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Roth IRAs: Tax Free vs Tax Deferred

Finishing Well / Hans Scheil
The Truth Network Radio
May 1, 2021 8:30 am

Roth IRAs: Tax Free vs Tax Deferred

Finishing Well / Hans Scheil

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May 1, 2021 8:30 am

There are some IRAs that allow you to take out money tax-free, while others make you pay taxes when you make withdrawals. Hans goes over why you should consider looking into the tax-free IRAs and how they could help your family! 


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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Role here when you train one pastor and some donor friends are standing by to train the second-best call 833-443-5467 or go online and train a Every gift counts and now every gift is double train a hey this is Mike Swick from if not for God podcast our show stories of hopelessness turned in a hope your chosen Truth Network podcast is starting in just seconds. Enjoy it, share it, but most of all, thank you for listening and for choosing The Truth Podcast Network. This is the Truth Network welcome to finishing well brought you by Cardinal guy, certified financial planner belonged Shiloh best-selling author and financial planner helping families finish well for 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 so today finishing well, working to talk about Roth IRAs tax free tax deferred, so in Matthew 525 Jesus some advice. He says settle matters quickly.

You know when your adversary before you take you to court and that you know you may seem. Andy Griffith once or twice and Bonnie five. Famous for making this in no particular statement which speaks to this a great level is nip it in the butt.

Actually, there is reference to that in the song of Solomon, but you know, and so much of life. It's a matter of do you want to nip it in the butter. Do you want to wait till this thing completely goes to flower and so when it comes to Roth IRAs and the traditional IRAs. There are two words a semi-cousins but they actually are diametrically opposed to what is tax-deferred and back on the other is tax-free sorrow. They sound so similar in their actually used by people to me. We always want to make our stuff sounds so nice and beautiful. You know, investments, life insurance cash values, you know, we just tax-deferred and then very seldom can we say tax-free. We actually can do that with some life insurance but you think about these two words and never the more clear than in the Roth IRA and the traditional IRA. So let's just do a little definition here so most IRA money starts as a traditional IRA money and most money in IRAs is still on the traditional side is not even close of much people having Ross in the Ross version has been around since about 1998 and it really didn't get adopted too quickly by marketing understand what it is but it is pretty much out there people know what it is and it's an option that is not used nearly as much as I'd like to see it. And this is the difference between the two is a traditional IRA work most of the money is and probably most of your money. If you have an IRA or 401(k) is on the traditional side, meaning you never paid tax on that money but you will in its tax-deferred. So that's the flower that's blooming yeah it is and then blooming for many many years and it keeps getting new flowers and to or through contributions and they're all tax-deferred. Even the contribution. The original balance. The first hundred bucks you put in there is all tax-deferred. You never paid tax on any of that money in the earnings and so it's blooming exponentially and is fun to watch a lot of joy one to find a watch in 2008. We have you know in 2009 when that stuff you know went way down and then it again did that just last year this time it recovered much more quickly, but you know that's tax-deferred and people get a lot of joy out of that and financial advisors get a lot of joy. I've got Lovejoy sit down with people and sent for this is like a gift from the government because were in put your money in there and then there put their money because you don't have. If you didn't do this you you have to pay taxes on that money and that would eat up 40% so it's almost like you put in $0.60 of your money.

$0.40 of their money, but it's not really like that is your you just put in in your money and your postponing taxes but there to get their money in there and get their money at some point in the future and maybe even after you die, but it's a can be even more money that possibly paid by your kids, but just so you understand that's tax-deferred. That means we don't have to pay it now, but were going to know the Ross on the other hand, it is money right from the beginning you deposit into the Roth after-tax so you know, we use an example of 100 bucks where if it was taxed $40 would go to taxes and then you'd have 60 left, but in the traditional side you get to put the whole hundred into the thing into further tax on the raw side.

You only get to put 60 and are you still put in 100, but you had to make 180 or something or hundred 50 to net 100, so the money is after-tax paid tax: in but now all the growth is tax free, so the whole balance just sits there and it's available to you. You can get at it without penalty until 50 9/2 so you got that CL leave it there for a while.

There are some exceptions of borrowing the home of getting your first home and you can take money out. I don't necessarily recommend it would just repurposed understand your leave it there. 250 9 1/2, but once you're 59 1/2. You can take any money out of that no taxes those things sound like cousin, tax-free tax-deferred, they're not even from the same family. From my standpoint the first time I did this so when you mention the word Roth. I was like what world and I understand that there is actually somebody called Roth his idea to create a way that you could clearly make this kind of deposit into your retirement where you didn't have an upcoming tax bomb in the court. You will later on, and shall go into why that's completely necessary.

He was a legislator from Texas. I'm not sure you thought he certainly sponsored the bill and put his name stuck. That really matters the Roth IRA and the whole the whole idea of the thing is so not only do you have retirement money available to you nocking have to pay tax on the growth is going to be available to you in retirement tax-free. If you don't use it for your retirement.

You can leave it to your kids. And this is a wonderful thing. Rightly God created just to do the work because, as is growing its growing you know what the tax-free increase absolutely, if you put the same amount in because what my son is 23. He's just graduating with engineering and he started his first job he are gathered.

Pretty gratifying and just the money underpinnings and and he's been smart about it, so he asked me about all the benefits and I I convinced him to put in a Roth. I even showed them this is going to make your paycheck worse is your buddies other people starting that there detail. You made a mistake is you can get less in your paycheck because you're not getting a tax deduction.

Essentially, they said just what you're doing is you're setting up a tax freeze/fun, essentially. That and my guess is he's gonna make a lot of money over his lifetime. Once he got started. At that way he's going to be Roth. He's can have some kind of gigantic balance. These my age and it's all gonna be sitting there tax-free right.

The comparators buddies so you know let's just let's just projected out right say it's 1,000,000 1/2 dollars. You know, there 50 years about and there is and his buddy, he might have $2 million right because he maybe maybe not, but with the thing is is my son can still put in as much after-tax as his buddy Ken and before tax of the limit of the contribution.

If he took a right to limit, they should have the same amount. The difference is the body is all taxable. I was already has an estate tax problem. He's got just a tax on his income problem. He's also probably is going to hate paying taxes by that point and said he's going to be inclined to just take out minimums and he's he's gonna just hold it till he dies and then you know is buddies kids are going to have a gigantic tax problem because there and probably draw the money out and pay all the taxes once it is conveyed of half of where is my guy if he's got a note you have the same million 1/2 or two men wear whatever they have.

He's got you don't have to take any of it out at any time they can start at 59 1/2 he wants to buy something if you go by.

He wants to leave it there. Leave it to his kids, his kids wanting to pay taxes on the have to distributed but I mean it's sweet this weekend so this is completely applicable to you what you know as we discovered when people are in their 70s and still making contributions as it is to the person that's in their 30s or electronics and guy calling the other days can become a client's an awesome guy is a lot to missions Baptist Church mission, and in particular stay. I really really like this guy got a hold of our show on the podcast is in heat. He watched her videos on YouTube and so I started to get assessment of the skies got plenty my he didn't need his retirement home of the lake.

He's got home where they live, he still got employed by two corporations doing staff 80 years old. Why 79 and he's watch my videos and get not of this concept. He says now. Now I'm sitting here looking at this money and you didn't have to pay minimum distributions last year taken because of the coronavirus by got taken this year and he says you know I need you to tell me what to do with this money in our I need you to tell me how to lower the taxes on this and I said well you know I can't really do that until I find out what you want to do with this money is it's entirely different. If you want to give to your kids that if you want to give to your wife or if you want to give it some of the terms already subsist, but if you want to give it to the church of those things are all different so you know III think when we get in the second part of the show. I'll tell you a little bit more about him and like where were going and what he told me, but he's just now realizing this is he's created this big pot of money and he told me how you did it, all the things very. He said good advice he's deferred taxes. He's just that's been his game is because he didn't need all the money he was making in these jobs to live. He needed a good bit of it because he has a lot has other money in investments and things going on, but now he's got this big pot of money and he's realized he doesn't need it. And now he's thinking about converting to a Roth at 80. We actually might do some Lessees now Mike and his contributions into a new Roth still will you do that yeah yeah I mean it, even though he may only enter three more years exotic. Well why would I keep put money into this traditional IRA when I could not create a supplemental got all that coming up and today show right which is talk about IRAs. One of the seven worries and cons of the complete cardinal guide to planning for living in retirement. It's all their cardinal English email Hans as well as list of past shows look at his videos, sought cargo will be right back with more of Roth IRAs tax-free versus tax-deferred.

Hans and I would love to take our show on the road to your church and 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 cargo and contact Tom to schedule a live recording of finishing well at your church Christian or civic group contact Tom cardinal that's cardinal welcome back to finishing well today show is IRA Roth IRA. Specifically, tax-free versus tax-deferred, and we left our hero. He was okay skies 80 he's still working always 80 he's 80 LOL he's very well versed on the he is an estate plan. He's already done some things back when he was 65.

He said the old estate tax laws.

He owned some life insurance EEs got all kinds things, but all his old estate planning isn't necessarily applicable anymore because that's all changed and admit possibly fixing the change again out of the current administration that that'll take a while to work out what he specifically called me about is this 3 million bucks that he's got in his IRA. He didn't have take minimum distributions last year. I'm sure it's done well. He has invested conservatively, but he wants me to tell and like what you do with this. I just said well I can't tell you what to do to lower taxes until I you tell me what you want to do with this money because it's apparent to me, all you wanted to do was accumulated to this point and said yeah you talk about minimum distributions like they are the tax. Just remember that when you took a minute minimum distribution. Two years ago in the UK that money to you and then they detected the tax and you are left with most of this is not really a tax but it like like it's a bad thing suck your goal has been tax deferral is you thought your avoiding taxes.

You're just postponing the spiritual, the he got that he wanted me to talk to him like that and I said so. So now you got this money there and we need to decide who's going to get it because you certainly don't want American immediate you got other stuff, a lot of stuff going on lake house really neat guy's grandchildren are out there using that as children so I said who's this money for what's this money for any said no. So restart break it down as it sits right now, 25% of it is going to go to the church which is detrimental now. I explained he CDs to, and you CDs for him thank you CDs for his wife so we can start right now. We can give to any charity wants and satellites have been the church hundred thousand dollars.

That money from him in $100,000 from her so we can give $200,000 to the church tomorrow by doing a QCD and no tax on taxes, no taxes.

That's tax-free accounts as his minimum distribution. They didn't want yeah now the balance is give you 2.8 million. I think he's fudging it down as if he's actually got more editing of the purchase go with the 3 million as let's first thing you know if you want if you want to give 25% of it at the end. What we need to think about. Given hundred thousand twice as you and Mrs. right now. Give 200 wickets when I send out all the one church we can send it to missions. He consented to the association that he told me about reset your church reduced go several places, but it needs to be the first distribution from the IRA. Now when I'm talking about Ross now with this 3 million was in a Roth he do any wants with, but it's not. It's in the traditional side, like most people, so but anyhow he's interested in converting some of it to a Roth but I got real clear is the part were going to give to the church for any charity we want to convert that because if we converted pay the tax and then give it to the charity will we have accomplished anything. We will render off the charity would rather you give them the money before you. Because our pay taxes and you're not, either you can get credit for minimum distribution device took a 2.8 million and I said you could draw some of it out.

Pay the taxes and give some of it to your kids. Now that would be an option you could buy a life insurance policy you still do that 80s in good health. I'm not sure I'm recommending this possibility that and so we could pull out that minimum distribution or more than the minimum distribution and pale life insurance premium for 10 years on Tempe life and then train this thing down. Pay the taxes a little bit at a time and that it would have a life insurance benefit more than 2.8 million, at least for the kids portion of equipment we want to leave some of this in their and the kids get inherited, pay any taxes on that life not that'll go to them and we can even pay that out over time through the life insurance companies of your concern about a spendthrift thing or them squandering it, or whatever. Then we can set up through the life insurance Company, to the beneficiaries that there is going to get paid so much for so many years. We do all kinds of things with that that we can't do with other things.

He was really warming up to that idea so we could do some Roth conversions, but just keep in mind we probably want to segregate this IRA. We want to say this is for the church as of the 25% goes to the church segregate that Morgenstern given them some of that now. And if you CDs and then we can decide was going to go to the kids and blames like a lawlessness of the others just this thing that I thought was really cool. The story was sent here he was at 80 still make an income right and hit and now isn't contribution for the next couple years at 80 he's putting in for Roth and you read this math form. I thought it would be helpful for listeners to hear what yeah mean and actually I think it was a different client that I was talking about on the man so I had another client in just as we could we do it we scout up these people were in the office and this this film is a doctor. Almost all of his money is in a traditional IRA, 401(k), so he's got a good bit of it. He's got like it say a million bucks, then they have a home and he has a good salary and a good income and the thing that I found he's not retired for couple years but he's in here he wants to get things lined up in the thing I found one of his biggest problems is he doesn't have any money he can go put his hands honors enough money summary of his means he's got a small amount of savings.

I told him that we need to build up somehow, someway hundred thousand dollars of savings is not in the retirement account that he could go withdrawing use just at his will that any taxes we need to do that over the next couple years and what you like that. Then I got in deeper and I said you know he's putting $18,000 a year 1500 bucks a month into his IRA to trick to 401(k) when they just deducted out of his paycheck so I recommend you do I think is probably aren't done yet. He did that afternoon.

Is he changed his contribution is 401(k) from traditional to Roth. So now you put in 1500 bucks a month in the raw side of the thing. He has no Roth and he's sure going to work two more years. He may work longer if he just works two years 1500 a month each have $72,000 in his 401(k) on the raw side regarding pay tax on the money inserts like a savings account that you can withdraw without tax implications that will right in the beauty of this you know that up. I can see I just as I'm sitting here, I'll make sure listeners can see is Hans how much do you make on that right there you're at your advice that you know helped him to do that. But, in other words, this is completely a gift right out to degree a me first of all he's still deciding whether is going to be a client. So when I have people meet with me this is what you talk about people coming to see me like Rico lady coming in here just in a little bit The show and she's here locally and she's come in and see me.

I give I give people as much advice as I can when they call me or we have an initial meeting to talk about plan and this is free menisci. We could never see him again. I have a feeling well but I walked him through all that. Very seldom do I give a like advice on the spot before I go through the whole process. But this was just an obvious this is a slamdunk. I give it to a lot of people, thing is not your segment. Listening to this you go out where's his cut and there is no hit it there is no cut in this line out.

Ultimately he's going to do a plan with supply hose that I have Internet but, but, in other words, when you're listening. This is this is completely like oh my goodness this is just good stewardship. Understanding the real need for tax-free versus tax-deferred. What about what I what Roth IRAs really are benefit what you what you're bringing up is the difference between a fiduciary and a commission based sales person going and not believe me, I make commissions on some things that I sell. But because I'm a fiduciary. I have to disclose to my clients. First of all that I am making commission and then secondly that that commission could create a conflict of interest it could cause me to be looking harder at that than I am.

My clients needs and then I have to mitigate that in writing my notes that because I'm a fiduciary that the fiduciary requirement supersedes all that and of course any recommendations I make in spite of so you know, obviously I meant to earn some money doing business with this client or some other clients but that's just not top of my mind and you're listening to that and I just like stuff on the radio show on people call me up. I have all kinds of people that I cannot charge the slave this afternoon just Artie told her that because she really doesn't have enough to pay me she's got some retirement savings and all that but she's just want help in the lien and so that's why I know I left the topics here on finishing well is is it just sound things to help fat families finish well in a hopefully him and you know you you make a great living God blesses you and all sorts of different ways, but the beauty of it is like my goodness.

God is gifted you with all this information to help families and so here we have this opportunity to share what God has given you, and in ways that are that are unique and I don't want anybody did not see the whole picture look look at how God is blessing all of us with this information to be able to take the a better steward of of what God gives us in all sorts of ways as we finish well financially you know showing Jesus and in the generosity of Jesus, right cousin Leanne. He wants us all to live in the kingdom and and and you making our houses like our homes like a kingdom unit was the part part of the way that we have an opportunity to reflect our Redeemer and what a beautiful thing. So again today show is brought you by Cardinal died Cardinal or you get Hans book the complete cargo guide to planning for and living in retirement. We ran out of time again is always the case. Too much fun. Thank you. We hope you enjoyed finishing well brought you by Cardinal visit Cardinal 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 cons best-selling book, the complete cargo guide to planning for and living in retirement and the workbook once again for dozens of free resources shows what you 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 This is the Truth Network

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