“And then with his health insurance what we’re going to do is we’re going to go the route of getting him a high deductible plan, which will open up the door for him to make HSA contributions for a few years. And we’ll be aggressive with that. And as he’s finalizing his retirement situation right now … we’re having to maximize money into the after-tax contribution as part of his 401(k) plan, which is something new that was available to him. So we’re going to maximize that and then we’ll be able to do some Roth conversion with that money as well.”
This is being done with the hopes that once the client does have to start Medicare, his income will be kept low enough that he’s not hit with that surcharge on Medicare B and Medicare D premiums.
Ultimately, at age 70, the client will have the highest Social Security benefit possible. “He’ll have a significant amount of money in Roth IRA conversions that he won’t have to take the required distribution on, and in his situation he might never have to touch it. So then his nieces and nephews will inherit Roth IRA money and be able to retain the tax-free nature of that as well.
“So we’re trying to do things a little differently than I might do for another client that maybe has a different financial situation.” There are a lot of moving pieces to this, says Holtzman, “and he has a respectable amount of taxable money as well. So the tax efficiency component, in terms of how we place the investments in the various accounts is a really big issue. Because we’ll be able to drive down his dividends and interest and capital gains as much as possible year to year.”
This strategy allows the firm to be more aggressive as well given another part of the Secure Act—the one that pushes RMDs back to age 72, he says.