RMD Strategies

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Share it. But most of all, thank you for listening and for choosing the Truth Podcast Network. Now, let's get started with Finishing Well. Welcome to Finishing Well with certified financial planner, Hans Scheil. And today's show is RMD Explained, which you may know has to do with your IRA and what is required minimal distribution, but I'm going to turn that on its head a bit. As I think about God, you know, Jesus was pretty clear that it was not a minimum distribution he was interested in.

So I would say in Jesus' case, he had a required maximum distribution, and that would be that you take up your cross, right, and follow him, which means you literally are distributing your entire life, which what an opportunity that is because in order to get life, you have to give life. And I know that what we're going to talk about mostly is money today, but I see this as an opportunity, you know, to help that friend move or to call that friend on the phone that, you know, you really don't have time to talk to them right now, but you know that their mother's in the hospital or whatever the situation may be that is required, mind you, maximum distribution because, again, as you are communing with God in that way, you're going to find, oh my goodness, what an adventure he will take you on and the joys of walking with him in that. But we also need to talk about financially, Hans, so we've got to get to this required minimum distribution, the fact we need a plan.

Okay, and just I'm going to make a kind of a general statement here. Most people that I run into that are generally in their 60s, not always, but in their 60s, so the new clients coming into us, they have no plan to do anything with their IRA other than watch it grow. Now, some of them have a pretty thin plan because they know they need something from it to retire.

So, but that's not really a plan, that's just, that's what it's there for. And, but even people that are retired and they're in their 60s, a lot of them are taking nothing out of their either 401k or IRA because they don't want to pay any income taxes. And so, when they come into me, I'm going to go through the seven worries and the one worry which is, covers this IRA, 401k, money you've never paid tax on, but you will, kind of category.

I require my clients where we're going to leave with a strategy for this. Now, it's going to be a strategy that's going to be based upon what you want, but we're going to go on a exploration tour or efficient expedition to find out like, what is this IRA or 401k really for? So, people that have big balances, significant balances in their IRA, 401k, I mean, way to go. It's, you're a saver, you've done without, you did smart tax planning and you've accumulated and you've contributed to this thing over a long time. But when, you know, it's a retirement account and the government's given you that tax advantage of tax deferral as a reward or an encouragement to have you prepare for retirement because for many people, social security is not enough. So, they want to encourage you to save for retirement. So, they've let you avoid the taxes on both the contributions and the growth and that all good things must come to an end.

I mean, it's just, okay. So, when you're retired, you're going to need a strategy to withdraw from this thing. Yeah, which sounds really fun to me, by the way.

Well, it does. I mean, it sounds like it would be a really fun thing to sit there and number one, you know, brainstorm on how, what would be the best, brainstorm with God and what would be the best use of these resources that he provided, right? Yeah. So, when you bring up God, I mean, let's talk about the government's plan first is the government has a strategy for you, okay? I mean, there's a strategy in place for your IRA, Robbie, there's a strategy in place for my IRA and for everybody that has money in a retirement account and that strategy is called RMD, required minimum distribution and they just moved it.

It starts at 73 and that means that if you're 65 now, you can take no money out of your IRA, no distributions, out of your 401k, nothing, until you're 73 and then when you're 73, you need to take out 3.77%. So, let's round it off and call it four, okay? Okay.

Yeah, I like that idea, yeah. Yeah, let's just round it off and I always encourage people to take a little more than the number anyhow just in case they do have a rounding error or something but still, if all you're going to do is in eight years, if you're 65 now, you're going to take 4% and then that year, it may make more than 4%. You really haven't reduced it at all. You've just, you're going to have to distribute 4% of it and pay taxes on that pretty much out of your control.

In other words, if you had a lot of other income that year, whatever your balance was at the end of last year times 3.77% or we rounded it to four, you're going to have to pull out of there and you're supposed to enjoy the extra money and like you're saying, this sounds so fun but that's not fun. It's not the experience that I get from a lot of people when this first hits them, okay? These are savers. These are people that are disciplined and all they've done is contribute. They've watched it grow. They've watched it lose. They hung in there.

It came back. They keep contributing. They watch it grow and so I sit down with a lot of these folks and a lot of these folks and I'll do this with you if you come in to see me unless you want to just take the lead and open the conversation. I'm going to ask you, what's it for? Darrell Bock And to me, again, what an exciting thing to do and to literally use these resources in all sorts of different fun ways because like you were talking about before the show, one of the things you know that God intended for this money was for you to be well taken care of in your old age, right?

Dr. Jim Carr Bingo. I mean, you got social security. If you're married, you got two social security checks and then that'll go down to one social security check when one of you dies.

The larger one survives, goes to the survivor. The other one goes away and that might be when you need money, okay? I mean, maybe you need it now at 65. I mean, some of you could be saying, what are you talking about 73?

If I retire at 65 or 66, I need an income out of this. Well, now we're talking. We're off to the races.

We're having the conversation. So if you need income before 73, well, you're going to need income after 73. And now all of a sudden we're starting to get an idea, like what's it for?

I'll tell you what it's for. It's for you to live and pay your expenses because you're not getting a paycheck anymore, okay? And to supplement social security, okay?

And that in and of itself brings on a different set of problems. But then we also want to think about, now we want to do this in a very tax advantage kind of way. I mean, meaning that I run into people that have 95% of their savings is in an IRA or 401k and 5% or less of their savings is in an account where they've already paid tax on the money that they could go get. So if you took those numbers at, that could be somebody with a $950,000 IRA or 401k and then they got 50,000 in the bank or less.

And so a lot of these people, they view this thing as a savings account. So they're just thinking that if I ever have something where I need a lot of money for, I'm just going to pull it out of there. And you know what that's going to do to your tax return in that given year where you were going to pull out a hundred grand out of there? First of all, you're going to have to pull out about 160 or 170 just to pay the 60 or $70,000 in taxes on the hundred grand or the 160 that you pulled out because you got to pay tax on the tax money that you pulled out too. I mean, and then that's going to be at higher rates because that goes on top of your other income.

So right off the bat, the strategy is going to have an evenness to it and it's going to start pretty quick. Yeah. Now that's a shocker, right? Like, oh my goodness, that the taxes on that have got to be paid and that's part of obviously why the government has the RMD strategy, right? Well, yeah.

So it's a given the government is going to get their taxes in all of these strategies, but we're not talking about the government right now. We're talking about you, okay? Or you being my client, if you come in to see me and we start talking about your whole financial picture, we're going to have a special little section for this IRA 401k. Now, if you tell me you just have a small amount, that's okay too. We still need a strategy, but that's going to tell me that if you're not real flush with money, that RMDs are the last thing that we've got to worry about because we're going to start making withdrawals now. You're more concerned probably about running out of money. I mean, in other words, if you have a small 401k and IRA, you are going to start making withdrawals to live. And frankly, if you have your social security in addition to that, and that's all you have for income, the nice thing about that is you're probably going to pay very little taxes on both the withdrawals and your social security. But your strategy is really going to involve trying to squeeze the most we can out of that thing and have it not run out when you're 80 or 85, okay? That you can count on this income.

I'm talking to people that just save and save and save and congratulations. You know, you've accumulated this money. Now you're at retirement. I mean, as long as you're working, we're not going to recommend that you pull anything out of here. So if you keep working in your 60s and you work along, I'm not pulling money out of my IRAs. I mean, I'm still working and I'm 64, but as soon as I retire, if that's before 73, I'm going to start pulling out money out of my IRA every single year for the rest of my life, just to manage the amounts. Now, so I think we talked enough that people that I asked him, like, what's it for?

I mean, it's for a retirement income for you. Now I want to go back to God and I want to talk about, what do you think is God's plan for this? You know, like for my IRA, what do you think is God's plan for that, Robbie? He wants to use it to leverage for the kingdom. He wants to see, you know, more people come to Christ and all those things. So, you know, there's no doubt there's the church is involved in that and charities are involved in that, but also your own kids.

Absolutely. And so, you know, for those of you that really don't need your IRA money and you especially don't need it now, I got strategy. If you watch the YouTube video strategy, I've got six strategies on there, but number five, we're just going to jump to that right away. It's the QCD strategy, the qualified charitable distribution. Now, if you're 65, now you can't do QCDs until you're 70 and a half or, you know, the year you turn 70 and a half. So you've got about five years before you can start doing this. But once you start giving away QCDs, you can give away to a qualified charity, which is the church or any branch of it.

You can do that up to a hundred thousand dollars in any given year. Okay. Wow. We've got so much more coming for you on this whole plan for required minimum distribution.

What's yours? And we're going to be back with Hans. And of course, we want to remind you, the show is brought to you by Cardinal Guide, where you can find their website, cardinalguide.com, where they have the seven worries in retirement. One of which is obviously your IRA.

And this is what we're talking about today. And of course, we'll be back with a whole lot more brought to you by Cardinal Guide. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, IRAs, social security, Medicare, and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian, or civic group. Contact Hans at cardinalguide.com. That's cardinalguide.com. Welcome back to Finishing Well with certified financial planner, Hans Scheil, who I'd like to remind you is the author of the book, The Complete Cardinal Guide to Planning for and Living in Retirement, which talks all about QCDs and required minimum distributions and all those other letters that we don't necessarily know a whole lot about, but that's why you need to get his book. Or go to cardinalguide.com and contact Hans for more information. But when we left our hero, Hans, we were talking about these qualified charitable distributions, which are just a gigantic way, especially for people that tithe, to leverage this whole strategy.

Oh, yeah. So there's a good piece of my IRA that's specifically for this. So even though I'm only 64, I have money that is not in a Roth yet. It's in pretax money. It's accumulating.

I'm still contributing to that within my business. And then when I turn 70, I don't have to pick the amount now, but I can give any amount I want, and it won't be any taxes due to me. It's going to lower the balance, and it's going to be wonderful for the charity because money's money. I mean, the church, the money comes to the kingdom, yet they don't pay taxes, so the government doesn't get their share. I've made a great contribution, and the church gets their piece of the thing.

It's just wonderful. And so you start saying, what's it for? Well, part of it's to give to God. And if I get to 70 and I really don't need this money, then all of the IRA is going to go to God over a period of time. And then when I get to 73, whatever the balance is, now I've got a required minimum distribution due. I mean, I'm going to have to take a certain amount of money out and pay taxes on it, but I can replace that by just doing a QCD for that amount of money.

And it counts as the QCD. There's no taxes due to me. I don't have to pay any tax on that. I've gotten it out of the IRA, I'm satisfied, and the church is whole. They get whatever comes to them.

And this is a time of year where people need to be thinking about this, right? Because your QCD has to be one of the first things you do, am I right? It needs to be the first distribution from the IRA if you're going to count it as the RMD, okay? It doesn't have to be for the whole RMD. If you're going to count the QCD as the RMD, it needs to be the first distribution of the year. In other words, you can't take out a thousand bucks in January and then do a QCD for 10,000 in February because they're going to count that thousand.

It's complicated. So this is the time of year, if you plan on taking any money out of your IRA and you're required, you have to do RMDs, you're 73 or over, then you're going to want to do this early in the year, unless the only money you're going to pull out is your RMD and you're going to give it all to the church through a QCD and you can do it anytime you want during the year. And my little warning that I give to people is don't try these on your own if you haven't done them before. I mean, I'll be glad to help you out. You're going to follow some steps very clearly to do a QCD, a qualified charitable distribution. But within the context of things, what I wanted to do in this video is I wanted to share with people just six examples of strategies so that you can at least answer my questions or we'll work through this of what's it for? Why do you have this money? What goal are we trying to accomplish?

What do you want to do with this? And I came up with six things. And so the first strategy number one is what a lot of people are on. It's the do nothing now strategy. It's just to say minimum distributions. The example I'm given are two people, a married couple, 65 and 65. So they got nothing for eight years.

They can do nothing now. And, you know, and in the example, I used a million dollars in an IRA simply as because the math is simple. OK. And number one, I just pointed out that they're going to make a lot of money over the next eight years. And so their minimum distribution is going to be more than they think it is starting at 73.

It's going to be every year. It's going to be for a growing amount, and it's going to be taxable money that just comes at them without any choice. So that's really on the government's plan. OK, second one, joint lifetime income. Now there's a way for you to take part or all of your IRA.

We don't do this too many people. We put all their IRA and something. Some people we do, though, but you could take part of it and put it in an immediate annuity. And in this 65 year old couples example, 65, 65, putting a million dollars in there is going to generate an annual income of $63,514 a year that they can't outlive. You know, if one of them makes it to 100, they're still going to be getting a check for $65,000.

I want to move through these quickly. You know, the next one is the Roth conversion strategy, where what we're doing here is we're pulling $100,000 a year out of the thing starting now, even though we don't need to spend it, paying the taxes just so we can have tax free income later or tax free assets to pass to our kids as the inheritance part. So keep in mind with all of these strategies, what we end up doing for people is piecing two or three or four of these things together with pieces of the pie, all leading to a good outcome. We already went over the charitable giving QCD strategy, then there's the life insurance strategy. Some people say that, you know, this money is really to leave to my kids, and I'm just going to avoid pulling anything out other than these minimums. And so I've got a strategy where we can start pulling out enough money to pay the premium on a life insurance policy that will have a cash value that's accessible so the money hasn't really left your house. And it pays a tax free benefit then to your children for the inheritance. So they get a tax free benefit or tax free inheritance instead of a taxable. So in the YouTube video, we just go through all these things.

That one is huge, I would think. So I know for a lot of folks, you know, this money is for my kids. This money is for my kids. Well, if the money's for your kids and you are on the RMD plan with the governments, then your kids are going to have a horrible tax burden at the point in time that you pass away. But if you did the life insurance strategy or some combination thereof, like, oh my goodness, I mean, not only do they get it tax free, but chances are, depending on when you die in this situation, essentially, you know, if you die early, they get the rest of the IRA as well as the life insurance. So I mean, this is a really good thing for your kids, I would think.

Well, it is. And the kids portion of your IRA that you plan to leave as an inheritance, we want to get that into something that'll come to them tax free. And there's a couple ways to do that for the God portion. And the QCD portion, we just want to leave that right in the IRA where it is, figure out the portion, and then let it get those get to 70. And then we're going to give away the appropriate part of it then in forever. And so the part that's coming to you and the part that's going to your kids, we're going to want to get that to be tax free, or the taxes have already been paid. And then for the part that we're giving away, and even at the church can be a beneficiary, and there is no cap on the limit. So you can case you die in the middle of all this, whatever portion of their IRA that you want to go to the kingdom, you, you just make the church the beneficiary or the missions or...

Right, and they'll never pay tax on it. And so what a wonderful strategy for everybody. So just the overall point of the whole thing is, I recommend that you have a strategy. It's a tax strategy. It's an income strategy.

It's an estate planning strategy. And it's all done according to your wishes. I mean, I'm here to serve you. I may talk a little tough where you start thinking that you're going to be there to serve me, but I'm just going to force the tough questions on you so that it really pulls out of you what you really want to do with something and get you to address the problem. But all of this is going to be for what you want.

Right, and a combination of what you want and what God wants. And again, what a wonderful opportunity to, you know, get expert advice on all these different ways to leverage this money for the kingdom, for your children, you know, for, you know, your wife, your spouse. Like a lot of times, you know, in my situation, you know, it's likely I'll go long before Tammy and then I need that IRA money or that type of situation to make sure she's protected, right?

Sure. The life insurance strategy is perfect for that. She's the beneficiary of that. And then your kids are the contingents. And then if she needs that money after you go, things don't always work out the way you haven't planned. And then your kids become the beneficiary if you live a long time. I mean, it's a great, life insurance is a great way to leave tax-free money to the next generation.

Right. And so what an opportunity for you to reach out and get some unbelievable help. If you go to cardinalguide.com, that's cardinalguide.com, there you're going to find, again, their website, which will be how to contact Hans to get help personally, as well as the seven worries tabs where you're going to find IRAs there. And of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, just all there. And the show notes on this, by the way, are all there, the things we talked about under the IRAs there at cardinalguide.com. Great show, Hans.

Thank you and God bless you. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.

Finishing Whale is designed to provide accurate and authoritative information with regard to the subject covered. Investment Advisory Services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other.

Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency. We hope you enjoyed Finishing Whale brought to you by cardinalguide.com. Visit cardinalguide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long-term care, life insurance, investments and taxes, as well as Hans' 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 cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.