Make It Last – Ep 39 – Tax Reform Deep Dive for Retirees

This week, Victor takes a deep dive on the new tax law, especially the way it affects retirees. Only 30 minutes in this show, so if you want more information, register for an upcoming workshop by subscribing to our newsletter at

Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and elder law attorney and Certified Financial Planner™. Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.

For more information, visit Medina Law Group or Private Client Capital Group.

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Make It Last – Ep 39 – Tax Reform Deep Dive for Retirees

Click below to read the full transcript…

Bert:  Welcome to Make It Last, helping you keep your legal ducks in a row and your nest egg secure, with your host, Victor Medina, an estate planning and elder law attorney and certified financial planner.

Victor J. Medina:  Hey, everybody. Welcome back to Make It Last. I’m so glad you could join us here this Saturday morning. I am thrilled to be hosting this show because I’m going to be talking a lot about the new tax reform.

Last week we hit a general overview, just did a little bit of the throat clearing kind of episode, wanted to make sure that we were all on the same page welcoming you back to the new year, but this week, this week we’re going deep, deep, deep on the new tax reform. You might want to call it the Trump tax reform or the Tax Jobs Act. [laughs]

We’ll give you all of the details on it, but I am going to go as deep as I can on what this law means for retirees because there’s a lot of information out there. There’s new rules that are for businesses, so we are definitely counseling some of our clients on that, but when it comes to what it means for retirees, just really what a sweet spot of this show is, you are my audience.

You people that are focusing on retirement and retirement planning. What does it mean for you? That’s going to be an important piece of information for you to have. We’re going to go deep on it in this show, but we only have 30 minutes.

One of the things that I want you to think about is whether or not you want to join me at a workshop that I’m going to be hosting later in the month. It will give you an opportunity to learn a little bit more. I got to be upfront with you and say it’s going to cost a little bit of money, 5 to 10 dollars for you to attend. Just so that I don’t have to pay for the room out of my own pocket.

If you’re interested in learning more, we are going to be advertising these workshops to our clients, and our planning partners, and to those people that are in the community that know us. This could be a good opportunity for you to join us if you’re interested in learning a little bit more detail. It’ll also give you a little bit of a flavor of what it’s like to work with us if you were a client.

If you are somebody that’s interested in legal and retirement planning, investment management, insurance, whatever that is that makes up our client audi, this would give you an opportunity to see whether or not you’d like working with us directly. You get to hear me in person, certainly ask any questions that you’ve got. It’ll give you a nice flavor for that.

As I’m saying, there’s only 30 minutes in the show. In fact, there’s less than that with the commercials, so [laughs] we got to make sure that we get through as much as we can in this short amount of time. We’re going to be focusing on retirees and what we can do with that. Let’s not waste any more time. Let’s jump right in.

First thing I got to tell you is that it has been a while. This is what we call the Tax Cut and Jobs Act. That was passed in December, signed into law right before Christmas holiday. It is the first major overhaul of the tax code since 1986.

If you grew up in this area, and if you are a Boston fan, which I am, ‑‑ I don’t want to turn anybody else off [laughs] on the show, I root for the Boston teams and the Patriots; I also root for the Red Sox ‑‑ in 1986, we had a little World Series there, but it’s not anything I really want to remember.

1986, which is 31 years ago, I looked up some facts. The average cost of a new car was $9,200. I got to say, I’m not sure I would trust a used car…That was a new car, $9,200. I don’t think I would trust a used car at $9,200, certainly not to drive me and my family around.

In 1986, “The Oprah Winfrey Show” debuted, which I think is totally timely, given her speech at the Golden Globes and the fact that she’s been in the news. The NBA’s most valuable player was Larry Bird. That was the year that IBM unveiled the first [laughs] laptop. It will give you an idea that it’s been a while. It’s been a while, so you got to get the trip to memory lane.

Is it something that was long overdue? I think regardless of your political beliefs or politics, there’s probably some need to overhaul the tax code. Even Albert Einstein is famous for saying that preparing his tax return is too difficult for a mathematician. It requires a philosopher. [laughs]

People think about the tax code as being complicated. I certainly am happy to be giving professional advice along the way, but, if I step back from the thing that people pay me for and say, “Really, what ought we be doing?” we should probably be taking a look at this and updating it.

How did we get here? The political roadmap is a little bit convoluted. For weeks, even months, tax reform was consuming the news cycle. I think, while it was on the TV, many of us are not aware of the complications or the process behind it all happening. It’s a seven‑step process. Step one was the House Ways and Means Committee passes a bill.

Step two is the Senate Finance Committee passes the bill, so here we go. This is the two houses of Congress. They each, on their subcommittees, for Ways and Means and Finance, they pass their bill. Then, it goes to the full House to pass its bill, and then the full Senate to pass its bill. If you listened to prior shows, you realize that they passed different bills.

Then, you get a conference committee made up of individuals from both the House and the Senate to hammer out differences and agree on one version. Then that goes back to each of the House and the Senate to be passed. While that’s, strictly speaking, step number six, it actually became three steps because the House passed it, the Senate passed it, and then the House needed to pass it again.

Then it gets signed into law, which it was done on, I think, December 19th. That’s the process for what needs to happen. Now, many of you may have heard this term reconciliation being tossed around. It’s not any form of a prayer, [laughs] although most of us probably would agree that Congress could need our prayers. It takes 60 votes in the Senate to move anything forward.

That’s because without 60 votes the other side can filibuster, which is basically this procedural tactic to prevent a bill from ever leaving the floor and being voted on, but there’s a little loophole.

The loophole basically says that something can be approved with just a 51 vote majority as long as it concerns one of three possible things ‑‑ federal spending, government revenue, or the federal debt limit. That’s what they call reconciliation.

Believe it or not, for all of the partisanship that we’ve seen over the years, it’s been used seven times since 2000. One of those little bitty bits of legislation that was passed in reconciliation was Obamacare, the Affordable Care Act. It allows you an opportunity to just get to something that moves the government forward as long as it concerns spending.

In this case, it’s full circle. This is politically agnostic. In 2009, a Democratic‑controlled Senate used reconciliation to pass Affordable Care Act without a single Republican vote. In 2017, the Republican‑controlled Senate used the same tactic to pass the tax reform without a single Democratic vote.

For whatever you say, [laughs] this is where we’re at with it. Because reconciliation was used, we could get by with 51 votes. Basically, the country could get by with 51 votes as long as you did not lose more than $1.5 trillion in government revenue over 10 years, and it didn’t lose any government revenue after 10 years. Why does that matter?

The reason why it matters is that a lot of the key provisions that we’re going to be covering do expire within that 10‑year period. That’s the reason why this high school government civics lesson on reconciliation matters to you as a listener. Because reconciliation was used, the bill must do two things.

Victor:  It can’t lose more than $1.5 trillion in government revenue over the last decade, and it can’t lose any government revenue after 10 years. The provision that we’re going to cover are going to expire within 10 years, meaning that they, in fact, are not permanent.

Let’s take a break here. That’ll get us where we are. When we come back we’re going to dive into the key provisions of the bill that will be affecting your finances and your retirement. Stick with us. We’ll be right back on Make it Last.


Victor:  Hey, everybody. Welcome back. We are talking about the new tax rules here in this show. We’re going to be doing a deep, deep dive on all of the new provisions, specifically the way it affects you as a retiree and your finances. It’s important to understand how it impacts us because, as I mentioned in the prior segment, this has not been overhauled since 1986.

We have had some reasonable degree of confidence on how taxes are going to be calculated and how it’s going to affect us. Basically every year we’ve been able to see the turns in the road coming up ahead of time. In fact, I can tell you stories of us doing preplanning for folks in their tax world, part of their finances and their legal planning that they’re doing with us.

We’ve been able to do it ahead of the curve for years now. We’ve been able to project out with some degree of certainty exactly what their tax planning looks like. Whether they were covering IRA distributions and conversions, Roth conversions, anything like that, we’ve been able to do that with some degree of certainty for a projection for years out.

This turns it on its head. A lot of people were calling us before the end of the year saying, “What should we do?” [laughs] I rightly said, “I’m not really sure yet.” This law takes time to digest and figure out, first of all, what does it mean? Then second, what planning strategies can we put into effect knowing now what it means?

If you were paying attention to the news around the holidays and the first of year, ‑‑ God bless you if you weren’t because you don’t need to be drinking from that fire hose ‑‑ there’s a lot of running around saying, “Should you prepay property taxes? Should you prepay state and local taxes?” Then states were running around and making different rule changes.

Then the IRS came out and said, “Actually, no, unless it’s been assessed at the time.” You got a little taste of what the rush to judgment and the rush to planning lead to. A lot of people cutting checks, not really understanding the impact of AMT, whether an alternative minimum tax, and not really understanding the impact of Medicare premiums.

These are all things that still need to be factored which, by the way, is just a long discussion. This is the reason why you need professional advice in the financial realm, specifically in retirement. A lot of people think, “Oh. Well, jeez, I’m at retirement. I already know where my nest egg is. I really don’t need any more help building it.”

No, you probably don’t need any more help building it. [laughs] You’re going to start using it. How you do that, how you do that smartly. How do you make it last for your retirement is a big part of some important planning that you need to do?

Now more than ever, with the introduction of this new tax law and the way that it’s supposed to work, this is an opportunity for you to seek out a professional advisor who is going to be able to guide you through this process.

Anyway, back to the subject at hand. We’re talking about the new tax cuts. [laughs] There was a cartoon that was released that basically said the 2017 tax cut, also known as the Donald J. Trump Tax Relief Bill. I know, it’s funny.

Let’s talk about some of the key provisions. There are winners and losers in this. If we look at it from a 30,000 foot view, generalized winners and losers. Some of the winners are people who are in the alternative minimum tax. People who have large estates. People who have non‑service related pass through entities.

Talk a little bit what that means. Retail businesses, capital intensive businesses, and US‑based multinational businesses. Those were big winners in this.

The people who are losers in this, if we have to do winners and losers, losers are people who are working, wage two earners, large mortgages or high states taxes, people that have enjoyed the opportunity to deduct their interests on mortgage payments or their state and local taxes.

People who are service pass‑through entity ‑‑ attorneys, accountants, financial professionals. Hello, that’s me. Loser on this. Technology and pharmaceutical sectors, builders, mortgage companies and insurance companies. Those are winners and losers on this, even when just look as a top‑down level.

There was some information that was released, a famous letter. David Trott, a member of Congress from Michigan, the 11th district on December 19th. They released a little information to talk to you about what the tax savings were. The average tax savings will be just over about $2,000 per year as a result of this bill.

Yours could be more or less. Let’s get into that. There are new tax brackets. That the first thing we have to cover. The new tax brackets reduce the amount of taxes that people pay. There are still seven of them, seven of them, but the percentages are both different and lower. That’s arguably the most impactful thing to everyone that’s listening, is that the tax brackets have changed.

The bottom bracket was, before, 10 percent. It still is 10 percent. On income, that should have roughly $9,500 if you’re single and about double that if you’re married. You still have that 10 percent. There’s a lot of retirees who don’t have a lot of ordinary income that they’re already being taxed at 10 percent.

They just get their social security, mainly a modest pension, but they’re not really making more than $20,000 of taxable income. Of course, realize that that taxable income is after all of the deductions which are being impacted by this new law on what’s deductible.

Then we see some changes on the rest of the tax bracket. The next tax bracket used to be 15 percent. It is now 12 percent. Roughly the same general amount of money. About $75,000 if you’re married. Then after that to the next bracket, the next bracket is a 22 percent instead of 25. It’s been lowered about three percent.

What’s important about this bracket is that it was at this bracket that people used to have a marriage penalty where the amount of the single deduction times two was smaller than what the married threshold was. It used to be at around $90,000 for single people and wasn’t 180.

Now it’s $82,000 in and it is 165. You do double that. That’s good that we have the same treatment on single and married or at least a doubling of the thresholds for it. The next brackets are also going down. The bracket after 25 was 28 and it’s now 24. It comes down four percent.

Next bracket after that was 33 and it’s now 32. Then we have the same brackets at 35 above that and then 38 instead 37. We have new tax brackets. Most of the people in retirement are going to see a reduction in their percentage by two or three percent. It’s about what they’re looking at for those numbers.

It continues on for head of household. I just gave you single and married because that’s most of the filing status. If you were me, filing as either head of household or married filing separately, there’s different threshold, but the tax brackets are the same ‑‑ 10, 12, 22, 24, 32 so on and so forth.

What has also changed is the standard deduction. What ends up happening is that now the standard deduction from today through 20 25 is $12,000 for single and $24,000 for married filing jointly.

If you’re able to itemize, of course the itemized amount is great in the standard deduction, you can take that, but we’re going to talk you about whether or not you’re able to itemize. There is an additional standard deduction for people age 65 and over. The additional amount is about $1,600 for single and $2,600 for married.

Let me kind of break that down for you. If we add that together, if you’re over 65, your standard deduction is $13,600. If you’re married, your standard deduction is $26,600. That’s the additional amount for every person that was married or single in 2018 and over 65. It’s what it was going to be for the 2018 in the old law anyway, but those are the combinations of it.

There are deductions that are essentially sunsetting.

Victor:  What we’ll do is we’ll take a break and when we come back we’ll talk a little bit about the deductions that are sunsetting, the AMT, state and local taxes, mortgage interest, medical deductions. Strap in, this is your time. Get a quick cup of coffee, please listen to the ad.

Other than that, go grab those because, when we come back, we’re going to be covering those different taxes changes and then we’re going to get the rubber where the rubber meets the road. We’ll be right back on Make it last.


Victor:  All right, everybody. Welcome back. We’ve been talking about the new tax law. I have absolutely no time to go through [laughs] all the provisions that we need to cover. I’m going to cover the more important ones in this last segment. We’re going to be covering things that are affecting stuff like deductions, and AMT, and capital gains, so on and so forth.

We’re going to try to run through these. As I mentioned before, we are going to be holding workshops. At the end of this segment I will tell you how to register for that. The best way to do that, by the way, is to get on our newsletter. What you can do is you can email me at

If you email me at, you can get down the list and we will advertise the workshops to you, let you know kind of when they’re going on. As I mentioned before, a couple of bucks to attend, nothing major, just so we cover the room fee.

In that workshop we’re going to be talking a lot more detail, go on for an hour‑and‑a‑half or so, two hours and cover much more than we can cover in this show. Let’s keep jumping in. We were talking about tax brackets. Let’s talk about the deductions that are going away. There are deductions that are going away.

You are going to go away from the deductions to your home equity loan interest. That’s different than mortgage, but, if you had a home equity loan, you used to be able to deduct that interest. That’s gone. Moving expenses, subsidized parking and transit reimbursement, you’re supposed to take that off. Donation to colleges in exchange for athletic event seats.

If you were a big promoter and you got your Rutgers tickets, can’t do that any longer. Fees for tax preparation are now going away as well. Your tax preparers are not going to be able to write off their tax planning fees.

In fact, we used to be able to, in our estate plans, allocate some portion of what was being done for those services as tax planning and go ahead and deduct that as well, and that’s gone. Those are gone.

The AMT is an interesting development on it. The new law keeps the AMT. The alternative minimum tax was essentially individuals making sure, depending on what their income level was, that they pay a minimum of tax. The AMT is still there, but the thresholds have been increased.

If you are a single individual, the AMT is to apply if you were making over $55,000. If you were a couple, if you were making over 86,000. It increases that exemption up to 109 and then it phases it out for people over a million dollars and $500,000 for singles. That’s up a lot from…it used to be $164,000. The point is that the AMT is still there.

A big change ‑‑ big change ‑‑ is that the amount that you can deduct for your state and local taxes, including local property taxes, is now capped at $10,000. It previously had no cap at all.

The way that worked is that, if you’re in a high tax state, ‑‑ and hello, welcome to New Jersey ‑‑ you used to be able to take the amount that you paid in state income taxes and state property taxes ‑‑ Anybody’s property tax too high here? ‑‑ you used to be able to deduct the entire amount and reduce your federal taxable income by the payments that you made.

Right now, in the new law, that’s capped at $10,000. This may or may not affect you. I think it affects most of the people that are in here. If it does, does knowing it encourage you to move or downsize and then move away during retirement? I don’t know. Some people are looking to relocate and get out of these states because they’re getting harder hit for the amount of taxes that they are paying.

You can choose how you’re going to use the deduction through a combination of property, or sales, or income taxes, but the idea is that it’s now capped at $10,000. Similarly, mortgage interest. The deduction is now capped at $750,000 for homes purchased after 2017. The old ones are grandfathered in. You’ll be able to deduct the loans on your mortgage, but you can’t do it on your home equity.

The long and short of this is that the deduction for interest is now capped at three‑quarters of a million dollars for homes purchased, uncapped if it was brought before that, but it’s just as to the mortgage interest. For all of the talk on medical expenses, that adoption is kept, but they reduced the percentage and it’s been going back and forth between two numbers.

If you hadn’t been paying attention to the last few years, you’ll be all set [laughs] because your old number is still the new number for what you got. All taxpayers can claim a deduction for unreimbursed medical expenses, if those expenses exceed seven‑and‑a‑half percent of their adjusted gross income. That’s down from 10 percent.

Ten percent was the old threshold and moved from seven‑and‑a‑half to 10 and back again. The reduction applies only for 2017 and 2018. Remember what I said to you about provisions expiring within the course of the next 10 years because of the way it can cause more than a trillion‑and‑a‑half in debt? This goes away in 2018, bumps back up to 10 percent.

You actually have the lower threshold only for your expenses last year, in 2017, and for this year, in 2018, and it’s gone after that. The next change has to do with the estate tax. Essentially, the thresholds have been doubled. Now look, most of my clients weren’t affected [laughs] by this before because most of my clients had estates that were below five‑and‑a‑half million dollars.

Congratulations to these super, super wealthy because that exemption now doubled to $11 million per person and $22 million for couples. Anything that’s over that is taxed at 40 percent. If you’re in that realm, in spite of some of our clients are, there’s planning that you can and probably should be doing to take advantage of this exemption.

Largely speaking, this change didn’t effect rank and file retirees. In fact, really didn’t effect a lot of people in New Jersey because there’s no state estate tax. There’s still on inheritance tax, but state estate tax. There’s one more provision on capital gains, largely the same, but the income brackets changed. Roth IRA recharacterizations have gone away.

Those are all things that we’re going to go over in the workshop that we don’t have time to go over today, but it’ll give you an idea that there are changes to retirees that have complicated your tax preparation and your planning.

The state and local tax cap on $10,000 definitely impacts a lot of our clients, and probably you as well. The idea that you have got new tax brackets, but the amount that you can deduct has gone away. The fact that your thresholds for medical deductions is lower in these couple of years. We’ve got a lot of complicating factors.

I haven’t even haven’t even introduced Medicare premiums and the way those are affected by your higher taxes because that’s all based on modified adjusted gross income, MAGI. That has different thresholds.

It’s a long way of saying, if you want more information on this, the best thing that I can do is urge you to sign up on our newsletter at Starts with a J. Not New Jersey, but Jersey ‑‑ Email us at that address. It will put you on the newsletter for the firm. We’ll be announcing when the workshops are going on and how to register for it.

That will give you an opportunity to learn more about it. Also learn a little bit more about the way that we work so that, if you do want professional advice and you want that to come through us, you have an opportunity to meet us and take a look‑see before you do that.

This is an important episode right here. If it’s something that you enjoyed, one of the things that you can do to be a friend to people that you like is to go ahead and share this with somebody. You send them the link. Tell him to go to iTunes or to go to Spotify, look up Make it Last and listen to this, which is going to be Episode 39.

It will give them an opportunity to get an overview, an objective look on the new tax law and how it effects people, specifically retirees. I want to thank you for joining us. Thank you so much. We’re going to continue to touch on these topics in future shows, but not as deep we’re going today.

Victor:  The place to go even deeper is at the workshop. Signup at for more information. We will be back with you next Saturday on Making it Last, where we help you do legal ducks in a row and your financial next egg secure. See ya.

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