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The following program is sponsored by Freedom Financial Group, greater
Birmingham's Premier Retirement Planning Specialists.
Welcome to Retiring Well, where it's our job to help you enjoy financial security in any economy.
We have a great show lined up for you today. We're talking about IRAs
and in fact all types of qualified retirement plans; 401Ks,
403Bs etc. We're talking about these plans in
the tax time bomb that they create.
This is a real problem for retirees, and it's something we talk about in the financial community
all the time. It's time for you to be plugged in to what's
happening. So sit back, relax, and enjoy today's show
Retiring Well with Michael Reese. Providing financial security in any
economy. Today is the day you can take control of your financial
future and eliminate worry about your money forever.
Retiring well with Certified Financial Planner and retirement planning expert
MIchael Reese. IRAs, 401Ks, 403
Bs, 457s; All of these types of accounts
are what are known as qualified retirement plans.
As such, they have some very interesting tax rules
that go along with them. So I have in my hands right here
something called publication 590.
This is the bible for IRAs. It's 107
pages of single-spaced, double-column
IRS speak. Folks, I'm telling you right now if you have any
problems sleeping at night, insomnia that type of thing, just
download this baby from the internet from IRS.gov, you'll be asleep in
no time I promise. Anyway,
all of these types of retirement plans, as I said they have certain
tax rules. They work like this
generally speaking. The money that you deposit
you can normally do in a pre-tax basis. So it's like you getting tax
deduction on the money you put in. The money then grows
hopefully, and you don't pay any tax on the growth, right?
The idea is it grows tax deferred. So when do you pay all the tax?
Well you pay it at the end of the day when you pull the money out down the road.
This my friends is where the rubber
hits the road. While you're working, while
you're contributing, you're saving, these types of plans
are the best tax shelters you can ever imagine. They're fantastic,
but what happens after you retire?
You see the day you retire is
the day that these wonderful tax plans become
very tax toxic.
That brings up our lesson of the day. The lesson of the day is
once you retire, your IRA, 401K, 403
B your qualified retirement plan goes from
great tax shelter to being
very tax toxic. That's right,
retirement plans, qualified retirement plans, are tax
toxic to Retirees.
This is a problem we talk about all the time in the financial community.
It's a huge issue, and it makes
me ask you the question, when you think about it, what is your
IRA exit strategy? Do you even have one?
Has your advisor even talked to you about it? Well guess what folks,
that's what we're going to focus on today. So coming up,
we are going to talk about
five different ways that
your IRA, or other type of qualified retirement plan can create
a lot of problems for you after you retire.
You don't want to miss this. Don't go away.
Let's talk about retirement income.
Studies show that a large number of Retirees are worried about running out of money.
Broken promises from banks, Wall Street, and the folks in Washington, DC
may have you worried about your own Rertirement security. Secure,
predictable income is the key to protecting your retirement. You want your
retirement income to be based on math, not markets. It's one more
reason that now, more than ever, you need to talk to a Retirement Planning Specialist.
Why not call the number on your screen right now? We'd love to talk
to you about protecting your retirement. You've worked your entire
life to become financially secure, so that you can enjoy a comfortable retirement.
But when you get there what's next? Wall Street and the financial media flood the
airwaves with information about what you should and shouldn't do. But who are they working for?
Who can you trust? For the past
seventeen years I've focused on helping people just like you
protect and preserve their retirement security. And during that time I've identified
seven different lies, each with the potential to destroy
the security you've worked so hard to build. I believe
you deserve to know the truth. I've built a website that hosts
a series of videos that's free of charge that you can watch
in the comfort and safety of your own home.
You don't want to miss out on these powerful videos that shine the light of truth on what can
be a confusing topic. Why don't you go there now? It's absolutely
free and you'll be glad you did. www.
retirementincomelies.com. You deserve
to know the truth. Let's talk about safe places for money that earn a decent
return. You want your money to be safe. That makes a lot of sense
in today's unsettled economy. But everywhere you look, you can't find a place that
pays you a reasonable amount of interest. It's frustrating. That's where we
come in. Secure places to earn a decent return are available
if you know where to look. We evaluate them every day.
It's one more reason that now, more that ever, you need to talk to a Retirement
Planning Specialist. Why not call the number on your screen right now? We'd love
to talk to you about protecting your retirement.
Welcome back to Retiring Well,
where it's our job to help you enjoy financial security in any
economy. Today we're talking about IRAs, 401Ks,
403Bs, and all the tax challenges these plans bring
to you after you're retired. It's kind of like
a farmer. Imagine you're a farmer, and
you plant corn, wheat, soybeans,
let's say that you had
a choice. You could choose to pay tax on the small amount of
seed that you plant, or you could choose
to pay tax on the huge harvest that you reap. Which
tax would you rather pay? Would you rather pay on the small amount of
seed, or the big harvest? Well, of course, you want to
pay on the small amount of seed, the tax would be smaller. But when it comes
to retirement plans, you're actually doing the opposite.
You are paying tax on the harvest at the end.
Except it's not just one year's worth of harvest, we're talking maybe twenty or thirty years
of harvest that you're paying tax on. So for a lot of you,
you put a small amount of money on your deposits, but
over time it's grown, grown and grown, and now you have a huge amount of money out there
in comparison, that you're going to owe tax on someday. And that brings
up for those of you who are retired the five different
problems that Retirees have with IRAs.
So let's take a look at problem number one. All
distributions are taxed at your highest tax rate, whatever
it happens to be. If you're in the fifteen percent bracket, well
you pay fifteen percent tax in that distribution. It might even bump
you up into the next tax bracket. If you're paying twenty-five
percent tax, same thing. So not only are you paying tax
at whatever your highest tax rate is, in many
cases that distribution bumps you up into a
higher tax bracket yet. What about problem number two?
Problem number two is that for many of you,
when you pull money out of your retirement plan,
not only are you paying tax on the money as it comes out,
but you are also being forced to pay
more tax on your Social Security income. A lot of
people don't realize that there's a
a lot of different factors that come into play when you figure out how much of your Social
Security is subject to income tax. For many
folks you're in a position where maybe you're not paying any tax
on your social security. Or maybe you're paying tax on maybe half of your Social Security,
yet as you pull money from your 401K
or your 403B, or your IRA
those distributions are counted in that formula when it comes to figuring
out how much of your Social Security is subject to income tax.
So for many people you get taxed twice. You get
taxed once on the amount that you withdrawal, but then you get taxed
again because that withdrawal makes more of your Social Security
taxable. In the CPA world
they call that a double tax, or a hidden tax.
So problem number one you're taxed at your highest rate. Problem number two now
a lot of times it makes more of your Social Security taxable. What about
problem number three? Do you
realize that your IRA, 401K,
403B, do you realize that that is the
only account that you own? The only
account that you own where you are forced to
pull money out whether you want to or not. You don't
have a choice. Once you're seventy and a half you
have to withdrawal what's called a Required Minimum Distribution,
and every year they calculate that number. The
percentage you have to pull out goes up every year. The older you get the more you have to
pull out. Once you hit seventy and a half, every
year you are forced to pull money out of that retirement plan, even if you don't want to
which means you're forced to pay taxes on that withdrawal maybe more
tax in your Social Security even if you don't need the money.
Doesn't matter you still got to do it, and let's imagine that you're stubborn,
maybe you're like, as my wife says, I sometimes
am. My wife says sometimes Mike you're stubborn. Well maybe you're
like me and sometimes you're stubborn, and you say I don't care what the
IRS says. Who cares? It's the IRS, I don't care.
I don't need the money. I'm not going to pull it out. They're going to hit you
with a fifty percent penalty. That's right, I didn't say fifteen,
I said fifty percent penalty if you don't
pull out your Required Minimum Distribution. Then you still have to pay
tax on top of it. So you can easily see seventy, seventy five percent of that money vanish
if you don't make your required distribution. So it's important you do so.
Problem number four, the bigger
your IRA gets, the bigger the percentage that goes
to the IRS. It's kind of like a mortgage where the more valuable your house becomes,
the bigger the mortgage gets. Why? We live
in one of these tax systems, it's called a Graduated Tax System.
The more you have, the higher the tax bracket you are in.
The more you have in your IRA, it moves you up tax brackets.
The bigger the percentage of the pot that goes to the IRS.
It's kind of a disincentive to save money there. And
then let's look at number five. This my friends, your
IRA, 401K, 403B. A lot of you are out there saying this
is the money that I'm going to leave to my spouse so that he or she is financially
secure after I'm gone. A lot of you fellas out there,
you husbands, the wives live longer, you're thinking I'm going to leave my 401K or my
IRA to my wife. That way she will be will be financially secure after I'm gone.
Well guess what you just did. Once you're gone she
is a single tax payer. That means that she is now in the highest
tax brackets possible, and you just went and left her
a big old taxable account. Does that make any sense at all?
Of course it doesn't. you want to leave her tax free money.
Those are your five problems, now
again don't go away because coming up we're going to Ask the Expert
about this, and I'm going to share some solutions.
Let's talk about a
customized retirement plan. Retiring today is not what it used to be.
What works for your neighbor may not be best for you, yet everywhere you
turn it seems like financial firms are giving cookie cutter advice.
Your circumstances are different than anyone else's. We believe a plan should
be customized to fit you instead of trying to squeeze you into a prebuilt
model. It's one more reason that now, more than ever, you need to
talk to a Retirement Planning Specialist. Why not call the number on your screen right now?
We'd love to talk to you about protecting your retirement. Let's talk
about retirement income. Studies show that a large number of Retirees
are worried about running out of money. Broken promises from banks, Wall
Street, and the folks in Washington, DC may have you worried about your own retirement
security. Secure, predictable income is the key to protecting your
retirement. You want your retirement income to be based on math, not
markets. It's one more reason that now more than ever you need to talk
to a Retirement Planning Specialist. Why not call the number on your screen right now?
We'd love to talk to you about protecting your retirement. And now
Ask the Expert featuring financial advisor Tad Hill.
This week we've been talking about
IRAs, retirement plans, and the tax problems
that they generate. Tell me, what are you seeing
in your area with the people that you're talking to?
This is one of the biggest challenges facing retirees. 401Ks, IRAs
they're a great way to save money. You get the benefit of tax deferral
so it compounds at a higher rate overtime, but once it's time to start
taking money out, IRAs, 401Ks, they are the most
tax hostile place you can have your money. One of the
biggest challenges that I see Mike is when it's time to pass that money
on to your spouse, or to your children they're going to be in higher
tax rates. You're expecting this account to protect them
and really with all that's going on economically, domestically, globally,
the tax changes that are coming, this can create a lot of real
challenges for people. So wouldn't it be better to create a plan now
that's designed to leave tax free money to the people that you love
and care about the most, instead of having them penalized by the
tax code. So what types of solutions
are you recommending to the folks you're talking to?
So when it comes to strategies to solve this problem, we want to take
advantage of the tax code instead of getting penalized by it. So we want to
take your tax hostile investments and transition them
into tax advantaged investments. It's great if we can do that all
at once and in one fell swoop, but sometimes it may be a strategy where we're taking advantage
of your marginal tax brackets over a period of
years, even decades. Maybe we convert ten-thousand dollars a year
to a Roth, but over twenty years with some growth, now you're leaving a
quarter of a million dollars, maybe even more in tax free money.
A really overlooked area of estate planning, particularly
passing money onto your spouse is using life insurance. I call it the secret
weapon of the wealthy. Most people don't even realize that you can take a
small amount of your money and leverage it many times over to leave a
tax free account to your loved ones. Is there anything you'd like to add
to the conversation? The core lesson I want you, the viewer, to take
away is that most of you have tax deferred accounts
and they're going to be very hostile to you and your loved ones when it's time to start
distributing that money. So we want to take advantage of the tax code if we've got
money outside of those, we want to structure things when you're taking income
out to protect your income and retirement. But we also want to make sure
that we are not leaving a tax time bomb to your loved
ones. There are definitely strategies to take care of this, you just need proper
retirement planning.
Welcome back to Retiring Well where it's our job to help you enjoy financial
security in any economy. Well this
week we're talking about retirement plans and the tax problems
that they provide that they create for Retirees. They were great
tax shelters while you were working, but once you retire
they're the worst thing you want to own from a tax perspective. While you've heard
from the experts about some different ways that they're solving these issues, let me give you my two
cents. When it all comes down to it, there are really only four
different types of buckets if you will, I call them tax buckets
where you can add money. The first bucket is money that's taxed
every year. These are things like Personal Accounts, Mutual Funds you own,
Trust Accounts. Anything that you get a 1099 each year
tells you interest you earned, here's the dividends you earned, and it goes in your tax return.
That's bucket number one, Taxable Accounts. Bucket number two,
Tax Deferred Accounts. Things like Qualified Retirement Plans, that's what we're talking about
today. Non Qualified Annuities fall into that bucket.
Bucket number three, Tax Free. There are only three things out
there that are tax free; Municipal Bonds, Roth IRAs
and the right type of Life Insurance. That's it,
nothing else. Then bucket number four, this is what I call
Income Tax Free and Estate Tax Free, this is where you have these real fancy
charitable trusts, and insurance trusts, that's what the really wealthy
people use that is both income tax free and estate tax free.
Here's why I bring up these four buckets, when it comes to
having an IRA Exit Strategy so that you can be
smart about your taxes with your
IRAs, 401Ks, some of your biggest assets and the biggest taxed
assets that you own. If you want to be smart about them what do you want to do?
You want to move out of bucket two into either buckets three or
four. For most of you bucket three, that means things like Roth Conversions, Life Insurance,
that type of thing. But it's not easy,
it can be complicated. Folks, this is
why you want to talk to a Retirement Planning Specialist.
I want you to call the number on the screen.
If you call the number on the screen you can sit down with a retirement
planning specialist, or at least talk to them on the phone and learn more
about what your options might be to reduce that heavy taxation
on a tax toxic asset called your IRA, 401K
etc. This is a real big issue, get a
IRA Exit Strategy, a 401K Exit Strategy, a 403B
Exit Strategy, plan an Exit Strategy so that
you control your tax liability and not the IRS.
All right, coming up we're going to cover an IRA
blow up.
Let's talk about safe places for money that earn a decent return.
You want your money to be safe. That makes a lot of sense in today's unsettled economy.
But everywhere you look you can't find a place that pays you a reasonable amount
of interest, it's frustrating, that's where we come in.
Secure places to earn a decent return are available if you
know where to look. We evaluate them everyday. It's one more reason
that now, more than ever, you need to talk a Retirement Planning Specialaist.
Why not call the number on your screen right now? We'd love to talk to you about
protecting your retirement. Hi folks, Michael Reese here, I'm staying with my good friend Tad
Hill. Now if you live in the greater Birmingham community,
I've got to tell you I think you should count yourself fortunate to have someone like Tad
available in your community. Now you may not know
this about Tad, but he and I both belong to a national group of Retirement
Planning Specialists who get together two, three times a year
simply to share ideas and how we can help our clients. Tad's probably
givien me as many ideas as I've given him. Tad do you mind taking a moment and sharing
with the folks what you specialize in at Freedom Financial? Well really the bottom
line Mike is that we help our clients protect their retirement.
Our strategies are designed to give you peace of mind so that
you can live the life style you're accustomed to without having to worry about
where your income's coming from. You know folks, if you're in the greater Birmingham area
and you have at least $250,000 saved for your retirement,
I encourage you call the number on the screen to talk to Tad.
Let's talk about a customized retirement plan. Retiring today is
not what it used to be. What works for your neighbor may not be best for you.
Yet everywhere you turn it seems like financial firms are giving cookie cutter advice.
Your circumstances are different than anyone else's.
We believe a plan should be customized to fit you, instead of trying to squeeze you into a
prebuilt model. It's one more reason that now, more than ever,
you need to talk to a Retirement Planning Specialist. Why not call the number
on your screen right now? We'd love to talk to you about protecting your
retirement. You've worked your entire life to become financially secure
so you can enjoy a comfortable retirement. But when you get there
what's next? Wall Street and the financial media flood the airwaves with information
about what you should and shouldn't do, but who are they working for? Who can you trust?
For the past seventeen years I've focused
on helping people just like you, protect and preserve their
retirement security. And during that time I've identified seven different
lies, each with the potential to destroy the security that you've
worked so hard to build. I believe that you deserve to know the truth,
and so I've built a website that hosts a series of videos
that's free of charge, that you can watch in the comfort
and safety of your own home. You don't want to miss out on these powerful
videos that shine the light of truth on what can be a confusing topic.
Why don't you go there now? It's absolutely free, and you'll be
glad you did. www.retirementincome
lies.com. You deserve to know the truth.
Welcome back to Retiring Well
where it's our job to help you enjoy financial security in any economy.
Well, we've reached the end of the show and as we like to do
every week, we like to go ahead and share a story with you
about how someone made a tiny little mistake
and it blows up their IRA. We like to call them IRA
Blow-Ups.
All right, this weeks' IRA Blow-Up comes to us
again. Here's my trusty binder of tax court cases, there's a ton of them in here.
This one comes to us from Eugene Dallinder vs The
Commission. This is back in 2009.
Now this thing's a couple pages so I'm not going to read it to you, I'm just going to give you a little synopsus
of what's going on. I'm going to call him Gene.
Poor Gene worked for Boeing,
and he's fifty three years old, he gets disabled. What happens
is he has a little accident on the job, he's disabled, and
so he's now sitting at home, and Boeing is paying him
his disability benefits. So here's a guy clearly
disabled, can't do his job at Boeing, he's qualified
and he's receiving disability payments. What he
finds out though, is that his disability payments aren't enough.
So what he does is he goes to Boeing and cashes out
his 401K. His 401K is a couple hundred grand, he cashes it
out. So he receives a check for a couple hundred grand and he knows
he's got to pay tax on this money. Just because he's disabled
it doesn't mean he doesn't have to pay tax. But, he believes
he shouldn't owe the ten percent penalty. We all know if you pull out money before
you're fifty nine and a half, there's a ten percent penalty. But he says
no, no, no, I qualify for one of the exceptions which is disability.
Now folks, disability is an exception to the ten percent penalty,
you would think.
Gene, he clearly qualifies here right? He's sitting at home, he's getting a paycheck
from Boeing, he's getting a disability check, clearly he's disabled,
so he must qualify for this disability exception.
He shouldn't owe the ten percent penalty, that's like twenty grand in this case.
Well not so fast. The IRS says yes, you still owe
the ten percent penalty, he says no I don't I'm disabled. So of course it all goes to court
and here's what we learned from the court. This is from the tax code
section 72-m-7, it basically says
meaning of disabled, definition of disability, for purposes of the
section an individual is considered if they can do
no substantial gainful activity, or if
death is expected within a year. In other words, if you can stand
at Wal Mart and be a greeter, then guess what,
you're not disabled. The ten percent penalty still applies.
In fact it's so bad that the tax court says think of any
reason other than disability cause they almost never allowed
the ten percent penalty to be waved under disability. There you go folks,
that's our Tax-Blow up of the week. Another reason that you should talk to
a Retirement Planning Specialist. That's our show folks, hope you have
a great week.
The preceding program was sponsored by