relocating-for-retirement-colorado-tax-laws-you-should-know

Agemy Financial Strategies

August 30, 2022

The unique benefits of retiring in Colorado are never ending. If you’re planning on spending your golden years in this stunning state, here’s what you need to know about the tax benefits.

If you’re planning on retiring in Colorado, the Centennial State has a lot to offer. Colorado is home to some of the most beautiful landscapes in the country, with mountains and plains stretching as far as the eye can see. And if you’d like to live at or near those majestic peaks, Colorado is a tax-friendly place to do it.

Colorado’s rate income tax is one of the lowest in the nation, and property taxes are also on the low end, with a median rate that ranks among the lowest in the country. Gas taxes are also low, which means your day-to-day travel will be easier on your savings than it might be elsewhere.

Before we start, it’s worth noting that even though taxes are better in Colorado, you may notice a bump in the cost of living. Depending on where you currently reside, you may need to pay a little more for some things. Here’s a look at Colorado tax laws you should know about.

Colorado Income Tax

Colorado has a flat income tax rate of 4.5% for the 2021 fiscal year, which started in July of 2020 and will end in June of 2021. The rate was lowered from 4.55% to 4.5% because of a high fiscal year revenue growth rate. The rate for 2022 is 4.55% and has proved it will be able to maintain this low tax rate throughout the remainder of the year.

In Colorado, federal Social Security benefits are fully taxable. However, up to $24,000 of Social Security benefits are excluded from your federal income tax. Additionally, up to $20,000 of retirement income is also excluded from your Colorado income tax.

In 2022, the cap on federally taxable Social Security benefits will be removed for all taxpayers 65 and over. This change will effectively make all federally taxed Social Security income deductible for taxpayers 65 and over.

Colorado Sales Tax

According to the Tax Foundation, the state levy in Colorado is 2.9%. Localities can add as much as 8.3%, and the average combined rate is 7.77%. Here are a couple other items that are taxed and tax exempt:

  • Groceries: Exempt
  • Clothing: Taxable
  • Motor Vehicles: Taxable
  • Prescription Drugs: Exempt

Colorado also includes a tax on items such as beer, wine, and liquor. These items are known as “sin-taxes”. Here is a list of some of those items and the tax that comes along with them:

  • Cigarettes: $1.94 per pack; additional local taxes may also apply
  • All other tobacco products: 50% of manufacturer’s list price
  • Beer: $0.08 per gallon
  • Wine: $0.32 per gallon
  • Liquor: $2.28 per gallon
  • Marijuana: For retail purchases, 15% state retail marijuana sales tax and 15% excise tax, plus state and local sales taxes

Overall, Colorado has one of the lowest sales tax rates in the U.S. With a 2.90 percent state sales tax rate, a max local sales tax rate of 8.30 percent, and an average combined state and local sales tax rate of 7.77 percent.

Colorado Real Property Tax

According to the Colorado Division of Property Taxation, in Colorado, the median property tax rate is $505 per $100,000 of assessed home value. This is great news for Colorado residents 65 and older who may be eligible for a property tax exemption on their primary residence. The first $200,000 of the actual value of the home is exempt, and applicants must have owned and lived in the property for at least ten years.

For those who don’t qualify for this exemption, an income tax credit of up to $1,000 is available for those age 65 or older with a federal adjusted gross income of $75,000 or less who don’t claim the property tax exemption. Senior citizens may also qualify for a deferral of their property tax payments that can be paid off when they sell or otherwise transfer their property.

Full-year Colorado residents age 65 or older may qualify for the Property Tax/Rent/Heat Rebate if they are single with an income less than $15,831 or married with a combined income less than $21,381 for 2021 (income limits are updated every year).

Please visit Tax.Colorado.gov/PTC-rebate-forms to learn more.

Individuals who do not have a Social Security Number or Individual Taxpayer Identification Number (ITIN) may still be eligible for the PTC rebate. These individuals can use the Application for Alternate Identification Number (DR 0019) to apply for an alternate ID.

Colorado Inheritance and Estate Tax

Even though there is no estate tax in Colorado, you may still owe the federal estate tax. The exemption for that tax is $11.70 million for deaths in 2021 and $12.06 million in 2022. This tax is portable for married couples. That means that if the right legal steps are taken, a married couple can protect up to $24.12 million when both spouses die.

Planning an estate, in Colorado or elsewhere, isn’t easy. If you’re beginning this process – or in the midst of it – you might want to consider getting professional advice in the form of a financial advisor. You’ll want to make sure, though, that the financial advisor you are using is the right one for you.

Final Thoughts

Colorado is consistently named one of the best places to retire when it comes to taxes, financial opportunity, and health.

As you can see, colorful Colorado has a lot to offer when it comes to taxes. If you’re interested in starting your retirement in Colorado, check out our pros and cons series here. It’s important to look at your retirement plan and see if retiring here would benefit you. Once you have estimated the amount of money you may need for relocating in retirement, a sound approach involves taking a close look at your potential retirement-income sources and seeing how far they will stretch in your chosen state.

At Agemy Financial Strategies, we want you to know we’re here to help you navigate retirement and any questions that come up during your retirement process, including relocation opportunities. As Fiduciary advisors, it’s our duty to act on your behalf in finding the right solutions for your individual wants and needs.

For more information on our retirement and financial planning services, contact us here today.

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Women’s Equality Day: Women and Retirement Planning

Agemy Financial Strategies

August 17, 2022

Happy Women’s Equality Day! In the 100 years since the ratification of the 19th Amendment, women have made substantial gains in educational attainment, employment, and earnings. However, the gender gaps persist — especially when it comes to retirement.

On August 26, 1920, the 19th Amendment was ratified, giving women the right to vote. One hundred years later, women still strive for equality in many areas, and retirement planning is one of them.

Women are less prepared for retirement and often have fewer resources available to them. This can mean a lower standard of living during the retirement years. There are many reasons why women fall behind on planning. A prominent reason is that they are more likely than men to pause their careers to raise children or care for aging parents. This pause often results in lost work time and lower income levels. Women also live longer than men, so they need more savings for a longer retirement period.

As for financial know-how, researchers found that on average, women correctly answered 45% of financial-related questions, compared with 55% among men, according to a survey conducted earlier this year by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business. While baby boomer women correctly answered 51%, that share is 41% and 38% among millennials and Gen Z women, respectively.

Here, Agemy Financial Strategies has put together some helpful steps for women to help them better prepare for retirement.

Work Longer

If you are falling behind on saving for retirement, the first question to ask yourself is “how can I make up for shortfalls”. The obvious answer here is to keep on working.

Abundant job opportunities may help women rejoin the workforce or find better-paying opportunities. Available job openings hit a record 11.55 million in March, according to the latest government data. If you are still in the workforce, consider a phased retirement. A phased retirement is just like it sounds – a path towards retirement where you slowly begin taking more vacations, working fewer hours and essentially becoming part-time on your own time.

During phased retirement, workers can still collect a paycheck, just for less money. They can supplement their pay with withdrawals from company-sponsored retirement plans if necessary.

  • Continue accumulating wealth. If your employer offers a phased retirement plan, there may be provisions that allow you to continue saving for retirement or earning retirement benefits through a pension. That means you don’t miss out on opportunities to add to your wealth, even if you’re working less.
  • Mental/emotional health. One of the negative side effects of retirement is that workers may feel lost or without purpose once they’re no longer on the job. Working on a part-time basis during a phased retirement can yield mental and emotional benefits if it makes older employees feel fulfilled.
  • Prepare for the real thing. Phasing retirement and continuing to work reduced hours can give you an idea of what life might be like once you fully retire. This can help you decide how you want to use your time or even whether retiring is what you truly want to do.

Part Time Work Counts, Too

If you want more stability and a steady income stream, part time work can help bring in some cash. When you’re planning your retirement, it’s important to remember that Social Security benefits are calculated based on the 35 highest-earning years in your career. That means that if you worked part time in any of those years, those years will be counted as zero income. This has two effects: there are zero quarters for eligibility and zero income counted toward the benefit. Part-time work – like a phased retirement – can provide quarters for Social Security eligibility and some income, which is better than none at all.

Spousal IRA Contributions

As you get older your needs and wants change. Earlier in life perhaps you got married and had kids. And as you near retirement, you’ll have grandkids with whom you want to spend time with. You know that staying at home with your grandkids is no vacation. It’s work—important and essential work—which means you should have a retirement savings plan that goes with it.

A spousal IRA is a type of individual retirement account that allows a working spouse to contribute to a nonworking spouse’s retirement savings. A Spousal IRA creates an exception to the provision that an individual must have earned income to contribute to an IRA. Spouses with some earned income, but not enough to fund an IRA fully, can also qualify for the Spousal IRA.

To qualify, the couple must file a joint tax return. Spousal IRAs can be either traditional or Roth IRAs, and are subject to the same annual contribution limits, income limits and catch-up contribution provisions as traditional and Roth IRAs. While IRAs cannot be held jointly in both spouse’s names, spouses can share their account distributions in retirement.

Play Catch-Up

If you’re 50 or older, you can take advantage of additional contributions to your retirement accounts.

Workers who are younger than age 50 can contribute a maximum of $20,500 to a 401(k) in 2022. That’s up $1,000 from the limit of $19,500 in 2021. If you’re age 50 and older, you can add an extra $6,500 per year in “catch-up” contributions, bringing your total 401(k) contributions for 2022 to $27,000.

Catch-up provisions are especially helpful for women who entered the workforce late, have a checkered job history, or delayed saving for retirement to pay for the kids’ braces or college tuition.

Plan NOW for the Future

Many women are saving for retirement, but they have not yet started engaging in financial planning with a professional. About 28% of women never talk about retirement, versus 17% of men, according to Transamerica. Moreover, just 17% of women frequently discuss saving, investing and retirement planning, compared to 28% of men. Women who aren’t afraid to ask questions and seek the advice of financial advisors tend to thrive in their journey to financial independence.

No matter at what stage of life you may be, you can start looking for the best professionals to help you with financial planning for women. There are plenty of sources for help and advice. You can do some research online, talk to industry experts, and make the right decision for investment.

With a commitment to financial literacy and the ensuing confidence that stems from increased knowledge about money through an experienced financial advisor, women can make significant strides to increasing their retirement savings and planning for life events that could place stress on the money they do have saved.

Why Agemy Financial Strategies

Women deserve to retire comfortably. So, let’s make that happen!

Women’s Equality Day is a great time to remind yourself and others of the importance of planning for retirement. Women are often less prepared for retirement than men are, but it doesn’t have to be that way.

Here at Agemy Financial Strategies, we know how important it is for women to plan now for a comfortable retirement that they deserve and will enjoy. As Fiduciary advisors, it’s our duty to act on your behalf in finding the right solutions for your individual wants and needs.

For more information on our retirement and financial planning services, contact us here today.

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how-to-save-more-money-for-retirement

Agemy Financial Strategies

August 08, 2022

We all know it’s important to save for retirement. So why is it that when it comes to saving, most Americans fall short? If you’re worried about your retirement savings game, this blog is for you.

Retirement can be a time of great joy, but it can also be a time of great stress. Many people spend their whole adult lives anticipating the independence of retirement, but saying goodbye to one’s constant source of income may be frightening when the time comes. According to the Federal Reserve, about a quarter of Americans have no retirement savings at all, and almost two-thirds of non-retired adults are concerned about being able to meet their retirement savings goals.

The COVID-19 pandemic has caused a lifestyle shift that is having an immediate effect on finances and planning. In addition, if you’re retired, market declines and economic uncertainty may induce concern as you assess your financial situation.

While there are many factors that affect your overall financial health, it is important to consider how your retirement plans may change in light of recent circumstances. Here are a few considerations to keep in mind as the ticking clock to retirement nears.

Set Your Retirement Savings Goal

Retirement planning is a big, intimidating goal—but it doesn’t have to be. There are so many variables to consider. How much will you need for vacations? Could you end up facing big medical expenses? What age will you stop working entirely? How long will you actually live? Research has found that those who have written goals and a written plan for achieving those goals are 1.2–1.4 more likely to succeed. Other studies have shown that having a plan can double your savings rate.

If you start saving early, with small amounts of your income, you’ll be able to fund a comfortable retirement and still enjoy life along the way. The more time your money has to grow, the more money you’ll have when it’s time to stop working.

Here are some ways you can help your nest egg grow:

  1. Contribute as much as you can to your employer-sponsored account—401(k), 403(b), 457(b) or Thrift Savings Plan. In 2022, you can contribute up to $20,500. If you’re at least 50 or will be by year’s end, you can also make a catch-up contribution of $6,500, for a total of $27,000.
  2. Make sure your employer is contributing enough to cover their share of matching funds. If not, ask them if they’d consider increasing their contribution rate so that more of your salary goes toward investment growth than toward fees and expenses associated with managing those investments.

If you’re trying to catch up on a previously set goal, your money moves and savings rate need to be more aggressive. Use our free online calculators to get a good estimate of how much you need to save in order to alleviate the stress of living on a fixed income.

In addition to being aggressive with how much you save, you’ll want to be fairly aggressive in how you invest those savings. You should meet with your financial advisor to discuss riskier investments in order to compound at higher rates of return over an extended period of time.

Plan for Social Security

Social Security is a great tool for retirees. It’s important to understand how to get the most out of your benefits, though.

You can start taking Social Security as early as age 62. But you’ll receive a smaller check each month than you will if you wait until your full retirement age. If you wait until after your full retirement age, your Social Security income will increase up to 8% for every year you delay, up to age 70. After age 70, there’s no further increase for delaying. If you want to maximize your benefits, it’s important to know when to start taking them and how much they’ll be worth if you do so.

Consider Tax Strategies Early On

One of the most important things to consider while you’re still saving for retirement, is how to minimize taxes down the road. While tax laws and rates are likely to change, there are ways to plan for these unknowns and set yourself up for a potentially better tax outcome.

One way that many people do this is by using an IRA or Roth IRA. An IRA is a tax-deferred account, which means that your money grows without being taxed until you withdraw it in retirement. Withdrawals from an IRA are also taxed as income, so it’s important to consider whether or not you’ll need some of your money before retirement and make sure that you’re taking withdrawals accordingly (you may need to pay penalties if you take withdrawals before age 59 1/2).

A Roth IRA works in reverse: contributions are made with after-tax dollars, but any growth within the account is tax free when it’s withdrawn in retirement. This can be a great option for those who expect their tax rate will be higher during retirement than it was when they were working full time.

Spreading your savings across a diverse selection of accounts with a variety of tax strategies is another way to grow your retirement savings. Consider an appropriate mix of tax-deferred Roth accounts based on your tax bracket. For example, if you’re in a high tax bracket (32%-39%), you would want to consider diversifying your accounts, i.g. 401(k), 403(b), and others.

Use the Backdoor Roth IRA to Increase Savings

For 2022, the AGI phase-out contribution range for Roth IRAs for married couples filing jointly is $204,000 to $214,000 and for single taxpayers and heads of households is $129,000 to $144,000. If your current income is too high and makes you ineligible to contribute to a Roth IRA, there’s another way in. First, contribute to a traditional IRA. There is no income ceiling for contributions to a non-deductible traditional IRA, although there is a limit to what can be contributed.

The IRS caps the contribution limit to $6,000 or $7,000 if you are 50 or over. After the funds clear, convert the traditional IRA to a Roth IRA. That way the funds can compound for the future and be withdrawn tax-free, as long as you meet the withdrawal guidelines.

Don’t Forget HSAs

With healthcare costs growing and the proliferation of high-deductible health plans (HDHP), the health savings account (HSA) is a golden retirement planning opportunity. This tool can not only be used to pay for healthcare expenses but can also be used to squirrel away additional funds for retirement.

Regularly Review and Increase Savings

While many start off saving 15% of their income for retirement, you may not be able get there right away. Or you could be living a little “too” comfortably and decide you’re ready to stash away more. 

For the former scenario, you can start small to take advantage of the crucial role that time plays in compounding your investment returns. Try increasing the amount you contribute to your retirement accounts by 1% every year until you reach at least 15% of your salary. For those who are ready to up their savings game, instead of upgrading to a larger home or purchasing a new car with your extra cash, try to make do with what you have to minimize your expenses and funnel your extra cash to your savings.

To Summarize

Remember: Retirement isn’t an age. It’s a financial number. Keep that goal in mind and remember that saving for the future is a marathon—not a sprint. The name of the game when it comes to saving money for retirement is starting early.

It’s important to look at your finances and see if any of the above strategies could help you in the long run. If you’re like most people, qualified-retirement plans, Social Security, personal savings and investments are expected to play a role in growing your retirement nest egg. Once you have estimated the amount of money you may need for retirement, a sound approach involves taking a close look at your potential retirement-income sources and making amendments where needed.

At Agemy Financial Strategies, we want you to know we’re here to help you navigate retirement and answer any questions that come up during your retirement process. As Fiduciary advisors, it’s our duty to act on your behalf in finding the right solutions for your individual wants and needs. 

For more information on our retirement and financial planning services, contact us here today.

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3 Topics to Cover With Your Financial Advisor as You Near Retirement

Agemy Financial Strategies

August 03, 2022

Are YOU ready to retire? As you get closer to retirement, it becomes increasingly important to have in-depth conversations with your financial advisor about the years ahead. Here are some important questions to consider in your financial planning journey.

As soon as you transition from your working years to life as a retiree, you’ll need a plan for how to turn the money you’ve saved (along with other sources of income like Social Security or an annuity) into a steady paycheck that will allow you to live the retirement you want.

When you meet with your chosen financial advisor, it’s natural to want to discuss the rate of return on your investments and the progress you’re making on your financial goals. But don’t let the conversation end there — especially if you’re nearing retirement. At Agemy Financial Strategies, our financial advisors are equipped to help you design a strategy for creating income in retirement based on your unique needs and goals.

Here’s three topics you should cover with your financial advisor as you countdown to a work-free future.

What Does My Ideal Retirement Look Like?

As you get closer to retirement, you’ve likely started to think more specifically about what you want this new time of your life to look like. Where will you live? How will you spend your time? What hobbies or activities do you plan to pursue? And if you’re part of a couple, hopefully you and your partner have started having these conversations to make sure you’re both on the same page.

The first step in making sure your retirement dreams come true is very simple: talk about them! Discussing your goals for retirement early on can help ensure that both of your visions are aligned and that there aren’t any potential obstacles down the road. But if you wait too long or don’t discuss it at all, things can get complicated quickly.

In order to avoid disagreements and hurt feelings, it’s important for couples to talk about their expectations for how much time they want to spend together once they stop working full-time.

Once you have established your roadmap to retirement, it’s a good idea to share your vision with your financial advisor. They can help you translate that vision into dollars and cents by helping you determine the following:

Your cost of living (including property, income and estate tax implications) and any of the following:

  • Potential relocation costs
  • Health care costs
  • Potential long-term care costs
  • Discretionary expenses, such as travel, new hobbies, etc.

How Can I Maximize Income From My Savings?

Once you know how much you’ll need to achieve your retirement goals, crunch some numbers to see if you’re on track financially. If you need to course correct, your financial advisor can walk you through a range of options to help you get closer to your goal.

This might include things like:

  • Looking at all of your options for generating income
  • Debt Management and see how you can eliminate any outstanding debt
  • Taking advantage of Social Security and maximizing your benefits
  • Taking advantage of tax-advantaged accounts like IRAs or 401(k)s

What Kind of Legacy Do You Want To Leave Behind?

As you approach retirement age, you may feel a greater urgency to make sure your estate planning documents are in place and that your legacy goals are covered. While an estate planning attorney can draft or update your will or trust and powers of attorney for health care and finances, your financial professional also plays a role. They can help to ensure that your financial assets are aligned with your desire to leave your wealth behind as part of your comprehensive financial plan.

For example, if you want to leave money to a charity but also want to provide for your children’s education, the financial professional can help you consider the best way to accomplish both goals through careful asset allocation and investment management strategies. They can also discuss the best practices to save on taxes.

Your financial professional should be able to provide assistance with developing an estate plan that includes a will, revocable living trust, powers of attorney for health care and finances, beneficiary designations for retirement accounts, life insurance policies, trusts, annuities and other investments. They should also assist you in determining what assets need to be transferred out of your name following death.

Why Agemy Financial Strategies

If you are like most Americans, your retirement plan is likely to be a combination of personal savings, 401(k) plans and Social Security. Once you have estimated the amount of money that you may need for retirement, a sensible approach involves taking a close look at your potential retirement income sources and making amendments where needed.

For over 30 years, we’ve helped our clients plan and prepare. This way, when the unforeseen occurs, their clients are uniquely positioned for success. We work hard to deliver a dependable retirement income strategy, in any market, so that clients can enjoy the “best” of their lives during retirement. We are ready and waiting for all your retirement questions! Tune into the Financial Strategies podcast each week or drop us your question online here.

At Agemy Financial Strategies, we want you to know that we are committed to helping you achieve your retirement goals. As Fiduciary advisors, it is our duty to act on your behalf by finding the right solutions for your individual wants and needs.

For more information on our retirement and financial planning services, contact us here today.

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