Speaker 1: Welcome to How to Money. I'm Joel and I am that,
Speaker 1: and today we're talking about minimizing the retirement tax time
Speaker 1: bomb with Ed Slot.
Speaker 2: It would be tough to find anyone who knows more
Speaker 2: about IRA's than Ed Slot. And that is a quote
Speaker 2: not from us here at How to Money, but from
Speaker 2: USA Today, the Journal, the Wall Street Journal. They've actually
Speaker 2: named our guest as the best source for IRA advice,
Speaker 2: which is incredibly high praise. And so it should come
Speaker 2: as no surprise that we're talking about retirement accounts today.
Speaker 2: Ed Slot's company is the nation's leading source of accurate,
Speaker 2: timely IRA expertise and analysis, which they provide to financial advisors, institutions,
Speaker 2: and media like us. He is often quoted in The
Speaker 2: New York Times, Forbes, Kiplinger, countless others. He's appeared on
Speaker 2: virtually all the TV networks out there, and he's author
Speaker 2: of the new book, The Retirement Savings time Bomb Ticks Louder,
Speaker 2: which is a follow up to his previous book from
Speaker 2: a few years ago, which we'll also discuss today. But
Speaker 2: Ed Slott, thank you so much for talking with us
Speaker 2: today at How the Money.
Speaker 3: Well, great, great to be here. You just took away
Speaker 3: my secret weapon.
Speaker 1: What's that?
Speaker 3: Low expectations?
Speaker 1: Sorry about that?
Speaker 3: Yeah, how big of a build up?
Speaker 1: Well, when you are as experienced and someone like you
Speaker 1: has just dove in so deep when it comes to
Speaker 1: something like Iras.
Speaker 2: And so we talked to a lot of listeners and
Speaker 2: they think that we love roth Irays, but actually I
Speaker 2: think Ed Slott might have his beat. We're excited to
Speaker 2: talk about that later on today. After reading what you've
Speaker 2: written about and what you've how much information you've delved
Speaker 2: into on roth Iras, I'm like, I feel like I
Speaker 2: know nothing in comparison to Ed Slott.
Speaker 3: Ed.
Speaker 1: The first question we ask everyone who comes on the show,
Speaker 1: by the way, is what do you like to splor
Speaker 1: jeh on? Because Matt and I we like to splor
Speaker 1: jeh on good beer. That's kind of somewhere into.
Speaker 3: I don't even have anything that is what do I splurans?
Speaker 4: Kraft beer is our thing.
Speaker 2: But there's something that that people think is a waste
Speaker 2: of money that you spend a little bit extra on.
Speaker 3: Oh no, I don't waste that. I eat very simple.
Speaker 3: I don't drink what do I splur John, I don't
Speaker 3: know pizza, make.
Speaker 4: Cars, watches, vacations, pizza.
Speaker 3: Pizza, you know, but I eat simple. You know. It's
Speaker 3: a good way to save money, by the way, and
Speaker 3: I don't do it to save money. I like local,
Speaker 3: regular food. Yeah, I don't get anything. I can understand
Speaker 3: what the ingredients are.
Speaker 2: I feel like there's a resurgence coming of like we're
Speaker 2: the only ingredient of the food should be the food itself, right,
Speaker 2: So it's.
Speaker 3: Like, well, who knows what's on you know. I like
Speaker 3: pizza with all kinds of stuff on it, and I
Speaker 3: probably shouldn't like that, but that simple stuff. Chicken wings,
Speaker 3: I mean, by the way, I just saw in the
Speaker 3: paper recently. I don't know what made me think of
Speaker 3: chicken wings, but sometimes my wife likes boneless wings. And
Speaker 3: I don't know if you saw in the paper. There
Speaker 3: was an Ohio court case that just resolved the question.
Speaker 3: Apparently that somebody sued that they said boneless wings. The
Speaker 3: guy was having boneless wings at a place. There's a point,
Speaker 3: I'll get to the point on this at a place
Speaker 3: in Ohio and it had a two inch bone in
Speaker 3: it that he swallowed and needed all kinds of surgeries.
Speaker 3: Is horrible. And then he sued this company and it
Speaker 3: actually went to court and the judges ruled that boneless
Speaker 3: wings indeed have bones. And that's okay. You know that.
Speaker 3: In other words, a guy lost.
Speaker 1: You would say, just a marketing tactic.
Speaker 3: Yeah, So it made me think that, wait a minute,
Speaker 3: if if people say these are boneless, you know, they're
Speaker 3: free of bones. When somebody says something's tax free, is
Speaker 3: it really tax free or they're like taxes in there
Speaker 3: that you have to swallow. So that that was what
Speaker 3: I took.
Speaker 4: Out of that story, anything that I can apply it.
Speaker 2: To the ad the books that he right, I love it.
Speaker 1: That's right.
Speaker 3: Well, I'll tell you another one another story. Are you
Speaker 3: a nice hockey fan?
Speaker 4: I've been known to go to a match?
Speaker 3: All right, I'm gonna the fact that you call the
Speaker 3: game a match tells me all I need to know.
Speaker 3: All right, But it doesn't even matter. But there was
Speaker 3: a story about one of the famous hockey players. He
Speaker 3: plays on the Tavarus. He used to play for the
Speaker 3: long the Islanders. Now he got a big one hundred
Speaker 3: million dollar contract with Toronto which involved Canadian and USA taxes,
Speaker 3: and it was base his contract was based. I guess
Speaker 3: he worked with an agent because the taxes are so
Speaker 3: heavy when you have two countries hitting you at the
Speaker 3: same time. I guess, like a lot of athletes, it
Speaker 3: was based on how much he nets after tax. That's
Speaker 3: how you should do retirement planning, how much you net
Speaker 3: after tax.
Speaker 1: Yeah, that's a good point because lots of times we're
Speaker 1: thinking about especially when we're talking about the four to
Speaker 1: one k traditional four one k or a traditional IRA.
Speaker 1: You're right, and this is something you speak to a lot.
Speaker 1: It might look like a big number, but it's not
Speaker 1: as big of a number as it actually seems. And
Speaker 1: one of the things you say at is the single
Speaker 1: greatest threat to a dream retirement is taxes. So can
Speaker 1: you can you kind of convince us that that's the case.
Speaker 3: Well, it's not only the taxes, it's the uncertainty of
Speaker 3: future taxes that could hit you at the worst possible
Speaker 3: time in retirement. When you want stability and certainty. You
Speaker 3: want to know you have a certain income coming in.
Speaker 3: How much of that is going to go out to
Speaker 3: the government. We don't know that. That's the scary part.
Speaker 3: We know what it is now. So the whole point
Speaker 3: of my book is to lock in today's unbelievably low
Speaker 3: tax rates. Everybody complains about taxes, but these are the
Speaker 3: good old days. If you don't do something now, you're
Speaker 3: going to look back, Oh, how did I blow that?
Speaker 3: Twelve twelve percent, twenty two, twenty four percent taxes were
Speaker 3: on sale and I blow it.
Speaker 4: It's gonna seem quaint.
Speaker 2: Honestly, hearing you say this makes me think about mortgage
Speaker 2: rates back in the right. I mean, for the longest
Speaker 2: time we had rock bottom mortgage rates. But the thing is,
Speaker 2: you start getting used to that, and you start thinking
Speaker 2: that that becomes the norm. But then quickly, as we've
Speaker 2: seen that, it doesn't stick around, and you're seeing the
Speaker 2: same thing about tax rates. You points to the fact
Speaker 2: in your book, how tax rates they've pretty much been
Speaker 2: on a steadied decline since the nineteen forties. That's the
Speaker 2: that's one of the biggest arguments that you've got four
Speaker 2: tax rates returning to where they previously have been.
Speaker 1: Is that right?
Speaker 3: Well, you know, there's a saying. I think Mark Twain
Speaker 3: said history doesn't repeat itself, but it rhymes or another
Speaker 3: way to say that those who don't learn from history
Speaker 3: are bound to repeat it. And that's what I worry about.
Speaker 3: I worry about the growing debt. The thirty four trillion
Speaker 3: or deficit just hit a trillion dollars. Now, some people
Speaker 3: could say, well, who cares about that, because Congress will
Speaker 3: keep kicking the can down the road. But as a CPA,
Speaker 3: as an accountant, at some point, I have to believe
Speaker 3: in math and this whole You know, there's only three
Speaker 3: kinds of people in this world, three kinds, those who
Speaker 3: understand math and those who don't.
Speaker 1: Three kinds. I appreciate that, Y.
Speaker 3: Yeah, yeah, I need somebody to hit the snare on
Speaker 3: it anyway anyway, but the math tells me that the
Speaker 3: whole country is living on a credit card bill. At
Speaker 3: some point that bill has to be paid, I would think,
Speaker 3: unless Congress keep kicking the can down the road. But
Speaker 3: you don't want to be the one holding the bag.
Speaker 3: When Congress comes to its senses and says we need
Speaker 3: more revenue, where can we get it? H let's hit
Speaker 3: those people that made that deal with us. We got
Speaker 3: them good. Who's at most at highest risk of losing
Speaker 3: or being subjected to future higher taxes? Those are the
Speaker 3: people who do nothing now, the people with the most
Speaker 3: money in pre tax of four oh one k and
Speaker 3: iras Because that money has not yet been taxed. In
Speaker 3: my book, I call it the low hanging fruit or
Speaker 3: a big juicy steak to Congress, because Congress has every
Speaker 3: right to say, that was a deal you guys made.
Speaker 3: You got your deduction up front. Now we tax it,
Speaker 3: but we don't know the rate. You mentioned a mortgage.
Speaker 3: You know there's a mortgage on your IRA. I always
Speaker 3: say your IRA is an iou to the irs, but
Speaker 3: unlike a mortgage, like when you go in for a mortgage,
Speaker 3: because the concept is similar. There's a debt on your IRA.
Speaker 3: Part of that is owed right back to the government.
Speaker 3: It's not all yours. Most people don't see that. Matter
Speaker 3: of fact, I had clients over the years. I remember
Speaker 3: this one guy years ago, he finally hit a million
Speaker 3: dollars in his IRA. Was so happy. He came in.
Speaker 3: He showed me this statement. He said, look at this,
Speaker 3: I got a million dollars in my IRA. I said,
Speaker 3: what are you looking at? What do you show me?
Speaker 3: That's not yours. It's just temporarily on your letterhead. You're
Speaker 3: not keeping most of that. And he said, what do
Speaker 3: you mean it's mine? No, it's not yours. You have
Speaker 3: a partner. Sam it's a joint account. But think of
Speaker 3: a think of your IRA like that. Can you imagine
Speaker 3: thinking of it as a joint account, which it could be.
Speaker 3: But here's the difference. You go in for a mortgage.
Speaker 3: Let's say you go in, you do all you due diligence,
Speaker 3: You know what that mortgage is, you know how much
Speaker 3: you owe. But the mortgage on your IRA is open ended.
Speaker 3: In other words, if you went in yeah, yeah, depending
Speaker 3: on how much Congress needs. So imagine you went in
Speaker 3: for this mortgage and you did all your homework on
Speaker 3: your home. You know the rates, you know the comparables
Speaker 3: and all the you know everything. You're coming well prepared.
Speaker 3: You have all your notes, and you say to the banker.
Speaker 3: You're sitting there with the banker. If anybody actually does
Speaker 3: this in a bank anymore. But let's say you're going
Speaker 3: old school. You're in with the mortgage company, the banker,
Speaker 3: and you start showing all your numbers, and the banker says,
Speaker 3: don't worry. You put that stuff away. That's all meaning.
Speaker 3: But we did our homework. What's the rit Don't worry
Speaker 3: about the rate? What do you mean, don't worry about
Speaker 3: the rate. Don't worry about it when we need the
Speaker 3: what about payments? Don't we have to repay you? Don't
Speaker 3: worry about it? What do you mean, don't worry about it?
Speaker 3: When we need the money back from you, we'll tell
Speaker 3: you what the rate is.
Speaker 1: That sounds scary?
Speaker 3: Yeah, who would sign up for that deal? We all did.
Speaker 3: It's called an IRA.
Speaker 2: Sure, So okay, I quick follow up, And maybe this
Speaker 2: is slightly outside of your realm of expertise, even though
Speaker 2: you do know what's on here. But on one hand,
Speaker 2: you can either increase taxes or on the other hand,
Speaker 2: you can reduce what it is that you're paying out.
Speaker 2: What it sounds like, you think that there's a higher
Speaker 2: likelihood of the fact that people are going to want
Speaker 2: to maintain receiving their benefits what it is that the
Speaker 2: government is doing for them, and so therefore the only
Speaker 2: alternative is to actually increase taxes.
Speaker 3: I think the only alternative is to increase taxes, But
Speaker 3: it's not politically viable, so I don't know if it'll
Speaker 3: ever happen. Maybe Congress will keep kicking the case down
Speaker 3: the road. But that leaves you with the uncertainty of
Speaker 3: what future taxes might be. When you need to have
Speaker 3: certainty the most in retirement when a lot of things
Speaker 3: are fixed for you.
Speaker 1: Adding into the future uncertainty question is literally a tax program,
Speaker 1: The Tax Cuts and Job Act that is supposed to
Speaker 1: sunset right has a fixed expiration date. So how does
Speaker 1: that impact the way you think about our current response
Speaker 1: to future tax rates?
Speaker 3: Well, tax rates are supposed to go up, and we
Speaker 3: don't know if it's going to be totally gone, you know,
Speaker 3: come back the higher rates. We don't know if they're
Speaker 3: going to come back this post as you say, in
Speaker 3: twenty twenty six, if nobody does anything, they'll be higher rates,
Speaker 3: mostly on the top level, but a lot of people,
Speaker 3: even the middle income people, will be paying higher taxes
Speaker 3: because the big standard deduction. There's giant standard deductions. We've
Speaker 3: all become used to ninety center. The people don't even
Speaker 3: itemize anymore. They take these giant standard deductions. That's IRS
Speaker 3: numbers ninety percent. If that goes back to cut in
Speaker 3: half and you have to rely on certain itemized deductions,
Speaker 3: your taxes may go up.
Speaker 1: That's true, yea.
Speaker 2: So okay, So we're talking about roth accounts, and the
Speaker 2: reason it sounds like that you're a big fan is
Speaker 2: essentially that you're you're it's a guarantee, right. Going back
Speaker 2: to the mortgage example, it's the equivalent of getting a
Speaker 2: locked in rate and perhaps even the ability to not
Speaker 2: even see your Yeah, your escrow go up. Maybe you
Speaker 2: can like lock in your insurance somehow as well. Is
Speaker 2: that Is that why it is that you are such
Speaker 2: a big fan of roths?
Speaker 3: Yeah, you hit it perfectly. You are locking in known
Speaker 3: rates which is zero, and you know what people say
Speaker 3: to me, ed, But what if you're wrong? What if
Speaker 3: rates go down? First of all, does anybody I'll give
Speaker 3: you an example. I talk to CPA's other financial advisors,
Speaker 3: even consumers, and I always ask this question. First. I
Speaker 3: always pull the audience and say how much they show
Speaker 3: by show of hands, how many of you believe tax
Speaker 3: rates will go up in the future. Maybe half the
Speaker 3: hands go up. Yeah, they said, all right, I'd have
Speaker 3: to have to. Then I ask a follow up question.
Speaker 3: I said, all right, I see, let me ask you this,
Speaker 3: how many of you think tax rates will go down?
Speaker 3: Not one hand? And then I said, but that's the
Speaker 3: same question I just asked you. The first question just inverted.
Speaker 3: So nobody really thinks tax rates will go down. We're
Speaker 3: at rock bottom now. So if rates go up, the
Speaker 3: ROTH always wins. Really, the whole raw thing is really
Speaker 3: just a bet on where you see your future tax
Speaker 3: rates going. And that leads to something else, which I'm
Speaker 3: sure is going to be your next question, but ask
Speaker 3: it anything.
Speaker 1: Okay, So my question here is, yeah, we're talking about
Speaker 1: future tax rates, but we're also talking about like the
Speaker 1: individual reality of income. Right, So how does someone's specific
Speaker 1: income influence your advice? High income earners? Right, that's is
Speaker 1: the people in those higher tax brackets who would say, oh,
Speaker 1: that's when the traditional makes the most sense. And of
Speaker 1: course if you're early on your lower earning years, the
Speaker 1: ROTH makes like it's slam dunk. So what about opting
Speaker 1: for traditional accounts because of some of those secondary factors too,
Speaker 1: like qualifying for a subsidy for healthcare or something like that.
Speaker 3: Yeah, those are issues, but they're not the biggest issues.
Speaker 3: I thought you were going to ask me, and you
Speaker 3: were skating around it because the number one question when
Speaker 3: I talk about rates going up, your rates going up?
Speaker 3: Because I said, it's all based on a big bit,
Speaker 3: and when you started talking about higher income people, the
Speaker 3: next question I usually get, But ed. I got this
Speaker 3: from my clients over the years, my rates in retirement.
Speaker 3: If I don't have that big W two anymore, my
Speaker 3: rates will be lower. So that tells me I shouldn't
Speaker 3: do the roth because I'll be based on your math.
Speaker 3: If you're in a lower bracket, lower marginal rates in retirement,
Speaker 3: you do better with a traditional ary not converting. And
Speaker 3: that's true. The myth proves that out. But that to
Speaker 3: me is the number one myth in retirement. Everybody thinks
Speaker 3: I'll be in a lower bracket and retirement, and we
Speaker 3: have almost never seen that happen, even for high income people.
Speaker 3: I'll give you an example. But there are a number
Speaker 3: of reasons for it.
Speaker 1: But is that because they're contributing so much to that
Speaker 1: retirement account.
Speaker 3: Well, I'll tell you why I had this guy. I've
Speaker 3: been telling him about the raw years ago when it
Speaker 3: doesn't even matter when, but years ago, when I was
Speaker 3: doing more client work. Anyway, for a year after year,
Speaker 3: he's coming into retirement. I said, do the raw to
Speaker 3: the raw. No, no, no, no, I'll be in a
Speaker 3: load to bracket and retirement. This went on every year.
Speaker 3: Finally he comes in all happy for all eager in
Speaker 3: anticipation because he came in to do his taxes for
Speaker 3: his first full year of retirement. In other words, no
Speaker 3: W two at all, so he can't wait to get
Speaker 3: the results I give him the tax attorney said, ed,
Speaker 3: how could this be? My income's higher than my best
Speaker 3: years working. How could this be? I said, it's easy
Speaker 3: because you never listen to me. That's how it can be.
Speaker 3: I told you this would happen. He said, but I
Speaker 3: don't even have my W two. I said, yeah, but
Speaker 3: all as you just said, all those years you kept
Speaker 3: contributing to the four one k and eventually rolled to
Speaker 3: an IRA, and now your required minimum distributions, your R
Speaker 3: and DS are in fact higher than your best W
Speaker 3: two ever, and now your income will be higher and
Speaker 3: your taxes will be higher in retirement, so you probably
Speaker 3: should have converted. It's not only the income that's higher.
Speaker 3: Deductions are generally lower. You lose both ends in retirement
Speaker 3: because you don't get the deduction for your four to
Speaker 3: one k contributions anymore. You're not working. You probably, in
Speaker 3: retirement don't have any tax benefits for dependent or minor children.
Speaker 3: You probably don't have any mortgage interests because you paid
Speaker 3: our your house. So a lot of things are happening
Speaker 3: both on the income side, where your income's higher because
Speaker 3: you'll let your account grow and your deductions are lower.
Speaker 2: Okay, and I totally get where you're coming from, But
Speaker 2: this also sounds like a nice problem to have, right
Speaker 2: somebody who's a high earner, maybe somebody who's paying a
Speaker 2: pretty well known CPA in New York. What about for
Speaker 2: folks out there who are they're pretty dang frugal, they're
Speaker 2: living very affordably, and they truly, in fact, are going
Speaker 2: to expect to see their income decrease significantly in their
Speaker 2: quote unquote retirement years. Do you think that it would
Speaker 2: make sense for them?
Speaker 3: That could be, but I wouldn't put all my eggs
Speaker 3: in one basket. Maybe for those people doing a series
Speaker 3: of smaller conversions over the years. Here's the key to conversions.
Speaker 3: You want to use up the lower tax brackets, these twelve, twenty, two,
Speaker 3: twenty four percent. If you leave any of those unused,
Speaker 3: you've blown it. You've just given a gift to the
Speaker 3: government that you can never get back. An unused tax
Speaker 3: bracket can never You don't get it back.
Speaker 1: Ye, yeah, once that years past, you can't go back
Speaker 1: in time.
Speaker 3: And to leave that on the table. Like I've had
Speaker 3: people over the years tell me, Ed, look at this,
Speaker 3: I paid no tax this year because my income was
Speaker 3: so low. I said, I'm sorry to hear that, Not
Speaker 3: that your income's low. I'm sorry you paid no tax.
Speaker 3: That tells me you didn't use the lower brackets. You
Speaker 3: should have been converting that large IRA and used up
Speaker 3: the brackets so hard. So sorry to hear your tax
Speaker 3: planning went off the rails.
Speaker 1: Yeah, that's more of a myopic view. It's a single
Speaker 1: year view versus taking a exact rist approach, right, And
Speaker 1: you're like, I want the pay the lowest amount of
Speaker 1: possible taxes over time. And some of the people who
Speaker 1: are opting for traditional accounts instead of ROTH accounts are
Speaker 1: thinking about single year versus multi year planning. Talk about
Speaker 1: the idea of tax diversification for a second, ED, because like,
Speaker 1: what about the idea of having ROTH and traditional assets
Speaker 1: you can kind of choose your own tax adventure or
Speaker 1: such in retirement. It sounds like you don't think that's
Speaker 1: a solid idea and you would rather people go all
Speaker 1: in on ROTH accounts. Is that right?
Speaker 3: No? This something to be said. You said tax diversification.
Speaker 3: I use the term a little different. I call it
Speaker 3: tax risk diversification, because you should everybody should have some
Speaker 3: position in tax free just as a buffer, as a
Speaker 3: guard rail, as a defensive tactic in case rates do
Speaker 3: go through the roof. That's your only defense. So you
Speaker 3: have to have something in a row would say, I
Speaker 3: would say at a minimum, and it's okay to have
Speaker 3: a hybrid system. Maybe you actually believe you'll be in
Speaker 3: a lower bracket in the retirement and there's reasons not
Speaker 3: to convert. Maybe you're a big giver to charity and
Speaker 3: you want to do these qcds when you get all
Speaker 3: to qualified charitable distributions. Iras are great vehicles to get
Speaker 3: money out at zero percent tax rates, so you might
Speaker 3: want to keep some iras for that. Or you might think,
Speaker 3: what if I have big medical expenses, I want to
Speaker 3: be able to deduct them, Well, you have to have
Speaker 3: income to deduct them. You may want to keep some
Speaker 3: iras for that number of reasons to keep something in there.
Speaker 3: But I would say everybody should have some kind of
Speaker 3: tax risk diversification by building up in your wrath.
Speaker 2: Yeah, So basically what it sounds like is a little
Speaker 2: bit of both perhaps. So yet's say you've got a great,
Speaker 2: great four one k plan at work, You've got a
Speaker 2: low cost plan that you can be a part of
Speaker 2: in a widely diversified index fund. Maybe go ahead, take
Speaker 2: the tax break. Now contribute to the four one k,
Speaker 2: but also beyond that. Yeah, maybe folks should be considering
Speaker 2: their wroth irais for any dollars invested beyond that four
Speaker 2: one k.
Speaker 3: Yeah, except it's not a tax break. People call it.
Speaker 3: I even called it a deduction for the four oh
Speaker 3: one k, because that's what people call it. You know,
Speaker 3: you get you pay tax on the net amount. For example,
Speaker 3: with a four oh one k. If your wages of
Speaker 3: fifty thousand and you take you say, put ten thousand
Speaker 3: of that my four oh one k, you only pay
Speaker 3: tax on forty thousand the net or a four to
Speaker 3: one k. So people call that a deduction or exclusion
Speaker 3: from income. But it's not a real deduction to me,
Speaker 3: a real deduction. As you take a medical deduction or charity,
Speaker 3: you get that tax benefit, you never have to give
Speaker 3: it back a deduction for a four oh one k.
Speaker 3: Taking that deduction is really just alone you're taking from
Speaker 3: the government to be paid back probably at the worst
Speaker 3: possible time in retirement, unless you're sure to be in
Speaker 3: a lower bracket.
Speaker 1: All right, We've got a few more questions we want
Speaker 1: to get to with you, including you want to talk
Speaker 1: about like the timing of roth conversions, because let's say
Speaker 1: people are listening to you and they're saying, I want
Speaker 1: to kind of remedy is ticking time bomb? How do
Speaker 1: I do that? When do I do that? We'll get
Speaker 1: to some questions on that with you in just a second.
Speaker 2: We are back from the breaks offing with Ed slot
Speaker 2: about the ticking tax time bomb, and Ed a lot
Speaker 2: of our previous segment you were discussing the wroth Ira
Speaker 2: and specifically like there you raise no questions about the
Speaker 2: roth Ira essentially going away, and so I guess that's
Speaker 2: what I would address, Like what are the chances of
Speaker 2: a like a roth Ira rugpole where the government needs
Speaker 2: money so badly that they you know, they they're looking
Speaker 2: at the traditional accounts and they're thinking, well, yeah, of
Speaker 2: course we're going to be able to milk that for
Speaker 2: all that we can.
Speaker 4: But then you've also got this.
Speaker 2: Other giant pile of money that is almost it's like
Speaker 2: the forbidden fruit. But is there a point in time
Speaker 2: when the fruit becomes I don't know, less forbidden.
Speaker 3: This is a great question you asked. You know why
Speaker 3: I when I do seminars, especially to consumers, and I,
Speaker 3: you know, keep going on the roth. I'm all in
Speaker 3: for the roth because I love tax free and I
Speaker 3: haven't ever had a person I recommended it to to
Speaker 3: come back and say I wish I didn't do it.
Speaker 3: Everybody is drilled. They don't even remember they paid the tax.
Speaker 3: All they're looking at is their accounts going up and
Speaker 3: up and up, and it's all tax free. They keep
Speaker 3: one hundred percent. But given all that and all the
Speaker 3: stuff I talk about about the big roth fan because
Speaker 3: I love tax free in retirement, who doesn't. But there's
Speaker 3: always somebody that asked me. That's a number one question
Speaker 3: I get at every seminar I do, especially from consumers.
Speaker 3: Except the only difference is they don't ask it as
Speaker 3: nice as you just asked it. They'll say something along
Speaker 3: the money, Yes, it's it's here's the question I get,
Speaker 3: can of ed? This is great? You talk about all
Speaker 3: the roth roth. Can I trust the government to keep
Speaker 3: its word that roth iras will always be income tax free.
Speaker 3: And my answer is always no. You can't trust Congress
Speaker 3: as far as you can throw them. As CPA's we
Speaker 3: have an old saying tax laws are written in pencil,
Speaker 3: so they can change them anytime they want. But here's
Speaker 3: why I believe you're safe with a wroth. They're never
Speaker 3: gonna they're never going to touch it. It's good your question.
Speaker 3: You don't have to worry about will they change? Uh? No,
Speaker 3: One thing Congress learned, well, one thing we learned from Congress.
Speaker 3: Lucky for all of us, Congress are the worst financial
Speaker 3: planners on earth, and we should use that shortsighted mentality
Speaker 3: to our advantage. It's one thing Congress learned about ross.
Speaker 3: And they learned this back in twenty ten. Do you
Speaker 3: remember what happened with roths in twenty ten?
Speaker 4: I don't. Actually, Well i'll tell.
Speaker 3: You because I told everybody on earth to take that deal.
Speaker 3: Congress as usual needed money.
Speaker 1: Oh this was when it was like two you could
Speaker 1: delay paying tax right for a couple of years.
Speaker 3: Yes, well it was bigger than that. It used to be.
Speaker 3: When the roth rules were first written, people, you couldn't
Speaker 3: convert to a wroth if your income exceeded one hundred
Speaker 3: thousand dollars. In twenty ten, Congress realized, oh, we need money.
Speaker 3: Let's let the rich people, you know, the people with money,
Speaker 3: let them convert. We'll get them money. And they eliminated
Speaker 3: that requirement, so it opened up the floodgates for people
Speaker 3: to convert. In two thousand, I converted everything. I begged
Speaker 3: everything I converted that year. I begged everybody and every
Speaker 3: seminar take that deal. In fact, recently I just had
Speaker 3: a seminar. I was telling a group of CPAs CA
Speaker 3: colleagues about this, and I said, I begged you, guys,
Speaker 3: if you remember to take tell your clients do it
Speaker 3: for yourself like I did to take that deal in
Speaker 3: twenty ten. And I always I told them I converted
Speaker 3: everything in twenty ten. And I threw the question out
Speaker 3: to CPAs and I said, I converted everything. Guess how
Speaker 3: much tax I paid? And they said, well, you got
Speaker 3: to give us the rate and this I forget that
Speaker 3: I paid zero zero, And they're looking at their heads.
Speaker 3: Their heads are turning around like it's exorcist to something. No,
Speaker 3: I paid zero. You should have been telling your clients
Speaker 3: to take that deal. That was the deal you paid
Speaker 3: zero in twenty ten half and eleven half in twelve.
Speaker 3: So in effect, the government gave everybody an interest free
Speaker 3: loan to build a tax free savings account. It was
Speaker 3: a deal of a century and everybody should have taken
Speaker 3: that deal. What did Congress learn from that? They saw
Speaker 3: boat loads of money, revenue coming in from people like
Speaker 3: me and everybody else. They made large conversions and Congress said, wow,
Speaker 3: what a deal. Look at all the revenue they bring in.
Speaker 3: And they didn't look back. You know that they what
Speaker 3: they're losing in the future because they're so short sighted.
Speaker 3: You know, they look at budget cycles, five ten year
Speaker 3: budget cycles, and they realize, hey, this rough thing brings
Speaker 3: in money, let's expand it. So they expanded rough warowin
Speaker 3: K's and blah blah blah, on and on until they
Speaker 3: really showed their hand in Secure two point zero, the
Speaker 3: most recent big tax law where they went roth crazy.
Speaker 3: I call it roth Amania. They said, now let's let's
Speaker 3: find every which way for people to do roth. Let's
Speaker 3: have and we have them now roth sep I rays
Speaker 3: roth simple Iras five twenty nine to roth irase rough
Speaker 3: warowin K's no rm D's Rough four and k's matching
Speaker 3: Roth Warol and K catch up brought roth Roth.
Speaker 1: Why did they do for the college investment rough?
Speaker 3: Everything Ruth? So why did they go all in on
Speaker 3: the rough because of their short sided mentality, which we
Speaker 3: should take advantage of, saying, look at all this money
Speaker 3: we get in because the only money that can get
Speaker 3: into a roth ira is already taxed money. They get
Speaker 3: their money upfront, in fact, in secure two point oh,
Speaker 3: the WROTH, all this ROTH stuff I just told you,
Speaker 3: these Roth enhancements and secure two point oh. If you
Speaker 3: actually look at the bill and you can see that online,
Speaker 3: if you go to the Congressional website or whatever that is,
Speaker 3: uh and you look at it all these pages of stuff.
Speaker 3: You look at the heading where the WROTH provisions are.
Speaker 3: It's under a giant title and giant font Revenue provisions.
Speaker 3: That's what it says, revenue provisions. So that tells you
Speaker 3: how Congress thinks about the WROTH. It's a money grab,
Speaker 3: it's a revenue generator, and it's good for us. So
Speaker 3: I mean, you know, let's take advantage of their short sightedness.
Speaker 3: So I'm going to tell you the secret. I just
Speaker 3: told you the secret.
Speaker 1: You know what.
Speaker 3: Franklin Are, one of our founding fathers, said about secrets,
Speaker 3: three people can keep a secret if two of them
Speaker 3: are dead. But here's the secret Congress, and I just
Speaker 3: gave it to anyway. They love roth iras it's not
Speaker 3: going anywhere because it brings in money up front and
Speaker 3: they don't look at the back end. Will they trim
Speaker 3: around the edges and find little ways maybe, But if
Speaker 3: they do anything to break the golden goose or kill
Speaker 3: this golden goose, they're going to kill their revenue strength forever.
Speaker 3: So I think the long story short, Roth is here
Speaker 3: at a stake my opinion.
Speaker 1: So we've been talking a lot about Roth contributions, and
Speaker 1: then you just kind of talked about Roth conversions specifically
Speaker 1: in twenty ten being this random occurrence that was amazing
Speaker 1: for investors. You've called Roth conversions overall a bet. What
Speaker 1: are the major factors at play in this bet? And
Speaker 1: how should How do money listeners think about, Oh, hey,
Speaker 1: I've got all this traditional IRA or traditional four or
Speaker 1: one K money. How do I know when and how
Speaker 1: to turn that into roth money?
Speaker 3: Well, you don't know. There's two parts to that. Some
Speaker 3: people ask when should I convert? Like market timing. You
Speaker 3: can't do it, so forget that part of it. You know,
Speaker 3: people say should I, you know market went down today,
Speaker 3: should I convert? By the time they convert, it went
Speaker 3: up a thousand points, So forget that. You can't market time.
Speaker 3: The best way to do the ROTH is, as I said,
Speaker 3: sort of dollar cost averaging into the market, using up
Speaker 3: the low brackets wall annual conversions over time. But the
Speaker 3: bet is that you believe tax rates will go up.
Speaker 3: But if you also believe tax rates won't go down,
Speaker 3: then it's a sure bet. If you believe your tax
Speaker 3: rate in retirement may go down, then and do partial
Speaker 3: But going back to the example you gave me earlier.
Speaker 3: You know a high income earner, they're saying, well, I'm
Speaker 3: at the top rates now I want to take my
Speaker 3: deductions at the top rates. That may be true, but
Speaker 3: you don't know what your future rates are. The top
Speaker 3: rate is only thirty seven percent, now how do we
Speaker 3: know the top and even a low rate when you're
Speaker 3: in retirement can exceed that, So you don't know. So
Speaker 3: the point is with the ROTH, it's a bet, but
Speaker 3: you there's certainty about the bet that you can lock
Speaker 3: in the rates that are here now. And the other
Speaker 3: part with the ROTH is you control your tax rates.
Speaker 3: You can control your tax rates how much you want
Speaker 3: to pay. Now, once you hit age seventy three, which
Speaker 3: is the required minimum distribution age, it's out of your control.
Speaker 3: You don't control it anymore. Then the government says you
Speaker 3: have to take a certain amount. I don't care what
Speaker 3: it does to your rate. Then it's out of control.
Speaker 3: You can control what you pay by using the Again,
Speaker 3: I can't say it enough, the low brackets, filling up
Speaker 3: those low brackets every year. You control how much you pay.
Speaker 3: And that's the beauty of the ROTH. Now, say I'm
Speaker 3: wrong about all of this ROTH stuff. It turns out
Speaker 3: you've converted everything because you listen to this great show
Speaker 3: and Matt, Joel and Ed and everybody's happy, and you
Speaker 3: went crazy, converted everything, you paid the tax And it
Speaker 3: turns out ten years later in retirement you say you
Speaker 3: know ED was wrong. Taxes went down. What's the worst
Speaker 3: case scenario if you lose the bet? So to speak,
Speaker 3: this is what I love about the row. Your worst
Speaker 3: case scenario, you locked in a zero percent tax rate
Speaker 3: on this ROTH for the rest of your life and
Speaker 3: ten years beyond it's not a bad consolation prize. Can't
Speaker 3: beat a zero percent.
Speaker 4: Tax rate, that's true.
Speaker 2: Well, I mean it makes me think too of the
Speaker 2: fact that, like you're talking of, like the fact that
Speaker 2: the highest tax bracker right now actually isn't all that high.
Speaker 2: Like that's one of the things you say, Like if
Speaker 2: you look back to ring a Gamble on anything, is
Speaker 2: that that tax rate the highest tax rates are going on,
Speaker 2: like the floor, it's not that far away from where
Speaker 2: we currently are, whereas the ceiling. Like again, like you
Speaker 2: look back to the forties, and I think the highest
Speaker 2: tax bracket was like ninety two.
Speaker 3: Yeah, do you have my book in front of you there?
Speaker 3: If you don't, yeah, we do. Go to page twenty eight.
Speaker 3: This is exactly why I put this chart on the page.
Speaker 1: That's the table that I was referring to. Yeah, it
Speaker 1: was nineteen nineteen.
Speaker 3: Or thirteen, Well I did. I shaded in there on
Speaker 3: page twenty eight. I give everybody the complete history of
Speaker 3: tax rates from the Sixteenth Amendment in nineteen thirteen to
Speaker 3: where we are now, and I shaded the years people
Speaker 3: like me and many people listening to you now are
Speaker 3: the baby boomers. The years the baby boomers were born.
Speaker 3: And if you look at that nineteen forty six or
Speaker 3: nineteen sixty four, the top federal tax rate, and I
Speaker 3: did this as a frame of reference to show how
Speaker 3: good we have it now. The top federal tax rate
Speaker 3: for those years exceeded ninety nine zero percent for every
Speaker 3: one of those years except the last year nineteen sixty four,
Speaker 3: when the top federal tax rates dropped to only seventy
Speaker 3: seven percent. Now, I'm told I wasn't there then. I
Speaker 3: was ten years old then watching the Beatles on Ed Sullivan.
Speaker 3: But I'm told by people who were there, they said,
Speaker 3: when they dropped that tax rate, the top rate to
Speaker 3: seventy seven percent. On seventy seven percent, the whole country
Speaker 3: did a happy dance. That's more than double today's top rate.
Speaker 3: So you got to look at for comparison. You know
Speaker 3: who knows how bad it can get. So you can
Speaker 3: lock in a zero percent rate for retirement with the
Speaker 3: raw I know what, and control your rates right now.
Speaker 1: If we're talking about smart planning, one of the things
Speaker 1: we've talked about on the show, Ed we talk to
Speaker 1: people who want to take like an extended leave of
Speaker 1: absence from work, or they want to take maybe six months.
Speaker 1: They want to quit their job for a while, become
Speaker 1: a digital nomad or something like that, wander the earth
Speaker 1: and guess what, Wait a.
Speaker 3: Minute, stop, isn't that like an oxymoron? Digital nomad?
Speaker 4: If you're always connected, where are you getting no service? Yeah?
Speaker 3: Yeah, where are you getting service? I'm the Sahara desert.
Speaker 1: Yeah that's that's good. Well, yeah, most of them go
Speaker 1: to the Sahara. That sounds intense, But yeah, what are
Speaker 1: your thoughts on maybe purposely reducing your income for a
Speaker 1: time in order to make the most of conversions and
Speaker 1: pay the least amountain tax.
Speaker 3: You know, it's funny you mentioned that I had a
Speaker 3: client that did that years ago. I remember I reference
Speaker 3: when roths first came out. You couldn't convert if your
Speaker 3: income was over one hundred thousand. I had clients. There
Speaker 3: were two teachers, and they each took there and combined
Speaker 3: their income from teaching was over one hundred thousand. But
Speaker 3: the guy was so adamant about converting. He saw the
Speaker 3: big picture right away, and he said him and his
Speaker 3: wife took sabbaticals to keep their income under one hundred thousand.
Speaker 3: They converted everything. At that point they were close to retirement.
Speaker 3: They each had about five hundred thousand. This was back
Speaker 3: in ninety eight when roths first came out, and they
Speaker 3: converted a million dollars when they last I heard from them.
Speaker 3: I think the husband died a few years ago. I
Speaker 3: think that's when I heard from them. His wrath alone
Speaker 3: was worth eight million dollars, all tax free. His teacher
Speaker 3: friends laughed at him, you're taking a sabbatical so you
Speaker 3: could pay extra taxes. They even saying, who's laughing now?
Speaker 2: So you think that that's a fas strategy, then the ability,
Speaker 2: because that's one of the things you have control over
Speaker 2: is your own g inta. You're talking about how you
Speaker 2: don't have control over future tax rates, but we do
Speaker 2: have the ability to moderate maybe how much we're working
Speaker 2: in the here and now, so that we can land
Speaker 2: ourselves in better financial positions.
Speaker 3: Well, you know that's not the same example I had
Speaker 3: this guy. You know, the teachers have that built in sabbatical.
Speaker 3: Your job is always there for you. I don't know
Speaker 3: if it's that kind of job. Maybe, But would I
Speaker 3: tell people leave their job in this market and then
Speaker 3: what do they do when they decide they want to
Speaker 3: work again? Maybe it's not available in this fast moving world.
Speaker 1: Well, something else you have to think about when you're
Speaker 1: doing a Roth conversion is paying the tax, and you
Speaker 1: have to have the money on hand to pay ask, right,
Speaker 1: So talk to me about that.
Speaker 3: Well, yes, paying the tax. But here's the thing I
Speaker 3: told you before. Tax rates are on sale. This tax
Speaker 3: will be paid. Though it's not if, but when so
Speaker 3: it will be paid. So it's just a matter should
Speaker 3: we use today's money you have available, or wait till
Speaker 3: maybe you have more money available, or don't do it
Speaker 3: all and pay for it and retirement it will be paid.
Speaker 3: I always say tax rates are on sale because people
Speaker 3: love sales. Look at how they trample people on Black Friday.
Speaker 3: How many people they could step over to get a
Speaker 3: TV for ten dollars off or something. People love sales,
Speaker 3: But unlike the thing in the store that's on sale.
Speaker 3: Sorry to say, you don't actually have to buy it
Speaker 3: with taxes you do. It's not if, but when so
Speaker 3: you're going to pay for it. So my feeling is
Speaker 3: whatever you could scrap together now, if you can't do it,
Speaker 3: you can't do it. Nobody should go broke. I say
Speaker 3: that in the book converting.
Speaker 1: You made a case for why the government loves roths. Right,
Speaker 1: how come they don't expand the income limits and just
Speaker 1: allow everyone or anyone to contribute to a roth? Is
Speaker 1: it that, Pete? I mean, I remember the Peter Teel
Speaker 1: story coming out, you know, billions of dollars in his wroth.
Speaker 1: Is that what they're trying to prevent?
Speaker 3: Yeah, but that was a one off and he did
Speaker 3: it legally. Yes, he has six billion or whatever in
Speaker 3: a roth ira that he only paid a seventeen hundred
Speaker 3: dollars for. He did it illegally, invested seventeen hundred dollars
Speaker 3: in PayPal or whatever it was. But he did it
Speaker 3: in his raw. So it's looking it's I think politically
Speaker 3: it looks like a gift to the rich. But you're right,
Speaker 3: if you can convert unlimited funds, why do they even
Speaker 3: have an income limit for who can contribute? The whole
Speaker 3: thing's ridiculous. Plus you can get around it by doing
Speaker 3: a backdoor raw. So I don't see the point of it.
Speaker 3: I agree with you.
Speaker 2: Yeah, if you think about it for more than a second,
Speaker 2: like it makes me think that there is the potential
Speaker 2: for them to expand that because if they are thinking
Speaker 2: more with that sort of myopic short termism mindset, right, Ed,
Speaker 2: like that they are going to want to get their
Speaker 2: hands on those dollars sooner rather than later. Continue to
Speaker 2: expand it. It looks like that they're being beneficial to
Speaker 2: some of the highway journers out there, when in fact,
Speaker 2: what they're trying to do is, I guess, get their
Speaker 2: hands on more money. And we've got more to discuss,
Speaker 2: and you mentioned the Secure Act two point zero multiple times.
Speaker 2: We want to talk about one of the implications of
Speaker 2: that when it comes to five twenty nine accounts, as
Speaker 2: well as more.
Speaker 1: We'll get to all that right after this. Alright back,
Speaker 1: we're still talking with Ed Slott talking about taxes and
Speaker 1: you know, how to avoid them as much as possible
Speaker 1: when it comes to our investments and keeping more of
Speaker 1: the money that we make and that we save and
Speaker 1: invest for ourselves for our own futures.
Speaker 3: Ed.
Speaker 1: What else you mentioned the Secure Act two point zero.
Speaker 1: That was that created a lot of big changes in
Speaker 1: retirement how we think about paying taxes in retirement require
Speaker 1: minimum distributions. It also changed we mentioned this briefly five
Speaker 1: twenty nine plans those got. That was one of those
Speaker 1: things that Matt and I when we were asked questions
Speaker 1: over the years, we weren't terribly keen on five twenty
Speaker 1: nine because for this one specific purpose, and guess what
Speaker 1: you should be making sure you're maxing out your own
Speaker 1: retirement contributions before you even really consider five twenty nine plans.
Speaker 1: But now five twenty nine plans that got a little
Speaker 1: more flexible, they got better, and there's even wroth abilities
Speaker 1: inside of that five to twenty nine plan. How do
Speaker 1: you think about those now?
Speaker 3: Well, there is, but it's misunderstood or people talking about
Speaker 3: how great the provision is. I just said it before,
Speaker 3: but it's highly limited. Here's the problem with five twenty nines.
Speaker 3: And I agree with what you said is absolutely right.
Speaker 3: I used to tell clients because they would always do it,
Speaker 3: you know, oh we just had a baby. Oh he's
Speaker 3: going to be the next whatever president, right, and he's
Speaker 3: going to go to Harvard and this, But what if
Speaker 3: he doesn't Now you have you know, we've seen situations
Speaker 3: where people have accumulated one hundred two hundred thousand that
Speaker 3: they can't even spend in these accounts. What's happening is
Speaker 3: some parents, grandparents are actually going back to school just
Speaker 3: to use the money taking meeting classes or whatever. So
Speaker 3: there was a problem with people having accumulated too much,
Speaker 3: and maybe the kid didn't go to college, or maybe
Speaker 3: they got a scholarship and killed the whole deal for them.
Speaker 3: Damn kids got a scholarship. Who knew anyway? So the
Speaker 3: money was building up. So along comes this provision helps
Speaker 3: a little moderately because it only has an overall limit
Speaker 3: of thirty five thousand, which you can't even use in
Speaker 3: one shot. You can use it based on the contribution limit.
Speaker 3: Say if it's seven thousand a year, you could do
Speaker 3: it over five years, and that's it helps a little
Speaker 3: to trim down those five twenty nine balances. But there
Speaker 3: are limits you had to have. The there's so many restrictions,
Speaker 3: like everything in the tax code, they just can't give
Speaker 3: you a clean rule. I know.
Speaker 1: There's the five year old, the fifteen year rule.
Speaker 3: It just I know all of that stuff. But it
Speaker 3: could help if you have, you know, let's say a
Speaker 3: moderate amount, and even if you have a large amount,
Speaker 3: so over time you could knock off thirty five thousand.
Speaker 3: But here's where it gets interesting. If you've set these
Speaker 3: accounts up for say two three or four beneficiaries kids
Speaker 3: or grandkids. That limit goes to each beneficiary. So now
Speaker 3: it's starting to add up to some real money, So
Speaker 3: that could help.
Speaker 2: Do you see grandparents Do you see parents who have
Speaker 2: over contributed to their five twenty nine accounts? And if so,
Speaker 2: do you feel like that that's kind of an upper
Speaker 2: echelon problem that those folks have or do you see
Speaker 2: it being a little bit more widespread.
Speaker 3: No, I think they do it across the board. I've
Speaker 3: ran into somebody just recently had a new grandchild. First
Speaker 3: thing you wanted to do is open a five twenty
Speaker 3: nine because he wanted to do something. And no grandparent
Speaker 3: wants to put money in the kid's own name, And
Speaker 3: they don't want to give it to their kids because
Speaker 3: they don't trust their kids to blow it. They'll think
Speaker 3: they'll squander it. No, that's for the grandchild, not for you.
Speaker 3: I already gave you enough.
Speaker 1: Yeah, so when it comes to five twenty nine, if
Speaker 1: you're trying to save money for you're a kid. We've
Speaker 1: talked even on the show, and I'm sure you've talked
Speaker 1: about getting money into a child's roth ira.
Speaker 3: Yeah, So that's the way.
Speaker 1: Superior to the five twenty nine, right, because you're you're
Speaker 1: getting and yeah, what's your take on how to actually
Speaker 1: facilitate that because the kid needs to have earned income.
Speaker 1: But my goodness, if they're working in high school and
Speaker 1: you can do some sort of mommy daddy match or
Speaker 1: something like that helping incentivize them to invest your teaching
Speaker 1: them and you're actually getting the dollars into the roth
Speaker 1: early on? Is that the key you hit it you.
Speaker 3: Preach into the choir. My daughter's in her mid thirties now,
Speaker 3: my older daughter, and when she was fifteen, so it's
Speaker 3: almost twenty years ago, she got her first summer job
Speaker 3: at working at the library. She made three hundred and
Speaker 3: fifty dollars for the summer. I immediately opened the wroth
Speaker 3: for her, and I put in what I could put
Speaker 3: in the three fifty because that was a limit up
Speaker 3: to your earnings. And I was trying to explain to
Speaker 3: her what I did, and she says, wait a minute,
Speaker 3: So this is a good deal, she said, So I
Speaker 3: make three fifty, I spend that money and you put
Speaker 3: it back in and it grows tax free forever. And
Speaker 3: I said, yes, while you're under.
Speaker 1: This roof, pretty soon you're gonna have to do this
Speaker 1: for yourself for.
Speaker 3: The exact reasons you just said. To get them started,
Speaker 3: to get the vehicle set up, it's more likely they'll
Speaker 3: continue it, which she did. Now she has unbelievable amounts
Speaker 3: in her raw through her job, a Roth rowing k
Speaker 3: at work and all that stuff because she continued process
Speaker 3: by me setting up the vehicle and you know, starting
Speaker 3: the board for her.
Speaker 2: What's great about that too that I love is that
Speaker 2: it mirrors, it mimics the behavior of employers with four
Speaker 2: one k is with the match right. It's not like
Speaker 2: it's just a free hand on money, Like you can't
Speaker 2: stick that money in there unless they actually earn it. Instead,
Speaker 2: they have to earn it, right, Yeah, there's something there
Speaker 2: that where they just mirrors real life, which I love.
Speaker 3: But you tied it into the five twenty nine. The
Speaker 3: roth Ira is a much more flexible vehicle. You can
Speaker 3: use it for anything. Remember the actual Most people don't
Speaker 3: understand this because they know about the five years and
Speaker 3: fifty nine and a half till it's tax free. But
Speaker 3: your actual Wroth conversion Roth contributions, your original Wroth contributions,
Speaker 3: the seven thousand hour or whatever it is, annually. Your
Speaker 3: actual WROTH contributions can be withdraw drawn any time for
Speaker 3: any reason, tax and penalty free. So it could double
Speaker 3: as an education vehicle. It could double for anything. Let's
Speaker 3: say you don't go to school, but you want to
Speaker 3: start a business. It can work for anything. It's meant
Speaker 3: for retirement, but it's way more flexible with almost no
Speaker 3: rules than a five twenty nine.
Speaker 1: Great for early retirement too, because when you there's a
Speaker 1: lot of people listening to this podcast and they're keen
Speaker 1: to retire, like let's say or mid late forties or
Speaker 1: something like that, and it's like, well, cool, you can
Speaker 1: live off those contributions for a while while the rest
Speaker 1: of your wrath continues to grow. Bridge that gap. Feel
Speaker 1: a little bit there, exactly?
Speaker 2: Yeah, so Ed, Yeah, we're harping on the roth ira
Speaker 2: how that's essentially the most it's just the most tax
Speaker 2: efficient way to go ahead and pay those taxes. And
Speaker 2: we're kind of talking about kids now as well. What
Speaker 2: is I don't know, might be opening out can of
Speaker 2: worms here, but what is the most tax efficient way
Speaker 2: to pass wealth along to kids for them to realize
Speaker 2: some of the wealth that you've been able to create
Speaker 2: within your own lifetime.
Speaker 3: I can tell you the worst way. What's that using
Speaker 3: an IRA, that's the worst way. What Congress did We
Speaker 3: were talking about Secure two point zero, but what and
Speaker 3: that was not the big game changer. It created a
Speaker 3: lot of bits and good things that we talked about,
Speaker 3: but nothing earth shattering or game changing. It was the
Speaker 3: original Secure Act that changed the playing field. We used
Speaker 3: to recommend the iras, or it used to be called
Speaker 3: the stretch IRA used to be able to have the
Speaker 3: stretch IRA, the kids could go out and defer and
Speaker 3: extend distributions over that lifetime twenty thirty, fifty seventy years
Speaker 3: if you were a ten year old. Congress didn't like
Speaker 3: that another revenue grabbed. They needed money, and they said,
Speaker 3: we believe iras should be for the people who earned it,
Speaker 3: the retirees and their spouses, and not as a wealth
Speaker 3: transfer or state planning vehicle for the kids who never
Speaker 3: earned it. So we're going to kill that stretch IRA deal,
Speaker 3: which they did, and replace it with generally a ten
Speaker 3: year rule, which means all the income has to come
Speaker 3: out by the end of the tenth year after death.
Speaker 3: That's a tax disaster waiting to happen. So what they
Speaker 3: did is they actually made iras the worst possible asset
Speaker 3: to use to transfer for wealth or for estate planning purposes.
Speaker 3: But indirectly, they made other vehicles much better, much more attractive,
Speaker 3: like roth iras we talked about. In other words, they
Speaker 3: downgraded iras, but upgraded tax free vehicles like that I
Speaker 3: mentioned in my book, like roth iras and life insurance. Now,
Speaker 3: I don't sell life insurance. I'm a tax advisor. I
Speaker 3: don't sell stocks, bonds, funds, insurance, annuities, none of that stuff.
Speaker 3: But as a tax advisor, and I have a whole
Speaker 3: chapter in my book on this on the called the
Speaker 3: Power of Life insurance, and I'm talking about permanent cash
Speaker 3: value similar to an ir On a roth ira conversion,
Speaker 3: you take money out, the whole premise is the same,
Speaker 3: use the lower brackets, fill up those lower brackets, and
Speaker 3: you can put money in the row through conversion or
Speaker 3: build up in a life insurance policy that can grow
Speaker 3: cash value that you could actually tap into if you
Speaker 3: wanted during your lifetime. But it's growing income tax free.
Speaker 3: You don't have to deal with any of these rules.
Speaker 3: There's a lot more certainty that the insurance tax benefit
Speaker 3: the tax exemption for life insurance. The income tax exemption
Speaker 3: is the single biggest benefit in the tax code and
Speaker 3: not used nearly enough. Plus, you can leave your children
Speaker 3: a boatload of money, a lot more than you can
Speaker 3: win an IRA or roth ira, and it's all income
Speaker 3: tax free.
Speaker 2: Is this something that at a certain limits, like let's
Speaker 2: say there's a certain dollar amount, at which point that
Speaker 2: that begins to make a bit more sense, or.
Speaker 1: For low income owners, that doesn't make a whole lot
Speaker 1: of sense.
Speaker 3: Right, Well, you do what you can, like everything. You
Speaker 3: don't go broke doing anything. This is still about you.
Speaker 3: You don't go broke providing for your kids. They're gonna
Speaker 3: get plenty anyway, So forget about that. That's the biggest
Speaker 3: mistake people make worrying about their kids. They don't even
Speaker 3: care about them that much anyway. When I tell people
Speaker 3: to do planning, well, what's in it for me? They say,
Speaker 3: that's how you should be thinking. What's in it for you?
Speaker 3: They're gonna get plenty anyways.
Speaker 1: You're love, not money.
Speaker 3: Yeah, they're gonna get it anyway. Why drive yourself crazy? Well,
Speaker 3: I can't eat this week because I want my kids
Speaker 3: to have a million dollars of life insurance.
Speaker 1: Yep, I love it all right, Ed dude, thank you
Speaker 1: so much for joining us today on the podcast. We
Speaker 1: really appreciate it. Where can our listeners find out more
Speaker 1: about your new book, The Retirement Savings Time Bomb Takes
Speaker 1: Louder Well.
Speaker 3: You can go to Amazon or type my name Ed
Speaker 3: Slot into Google, or go to our website www dot
Speaker 3: I r A help I ra h e l p
Speaker 3: IRA help dot com, where there's lots of free resources.
Speaker 3: We put out several blogs on current events, current tax changes,
Speaker 3: current ideas, current planning. I think we do three or
Speaker 3: four of them every week. We answer questions there for free.
Speaker 3: You'll see it part so much in the way of
Speaker 3: free resources. And by the way, these are things you
Speaker 3: can The answers you'll get, the information you get are
Speaker 3: from our company, which is what we do. We were
Speaker 3: experts in this area, so you can get the right
Speaker 3: answer the first time.
Speaker 1: I love it. That's a lot.
Speaker 4: Thank you so much for joining us today.
Speaker 3: Thank you for having me on so talking about this
Speaker 3: great opportunity to build wealth and keep.
Speaker 1: It all Right, Matt, you gotta love that Ed Slot energy.
Speaker 1: Whatever he had for breakfast, I want to start eating
Speaker 1: even fired up. Maybe it's the pizza. They do say
Speaker 1: it's the water in New York specifically that makes it
Speaker 1: so good. But yeah, I guess so it's also what
Speaker 1: flows and a slots things. Oh all, gosh, what aspect
Speaker 1: of our conversation today stood out to you? Man? So
Speaker 1: I think my big takeaway is certainty is better than uncertainty,
Speaker 1: and I love the certainty that comes with you know,
Speaker 1: he basically said tax rates are on sale, and if
Speaker 1: that's the case.
Speaker 2: I liked how he positioned that, which is again, immediately
Speaker 2: while my mind went to mortgage rates because it's just like,
Speaker 2: that's something in the recent number of years that we've
Speaker 2: been able to experience firsthand, the fact that rates have
Speaker 2: been so low. You start getting used to the idea
Speaker 2: that rates are that low, and then things change and
Speaker 2: you quickly realize, oh wow, no, that was a special
Speaker 2: period of time that you're living.
Speaker 1: Through, and when you're going to pay the taxman no
Speaker 1: matter what at some point, why not do it on sale?
Speaker 1: And why not have the certainty that comes alongside of
Speaker 1: having that done away with this guillotine hanging over your head.
Speaker 1: If you have like massive amounts of money in traditional
Speaker 1: funds for on K's and I rays if that's the
Speaker 1: case for you. We talked about smart ways to make
Speaker 1: commersions to get that money into Roth vehicles. But for
Speaker 1: a lot of our listeners, not especially younger listeners, Roth
Speaker 1: Roth from the beginning. And then you don't have the
Speaker 1: uncertainty hanging over your head. You're not worried about what's
Speaker 1: going to happen in the future with tax rates because
Speaker 1: you kind of already solved that problem.
Speaker 4: Yeah, totally.
Speaker 2: One of the things he said, and this will be
Speaker 2: my big takeaway, was that he said that it is
Speaker 2: not if, but when it is that you have to
Speaker 2: pay taxes on that money, and so you can go
Speaker 2: ahead and take that tax break. Now what feels like
Speaker 2: a tax break, but no, at some point you are
Speaker 2: going to end up owning that money. And I don't
Speaker 2: know for I feel like recently, Joel, you and I
Speaker 2: we've been more like, oh, yeah, it makes sense to
Speaker 2: tax diversify. And I do think that there are individuals,
Speaker 2: especially if you are in some very high earning years
Speaker 2: and you know, man, there's a good chance I may
Speaker 2: not make this this much in the future years or if.
Speaker 1: You like, we've got them all fooled. Right now and
Speaker 1: at some point my pay is going.
Speaker 3: To go down.
Speaker 2: Yes, Well, if you know that, you are going to
Speaker 2: enter into a coast fire period of life where you
Speaker 2: truly are gonna earn less. And that's one of the
Speaker 2: things he pointed out is that you have control over that.
Speaker 2: You don't have control over the market, So don't worry
Speaker 2: about timing the market and trying to pay less and
Speaker 2: making that conversion when the market's down. That's not something
Speaker 2: you have control over. But you do have a little
Speaker 2: bit more control over how much it is that you're
Speaker 2: making every year.
Speaker 1: Yeah, And he talked too, really really wisely about how
Speaker 1: so many people he works with that's their assumption, like, hey,
Speaker 1: I'm gonna I'm gonna make less in retirement, Like I'm
Speaker 1: gonna pay less then, so I'm gonna stick with the
Speaker 1: traditional route, and that there's so many people who find
Speaker 1: themselves not in that position. And it's funny, I didn't
Speaker 1: really think about this, but it's true because you're losing
Speaker 1: out on certain deductions or a fewer tax benefits at
Speaker 1: that point in time, and so that those are the
Speaker 1: kind of things that maybe aren't balancing out the other
Speaker 1: side of your tax ledger, meaning just another check mark
Speaker 1: in favor of roths.
Speaker 2: Yeah, but I will say I do think that the
Speaker 2: majority of his clients and the folks that he used
Speaker 2: to work with, at least it sounds like he doesn't
Speaker 2: take on personal clients anymore. We're folks that are hard
Speaker 2: charging like him, or they're gonna continue to earn and
Speaker 2: earn and earn.
Speaker 4: Their net worth is gonna.
Speaker 2: Continue to grow at a rapid clip versus and I
Speaker 2: don't know, maybe I'm kind of picturing myself in this category,
Speaker 2: just like a just a meek, humble but just like
Speaker 2: somebody who may not necessarily continue to be hard charging
Speaker 2: for the next twenty years as opposed to hitting that
Speaker 2: coast fire attitude, which in my mind has as much
Speaker 2: to do with spending some money as it does with
Speaker 2: working a little bit less, because like when you have
Speaker 2: the ability to have more freedom over your time, I
Speaker 2: think that's something that more and more folks, especially our listeners,
Speaker 2: are wise en up to where they're realizing I don't
Speaker 2: have to necessarily have this nose to the grindstone, which
Speaker 2: I will say is work that I love, right, But
Speaker 2: at the same time, there are other paths out there.
Speaker 2: And I think more folks are starting to realize some
Speaker 2: of those other paths. I think that's the difference between
Speaker 2: some of the financial independence folks versus folks of an
Speaker 2: older generation who aren't used to sort of that mindset.
Speaker 1: I would listen to this episode right next to listening
Speaker 1: going back and listening to our episode with Sean mulaney
Speaker 1: because they have very different takes, but they're both really
Speaker 1: really smart guys. Yeah, and you might find and I
Speaker 1: think you and I fall somewhere in the middle of
Speaker 1: their camp. You know, where Sean is less all about
Speaker 1: the roth. He's more about take the tax break. Now
Speaker 1: Ed is saying pay the taxman and take the taxes
Speaker 1: on sale. And I think there's a happy medium to
Speaker 1: be struck here between the two. But maybe listen to
Speaker 1: both and then kind of choose your own adventure and
Speaker 1: make it up. And again, so much too comes down
Speaker 1: to your specific personal financial situation, your income right now,
Speaker 1: where you are in your earning years, but especially for
Speaker 1: younger folks. I mean, when I look back, I didn't
Speaker 1: have access to a wroth for a one K when
Speaker 1: I was in my early working yearsmount. I didn't have
Speaker 1: one at all until like literally my last year of work,
Speaker 1: and it was it's such a bummer because I would
Speaker 1: have been socking money away all those years, and that
Speaker 1: you've been able to sock a decade's worth of contributions,
Speaker 1: that's yeah, zero tax. So if most of our listeners
Speaker 1: in their twenties early thirties, I mean, the wroth is money,
Speaker 1: but further on down the road, you got to make
Speaker 1: that decision for yourself, and it's I don't know. Ed
Speaker 1: makes a compelling case, and I appreciate his enthusiasm and
Speaker 1: his information because there's a lot to be learned right there. Absolutely, yeah,
Speaker 1: we would highly recommend his book, The Retirement Savings. Time
Speaker 1: Bomb ticks louder because he goes seriously in depth and
Speaker 1: there's just, honestly, there's just so much in there that
Speaker 1: we we couldn't cover. It would have been crazy long,
Speaker 1: like a five hour long episode, but also would have
Speaker 1: gotten like so nitty ready people would have been like,
Speaker 1: I'm turning out. Well, it just depends on your again,
Speaker 1: like you said, your specific situation, but uh, okay. Our
Speaker 1: beer that you and I enjoyed during this episode was
Speaker 1: be Low. This is a beer by Halfway Crooks. It's
Speaker 1: a table beer with age tops.
Speaker 4: What'd you think?
Speaker 1: I liked it. It's super minerally, it's got like some
Speaker 1: hot presence, but it's not because age Tops. I guess
Speaker 1: it doesn't have that like hot bite necessarily, but like
Speaker 1: there's there's some hot essence going on in this beer.
Speaker 1: So I really enjoyed it. It's it's a perfect beer
Speaker 1: to have with dinner, I think right, because he's the
Speaker 1: table beer. It's not an overpowering exactly flavor profile, which
Speaker 1: is which is like, I don't know, the older I get,
Speaker 1: the more craft beers I've had. I was talking to
Speaker 1: with someone about this the other day. I've had all
Speaker 1: the IPAs now, sorry, it doesn't matter how good your
Speaker 1: IPA is. I probably had something similar, which is just fortunate.
Speaker 1: We've had great beers over the years. But this is
Speaker 1: the kind of beer I'm getting more and more into
Speaker 1: something a little chill, a little more relaxed, and then
Speaker 1: you can kind of have with your food because you
Speaker 1: don't want some sort of triple IPA with most of
Speaker 1: the dinners that you're eating or anything like this. This
Speaker 1: is a nice balanced beer. Yeah.
Speaker 2: Plus the if you haven't checked out the Schwag Halfway
Speaker 2: Crooks merchandise. They've got the absolute best in the game.
Speaker 1: I'm literally wearing a shirt right now.
Speaker 2: You are literally wearing others, but this can. I love
Speaker 2: the pink with the yellow, like the neon and the green.
Speaker 2: It makes you think of like some of the different kits,
Speaker 2: some of the different jerseys that the guys wear, like
Speaker 2: on the Twitter France or whatever. Yeah, it's got European
Speaker 2: biking colors all the way for sure.
Speaker 4: I can't get enough.
Speaker 2: I would totally I would totally get this. If they
Speaker 2: converted this cannar into a shirt, I would totally wear
Speaker 2: this on pink. They might check out Halfway Crooks beer
Speaker 2: if you haven't one of our favorites here in Atlanta.
Speaker 2: And by the way, Velo it means bike, so that's
Speaker 2: another reason to love it as well, and also why
Speaker 2: it's conjures up some of those biking themes.
Speaker 1: If you haven't listened for long, we like bike, that's right,
Speaker 1: But uh.
Speaker 4: That's gonna be it for this episode.
Speaker 2: We'll have shout outs up and on the website at
Speaker 2: howdomoney dot com. And yeah, we'll link to our last
Speaker 2: conversation with Sean mulaney as well. If you are nerding
Speaker 2: out on the taxes, but that's gonna be it, buddy,
Speaker 2: until next time. Best friends out, Best friends out,