The Parable of The Shrewd Fiduciary: Income Tax

In Luke 16, Jesus praises the shrewd manager who stole from his boss. He says, “I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings.”  Many people tend to waste their wealth by not dealing shrewdly. Hans and Robby discuss how to apply these principles to income taxes, especially in retirement. Paying more taxes than you should, because you have not planned correctly, can be wasteful. You should not cheat on your taxes, but with proper planning, you can make sure you don’t pay more than you need to.

When you are in retirement, you have more control over your taxable income than you did when you were working. Besides Social Security and possibly a pension, you can choose how you receive your money. Many people are going to pull from their IRAs and 401(k)s as these are the accounts they used to save for retirement. The problem here is, that unless your IRA is a Roth, you are going to have to pay taxes on this money. If you pull out too much, you could have to pay taxes on your Social Security and might even have to pay more for your Medicare. Hans talks about this issue arising especially when retirees need to draw a large amount for a one time emergency expense.

Hans talks about how he solved this issue for himself, as well as how he plans to live tax free in retirement by taking small steps now. He is planning to not draw Social Security until 70. Currently, before he starts Medicare, he is converting all the money he has in a traditional IRA and putting it into a Roth. He is paying the taxes now while he is still working so these withdrawals do not affect his Medicare or Social Security in retirement. If he is not able to convert all the IRA money into a Roth, he will donate the money from this account to the church by using a QCD, or Qualified Charitable Distribution.

Next up, Hans and Robby discuss life insurance, and how it has become a great way to create tax free income - even Hans does this! If you overfund a life insurance policy, you can get this money tax free if you need it; you can even make a loan from it interest free. If you do not need the money, your heirs end up getting a large chunk of tax free money when you pass. There are even life insurance policies that will pay for long term care!

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.