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December 22, 2020 10:26 am
Hans & Robby help us understand this sometimes confusing but very important topic. Just another step in Finishing Well!
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Now let's get started. Finishing well welcome to finishing well certified financial planner Sean Ellen today show is required minimum distributions that may sound dried to you is a little bit to me. However I can tell you that by the end of the show you're going to allow us really some cool stuff that I didn't know you know but along those lines consist in our show is coming up right here before Christmas.
You might've heard the sound Joy to the world, the Lord is, well if you think about the next line it says prepare him room.
This is actually what it says and so a lot of that were talked about and today show is preparation, but along those lines, I don't know if you knew this but if check it out. It's kinda cool.
The King James version of the Bible.
If you look at Exodus chapter 5015 verse two is where that line comes from out of Joy to the world.
It says that these guys when they just got saved by crossing through you know the Red Sea and they were praising God and and they were saying prepare him a habitation which is a prayer prayer Marilla Fleming and so as we look into that idea preparation for 2021 as we are going into it yet.
We can prepare for distributions in order to talk about the minute but in I would challenge you to prepare, how can I give him more room to give Jesus more women 2021. Can I go to bed 15 minutes earlier and get up 15 I mean go to bed. 15 minutes later Nelson team as early as I get up 15 minutes earlier maybe 20 or half an hour.
And what if you wanted whatever you want to do I do that I remember years but now I'm at 4 o'clock and I don't know that I can push like much further. But one thing about doing it for me for 2021. Hans actually is to begin a evening prayer time for a car route. Another 15 or 20 minutes actually before go to bed.
I can really discount processing stuff with him and and and and maybe get a little more peace in my sleep that way too, but more importantly preparing and room for 2021 just a little challenge out there before we start talking about distributions but there we go. Yeah well you know is I preparing for for the show. Each time we do it and I'm talking with God.
With God about this is just came on my heart is is getting redundant. You knowing God's answer to me was notices and go do you show the cut head, but the place that I'm coming from is is it it could well get redundant to me today is as a participant in this and the leader that can assist how many more times are we going to go over our MDs and required minimum distributions can you know the answer to that is not as many as possible.
Benefit everyone from going over it because it's not redundant to the people listing the contacts that were coming from. Today is to talk about these from a tax perspective talk about these from an income perspective and then talk about them from the estate planning perspective of the whole concept of required minimum distributions and wired minimum distributions to secure act, which is a couple years old changed it to age 72, where you if you have an IRA or 401(k) or any other type of qualified plan year 72 were older, you have to take a certain minimum amount out of your IRA and pay taxes on the distribution. That's what a required minimum distribution is the law of the regulation and so you have a secure act raised the age a little bit, which is no great in some ways of looking at it so the government is making you pay less taxes now. I guess you could say as opposed to later then you have the cures act which came in in 2020. As a result of the coronavirus and trying to make it easier on people they passed in the cures act, no our MDs are no required minimum distributions during 2020. So a lot of people have taken no distribution in 2020 from their IRAs and 401(k)s. Even though another it wasn't for the cures act, they would have to take one so that's can leave even more money in there for later which you could look upon as a good thing I have more money in my IRA and I paid less tax in 2020 than I otherwise would have. That's what the government was really trying to just pass out some things that didn't cost them anything. Actually, at least they didn't have to budget in that hill well yeah it it it it affect his cost and then the tax that they otherwise would've received but they don't have to put that in the budget. So there you know they're there looking for the didn't have to put that in the spending part of the bill. You have to itemize that put that in and of itself at a pretty big expense to it, but were not worried about the government's perspective today. What were trying to do is educate use of that you can formulate your distributions now and into the future around your needs at the government's so when I run into people who are doing only the required minimum distribution whether or not yet 72 and their taking nothing. The one thing that tells me as they can afford to do that so that they have been making money for somewhere else.
And so they don't want to do that many times is influenced by the common groupthink which I don't take any money out of there. I don't pay any taxes and so I still have that money. So this is a good thing and my thinking about that is when I hear these things out of people under 72 and their taking no distributions here in that they don't really have a plan for the they have a plan but that's the government's plan so required minimum distribution plan is the government's plan is there sin here now. 72. If you're not retired yet. You probably should be. And you got this big hunk of money that we've let you avoid paying taxes on for all these years and now working to make you take a little something that just so that we get our tax money and then that little something is going to become bigger and bigger and bigger over your lifetime and then you pass away if you got a pretty big balance in there they were going to get the tax money are your kids or your heirs. And so I've seen it so many times I could just tell stories of people have a big IRA.
They pass away, they've done a good job of minimizing the taxes they get this big savings account because of the kids and their kids, withdraw all of it in one year because they want the money and so 40% of it is gone, and taxes and then the 60% that's left gets spent pretty quickly in many cases having people inherit money in their 40s and 50s.
They need the money man they get bills and they get stuff going on kids to educate toys they want to buy houses they want to pay off now so if you're on the government's plan, the government's fine with you not taken a pay any taxes to be 72 and then just paying the minimum taxes on the minimum distribution and then you just accumulated because they know that sooner or later they're going to get a big lump of taxes and you take your kids of your kids are making $70,000 a year and then they make a withdrawal from your IRA of $200,000 or half there to pay at least 40% taxes because their income is going to go from 70,000 a year to 270,000 for that one year ago. Look up on the tax charts work on income you on that federal and state so I like the way you put it that perhaps we could get rid of the RMD part of that and just end and just start talking about the distributions and and I was thinking about a couple other things along the way because you talked about redundancy and I thought well you know I wonder how many times I've read Exodus 15 to and totally missed dreams. And so, is it redundant. The one time. Finally got turned on the light went okay well along those lines, you know, I really really really wish my 30-year-old son would hear this right now.
Right now, so that he would begin to understand that wow mind I could I could flick a switch on my 401(k) and instead of that money going into a traditional IRA to go into a Roth IRA and he would be ever. He would beat never faced with the tax situation on his distributions will yeah note note. Keep in mind if he has say $100,000 in there now and then we flip the switch and he starts making his new contribution to the Roth in those contributions or $10,000 a year, then at the end of next year. He's can have 110,000+ whatever he grew on the hundred but only 10,000. That's gonna be in a Roth or me that money that's already in there is in there and it's can stay in there so you can have part of his IRA taxable.
If he starts at his young age, putting the rest of his contributions now into a Roth when he gets to 65 or 70 or whatever point he wants to start drama and that he's can have no required minimum distribution is can have no distribution requirements at all on that Roth he could just leave it there and leave it to his kids and then his kids will have to empty it over 10 years, but the others situation. He built up a big balance. He can start living out that tax-free that phenomena do with my Roth so the point that I think this beautiful but God's giving asses.
This isn't just relevant for somebody who is 72 or plus unit depending on the cameras at the most. I think this is relevant for everybody who is retirement planning.
Whether it's through 401(k) or an IRA or whatever it at whatever age they can begin to think about what the distribution plan looks like.
In other words beginning with the end in mind.
I'm in no can remember that from back in the day that that's part of preparation in a preparing for what's what. The use of these funds would actually be for an and in along those lines so wow it the brakes come up fast. I hate that. But where can I go to a break will be right back. Don't forget that this is brought to my carnal guide Cardinal guy.com you can find Hans's book the complete cardinal guide to planning for living in retirement, which is not can finally say that it there and this chapter is the seventh chapter right on IRAs and you know the you can get a download that for free or you can just email Hans a Cardinal guy.com to send you the book again. You know I love the purpose of the ship and the purpose of the book is really help us all to get this information and be able to apply to our lives to make better decisions which not only obviously help you, but I mean it's a beautiful thing that this is a lien the as we learn more. We make better decisions and in the back with more of required minimum visions of your investment.
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 guy.com and contact to schedule a live recording of finishing well at your church Christian or civic contact. Contact Cardinal guy.com cardinal guide.com welcome back to finishing well and certified financial silence today show acquired minimum distributions but the ideas really to prepare for the just departed that which is distribution like beginning with the end in mind. What are some of the preparations we can make it whatever age 2 to make these distributions that would make sense is obviously leveraging your resources to their maximum capacity will that's what were talking about today is talking about were emphasizing the D in the RMD so you got required minimum distributions. Most I can talk for 45 shows on what those requirements are and how you calculate those depending on your age, your marital status. The percentages he and I can give you a whole bunch education or you can go look the stuff up and learn about how to calculate how to do an RMD for not really talking about that today. Okay, you don't necessarily need to learn all that stuff it will just come to you as it comes to you what were talking about today is distributions and I'm recommending that you consider before you. 72.
Making a distribution from your IRA and that you would consider doing that every year for the rest of your life in an amount larger than required distribution and really is upset and thinking about it in this political requirement not making any statements on what's going where the other, but based on what that very likely could happen is we are and have these really low tax rates for very long, and so 2025. There okay. I mean just in the current law that if the new Congress and the new president passes nothing for tax law which they may. They may not get into politics and just take whatever they decide and I study it and try to make it best for whatever your situation is. That's my game, but if they do nothing. The tax cut jobs act. That's about three years old now has a provision that it sunsets in 2025 from 2026 if nobody passes anything there's going to be a tax increase with the tax rates are going to revert back to what they were before 2017, which makes it a really good decision to take income now all the tax rates are lower, which has to do with distributions which if union 60s early 70s that could be making a distribution for an amount that you tax return can accommodate just moving it into a Roth IRA so you're not actually distributing the money to go spend you just moving it from a traditional IRA to a Roth IRA in an amount that we would pick together and we do that every year between now and 2025 is you have to pay taxes on the distribution. Now it's going to be in a Roth which has no distribution requirements, and when there are distributions from Roth. There is no tax. That's why they don't require you to take it out and I can get a tax on Arctic. The tax fight which allows whoever whatever you need to get it tax-free.
So she needed as a distribution of time can affect your income in retirement. Lesbian it be difficult if you need the money to pay those taxes so if you're over 59 1/2, you're not yet 72, you're eligible to take the penalty free distribution. If you're working and so making a good income that may not be smart because that distribution is going to push you into an even higher tax brackets on unnecessarily recommending this forever, but I am just talking about, consider if we put together a plan for you. What we do for our clients as we sit down and we have a plan for distribution. From now through the rest of their life manages and part of that is tax planning.
Part of that is income planning because your income needs are going to be different at different phases in your life and part of his estate planning and just as a general rule, you're creating the tax bomb by just creating a big account that's in an IRA that you're saving for your heirs and I talked about the first part of the show is interesting to create a big tax bill is the only way your kids are to be able to get access to that money is by drawing it all out at once, which is can send their tax rate skyrocketing in a big portion of the accounts is can disappear and his retirement is people, it will need the money in retirement of their IRA or 401(k)'s case may be, you know, I personally love the idea, now that I understand annuities of like one of the fears is nominal amount of money.
Writer and and there's a by doing this preparation and planning. You know you can you can snow get some assurance that should not kill a lot of money for yeah especially if you're consuming the after-tax money of the distribution which a lot of folks are in that situation they retire get the Social Security check in.
Now they need to sit down with me and figure out how much money do they need to distribute from their IRA to put together with the Social Security check so they can live and if we make that number two big then and then we have a bad stock market or investment year or two or something with very low earnings. They could be 82 and out of money.
This is what drives a lot of people take nothing out of their IRA because they're just saving it for the rainy day in our the rainstorm or whatever there.
They're preparing for that and of the people that need the money to live on. Then we want to make it as big as it can be in the way we can guarantee that you won't money is to use an annuity as an insurance company is going to be you could you could bring me a certain amount of IRA money 401(k) money and you take a balance and then depending upon how old you are, we can move that part of it into an annuity and then that annuity.
We can tell you exactly how much you can distribute each year to yourself, and then the insurance company will guarantee that no matter how long you live, you'll get that amount of money for the rest of your life or your social security works actually writes it's exactly the oasis cures turn in an IRA balance skin to effectively Social Security check. I won't have inflation that we could take the other part of the money and delay is all kinds of things we can do that again like going back to the peak time and there thinking that they need this money in retirement, then 59 1/2. I guess you can start making distributions. So really there annuity could be baking right that's a word you used essentially by beginning that annuity at 59 there and a whole lot better position to have more income You know if this person still working and they don't need the income now because you're still working but they have the possibility of moving some money out of their IRA for several years because of that I can retire for several years. They could distribute it and put it into a Roth you're effectively distributing the thing he does move say we picked a number like $10,000 per year 60 can we do that every year till 70 that's for you retire you have moved $100,000 from your traditional IRA or 401(k) over to a Roth tank. He can actually kick her ferocity distributed to an IRA and then convert the IRA meant less worry about the specifics of that point being that for for for all folks, is it would be beneficial to put together a plan tax plan distribution plan and to start that well before 72 four.
Even if you're at 72 put together a plan so that your IRA doesn't end up with a huge balance that you leave your heirs, and I was happy to look quick to the people under 60 day what I would recommend that you do is to set up a Roth IRA or a Roth 401(k). Most 401(k)s now have a Roth option, it will only accept new contributions they won't let you typically convert from your old regular 401(k) but what I would recommend is that you would get on a plan so that when you get to 65, 70, and you think about retiring. You get a big balance in a Roth IRA that has no minimum distributions yeah and then move it up to the guy that's 80 or the couple that's 80 or 82 or whatever the situation may be in a you are tell me that he not allowing us a lot of times I get up there there there required minimum distributions are like in 20% of that email. It lets a 99 Lee that that this guy was a particular client's 89 and we just looking at his tax return put together a plan forming the governments making him distribute his IRA over the next five or six years just because. His life expectancy is long now and unfortunately were not going recommend or to him because that's is going to put them in a higher and higher tax bracket. What he's actually going to do is use Q CDs to get that number down so that he be done have to pay taxes on it and it doesn't create a taxable bill is going to do is charitable giving for the point being that we run into people all the time in their 80s that have been on the minimum distribution plan.
Now I got a big balance. That's the extent of their savings and so we put together a plan for them to whittle these balances down even if they just save the unit they just move it over to a savings account that's going to be better money to pass along to their heirs and so we have the people that from my perspective that are that need the income which we can talk about that distribution plan.
Yet people are thinking about using it as an estate plan and an maybe convert mental life insurance. That's another distribution plan, but even the people, as you know is they get up in their late 80s and the Q CD being a qualified charitable distribution plan that that these still in there. In other words, this is a thought for all ages no matter what age you are.
Now there's a way to maximize the use of this distribution So we were just asking you to consider alternatives.
That's the message today consider alternatives than just using the minimum requirements of the government in terms distribution of your IRA for guess the key is the distribution and there's lots of different angles even to our long-term care life insurance other immuno products that really can pay off to both your family, your church, and Ellen and also many different ways that God would give you wisdom. In these times.
Again, we want to tell you that you know we will always never have enough time for the show because we seek out Hans as a lot of stuff he could share but it's in his book the complete cardinal guide to planning for and living in retirement, which you can get a cardinal guide.com or just as for the whole book or you can get the download of this chapter absolutely free right there at the website. Cardinal guides.com so we want to wish you a Merry Christmas and certainly a happy new year were so grateful to take your time to listen to finishing. We hope you enjoyed finishing well brought you by car, no guy.com is a cardinal guy.com for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care, life insurance, investments and taxes as well as ponds 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 Hans book go to cardinal guy.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 cardinal guide.com cardinal guide.com this is the Truth Network