Danielle Kunkle Roberts
ABOUT Danielle

Danielle Kunkle Roberts is an insurance expert and Medicare Supplement Accredited Advisor out of Fort Worth, Texas who helps people prepare for healthcare costs in retirement. Her agency has been awarded the Aetna Service Superstar Award and recognized numerous times as a leading producer for carriers like Cigna, Mutual of Omaha, Aetna, etc. Danielle’s insight [...]


Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Published On
June 18, 2019
Danielle Kunkle Roberts' Medicare Beginner’s Guide: What You Need to Know Now

Danielle Kunkle Roberts of BoomerBenefits.com on Medicare basics, parts A to D, signing up, common mistakes, Medigap vs. Medicare Advantage, recent improvements to Medicare, and the future: will Medicare For All or Medicare At 50 become reality? Plus, Joe and Big Al answer your money questions: are health insurance premiums deductible? And when do you pay taxes to the IRS when you plan your charitable donations over multiple years?

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Show Notes

  • (00:45) Danielle Kunkle Roberts on the Basics of Medicare: Parts A Through D
  • (10:15) Medicare Mistakes, Advantage, Medigap, Improvements and the Future of Medicare
  • (20:49) Are My Health Insurance Premiums Deductible?
  • (24:08) Charitable Donations, Bunching Deductions and Donor-Advised Funds: When Do I Send Tax Money to the IRS?


00:45 – Danielle Kunkle Roberts on the Basics of Medicare: Parts A Through D

Joe: We got this guest specifically for you. (laughs)

Al: Because I’m older than you?

Joe: You’re a LOT older.

Al: I’m approaching Medicare age.

Joe: Yes and I’m sure you’re getting flooded with a whole bunch of mail.

Al: No I’m not that old.

Joe: You’re close!

Al: I’m getting there. (laughs) I’m not that old.

Joe: You’re getting close my friend. We have Danielle Roberts on the line and she’s a Medicare expert.

Al: And that’s great because I think there’s a lot of confusion on how Medicare works.

Joe: Yes. She’s at BoomerBenefits.com which is a phenomenal website I’m sure you’ve been on multiple times.

Al: I’m a boomer so I’m interested in that.

Joe: Danielle, welcome to the show.

Danielle: Hi guys. Glad to be here. Thank you for having me.

Joe: Hey. So you’re an expert in Medicare. Let’s start out with the ABCs. It’s so confusing.

Al: Yeah. How does it work? Yeah, let’s start with the basics.

Danielle: I think it’s a great place to start. And most people are confused by this part because Medicare has its own parts and then there are Medigap plans which also have letters which makes everything more confusing. So the first two pieces that you really need to know about are what we call original Medicare or traditional Medicare. And this is Parts A and B. Part A is your inpatient hospital insurance. It’s going to take care of that semi-private room and the doctor and nurse that come around to check on you and three square meals a day. It also pays for things like skilled nursing, blood transfusions, and hospice. And then the part that you use more often is Part B, which is your outpatient coverage. And this is going to pay for all the things that you and I would think of as outpatient coverage like doctor visits and lab tests and MRIs, but it also covers some things which could be expensive, like outpatient surgeries, chemotherapy, radiation, dialysis. And those two pieces together are the foundation of your coverage. They’re going to pay together for about 80% of the costs of your health care in retirement. Part C and D came later. So part C is what we call the Medicare Advantage program, and this is just an option if you choose to get your benefits through a private insurance company instead of through original Medicare. You can do that by purchasing an Advantage plan, and that’s part C. And Part D is the most recent part of Medicare, which was rolled out in 2006. Prior to that, we had no drug coverage for people on Medicare. And since it rolled out here in the last 13 years people have had access to cheaper medications by purchasing a part D drug plan which allows them to pay a copay for their medications instead of footing that entire bill. So those are your basic four parts of Medicare.

Joe: Question: So if I have A and B but don’t I have C and D, you said that would cover about 80% of my health. And then so 20% would be out of pocket?

Danielle: Yes. That’s correct.

Joe: If I go C and D is it then 100% shored up or how much more… I think confusion happens is that “once I have Medicare everything is taken care of.”

Danielle: Yes, you’re exactly right. So people do think that, and a lot of times people are also not aware that Medicare is not free. So you pay taxes during your working lifetime and that will go to pay for Part A. Most people enter Medicare and they don’t pay premiums for their inpatient coverage, but Part B has a standard base premium around $135 a month – so you pay for that, and then, in addition, you also had that 20% that you pay out of pocket. There are some deductibles that you pay. So there’s a couple of ways that you can shore that up. One would be to purchase a traditional Medigap plan, which pays after Medicare. So Medicare pays its 80%, sends the remainder of the bill onto your Medigap company to pay the other 20% and some of your deductibles, depending on which Medigap plan that you choose. That’s one way that you can go. And this is the way that would allow you to see any doctors on Medicare across the nation, which is over 800,000 providers – it’s a vast network. Your other option would be to choose the Advantage plan instead. And if you go that route, then you’re still going to have some co-pays for things, like your plan might charge you $10 at the primary care doctor or $40 at a specialist. If you go to the hospital it might be $200 a night. There are some things like that, but the Advantage plans are less expensive. So you have lower premiums and you’re still gonna have some co-pays as you go along, which appeals to many different groups of people, but one of them would be people that are relatively healthy as they age into Medicare, might like the idea of a lower premium and just kind of paying co-pays for things as they go along.

Joe: With the Medigap or the Advantage plans, do I have to go to a separate insurance agent to shop that? Or how does that all work if someone was interested in looking to share some of those costs?

Danielle: Yes, that’s correct. So most people would work through an insurance broker like Boomer Benefits, and a broker can shop all the different plans that are available in your area, provide you quotes, give you basics on how the plans will work for you, they can look up things like financial ratings of the companies, the companies rate-trend history, like what have their rate increases been like. The good thing about the Medigap plans is that they’re standardized. So for example, right now, the most comprehensive plan that you can buy is a Plan F, which covers all the gaps and leaves you with virtually nothing out of pocket. You can buy that plan from a dozen or more insurance companies in your area. And this allows you to compare them based on price because Medicare makes the benefits standard so that you know that if you’re buying your policy from Blue Cross or Humana or Aetna, if it’s a plan F, those benefits are going to be the same, basically, from company to company. This makes a little bit easier to shop. If you don’t use a broker, you could also do with the old school way, which would be to contact insurance companies and have them quote you over the phone. So you could make a phone call to those same carriers, have them quote you their prices, and if you wanted to do that legwork on your own you could go that route.

Joe: There’s a lot of, I would imagine, specialization. I think each plan would be a little bit different for…  Al and I, for instance, are polar opposites. (laughs)

Al: That’s where we like each other. (laughs)

Joe: Because he’ll probably need a whole bunch of stuff… (laughs)

Al: It’s just the opposite, brother.  (laughs)

Andi: I was gonna say, wow!

Al: I’m gonna be the healthy one.

Joe: (laughs) Yeah, I do look 65 and I’m like 40. So what are mistakes people are making when they enroll? Because I would imagine maybe they hear it from a friend, “Oh, this is what I got.” “Oh, that sounds good.” So I mean what are some mistakes you’re seeing?

Danielle: Yeah. Oh my gosh, you hit the nail on the head. So one of the mistakes they make is just not understanding the differences between a Medigap plan and an Advantage plan. The Medigap plans cost more, but that’s because they are more comprehensive. You have wider access, you can see all the providers across the nation. If you have cancer and you want to treat it at M.D. Anderson down in Houston, arguably one of the best cancer hospitals in the world, you would be able to go and use your original Medicare there. You’ve got access. You don’t have to get referrals – but that’s why they cost a little bit more. On the Advantage plans, in some areas, urban areas especially, you can sometimes enroll in an Advantage plan for what’s called a zero premium, meaning the plan doesn’t charge you anything at all for the plan itself. They get paid by Medicare to take on your medical risk. And so this is, of course, extremely attractive to many people. They might have Sally at Sunday school that says well I have this plan and I pay nothing and it’s fabulous. The mistake people make is not realizing that there are co-pays as you go along on the back and you need to know what those are. So, for example, many Advantage plans will charge 20% for things like chemotherapy or dialysis which are insanely expensive. So 20% of that is quite a lot of money. Want to make sure that you’ve got some money set aside in a rainy day fund for a year where your health expenses might be more than the average year. Also, the Advantage plans have networks. So if you just join one without checking to see that your doctors and favorite hospitals are in the network you could show up to a doctor appointment and have them tell you Oh sorry you’re not covered here and then you’re locked into this plan for a calendar year at a time. So it’s super important to do your research ahead of time really understand the differences between the two plans run the numbers work with the broker that can help you run some of those numbers and do the research with you. You also want to check and make sure that if you’re enrolling in an Advantage plan that includes drug coverage which many of them do have the Part D rolled right in you want to check the list of drugs on that formulary make sure that the medications that you take are listed there so that you don’t have this plan that doesn’t cover an expensive medication that you need. So that’s one of the biggest areas where we see people make mistakes when they’re making a choice between those two types of coverage.

If all of this Medicare info is whizzing past faster than you can take notes, you can put the pen down! Go to the show notes for this podcast episode at YourMoneyYourWealth.com and read the transcript of the entire interview, get the link to Danielle Kunkle Roberts’ website, Boomer Benefits, and check out some additional Medicare resources courtesy of YMYW.

Medicare & You 2019: Free download from Medicare.gov

Even if you aren’t yet Medicare age, you probably know someone who is – like your parents or grandparents perhaps? Hit the “share” button in the podcast show notes at YourMoneyYourWealth.com to send this episode to them via email or on social media and help them navigate the Medicare maze. Make sure you’re all subscribed to the YMYW podcast. It’s free, as soon as we put out a new episode it will automatically be available on your device, and you can listen to any episodes, new or old, whenever YOU want. Now, more on Medicare with Danielle Kunkle Roberts.

10:15 – Medicare Mistakes, Advantage, Medigap, Improvements and the Future of Medicare

Al: Let’s talk about signing up for Medicare because I think a lot of us know that’s age 65, but there’s a lot of confusion on how to sign up or when you’re supposed to sign up or what if I am still working and I’m covered under my employer’s plan? Or what if my spouse is still working and I’m covered under her plan? How does all this work?

Danielle: These are the questions that we get every day so these are perfect. When you turn 65, you have a seven-month window to enroll in Medicare, and if Medicare is going to be your primary coverage, you definitely don’t want to miss that window because there are late enrollment penalties. For example, if you just didn’t know that you needed to sign up and then a year or so down the road you figured it out, you would pay a 10% penalty on top of your Part B premium for all the rest of the years that you were enrolled in Medicare. So if you don’t have any other coverage, it’s super important to enroll in both Medicare Parts A and B during that initial seven-month window, which starts three months before your birthday, runs through your birthday month and lasts three months after – that’s the time to sign up.

Al: Why do they have that penalty? What’s the reason for that?

Danielle: The penalty I think is because – I’m just guessing at this, but I’m assuming that somebody goes and fails to enroll, and then they do end up with cancer. Now they’re down at the county hospital and the taxpayers are funding the bill for that person’s cancer treatment because they failed to enroll in the coverage that they should have had.

Al: And pay for it so – yes, okay. So it’s sort of like catch up I guess.

Danielle: Yes. They want you to enroll. They want to make sure that you get that coverage in place. But so many people these days are working well past age 65 as you know, and so the question becomes, “well if I have group employer coverage, do I really need Medicare?” So what matters is the size of the group. So if you have employer coverage, either through your own employer or through a spouse, and that employer employees 20 or more people, that coverage will be primary. In that scenario, you could just enroll in Medicare Part A since Medicare Part A we said doesn’t cost anything for most people because you’ve paid taxes for that during your working lifetime. That Part A coverage can coordinate with your group insurance so if you have a hospital stay, Part A may pay some other portion of the deductible that you’re paying on your group plan, and thereby reducing your costs for that inpatient stay. But you could delay parts B and D since those have premiums, and your group coverage already gives you outpatient coverage and drug coverage, it makes sense to delay those and not have to pay double premiums and have double coverage. So that’s usually the way people will go if you work for a large employer. But where you can make a mistake because if you work for a smaller employer, you or a spouse, and your coverage is through an employer with less than 20, Medicare is primary in that scenario. So it’s super important that you sign up for both A and B because you don’t want to have primary coverage that you’re not enrolled in, and you go in and have a surgery and find out you didn’t have Part B to pay the 80% – you are going to pay the 80% and you’re gonna pay a late penalty later on when you finally figured out you should have enrolled in Parts A and B. So if you work for a small employer, super important to sign up for Medicare during that initial seven month window, and then you can choose whether you want to have your group coverage be secondary, based on cost, and you could compare that against the cost of a Medigap or an Advantage plan, and then you could decide if you want to stick with that employer coverage or go on the private route, whichever works out best for you, financially.

Joe: So best practice, you turn 65 or within the enrollment window, automatically just sign up for Part A and then discuss with H.R. or whoever your employer is to see who the primary or secondary is to see if you should then enroll in the other coverages?

Danielle: Correct. And if your employer doesn’t know about it, there’s plenty of great information online. Medicare.gov has a great website that goes over all of the rules for eligibility and how Medicare coordinates with other coverages. So a lot of times, the group H.R. rep will be able to give you some direction, but if they are unsure or they don’t want to give you those answers because they maybe aren’t so certain themselves, then you can also find a lot of that information online.

Al: So my parents in their 80s, they complain all the time about their doctors are not taking Medicare anymore, and I’m just wondering how common this is that the medical professionals decide not to take Medicare? So then my parents have to find yet another doctor?

Danielle: Sure. So what happens is currently about 91% of all physicians do accept Medicare, but they get full on baby boomers. So baby boomers and seniors, Medicare’s reimbursement rate to that doctor is considerably less than they are getting reimbursed when you or I, someone under 65, goes in and treats with them. So they will limit a portion of their practice to Medicare patients. And once that is full, they’ll say, “we’re not taking any new Medicare patients.” So they may take Medicare, but it could be that they’re not going to take any more new people on Medicare because they already have too many of those people in their practice and they have bills to pay and a business to run themselves.

Al: I think what happens, or what I’ve heard – so, my parents will have doctors for years and then they’ll retire and then they want to get another doctor and they get a referral from somebody that says, “oh, I don’t take Medicare.”

Danielle: Yes. That’s exactly what happens. So if you retire and you’re seeing the doctor that you’ve always seen, almost always there’s no problem, they’ll continue to see you once you’re on Medicare, but that’s an area that you mentioned exactly there, when you’re looking for a new doctor or if you move to a new area and you’ve got to establish relationships with all new doctors, you can run into the fact that there may be doctors that are just full and so they’re not taking new patients for Medicare. And then there are doctors out there doing the concierge medicine now these days too, where they don’t take insurance at all and you pay them a flat fee that covers your doctor visits throughout the year. But this is, of course, not a good thing for people on Medicare because that’s not going to cover that for you.

Joe: What have you seen, good or bad, some changes that have happened over the past recent years? And then – see I’m doing it again, I ask like 45 questions in a row. (laughs)

Al: You’re good at this. (laughs)

Joe: Son of a…. (laughs)  What have you seen in the past, and then what do you see I guess moving forward in regards to reform?

Al: That’s only two questions. (laughs)

Joe: That’s pretty good. I’ve been practicing. (laughs)

Danielle: OK we got it. So the changes have mostly been positive. For example, even just in the last year or two, we’ve seen Medicare make strides into telemedicine on the Advantage plans. In 2019, they’ve started to allow them to cover supplemental home health benefits. So this is great because, for example, you could have them install wheelchair ramps or bathroom grab bars. Home safety modifications. You could have the person that comes out two days a week to help you with some of the basic activities of daily living and these are all changes that are being made in the effort to, #1, reduce admittance to hospitals, #2, keep people living independently in their own homes longer. So these are all positive changes. When we see them roll them out on Advantage plans, the hope is that they’ll also roll these same benefits out on original Medicare itself if this is successful in the Advantage market. So the changes that we are seeing are typically positive, we’re hopeful that we’re going to see some change and reform on the Part D and the cost of medications which continue to go up wildly, and Medicare as it is now can’t negotiate rates directly with the manufacturers. We’ve seen some movement on that in the current Congress, administration, and we’re hopeful that those changes will happen. But of course, the big looming change, and this will be certainly a hot topic in the 2020 elections is, are we going to change to something like Medicare for All or Medicare at 50, where people can enroll in Medicare far before age 65? And it either becomes a single-payer national health insurance system or something that people can buy into earlier in life at age 50 instead of 65 so that we’re taking care of that group of early retirees that may otherwise not have access to affordable coverage. So it’ll be really interesting to see what happens here in the next year or two as we head into the elections with that.

Joe: That’s interesting. I never heard of Medicare at 50. I mean they can barely fund it now. I mean, it shall be interesting to see…

Al: It seems like that would be expensive.

Joe: A little bit, a little bit. (laughs)

Danielle: Yes you would definitely have to buy your way into that. So it could be pricey, but it might be cheaper than what you could find in, say, an Affordable Care Act plan with a high deductible – might have a lower deductible and be less expensive, and so if it were to actually become a reality, I think there’d be a considerable amount of interest in it.

Joe: I gotta tell you, Danielle, this has been very interesting. I didn’t know, at first I was like, “this is going to be… something special. Medicare.” (laughs) But you know what? You are very, very good. I was just on the edge of my seat.

Al: And we’ve learned a lot.

Joe: (laughs) I was taking notes and I got a cramp!

Al: And it’s even more important for me since I’m a little closer to Medicare age than you are.

Andi: A little, he says, just a little.

Joe: You are Social Security eligible, sir. (laughs)

Al: I am.

Joe: You forget how old you are.  (laughs)

Al:  Well that’s what happens in your 60s – selective memory.

Joe: Got it. Hey, where can people find more information about you?

Danielle: We are really easy to find online, just head on over to BoomerBenefits.com. You can also find us on just about any social media @BoomerBenefits.

Joe: BoomerBenefits.com. Danielle, thank you. That was awesome. I really appreciate you hanging out with us today.

Danielle: You bet guys, I enjoyed it, thanks.

So now you know where to start with Medicare. Have you figured out what you’re going to do with your time in retirement? For inspiration next week on YMYW, Rick Durso will tell us what it’s like to caddy for the Symetra ladies’ golf tour in his retirement. If you’ve got an interesting retirement hustle you want to share with Your Money, Your Wealth® listeners, email me, Producer Andi Last – andi.last@purefinancial.com or find the link in the podcast show notes at YourMoneyYourWealth.com.

Speaking of emails, let’s get to your email questions now. Scroll down YourMoneyYourWealth.com to Ask Joe and Al On Air to send in your money question as an email or a voice message, and the fellas will answer it right here in the podcast.

20:49 – Are My Health Insurance Premiums Deductible?

Joe: Jason from Sacramento California, he writes in: “I’m a recent federal employee retiree. I may become a part-time individual contractor, self-employed. I will have to do my own estimated taxes and probably have quarterly tax payments during the year. Under the new tax law, 2019 health insurance premiums are deductible to self-employment. So as a federal retiree, I still have health insurance coverage. I make monthly payments so my family and I still have health insurance. The insurance is from my old job. And with or without the self-employment job, I will still have health insurance anyway. When I do become an individual contractor, will I be eligible to deduct my monthly health insurance at the end of the year during tax season?”

Al: Wow that’s a lot. (laughs) I should pay attention. Well first of all, so you’re a recent federal employee retiree. I’ll just paraphrase.

Joe: (laughs) Yeah so you can read it?

Al: Yeah. And so you’re thinking about becoming self-employed, and self-employed health insurance premiums are deductible if you have positive income. That’s actually not new. That continues to be true even with the new tax act. So that’s available and you still have health insurance coverage. You’re making monthly payments. Your family and you still have health insurance from your old job. And so as an individual independent contractor, “will I be eligible to deduct my monthly health insurance at the end of the year during tax season?” The answer is yes if you have positive income. So let’s say you billed your customers $40,000 and your expenses were $10,000, so you got $30,000 of profit. So now your health insurance premiums, up to $30,000 dollars, are deductible against that income.

Joe: $30,000 health premiums?? (laughs) That would be a lot of health premiums.

Al: You don’t have a family. That’s about right. Anyway – and there’s other stuff too like for example…

Joe: Well I suppose, $1,500 bucks a month or something?

Al: Yeah. $2,500, that’s what I’m paying right now.

Joe: Really? You got the whole family on it.

Al: Three of the four. (laughs) Still on the long-term plan. At any rate, then half of self-employment taxes are deductible, you can set up self-employed retirement plans, there are all kinds of ways to shelter income, but self-employed health insurance premiums are deductible.

Joe: But he’s self-employed, but his insurance premiums are through his old employer – through the federal government.

Al: Yeah I don’t care.

Joe: It doesn’t matter.

Al: No.

Joe: So as long as he’s paying health insurance.

Al: Yeah, I mean, there’s an argument that maybe it’s just his premiums, not his family. But most CPAs that I know kind of ignored that possibility and they just deduct them.

Joe: Okay. So he wouldn’t necessarily have to go out and get a private policy.

Al: No, in fact, you could be 70 years old on Medicare and deduct your Medicare premiums against self-employment income. That completely qualifies.

Joe: Cobra.

Al: Yeah, Cobra, Medicare, whatever.

Joe: Okay. Covered California. (laughs)

Al: (laughs) ¡Si Señor! Correct. Correctamundo.

Joe: All right. Well, that was a really good question there, Jason from Sacramento. I’m glad we were able to help you out there.

24:08 – Charitable Donations, Bunching Deductions and Donor-Advised Funds: When Do I Send Tax Money to the IRS?

Joe: We got Chris from V.A. Virginia. I wonder where abouts in Virginia? You evert been to Virginia?

Al: No. You neither, huh?

Joe: No. I’d like to go like in the backwoods of Virginia – bootlegging outfits.

Al: (laughs) Yeah I could see you kind of hanging out with the bootleggers.

Joe: Get a little moonshine. Tasty. So Chris writes in, “I recently found your podcast and loving it.” Well thank you, Chris. “This is a tax question. My husband and I have started bunching our deductions.” Bunching, Al.

Al: Yes, that word, it’s coming back.

Joe: Yes it is. (laughs)

Al: It’s been around for a long time.

Andi: What, did it go out of fashion?

Joe: It did. Now it’s coming back because of the new tax code.

Al: Yes.

Andi: Okay.

Joe: “We have very high charitable deductions and not much else. So we maxed out charitable deductions last year by putting what we hadn’t already given away into our donor-advised fund, which we are using for charitable contributions this year. According to our tax planner, this will result in about $4,000 of tax savings every two years. Our refund for 2018 was over $10,000 and we expect a tax due of about $9,000 for 2019. We put enough of last year’s refund in the savings for this purpose. My question: when should we send that money to the IRS? I know that we will have a penalty if we don’t pay anything in advance and if we haven’t been making quarterly payments. Can I just send a large chunk of money in December to avoid the penalty?” Let’s break this thing up a little bit, Al.

Al: Yeah there’s a couple of things there.

Joe: There’s like four or five different interesting tidbits in this email that we can kind of break down in share with our listener, because Chris seems pretty savvy.

Al: Yes. So Chris you’re already following a piece of advice that we would give you in this exact circumstance.

Joe: So let’s start with bunching deductions. What the hell is that? Why would someone want to bunch anything?

Al: So for a married couple – because she says she’s married – the standard deduction, which is now a lot higher under the new tax law – for 2019 is $24,400. And the most that you can deduct, Joe, on your property taxes and state taxes is only $10,000. And for some people, particularly for their mortgage is paid off, they have potentially $10,000 in taxes. And then they’d have to do $14,400 in contributions just to get any benefit whatsoever.

Joe: Charitable contributions.

Al: Charitable contributions, yeah. Because you always get to take your itemized deductions or your standard deduction, whichever is higher. Like let’s say you gave $10,000 away every single year. So $10,000 taxes, $10,000 for charity. That’s $20,000, well – no benefit because you get the standard deduction of a little over $24,000. So what you do instead is you bunch it up. So in other words, one year maybe you do $20,000 in contributions and the next year you do nothing in contributions – that way at least one of the two years you end up with something that you can deduct as far as itemized deductions. And in their case their account already did the math, and they can save about $4,000 doing it that way. Part of the problem, Joe, though, is then you’re going to have one year where you owe tax, more tax, and one year where you don’t. And so then how do you get that tax paid in? And that was really the question. So the way it works, to avoid penalty, you either have to pay in 100% of last year’s tax, or a little side point, 110% if your income was over $150,000, or you pay in 90% of this year’s tax. And how do you make payments? One of two ways: either have withholding from your job salary, from your pensions, that sort of thing. Social Security, you can have withholding from that, or you make estimated payments, which are quarterly payments. And it kind of works out the same whether you do estimates or withholding, it’s same-same, as long as you make those estimated payments quarterly. And the quarter system is kind of all goofy. The first quarter payment is due April 15th, the second one is June 15th. So it’s two months later. The third one is September 15th and the fourth one is the following year on January 15th. So in this example, assuming, Chris, that you need to make payments because you didn’t qualify for paying in 100% of last year’s tax or 90% of this year’s tax, you would have to make those estimated payments quarterly. If you make them all at one time in December, you will minimize penalties, but you will still have penalties from April to December because you missed the first, second, and third estimated payment.

Joe: So there’s a timing issue as well.

Al: Timing issues. And if you do have a penalty, you’re charged that the interest rate which is currently 3%. So it’s not a big number, but nevertheless, it is a penalty to be aware of.

Joe: So let’s say if my tax bill is $8,000 and I pay that $8,000 December 31st, but I should have probably paid $2,000, $2,000, $2,000, $2,000.

Al: Correct.

Joe: And so I’m going to get a penalty of 3% for the $2,000 missed payment in April and another 3% penalty on the $2,000 I should have paid in June, right? Is that how it kind of works?

Al: Right. And it’s and it’s pro-rated, so the one in April is is essentially about nine months late. So 3% times nine twelfths if you’re an accountant and you want to know how this works. And the next one was paid in June. So roughly half the year. So for about six months you’re going to get charged for 3% interest, which in that example is about a percent and half. It usually doesn’t work out to a big number unless you’re talking big dollars owed. And so what a lot of people do is they just say, “well, I’ll just pay it when it’s due. No big deal.” But if you want to avoid penalty, and some people don’t want to pay one more dollar to the IRS than they have to…

Joe: People get freaked out.

Al: They do. They do. And if that’s…

Joe: Like, a hundred dollar penalty, man, I’ve seen people lose their minds. (laughs)

Al: End of the world. So if that’s you, and I’m not – no judgment, I mean that’s great. But then make your estimated payments quarterly. If you pay ’em in December you’re gonna be charged a penalty.

Joe: So which is interesting – she’s bunching and she’s also doing what is called a donor-advised fund. What a donor-advised fund is, is just a technique of bunching. So is she bunching in the donor-advised fund you think or is she doing a little bit of both?

Al: That’s what I’m guessing she’s doing that. I don’t know that for sure, but it’s two different strategies. So the bunching is where you make, like, all your your charity….

Joe: I’m going to give to the University of Florida, $10,000 a year. I’m not getting any tax benefit of it, so I’m going to give the University of Florida $20,000 this year. Next year I’m not going to give them a dime. The following year I’m going to give them $20,0000, the next year I’m not going to give ’em a dime. Yes. But then the years I don’t give them a dime, they call me off the hook and say, “Joe, what happened to our $20,000 donation?”

Al: That’s the problem. “I was expecting 20.”

Joe: “Come on buddy. You’re not a fan of the alumni anymore?”

Al: Right. So my in my experience, here’s my suggestion. Make your first $10,000 contribution in January, and then your second one in December. So it kind of feels like every other year to the charity…

Andi: Feels like every year to the charity.

Al:  Yeah every year, sorry. But for you, you’re bunching it up in one year. Now, contrast that with a donor advised fund, which is, you just put money into a donor-advised fund, it’s a special kind of account you set up at a custodian generally, and the year you put the money in that account is the year you get a tax deduction. And then you get to decide how to dole that money out to charities at any point in the future. And then this example, maybe you make up a bigger amount to the donor-advised fund and then dole it out over every couple of years.

Joe: So let’s say I have a big income year. I’m going to put four years of contributions, $40,000, into the donor-advised fund, I get the tax deduction this year. It’s in the donor-advised fund, then I dole that money out as I see fit for the rest of my life.

Al: Yeah that’s exactly right, and a little side point: if you like the idea the donor-advised fund – and it is a pretty good idea, particularly when you a high tax bracket to get that tax deduction for future year contributions in the current year – is, give away appreciated stock. If you have appreciated securities, mutual funds that are outside of your retirement account, give those to the donor-advised fund because whatever they’re worth on the date of donation is your tax deduction, and you don’t have to pay taxes on the capital gains – so you get a double benefit.

Joe: All right, that’s it for us. For Big Al Clopine, I’m Joe Anderson. The show is called Your Money, Your Wealth®. Thanks a lot for listening.


Special thanks to our guest, Danielle Kunkle Roberts of Boomer Benefits, find the link to her website in the podcast show notes at YourMoneyYourWealth.com. If there is something you want to know or hear on YMYW, drop us an email or let us know on our Facebook, Twitter or LinkedIn pages – tag us, we’ll follow you, and the fellas will answer you on the podcast. All our social links – and links to subscribe the podcast on your favorite podcast app – await you in the podcast show notes at YourMoneyYourWealth.com.

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