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Transcript

Mike:

It is the highest taxed money you own. I mean, of all the accounts you own, this is the, it is taxed at a higher rate than anything else. Plus, as you pull money out at forces, a lot of your other income streams to be taxed, you pay more tax on your social security. You might pay more tax on capital gains and dividends, more tax on interest. You pay more tax everywhere. They are tax bombs.

Zach:

Welcome back to retirement today. I’m your co-host Zach Holcomb, alongside me we have Michael Reese, founder and president of Centennial Advisors located right here in Austin, Texas. Now, Mike, if people are watching us on our, on our YouTube channel, we’re both wearing purple today. Did we coordinate this?

Mike:

Yes. I don’t know. I think I’m more pure purple. You’re kind of more like a bluish purple. I don’t know. I I’m, I’m feeling like I’m more purple today than you are.

Zach:

A little more purple-y got it.

Mike:

There we go. I don’t know if that’s a word, but we’ll go with it. And, and by the way, in the introduction, you never mentioned how I am also, at least in my mind, you know, and all around decent guy, he is a

Zach:

He is a decent guy. I’ll say that decent.

Mike:

Depending on if I’m hungry or not. If I’m hungry, maybe not as decent. What do they call that? Hangry right? All right. This week, we’re talking about taxes when we finished up the last segment, right? So this is a, this is an example that I shared in our college level class that we did on zoom that finished up last week. Yes. And it was a couple, we call them Joe and Mary, you know, they’re retiring starting January 1st, 2022. They want a hundred thousand a year in income after taxes. And they’ve got some social security when they get a little bit older. Cause they’re, you know, they’re 62 and 59 or something like that. They’re going to get some social security. They’ve got some rental income. They’ve got money in a 401k, like about a million dollars, a few hundred thousand and after tax. And you know, we ran the numbers and their money is going to last.

Mike:

That’s not their problem. The problem is taxes. And what we learned is when they started their very first year in retirement, their tax liability was like $1,200. It was almost nothing in life was good, but you start fast forwarding in time, over a 30 year retirement, that goes from 1200 to five years later, 8,500 than 16,000 when required distributions kick in. And as those distributions get bigger and bigger and bigger, we’re at 22,000, 30,000, 40,000, 50,000. By the time we get to the 30th year of retirement, we’re up to 64,000 in one year tax bill. And that all assumes that taxes do not increase over time, which we know is kind of, you know, I think there’s a higher likelihood that we’ll be struck by lightning than the taxes will not increase something. Right? So what we did is we calculated. If we added up all the taxes that they would pay over a 30 year retirement following conventional wisdom, what is conventional wisdom spend after tax money first and defer that 401k money, as long as possible, following conventional wisdom, we learned that they would spend $803,000, $803,000 going to the IRS during their 30 years.

Mike:

And after they were both gone, is the IRS done? Oh no, no, no. We still have another 657,000 going to the IRS from the kids. And again, assuming taxes don’t do what Zach?

Zach:

Go up.

Mike:

Yeah. Cause if they go up, the numbers will be more.

Zach:

And it’s already like in total with the kids, that’s like 1.4 million.

Mike:

Yeah. It was 1.46 million. Right? Think about it. You Joe and Mary enter retirement with $1.3 million. 30 years later, they go through a 30 year retirement. And between them and their children, they’re given the IRS, all of that 1.3 million plus another 160,000 on top of it. So I sure hope they earn a lot of money along the way or they’re going to be in trouble. Right. All right. So what do we do about it? What do we do about it and are there, and what kind of benefits might accrue now?

Mike:

I want you to think about yourself here. Think about yourself. Think about your situation. You might have, you know, similar amounts of money in your 401k and after tax account, you might have more, you might have less, but here’s the question by the way, question number one, has anyone shown you the tax path you’re on right now? Has anyone sat down and said, Hey, if you live 30 years in retirement, here’s what it’s going to look like for you. And if you add up all that money that you give the IRS, what’s that number going to look like for you? It might be more than 800,000. It might be less after you’re gone. And the money goes to your kids or your grandchildren. Has anyone shown you? Hey, here’s the taxes that they’re going to have to pay. Do you want the IRS to be one of your biggest beneficiaries?

Mike:

Probably not. Right. Most of you don’t. I know, I know you might be that one person who feels a little differently, you might be the one person that says, you know, no, I want to give money to the people in Washington, DC. They need my money.

Zach:

And they’re like, Mike, I just really want to do this.

Mike:

And that, if that’s you, then you don’t have to pay attention to this part of the show. Right? The reality is that’s very easy. You don’t see a lot of people like that out there. Most people say that, you know, if I could reduce my taxes, I’d love to do it if possible. So in this example, we asked a simple question. Now, by the way, this question that we asked may or may not apply to you because remember when we talk about taxes. Zach, are taxes is the same for everybody.

Zach:

Everybody’s situation is very different.

Mike:

We’re all different. You could, you and your next door neighbor could have, you could be making the exact same amount of money, but your tax liability could be very different based on a lot of factors. But in this case, we asked a simple question. We said, what if, what if we took that million dollars in the 401k starting in 2022, once they retired? What if over the next five years, 2022, 2023, 2024. And so on for a five-year period. What if we converted that IRA to a Roth IRA over five years? What if we converted say 200,000 a year over a five-year period. Now, by the way, during the class we even recognized, we said, you know, this is not an optimal approach. This is not the best way to do this. There are probably better ways to do it, but that was okay.

Mike:

We said, look, let’s not sit here and try to complicate it. Let’s just simple and easy. What if we converted that million dollar IRA, 200,000 a year to Roth IRA. Now I don’t want to go too fast. Why, why would we convert to Roth? IRA? What is the benefit of Roth IRA over the 401k? What’s the benefit, Zach?

Zach:

We’re moving money into that tax-free bucket.

Mike:

Yeah. Roth IRA money. It grows tax free. It comes out tax free. It goes to your surviving spouse tax free then goes to the kids tax free. And the grandkids tax free. It’s like the, a Roth IRA. It’s like the legal Swiss bank account,

Zach:

Like a cheat code.

Mike:

Or if you want to be really like, I don’t know, the off shore bank account, that’s all tax free in the Cayman islands or something. This is like a legal version of that.

Mike:

Right. That’s why you do it, but what’s the problem. We want to move from an IRA, 401k to a Roth IRA. Yeah, I get it. I want to go from a place where I’m going to pay a boatload of taxes over time to a place where it’s all tax-free, who wouldn’t want to do that. Right. But if I move 200,000 from, from 401k to a Roth IRA, what’s a disadvantage in that year. What do I have to pay to make that happen?

Zach:

You have to pay a little more tax,

Mike:

Got to pay tax now on that 200,000 right. Of income. So that might cause I got to pay tax today. I, that might cause if I’m over 65, I might have to pay more you know, a little bit more for my Medicare, right? A couple of years from now for a year’s period of time.

Mike:

Yeah, it might, it causes some taxes. Now it’s a very real disadvantage, but let’s talk a little bit about the outcomes now, and then we’re gonna, I’m gonna talk the outcomes. We’ll take a break. When we come back in the next segment, we’ll, we’ll dive in a little deeper about what happened here. Remember they were on path to give the IRS between parents and children. $1.46 million. Yes. By taking this approach over a 30 year retirement, instead of mom and dad, instead of Joe Mary giving the IRS over $803,000 instead, they only had to give the IRS $293,000. Basically it saved them over 500,000 of tax during their lifetime. During that 30 years,

Zach:

That’s a game-changing amount.

Mike:

If that was the only benefit, that would be good enough. Right. But in addition to that, the children got their inheritance completely tax-free so there’s $650,000 saved there as well.

Mike:

Save when all is said and done almost $1.2 million of tax, you know, less money go in the IRS over that 30 year retirement. Oh. At 1.1 million, something like that saved a bunch of money, attacks all from doing some Roth conversions upfront. That sounds pretty cool. Right? Okay. We’re gonna go more in detail in the next segment, but before we get to that next segment, what about you? What about you? How much tax are you going to pay in your future? How much tax could you save if you looked at some simple strategies? Well, to answer that question, we want to make this easy for you. We want you to find that information out easy. We want it to be simple. So we’ve created a one page blueprint. It’s a prosperity planning, blueprint. That’s what we call it. It is the easiest way for you to enjoy complete financial security.

Mike:

It looks at your investing. It looks at your income planning. And what are we talking about tonight, Zach?

Zach:

Taxes,

Mike:

Taxes, tax planning. And so what this blueprint will do for you is it will show you here’s how much tax you’re going to pay over your retirement. If you just keep doing what you’re doing now, and it will also show you how much tax you could potentially save. If you just apply some simple tax strategies, how much this thing costs to have done,

Zach:

It is free.

New Speaker:

It’s free. Why would you not do it? So here’s what you’re going to do. You’re gonna call the number, right? Zach’s going to give it to you, but it’s, I’ll give it to you real fast. (512) 886-5850. You call that number. You talked to our team. So we’ve got these, this group of people after hours. They’re going to answer the phone for you. They’re going to set the time for you to hang out with Zach for 15 minutes, where you can give him your information. He’ll help you get everything you need to get together so you can get this blueprint done. It’s simple. It’s free. It’s easy. What’s the number all you gotta do is call phone number. What is it Zach? It’s easy.

Zach:

(512) 886 5850. Again, that simple number, (512) 886 5850. Now don’t go anywhere. I know you’re going to want to stick around for our last segment. When we tell you how Joe and Mary fixed their tax problem in retirement, we’ll be right back.

Zach:

Show’s going great today. I’m loving the discussion we’re having on taxes.

Mike:

Of course. And you know what taxes, if you listen to the show, if you watch us, right? You know that I get all geeked when I’m talking about saving taxes, right? I hate giving my, the IRS myself. I just assume everybody else does. And this is one of those areas where, you know, I may be a little strange from time to time. My wife, Becky, my children are like dad. Sometimes they just look at me and say, dad, you are not right. There’s something wrong with you.

Zach:

Just calm down a little bit

Mike:

Right there. Just the dad. You’re strange. Nobody’s like you, you’re just different. I’m sure none of you have children that tell you that. Oh my gosh. But when it comes to taxes and not wanting to give the IRS a bunch of money and you have the desire to pay the smallest amount that I’m legally obligated to pay, I think I’m, you know, in line with a lot of other people,

Zach:

Right? You’re not in the minority there

Mike:

Are a lot of very common theme. So we’re talking this week, remember last week at the, you know, last week, Tuesday was the second of two classes where we had this zoom based or like an online college class regarding financial planning and prosperity planning. We want you to enjoy complete financial security. We want you to enjoy a prosperous financial life and the purpose of the show. We’re always giving you information on how to do that. But as is, you know, we need to think about, you know, just because we know how to do something that doesn’t really mean anything, unless we actually apply it. Yeah, we got to do it right. And we’re thinking, you know, how do we make that as easy as possible. We’ve created this one page blueprint. I’ll talk a little bit more about that later. But in the class, you know, part two, we’re talking about taxes and we had this example of Joe and Mary.

Mike:

They want to live on a hundred grand a year. And we saw that, Hey, you start by following conventional wisdom, year one, you’re paying 1200 tax. But that grows over time. By the end of a 30 year retirement, you’re giving the IRS 64,000 in a single year. Right? All because of what, what’s the big problem here required minimum distributions. And at the end of the last segment, we talked about the, what if, what if we converted that IRA to Roth, IRA over a five-year period. And the benefit of doing that is we’re moving money from a place when you’re in a 401k, that’s a tax deferred account. And in those tax deferred accounts, all the growth is tax deferred, but you have these required distributions. You’re forced to pull more money out every year. As you get older, like more and more and more and more, even if you don’t want the money, you might, I don’t want to pull the money out.

Mike:

I don’t need it. That’s too bad. You still got to take it out. And it is the highest taxed money you own. I mean, of all the accounts you own, this is the, it is taxed at a higher rate than anything else. Plus, as you pull money out at forces, a lot of your other income streams to be taxed, you pay more tax on your social security. You might pay more tax on capital gains and dividends, more tax on interest. You pay more tax everywhere. They are tax bombs. So we said, in this example, Joe, Mary, what if we just recognize that we know we got to get the IRS, some of this money? What if we choose to give them money earlier rather than later? What if we flip conventional thinking on its head instead of defer, defer, defer, defer, defer. What if instead we say, nah, I’m not going to do that.

Mike:

I’m going to do the opposite. I’m going to go ahead and pay tax now and get this money all converted to a Roth IRA where it’s tax-free forever. Right. But we’re not going to do it in one year because that would be kind of silly. I mean, who wants to give the IRS a check for like 400 grand? Right?

Zach:

Nobody.

Mike:

No. I mean, even, I don’t want to do that instead. We’re going to break it up maybe over a five-year period. Right? And in this example, by breaking up, cause what did we do? We calculated following conventional wisdom, Joe and Mary were on a path where they were going to give the IRS $803,000 over a 30 year retirement. By following the unconventional wisdom, they only had to give the IRS 293,000 over a 30 year retirement. Now, Zach, this is my rocket scientists question for you. So do you have your thinking cap on,

Zach:

Just put it on.

Mike:

Fantastic. And I, if we had jeopardy music, I would probably put it on in the background right now. Here you go. Ready? Here is the question. This is final jeopardy. Okay.

Zach:

I’ve risked it all, It’s all on the line.

Mike:

You have an option to follow up half where you give the IRS $803,000 over the next 30 years plus more money that your kids got to give them at the end. Or you can take another option where, and you’re in charge of this. You get to choose. You only have to give them 293,000. So a little over 800,000, a little more than 800,000 or a little less than 300,000. And at the end of 30 years of kids. So then nothing. Which option are you probably gonna wanna pick? Remember this is final jeopardy, don’t mess this up.

Zach:

Well, Mr. Trebek, I think I’m going to go with option two. I’m going to write that in my little podium, really quick.

Mike:

That you want option two. You’d rather give them 293 versus 800.

Zach:

Yes, I think so.

Mike:

Yes, probably right. Because why, if you’re not getting the IRS money stay, if you’re not giving it to the IRS, where’s the money go.

Zach:

I get it.

Mike:

Yeah. It goes in your pocket, right? You can pick and choose what you want to do with that money. You could give it to charity. You could give it to your grandchildren. You could take an extra trip to Europe for the year. And then there’s more money left to the kids. Right? In this example the children end up with like 600,000 more of an inheritance because why you didn’t give it to the IRS. Right?

Mike:

What about you now, once you, you know, this is just a simple example that we used, but it really begs the question. What about you? I mean, what about your situation? You’ll maybe you’re sitting there and you’re thinking, man, I’m in my fifties and I want work to be optional someday. And someday soon, you know, we talked a lot of people in their fifties where, you know, they’re making pretty good income, but the stress of their job, it’s just killing them.

Zach:

Right. They don’t want to be there anymore.

Mike:

It’s like, man, I need to figure out when can I make work optional? When can I transition in life to from doing what I have to do, right. To earn a living, to doing what I want to do, where I don’t have to earn so much income maybe, and I can kind of call my own shots.

Mike:

How do I get there as quickly as possible? Maybe you’re sitting there like this couple were talking about, they want to retire at the end of the year, or maybe you want to retire in the next two to three years, or maybe you just retired. What about you? What kind of tax path are you on? Do you have your money set up the right way? Are you sure? Are you 100% certain that you have complete financial security or maybe you’re already retired, right? Maybe you’ve been retired for five, six years and everything’s gone well so far because the market’s cooperated, but you’re starting to wonder, wait a minute. Taxes seem to be getting to be a problem. And no one showed you what taxes are likely going to look like for the rest of your life year by year. And you’re starting to wonder, Hey, could I could, could I maybe reduce taxes?

Mike:

Could I save some money? Maybe give, maybe, maybe not give so much money to the IRS over time. So if you’re in any of those situations, this is why we made the prosperity planning, blueprint. We wanted to create a single piece of paper, just one piece of paper to help get your questions answered easily. We want to be easy, right? The button easy, the easy button, easy button. Yeah. Zach actually has. When I think at his desk, we want that. We want to give you the easy button on your prosperity planning. We want to make this like the simplest thing in the world for you. And all you have to do to get that one page blueprint, that blueprint that shows you, you know, how you can make work optional with your income planning, you know how to be smart with your investing. So you’re protecting your downside, but still having good returns.

Mike:

When the markets are running, you know how to keep taxes to a minimum. One piece of paper helps you with all of that. It’s super, super simple. It’s very easy. All you got to do is give us a call. When you call us it’s after hours, you’ll get our our answering service and they’ll set up a 15 minute call with you and Zach, our co-host Zach here. And he’ll just gather the information we need. Right? You’ll learn a little bit about your situation. Let us help you put together this customized blueprint. It’s free. Why wouldn’t you do that? Right? It’s free. Zach, what’s the number. I mean, all they gotta do is call. It takes like two minutes. All you can do is call, schedule time to talk to Zach. What did they, what number do they need to call?

Zach:

The number is (512) 886 5850. Again, it’s super easy. (512) 886-5850. Give us a call set up that 15 minute discussion with our team. We can help get this blueprint completed for you.

Mike:

It’s so easy. And here’s the thing. Think about why you want to do that. You know, there’s a lot of reasons you might want to do it. Maybe you want work to be optional as soon as possible. We can help you get there with this blueprint. Maybe you’re curious about your investing. Are you really making the right investment choices today? We can show you that on the blueprint or maybe it’s what we talked about tonight. Maybe from a tax perspective, no one has sat down with you and said, Hey, let’s take a look at the road you’re on right now from a tax perspective, right? Let’s identify where that road is taking you. And are there any little forks in the road that you could take where you could maybe get to a better place? Maybe you could save a lot of money like this couple Joe Mary did. In our example, maybe you could save literally hundreds of thousands of dollars. If no one’s had that discussion with you, you probably should call again that number (512) 886-5850. Do not let your retirement, your financial prosperity. Don’t let it happen by chance. Have it happened by plan. All right, gang, that’s our. And I hope you enjoyed it. Have a great week.