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Tax-Free Retirement Savings

Finishing Well / Hans Scheil
The Truth Network Radio
December 25, 2021 8:30 am

Tax-Free Retirement Savings

Finishing Well / Hans Scheil

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December 25, 2021 8:30 am

Hans and Robby discuss tax-free retirement savings and the three different tax characterizations or situations your money might be in, including a taxable account, a tax deferred account, or a tax-free account.

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You can contact Hans and Cardinal by emailing or calling 919-535-8261. Learn more at  Find us on YouTube: Cardinal Advisors.

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

Nothing says Christmas like a wonderful family in Asia, getting a water buffalo is like getting a farm truck while working getting the stand of the market. A water buffalo opened. More importantly, it opens the door to talk about Jesus and nothing says Christmas better than that. Join Truth Network in supporting gospel for Asia gift and click on the Christmas critter campaign not cuticle off the Russian nightmare know the devil's nightmare here from it's time to man up challenging men step into their true manhood. Your chosen Truth Network podcast is starting in just a few seconds. Enjoy it, share it, but most of all, thank you for listening to the truth. Podcast network. This is good Truth Network welcome to finishing well brought to you by Cardinal guy, certified financial planner long shy 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, finishing well is a general discussion and education issues facing retirees are no advisors. I'm sure I'll see if Pete insurance this show does not offer investment products or investment advice is welcome to finishing well, a certified financial planner Hans shy all in. We got a really special episode for this week. I believe in my heart is in that were talked about tax free. That's FREES my friend Hans also says tax-free retirement savings and what all that has to do, but I believe it was interesting that when you think about this from you know your life with God that the virgins that were supposed to have oil in their lamps. You know they needed tax-free way of keeping oil in their lamps, they could like their way and and as we come.

You know into his recording. This actually will be listening to it on Christmas and thinking about the year of 20, 22, oh God gave me a real present along these lines. In 2021 that I desired, share that it would help you get more oil in your lamp.

Absolutely tax-free set is what God encouraged me to start memorizing certain Psalms, and he gave me very specific ones before I really knew what was in them to start out with the 16th Psalm which you may know or you might recall, is the one that ends with you.

Show me the path of life. You know in your presence is fullness of joy amateur right hand are pleasures for evermore. While you just listen to the prizefighter that you like, what else is in that Psalm to get to their so in a pretty fun stuff memorized that when I memorized the 13th and then he asked me or challenge me in July to begin on the hundred and 19 S. which you may know, is eight versus on all 22 letters of the Hebrew alphabet. What it did not see coming because it is 66 years old. I didn't think like you're gonna memorize that at this age. Oh, what a joy it has been. I can't even begin to tell you the oil that is put in my lamp and the tax-free savings and I mean savings of God's word in my heart that just bear dividends. Every day I see things come to life that I've never seen before and so I thought I would give you this idea for tax-free heart retirement savings before Hans shared his strategy for the financial side, like before we get started about and is on tax-free retirement savings talk about the three different tax characterizations of the three different situations that your money is in, depending on whether it's a taxable account tax-deferred account or a tax-free. The first plumber to start out with a taxable account. This is the one most people are familiar with money markets at the bank or savings account or CD stocks and bonds that you hold in a brokerage account. You may hold those jointly with your spouse or you may hold them alone. Mutual funds money that comes into you and rent. If you have some property just generally any account. The IRS is going to get their income tax on a gross or interested turned on that tax on that account. Throughout the year.

So many people out there think this is the way every account works in a call number one. The taxable account, and it's my least favorite of the three types of accounts, but it still felt favorite of mine because it notes money in a savings account is a financial planner that's that's a good thing.

The second one is tax-deferred and what tax-deferred really means a lot of people think that tax-free tax-deferred mean you never pay taxes on this month you're not currently paying taxes on the growth of the money that you will or somebody will and mostly your 401(k), IRA, 403B any account where you don't paycheck is your booklet along and if you really have difficulty in redoing people calling for their own financial planning. They have trouble answering the question. Is this a pretax account or is this a after-tax account for a taxable account in a clue on that is if you fit a nine from the financial institution and the end of the year is a taxable account, you get no 1099 on your IRA or 401(k), 403B that type of thing unless you took some money. Are we clear on the first couple of types account clear, but I would also point out your talks about the taxable account first will switch talked about that comes in really handy right from a liquidity standpoint if you're trying to stay tax-free later in retirement rights. It's actually really a critical account to have if you possibly can have that along with the others that start them out right. That is you. You invested in something or you just put it where you getting interest which isn't that much lately at the bank your paying taxes every year on that growth on the account. When you spend it or not, but it's still very necessary to have me and I got in over $100,000 in the taxable account and I feel it's painful to look at the little interest that I'm getting from the credit union on that but I have it there because I need the availability of the money work doing a lot of things in heaven my kid out with things and when we buy things we try not to finance them so I can keep certain amount of money liquid yet it is.

I'm guessing most of you do so not referring to account number one taxable is bad, it's the very necessary and therefore liquidity just so you can go put your hands on when you need it on a tax-deferred account. The second time. A lot of people treat data savings account to liquid when you can get an IRA. You could have several hundred thousand dollars in there and if you wanted $20,000 to do something you could do that very quickly without penalty catches you have to pay income tax on that whole distribution. If it's a large tutorial tax plan, so the tax-deferred account is not a real good savings account. They were used savings for large purchase. And so what were talking about today and were creating.

Actually a few options within that is the tax-free and by tax-free. We mean you point out to me a lot free is means exactly what sounded FREE free major never gonna pay tax on this money so you already pay tax on the principle of the contribution to the account. Then, as the account grows you don't pay any tax on the growth then if you die with the money in this account. It goes to your beneficiaries tax-free. So it's a very desirable accountant what is referred to as all raw IRA and Roth was a guy's name. That was one of the congressman that sponsored the bill that created the Roth IRA which is tax-free account been around since 1997. You know hasn't gained a lot of traction, meaning that we need people to come see a leader out no Roth account.

They have some Roth account Roth account is usually very small compared to their 401(k) or IRA account of their pretax of the tax-deferred account.

So what we do a lot of is helping people convert their tax-deferred account there 401(k) there IRA money did not pay taxes on a week.

We help them converted to a tax-free Roth IRA and know that goodness. Now you're in a tax-free account. The bad news is you can't pay the income taxes on the thing on the whole amount you convert nothing big stop sign for a lot of people talked about it in your video. Why would you come to me to have a text.

People come to me to lower their taxes to raise this is this is this is our failure may we, you know we we put on our pants and chin strap and we dig in there and we're working at is the right thing for people really convincing to do it so that I have a guy that I was just on the phone with that. We were talking about and he this gentleman is like the nurse and she works you know in the coded wing annoyed that she was working what we are talking this morning's coming in from work all night and she can retire in September. He thinks he's retiring right now and they have significant income.

There are a couple of professionals I would just say other than 50,000 hundred and $80,000 a year between 20. What is remarkable between the two of male over $40 million in IRA or 401(k) accounts and become IRA account, and a lot of that is he's invested very aggressively paid off and this man from a foreign country in them.

They live very they don't spend a lot of their money. Okay, meaning the date they live very close in a very simple house and they don't really have any intent on changing that. And then he comes to cities acting like this is a big luxuries asking for. He must suspend $50,000.

Picking up his house and he wants to spend 20,007 Nelson 10,007 Nelson that it is almost like asking me for permission. And I'm like I'm just telling me how did you get becomes 5 million but doing you want in you know if I can just as I told Annette this morning. It took him several times as it you're not going to increase your lifestyle. He's just not you good but what can happen is that this money is going to keep groaning, keep groaning, keep growing, and then you know maybe you tap into some of it but to keep groaning, growing, and then I showed them what minimum distributions and the taxes on that at 7265 now and then I started talking to a about when he leaves this Tuesday kid know what kind of a tax burden that there can have and that really woke them up because it knowing their culture just leaving to your children is is just extremely important.

I gotten out of them earlier and now he's on board of English. He was on board start doing these Roth conversions until and so today's call is really just about preparing them for what I'm gonna propose poorly righted into the plant that I just wanted to just give them some numbers and make sure that he was semi-slow to react to it.

So were not doing that right in the middle of his financial and it was really called something here we come back for finance a great deal about tax-free retirement savings.

Satan 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 Hahn's expertise and qualified charitable contributions veterans aid and attendance IRA Social Security data care and long-term care.

Just go to car Common contact time to schedule a live recording of finishing well at your church Christian or civic group.

Contact time, the Cardinal that's Cardinal a welcome back to finishing well, a certified financial planner Hans South and today show is tax-free.

FRG retirement savings in and when we left our hero Hans. He was working on a plan would be essentially to to make a huge conversion right to Roth IRA couple. We were just talking about their income this year is about $150,000.

He's a nurse working in some type of healthcare, but doing analytics and pretty good at math and numbers and their Filipino by descent they live. They moved here right after college or wrecked during college and just been working for 47 years and is either maximum in their tax-deferred account investment very aggressively.

Then, you know, while the schedule management form 5 million bucks and is now retired. The end of this year she can retire in September and is coming where he's smart enough to know that he's got a text from because he had almost no taxable savings having almost no money Say $10,000 or something and the rest of his money is all in the tax-deferred account so what we came up with is for next year 2022 and probably every year thereafter, the top tax bracket for the top of the 24% tax bracket is $340,000 so you know, here, here I am with this guy that can make about 150,020, 22, talking him into raising his income from 150, or joint income to 340 voluntarily so you can take $190,000 out of his tax-free tax deferred account, the 401(k) and roll it into a Roth IRA and you can pay the income taxes on hundred $90,000 in like it too much just to make it simple. Let you know. It's about a 24% but 43 grand public voluntarily signing up for this Guzman avoiding taxes so you think even postponing taxes when you really think he's been avoiding taxes to accumulate that amount of money and so we had to do some talking and employment economy. Take a look at it.

It's 24% tax rate person with a high income is the lowest I never said you were to look back 1020 years from now, I think can organize it without apartment we should taken and so I think it had to do was he's going to just simply do that extra hundred and 90 and or thereabouts, 200,000 of Roth conversions can be doing that on into the future so many years that by the time he is 80 and I have about half of this warning have million dollars converted into a Geraldo will have grown by then as well so I don't get rambling here. Medicare buddies got the concept and when really talking about a video is a Roth IRA is really the same as a traditional IRA in terms of which you can invest in how much it can grow all that kind of stuff.

The only differences one is tax-free in the others tax-deferred until by doing this really is in his 60s.

First, all taken advantage of what we think are lower rates than he. Secondly, preparing himself for later retirement. He does need this money he can pull some of it out for a lot of it out tax-free which is a great thing to have in your 80s and 90s. Maybe you're missing a lot of the stuff, actually I have a question about You mix this in the city on attempts your first time listing palms has this wonderful channel on YouTube.

Cardinal advisors and has a video along these lines, as well as his website, Cardinal but the question I had was in the video you described it once you take money out of a Roth IRA. You can't put it back. I found that so you know when, in my personal case and so you know you sold me on the idea of Roth IRAs. And since I'm over 65) still working. I can still contribute to a Roth IRA and obtain tax before so here.

I've got this tax-free savings. I'm excited to hear about this actually. But what I did not know is so if I started taking money out of that I could never put it back or could I started being able to put money into it putting money into or you could continue putting money into it. But if you make a withdrawal. Everybody makes a withdrawal from the raw. Now you distributed that money you can't put it back once without it out so that mean that you can you can no longer make contributions to your Roth after you know you can continue to contribute, but that required people in retirement don't have the working income to be eligible to make the Roth contribution talking about the difference between a contribution and paying back a withdrawal of two different things.

So again, since I am working I can contribute continue to contribute if I want to but if I wanted to take some money out. I couldn't put that money back that I could make other contributions right sure okay so that people are taking money out of the raw Roth conversions for several years and I certainly, there comes a point where you been putting this money and there is been growing tax-free. You have the availability to make tax-free withdrawals and so when people get on up in the later years. We may decide to start making some withdrawals that he was not enjoying some of his tax-free income or you know it works out well in your name one point I was making in the videos. Once you take it out you can't put it back in. I was talking about. Alternatively, you Stay on the raw get money into the raw now tax-free. When you take it out once you take it out. You can take out oneness guys doing it because he believed the raw money to get his organ inherited tax-free any very much like kids get several million dollars available to them in the only way they can get any money to pay the taxes were a lot of kids there is a gigantic tax bill right off the top and then they now have this taxable account, the net amount and that is not very pretty to a guy that spent his life working through these on board and he likes the idea of the raw and he doesn't plan to withdraw from it, but therapy needs to be like that purity really can give it to get on so well what we are talking to about this morning is what we call the maximum funded life insurance policy has very similar characteristics to the raw and that it has some added features and a few disadvantages. So it's not exactly were you not think of a comparison, but we have many people in his situation that they're putting part of their converted money into a raw and then there putting part of it into these maximum funded life insurance face. They want a world that will it's a life insurance policy that for starters is a premium only for 10 years. You don't want still owe money on this thing when you're like 90 so it know it started 65 HLA 74 patent 10 years than no more premiums than is really focused on cash value accumulation is set very conservatively so it is a policy that is designed to accept the largest amount of money given the face amount of insurance. So what we came up for him and his wife was $1 million policy that had wife $76,000 year premium which is huge in Nantucket. Such large numbers that no I don't want to scare anybody off his eminent radiologist down to earth. The second is just a regular guy and were shown in picture. Given the money to your kids. Anyhow, why not leverage this money so they pay $76,000.10 times for a total of 760,000 and are probably have to withdraw over $1 million out of the IRA over 10 years to pay the 760 once it's in the life insurance policy to pay well over $1 million. The matter when they died to their children and cynical, fast, quick, efficiently, and so the part of the IRA that there for the kids this overfunded life insurance is one of my hands and walked back through that for cyclical women and explain the million dollars IRA to get million dollars.

It doesn't sound leverage. However, if you were to take that million dollars out of the IRA and pay tax on it right, then he's can I have to pay substantial what kind of brilliant estimates he took that if nothing was that the heirs got the money they would get anywhere close to million dollars right will write what you doing hundred thousand dollars a year drawing out of his IRA paid $24,000 in taxes $76,000 in the life insurance is doing it and so his net amount of the life insurance is 760,000 that the reduction in the IRA as a million. This is buying well over $1 million for the life insurance matter when he dies, and even brought up what if I would die five years later kids are getting a little over $1 million in their servant have a lot of money in the IRA and any tax on life insurance.

Now that I can think to access the whole idea is to get tax-free money to the kids and delivered that this is what I'm talking about is the money that he putting in here is a cash value in the policy, just like the Roth as cash value and it accumulates tax-free and then if he wants to take some of it out again like the raw different than the Roth if he wants to take it out and pay it back, and I actually did this with my maximum funded life insurance plan. When I open my business.

Can you bring it back for this work just as well for people that got $200,000.

I mean, I have lots of people that you have $200,000 or less in an IRA. They live up their Social Security and they just let the money sit in the IRA and my point is that you take out 10,000 a year out of the IRA and just converted to a raw and then now they would have a tax-free account which is really kind tax-free for now thoroughly taken out 10,000 payments tax on that withdrawal or that conversion amount and some people that have lower incomes and a smaller amount of money in a 401(k) or an IRA and benefit from this even more than he can get a lot of joy out of doing this for people to the key that is spreading it out and I do a lot of work of people coming to me in the don't feel like you have a lot of money and it is out of my look.

I get the most joy out of helping people that have very limited money and but they still need help with. So don't hesitate to call me if you don't think you're Mr. Rick. That ain't the deal we did this whole concept applies to everybody.

This was a cardinal guy.

Don't forget to guide after organizing THE video that he did absolutely wonderful. It's Accardo advisors on YouTube. It's a course on system to complete, guide to planning for living retirements on their cargo as well. Tremendous episode. Thank you. Today Hans you finishing well is a general discussion and education of the issues facing retirees cardinal cardinal advisors upon trial CFP some insurance this show does not offer investment products or investment advice. We hope you enjoyed finishing well brought you by cardinal is a cardinal for free downloads of the show or previous shows on topics such as Social Security, Medicare, IRA, long-term care, life insurance, investments and taxes as well as constant best-selling book, the complete cardinal guide to planning for and living in retirement and the workbook once again for dozens of free resources past shows to get Hans both go to cardinal if you have a question, comment or suggestion for future shows.

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