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IRA Season of Harvest  

Finishing Well / Hans Scheil
The Truth Network Radio
February 15, 2020 8:30 am

IRA Season of Harvest  

Finishing Well / Hans Scheil

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February 15, 2020 8:30 am

When you retire, your life goes through a huge season of change, especially when it comes to your finances. The recently passed Secure Act adjusted how this season can go for you and your income. The most notable adjustment comes to RMDs, or Required Minimum Distributions, for IRAs and 401(k)s. The required start age for these has now been pushed back to 72 from 70 ½ . While this could be considered a “tax break” by some, it is really important to look at this from a larger standpoint, including how you want to   pay taxes and leave money for your family. Hans talks about why it is important to look at not waiting until 72 to start taking money from your retirement accounts!  

Don’t forget to get your copy of “The Complete Cardinal Guide to Planning for and Living in Retirement” on Amazon or on CardinalGuide.com for free!

You can contact Hans and Cardinal by emailing hans@cardinalguide.com or calling 919-535-8261. Learn more at CardinalGuide.com.  

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You're listening to the Truth Network and TruthNetwork.com. Welcome to finishing well brought to you by Cardinal God Certified financial planner belonged to Schild, best-selling author and financial planner helping families finish well 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. Finishing well welcome to finishing well certified trial today show. I really excited as we talked about IRA in the seasons of harvest you might be familiar with the birds made this wonderful song about the book of Ecclesiastes cannot to everything turn turn turn there's a season well there's the season to a lot of things in understanding the seasons is what you know Solomon was trying to save it. There was a time to plan a time to reap the most common things that that have to do with agriculture, which meant a lot that culture well Jesus later on said something very interesting.

He said the fields are white for harvest. Now why did he say that because he was trying to explain to the people that there was a different season limit what they were perceiving. They were perceiving that things were still growing.

The Jesus I know, the fields are white for harvest and so he saying we need to pray to the Lord of the harvest to send more workers and white why he's telling us that there's been a change in the season and there needs to be a change in the strategy which is actually all my goodness, how many people out there right now to think about it, desperately need Jesus and desperately need what it is that he would offer in the harvest and so this is all still true and very much a time to pray but Hans for people with IRAs that they need to be aware of this fact that there is a time to plant and a time to harvest and the seasons of their IRA is a significant issue. Well, I've been talking IRAs and 401(k)s is just money in a retirement account and money that you never paid taxes on which you will and so they're all about the harvest immediately if you think about the money that you have in an IRA you've never spent that money you've never had any fruit from it. We maybe perhaps you get some joy in reading the statement, like knowing it's there but IRAs and 401(k)s are all about the harvest and the money wise the money there went where you think people have all over America have $25 trillion. I believe in retirement accounts in Nevada in itself is hugely great question like what is that money for specifically.

But I think what the government originally designed for was to supplement people's retirement income that they would not be helpless in you know that season of their life or they were no longer able to work and take care of them will yeah and it's there to create an income. It's there for you to live off its and replacement of the pension that you don't have any. A lot of folks listening your parents and your grandparents if they were fortunate enough to work for a big company or they work for the government or they had some type of job they had a pension they didn't have an IRA or 401(k). They didn't have this hunk of money that they're accumulating. They also didn't have the problem with that. They didn't need a strategy. They just got to retirement this and how much I get. And then they figured out a way to live off of. So different now as significantly different and with that term IRA. There are also these things called RMD and so you know the the season does change it significantly and there does come a strategy that harvest okay so required minimum distribution is what an RMD is and under the secure act, which just got passed and signed in December and, when in fact this year so if you're not yet 71 or 72 more 70 you know in your something short of that, the government through your bone through the secure act actually allow you to delay RMD's are required minimum distributions from 70 to 72. So it's two more years in the taxes that you pay on that money there to have you believe that this is something that we can fit that just like all my goodness.

And so I think is you listen to the show today you hear some of the stories that you will see wow you know they there was a strategy behind what they were doing and it wasn't necessarily to help you with your situation, but for it to help them to make Social Security more secure the signing of this thing a manager can tell you people that are in their 70s and 80s. They have a dislike for RMD's because there they have to pay taxes they have to take money out of there and people been told all through their life. Boy don't take any money out of that IRA don't taking money out of your 401(k), leave it there because if you take it out. You pay taxes and I guess that's good advice in your 40s and 50s and 30s. In 20 you when they say don't take any money out and people. The consumer has like that's bad and now the government is tell me I have to take something out so I'm going take the minimum required minimum and then when I do it on the complain about complain to my Congressman and these are people that maybe don't have to live off of that money are they figured out a way to not put you know not need the money and they live off their Social Security and their other savings and they're upset about it just so they know what they've done the government through the passages secure active sampler were given your break here. We used to make you take it out at 70 1/2 now you can wait till 72 is people are working longer and it it appears on the surface it you know it's a good thing.

And if you're truly a minimum distribution person than you could say you've saved a little taxes.

What I'm to say that is you might want to look at the alternative, which is taking more than the minimum and not waiting till 70 to start pulling some money out of their because IRAs are all about distribution. They're all about the harvest sore 401(k)s.

Any money that you haven't paid taxes on it sitting there is to be enjoyed in your retirement.

So when you get where you're essentially retired or you are retired. It's time to start enjoying some money out of their and going ahead and paying those taxes that you don't like paying and living off the money or just saving the after-tax money if you want to continue to save it, then at least your savings account don't have a lien on the nova partner like Uncle Sam's. I think there's a couple different.

At least two of probably hundreds of strategies for harvest like one strategy would be what you're describing that I'm going to live off this money and so I need to figure out a strategy to maximize the income with the least amount of tax or my strategy might be that I don't need this money and I really would like to use it to in some way add to my estate either to my church to my family that I want to figure out ways to invest this money in such a way that I maximize that, but in both cases from right that strategizing way before you get to the 72 where you're getting ready required to make a distribution would be a really wise thing to look to the harvest and begin to pray God, what would be a good strategy because I really don't think I need this money to live off of, or, nor do I want to use it retirement. I do want to be my estate, what would be a strategy for that versus you know what would be a strategy if only I'm in the need. This and how can I begin to do that so I told a couple stories I think we can illustrate that easily will yeah I mean my experience with clients is many of them live off of their Social Security checks and perhaps some additional savings that they have in very few of the clients that I work with are actually living off of this, the distributions from their IRA there just letting a compound okay and that's who we were just describing earlier then they have to start taking these distributions and then they have to pay the taxes. But if you look at minimum distributions now even they started age 72.

The distribution for that year is age 72 is still less than 4% of the IRA or 401(k).

So it means if you have $100,000 in your IRA, your 72 years old. You have to take the minimum distribution you're taking.

Just at $4000 and what's gonna happen is if we have a good year in the market. If you're invested in stocks or even if you're invested in a mix and you earn back your and earn back that for 5% so by taking a distribution that small like that, at the minimum, your complying with the government, you just building an increasing balance for the entirety of your life.

And then when you pass away you could be handing a tax problem to your children listing to finishing allow a certified financial planner Hongqiao we do have some stories along these lines that are coming to you today's show or talk about the seasons of IRA and may be praying and that the Lord would send in the workers to help us figure out how to harvest it be good to have all that but there's a whole chapter in Hans's book the complete cargo guide to planning for living in retirement on IRAs and chapters available free does to download it there at the website. Cardinal guide.com and of course you can order the whole book or workbook. Easy enough, right there@cardinalguide.com well enough to tell you some stories in the second part of the show about some people that didn't have a strategy when I worked really want to get his havoc clear message that I want to get to our listeners is is that if you have an IRA or you have a 401(k) which is a lot of people use a small IRA or small 401(k).

It may be large to you or you have a large one.

If you have any money in this thing you're still accumulating when I'm in a tell you is you need a strategy for distribution.

You need to start planning for the harvest.

Now if you haven't Artie done so.

In my experiences. Most people have no plan and so I think a plan and when used planning for the harvest you need to plan for taxes mean Uncle Sam is your partner in this thing.

He's been a silent partner since the very beginning the first time you made a contribution to that account he he he put in about 40% of that account because you didn't pay taxes on that money and he's been there and he's a silent partner.

He I mean it just goes on its tax-deferred. It accumulates he's lying in wait and sooner or later he's gonna get his money and later is not necessarily good to be buying out your partner because it's can I have an ever increasing balance and if you have a big balance in there when you die. This is gonna be your children's problem or your spouse's problem and so it's sort of an opportunity for us to look at the field and see what is the season you know and are we still at the point where were planning and growing or is this time to look at the harvest and oh by the way, you know this is completely applicable to your life that there are so many people out there that are white for harvest and ran out as long as lines will be back more finishing well in this moment.

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 guide.com and contact Tom to schedule a live recording of finishing well your church Christian or civic contact Tom to Cardinal guide.com that's Cardinal guide.com welcome back to finishing well is certified financial planner, Hongqiao, and also my good friends taught me so much about this very subject that were talked about today which is the seasons of IRAs like there is a season to grow it in. There is a season, the harvested and Hans there some stories that really does make my heart just cry because you think of the way that people protected this money and scrimped over at end and made sure that it was there for their inheritance in all my goodness, the government strategy kinda overcame errors because the government had a strategy I got a story in the book it talks about some family friends of ours who my new the gentleman and his wife, and they were actually our insurance agent when we were kids back in Iowa and the father died when he was in his 60s very well off and left his whole IRA to his wife and she didn't have to do minimum distributions till she was 70 1/2 and then she did just that. She also had a large IRA on her own because she had been part of this business and so the the room. She had to IRAs going over which just took the minimum distributions these things were pretty sizable by the time she died in her mid-80s. This was about seven or eight years ago and she left it equally as the beneficiaries to her son and her daughter who were peers of mine and I grew up with these people and both of them came to me for financial advice like what should we do about this and I taught him about a beneficiary IRA. He had worked with the daughter did was the stretch thing okay and you know, for those of you who don't know what a stretch IRA is its simply a loophole in the tax system that used to be in the tax system. It's been closed by the secure act, but you could, she could spread and he had the same option to spread out distributions of this large IRA for each other half of it over their lifetime.

And so we immediately split up the IRAs. We didn't have the same IRA. She had her half.

He had his half and then she elected to stretch this over her lifetime and we put together a plan for her and she's now getting checks every year. Free substantial checks and she's paying the taxes little bit by little bit which he elected to he needed the money guy and so he elected to just cash it out and so the stockbroker advised him to take 20% of it was is not near enough because this is a sizable amount of money. It was like $600,000 thrust on his tax return. I think you made about 50 grand a year at his job so his taxable income for that year was $650,000. And when you start looking at the taxes that are owed on that especially you know in a state arguing one of our westernmost states, California where you got high taxes where he lives. He he really owed about $207,000.252 7280 of the 600 and taxes, of which she didn't have by the time the tax bill came due as he only left some smaller part of that in the distribution. But in case the money is all gone now. Seven or eight years later and he ended up in a horrible of amount of that is that as a result of his trying to cover the tax bill in the course they start throwing penalties on merit. Once you get behind with Uncle Sam you know it's it's in, and when you think about the mother who scrimped and saved and laid the stuff aside, not having any understanding that that wow I could've. There's a lot of different strategies that we do not left your errors with attached problem.

She was 56 when her mother died and so from 56 to 60. We took out the minimum distribution which was about $27,000 in the distribution in we did that for in that amount would've increased a little bit over time, but when she turned 60. The vehicle we put it in had a step up thing in it and so her income. Her annual income is now about $30-$33,000 and that money is can be paid out to her for the rest of her life even beyond her life expectancy and she's paying taxes on a little bit at a time. So that's something we used to be able to do if the beneficiary would go along. Now the secure act for beneficiaries dissing and good for beneficiaries because it what it says to her, he has had her mother died in 2020, or after she's grandfather on that old deal we put together for but for new people pass away that whole IRA would have to be emptied within a 10 year period. So in and the brothers Casey emptied the whole thing in the first year, just as he gives hands on so the secure act didn't have any effect on people like him but it's can have a big effect on somebody like her because she still now going to just spread this distribution out and pay taxes over 10 years where she used to be able to sequester a lack lifetime and say this was before the secure acumen and the mother had come to you five years before and said mean Outlook might be IRA looks white for harvest here. Let's pray and send some workers in the feet out and figure out what what strategy would you have recommended for will. The first thing I would ask her is how much is she been distributing Osama to go through a series of questions, even though I know the answers. Because I want her to discover so how much of you been distributing with looked backwards and were to finally end up as she's been taking the minimum which he did comply with the law and then why were you taken this because of the law Bob all the law so the first laminate teller is. How about work put together a strategy that sits are good people don't usually come to me and say hey I need a strategy. You know they're just going to kinda put it there and so the strategy that I would've recommended for her would be first to just think about the first option would be just to distribute more than the minimum that that would be the first thing we could do it for now is an option if you been taken $20,000 a year out of this.

Think about 30 or 40 game that that would be the first option.

Let's let's just take more and pay more taxes and let's save what's left. We must subsequently save and invest with left after you pay the taxes so we haven't spent all the money we just now have it in a already been paid tax account not a retirement account so that would be the first thing the next thing I would say is, could we look possibly at a Roth conversion okay we been able to do these for years. Could we instead of distributing that money could we take that 30 or $40,000 and converted to a Roth.

Now you can't do that for the minimum distribution part of the McGill a bit technical, but we could've done a Roth conversion with her for some of the money so we would pay the taxes before death, and again were getting into account that her kids can inherit tax-free so at least the sun would never have the tax bill and the daughter would have been able to distribute the money at her wish without paying the taxes so so so so the Roth conversion will she's still alive would be a smart thing and then if her health would allow it to me when you're given me five years before she died. You know she still in the late 70s if she could qualify healthwise we start talking some life insurance. We would take some of that extra minimum distribution or extra distribution extra harvest beyond the minimum and pay the taxes and then pump that into a life insurance book premium over several years and that way when that would've paid out her death. That would be tax-free to her kids and we could've even set up. The sun is a beneficiary or sheet she knew how her son would squander this money. She even set up a trust for some separate money just for that reason we can set up a life insurance beneficiary to the life insurance this doesn't give them all this tax-free money at once that we can pay that out over a number of years or over a lifetime so we could have done some planning, some distribution planning put together a plan for the harvest. That's just kind of in a nutshell what I would've told her, but we never get to do that in my line of work, so let's get a plan together for your IRA is really a plan to pay taxes a plan to distributed a plan to harvested. That doesn't mean we need to start it tomorrow and how much on long-term healthcare, yet this can be paid off in three years of life. I've been by purchased a life insurance policy that allows my wife and I to distributed for long-term care and an extension), so we got long-term care covered and I've been paying for that I'm this would be my eighth year that I'm completing and it only has a 10 year payments of the time I'm 63 that all be paid out and it'll just sit there and if we never use it for long-term care that has a pretty substantial death benefit will be paid to the kids upon the second death, so and so. This not only benefits can you take it that are listed through event you not pan during your retirement.

You're not paying income tax on your Social Security because you're not above that minimum you're not paying Irma, can you walk through event will yeah I mean I just want so many people that get these large Social Security checks. I might have a large Social Security in the they give 40% of the back to the government is like the cinema check for $3000 and they sent 1200 back every month.

I mean with going to work for me is on the get the whole $3000.

As can be tax-free because the. The formula for calculating the taxes on your Social Security comes from your other income and my other income is going to be, not zero, but is can be pretty close to zero when I'm in retirement because the money that I'm drawing from is either in a Roth or it's in life insurance is producing a tax-free stream of income. So therefore I don't pay taxes on the Social Security norm to pay her no, which we map the same letter, Irma is income -related monthly adjustment amount. So we talked about that on the Medicare show and it's for affluent people. People that have a high income in retirement there on Medicare.

They pay a lot for their Medicare an extra surtax and that's based upon their other income. So in my own situation. My plan is to have a very low taxable income but still have a high income in retirement is just coming from tax rates.

You can listen to certified financial planner Hans Shah with Cardinal guide Cardinal guide.com where you can find out all this other information on IRAs that we shared today. Thank you so much for joining us today and I hate how about praying the Lord of the harvest to show us in all kind of went seasonally and a lot of men.

We hope you enjoyed finishing well brought you by Cardinal guide.com visit Cardinal.com for free downloads of the show previous shows on topics such as Social Security, Medicare and IRAs, long-term care and 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 you get Hans book go to Cardinal do I.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


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