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IRA Butt Dust

Finishing Well / Hans Scheil
The Truth Network Radio
December 28, 2019 8:30 am

IRA Butt Dust

Finishing Well / Hans Scheil

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December 28, 2019 8:30 am

Butt Dust? We know it sounds weird, but as always, Robby explains not only how this is relevant to scripture but how it is relevant to money, specifically IRAs! Hans talks about everything he learned at his tax conference recently that focused on how to maximize your use of IRAs, especially traditional vs. Roth IRAs.  

Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on for free!

You can contact Hans and Cardinal by emailing or calling 919-535-8261. Learn more at  


Rob West and Steve Moore
Finishing Well
Hans Scheil
Rob West and Steve Moore
Rob West and Steve Moore

You're listening to the network and welcome to finishing well brought you by Cardinal Certified financial planner belonged to child best-selling author and financial planner helping families finish well over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes.

Now let's get started with finishing well the welcome to finishing well in certified financial planner on trial today show is IRA but dust which speaks to a joke I heard many years ago which I still tickles me, but I think it's a relevant special order to talk about today is that there was a little girl sitting in church on the front row and the pastor was speaking on the hundred and third Psalm, and he was saying, oh Lord, you know that we are but dust and the little girl looked up and said mommy once but dust.

But the real thing is if you look and you think about it that when God formed man he met you form them out of the dust of the earth. That's where we are told, and in the book of Genesis.

So that concept of wind. Jesus was shown in the parable of the soils that we kind of like our and so this idea of a harvest in this idea for planting seeds becomes like a reality, not just a metaphor like oh my goodness with you know this stuff is actually we are made of this stuff and and so Hans you heard something that when it comes to IRAs. This idea of harvest is is really a good way to look at these and begin to understand the concept. Why was out of the tax conference room tax planning conference last week and we were talking about the difference between a traditional IRA where you get a tax deduction on the front end. That's what makes it attractive to people and then you pay the taxes on the backend when you're collecting in retirement frankness away IRAs of work all along and the resisting 20 years ago invented called the Roth IRA and there hasn't been that wider than adoption on the Roth IRA and I have numbers here but it's most of the monies in traditional IRAs with this gentleman that was speaking. He said so if you're given a choice. If you were a farmer, would you rather be taxed when your planting or would you rather be taxed on the harvest and the answer that is obvious and I would guess that farmers are really getting to know I have good soil tickets.

You then said Jesus was dark that you got a hundredfold, you know, obviously you would want to be taxed on the one seed rather than the hundred that was the harvest was sure.

And so you are given the choice with IRAs and 401(k)s because if you use a traditional 401(k) or a traditional IRA, you can get a tax deduction or you're not gonna pay taxes on that money going into the fund, nor are you gonna pay taxes on the growth but this is money for your retirement when you begin to drive down you can have to pay taxes on every nickel, not a most people are aware that right and so with the Ross. It's somewhat the opposite.

I mean it's just it it it so you put after-tax money. You don't get a tax deduction or no tax deduction on the sea, but that account is never taxed after that point I never taxed not only from its growth but never taxed from the distribution just to snow taxes. There aren't minimum distributions either. There is no minimum distributions on Roth IRA so that if you get to be 70 1/2 and you just don't want to take money out of your Roth you don't have to. So, but it is an IRA from the sense of you can't start taking money out of it before your retirement. You can't take money out before 59 1/2 okay, but after 59 1/2 its data really yeah so no right now there's people obviously investing in 401(k)s and their investing and they can be brought 401(k)s as well on your list. The easiest place to go because it will never have a show on this or talking about it to a group people are phone starts ringing off the hook and people want what they want to get in on this tax-free thing, but the bad news about that is if you got a hunk of money sent in there that she traditional and you want converted to a Roth you pay the tax. Now, so there's do overs on this stuff. If you if you started in a traditional you want to make it a Roth now and you do the do over again for the tax but the simplest way to do this is with your new contribution. So if you're participating in a 401(k) and it's a traditional 401(k) which most are most of them have a Roth option and you can simply take your new contributions and contribute them to the Roth know your paychecks going to download it because your urine have to pay taxes on that money before it goes into the Roth 401(k) so you'll notice a change in the amount of that tax but you now go tax-free account forever, but you're essentially paying tax on the CeBIT nave planted the seed that now is going to grow not only tax-free but is it as you distribute it, which really plays in the show we did a few weeks ago on Social Security that lower this really starts to give us options is once we are actually getting our Social Security right yeah that's an additional thing that it loses all the surprises in retirement. People that really don't plan for her, even if they do some planning. All they've done many times is investment planning, so they've they think that's comprehensive planning. So they're trying to get the money invested, but now when you get to retirement. You start drawing money out your retirement account taxes coming taxes can be your biggest expense in retirement. If you got everything in taxable accounts. That's the first thing you gotta pay tax on your Social Security and that calculate the taxes calculated by the amount of other taxable income that you have so this these these IRA distributions for income purposes. When you're in retirement now you have to pay tax on the money coming out of the IRA. You also have to pay tax or additional tax in your Social Security because it's measured by the amount of the money coming out. If this money was coming out of a Roth IRA would show up anywhere is not on your texture like it didn't exist. So here you got access and in what what you described me as a lot of folks you know they live on the so security whenever distributions are not all that big a deal, but all of a sudden something happens. You gotta put a roof on the house.

The kids have some kind of catastrophe you need to put your hands on $50,000. Now I got a tax problem big time. This is a person that using a traditional IRA may be what was a 401(k) rollover to an IRA or if still at the 401(k) whenever it's a it's a tax qualified savings account. Not a smart place to have your savings account because what you want to avoid with a taxable IRA which is your traditional IRA is big blips are taken a big hunk of money out of their all at once, so this could get back to the Roth. If you get some your money or all your money converted work for you younger folks that are still accumulating. If you started to do your accumulation in a Roth that does make a nice savings account.

Is it just sits there and when you want 50 grand. You can just take out 50 grand for pay for something that you do not pay tax on again. We have tried it with everybody in on the big harvest right hundredfold, but based on good soil and all that kind of stuff so we have all you can go seven words tab in one of those is IRAs where we were on this book a complete cardinal guide to planning for living retirement sheds all kinds of lights into the note all the strategies for which he's describing today but of course you can just email Hans and asked for the book at the book on Amazon real inexpensively. Again, is the complete cardinal guide to planning for and in living in retirement. But this is part of the way that week we talked about that to take advantage of some of the low tax rates that that we've got right now in taken smaller distributions from these other IRAs and putting them into our traditional IRAs and beginning to build a Roth so you can do conversions you can create these over time you can have two accounts going at once at your 401(k).

It's not an either or.

So if you're employer has the Roth option on their 401(k) and now most do. Years ago the it was rare, but it's just most of him having they don't have to. So you have some money here. The bulkier money is probably right now in a traditional account you can take your new contributions and start making them through the Roth option so you can have some untainted money. You can have some money that the never lean on. That's pretty nice in his can accumulate and the matching money that your employer gives you that they're in a match. This they have to match it over on the traditional side, so it's really impossible to have all one or the other just some of your I some your 401(k) is going to be traditional. Some of his can be wrong and my suggestion to you, especially you younger folks is that you would build up a balance and a sizable balance and you would work it building up the size of that Roth so you got a tax-free savings account for retirement right so here apparently and oddly, I learned some) so if if I'm making contributions in my employer's matching at heat diamond still end up with a traditional IRA that had has minimum distributions when I'm 70. And all those kind of things that go with it but I'll also have the Roth so now I got all sorts interesting options to really do. Q CDs and sure which are qualified charitable distributions through the traditional IRA and you know some of you got up the client that you worked with recently where he saw this strategy, or yeah yeah we have many clients doing Roth IRA conversions and I can think of the CPA like I just find it's really cool when I got CPAs coming to us for their further tax planning architect and other financial planning. I asked that question right before break. Not good on the talkshow host Barb you know I'm but best is this a consumer to be right back with more on IRA but best today. I'm finishing well. Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic group. Here's a chance for you to advance the kingdom through financial resources and leveraging Hans expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care.

Just go to cardinal and contact Tom to schedule a live recording of finishing well at your church Christian or civic group contact Tom cardinal that's cardinal We hope you are enjoying finishing well brought you by cardinal is a cardinal for free downloads of preview shows including episodes about Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes as well as Hans best-selling book, the complete cardinal planning for and living in retirement. Plus the accompanying workbook. If you want to follow along with today's topic download free PDF cardinal by going to the seven worries tab of today's show topic, just scroll down to useful documents once again for free resources shows going to get Hans book the complete cardinal planning for and living in retirement or the workload go to you have a question, comment or suggestion for future shows. Click on finishing well radio show and send us a word. Once again, that's cardinal cardinal now finishing well brought by Arnold welcome back to finishing well is certified financial planner Hans Schild today show is IRAs, but dust for his friend that that your post sometimes but does deny led into a question before we get a chance answer before the break, that when we left our hero. You have some clients that where this is become sort of an opportunity for them to do some really cool planning will yes so we we got a client who came to see CPA Lucentis for Medicare but he noticed her CFP is on our letter in the came in a fiduciary and all that stuff CPAs really know what all that stuff is and so were helping with Medicare and then he was somewhat upset about this Herman thing is he has a high income and, meaning Irma is income -related monthly adjustment amount they come up with these innocuous names for Medicare it's it's a surtax for Medicare or surcharge on people that have a high income in retirement around Medicare and so he being a CPA knew that there were some things he could juggle around to make the situation better and so we started doing that for you nor you know the receipt when what she could do for 2019. But he knew that pandas Medicare tax. Essentially, what is for the rest of his life didn't look very pretty and so he came up on his own with Roth conversion. So then we got to decide how much traditional IRA because he's got a boatload of money and in a traditional IRA and removed it all at once we have this huge tax liability. So were moving it over year by year by year by year and then we gotta figure out how much we can move over so and when you look at these tax rates, tax rates are as low as they've been in generations. I mean I remember when I first got the business people were paying 5060% higher than that 65% marginal income tax rates on high earners in a few years before I got in the business of the size 70% and when I look at marginal rates in somebody up to $326,000 a year is 24%. So he started looking at this and he said you know it's gonna make sense for me to do this over a period of years, but I want to get this traditional money all moved over to a Roth the sky. 65 now just turned 65. Want to get all moved over to Arras of the time I get to 70 1/2.

I don't have to take any mandated distributions and then when I do take distributions. There can be tax-free on conflict, not of the coming out of the Roth and again because with the Rockies essentially Pentax on the seed rather than tax on the harvest right. That's if so what what he's doing with a Roth conversion is the props are about three force grown right because he didn't pay tax on the seed when originally he had pay tax on the harvest but there's a way with a Roth conversion to just so three force grown or maybe half grown or something. He can go in and now pay tax on that higher amount. You can spread that out over several years, so we have software to help you.

Just amazed by this stuff and he's he's bought everything we told us he sent for different couples in here since then who basically do anything he tells him to do these, the CPA it's been pretty nice for us and just he thinks were geniuses and really, all we're doing is we're just looking forward instead of looking backwards doing last year's tax return right along the same lines for understanding went to conference here last week is not just IRA where you can do this strategy of paying tax on the seed and being able to take the harvest tax rate, so to speak, but you can do that with life insurance get with cash value life insurance which you know it. Love these guys are saying you know you not to like the name of this of this product, they tell you about the product's life insurance and I think the reason your neck and like the name his accusers so much stuff in the press and how this is a big deal.

Life insurance is a bad deal and I will tell you this from my experience most wealthy people that I've had. His clients are that I've known personally known out they own loads life insurance and this is why is it is pretty hard to write off the premium for life insurance policy like this. It's impossible, but it's pretty hard to do that so they're not looked upon as tax shelters, because you gotta use after-tax money so you're paying tax on the seed but you can access that cash value later tax-free. So not enough time on the show to get into all the particulars of that they behave in a similar way to the Roth IRA concept where you use after-tax money to fund the thing the growth is tax deferred. The distributions can be tax-free if they're done properly and then if there are no distributions. The ultimate death benefit is completely tax-free. So there's all kinds things and I'm not as an advocate, the thing that actually appeals to me personally I'm like wait a minute I can use this concept to take and pay tax on the seed with these premiums and have both my estate from the standpoint of the death benefit. But then you can have long-term care right which we can but not in policies billed in a chronic care benefit or long-term care benefit and it pays a percentage of the death benefit every month that you can use for long-term care either one of those either that the long-term care benefit for the death benefit is tax-free.

And if you want to get the money before any of that just in a distribution that could be tax-free to so this is why a lot of wealthy people use a strategy of accumulating and loaning money into electric for their retirement and it behaves in a similar way to Arras IRA tax wise height so it's it's an interesting way to use good soil sent essentially between Roth IRA's life insurance, but overall speaks to some that we talk about time again is it really to to sit down and do this type of planning right you want to look at my whole picture. I can tell you because I talked to Hans you know he's my guy Robbie they just can't give me a little piece of the pie. I need to see the full enchilada and and and so it really in order to do this right. EE you know you want to look at, you know what I'm paying for everything in insurance and in my health and all my costs in order to figure out where where were going harvest time is exactly what we talked about was finishing well in your finishing your life, hopefully for a long time with a lot of enjoyment and all.

I'm simply saying I'm putting a plan together.

If I'm in a choose between tax-free income or taxable income limits.

A tax-free every time because I I actually I have more spent so you know, think of a couple that I know that's retired right now and they know they live on 3500 bucks a month it's all Social Security. They pay no taxes on get everything paid off. These are some wonderful people and just they live very simply and inexpensively. They also have this IRA money.

This is another CPA a lot of CPAs clients these days and it just so you know that this fellow so we were looking at this and if he starts pulling money out of his IRA to live on. He's going have to pay taxes on his Social Security. So now you have to pay the tax on a distribution from the traditional IRA but he's also got pay tax than on his Social Security kisses the other income that drives so I mean we sit down we plan all the stuff we get a look at your whole situation and look at what your wishes are, but you know if you're thinking will I need $8000 a month to live in retirement.

If you're basing that on your work income is if you make a you really only go home with 4505 grand a month so you're really not live in off eight your living off of 4505 and so that net money if you were able to get 4505 grand a month and it was tax-free income, you could be receiving in all 50 grand a year 60 grand a year tax-free's can be the same as 80 grand taxable. It's even bigger than that when you throw Social Security and Medicare. So I think we be written as census show is on IRAs and it is coming up in the end of the year that some people are facing something they may not even know about called a minimum distribution and right now I need to pull the trigger right will absolutely if you have done your if you're over age 70 1/2 you turned 70 1/2 this year than you have to make a distribution by December 31. Unless you turn this year to give you an extra three months grace. But if you take advantage of that. Then you have to do to next year and this can drive in a higher tax bracket. So To simplify this is you should take your minimum distribution.

If you're over 70 and have this year for 2019 and I would advise you to plan out your minimum distributions for the rest your life. That's what people don't just try to scurry around and then they figure out this year will just wait till December next year and then we'll figure out what that is, figure out with the taxes on Volvo Volvo law what I think is more prudent is, let's sit down and let's get out of IRA plan for your whole life and that might include doing a Roth conversion. It also might include starting to take advantage of Q CDs for qualified charitable distribution and we really don't have time to get into that today again to recover on about on every show he really is just as simple as giving money to the church or other qualified charity and doing it out of your IRA and the money never shows up in your tax return or counts cancer Social Security so man we have a lot of dust to talk about it. If you think the correct that's fine but we want to remind you that all this information is it cardinal right. Don't forget the guy despite Cardinal died and and there you go, find the seven worries tagging download the chapter on IRAs absolutely free email Hans tell me want the book, but most of all yet and I were just thankful that you listen and and if you listen to podcasts when I write us. We appreciate that so much and I'm thinking what a great show.

Thank you. We hope you enjoyed finishing well brought you by cardinal visit for free downloads of the show or previous shows on topics such as Social Security, Medicare and IRAs, long-term care and life insurance, investments and taxes as well as constant best-selling book, the complete cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows to get Hans book go to Cardinal if you have a question, comment or suggestion for future shows. Click on the finishing well radio show on the website and send us a word.

Once again, that's cardinal cardinal

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