One way or another taxes are going up, learn how to protect your nest egg for railroad retirement.
Welcome everyone to another edition of the Highball Advisors railroad retirement whiteboard. My name is John McNamara of Highball Advisors And today we're going to talk about that fun subject of taxes. Now it's not fun, but it's also reality. So our present president Biden, he's made some proposals. He's looking to raise some taxes, obviously. He's got the spending part down. So now he's got raised some revenue to pay for that. So what he's looking at is increasing taxes especially on the higher income people right now, but I want to walk through this and kind of see how this affects everybody, because one way or another it's eventually going to affect everyone. So let's, let's just go through this and see how this, how you can maybe help protect yourself and avoid some of these taxes that are coming your way.
So right now, the current tax rate, you know, I was thinking about, I saw this article, it's the lowest in our life time, basically in my life, at least. And it's going to be, this is it. This is going to be the lowest ever. I mean, we're just spending so much money. Taxes are never going down again on a federal unless, you know, unless you get poor and then you go into a lower tax bracket, but just assuming you make the same amount of money the tax rates are not going down so that much we know. So president Biden's proposal, all right, now he's just talking about the top income is raising currently it's at 37% bracket raising it up to 39.6. So almost 3% there, however, you know, not to knock president Biden. I mean, even if he doesn't pass that the Trump tax cuts, they sunset at the end of 2025.
So taxes are going up 2025. I'm sure there's no appetite inside of Washington to not let them expire. Right. you just, you know, skip out of town during the vote or something and they'll just expire. Right? So what that basically means is, okay, we already know the top tax is going to go from 37 to 30.9 . No, but you know, you go 32,33, this is a big one here, 24 to 28 or 22 to 25. That's kind of the middle class. There are a lot of people in those brackets. They're they're going to take the real big hits. And like I said, they expire after 2025. So one way or another taxes are going up. So they're either going to go up sooner or later, but they're going to be going up. So what can you do about that?
You got to get out of get in front of these things, right. And when these tax cuts come, right, especially what I'm talking about is a lot of you have have your money in tax deferred vehicles, 401ks IRAs. And as you get into retirement, especially the early years of retirement, there's opportunities there because your income has come down, you're now in a lower tax bracket to withdraw some of that money you know, pay the taxes on it. Tax at ordinary income and move that into a vehicles that are tax-free that are Roth IRAs, right. It's called a conversion. Right. So why do, or why do a Roth conversion? And it's simple, right? Cause withdrawals are tax and penalty free when they come out of the Roth. I mean, how great is that assuming, you know, you had the Roth for five years and are over 59 and a half, but withdrawals are tax and penalty free.
That's great. Okay. You just keep staying in the lower tax brackets. Okay. Down below here, right? Stay down in the lower tax bracket. Those are good because on the one here is right, the required minimum distributions are going to hit. And what that means is the government wants their money. And at 72 years of age, they're going to start taking that money out one way or another. And that might push you up in a lower tax, into a higher tax bracket. So if you can start managing these withdrawals by yourself and moving them into a Roth IRA, that might be, that might be a very good vehicle to avoid there. So, and then also you have to remember is at 65, everybody's going on Medicare. And if you have a lot of money coming towards you, right. That you're taking out they have Medicare premium surcharges depending upon the amount of money.
So that can run up to a lot of money. You know, that could be two, three, $400 a month, you know, especially a married couple, even more of Medicare premium surcharges on it because you're taking the money out. So do it now in the early years of retirement, you know, if you give for it, every case is different. So don't say, oh, one size fits all. That's, you know but it's definitely worth taking a look is we know here's what we know, right? Taxes are going up. So how can we get in front of them? Okay. How can we protect ourselves in the future? And looking at these Roth conversions now is a great way to build up tax-free income. And what's great about it is if you need money later, you'll have a tax-free nest egg there. And, you know, eventually if you want pass it on to your beneficiaries, you pass, pass that money on tax free.
And you're taking advantage of these historically historically low rates, because they're not going to be here all the time. So I hope you found this useful something to think about reach out to me. If you want to go through this, you know, you can go through it with my boarding, for railroad retirement process. You know, just if you're in the early years of retirement or thinking about retiring in a year or two, reach out to me, I think you'll get good value in here. Obviously this isn't a strategy for the you know, the 35 year old or the 40 year old; but you might want to even do do the math on it. Now you might even want to just look at, just contribute right into a Roth 401k, but that's for another video. As always everyone, please subscribe to my YouTube channel click on the notification bell to get the latest video and keep sharing these videos. All right. I really do appreciate that. And until next time, everyone, please stay safe, stay on track and take care so long everybody. Bye.
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