ED Slot 401K Tax Strategy

Hey, this is Mike Zwick from If Not For God Podcast, our show.

Stories of hopelessness turned into 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.

Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Well. Oh, how fun. Another great show today on Finishing Well with certified financial planner, Han Shyle. And today's show, it's got an interesting title, but I think you're going to see how it fits for you.

Ed slot 401k tax strategy. So, you know, it's interesting. If you were a mechanic, you would want a lot of tools in your toolbox, you know, because if you don't have that particular wrench, when you want to go fix something, you're going to be in the woods, right? And so I don't know about you, but you know, some of the best advice I ever got in my life was that, number one, there's not as many tools you can find in almost anything as you can find in the Bible. And then in order to interpret and read the Bible, you're going to need some tools.

And there's a lot of amazing tools. There's commentaries, you know, there's software, there's all sorts of things that help you interpret the Bible, but there is nothing like the tool of the Holy Spirit, right? So I've often thought that really one of the two best pieces of advice I ever got in my life was get up an hour earlier than I normally do every morning, read the Bible, but very, very, very important to that equation is pray and ask the Holy Spirit to help you interpret it.

And in doing so, I can tell you that those tools of interpreting and reading the Bible that I get from the Holy Spirit, there is not a day that goes by that I don't just praise God for what He's showing me and how all that relates to my life. And so, you know, what I know from a lot of experience of dealing with Hans is, you know, he has amazing tools in order to develop a long-term financial plan that takes all the pieces of the puzzle, Medicare, Social Security, long-term care, taxes, and all this to get it. But all these tools that he has in his toolbox, you know, happened as a result of some good advice that he's gotten that has made a huge difference in giving him more tools. And one of the big tools for you, I know Hans, is Ed Slott and this conferences that you and Tom both go to now.

Well, yeah, I mean, he holds himself out. Ed Slott is a CPA and he holds himself out as America's IRA expert. I joined his team or became one of his followers and students in 2012.

And I really did that. I had this dentist who became a friend of mine who just implemented just about everything. I showed him starting with Medicare supplements, but he had quite a bit of money in IRAs. And he, anyhow, this is more than 10 years ago. And my brother actually introduced me to him and he ended up buying long-term care, life insurance hybrid, setting up an estate plan for his children. And he passed away very soon after I got all this stuff implemented.

And some of it actually paid off very well to his wife, but that's not even the point of the whole thing. This guy was very well off and he was a great believer. And I, just in becoming buddies with him, I actually took some of the money that I earned in taking him on as a client and gave it to Bibles to China, which was very important to him. And what I'm leading up to here is he gave me Ed Slott's book. And he says, what do you, I want you to read this.

If you would, I want you to tell me what you think of this guy. And Ed Slott's been on public television for years and I knew of him. And I looked at it and I said, you know, I've even thought of going to his training, but it's very expensive. And so anyhow, I read Ed Slott's book.

They're given to me by this dentist and friend of mine. And then he, I went back to him, sold him even more insurance and investments out of really with circled pages out of the book that he gave me from Ed Slott. And then I used what I, some of what I earned to actually go to the Ed Slott training.

And that's how I found this guy. But mostly in the class, there's about 500 people that go to these meetings twice a year. And they're mostly CFPs like me. There are CPAs, a number of CPAs, a number of people that have both. And there's a number of attorneys in there that are estate planning attorneys. And what they're gleaning from the whole Ed Slott experience is an expertise in tax planning, specifically as it relates to retirement accounts. Because retirement accounts are nothing but a, you know, a tax infestation. I mean, if there weren't income taxes, there wouldn't be retirement accounts. I mean, you just put the money in a savings account and you just save it until you're retired. But the government set things up years ago where you can put money in there, not pay the taxes until you pull it out. And that has created, well, great opportunities. And America's saved a lot of money for people that are listening. You have money saved in a retirement account.

You never paid the tax on it. And what I've learned from Ed Slott over the years is you better develop a distribution plan. And what's going to motivate you to do a distribution plan, I think, and I've really developed this myself, I didn't learn this from Ed Slott, is I sit down with people and I say, what's this money for? I mean, we get it all written on a piece of paper in front of us and we look at it and we get all happy that we've got this much in resources.

Okay, so what's it for? And I want you to allocate that. And people have a hard time with that. A lot of people go, huh? Well, what a beautiful thing it is that they saved all that money, right?

And, you know, but there interestingly is you get caught up like almost any idol, right? That it's more fun to watch the thing grow than to really think about why you began to save it to begin with and what God's plan is for it. And that ends up being, you know, a big part of the equation, obviously, is you've accumulated it and it's kind of funner to watch it grow to some extent than it is to think about the distribution. Well, I haven't had too many people tell me this, but what I can decipher from some of the confusing answers I get back from like both of them is it's to not pay taxes. That's what it's for. It's to avoid taxes. And that's not a strategy.

I mean, that's like the anti-strategy. But that's what I decipher because it's like no matter what happens, no matter what they do, we ain't paying taxes. And in order to not pay taxes, we don't take any money out of that account. We just do without. Which leaves the heirs to pay the taxes.

Well, yeah. And then you get to be 73. And now it used to be 70 and a half. Now it's 73. But you get there.

Now you've got to take these minimum distributions. So we're going to be mad about them because we just now have to pay tax on this thing. And that goes against our anti-tax strategy. So we have to pull money out. We've got to pay the taxes. And then we kind of wait till the next year and we do the same thing. And so what I'm getting at here is most people, especially in their 60s and 50s and 60s, don't really have a plan for their IRA account or their 401k that they're going to turn it into an IRA.

They don't have a plan. And they really have all about accumulation and investment. And a lot of people will change the conversation back. They want to talk about the investment.

How much can you make this grow? And I said, well, plenty. But that's not really what we're talking about now. What's it for? And it has a simple word. It's right in the IRA. It's the middle letter. It's the R. It's for your retirement. Okay.

That's what it's for. Individual retirement account. So it's for your retirement. And you need some type of a plan to systematically draw the money out of there and pay the taxes.

Okay. And if you put it all off till the end, the taxes are going to be huge. And if you do it a little bit at a time, they may not be so bad. But if you take too much, you're going to deplete the account and then you may get old and you'll be out of money.

That's not any good either. So everybody's in a different place. When I asked you what it's for, well, some people it has an easy answer.

I mean, they just, I mean, it's for my retirement is I couldn't retire yet unless I had my social security and then whatever I can get out of that account, those two things put together, that's how we're going to live. Okay. Well, that's a good answer. So how much are you going to take out? I don't know. How much are the taxes going to be?

I don't know. How much are the savings? How much savings do you have that you've already paid taxes on? People, why do you need to know that?

Well, I just do. I mean, I need to know that because if you're viewing this IRA 401k as a savings account, you got a real problem. You know, if you've only got five, eight grand sitting on the side, you just left your job. So it's going to make you scared to borrow money. And you got your social security check, whatever else you got, and you only got about eight to 10 grand sitting on the sidelines. What if you had some expense that came on some family related thing where you all of a sudden needed $20,000 or $30,000 all at once and your savings account is all IRA. So if you had to pull out 30 grand, you know, you're going to have to pull out 50 grand to pay out 20 in taxes to collect the 30. And that's going to throw your income tax for that year, throw you into a high bracket.

You know, again, I think it's, it's, it's very important that we seek good counsel, right about these issues, because to finish well, there are so many things that are so different from what it was when you were working. And the idea of, you know, it's called retirement, but it's actually, you know, I like some people like refinement, like, you know, they're going to get on fire. Well, but it's a different thing, because now you got Social Security, what do I do with that?

What do I do with my Medicare, all those things fit into the equation? And you know, what am I going to actually finish. And so to bring those together to have this large sum of money, really gives you a lot of what what you always talk about is choices, right?

Sure. And so now with this, we've got a phenomenal amount of choices. And so when we come back, we're going to talk about the choices and some of the tax strategies of head slot and what we can do with these things.

In the meantime, you can go to cardinalguide.com. That's we want to remind you always this show is brought to you by cardinalguide.com, where you're going to find the seven worries tab. And one of those is taxes we're talking about today.

But we're also talking about a little bit of everything, which you'll all find there in the seven worries tabs. And there you're going to find a show that was just on this very strategy with a show notes, it's got a board that shows all sorts of interesting things. Again, it's under the tax worry tab at cardinalguide.com. And I always want to mention that you can get a hold of Hans there, his contact information or Tom, his contact information is there, as well as his book, The Complete Cardinal Guide to Planning for and Living in Retirement.

We got a short break, and we'll be right back with much more of the ed slot strategies. 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. Welcome back to Finishing Well with Certified Financial Planner, Hans Scheil, and today's show, Ed Slots 401k Tax Strategies. And so, wow, I learned something today. You're going to share with our listeners.

Well, yeah. So we use the technical experts just about every week, the ed slot teams, technical experts, their attorneys, CPAs, CFPs, that I'm sure that Ed keeps them busy researching, studying, writing articles, preparing for these twice a year meetings. And they're available at our beck and call.

That's all part of the membership. And the one that Tom and I called about last week, we have this guy who got laid off by Google just earlier this year. And a lot of the big tech companies laid off a bunch of people. He's 73 years old. He's working and continues to work. And so when you're working, you don't have to take RMDs out of your 401k. So I've had people all the way up in their late 70s. I can't think of anybody in their 80s that are still working. And they don't have to take RMDs out of their 401k.

They're still contributing. But then the year of separation, and that for him is this year, he still doesn't have to take an RMD because he worked part of the year. But he wants to roll the money away from the Google account and he wants to get, you know, the Google 401k and get it into an IRA. And have us managing the minimum distributions and doing all that. But he knows that he can't do it this year because if he rolls the money out of there in 2023 into an IRA, the 401k for Google is going to be required to withhold his minimum distribution. Even though he doesn't have one for this year, see, we know that without calling that slot.

He learned that. And he had calculated the minimum distribution at about $42,000. And so we just decided, well, we're just going to wait to do anything with that 401k till January next year. Then we'll do it.

We'll have them withhold the minimum distribution. And then we'll roll the rest out of here and he'll live happily ever after. He has other money besides this, but this was really troubling him. And something just clicked with me where over the weekend where I was thinking his wife is more than 10 years younger. I think she's 61.

He's 73. And it's just a little known fact that I knew separate from that slot that if your spouse, when you're getting minimum distributions, your RMDs required minimum distributions, when you're taking them, if your spouse is more than 10 years younger, you've got a much more favorable minimum distribution table, which is exactly what he wants. So I told Tom about it, sent him an email.

And Tom, that was on Friday, I was off on Friday. And Tom in that short time called that slot, got him to send him that lower table, send him the rules, and also the thing that we're going to send to the 401k, or the guy is, to inform them. Because the 401k doesn't know your spouse is 10 years younger than you. So we're going to tell him all that appropriately so that if he does roll the money over, it's going to be more like 21,000 of minimum distribution.

So I think he can deal with that because he wants to get the money out of there and into something that is going to set up an income for life for both of them. So that's just an example of a place we use them. Whenever we do, people have stock ownership inside of a retirement plan. We're going to run all of the NUAs, the net unrealized appreciation. We're going to do all that through ed slots.

So they're just available. And we call them all the time. And probably the biggest benefit that we get is just going to these meetings. It requires us to take, fly to a distant city, spend two and a half days in a meeting room, which I normally just dread doing, but I will do it. I brought Tom into it because that has two of us doing it. But I always leave there energized just because I've learned a whole bunch of new stuff to benefit. All I'm doing in my notes is thinking I got to call this client, got to call this client. I have Tom looking them up.

It would be a rare time when you go to ed slot that I don't get two or three emails, look at this Robbie. And you'll have reference two or three articles with highlights that, you know, it's like a kid in the candy store for you because you're you're looking for ways to benefit your clients, right? That really makes sense of how to finish well and strategize because the IRA and 401k thing is just a gigantic part of what has really changed in the retirement industry over the last 50 years, right? Well, it is. And so, but just at its fundamental basis, the money going into the thing has not been taxed. I mean, your employer puts it straight in there at your direction and they haven't paid any tax on it. You haven't paid any tax. It's an expense to them.

It's not on your W-2. Then the earnings inside of it, they're taxed later. And so to be taxed at some point, I mean, that's the part they leave out when people are building these balances, is it just, it's going to be taxed and it's going to be taxed at the larger amount because it's going to be worth a lot more when you're 75 than it was, than it was, you know, when you were 45.

And so that's all worked out well. That's why people have balances, but you can't take it out all at once. And effectively, if you hold it until you die and just take the minimum, that's effectively what you're doing. And then you're putting it in the hands of your kids to, if you're leaving them as the beneficiaries to know the appropriate thing to do because they have to empty that thing over 10 years.

So that's the one side of it that's pretty simple. And what I'm going to tell you about a Roth is the Roth was, came out in 1997, so it didn't even exist before then. It took them about 10 years to include the Roth in the 401k. So where you'd have a Roth 401k or you'd have two sides to it.

And then it took several companies a while to adopt that, but they're pretty much out there now where most 401ks are going to let you do a Roth. And the Roth is pretty simple. You've already paid the taxes. So every dollar you put in there is going in with after tax dollars. So all the growth will never be taxed because you don't pay taxes currently. And when you pull it out, you're not going to pay taxes. So that's pretty simple to it in with after tax dollars. And then it comes out tax free and it grows tax free.

So it makes sense if anybody that's listening is once you're 59 and a half and older, it probably makes sense to start putting together a distribution plan. It's like when I retire, I'm going to take out so much to live off of. And the tax is going to be so much in addition to my social security check.

And then you can sit down and I don't want you to stop there. Then you can say, well, okay, so how much of my taxes am I going to pay then? How much taxes am I going to pay now? If you're still working and you're 61, how about changing your contribution on your 401k from a traditional to a Roth? So you put in after tax dollars and it's going to increase your tax bill a little bit now, but you're now building up an account that you're never going to get taxed. And then look into possibly converting some of your, again, I don't want to just send people out on your own trying to do these calculations, but the sooner you can get started on this, the better is making a decision.

It may make sense for you if you're not going to retire till 67 or 68 to take the next six years and convert 50,000 or $100,000 a year to a Roth. I mean, I learned all this stuff from Ed's Law, okay? Not so much the rules for a Roth or a, I learned it all from the studying that we did there. And then I think what we pride ourselves in, Tom and me, is we're the simplifiers. Is that, you know, I don't know that Ed's Law would explain this in a manner that the consumer would understand. He's very good, though, when he gets on public television of turning it into a consumer talk. But ours are, we do a pretty good job of taking his stuff, figuring out what's relevant to our clients, and then simplifying it and then making it actionable so that people can come in and use it.

Right. And since, you know, again, it's one of the hugest resources that's out there. And, you know, the Roth thing, I actually, you know, my daughter's only 31 and she's a nurse at Baptist Hospital.

I guess it's called Natrium now or something. But anyway, I said, hey, you know, I know you're putting money in a 401k. Had you considered, you know, not putting in the IRA, but just asking them if they could make it a Roth? Well, you know, it took her a few months to finally get around to taking my advice after I bugged her about it about three times.

And finally, she was like, oh, wow, yeah, wow, dad, that'll make a lot more, yeah, it'll make a lot more sense because all that's going on inside, here's the difference from my standpoint, right? If she at 31 years old is putting this money in a Roth, then number one, it never will have the tax burden of coming out or will there ever be any taxes on the income? So if it's like somebody has IRAs of today where they grew substantially based on, you know, the good way the stock market went and all that, they not only owe the taxes on the principal that they put in, but they owe taxes on all the money that it grew.

And with a Roth, you don't do that, right? Listen, money doubles itself every 14 years at 5%. So if you earned on your investments inside of the 401k 5% and you average that, in 14 years, a dollar she puts in this year is going to be $2. In 28 years, it's going to be $4.

And in 42 years, it's going to be $16. And so, you know, all helpful stuff, we not only can glean, but glean it for our children. And of course, it's all there, as we always talk about it, cardinalguide.com, the said slot, you know, strategy, tax strategy, it's right there under the IRA section at the seven worries tabs at cardinalguide.com. And of course, always, you know, don't try this stuff at home. In my opinion, reach out and touch some Hans.

His contact information is right there at cardinalguide.com and his book, The Complete Cardinal Guide to Planning for and Living in Retirement. As always, we've run out of time, but great show Hans. 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 or 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 well 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. For dozens of free resources, past shows, or to get Han's book, go to cardinalguide.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 cardinalguide.com. CardinalGuide.com. This is the Truth Network.