Welcome to Finishing Well, brought to you by CardinalGuide.com with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.
Now, let's get started with Finishing Well. Welcome to Finishing Well with Certified Financial Planner Hans Scheil. And I love this title, but for today's show is: Are You. A 401k millionaire. And planned for the taxes is the backback side of that one.
And so, as you listen to today's show, you know, a lot of people didn't anticipate this. Opportunity that they now have for this kind of income. And so all of a sudden, distribution becomes sort of a kingdom opportunity. And it's kind of neat when you think about it that 2 Corinthians 9:6 says, Whoever sows sparingly will also reap. Sparingly.
You've been given this wonderful opportunity to sow, and now is the opportunity really for prayer to ask God, you know, okay, Lord, you've blessed me in a huge way.
Now I know you blessed me to be a blessing. What should that be? For my family, for my wife and I, for my kids, what kind of kingdom opportunities do I have? But the idea is. Don't load up to have a tax bomb and and lose your stewardship, right?
Yeah, I mean In this guy's case, this is most of his Money. I mean, and I'm just giving you an example here. uh of a guy that has two and a half million dollars in his IRA. And he thought it was a 401k. And we thought it when we Um when we went to fidelity and then we found out that he rolled it over to an IRA.
And he's got it invested pretty aggressively. Um And we Right off the bat. We talked to him about long-term care. Yeah. He ended up implementing before we started talking to him about the larger problem with his putting three hundred thousand dollars of the long-term care into one of these long-term care policies that you can buy.
with IRA money and that's covering his wife and him and Um Very happy about it. But the money's still in an IRA. I mean, all we did is take the from a $300,000 IRA at Fidelity and move it to a $300,000 IRA at the insurance company, and then we're going to slowly distribute it.
So The purpose of this show, really, is to Talk about if you've accumulated a bunch of money in an IRA or a 401k. and you're in your sixties. or even early seventies and you're retired or getting ready to retire, Yeah. You really need to get a distribution plan. You you need to figure out a way Put together a plan to start getting money out of the IRA and paying the taxes.
And I'll build the case for that as I make the show. Yeah. Uh this guy So He's sitting there and it's like, what's the problem? I got two and a half million bucks. I'm pulling out of it seven grand a month.
We're living just fine on $84,000. A year gross. that we don't pay a lot of taxes on the eighty four thousand dollars a year. because we get the thirty seven thousand dollar standard deduction and then you know, by the time you wh whittle it all down, it it's not costing much in taxes and then whatever's left we live on, everything's paid for. And we got this money and we're just rolling it over and we're avoiding taxes.
Um He was very scared of Irma. Because he had watched my shows over and over and over, my videos about. PERMA, the income related monthly adjustment amount, on Medicare Yeah, and so he's making sure his income is below that. which he's done successfully. And he also had delayed his Social Security.
He's 68 now. You got two more years to go. And then his wife is going to take Social Security when he does.
So they got seven grand a month. coming in if the projections are right. Uh at 70 And his plan before he met us was just to stopped taking the seven grand out of the IRA. That's the whole he's just paying himself his social Security. which he learned from me.
on the videos Until he actually gets Social Security at the larger amount, and then he just flip-flops it. And he just lets this thing grow. Yeah. Big potential problems with that.
So And I'm going to outline those as we go through the show.
Okay.
Okay.
Now we're going to talk about we're going to start with taxes. Yes. Mm-hmm. Setting his income at $84,000, which is his choice. He's leaving.
a whole bunch of twenty two percent tax bracket. money on the table and 24%. Tax bracket. Money.
So what does that mean when we're leaving it on the table?
Well, what I what I'm meaning is If he would pull it out, pull out of his IRA. like one hundred eighty thousand instead of eighty four thousand. or pull out another hundred thousand, He would pay 22%. federal tax on that hundred thousand. which would be twenty two thousand.
Yeah. Then he would also pay some state income tax. Um But that's a pretty low rate. And you say, well, Why would he want to do that when he can just not pull the money out, he doesn't need it? and leave it in there because what I'm telling you this thing is going to compound.
and he's going to be up in the 30% brackets or higher. if they raise income tax rates. which I'm guessing they will over the long term. Um He's leaving the ability to pay taxes on some of this IRA at very low rates.
So We've had other shows on this. I got a whole bunch of stuff to go over. Um He also Is going to be facing a pretty substantial minimum distribution at 73. Um that is going to cause his income to go way up. Because his balance is high, and so he's got to take a required minimum distribution.
And that's going to push him into IRMA, the Medicare tax. And boy, once he saw that, he's like. That's going to be out of his control, especially if this thing grows a lot over the next five years.
So Then He passes away. as say 80 and leaves his wife and leaves her as the beneficiary of this thing.
Now all of a sudden, she's got the same required minimum distribution. They're close to the same. Yeah. She's paying. taxes as a single filer.
when she survives him. And it's going to be a much lower threshold for those 22% and 24% rates. whatever they are then. There's all kinds of problems. who is setting his income real low when he's got this big of a balance in his IRA.
Does that make sense? Yeah, it makes great sense, especially, you know, for his wife. you know, who like you said, or him, whoever ends up being a single filer Like, oh my goodness, Irma And all those things are coming their way. When he's got plenty of time right now, not plenty, but he has certainly got time. to do some adjusting which you know, would really make some long-term benefit.
Well, yeah, and so you know, the first year, if he really doesn't need this hundred grand, if we just use in our example. of raising his income to $184. Yeah. He doesn't need the $100,000 and he pays $22,000 in taxes plus some states, so say $25,000 in taxes. And he's left with 75 grand.
Well, for starters, He doesn't need to. Um spend all that money. or stick in a savings account, he could do a Roth conversion. and have all that 75 in a raw. I mean that would be one option.
Another option would be to put in a savings account And so next year, When he does the same thing He could. pay the tax Out of Do a Roth conversion, and then he could pay the tax out of the money in the savings account.
So you get the whole hundred grand. converted into the Roth. I mean there's all kinds of things that we can pull out of our sleeves. But my recommendation, and we're going to go through a lot more stuff. Yes.
Little by little, we're put together a whole plan for him that just maps all this out.
So he's going to pay taxes at lower rates over his whole retirement. I mean, that's the goal. Yeah, and it's a beautiful goal considering, you know, we obviously worked hard. To to sacrifice to create that. And now is an opportunity to enjoy How to distribute it.
So we get to the income of seven grand a month, Let's start. He's living below the desired lifestyle. Yeah. you know, when I talk to his wife, Um she was She thought that was low. And she said, well, couldn't we just take out more?
And pay the taxes and then we could enjoy that because I was really focused on leaving his kids a lot of money in a Roth. and them not having the taxes. And she was Well, we don't need to leave the kids anymore. They've th they're they're well off. Can't we enjoy some of this money?
The answer is yes. they could increase their income substantially. And they could give more. Once he gets to be 70, I showed him what QCDs are, qualified charitable distributions. they can do more of that and not have to pay the tax and He increased their donations.
Um So They're afraid of running out of money. I mean, even with their low. Spending They're still got the fear like we're going to run out of money. And so that's a problem. And what I hope to alleviate through the financial plan, where they're going to see that they're not going to run out of money by being very strategic about this.
Um They're subject to poor market performance. I mean, so then you You You have all this money invested. Yeah. This isn't necessarily with tax. It's just Feeds into their fear of running out of money.
The reason they're not spending any of their money is they're afraid of. having a bad market. Um Because that could happen at any time. And again, we've got a solution to take part of this and put it in an annuity.
So they have a guaranteed income that won't go down. in bad markets.
So Yeah, there you go. Remind you that this show is brought to you by Cardinal Guide, CardinalGuide.com. And if you go to CardinalGuide.com, there you're going to see the Seven Worries tabs and or Seven Worries sort of menu items. And today is obviously the IRA tab. And uh Since it's a 401k millionaire.
If you go to that tab, you're going to see a wonderful video right along these same lines. And the neat thing about this video is it's got sort of these color-keyed tabs of how this money is to be allocated and things like that. Hopefully, it would give you some more great. Advice on how to begin to enjoy the distribution of this, and it's all there again at cardinalguy.com as well as Hans's book and his workbook, The Complete Cardinal Guide to Planning for Living in Retirement. And of course to contact Hans or Tom Page.
It's all there at cardinalguy.com.
So we'll be right back with. A whole lot more on RU 401k. millionaire and planning for the taxes of such. We'll be right back. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM.
a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
Well, welcome back to Finishing Well with Certified Financial Planner Hans Scheil, and today's show are you. a 401k millionaire and Planned for the taxes, question mark. And so how fun. Hans, in this example, he was more than a millionaire. He was like twice over, right?
Yeah, two and a half million. And we already used 300,000 of it. to buy long-term care insurance with IRA money because he's sufficiently scared of that. And when I showed him to start pulling money out of this at 85, of potentially a much bigger balance. Um and then paying the taxes on that to pay the nursing home or assisted living or home health care bill.
Yeah, it is. them looking at that, that was a pretty simple move for them. But he's still got 2.5 million in an IRA because The 2.5, the 300,000 that we bought is still in an IRA. It's just at the insurance company. and it's going to get slowly depleted over time.
Um But this guy is sitting there with Uh he's pulling out seven grand a month. Um Paying the taxes on that, which aren't a lot, he's living off of. He and his wife are living off of 84 grand a year, which is Very noble of them and everything's paid for. They're living just fine, and I'm not suggesting they ramp up their lifestyle. But his Yeah.
I mean, she's she's wondering, like, if we got all this money, why d why do we Well, why can't we go do some things? Um So I'm going to go through. And talk about what we're recommending to them. Is that number one, we're going to get into a Roth. conversion plan.
That he's going to be able to pick the level, but the level of recommending. for him is going to be fairly aggressive. it's going to be to get his income up to three hundred eighty thousand. Um dollars. But we're not necessarily going to recommend 300,000 in Roth conversion.
I'm going to recommend Let's say take 50 to 100. of that three hundred thousand there additional they're going to pay taxes on. and just live off of it. And we can set that up for them. where they're just going to have some extra money by the month.
for the rest of their lives. But it's still going to leave about 200,000 of recommended Roth conversion. and we're going to do that for the next five years.
so that by the time he reaches required minimum distributions, We're going to have. A million dollars plus earnings and interest Um in a rough IRA.
So Um who knows, his two and a half million might grow by enough to compensate for a lot of that. But regardless, We're going to have a million dollars in a Roth by the time he hits minimum distribution. and there are no minimum distributions. On Ross.
So he's only going to take the RMD or the required minimum distribution. off of the amount that's still in the traditional taxable IRA. PM That amount of the RMD, they're going to keep living off of the that amount.
So let's say his RMD is $100,000 a year.
Well, we're taking that out now. live off of.
So they'll just start living off of their RMD. and they'll still do some Roth conversions. up through his mid seventies. till he gets the majority of this thing converted. Not all of it, but the majority of it.
Yeah. Again, the reason he's going to do that. Yes. He can pull from the Roth tax-free if he needs it to live. He can leave it to his wife if she survives him.
and she can live off it tax free without RMDs. Um And then if she doesn't spend it and he doesn't spend it, It's going to go to his kids. and his kids are going to inherit a tax break.
So It's like taking control of a problem, paying taxes at lower rates. and not being on the government's plan, being on your own plan. for savings estate planning and the surviving spouse. How's that get get you?
Well, I'd love, you know, the thing I really just still fascinates me about A Roth IRA is not only can you make tax-free distributions, that's great. But the money sitting in there that's... making interest It's also it's like tax-free income. It it doesn't even fit into the equation of Irma or anything, does it? Oh, well, no, it doesn't.
I mean, that's I'm going to get to Irma in a second. is that's his big worry. And what I showed him is, is if he does nothing and just You know is happy that he's under IRMA. When he gets to 73, his minimum distributions are so big, it's going to thrust him into Irma. And then he's going to be paying more money to Medicare.
Right. Good praying. And then he comes back at me and says, well, You're thrusting me into Irma right now. Because you're raising my income to $380,000 a year. I don't like it.
You know, I'm going to pay this Irma.
Well, Irma is for one year. And then it's over another year and another year, but You know When we time we get to 73 You're going to be pretty much done with the high income years. Yeah. you're going to be done with Irma. And you should see what Irma looks like for the surviving widow or widower.
Right. And it's it's that classic idea of You can pay me now or pay me later. In other words, it's like you can. By paying a little bit now, you save from paying a whole lot later, and that delayed. Um grat you know, gratification or whatever you want to call it is just, you know, that helped him get to where he is now is is another opportunity for him to use that kind of wisdom again.
Well, yeah, and we're going to get part of the Roth money. in annuities Is that kick out an income for life for both of them. At a later date, and that means. not only an income for life, but a tax-free income for life. that you can't outlive.
We're not going to put all the Roth in there, but we're going to have enough of the Roth that they're going to have this tax-free check. that they can start at some point in their seventies. Maybe wait as long as 80. Um to start it. The end Um Anyhow, when you put this all together in a plan, it it it looks.
Looks very good.
So Um Now We get over to you know, Irma, and it's just People let Irma, they get so upset about it, they let it drive their decision making and It's a factor. But as you just said, pay me now or pay me later. It's worth it to me. to incur some Irma for one year. two years forward.
to get the long-term benefits of possibly no Irma in your later years for several years Yeah. Tax-free income.
So Um Put all that together in a plan for him. Yeah. You know, it's not going to work out exactly the way the plan, because it's just estimates. And it really boils down to All he's going to need to agree to is the first year's Roth conversion. for 2025.
that he's going to do this year. And then the income. the increased income and paying the taxes. that he's gonna have for both he and his wife. The end.
That's all he really needs to agree to and possibly the annuities because we need to get them started as soon as possible to let them cook the longest time that they can. 'Cause those things are a lot better bought at sixty eight. turned on at seventy three. than they are bought at seventy.
So Those are really the only three things that he needs to do. Everything else is just a projection on paper. And then we'll sit down with him every year. And look at the thing. Look how the portfolio did.
Look at tax rates. Look at his situation, look at his preferences, and we'll decide year by year by year. how much Roth conversion we want to do. But the plan outlines all of that. Um right from the beginning.
Yeah, I'll say it. You know, again, the idea here is not just You know, what you're discussing with them, obviously, is the tax strategies, et cetera, et cetera. But also, when I listen to, kind of read between the lines, Um It's it's given them permission to live a little. Right, to actually enjoy that which they say, but also. It it's really fun to give too.
Right? Whether that's given to your church, given to your family. You know, giving your wife a cruise to Alaska. And I'm like, why not? Yeah.
And that's Again, when people are gripped by fear, and that fear of running out of money, The fear of not being good stewards I mean, that's one that's poorly defined, but it's there. Yeah. Being a Not being a good steward is like paying taxes when you don't have to. There's all kinds of things blocking people from doing this. You know, people come in to see us.
They can do anything they want when they're done with us, but We're gonna We're going to convince them. If it's appropriate. to to start paying some taxes now to avoid a big problem later.
So we've been looking at This guy that has $2.5 million in his IRA, and I'm sure there's some of you saying, boy, I wish I had that problem. But All of the planning that I just talked about applies if you got $400,000 in your IRA. You're probably not as fortunate. to be able to Not take anything out of your IRA because you've got 400,000 and you've got to take something out of there. Uh till now.
Or maybe you don't. Maybe you can. live off of just your Social Security check. PN whatever pension or savings or some other favoring or your two checks So all of this planning applies. It's going to be different on somebody that has a smaller balance.
So I don't want you to feel like I'm excluding you. Um Here's you. You may want to look at Roth conversions. You may not. you may be in a low enough tax bracket.
and you're going to stay in a low enough tax bracket. That We're not going to do any Roth conversions, but we're just going to be pulling money out of there. to live or pulling money out of there. Putting it in a roth. Just so that it's tax-free later.
If you go to cardinalguide.com there, you're going to find the seven worries tabs. And as we've been talking about all show, IRAs is one of those worry tabs as far as how we're going to distribute this thing. And so if you go to the IRA tab, you're going to find a wonderful video right along these same lines. It's the same title, Are You a 41k Millionaire? And there it's got a wonderful board that shows you all these strategies on distributing this in different color keys to give you an idea.
It's just wonderful, as well as the show notes to help you. See what's behind all this. And again, it's always got Hans's book there at CardinalGuide.com. His book is a complete cardinal guide to planning for and living in retirement, as well as a workbook along those same lines. Wonderful tools as you begin to the joy really of figuring out how you're going to navigate this particular stage in your life.
It's all there at cardinalguide.com. And of course, as Hans talked about, absolutely free. You can contact Hans or Tom, set up one of those Zoom calls. You know, it's really neat that you'll actually get to see them. They can show you charts and things like that.
That will help you. It's once again, cardinalguide.com. Great show, Hans. Thank you, and God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station.
All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk. And unless otherwise stated, they are not guaranteed. Past performance cannot be used as an indicator to determine future results.
Any strategies mentioned may not be suitable for everyone. Information Express does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing Well is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstrone Capital Management LLC, abbreviated BCM, a registered investment advisor.
BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
We hope you enjoyed Finishing Well, brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Han's 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, or to get Han's book, go to CardinalGuide.com. 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 CardinalGuide.com.
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