Mike is a CPA, and he's the author of many finance and tax-related books. In fact, more than he can even count, but he's got these wonderful small books that are written in a really straightforward way. He does such a great job of communicating just what you need to get something figured out.

He has also developed the website Open Social Security, and I think in a lot of ways that website epitomizes Mike's approach to what he does where he is creating this open source program, and it's just there to be helpful. It's a free tool. He's not selling it, and it's a wonderful, wonderful resource.

So if you're trying to figure out Social Security, trying to get a second opinion on Social Security, definitely check out Open Social Security. He's here to discuss Social Security and tax planning matters before and during retirement. So please join me in welcoming Mike. >> Thanks, Christine. Sorry. I don't know who this is.

I'm just worried about, you know, tripping on it, making a mess. All right. So when clients come to me, and they're in this window of years, either shortly before retiring or shortly after retiring, they come to me with a list of questions on which they want my input, and there are three questions that show up on that list almost every single time.

There we go. The first question is, when should I file for Social Security, as you might imagine. Second question is, should I be doing Roth conversions? They've heard that Roth conversions might be advantageous during retirement, but they don't know whether that applies to them specifically. And the third question is, which accounts should I spend from every year?

All right. Let's say you want to spend $90,000 this year. Should it come out of your traditional IRA, Roth IRA, taxable brokerage accounts? How do you figure it out? So we're just going to go through these one by one today. When should I file for Social Security? There are three big factors that you should make sure to include in this decision.

The first factor is actuarial math. So this is just math based on life expectancies. Then we have longevity risk. That's the risk of outliving your money, right? If you live for a very long retirement, you're more likely to deplete your portfolio during your lifetime. And then we have tax planning.

So starting with actuarial math, this is exactly what Open Social Security does, and the idea here is we're just asking which filing age, or if you're married, which combination of filing ages, would be expected to provide the greatest total amount of benefits over your lifetime, or actually slightly more precisely what we're asking is which filing age is expected to provide the greatest present value of total benefits.

So we're accounting for the fact that the dollar that you receive sooner is more valuable than the dollar that you receive later due to A, inflation, and B, the fact that the sooner you have a dollar in your hands, the sooner you can invest it. And this is exactly what Open Social Security does.

It just takes the inputs that you give it, takes the mortality assumptions that you give it, and it figures out which filing age or combination of filing ages is expected to maximize your spending power over your lifetime. And when we do that math, what we typically see for an unmarried person, and we're starting with that analysis because that's the simpler one, and then we'll move on to the analysis for a married couple, we typically see that it makes sense to wait until age 70, or in some cases, file a little bit before age 70.

And the reason that this is how the math works out, to understand it, it can help to back up a step and to talk about when the current version of the rules were first created. So the rules that say that as you wait however many months, your benefit goes up by this much percent every month.

The idea was that the system would be actuarially neutral, meaning that any one filing age was supposed to be about as good as any other filing age, because as you wait, your benefit goes up, but that would be offset by the fact that you're receiving that benefit for a smaller number of months.

So that's the idea. It was supposed to be actuarially neutral. But the reality is that today, it no longer is, and that's because the rules didn't change, but the world did change. Specifically, life expectancies have gone up, and that pushes the math in favor of waiting. Because the longer you live, the better it works out to have waited to file for your benefit.

Right? Because your benefit lasts your whole life, so if you live for a very long life, it would be good to have a larger social security benefit. So this shifts the math in that direction. But there are exceptions, right? There are cases in which an unmarried person should go ahead and file early.

The obvious one is somebody in poor health, right? If you're 62 and you're trying to figure out whether to make this decision, if you already have a diagnosis that says you're only supposed to live to age 65, you shouldn't wait until age 70 to file for your benefit. Then we have, if you have a minor child or an adult disabled child, your child can receive benefits on your work record, but not until you have filed for your retirement benefit, so that can be a point in favor of filing earlier so that your child can get those benefits starting at an earlier time.

And whenever real interest rates are high, so real interest rates meaning inflation adjusted interest rates like we see on TIPS, whenever those are high, that makes filing early relatively more advantageous, right? Because the idea is that the take the money and invest it strategy, it becomes more attractive when you know you can get a better return.

Now when we move on to the decision for a married couple, what we typically see, the life expectancy math showing us, is that the higher earner should wait until age 70, and the lower earner should file somewhat earlier, not necessarily ASAP at age 62, but somewhat before 70, and the reason for that has to do with the way that survivor benefits work.

Basically as soon as either person dies, the surviving spouse continues receiving the larger of the two benefit amounts. That's the smaller of the two benefit amounts that goes away. And so what this means is that when the higher earner waits to file, it increases the household income as long as either person is still living or until both people have died.

So for example, if you consider myself and my spouse, if you imagine that when we reach age 62, if at that point in time I'm the one with the higher earnings record, if I wait to file, that increases my retirement benefit, and that's relevant for as long as I'm alive.

But if I die first, and she outlives me, her benefit as my survivor will be increased due to the fact that I waited, so when the higher earner waits, it increases the household income while either person is still living. Now when the lower earner waits, it's kind of the opposite situation.

It only increases the household income for as long as both people are still living. So again, in this example, if you take my spouse, if she waits to file for her retirement benefit, if she's the lower earner at that time, then that will increase her retirement benefit. But then if she dies first, that increased benefit is no longer relevant.

And if I die first, she would start receiving a benefit as my survivor. So again, the fact that she waited is no longer relevant. And the key point here is that while either person is still alive is a longer length of time than while both people are still alive.

So when the higher earner waits, it increases the household income for a longer length of time. Sorry, just a very thirsty speaker. All right, now what we can do, this is an illustrative concept, we can think about all of the possible mortality outcomes and group them into four categories.

We have the first corner, where both people live beyond their life expectancy. And in the opposite corner, we've got the opposite case, where both people died before reaching their life expectancy. And then we have the case where spouse A dies before reaching their life expectancy and spouse B lives past their life expectancy, and the opposite case.

So for the higher earner's filing decision, what we want to know is how long will it be until both people have died? Or another way that we can ask that question is how likely is it that at least one person lives past their life expectancy? Because if at least one person lives past their life expectancy, then it will have been a good thing for that higher earner to have waited.

So in which of these four cases does at least one person live past their life expectancy? We've got this one where they both do, this one where spouse B does. Sorry, a bit of a delay with the clicker here. And this one where spouse A does. So in other words, there's about a three out of four chance that at least one person lives past their life expectancy.

And that's why it's generally a good idea for that higher earner to wait to file. But then when we look at the decision for the lower earner, now we have to ask the opposite question. How likely is it that at least one person dies early before reaching their life expectancy?

Because if that happens, at least one person dies early, then it will have been advantageous for that lower earner to file early. So in which of these four cases does at least one person die early? Well, these three. Every case other than the one in which they both live past their life expectancy, right?

So there's about a three out of four chance that at least one person dies before reaching their life expectancy, and that's why it's generally advantageous for that lower earner to file earlier. And that's why we get this rough draft plan, where the higher earner waits until age 70, and the lower earner files somewhat earlier.

But again, there are exceptions. There's the case in which you have a minor child or adult disabled child, same idea as before. That can be a point in favor of the higher earner filing earlier so that that child can receive child benefits on that person's work record, starting at an earlier point in time.

There's the case where the lower earner is younger than full retirement age and still working, then we have to concern ourselves with the social security earnings test, which we're not going to get into all of the rules, but it's a compelling point in favor of that lower earner waiting at least until the year they reach full retirement age or the year in which they stop working.

And then we have the case in which either person has a government pension from work that wasn't covered by social security tax, so a job where they didn't have to pay FICA taxes, because then two additional sets of rules kick in, windfall elimination provision and government pension offset, and we're not going to dig into the details of those either.

But that can be a compelling point in either direction, filing earlier or later for either person. So it can push the math either way for either person. So it's especially complicated, so in those cases it is helpful to use a calculator. Again, open social security does account for that.

The other good calculators do to maximize my social security, social security solutions. They both account for that, but it's important to use something that will actually do the math that's specific to your household. Another possible exception is if both people are in very poor health, then it makes sense for the higher earner to take their filing date and move it somewhat earlier.

Or the opposite case, if both people are in really good health or you're just concerned about longevity, you can take the lower earner's filing date and push it later. And then we have tax planning. Tax planning is usually a point in favor of delaying, but it can go in either direction.

And so that brings us back to our three major factors. We've spent a lot of time talking about actuarial math. We're going to talk more briefly about longevity risk and tax planning. So longevity risk, again, it's just the chance of outliving your money, right? The idea that the longer you live, the more likely you are to deplete your portfolio.

And it's usually a point in favor of waiting to file for your benefit, right? Because the longer you live, the more helpful it will be to have that larger social security benefit that's going to last a whole lifetime. However, something I see with a fair number of bugle head households, frankly, is that there's already no longevity risk, almost.

Because the amount that they want to spend per year relative to the level of assets they've already accumulated, they're just not going to spend down their portfolio during their lifetime. It's just extremely likely that a good chunk of it is going to go to their heirs. And so in those cases, longevity risk, it's just not a big factor in the decision.

It's not something we really need to think about. And then we have tax planning, which usually is a point in favor of delaying. And that's for two reasons. Reason number one is that social security benefits are always at least partially tax-free. At least 15% of your social security income is tax-free.

And if your income is below certain thresholds, more than 15% will be tax-free. So, for example, if you spend down a traditional IRA in order to fund your living expenses while you wait to file for social security, what you're doing is giving up future growth in that traditional IRA, right?

So you're giving up income that would be fully taxable. And you're getting more social security income that is at least partially tax-free. And usually that's a good tradeoff. And the other reason that tax planning points in favor of delaying in most cases is that it gives you more time to take advantage of Roth conversions.

And we'll talk about Roth conversions next. But they're most often advantageous in the years after you have retired, but before social security has started. So when you push that social security start date back further into the future, that expands that window of time. It gives you more years to do Roth conversions.

And the way I actually do this for clients when they come to me and ask this question is, step number one, put it into the calculator. It's, you know, easy. It only takes a few minutes. And it will tell you the actuarially best strategy. But then we have to remember those other two factors.

We have to ask, okay, well, what about tax planning? What about longevity risk? And is there a compelling reason from either of those two points of view to do something different? And usually that something different would be for the lower earner to wait longer or if it's a single person to wait longer.

And so the next step is to go back to open social security and see what happens when we do that. So what happens when we take the lower earner's filing date and push it somewhat later? Does the expected present value change? It will. But sometimes it goes down by a tiny amount, 1%, 2%.

And when that's what happens, what the calculator's telling you is basically from a life expectancy math point of view, this lower earner's filing date, it's just not that important. And so it frees you up to make the decision from a tax planning point of view or a longevity risk point of view.

It frees you up to go ahead and have that person wait. But other times what you'll see is that when you take that lower earner's filing date and push it later, the expected present value just nosedives, right? It goes off a cliff. And that's most often the case when there's a big age gap between the two people or if one of the two people is in particularly poor health.

And what it's telling you then in that case is, yes, it really does make sense to have this lower earner file earlier. So that's it for social security. Next up, we're going to talk about Roth conversions. Just one second. All right. So should you be doing Roth conversions during retirement?

Just to make sure that we're on the same page about terminology, you know, what's a Roth conversion, a Roth conversion is when you take money from a tax-deferred account and you move it over to a Roth account. So for example, you're moving money from a traditional IRA over to a Roth IRA.

And when you do that, the money that you convert, the money that you move over, it's generally taxable as income in the year that you do the conversion. So why would you do that? When would you do that? The idea is basically whenever you have a temporarily low tax rate, it makes sense to do a conversion.

Pay some tax now, right? Move some money from traditional to Roth now. Pay tax at your temporarily low tax rate so that you won't have to pay tax later at a higher tax rate. Because from now on, this money is going to be in Roth. So whenever it comes out later, it's going to be tax-free.

So very succinctly, if your current marginal tax rate is less than the future marginal tax rate, well, hang on. There we go. Do a Roth conversion. But there are a whole bunch of caveats, a lot of other things to consider in this analysis, things that make it more complicated than people often expect.

Sorry, I think we got a battery issue here. Maybe I'll just stand here. All right, the first thing is that this isn't a binary decision. It's not a decision where we're choosing between convert none of the IRA or convert the whole IRA this year. That's not what we're choosing between.

Most of the time, what it makes sense to do is convert a portion of the IRA this year and another portion next year and another portion next year. And in many cases, we still don't convert the whole IRA. You're only doing a chunk of it over several years. So in theory, this is a dollar-by-dollar analysis that you're repeating every single year.

And often, the answer is that it makes sense to do conversions up to a particular income threshold each year. So for example, right, because there's all these things in our tax code where as your income goes up, your tax rate goes up, too. And so often, we pick a particular threshold and say, all right, up to this threshold, I would be paying these low tax rates on conversions.

And that seems like it's probably advantageous. But above this income threshold, I would be paying a higher tax rate, and that seems less advantageous. So we're going to do conversions to bring my income up to this level. Another important thing to keep in mind is that your marginal tax rate is not necessarily the same thing as your tax bracket.

A lot of people make this very understandable assumption. You know, for example, if you're in the 22% bracket, people often think, well, I must have a 22% marginal tax rate. But that's not how it works because there's a whole ton of things in our tax code where as your income goes up, for example, if you are in that 22% bracket, as your income goes up, you've got your 22% tax increase from your tax bracket.

But then you've also got something else happening, right? Like you're becoming ineligible for a particular deduction or a particular credit because your income has crossed whatever threshold applies here. And so when you account for this factor and this factor, your total marginal tax rate is more than just that 22%.

Now, there's some things that can cause this to happen that are pretty common for retirees. Number one is the premium tax credit. That's anybody -- for anyone buying insurance on the Affordable Care Act exchange. So it's especially relevant for anybody retiring before 65. So before you get access to Medicare.

And the way that credit works is that as your income goes up, the credit goes down. So if you're buying insurance on the exchange, and this applies to you, your marginal tax rate is more than your tax bracket because every additional chunk of income is causing that credit to shrink.

The way that Social Security benefits are taxed also causes this sort of effect. Medicare IRMA, that's income-related monthly adjustment amount. Those are just the rules for determining your Medicare premiums. The way it works is when your income crosses certain thresholds, your Medicare premiums jump upwards. So at those particular thresholds, your marginal tax rate is way higher than just your tax bracket.

The 3.8% net investment income tax causes an effect like this. And essentially anything in our tax code that phases in or phases out based on your income, it's going to cause an effect like this where your actual marginal tax rate is something different than just your tax bracket. And the reason I am spending so much time on this, the reason I'm harping on it is that a lot of people -- what I see a whole lot is people taking a DIY approach to this analysis, which is cool because we're bogleheads, we're do-it-yourselfers.

But they also take a DIY approach to the actual tax calculations. They try to do it in a spreadsheet, something like that. And I'm a CPA, so I love spreadsheets. I mean, I use Excel every day, and that truly includes weekends. But -- I'm not joking. And it's just not the right tool for this job.

Because when people do the math in a spreadsheet, they almost always leave out one of those other factors or more than one of those other factors. And so you see this situation where you've got a person who spent all of this time doing this analysis, and they expected to pay tax at this rate on the conversion, and they paid tax at this rate on the conversion.

And so they sunk all of this time and effort into it and did as much harm as it did good. And that's just insane. So don't take a DIY approach to the tax calculations, please. But the good news is that there's tax software that does this. It's good software out there.

Income strategy is one. It's not free, but it's not super expensive either. It's by two very well-respected experts in the field, or even, frankly, just TurboTax or something like that. There's a good chance you're already paying for it, right? And even if you aren't, it's not very expensive. And it has an extremely sophisticated tax calculation built into it.

That's largely what the software does. And so you can basically just prepare a hypothetical return, right? Say we expect this much of this type of income and this much of this other type. And then what if we did a $10,000 Roth conversion? And you see, this is how much my tax has changed.

So you can see what your actual marginal tax rate is for that amount of income. And then you bump it from a $10,000 conversion to a $20,000 conversion and see what your tax rate would be on that next chunk of income. And it'll actually do this math for you in a reliable and accurate way.

Another important thing to keep in mind is that for a married couple, the marginal tax rate for the household often goes up after either of the two people has died. And the reason for this is that the standard deduction for one person, for a single filer, is half of what it is for a married couple filing jointly.

And the tax brackets have half as much space in them for a single filer as for a married couple filing jointly. But when one person dies, the household's income falls by less than half because it's the smaller of the two Social Security benefits that goes away. And the income from the portfolio really doesn't change.

You've still got the same interest and dividends and RMDs coming in. So you've got a situation where you've got half the standard deduction and half the space in the tax brackets, but more than half as much income. And so you often, not always, but often have a case where that surviving spouse now has a higher marginal tax rate.

And so the implication here is that it often makes sense for a married couple to prioritize doing Roth conversions while both people are still living. And our last caveat here on the topic of Roth conversions is that the future tax rate that we're talking about might not be your future tax rate, right, because we're always asking what is the current marginal tax rate that you would pay on a conversion and how does that compare to the future tax rate, which is the tax rate that will be paid on these dollars later whenever they come out of the account later if you don't convert them right now.

And when you're doing that comparison, that future tax rate could be somebody else's. It could be the tax rate that your heirs would pay on distributions from an inherited traditional IRA. Because for a lot of people in this room, it's pretty likely that you aren't going to completely spend down your traditional IRA and 401(k) and other tax-deferred accounts during your lifetime.

And so the Roth conversion decisions that can make sense for one household might make no sense for another household just purely based on the difference in the beneficiaries of their accounts, right. So if you imagine Household A and Household B who have identical finances, but Household A has one child and she is an anesthesiologist, very successful, really high income, she's probably going to pay a really high tax rate on distributions from that inherited traditional IRA.

And then if we imagine Household B over here and they've got four kids, so the tax-deferred accounts are going to be split up among four people, which means the distributions themselves will be smaller and therefore less likely to push the beneficiaries into higher tax brackets. And if we imagine that the four kids are in careers with more modest levels of earnings, they're probably going to pay a considerably lower tax rate on those distributions from the inherited traditional IRAs.

So even though the parent households have identical finances, you know, the Roth conversion decision that makes so much sense over here and is a clear and obvious win might make no sense at all for this household over here. And to the extent that you're going to be leaving your tax-deferred dollars to charity, the future tax rate is zero, right, because tax-exempt organizations are tax-exempt.

So if they inherit a tax-deferred account, they don't have to pay tax on it. And so quick tangent, if you are considering leaving money to charity, these are the dollars to leave to charity because if you leave a traditional IRA to your kids or your grandkids, they only get to spend however much is left after taxes, whereas if you leave it to a charity, they get to spend the whole amount.

So if you're doing that, then however much ends up going to that charity, that future tax rate is zero, which therefore means that Roth conversions probably don't make very much sense, right, because the whole point of a Roth conversion is pay tax now so we can avoid the future tax rate.

But why would you pay any tax now to avoid a 0% future tax rate? It makes no sense at all. So that brings us to key decision number three, which is which accounts should I spend from every year? And in this discussion, we're going to be assuming that there's three accounts, really.

There's tax-deferred accounts or three types of accounts, tax-deferred, Roth, and taxable accounts. And I know we were talking about HSAs just in the last session, but at least for most people, the overwhelming majority of the assets are in these three accounts. So we're just going to limit it to these.

And let's start with an example where you're trying to figure out which dollars to use for your next $1,000 of spending this year. And let's imagine in this example that you have not yet used up the standard deduction this year. So your income so far this year is less than the standard deduction amount, which means that if you took the money out of a traditional IRA, it would be tax-free.

And that sounds like a pretty good time to take the money out of your traditional IRA to spend it. So we're basically rigging the example, admittedly, to make tax-deferred spending look good. So that is option A. Spend $1,000 from your tax-deferred account. Option B is to spend $1,000 from a taxable account.

Just imagine it's coming out of your regular checking account. And at the same time, do a $1,000 Roth conversion. Now, there's a lot of things that are similar between option A and option B. Firstly, in both cases, you wanted to spend $1,000, and you did, so thumbs up. They both win in that regard.

And in both cases, you created $1,000 of income that's going to show up on your tax return, your Form 1040, but $0 of actual tax because that income just got offset by the standard deduction. And in both cases, you've got $1,000 less in your tax-deferred account than you did a minute ago, right?

Because with option A, we spent $1,000 for that account. And with option B, we moved $1,000 from tax-deferred to Roth as the Roth conversion. So that is the same between option A and option B. They have a lot in common. So what's different? What's different is that with option A, you're left with $1,000 in your taxable account.

You didn't spend anything from your taxable account. So you have $1,000 more in that checking account. With option B, you have $1,000 more in your Roth account because you did spend that money from checking, but you also moved $1,000 from tax-deferred to Roth. And it turns out, that's the only difference between option A and option B.

In the one case, you have more money left in a checking account. And in the other case, you've got more money left in a Roth IRA. It's better to have more money in a Roth IRA. That's just how this works. Roth IRAs, if you invest that money, it's going to get to grow tax-free.

Whereas, if you took that money that's left in the checking account and invest it, you're going to be paying tax on it. So option B strictly beats option A. And in this example, we're just talking about $1,000 of spending, and we're talking about this very low 0% tax rate.

But the same exact thing applies when we increase the dollar amount, so we increase the tax rates. So for example, now we're talking about taking $100,000 out of your tax-deferred account to spend. And in this example, let's imagine that you have a 25% tax rate between federal and state across that $100,000 of income.

So that means you actually get to spend $75,000 because $25,000 went to taxes. So that's option A. Option B, spend the same amount, but it just comes out of a regular checking account, taxable account, and do a $100,000 Roth conversion, which again, because we're assuming this 25% tax rate, it's going to result in $25,000 of taxes, and we're going to have that money come out of the checking account also.

So in both cases, you actually spent $75,000. So they're the same in that regard. And in both cases, you've created $100,000 of income that's going to show up on your tax return, and you paid $25,000 of taxes. And in both cases, you now have $100,000 less than your tax-deferred account, than you did beforehand, because with option A, you took that money out to spend it, and with option B, you did the Roth conversion.

So what's different? It's the same thing. What's different is that with option A, you have a whole bunch of money left in your taxable account, the checking account, because you didn't spend it. And with option B, you've got a bunch of money in a Roth IRA. And again, option B wins in the exact same way and for the exact same reason.

And over a few years of spending, this makes a really big difference. You can have a bunch of money in a regular checking account or a bunch of money in a Roth IRA, and the Roth IRA is better. Now, I know a lot of people are probably thinking, okay, cool, but I don't keep like years worth of spending in a checking account, and that's normal.

But what we're talking about here is not only spending the money that's in your checking account right now, we're also talking about spending any money that's in a savings account, as well as anything that automatically shows up in your checking account. So if you're still working or if your spouse is still working, presumably that money shows up in your checking account, and that's some of the most tax-efficient money to spend every month and every year.

Same thing with Social Security benefits. It's getting paid into your checking account, and that's some of the best money to spend every month and every year. If you have a pension or an annuity, it's showing up in your checking account, and that's some of the first most tax-efficient money to spend.

Interest and dividends from holdings in a taxable brokerage account, it often makes sense during retirement to turn off automatic dividend reinvestment, have that money sent to your checking account, because it's some of the best money to spend from a tax point of view. RMDs, it's money coming out of tax deferred, shows up in a taxable account, that's some of the best money to spend.

And in fact, it also makes sense to spend any assets in a taxable brokerage account where there's unrealized losses or only very modest unrealized gains. So basically, anything where if you sold it, you wouldn't have to pay tax or you'd only have to pay a tiny amount of tax.

And so, just to reiterate, the whole idea here is that before spending anything at all from a retirement account, you want to spend any assets from taxable accounts where you wouldn't have to pay any additional tax to spend those dollars. And then if you still have low tax rate space that isn't being used up because you aren't taking money out of a tax deferred account to spend it, fill up that low tax rate space by doing Roth conversions.

Now, of course, in a lot of years, you're going to spend all of those checking account dollars and still need to spend more. So it will have to come out of a tax deferred account or a Roth IRA. And so, in those years, the general analysis is to ask how does your current marginal tax rate, so the tax rate you would pay taking the money out of a tax deferred account, how does that compare to the future marginal tax rate?

If your current marginal tax rate is less, you take advantage of that low tax rate by spending from tax deferred. And if your current marginal tax rate is higher, you spend from Roth, the idea being my tax rate right now is high, so I'm going to try to keep my income low by spending from Roth.

Now, what you might notice is that this math comparison we're doing, current marginal tax rate compared to future marginal tax rate, it's the exact same comparison we were doing for Roth conversions. The math is exactly the same, and so all of the same caveats and extra considerations, they apply in just the same way.

Number one, it's not a binary decision. You're not usually choosing spend only tax deferred this year or spend only Roth. It often makes sense, spend from tax deferred up to a particular income limit and then spend from Roth, so in many years, that's what you're going to be doing.

And we have to remember that your marginal tax rate is something different than just your tax bracket in many cases. So please, please, please don't DIY your way into the tax calculations, use tax software, which is very affordable and available, and we have to remember that for a married couple, the marginal tax rate often goes up when either of the two people dies.

And so that can be a point in favor of spending from tax deferred while both people are still living. Take advantage of the relatively lower tax rate at that time. And finally, we need to remember that the future tax rate in this comparison could be somebody else's. To the extent you're leaving these dollars to somebody else at your death, the future tax rate is not your own, but it's the tax rate that will be paid by whoever you're naming as the beneficiary of these accounts.

So just to reiterate the whole plan here, because I know it's not the most intuitive thing in the world. Taxable assets are the first priority for spending every year. And that includes anything in your checking account, everything that automatically gets paid into your checking account, anything in a savings account, and any taxable brokerage assets where you wouldn't have to pay very much tax to sell them to use them for spending.

So in other words, it's everything in that taxable category. Other than holdings that are already highly appreciated. So things that have already gone way up in value since you bought them. Those ones you generally want to try to hold on to. And ideally, never sell them at all, if that's plausible for your circumstances.

Because then if you leave them to your kids or grandkids or whoever it is, could be a charity, really anyone, they get a step up in cost basis and then all of that appreciation ultimately goes untaxed. So step one, spend everything from taxable other than those things that are already highly appreciated.

And then if you still need to spend more than that in a given year, then when your current tax rate is high, spend from Roth. And when your current tax rate is low, spend from tax deferred. And then when you're following this strategy, if in any given year you have low tax rate space that you haven't yet used up, because you're not spending from tax deferred accounts, use up that low tax rate space with Roth conversions.

Because then you're going to be left with more money in Roth. And that's really it. Those are the three questions I wanted to talk about. So we've still got some time for questions. >> Okay, I'm Lady Geek. Okay. My, sorry, my perspective, when I talk, post things in a forum, I always take the perspective of a new ambassador.

One thing that's screaming to me is that we have a lot of people, new people here who probably do not understand what a Roth conversion is. And what my big fear is that doing the wrong thing can be worse than doing nothing. Don't mess with the IRS is a thing we always follow.

So if you don't understand what these two words together mean, first of all, okay, push the boatheads wiki, there's a Roth IRA conversion. But if you don't do this correctly, we receive a lot of people posting in the forum, not a lot, but significant numbers saying, I messed up my Roth conversion.

So please be careful. And this is not something, I would call this more like an advanced type of investment. People just starting out, I think you can ignore Roth conversions. Because if you don't understand them, maybe later you can understand them. But be safe and stick with what you know first.

Under, never invest in anything you don't understand. So I'm just putting a big caution flag here that this is something that, all right, do I have to understand Roth conversions? No. It might not save you that much anyway. In theory, yes. In practice, maybe not. You don't know what you'll be paying in the future.

Okay, so that being said, also in the boatheads wiki is a tax estimation tools page for this. You want to know, I personally use H&R Block. I just throw everything in my tax software. I can do spreadsheets, the retiree portfolio model to do Roth conversions. No. Put it in your tax software and give it your best shot, run a few sneers.

It's just going to sense and just watch how much your refund or balance due changes. That's all you need to know is what's your bottom line. And the third thing is, which account to spend from is that you have to be careful on your own situation. Say I post in a form for my mom for managing my mom's account in the personal investments.

I create an investment policy statement. But in her situation, she has a very large medical expense, qualified medical expense under memory care. That is huge. I am taking that as a tax strategy to put it as a medical deduction. That will allow me to draw down from her traditional IRA with minimal tax impact.

And I want to draw it down for errors. So be careful, use your tax planning software as your guide. So I'm playing games because I'm modeling this in tax software. So her number one priority for draw down is the traditional IRA, not the taxable account. And I will be doing a Roth conversion so I can take it, you know, play games like that.

>> Yeah, just going to highlight, but that's the exact situation. >> Yes, yeah. And it's the exact. >> Spend, use that deduction. >> Yes. >> To offset the Roth conversion income. >> Yes. >> Spend from that taxable account. >> Yes, yes. >> Yeah. >> So I just say just, and Bogleheads Wiki is a great place.

Getting started. >> Absolutely, yes. Good shout out to the Bogleheads Wiki. And it's a, sorry, yes, absolutely, worth applauding. And Lady Geek is absolutely right that Roth conversions, make sure you understand the concept, you know, what this is, how to do it, what the implications are going to be.

Take your time with it. Don't rush that decision, absolutely. >> My question is also about Roth conversions. I've been doing them, trying to fill up a low tax bracket, and we are in a situation where we won't necessarily have heirs, we don't have children. So unless it goes to our lucky nieces and nephews, most of it, assuming we don't spend it all on travel, we'll probably go to charity.

But I have been doing the Roth conversions more with the, knowing that charity doesn't have to pay anything. The only other reason I could find was that if we do the Roth conversions now, we would possibly lower our future RMDs. Is that good, good thinking? >> Yes, it's absolutely true.

Roth IRAs don't have RMDs while you're still alive. They have RMDs for beneficiaries of the account. And so that is a point in favor of Roth conversions, that you're reducing your tax deferred accounts. However, an important thing to keep in mind here is that, depending on the household, the RMDs might not be a bad thing, because again, that's the, it's a several-way tie for the most tax-efficient money to spend every year.

So if your desired level of spending exceeds the amount that you're considering as RMDs, plus the other things in that category that we talked about, then the RMDs aren't a bad thing at all. There's absolutely no point in reducing them. But if that's not the case, so your desired level of spending is here, and your RMDs plus Social Security is going to be here, then there is an advantage to reducing them.

However, I would say that it's worth modeling, well, two things here. It's worth modeling how much is going to go to charity eventually, you know, upon your death or your spouse's death. And of course, that's got a million unknown factors, right? We don't know how long we're going to live.

We don't know what investment returns we're going to get, but it's worth modeling that. And then the second thing, though, is we haven't talked about qualified charitable distributions yet, but that is once you reach age 70-and-a-half, and it is age 70-and-a-half, rather than 72, you can have money sent from a traditional IRA, another caveat here, specifically has to be a traditional IRA, it cannot be a 401(k), money sent directly from a traditional IRA to a qualified charity.

And that money comes out tax-free. You don't have to pay tax on it. The charity doesn't have to pay tax on it. And once you're 72, it counts towards your RMDs. So if you're in this situation where you're expecting, oh, my RMDs are so high, and I'm not going to need that money for spending, but you don't plan to leave the money to anyone other than charity anyway, it probably makes sense to just use that money for QCDs, Qualified Charitable Distributions, and not worry about the fact that there's RMDs, because you're planning to leave the money to charity at some point, so you can just give it to them now, and I wouldn't really -- it's hard to say without knowing all of the analysis, but it's pretty likely that if you're okay with doing Qualified Charitable Distributions, and you're leaving the money to charity upon your death, Roth conversions are likely not a great idea going forward.

>> Hi, Jason Lynch from Detroit. Shout out to Detroit Chapter. One comment is, buy your tax software around Black Friday, so you can do your hypothetical tax preparation before end of year, and then maybe make that additional Roth contribution a DAF -- or Roth conversion, DAF contribution. I have a question, though, for Mike on Social Security.

It's hypothetical. Imagine there are triplets. Everything is identical. Earnings, lifestyle, everything. If one claims at 62, one about full retirement age, and one about age 70, if Washington changes the rules, do you think they'll generally be treated the same, or would maybe the early claimer get a benefit because they claimed early, or are they close enough that it probably -- any changes won't affect them differently?

>> I would be very surprised if any changes are not based on birth year. If they're based on, oh, you've already filed, so we're not going to change yours, and you have filed -- or, I mean, you have not filed, so we are going to change yours. But legislation is hard to predict.

I mean, when I talk to other tax professionals, all of us, every person I've ever asked this question was shocked by all the various changes included in the Tax Cuts and Jobs Act. I don't know anybody who had it on their list of things that they were expecting, that the standard deduction was going to be doubled and exemptions would go away.

No one, no one I know was, like, including that in their, yeah, this will probably happen analysis. Similar thing here. It's really -- I can't -- I don't know what Congress is going to do. My guess would be that it would be based on birth year. If nothing else, that's pretty darn easy to implement.

It's pretty easy to explain. So those are both points in favor of the legislation that way, but I don't know. >> Hi, my name's Dave Hamilton. I'm from Brookfield, Wisconsin. You know, you touched on IRMA, and I thought I would elaborate on some things that I've learned, mainly the hard way.

And with IRMA, as you said, it's surcharges for your Medicare premiums. And there are several tiers to that, four or five tiers. And if you go over that income tier, you're going to be paying a premium. And one of the key things to remember is if you go even $1 over, you're going to be paying the full premium for that bracket.

And so one of the things that I found important while I'm deferring pension and Social Security and all that stuff is to very carefully track my income, and it has to be your modified adjusted gross income. So your adjusted gross income plus municipal bond income, basically. And then doing my Roth conversion up to that IRMA level.

And if I go -- if I'm forced to go over that IRMA bracket, I might as well go up to the top of that bracket and take advantage of it. So these are -- and this IRMA modeling usually doesn't come out in things like TurboTax. >> Right. >> And so you have to model this by hand.

Keep very careful track of your income if you're going to do these Roth conversions and things to be able to take full advantage of it. So I just wanted to comment on that. >> Yeah, that's an excellent point. Thank you. TurboTax, when we're talking about what's my marginal tax rate on a conversion or on distributions that I'm anticipating, it's only looking at taxes.

Medicare IRMA, I can consider it essentially just, you know, a piece of that marginal tax rate, but it isn't going to be modeled by TurboTax. You're absolutely right. So you'll have to include that on your own manually. If you're using tax preparation software as opposed to retirement planning software.

>> Hello. >> Could you repeat that? >> Okay. >> Retirement portfolio model spreadsheet? >> Yeah. >> Okay. Look it up. Excellent. >> Okay. Yes. My name is Brian Polges from San Diego, California. And I'm the one that prematurely asked the Social Security question yesterday of you. But now it's not premature.

And you did -- and the part of your presentation I was interested in was where you were talking about if your partner or spouse is younger. So mine is seven and a half years younger. And also when there's a large income disparity, mine is the higher income by quite a bit.

And I was really interested in that four box thing that you put up. Could you speak more about that please? >> Sure. For the higher earners filing decision, the life expectancy we're concerned with is the second to die joint life expectancy. So how long will it be until both people have died?

And so the younger that your spouse is relative to you, the longer that life expectancy. And so that's a part of -- it makes it more advantageous for you to wait to file the younger your spouse is relative to you essentially. Is that -- >> Yeah. The part -- I understood that.

But for the younger spouse, could you speak to that? >> Okay. Great. So for the younger spouse now we're concerned with the first to die joint life expectancy. However, it's -- and by definition that is a shorter life expectancy than the second to die joint life expectancy. However, the -- that takeaway that the younger your spouse is relative to you, the more advantageous it is to delay, that's still true.

So you're both older and the higher earning spouse. Okay. So for the younger earning spouse or for the lower earning spouse, it's generally advantageous to file early. The fact that you're older relative to her or him makes it even more advantageous for your spouse to file early. >> Oh, to file early.

>> Correct. >> Okay. Thank you. >> Yep. >> Thank you so much, Mike. That was absolutely fabulous.