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Coon Rapids, MN 55433

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763-231-2760

In 1992, Roger Kruse (advisor and founder of FFP Wealth Management) began the endeavor of building a tax planning tool for the benefit of his clients. When offering tax advice, Roger wanted be able to illustrate the benefits of his proposed tax strategies in a clear and direct manner. After almost 20 years of continuous development, the latest version of the Tax SuperSheet™ includes over 70,000 cells of data and calculations, and has set a new standard in the tax and financial planning industry.

It is no secret that tax deferral does not eliminate income taxes. Tax deferral simply pushes the accounting for income taxes into the future. Many of the modern tax deferral plans find their root in the 1970’s. Many investors are surprised to learn that the top income tax rate was 70% when the IRA was “born”. It was at this time that Americans wholesale bought into the concept of tax deferral based on the hopes that the rate paid in the future is less than the current rate. Were it otherwise, there would be no benefit and could potentially leave investors worse off when using tax deferral.

Through the years, Congress continued to expand the options to defer income to include annuity contracts, savings bonds IRAs, 401ks and all of the other tax deferred retirement plans. Few noticed the impact that lower tax rates have on tax deferral strategies when Congress lowered the top rate to 28% in 1983.

Prior to 1984, social security benefits were tax free. Determining the tax on a distribution from a retirement plan became even more difficult to calculate when in 1984; the provisional income test was added to the tax code. This test determined if up to 50%of the Social Security benefits of the “wealthy” would be treated as income. This test was updated in 1994 for the inclusion as taxable income of up to 85% of social security benefits of the wealthy. For the record, in 1984 the wealthy included single retirees who earn over $25,000 in retirement or married couples earn over $32,000, each including ½ of their social security. The numbers have never been indexed for inflation.

What this means for most retirees is that an IRA distribution, taxable by itself, could also increase the taxable social security by up to 85% of the amount of the distribution. Yes, you might have to pay tax on $18,500 to withdraw $10,000 from a retirement plan or income any from any other source. Confused? Sometimes we think that this is the IRS’s goal! The bottom line is this; retirees are likely to experience a tax shock unless the right tool is used to plan in advance of adding income and seeking alternatives once they begin to collect social security. We think the IRS is hoping retirees ignore their personal tax situation when taking a distribution from retirement plans.

Let’s face it; understanding income taxes at any age is confusing. Making the matter worse, The IRS has a language of its own (link to case.) This means that you have to be taught IRS Speak to even begin to investigate the impact that income or estate tax planning strategies could have on income, exemptions, adjustments, deductions, credits and current and future income tax liabilities.

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