he knew that was effectively a tax sale if you will this question comes from cody garrett a similar question about roth conversions this one about roth conversions while working cody asked a married couple age 65 has gross income of a hundred thousand dollars this year they have an effective 5.9 federal rate so was making roth contributions while working the answer when we talk about tax rates we're talking about not the general tax rates everybody knows what those are it's your tax rates based on your own situation your own deductions and income so all tax rates may be low maybe your rate is high or vice versa but then we have something called marginal rates these are the taxes you pay on the last dollar of income for example if you add a roth conversion at your 24 you'll be taxed at 24 but not on all of it because we have something called a progressive tax system graduated rates which means yeah maybe on a few dollars you'll pay at 24 but most of them will be at the lower rates the 10 12 22 percent so it's kind of like a bunch of buckets of water once you fill up the 10 percent then the next goes to 12 and 22 and 24 it's only the last dollars that's the marginal rate what he's talking about is the average rate or what we call the effective rate on all his taxable income so you take all your tax liability or what you project it will be and divide it by your taxable income that's why he's coming up with 5.9 percent he may have a lot of deductions so he's a great candidate for roth again always pay taxes while the rates are low and the reason i say roth means paying taxes you're paying if you want to convert but you're also paying for a roth contribution in the loss of a deduction but again the ira deduction is not a real deduction because you have to give it back and then some you've got to look at the long-term big picture and even people that say i'm going to be in a lower bracket in retirement and that's what a lot of people think they say well i had a big w-2 maybe three four hundred thousand of income and i won't have that in retirement well it doesn't usually work that way because first of all you don't have the deductions in retirement you're generally your house is paid off you you don't get tax benefits for dependent kids so you have lower deductions and you may have larger income because your rmds if you do nothing and it continues to grow and build and compound and snowball your rmds can be larger than your highest w-2 ever was and i've seen that with people and they say how can this be i'm retired how can my tax bracket be higher so even if rates are the same you may not be in a lower tax bracket and we don't even know about future rates and cody garrett he's a planner himself he's been on our show before so i'll link to some of those episodes in the podcast notes for those who want to check that out let's jump to a question about trump accounts again we had a couple users from the bull guts forums asking about this users djm 2001 and user slow and steady and then we also had katherine payton ask about this on linkedin questions being would ed recommend trump trump accounts once they become available or should we wait until the final details are sorted out can they be converted to traditional iris after age 18 etc what's his take and what's his take on the restriction to hold only equities within the accounts doesn't that result in worse tax treatment in the long run mainly long-term capital gains tax at ordinary rates well number one they're not available till july 4th next year one year after the date of enactment so nobody can do it but some people qualify already babies born between january 1st 25 so already 25 through 28 babies born in those years get an automatic exceed a starting kickoff of a thousand dollars so for that alone nobody's going to say i don't want a trump account because it's free money but there's a catch one of them is the investment restrictions you mentioned the biggest downside i see there's nothing wrong with a free thousand dollars except you can't get to it till you're 18.

it's not like oh i'll take it but i'll pay a penalty no it's a lock box you can't touch it so i have a feeling some people may be parents that put a thousand in for a newborn and then all of a sudden the pipe breaks and they need a thousand dollars can't get it till the child is that you have to wait 18 years to get to any of that money it's only for people that can put the thousand dollars in and forget about it but i wonder how many people will do it for the thousand dollars thinking they can touch it you can't touch it for 18 years so that's one downside and the investments u.s companies are very strict and it's meant to be conservative and nationalist but that's okay but there's three sources of contributions the government seed i said the child themselves or the parent the grandparent can put in five thousand employers can put in twenty five hundred the great thing about the trump accounts forget about the thousand if you're really dedicated to not touching that money let's say you have a new child here you get the thousand you can put another five thousand in even though the child isn't working because he's lazy he's just born and he's not working yet how is that possible but remember with iras to put money in an ira you have to have compensation wages or self-employment income this you don't have to have compensation so you can keep putting money in for all the early years of a child's life up to 18 5 000 a year so you can really compound wealth if you're okay saying we're gonna load this account up i'm not touching it because you can't touch it until the child turns 18.

i'm curious ed any thoughts on the practical considerations of having an 18 year old inherit whatever amount that's going to grow to 18 years from now well that's a problem too it's their money that's why some people put it in a trust or something even the uniform gifts to minors or transfers to minors it's there when they're no longer a minor so i guess you have to educate your kids you do what i did i had accounts for my kids they're in their 30s they still don't know about it that is not the first time i've heard that and i've got it covered too nobody can find out because i do their taxes yeah that's certainly something i encourage folks to think about whether it's the trump account or the account ugma custodial roth ira also pretty common i would say it's a good bet for the i don't know the first 12 to 15 years of the child's life why do they even need to know they have an account i work with someone once and that was their plan and then they were getting statements in the mail and then the kid came home and the kid was you know an adult right the adult came home and they saw the statement and you know they said you know hey dad what is this and at that point the dad had to turn the account over but he had the same strategy as it sounds like most folks just don't tell the kid about it which is right obviously given that anecdote doesn't always necessarily work any thoughts on the commenter's question with respect to ordinary income tax treatment on what would otherwise receive long-term capital gain treatment well that's true yeah it's going to be ordinary income tax on the earnings which will be a lot normally we say well the earnings are the smaller part but compounding over many years yes there will be earnings and you make money so yeah you could put it in a stock account and get capital gains that's true and for those folks who want to nerd out more on the issue of having the stocks which would otherwise qualify for long-term capital gain rates be taxed at the ordinary if held in a tax-deferred account michael kipsis has a phenomenal article on the subject and it almost sort of debunks the issue because michael points out yes stock funds normally tax efficient because they are taxed at lower rate they're still not perfectly tax efficient because they still have that dividend tax drag and on a long enough timeline because of that dividend tax drag it might actually make sense to put something like a stock fund in a tax-deferred account because you eventually will have more wealth even after taxes by shielding that annual dividend tax drag with that tax referral mechanism that you get with that ira again i'll link to the article in the show notes for folks who want to nerd out on that subject that reminds me of another point on the other side to the stock account and this goes way out because we're talking about kids so who knows what the rules will be when they die age 90 or 100 or maybe 150 whatever life expectancy will be the benefit there's a step up in basis on on those you never pay the capital gains tax but you do pay tax on the dividends absolutely which you have to remember to add to your basis i'm told by the brokers and so forth they figure that in but just in case they don't i keep track of my all my reinvested dividends i keep a running total it's easy you go to the 1099s just to make sure if you ever sell a stock position you're not paying tax on money already paid tax on i know this is something that rick ferry has advised in the past you want to opt for what's called specific identification with your custodian at least that's what vanguard calls it and then that's going to help you identify what your tax lots are how many shares you bought at what cost and when helps you figure out the tax consequences and helps you with tax planning helps you decide you know which lots you want to share to optimize your tax planning for the year hey it's low tax here maybe i want to sell you know some of the stuff with a lower basis first selling stuff with a higher basis during a high tax year given cash cash needs all right let's jump to charitable contributions slow and steady from bogus forums asks about this who wants to know what your take is on this new provision the charitable provisions the benefits the big one the charitable deduction for non-itemizers that doesn't start till next year everybody gets 2000 married or 1000 and that's also below the line deduction but everybody gets it that it's not related to income one more quick clarification ed also mentioned here from the recent tax law change starting in next year in 2026 you'll be able to deduct cash charitable contributions of up to a thousand dollars for single filers or two thousand dollars for married filers even if you don't itemize that's a shift from the prior rules in the past if your itemized deductions including charitable contributions didn't exceed the standard deduction you likely receive little to no tax benefit for your giving but under this new rule non-itemizers folks who take the standard deduction which is most people can now get a small deduction for charitable giving even if they continue taking the standard deduction back to the show but this brings up another issue to do the charity wait for next year what do you do this year maybe and you have to tie in the new salt deduction estate and local taxes because more people in high tax states because of this law will now be qualifying to itemize their deductions so more people can take more charitable contributions if you're in a high tax state like where i am in new york new jersey california so if you're in a high tax state you're probably going to start itemizing your real estate taxes and state taxes you can go up to forty thousand dollars you can put in mortgage interest charitable deductions and other deductions that you may have so you can really do well with itemizing and i may take the deductions they're talking about take more of that now again while you're able to itemize now if you're in a state that doesn't have any state tax like florida texas and some of those that's not an issue for you but also next year even if you do itemize and this may be a reason for some people to do their charitable planning now while they can itemize and also if your charitable deduction is large enough that might get you into the itemizers club anyway what i mean where the itemized deduction is higher than that you would have got from the standard deduction so if that gets you into the club you're better off doing it this year because next year your deductions are limited if you're a high earner number one charitable deductions have this point five percent floor half of one percent people say oh that's nothing let me give you an example if you think that's nothing let's say you make four hundred thousand a nice w-2 so the first two thousand dollars of charitable deductions you don't get so let's say that person makes a two thousand dollar charitable gift and goes to itemize they don't get that deduction so it doesn't sound like a big number point five percent but if you have a high income and you're making relatively low and i'm not saying two thousand is a low deduction but you'll lose it and then if you're in the top bracket in the 37 percent bracket and again these things i'm talking about happen next year so you may want to front load your charity and bunch them into this year next year if you're in a 37 percent bracket you only get a tax deduction for all your itemized deductions including charity worth 35 percent you don't get to deduct 37 cents on the dollar so for the charity i would look at what you can put in this year well there's no restrictions and you may be able to itemize because of the soft deduction or if not if you're in a low tax state because you're giving a lot and we just had phil demuth on a previous episode of bogle heads on investing talking about some charitable gifting strategies i'll link to that in the show notes for folks who want to check that out i will tell you another thing that he picked up on it was in the wall street journal last week i believe for those who i said qualify now for the forty thousand dollar soft deduction state and local taxes the extra 40 it go went from 10 to 40 that 30 additional that's what you got in the abba law it cuts off when income goes over 500 000 it starts phasing out what he pointed out in that article is that once you're in that 500 000 at 600 000 you lose it completely so it's not most people but if you're in the 500 000 to 600 000 the tax because of the phase out in that last 100 000 of income is actually 45.5 percent because of the loss of that 30 000 salt you don't lose the whole salt deduction it goes back to the 10 000 but that loss it's like a domino effect the loss of that 30 000 not only puts you in a higher rate but you lose the 30 000 which in turn puts you into a 35 percent bracket so you lose there too and that's how you get a 45.5 tax rate on that hundred thousand okay let's talk about the value of comparing roth conversions or having traditional dollars in retirement this question comes from username jbtx from the bullguts forums who writes is there value in holding a certain amount of money in traditional dollars to fill up lower tax brackets down the road or if one has high medical expenses in the future in which point it'll be good to have taxable income to offset that deduction should i keep some traditional iras that's a great question and the answer is yes for several reasons you have high standard deductions even if you're not itemizing or you may have itemized you want some of that income to come out tax-free also you may have medical expenses you want to use taxable money to get an offset a big reason is if you're charitably inclined and you can take advantage of qcd's qualified charitable distributions only available to traditional ira owners over 70 and a half iras are the worst assets because of the tax law well they're also the best assets if you give them away because they're so lousy tax-wise give them to somebody else but the charity doesn't pay taxes so iras are the best assets to give to charity and you can do that now by making a direct transfer from your ira to a qualified charity the amount is up to 108 000 with inflation increases so that's a great way to give to charity i never say just to be clear to give to charity for the tax benefits you give because you want to give that's really the reason because anybody i ever saw that did it for tax reasons was always unhappy when they realized they actually had to give the property away what do you mean i thought i just get a tax benefit so you have to want to give that's why i use the term charitably inclined but if you're giving anyway if you qualify for qcds give through your ira you're giving anyway but now you get a benefit and that benefit is one of those above the line deductions that reduces agi it can also offset the income from your rmd your required minimum distribution that's the way to give but you'd need the traditional ira balance to do it so if you're saying well i converted everything to a roth i don't want to really have rmd income and during my life my plan is to give a hundred thousand to charity so keep a hundred thousand or so in your ira little by little as as rmds come out give it to charity and nobody pays the tax all right let's talk about some tax changes with regards to roth accounts this one is from you the name lie rad from the little guys forums who asked what's a good way to think about possible future tax law changes and how it should affect how much should be converted to roth i think one thing that the user is trying to get out here is that we don't know what the future holds so how do you plan how do you do tax planning oh it's easy you plan with things you know you know what today's tax rates are that's why i said you can lock in lower rates and you can control the taxes you pay you can control how much you're going to use the 22 of the 24 bracket hit it while you can control it we have another question from the booklets community this one pits your favorite roth accounts against the hsa the health savings account and the user asked if i have a thousand dollars to invest which one should i put my money in a roth ira or an hsa i still like the roth because the roth has no restrictions the actual original contributions most people don't realize this can be withdrawn any time for any reason tax and penalty free not the earnings the actual contributions so they could be used for education or anything you could use it to bet on a horse i mean you can use it for anything hsa's on the other hand is an amazing account because of the triple tax benefit you get a deduction on the way in you get a deferral on the income it generates and if you use it for qualified expenses it's tax free and people are using it as another type of retirement account but what i'm seeing happening people have too much in these accounts that they'll never spend and then you get hit with a big tax at the end or at death people are really hitting these things hard so you have to balance i would definitely take advantage of the hsa if you don't already have one because there will be medical expenses no question about that but you're limited to using it just for those so i would say you know all right a hundred two hundred thousand after that i know expenses can get high but you should start really diversifying and have more in the roth that can be used for anything and another benefit of making hsa contributions at least through an employer is you got to avoid payroll tax so there's an additional tax savings there right yeah that is a big ben there are big benefits and for folks who aren't super tax nerds a popular strategy is to contribute to a health savings account and then don't spend the money immediately for qualifying medical expenses rather you're going to invest the money in that account and then spend that later in life once that money's had a chance to grow tax-free all right let's jump to another question from the bulkheads community this question comes from username sc9182 from the forums who asks once you finish converting all your tax-deferred traditional dollars to roth dollars what is your next tax move well two things we just talked about maybe it's not a good idea to convert everything to hold back some traditional iras for tax risk diversification using up low brackets and standard deductions each year or for qcds those charitable or for medical bills that may pop up so let's say you did everything in the roth you did all of that i love i'm going to say the cash value life insurance because to me it's like a super roth the income tax exclusion the tax-free feature of life insurance is the single biggest benefit in the tax code and i would load up there especially a cash value policy that you could draw from if you need it during life most people say they don't want to do it or if they don't want to do it they say well i know about the death benefit most people don't realize they has lifetime benefits i have this myself i have a cash value policy because i'm all wrought out also i have a cash value policy but it has a long-term care rider i love that feature if i ever needed money for long-term care it could take it right out of the policy so what the kids get less who cares about them anyway they're going to get plenty so last thing i want to worry about is if i need that high medical bills the nursing home and all of that that kind of extended medical care the last thing i want to do is rely on my kids to come up with the thousands of dollars needed for my care every month i want to know it's taken care of and i think everybody else should know that too so i took care of it for myself and again i do not sell life insurance i have never sold any financial products i don't sell stocks bonds funds insurance annuity none of that i'm not an insurance professional i'm a tax advisor always check this with your own insurance professionals let's jump to another question from the bullheads community this question is about designating a trust as a beneficiary of an ira this user wants to know what the downsides are of that approach and what individual should consider if they are bequeathing to either eligible designated beneficiaries and or spendthrifts here's how i answer because i get this question all the time when should i name a trust as my ira beneficiary or when should i name a trust for anything and my answer is always the same when should you name a trust when you don't trust because if you trusted them you wouldn't need a trust so i should have called it a don't trust that's when you name a trust when you don't trust and there are reasons you could have minor beneficiaries that can't handle money you can have even older adult children that also can't handle money they may be addicts they have gambling and drug addiction horrible things divorce bankruptcy if you're in the category you say i need a trust for this post-death control and protection you're not doing it for tax reasons if anything the taxes could be higher in their trust you're doing it for personal reasons control reasons and that's a good reason so for those people that have those issues do everything you can if it's that important to you convert that whole ira and it's probably a large one that's why you're worried about it to a roth ira and leave the roth ira to the trust the roth ira is the better asset to leave to the trust because you eliminate the whole trust tax problem and the taxes to the beneficiaries two has to come out at the end of 10 years after death or if it's an edb they can stretch it but you eliminate the tax this gives you the freedom to use that trust that ties up the money and holds it back from the beneficiary without worrying about trust taxes or better yet take the money out and put it in a life insurance policy and leave the insurance to an insurance trust there you don't even have to worry about rmd rules complicated tax rules you make your own rules you get your own customized plan and there's no tax so you want tax-free vehicles going to a trust so to be clear i'm saying yes some people need a trust but the ira is a disaster tax-wise leaving a traditional ira to a trust don't do it if they need a trust use a roth ira which means taking the money and paying the tax now but remember it's not if but when this tax will be paid possibly at much higher rates you're paying a tax now that will have to be paid anyway may as well get it off the table and then you have the plan you want leaving a roth to a trust or the life insurance to the trust and don't do the life insurance to the ira distribution going to the life insurance if you're under 59 and a half there would be a 10 penalty there is none with a raw you convert to a roth as long as all the dollars are converted you can leave the roth to the trust and the reason being to leave those roth dollars to that trust making the conversion yourself is because that trust is going to reach those higher brackets more quickly than you will as an individual or even married filing jointly oh yeah yeah yeah yeah you can control it now but when it goes into the trust there are no brackets all tax-free same thing with life insurance then you can have your customized plan you can put anything you want pretty much in those trusts and our last question looks like it's a fun one from david who asks about the what you call the greatest benefit in the tax code the greatest single benefit in the tax code is the tax exemption for life insurance it's just unbelievable that you can accumulate this kind of large amounts of money it's like a super roth and it's all tax-free and it can even be estate tax-free because life insurance can be on the outside of your estate in an irrevocable trust there's nothing like it and again i don't sell the product i have it myself because it's a great product everything that we talked about on this show which is why i get so passionate about it i've done for myself and my family all roth all the life insurance all of these things and ed we'll see you at the bowheads conference this year i hope to see everybody have great questions smart questions too it's a smart audience that's what i'm looking forward to i hope to see you all there it's in san antonio home of the alamo october 17th through 19th and i'm speaking on the 18th don't miss that session you'll love it and thank you so much for your time no you're great yeah you're a great question on that 199a the qbi deduction on how the roth affects uh most cpas don't pick up on that that was brilliant a lot of people always talk about you know shove those traditional dollars in for self-employed and like i don't want to give up qbi i love qbi s-corps same thing i think about escort a lot of people are bullish on s-corps i'm like well you're gonna lose qbi and you're also looking at a smaller social security benefit as well can't help but think about that when people mention the s-corps strategy yeah it's a big deduction and it got extended and improved next year with larger brackets larger phase out ranges all right good yeah we covered a lot of great stuff yeah i'll see you there remember the alamo thank you for listening to the 85th bogelheads on investing podcast rick ferry will return next month for the 86th episode in the meantime visit bogelcenter.net bogelheads.org the bogelheads wiki bogelheads twitter bogelheads youtube bogelheads facebook bogelheads reddit join one of your local bogelheads chapters and get others to join also be sure to like subscribe and leave a review on your favorite podcast platform and thank you for listening i look forward to seeing you all at the conference later this year