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The First Rule of Taxes

Finishing Well / Hans Scheil
The Truth Network Radio
November 7, 2020 8:30 am

The First Rule of Taxes

Finishing Well / Hans Scheil

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November 7, 2020 8:30 am

Hans goes over state taxes, social security taxes, pension taxes, estate taxes, and IRA distribution taxes and how they can differ between the state you choose to retire in. 


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 

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This is the Truth Network. Welcome to Finishing Well, brought to you by, 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. So, welcome to Finishing Well with certified financial planner Hans Scheil.

I'm actually very, very excited about this show. It's got a different title. It's called The First Rule of Tax. Have fun. What? Have fun with tax.

Well, I think you're going to be surprised. I really actually love this topic, because I know that you're going to have fun in learning some ways that you can keep more of your money, and we're going to get to that in a minute. But as I've been living life, I realize Galatians 5, you know, where they give you the fruits of the Spirit, that in order to have fruit, it takes two to tango. So, you've got to kind of have Jesus with you, and that even though one of those is self-control, you've got to have Jesus to have self-control.

So, a little bit, because it takes two to make fruit. But joy is a big one of those, and apparently I had taught my granddaughter at some point in time that there were rules to fishing, but I'd forgotten the rules that I taught her to fishing, because I was the one that taught her to fish. But we had an opportunity to go to Colorado when she was eight years old to go fishing, and as you might imagine, she was struggling leaving her bait in the water long enough. You know, it was a really exciting fishing trip, and every time that she'd feel a little pull from the river, I got one, I got one, and she would reel in before, you know, she would get tangled, and it was just, it was an adventure. And my daughter was getting tangled, and I was getting more and more angry and frustrated as, you know, two days of this, nobody's caught a fish, and she's saying I got one, I got one every 20 seconds, and I'm doing all this work. So finally, I just fairly gruffly say to her, Lila, you have got to leave your bait in the water long enough to catch a fish.

And I probably didn't say it very nicely, because I was frustrated. And she goes, Papa, you have violated the first rule of fishing. And I went, I what?

She said yes. And I was like, well, I guess I taught you the first rule. What's the first rule of fishing? And she goes, have fun. So we prayed right there on the side of the river. I said, let's pray that you'll forgive Papa and have I'll have more patience with you. You'll have more patience with a fish.

And true story, she caught like eight fish right after that. And we did have a lot of fun as we were catching fish, but more and I learned a lesson about having fun that I really have applied to all of life. Like if I'm doing radio, well, it's a mind if we're doing this show, Hans, we have fun.

Sure we do. And, and so if you got to face this idea of tax, which apparently is part of life, you know, you might as well have fun. And I dearly love what you teach about the whole concept that the tax in order to have fun with tax, it's you don't have fun when it's a history lesson, do you?

No, you don't. I mean, that's most people's experience with income taxes, specifically, is I got to do my taxes once a year, I got to hire somebody to do my taxes. And we're just looking at how much did I owe?

How much am I going to get back? And what we do in our business is we look forward. And when you're in retirement, you're in control of your income. Now that has some qualifiers, you got to have some savings and some retirement savings to be in control of your income. But for most people that have that, and that come to us, they're wanting to know, how am I going to live in retirement?

How much money am I going to receive every month? We inevitably have to get to the fact that how much income taxes am I going to pay on that? And what gets left out of the discussion frequently is the state income tax, which we're talking about today. And what is fun about this to me is increasing the amount of money that people get to keep. I'm not that excited about saving on taxes. I'm much more excited about having people have an increased check every month, or as we distribute money, where they're receiving tax free money, which is very possible even here in North Carolina, where we got a state income tax. So that's where the fun is, is really doing the planning of the distributing of the money in a very tax efficient or a low tax or a no tax environment.

Right. And as you're explaining that to me, so we got a little over 5% in North Carolina, but Virginia, South Carolina, where you might be listening to this broadcast, or your podcast, you've got other states, and we're going to have resources up there at Cardinal Guide, where you can click on those links and see what those different things are. There's a lot of applications to this five something percent.

So we were talking about it before the show. So you're going to take a lump sum distribution for some emergency that you've got out of your IRA, and you want to net $50,000 to help bail out something or do something that you're going to do. Now, all of a sudden, take out 90 grand, depending upon your tax rates, and all that kind of thing. But you got to take out 90 to net 50, because you're going to have to pay about $40,000 in taxes. Which even that 5% doesn't sound like a much, but you're saying it's $4,500. It'd be $4,500, but it'd be on the whole 90.

And we need to plan for that. Or it also might be smart to build up through IRA distributions a little bit every year, so that you got a savings account with 50 grand of after tax money to do this 90 grand distribution over a number of years, anticipating that you're going to have something, or you might have something that comes up that you'd have to withdraw 50 grand. You wouldn't have to withdraw 90 from a after tax account.

You'd only have to withdraw 50. And those state income taxes would just be a little bit at a time. So I don't want to get too much into the numbers and the percentages, because we lose people. I mean, the general plan is when we do a retirement plan for you, we're going to start with your social security check. And we're going to project that. And that's really going to be next week's show, where we're going to talk about that. That's a really good news for people in North Carolina when it comes to their social security check and planning.

So here's your first fund that you're going to have today's show. The good news is if you live in North Carolina, how much does you get taxed on your social security? Zero. Because North Carolina, the tax code excludes income taxes on your social security check.

So to quote my good friend, Han Shyle, it's F-R-E-E free. Yeah. You don't pay income tax on social security in North Carolina. It's not like that in all states. There's several other states, but it's not all 50 of them. And we could dig out of the article, but we're going to say about 20 that have a state income tax, but then they exclude social security income from that state income tax.

Now, if you took a state like Florida, they're not in that 20 because they have no income tax on anything. Yeah. They are F-R-E-E free.

For everything. That's why Tiger Woods lives there. And that's why Phil Mickelson lives there. They used to live in California. And that's a lot of people that are riding around on those boats you see up and down in Fort Lauderdale. They're in there six months a year.

They may be in New York part of the year. So Florida is a tax haven for well-to-do retirees because they don't have to pay a state income tax. So it goes without saying that social security is excluded.

When we're up here in North Carolina, you got a state income tax of five some percent, but social security income is excluded from that. Yeah. Which is part of the beauty of discipleship from my standpoint. And we're going to have fun and learning stuff. Like, wow, I mean, these are really good things to know as you begin to plan, as you say. You know, most people, one of the first steps in how they're going to live out after, you know, those last years is actually developing a budget, which sounds like no fun, but actually when you're doing it the Hans way from my standpoint, it sounds like fun because you're going to know, wow, I got this covered.

Yeah. I mean, my goal and me personally is I plan to pay no taxes, you know, after I'm 70 years old. I intend to draw a large social security check. I intend to live in North Carolina. I don't plan to move somewhere. And so you could say, well, you're going to pay federal income tax on your social security because you're going to have this other income that's going to be high.

And that could happen if I didn't plan well. And so and then you're going to pay, you're not going to pay state income tax on your social security because they don't have that in North Carolina. But what I'm going to say is I'm going to pay no tax on my social security because my other income is either going to come from a Roth, my Roth IRA. It's going to come out of my savings account of money that I've already paid taxes on. So you can have your own money monthly tax-free or it's going to come from loans against my life insurance policies. That's where I've built up most of my savings.

And anytime I need money from any of those other sources, I just take it. And there's not any current taxes on it, either federal or state. Now, a lot of folks that we do planning for, we're planning for income at a somewhat lower level, but maybe about what my wife and I need. And they've got their social security check.

And then we're just trying to structure their IRA into Roth or part of it into a Roth so that we have non-taxable income. And that applies both to the federal and the state. So state income taxes matter. They don't matter in Florida. They get you in other ways there with property taxes and that sort of thing, but they do matter.

Any state that has a state income tax, it needs to be a big part of our planning and income planning. Right. And as you describe those things, we probably want to throw in a pitch that we've got this book. It's called The Complete.

Talk about having fun and trying to figure out how to finish well. The Complete Cardinal Guide to Planning for and Living in Retirement goes into great detail in all these ways that you can begin to plan the stuff yourself. And it's right there available at And you can get into that. And one of the other things in the states that I found fascinating in some of the material that you sent me is that certain states have benefits where you don't or do have to pay on a pension or where you do or you don't have to pay on IRA distributions and those kinds of things. In the second part of the show, we're going to get into that. I mean, the way I got on this topic of state income tax today is we've had people buy my book, our book all over the country. And then they read the book and they say, well, can you do this planning for me?

Sure. And so we're, you know, we're licensed everywhere in the United States. And we have a lot of our clients, you know, they're saying California or they're in Oregon or just Colorado or Alaska. And so we need to go in and research the state income tax code there so that we can put their plan properly.

And so as I'm writing the second edition of my book, that's where all the research came in for today's show is I'm ready because I'm going to have in the book the information. So you can just look up on all of these various topics, what your state income tax is going to be. And then some people are picking the place they're going to live.

That's a factor is the state income taxes. Well, then we're going to make that easy in the next edition of the book to do that. Right. So we're on the other side of this, we got more on how do you have fun? I mean, talking about this, but you know, it's kind of neat to see how God has blessed you and God is going to be with you and you're going to be fruitful. And being fruitful is just fun. I just blame it.

It is. And it's kind of what God told us, be fruitful. That's the very first thing that after he blessed you. So hopefully you'll be blessed to join us for the second half of the show. We'll be right back.

Welcome back to Finishing Well with my good friend, the financial planner. He's also fiduciary. Absolutely. In other words, what a fiduciary is to go over one more time is we're being disciples and learning stuff is somebody that gives recommendations, you know, based on your best interest, not on their best interest. Yeah. Or it could be, you could add to that is your interests are above my interests.

When I'm giving you advice as a fiduciary, your interests have to be of the utmost regard and any interest or whatever I get out of this transaction, I have to disclose that to you as a conflict of interest. Right. Which is a very biblical, you know, thing, you know, clearly service above self. And, you know, Jesus said, you know, the greatest among you will be a servant of you all. And that's, you know, what I see as fiduciary and really neat word in today's show is, you know, the first rule of tax, which is have fun, which, you know. Well, we have fun in everything we do at Cardinal.

That's right. And I think that as I enjoy solving problems for people, I mean, I get very much enjoying, but I really get joy out of just hearing people's story and meeting people. And the younger people that work with me, which is most of them, they're in on these interactions and they've come to learn that and enjoy it too. But at first it's kind of like, how is this so interesting? You know, but I just, I find people interesting and it brings me joy to help people rearrange their finances so that they get what they want.

And there's some things that we feel like we do uniquely for people, it brings us joy. And so, you know, this topic of state income tax, you're thinking, oh, yippee, how are you having fun with that? Well, and frankly, I don't get that much fun out of all the research and reading the articles and putting it in the book and designing on the web where people can go and on our website and they can decide where to live and all that.

I just inherently, I don't find all that interesting and have a lot of fun with that myself. Where the fun is, is getting people a bigger check to live on. I mean, they're just increasing their check or increasing their take-home pay or whatever you want to call it.

That's fun. And, you know, the point I want to get across on this show is that you've got federal attacks on all of these things, like just your regular income, which those states that have a state income tax, they tax your regular income. That's how they make their money. Then you got tax on social security. The federal government taxes social security if you're above a certain level, which a lot of people fall in there, so you're paying that tax. And then the states are either going to tax you on your social security like the feds or not. Like in North Carolina, that's a blessing in our deal is that we don't add on a state income tax on your social security no matter what.

But we're like some states in that factor, but this is different in every state. So in North Carolina, your social security is free from tax. But then beyond that is there's some states, well, all the federal is going to tax your pension. So if you get a pension check from somewhere, from the government or from your former employer, you're going to pay income tax on that, federal income tax. And then in some states, you don't have to pay state income tax on that, okay?

In North Carolina, you do. So if you live in North Carolina, which is where we both live, and you get a pension, you're going to have to pay state income tax on it. Then you got IRA distributions. And some states, well, the federal, by the way, on IRA distributions, unless they're a Roth, is going to tax them at your federal tax rates.

And then all the states are different on this. Some states exclude that, an IRA distribution. Most states that have an income tax are going to tax that too. Then you got the estate tax, which really isn't an income tax, but the federal has an estate tax. But they've raised the thresholds to where a person dies with less than $10 million, which covers most people. You don't pay federal estate tax.

That isn't a huge deal for most people. But you got some states that have an estate tax. Well, North Carolina has an estate tax, but its thresholds are adjusted to match the federal's. So again, your state is not going to have to pay state income taxes unless you're Mr. Big Box or Mrs. Big Box. So if you die in New York as a resident of New York, and let's just say you had $2 million, you're going to be exempt from the federal tax because you didn't have enough to where you had to pay an estate tax. But you're going to have a pretty hefty estate tax bill, especially on that second million.

Even the first million, they're going to tax it at some level. So New York comes in there. That's why a lot of the New Yorkers actually are residents of Florida. And they just go back to New York part time because not only do they avoid the income taxes that are high, ultimately their heirs are going to avoid the estate taxes. Now, it's just funny when we bring up New York, they're going to get their money on the real estate that you own in New York.

So if you still own a home there or a business or something, even though you're a resident of Florida, New York is going to get their estate taxes over that property. Somewhat of a confusing subject. And why does this matter to me?

Well, it matters, I think, because we're not doing a history lesson at Cardinal. We're going to sit down with you if you choose to hire us to do financial planning. And we're going to project out so many years.

Yeah, so here's the fun part from my perspective. And actually, you know, we've done this some since I'm 65 now. Is to say, well, you know, Hans, the way we live, it's going to take $5,000, you know, a month to continue to, you know, make the boat payment and the stuff that we're doing and live at the way that this is what I'm going to need, you know, moving forward.

And what does this look like? Because when we put together our, you know, to social security checks, we're not quite getting there. And so, you know, how do we make all this happen? And then actually seeing that I'm not going to run out of money when I'm 85 is pretty fun thing to do. Well, sure it is. Sure it is. And doing proper planning now because you're going to be living off your income at the Truth Network here for many more years. So that makes your situation unique in the ones expected. We've got a little time to prepare for this time.

And then we're preparing to pay income taxes or not in the future or at a lower rate. So it's not a history lesson. It's a projection. And it's not always perfect. I mean, it's just any projection is going to be just that. Things can change.

But it still doesn't stop us from doing it. And, you know, like in your case, you're going to reach a point where you're still working. But yet you're going to be 70 and you're going to still draw your social security check. It'll be at the maximum amount. So it'll be a nice high amount.

But you really won't need it. So that's when we're going to start building your retirement fund. And we're going to have to pay some taxes on those years because of your other income.

But we do this for people all over the country. And a lot of them are right here in North Carolina where we're just going to sit down and say, how do you want this to be? And what resources do you have now? What savings do you have now?

What's your social security check going to be if you haven't turned it on yet? We're going to tell you what it's going to be and when to take it. But it's all from a planning or a forward-looking standpoint. And it, yeah, it's really fun to present this stuff to people because it's usually, especially taxes, they're just going to be lower than they thought they were going to be. Yeah, because, you know, one of the things I, you know, really love the way God guided you in writing your book, The Complete Gardenal Guide to Planning and Living in Retirement was these seven worries, which as a Christian, I didn't like those words very well. When I first saw it, seven worries, we don't need to be worrying.

But the fact is that, you know, as you begin to reach these ages, these things come upon you. And the idea of educating ourselves is so that we actually don't worry. I mean, well, yeah, I mean, people do worry. I mean, even though it's a sin and just, you know, they do. And they worry about this stuff the older they get, health insurance, Social Security, savings, taxes, you know, their estate, leaving money to their kids and how much and when and long-term care and, you know, people worry about it.

It's just kind of a big kind of mess that's out there. And they avoid it. They think they're avoiding it, but by worrying about it, you're not doing anything about it. And so the seven worries in retirement, they're already there before I came into the equation. And what I'm trying to do is make it all better.

Right, right. In other words, by actually forming a plan, you know, you at least have an understanding of how you're going to get to the other side. And then implementing it. And implementing it, you know, just as simply counting the cost.

But at the same time, having faith that God's going to, you know, bring you through that and there is no need to do that. And so, you know, taxes, I would not have really thought, you know, I started doing this show a couple years ago, you know, I got nothing to worry about as far as taxes going into my, you know, whenever I get older. But oh my goodness, you know, as I've spent time with you doing this, it really is a key part of the strategy of leveraging the income and the savings that you have.

Yeah. Yeah, I mean, you just, it's actually fun. I mean, just to cut back to the show, we get enjoyment and maybe that's what makes us financial planning nerds. But I get enjoyment over the impact of this, is I know what we can do for people. And I know the pieces when you add in some of the pieces like IRA planning and specifically getting down to Roth conversions and the Medicare expertise that we have, the emphasis on long term care and the long term.

So there's a number of pieces of this that we uniquely do in comprehensive financial planning. I get joy out of just knowing what a difference that's going to make for people down the road. I mean, I don't get to see a lot of the difference happening.

I mean, because people, this is all forward looking. Yeah, it really is a beautiful thing. And actually being a client, you know, I can tell you that my personal take home is a lot different today than it was a year ago. You know, based on the work of Tom and other people that work there at Cardinal Guide and looking at mine and my wife's whole situation, I mean, it significantly changed my monthly outgo, which changes, you know, a lot of planning, which eventually actually does leverage for the church because, you know, clearly part of my financial planning is to leverage as much for the kingdom because, you know, that's where the treasure is. So I hope you had as much fun listening today as we had doing this. But as always, we want to mention the show is brought to you by Cardinal Guide, which you just put, you know, Cardinal in front of guide, In there you can email Hans your question, or by all means, get up with him and have him work this stuff out for you. You can have fun.

Believe me. This is really an opportunity that God has provided, and I'm so grateful to have Hans on the Truth Network to provide this for our listeners. Thank you. God bless you.
Whisper: medium.en / 2024-01-29 14:44:30 / 2024-01-29 14:55:29 / 11

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