WEBVTT - Minimizing the Retirement Tax Time Bomb w/ Ed Slott #863 0:00:00.120 --> 0:00:03.000 Welcome to How to Money. I'm Joel and I am that, 0:00:03.160 --> 0:00:06.400 and today we're talking about minimizing the retirement tax time 0:00:06.400 --> 0:00:07.760 bomb with Ed Slot. 0:00:26.520 --> 0:00:28.680 It would be tough to find anyone who knows more 0:00:28.720 --> 0:00:32.000 about IRA's than Ed Slot. And that is a quote 0:00:32.000 --> 0:00:34.200 not from us here at How to Money, but from 0:00:34.320 --> 0:00:37.640 USA Today, the Journal, the Wall Street Journal. They've actually 0:00:37.720 --> 0:00:41.120 named our guest as the best source for IRA advice, 0:00:41.360 --> 0:00:43.680 which is incredibly high praise. And so it should come 0:00:43.680 --> 0:00:46.960 as no surprise that we're talking about retirement accounts today. 0:00:47.400 --> 0:00:50.519 Ed Slot's company is the nation's leading source of accurate, 0:00:50.560 --> 0:00:56.560 timely IRA expertise and analysis, which they provide to financial advisors, institutions, 0:00:56.600 --> 0:00:59.640 and media like us. He is often quoted in The 0:00:59.640 --> 0:01:03.160 New York Times, Forbes, Kiplinger, countless others. He's appeared on 0:01:03.240 --> 0:01:05.920 virtually all the TV networks out there, and he's author 0:01:06.080 --> 0:01:09.720 of the new book, The Retirement Savings time Bomb Ticks Louder, 0:01:10.160 --> 0:01:12.040 which is a follow up to his previous book from 0:01:12.040 --> 0:01:14.039 a few years ago, which we'll also discuss today. But 0:01:14.280 --> 0:01:16.319 Ed Slott, thank you so much for talking with us 0:01:16.360 --> 0:01:17.319 today at How the Money. 0:01:17.400 --> 0:01:20.240 Well, great, great to be here. You just took away 0:01:20.319 --> 0:01:21.360 my secret weapon. 0:01:21.720 --> 0:01:22.160 What's that? 0:01:22.400 --> 0:01:23.680 Low expectations? 0:01:24.880 --> 0:01:25.520 Sorry about that? 0:01:25.600 --> 0:01:27.320 Yeah, how big of a build up? 0:01:28.360 --> 0:01:31.759 Well, when you are as experienced and someone like you 0:01:31.880 --> 0:01:34.000 has just dove in so deep when it comes to 0:01:34.040 --> 0:01:34.840 something like Iras. 0:01:34.880 --> 0:01:36.880 And so we talked to a lot of listeners and 0:01:36.920 --> 0:01:40.720 they think that we love roth Irays, but actually I 0:01:40.760 --> 0:01:42.880 think Ed Slott might have his beat. We're excited to 0:01:42.880 --> 0:01:45.080 talk about that later on today. After reading what you've 0:01:45.080 --> 0:01:48.640 written about and what you've how much information you've delved 0:01:48.680 --> 0:01:50.280 into on roth Iras, I'm like, I feel like I 0:01:50.320 --> 0:01:52.559 know nothing in comparison to Ed Slott. 0:01:52.640 --> 0:01:52.680 Ed. 0:01:52.680 --> 0:01:54.400 The first question we ask everyone who comes on the show, 0:01:54.440 --> 0:01:56.120 by the way, is what do you like to splor 0:01:56.240 --> 0:01:57.520 jeh on? Because Matt and I we like to splor 0:01:57.640 --> 0:02:00.560 jeh on good beer. That's kind of somewhere into. 0:02:00.720 --> 0:02:03.880 I don't even have anything that is what do I splurans? 0:02:04.000 --> 0:02:05.240 Kraft beer is our thing. 0:02:05.320 --> 0:02:08.640 But there's something that that people think is a waste 0:02:08.680 --> 0:02:10.600 of money that you spend a little bit extra on. 0:02:10.720 --> 0:02:13.520 Oh no, I don't waste that. I eat very simple. 0:02:13.680 --> 0:02:17.679 I don't drink what do I splur John, I don't 0:02:17.720 --> 0:02:18.959 know pizza, make. 0:02:18.840 --> 0:02:21.440 Cars, watches, vacations, pizza. 0:02:22.320 --> 0:02:25.560 Pizza, you know, but I eat simple. You know. It's 0:02:25.560 --> 0:02:27.120 a good way to save money, by the way, and 0:02:27.160 --> 0:02:29.120 I don't do it to save money. I like local, 0:02:29.200 --> 0:02:32.880 regular food. Yeah, I don't get anything. I can understand 0:02:32.880 --> 0:02:34.079 what the ingredients are. 0:02:34.280 --> 0:02:36.680 I feel like there's a resurgence coming of like we're 0:02:36.720 --> 0:02:40.120 the only ingredient of the food should be the food itself, right, 0:02:40.200 --> 0:02:40.680 So it's. 0:02:40.560 --> 0:02:42.560 Like, well, who knows what's on you know. I like 0:02:42.600 --> 0:02:44.760 pizza with all kinds of stuff on it, and I 0:02:44.760 --> 0:02:48.560 probably shouldn't like that, but that simple stuff. Chicken wings, 0:02:48.560 --> 0:02:51.560 I mean, by the way, I just saw in the 0:02:51.600 --> 0:02:54.720 paper recently. I don't know what made me think of 0:02:54.800 --> 0:02:59.760 chicken wings, but sometimes my wife likes boneless wings. And 0:03:00.160 --> 0:03:01.800 I don't know if you saw in the paper. There 0:03:01.880 --> 0:03:05.840 was an Ohio court case that just resolved the question. 0:03:06.000 --> 0:03:12.079 Apparently that somebody sued that they said boneless wings. The 0:03:12.200 --> 0:03:14.960 guy was having boneless wings at a place. There's a point, 0:03:15.000 --> 0:03:17.720 I'll get to the point on this at a place 0:03:17.720 --> 0:03:20.120 in Ohio and it had a two inch bone in 0:03:20.200 --> 0:03:23.079 it that he swallowed and needed all kinds of surgeries. 0:03:23.280 --> 0:03:26.600 Is horrible. And then he sued this company and it 0:03:26.639 --> 0:03:30.280 actually went to court and the judges ruled that boneless 0:03:30.320 --> 0:03:33.600 wings indeed have bones. And that's okay. You know that. 0:03:33.800 --> 0:03:35.400 In other words, a guy lost. 0:03:35.400 --> 0:03:36.960 You would say, just a marketing tactic. 0:03:37.360 --> 0:03:40.000 Yeah, So it made me think that, wait a minute, 0:03:40.040 --> 0:03:43.600 if if people say these are boneless, you know, they're 0:03:43.680 --> 0:03:48.400 free of bones. When somebody says something's tax free, is 0:03:48.440 --> 0:03:51.400 it really tax free or they're like taxes in there 0:03:52.120 --> 0:03:54.400 that you have to swallow. So that that was what 0:03:54.520 --> 0:03:55.160 I took. 0:03:55.000 --> 0:03:57.440 Out of that story, anything that I can apply it. 0:03:57.440 --> 0:04:00.880 To the ad the books that he right, I love it. 0:04:00.880 --> 0:04:01.240 That's right. 0:04:01.400 --> 0:04:03.560 Well, I'll tell you another one another story. Are you 0:04:03.600 --> 0:04:04.600 a nice hockey fan? 0:04:05.440 --> 0:04:06.680 I've been known to go to a match? 0:04:07.440 --> 0:04:09.600 All right, I'm gonna the fact that you call the 0:04:09.640 --> 0:04:12.120 game a match tells me all I need to know. 0:04:12.800 --> 0:04:15.520 All right, But it doesn't even matter. But there was 0:04:15.600 --> 0:04:18.480 a story about one of the famous hockey players. He 0:04:18.520 --> 0:04:21.080 plays on the Tavarus. He used to play for the 0:04:21.120 --> 0:04:23.719 long the Islanders. Now he got a big one hundred 0:04:23.800 --> 0:04:29.240 million dollar contract with Toronto which involved Canadian and USA taxes, 0:04:29.920 --> 0:04:34.839 and it was base his contract was based. I guess 0:04:34.880 --> 0:04:37.159 he worked with an agent because the taxes are so 0:04:37.279 --> 0:04:39.479 heavy when you have two countries hitting you at the 0:04:39.480 --> 0:04:43.000 same time. I guess, like a lot of athletes, it 0:04:43.160 --> 0:04:46.839 was based on how much he nets after tax. That's 0:04:46.839 --> 0:04:49.720 how you should do retirement planning, how much you net 0:04:49.800 --> 0:04:50.640 after tax. 0:04:50.760 --> 0:04:52.400 Yeah, that's a good point because lots of times we're 0:04:52.400 --> 0:04:55.840 thinking about especially when we're talking about the four to 0:04:55.960 --> 0:04:58.360 one k traditional four one k or a traditional IRA. 0:04:58.800 --> 0:05:00.520 You're right, and this is something you speak to a lot. 0:05:00.640 --> 0:05:03.080 It might look like a big number, but it's not 0:05:03.120 --> 0:05:05.040 as big of a number as it actually seems. And 0:05:05.120 --> 0:05:07.200 one of the things you say at is the single 0:05:07.200 --> 0:05:10.640 greatest threat to a dream retirement is taxes. So can 0:05:10.720 --> 0:05:12.800 you can you kind of convince us that that's the case. 0:05:13.200 --> 0:05:16.960 Well, it's not only the taxes, it's the uncertainty of 0:05:17.120 --> 0:05:20.200 future taxes that could hit you at the worst possible 0:05:20.279 --> 0:05:24.279 time in retirement. When you want stability and certainty. You 0:05:24.320 --> 0:05:26.600 want to know you have a certain income coming in. 0:05:26.960 --> 0:05:28.520 How much of that is going to go out to 0:05:28.560 --> 0:05:32.200 the government. We don't know that. That's the scary part. 0:05:32.440 --> 0:05:34.800 We know what it is now. So the whole point 0:05:34.839 --> 0:05:39.080 of my book is to lock in today's unbelievably low 0:05:39.320 --> 0:05:42.800 tax rates. Everybody complains about taxes, but these are the 0:05:42.839 --> 0:05:45.440 good old days. If you don't do something now, you're 0:05:45.480 --> 0:05:47.440 going to look back, Oh, how did I blow that? 0:05:47.520 --> 0:05:52.440 Twelve twelve percent, twenty two, twenty four percent taxes were 0:05:52.480 --> 0:05:53.839 on sale and I blow it. 0:05:53.839 --> 0:05:54.920 It's gonna seem quaint. 0:05:55.279 --> 0:05:58.160 Honestly, hearing you say this makes me think about mortgage 0:05:58.240 --> 0:06:02.000 rates back in the right. I mean, for the longest 0:06:02.000 --> 0:06:04.919 time we had rock bottom mortgage rates. But the thing is, 0:06:04.920 --> 0:06:06.559 you start getting used to that, and you start thinking 0:06:06.560 --> 0:06:08.800 that that becomes the norm. But then quickly, as we've 0:06:08.800 --> 0:06:11.120 seen that, it doesn't stick around, and you're seeing the 0:06:11.120 --> 0:06:13.479 same thing about tax rates. You points to the fact 0:06:13.480 --> 0:06:16.600 in your book, how tax rates they've pretty much been 0:06:16.640 --> 0:06:19.520 on a steadied decline since the nineteen forties. That's the 0:06:20.000 --> 0:06:22.240 that's one of the biggest arguments that you've got four 0:06:22.279 --> 0:06:24.680 tax rates returning to where they previously have been. 0:06:24.720 --> 0:06:25.200 Is that right? 0:06:25.320 --> 0:06:27.960 Well, you know, there's a saying. I think Mark Twain 0:06:28.080 --> 0:06:32.440 said history doesn't repeat itself, but it rhymes or another 0:06:32.480 --> 0:06:34.960 way to say that those who don't learn from history 0:06:35.000 --> 0:06:38.000 are bound to repeat it. And that's what I worry about. 0:06:38.120 --> 0:06:41.239 I worry about the growing debt. The thirty four trillion 0:06:41.320 --> 0:06:45.799 or deficit just hit a trillion dollars. Now, some people 0:06:45.839 --> 0:06:49.160 could say, well, who cares about that, because Congress will 0:06:49.200 --> 0:06:52.120 keep kicking the can down the road. But as a CPA, 0:06:52.200 --> 0:06:55.080 as an accountant, at some point, I have to believe 0:06:55.120 --> 0:06:58.800 in math and this whole You know, there's only three 0:06:58.920 --> 0:07:03.200 kinds of people in this world, three kinds, those who 0:07:03.279 --> 0:07:05.400 understand math and those who don't. 0:07:07.080 --> 0:07:09.039 Three kinds. I appreciate that, Y. 0:07:09.160 --> 0:07:13.280 Yeah, yeah, I need somebody to hit the snare on 0:07:13.360 --> 0:07:17.720 it anyway anyway, but the math tells me that the 0:07:17.760 --> 0:07:20.160 whole country is living on a credit card bill. At 0:07:20.200 --> 0:07:23.160 some point that bill has to be paid, I would think, 0:07:23.560 --> 0:07:26.720 unless Congress keep kicking the can down the road. But 0:07:26.840 --> 0:07:29.160 you don't want to be the one holding the bag. 0:07:29.240 --> 0:07:32.320 When Congress comes to its senses and says we need 0:07:32.360 --> 0:07:35.320 more revenue, where can we get it? H let's hit 0:07:35.360 --> 0:07:38.200 those people that made that deal with us. We got 0:07:38.240 --> 0:07:41.960 them good. Who's at most at highest risk of losing 0:07:42.120 --> 0:07:45.800 or being subjected to future higher taxes? Those are the 0:07:45.840 --> 0:07:48.400 people who do nothing now, the people with the most 0:07:48.520 --> 0:07:51.640 money in pre tax of four oh one k and 0:07:51.760 --> 0:07:56.360 iras Because that money has not yet been taxed. In 0:07:56.400 --> 0:07:58.840 my book, I call it the low hanging fruit or 0:07:58.880 --> 0:08:02.360 a big juicy steak to Congress, because Congress has every 0:08:02.440 --> 0:08:04.520 right to say, that was a deal you guys made. 0:08:04.560 --> 0:08:07.880 You got your deduction up front. Now we tax it, 0:08:08.240 --> 0:08:11.560 but we don't know the rate. You mentioned a mortgage. 0:08:11.960 --> 0:08:15.440 You know there's a mortgage on your IRA. I always 0:08:15.480 --> 0:08:20.240 say your IRA is an iou to the irs, but 0:08:21.400 --> 0:08:24.360 unlike a mortgage, like when you go in for a mortgage, 0:08:24.360 --> 0:08:27.800 because the concept is similar. There's a debt on your IRA. 0:08:28.080 --> 0:08:30.480 Part of that is owed right back to the government. 0:08:30.520 --> 0:08:34.679 It's not all yours. Most people don't see that. Matter 0:08:34.720 --> 0:08:36.800 of fact, I had clients over the years. I remember 0:08:36.800 --> 0:08:39.520 this one guy years ago, he finally hit a million 0:08:39.559 --> 0:08:42.040 dollars in his IRA. Was so happy. He came in. 0:08:42.080 --> 0:08:44.280 He showed me this statement. He said, look at this, 0:08:44.600 --> 0:08:47.680 I got a million dollars in my IRA. I said, 0:08:47.720 --> 0:08:49.280 what are you looking at? What do you show me? 0:08:50.240 --> 0:08:54.080 That's not yours. It's just temporarily on your letterhead. You're 0:08:54.080 --> 0:08:56.600 not keeping most of that. And he said, what do 0:08:56.640 --> 0:08:59.040 you mean it's mine? No, it's not yours. You have 0:08:59.120 --> 0:09:04.160 a partner. Sam it's a joint account. But think of 0:09:04.200 --> 0:09:06.280 a think of your IRA like that. Can you imagine 0:09:06.280 --> 0:09:09.840 thinking of it as a joint account, which it could be. 0:09:10.320 --> 0:09:13.119 But here's the difference. You go in for a mortgage. 0:09:13.559 --> 0:09:18.000 Let's say you go in, you do all you due diligence, 0:09:18.240 --> 0:09:21.080 You know what that mortgage is, you know how much 0:09:21.120 --> 0:09:25.720 you owe. But the mortgage on your IRA is open ended. 0:09:26.160 --> 0:09:29.880 In other words, if you went in yeah, yeah, depending 0:09:29.920 --> 0:09:32.120 on how much Congress needs. So imagine you went in 0:09:32.160 --> 0:09:34.440 for this mortgage and you did all your homework on 0:09:34.480 --> 0:09:37.239 your home. You know the rates, you know the comparables 0:09:37.320 --> 0:09:40.240 and all the you know everything. You're coming well prepared. 0:09:40.280 --> 0:09:44.560 You have all your notes, and you say to the banker. 0:09:44.600 --> 0:09:47.040 You're sitting there with the banker. If anybody actually does 0:09:47.120 --> 0:09:50.200 this in a bank anymore. But let's say you're going 0:09:50.200 --> 0:09:52.760 old school. You're in with the mortgage company, the banker, 0:09:53.040 --> 0:09:57.200 and you start showing all your numbers, and the banker says, 0:09:57.280 --> 0:09:59.920 don't worry. You put that stuff away. That's all meaning. 0:10:00.160 --> 0:10:03.440 But we did our homework. What's the rit Don't worry 0:10:03.480 --> 0:10:05.960 about the rate? What do you mean, don't worry about 0:10:05.960 --> 0:10:09.720 the rate. Don't worry about it when we need the 0:10:10.120 --> 0:10:12.560 what about payments? Don't we have to repay you? Don't 0:10:12.600 --> 0:10:15.880 worry about it? What do you mean, don't worry about it? 0:10:16.240 --> 0:10:20.280 When we need the money back from you, we'll tell 0:10:20.360 --> 0:10:21.520 you what the rate is. 0:10:21.840 --> 0:10:22.520 That sounds scary? 0:10:22.640 --> 0:10:25.960 Yeah, who would sign up for that deal? We all did. 0:10:26.120 --> 0:10:27.559 It's called an IRA. 0:10:27.520 --> 0:10:29.800 Sure, So okay, I quick follow up, And maybe this 0:10:29.840 --> 0:10:32.480 is slightly outside of your realm of expertise, even though 0:10:32.840 --> 0:10:34.880 you do know what's on here. But on one hand, 0:10:35.000 --> 0:10:37.320 you can either increase taxes or on the other hand, 0:10:37.360 --> 0:10:39.080 you can reduce what it is that you're paying out. 0:10:39.120 --> 0:10:41.240 What it sounds like, you think that there's a higher 0:10:41.320 --> 0:10:43.320 likelihood of the fact that people are going to want 0:10:43.360 --> 0:10:46.280 to maintain receiving their benefits what it is that the 0:10:46.320 --> 0:10:49.440 government is doing for them, and so therefore the only 0:10:49.720 --> 0:10:51.920 alternative is to actually increase taxes. 0:10:52.120 --> 0:10:54.960 I think the only alternative is to increase taxes, But 0:10:55.040 --> 0:10:57.600 it's not politically viable, so I don't know if it'll 0:10:57.640 --> 0:11:00.480 ever happen. Maybe Congress will keep kicking the case down 0:11:00.480 --> 0:11:03.640 the road. But that leaves you with the uncertainty of 0:11:03.679 --> 0:11:07.839 what future taxes might be. When you need to have 0:11:08.000 --> 0:11:11.160 certainty the most in retirement when a lot of things 0:11:11.200 --> 0:11:12.080 are fixed for you. 0:11:12.720 --> 0:11:19.520 Adding into the future uncertainty question is literally a tax program, 0:11:19.600 --> 0:11:22.319 The Tax Cuts and Job Act that is supposed to 0:11:22.360 --> 0:11:25.679 sunset right has a fixed expiration date. So how does 0:11:25.920 --> 0:11:28.840 that impact the way you think about our current response 0:11:29.080 --> 0:11:30.120 to future tax rates? 0:11:30.360 --> 0:11:32.400 Well, tax rates are supposed to go up, and we 0:11:32.440 --> 0:11:36.920 don't know if it's going to be totally gone, you know, 0:11:37.000 --> 0:11:39.880 come back the higher rates. We don't know if they're 0:11:39.960 --> 0:11:41.840 going to come back this post as you say, in 0:11:41.880 --> 0:11:45.959 twenty twenty six, if nobody does anything, they'll be higher rates, 0:11:46.040 --> 0:11:49.160 mostly on the top level, but a lot of people, 0:11:49.640 --> 0:11:53.360 even the middle income people, will be paying higher taxes 0:11:53.480 --> 0:11:58.480 because the big standard deduction. There's giant standard deductions. We've 0:11:58.520 --> 0:12:01.920 all become used to ninety center. The people don't even 0:12:01.960 --> 0:12:05.959 itemize anymore. They take these giant standard deductions. That's IRS 0:12:06.120 --> 0:12:09.920 numbers ninety percent. If that goes back to cut in 0:12:10.040 --> 0:12:13.319 half and you have to rely on certain itemized deductions, 0:12:13.400 --> 0:12:14.760 your taxes may go up. 0:12:14.880 --> 0:12:15.480 That's true, yea. 0:12:15.600 --> 0:12:19.160 So okay, So we're talking about roth accounts, and the 0:12:19.200 --> 0:12:20.880 reason it sounds like that you're a big fan is 0:12:20.960 --> 0:12:24.320 essentially that you're you're it's a guarantee, right. Going back 0:12:24.360 --> 0:12:26.960 to the mortgage example, it's the equivalent of getting a 0:12:27.040 --> 0:12:29.960 locked in rate and perhaps even the ability to not 0:12:30.040 --> 0:12:32.360 even see your Yeah, your escrow go up. Maybe you 0:12:32.400 --> 0:12:34.480 can like lock in your insurance somehow as well. Is 0:12:34.480 --> 0:12:36.080 that Is that why it is that you are such 0:12:36.080 --> 0:12:37.080 a big fan of roths? 0:12:37.400 --> 0:12:40.360 Yeah, you hit it perfectly. You are locking in known 0:12:40.600 --> 0:12:44.320 rates which is zero, and you know what people say 0:12:44.320 --> 0:12:46.400 to me, ed, But what if you're wrong? What if 0:12:46.480 --> 0:12:50.640 rates go down? First of all, does anybody I'll give 0:12:50.640 --> 0:12:54.080 you an example. I talk to CPA's other financial advisors, 0:12:54.080 --> 0:12:58.160 even consumers, and I always ask this question. First. I 0:12:58.200 --> 0:13:00.440 always pull the audience and say how much they show 0:13:00.480 --> 0:13:03.959 by show of hands, how many of you believe tax 0:13:04.000 --> 0:13:06.520 rates will go up in the future. Maybe half the 0:13:06.600 --> 0:13:08.680 hands go up. Yeah, they said, all right, I'd have 0:13:08.840 --> 0:13:11.240 to have to. Then I ask a follow up question. 0:13:11.280 --> 0:13:14.520 I said, all right, I see, let me ask you this, 0:13:14.600 --> 0:13:17.160 how many of you think tax rates will go down? 0:13:18.160 --> 0:13:21.040 Not one hand? And then I said, but that's the 0:13:21.080 --> 0:13:24.439 same question I just asked you. The first question just inverted. 0:13:25.440 --> 0:13:28.920 So nobody really thinks tax rates will go down. We're 0:13:28.960 --> 0:13:33.160 at rock bottom now. So if rates go up, the 0:13:33.280 --> 0:13:37.079 ROTH always wins. Really, the whole raw thing is really 0:13:37.240 --> 0:13:40.280 just a bet on where you see your future tax 0:13:40.360 --> 0:13:43.679 rates going. And that leads to something else, which I'm 0:13:43.720 --> 0:13:45.760 sure is going to be your next question, but ask 0:13:45.800 --> 0:13:46.160 it anything. 0:13:46.200 --> 0:13:48.760 Okay, So my question here is, yeah, we're talking about 0:13:48.760 --> 0:13:51.000 future tax rates, but we're also talking about like the 0:13:51.080 --> 0:13:55.800 individual reality of income. Right, So how does someone's specific 0:13:55.880 --> 0:14:00.320 income influence your advice? High income earners? Right, that's is 0:14:00.320 --> 0:14:02.439 the people in those higher tax brackets who would say, oh, 0:14:02.480 --> 0:14:05.080 that's when the traditional makes the most sense. And of 0:14:05.120 --> 0:14:08.960 course if you're early on your lower earning years, the 0:14:09.080 --> 0:14:12.559 ROTH makes like it's slam dunk. So what about opting 0:14:12.559 --> 0:14:15.840 for traditional accounts because of some of those secondary factors too, 0:14:15.880 --> 0:14:20.040 like qualifying for a subsidy for healthcare or something like that. 0:14:20.200 --> 0:14:23.200 Yeah, those are issues, but they're not the biggest issues. 0:14:23.600 --> 0:14:25.160 I thought you were going to ask me, and you 0:14:25.200 --> 0:14:28.360 were skating around it because the number one question when 0:14:28.360 --> 0:14:32.000 I talk about rates going up, your rates going up? 0:14:32.040 --> 0:14:34.120 Because I said, it's all based on a big bit, 0:14:34.880 --> 0:14:38.440 and when you started talking about higher income people, the 0:14:38.480 --> 0:14:41.600 next question I usually get, But ed. I got this 0:14:41.640 --> 0:14:46.000 from my clients over the years, my rates in retirement. 0:14:46.160 --> 0:14:48.560 If I don't have that big W two anymore, my 0:14:48.680 --> 0:14:51.520 rates will be lower. So that tells me I shouldn't 0:14:51.520 --> 0:14:54.320 do the roth because I'll be based on your math. 0:14:54.600 --> 0:14:58.840 If you're in a lower bracket, lower marginal rates in retirement, 0:14:59.320 --> 0:15:02.440 you do better with a traditional ary not converting. And 0:15:02.480 --> 0:15:09.200 that's true. The myth proves that out. But that to 0:15:09.320 --> 0:15:12.560 me is the number one myth in retirement. Everybody thinks 0:15:12.560 --> 0:15:14.960 I'll be in a lower bracket and retirement, and we 0:15:15.040 --> 0:15:19.800 have almost never seen that happen, even for high income people. 0:15:19.920 --> 0:15:22.960 I'll give you an example. But there are a number 0:15:23.000 --> 0:15:23.840 of reasons for it. 0:15:23.880 --> 0:15:25.840 But is that because they're contributing so much to that 0:15:25.880 --> 0:15:26.720 retirement account. 0:15:26.840 --> 0:15:30.360 Well, I'll tell you why I had this guy. I've 0:15:30.360 --> 0:15:34.080 been telling him about the raw years ago when it 0:15:34.120 --> 0:15:36.240 doesn't even matter when, but years ago, when I was 0:15:36.240 --> 0:15:38.760 doing more client work. Anyway, for a year after year, 0:15:38.800 --> 0:15:40.800 he's coming into retirement. I said, do the raw to 0:15:41.000 --> 0:15:42.560 the raw. No, no, no, no, I'll be in a 0:15:42.600 --> 0:15:44.920 load to bracket and retirement. This went on every year. 0:15:45.240 --> 0:15:48.920 Finally he comes in all happy for all eager in 0:15:49.040 --> 0:15:52.960 anticipation because he came in to do his taxes for 0:15:53.120 --> 0:15:57.080 his first full year of retirement. In other words, no 0:15:57.360 --> 0:16:00.000 W two at all, so he can't wait to get 0:16:00.240 --> 0:16:02.640 the results I give him the tax attorney said, ed, 0:16:03.720 --> 0:16:06.680 how could this be? My income's higher than my best 0:16:06.720 --> 0:16:09.320 years working. How could this be? I said, it's easy 0:16:09.360 --> 0:16:11.640 because you never listen to me. That's how it can be. 0:16:12.280 --> 0:16:14.160 I told you this would happen. He said, but I 0:16:14.200 --> 0:16:17.000 don't even have my W two. I said, yeah, but 0:16:17.200 --> 0:16:19.640 all as you just said, all those years you kept 0:16:19.680 --> 0:16:22.280 contributing to the four one k and eventually rolled to 0:16:22.360 --> 0:16:26.520 an IRA, and now your required minimum distributions, your R 0:16:26.560 --> 0:16:29.520 and DS are in fact higher than your best W 0:16:29.680 --> 0:16:33.320 two ever, and now your income will be higher and 0:16:33.360 --> 0:16:36.600 your taxes will be higher in retirement, so you probably 0:16:36.640 --> 0:16:40.680 should have converted. It's not only the income that's higher. 0:16:40.760 --> 0:16:44.680 Deductions are generally lower. You lose both ends in retirement 0:16:44.720 --> 0:16:47.240 because you don't get the deduction for your four to 0:16:47.320 --> 0:16:51.280 one k contributions anymore. You're not working. You probably, in 0:16:51.360 --> 0:16:56.400 retirement don't have any tax benefits for dependent or minor children. 0:16:56.640 --> 0:16:59.800 You probably don't have any mortgage interests because you paid 0:16:59.840 --> 0:17:02.160 our your house. So a lot of things are happening 0:17:02.240 --> 0:17:04.960 both on the income side, where your income's higher because 0:17:04.960 --> 0:17:08.960 you'll let your account grow and your deductions are lower. 0:17:09.480 --> 0:17:11.760 Okay, and I totally get where you're coming from, But 0:17:11.840 --> 0:17:15.199 this also sounds like a nice problem to have, right 0:17:15.240 --> 0:17:18.159 somebody who's a high earner, maybe somebody who's paying a 0:17:18.200 --> 0:17:20.800 pretty well known CPA in New York. What about for 0:17:20.840 --> 0:17:24.520 folks out there who are they're pretty dang frugal, they're 0:17:24.520 --> 0:17:28.840 living very affordably, and they truly, in fact, are going 0:17:28.920 --> 0:17:32.560 to expect to see their income decrease significantly in their 0:17:32.640 --> 0:17:34.840 quote unquote retirement years. Do you think that it would 0:17:34.880 --> 0:17:35.680 make sense for them? 0:17:35.960 --> 0:17:38.240 That could be, but I wouldn't put all my eggs 0:17:38.280 --> 0:17:41.199 in one basket. Maybe for those people doing a series 0:17:41.240 --> 0:17:45.040 of smaller conversions over the years. Here's the key to conversions. 0:17:45.320 --> 0:17:49.400 You want to use up the lower tax brackets, these twelve, twenty, two, 0:17:49.520 --> 0:17:53.320 twenty four percent. If you leave any of those unused, 0:17:53.800 --> 0:17:56.040 you've blown it. You've just given a gift to the 0:17:56.040 --> 0:17:59.320 government that you can never get back. An unused tax 0:17:59.440 --> 0:18:02.280 bracket can never You don't get it back. 0:18:02.680 --> 0:18:04.760 Ye, yeah, once that years past, you can't go back 0:18:04.760 --> 0:18:05.200 in time. 0:18:05.160 --> 0:18:07.040 And to leave that on the table. Like I've had 0:18:07.040 --> 0:18:09.720 people over the years tell me, Ed, look at this, 0:18:10.160 --> 0:18:12.879 I paid no tax this year because my income was 0:18:12.920 --> 0:18:15.960 so low. I said, I'm sorry to hear that, Not 0:18:16.080 --> 0:18:18.679 that your income's low. I'm sorry you paid no tax. 0:18:18.720 --> 0:18:20.960 That tells me you didn't use the lower brackets. You 0:18:20.960 --> 0:18:23.679 should have been converting that large IRA and used up 0:18:23.680 --> 0:18:26.399 the brackets so hard. So sorry to hear your tax 0:18:26.440 --> 0:18:27.560 planning went off the rails. 0:18:27.640 --> 0:18:29.440 Yeah, that's more of a myopic view. It's a single 0:18:29.480 --> 0:18:32.919 year view versus taking a exact rist approach, right, And 0:18:32.920 --> 0:18:34.560 you're like, I want the pay the lowest amount of 0:18:34.560 --> 0:18:36.920 possible taxes over time. And some of the people who 0:18:36.920 --> 0:18:40.280 are opting for traditional accounts instead of ROTH accounts are 0:18:40.320 --> 0:18:43.880 thinking about single year versus multi year planning. Talk about 0:18:43.880 --> 0:18:46.760 the idea of tax diversification for a second, ED, because like, 0:18:47.080 --> 0:18:49.879 what about the idea of having ROTH and traditional assets 0:18:49.960 --> 0:18:53.080 you can kind of choose your own tax adventure or 0:18:53.119 --> 0:18:55.560 such in retirement. It sounds like you don't think that's 0:18:55.600 --> 0:18:57.680 a solid idea and you would rather people go all 0:18:57.680 --> 0:18:59.320 in on ROTH accounts. Is that right? 0:18:59.520 --> 0:19:02.600 No? This something to be said. You said tax diversification. 0:19:02.880 --> 0:19:05.119 I use the term a little different. I call it 0:19:05.280 --> 0:19:11.000 tax risk diversification, because you should everybody should have some 0:19:11.160 --> 0:19:15.000 position in tax free just as a buffer, as a 0:19:15.040 --> 0:19:18.080 guard rail, as a defensive tactic in case rates do 0:19:18.240 --> 0:19:22.679 go through the roof. That's your only defense. So you 0:19:22.800 --> 0:19:25.159 have to have something in a row would say, I 0:19:25.200 --> 0:19:27.719 would say at a minimum, and it's okay to have 0:19:27.760 --> 0:19:30.280 a hybrid system. Maybe you actually believe you'll be in 0:19:30.320 --> 0:19:34.000 a lower bracket in the retirement and there's reasons not 0:19:34.119 --> 0:19:36.960 to convert. Maybe you're a big giver to charity and 0:19:37.320 --> 0:19:39.800 you want to do these qcds when you get all 0:19:39.880 --> 0:19:44.800 to qualified charitable distributions. Iras are great vehicles to get 0:19:44.840 --> 0:19:47.960 money out at zero percent tax rates, so you might 0:19:48.000 --> 0:19:50.760 want to keep some iras for that. Or you might think, 0:19:50.960 --> 0:19:54.119 what if I have big medical expenses, I want to 0:19:54.160 --> 0:19:55.960 be able to deduct them, Well, you have to have 0:19:56.040 --> 0:19:58.040 income to deduct them. You may want to keep some 0:19:58.160 --> 0:20:02.240 iras for that number of reasons to keep something in there. 0:20:02.280 --> 0:20:05.080