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20 Planning Matters Radio - TAXES

Planning Matters Radio / Peter Richon
The Truth Network Radio
February 4, 2019 9:09 am

20 Planning Matters Radio - TAXES

Planning Matters Radio / Peter Richon

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February 4, 2019 9:09 am

"It's not what you make, it's what you keep." And the biggest thing standing in between, is taxes. Taxes are one of our largest known expenses. Many people try to save on taxes for income they earned last year, without planning to save in all the years ahead. Tax reform has given us some great opportunities to save, to plan, and to minimize your lifetime tax liability. Listen to this week's episode to understand the opportunities and strategies you should consider in your planning to keep more of what you make.


Plan plan to fail to plan for success planning matters radio and welcome into the program on planning planning matters radio.

I am Peter Rochon present founder Rochon planning along with my lovely wife ever shine here again we morning for your listening pleasure is always a pleasure being here and sharing some guidance, some insight on what we need to be doing thinking about and acting in our financial strategies in order to achieve and accomplish more certain, more stability, more confidence moving into our financial future at Rochon planning. We help protect your paycheck through all walks of life, and as we are talking about Paychex Amber it's that time of year that 1099s the W-2s and we talked a little bit about it last week but it is after all tax season all the dreadful tax season. You know that's my favorite Tommy Peter and mine mine as well is getting a lot of paperwork finding receipts violent things in the right order organization let people scramble and then sort of, I mean it's it's human nature, procrastinate on taxes but one thing is certain that we are all going to have to pay taxes at some point in time.

That's right, the taxes are Certainteed the questions of how to handle them or anything, but looking back and save it as much as possible this year may mean we end up paying more later. Right, Peter, that is correct and unfortunately that is the way that the majority of Americans have been taught to save for retirement is that they delay paying taxes and therefore the bills bigger. Later. But one of the most famous American judges never to have served on the Supreme Court is adjudged by the name of learned hand and he said that anyone may so arrange their affairs that his taxes shall be as low as possible and we are not bound to choose the pattern which will just pay the treasury.

It's not even a patriotic duty to increase our taxes so were to be talking about options that you have available strategies and in effect. Windows of opportunity to control and minimize the taxes and the tax liability that we have, yes, there's lots of different ways that you can save money. But let's start off by talking about the different types of tax status.

Great yet wonderful way to get started is the recognition that there are different ways that you can save your money.

Now when we earn money. We generally bring it home after Uncle Sam has Artie taken a piece of it right and then we have the opportunity to save some of those dollars that is called nonqualified savings. Okay, it's after-tax.

And when those dollars grow. The growth will be taxed. Many people choose to proactively save taxes before Uncle Sam gets to see a piece of it and that's tax deferral. Let's like your 401(k)s your IRAs any kind of tax qualified plan that allows you to defer and delay paying taxes. I hear a lot of people saying I'm saving on taxes. However, you're not truly saving on taxes. You're just delaying paying the bill and then the third and final is we bring the money home and then after paying some tax we get in qualified retirement accounts. These are like Roth, 401(k)s, Roth IRAs, and that is tax-free, but bottom line is that each and every dollar at some point in time is going to have to cross that toll bridge from where turned to where we get to spend it and Uncle Sam stands in the middle yeah funk of the hidden standard in the middle of that mega troll very well LOL grade you got it. Were talking about a super serious debt will kick in indeed.

It's kind of like a Ritalin in crossing the bridge and how to get as much of your money across without paying Uncle Sam as role fee yeah as little as possible & well we want to try to keep as much of we can us of what we earn your there's there's what you make and what you get to keep, and Uncle Sam is the biggest thing that stands in the middle so we commonly suggest people try to pay taxes at the lowest rates possible. Stay in the lowest tax bracket possible. However, deferring and delaying paying your taxes might not necessarily be the way to pay your taxes when you were in the lowest tax bracket possible. Think about this. There's kind of a new blood in Congress, and it is being talked about.

Right now that they are suggesting tax rates should be as high as 70 or even 90%.

We have $21 trillion in debt in this country. We've got even more trillions in unfunded liabilities taxes easily could go up into the future taxes that hide the 90% whenever Ronald Reagan was making movies. That's right. In fact, the reason why Ronald Reagan got into politics is because after he made two movies a year. He only got to keep 10% of what he would've earned for that third movie and he didn't think that was right and that's one of the reasons he got into politics and believed so much in the trickle-down economics, but this this idea of high taxation is back were hearing more about it and again, rates are being talked about at 70 or 90% right now.

However, we are in a historically low tax environment with the tax Reform Act that passed in 2017. This will be the first year that we file under the new tax laws and it has created some opportunity to harvest some dollars at a very low tax rate tax brackets have changed tax rates have changed a little bit so we have truly a window of opportunity to do some strategizing on how to pay the lowest tax possible today.

By the way, that window of opportunity closes automatically in 10 years if nothing else is done because the tax Reform Act had a sunset provision. Taxes in in 10 years from its passing will automatically go back to what they were in 2017 so it will be an automatic tax increase in nine more years.

Now if nothing further is done so if I'm understanding you correctly if I have my money in a place now where I'm paying taxes on it now and not deferring those taxes then I potentially could have safe income for the rest of my life without having to worry about paying Uncle Sam does contact these later in life right will taxes themselves are a risk okay and we expose ourselves to greater risk of taxes changing.

If we choose not to pay the bill today so we could pay the bill today and be done with Uncle Sam in a Roth 401(k) or a Roth IRA or what most people are doing is deferring and waiting to pay that bill till later.

First off you have to pay it out of your retirement nest egg rather than out of the paycheck things to me seem easier to account for and and to handle out of a paycheck job I deferred those taxes and I had $100,000 list to think you know something small to retire off of and that tax laws change when I have only $10,000 will. Here's the assumption yes if tax rates went up to 90% correct. But here's the assumption that most people are making and and what we've been taught is that we will be in a lower tax bracket or paying a lower tax rate in retirement.

All plans have some assumptions that every plan has some assumption that it's built upon. But question to you. What if you're wrong about that assumption. You have less money than you thought right so my assumption when I'm putting a plan together or choosing to pay my taxes today is that tax rates will be higher in the future. Or maybe just stay the same or what if I'm wrong about that assumption that I have more money than I thought I was going to have. That's the kind of assumption that I like plans to be based upon. So again there are strategies available to us right now to better control that tax liability and that's part of the process and the review and strategy session that we offered was Sean planning as we sit down with you. We map out the different accounts that you have how their invested how much risk you're taking in which fees are paying they can call for a free copy of the book, absolutely. A lot of a lot of different investment options are explained. Pros and cons and the level of risk that you're taking in each in my new book, understanding your investment options. We absolutely take a proactive tax forward planning approach to looking at your retirement income and map out a written retirement income plan for you trying to help you save as much as you can on taxes. If you like to sit down with the team. We do offer this at no cost with no charge for radio show listeners if you're willing to invest a little bit of your time, we will donate some of hours to make sure that you're on the right track phone give a call 800-338-5944 is 800-338-5944, where you must commonly suggest investors put their dollars. Well if if they can budget and save them, get them get them invested first and foremost, but then we have to look at that tax status, and I really like the idea of tax free growth and tax free retirement income.

So where possible the Roth IRA the Roth 401(k) and other people really understand the Roth 401(k).

The Roth IRA has been around for a while. The Roth 401(k)'s kinda been a secret. Roth IRAs are are very limited in how much we can get into them Roth 401(k)s. On the other hand, have much higher limits in effect in 2019.

You can put away up to $19,000 and have it grow forever tax free and tax free income and if you're over the age of 50. There's an extra ketchup. You can get up to $25,000 per year in 2019 put away after you paid your tax and then never have it taxed again in that Roth 401(k), so it's a great opportunity and we have another window of opportunity here with the fact that right now you could technically make contributions for two tax year so let's say that you had maybe $25,000 sitting in a bank, not really earning a whole lot you've Artie paid your tax on that money but you actually now could take that and put it into 2018's contribution +2019's Roth IRA contribution and you can do that if you're married for husband and wife. You could theoretically get up to 25,000 $27,000 put away into your Roth IRAs for both 2018 2019 and for husband-and-wife between now and the time you file your taxes so a couple again. Proactive tax planning strategies that we we look at, but changes have occurred to the tax laws, tax brackets have changed the estate and gift taxes changed the corporate taxes changed charitable gifting has changed IRA recharacterization rules have been repealed. All that to say that the help of a qualified professional can really be of benefit. If you don't understand any of those things.

It can help to sit down with somebody who does to have a qualified professional's eyes and perspective help you spot and identify where you may have some opportunities so again if you like to sit down with the team. It was Sean planning.

Just reach out 800-338-5944. Also, by the way, go online, which on is the way that it looks her last name was Sean, but Rich on has lots of great additional resources and calculators and all the old podcast as well as a place where you can just schedule a time for consultations convenient for you.

Give us call though 800-338-5944. If you have any questions and and were happy to answer this for you so you mentioned Roth 401(k)s.

If I contribute to a 401(k), will I still get my match.

If you contribute to a company plan a 401(k) or a Roth 401(k) where your company offers you a match. Yes, you will still get your match. You're making a decision about your dollars right and I hear the term free money with 401(k)s, will I make a contribution and I get free money. Nothing in life is free, especially not money that's part of your compensation as part of your salary. You only get it if you put some skin in the game for your retirement.

That's the caveat that's the catch. You only get that part of the dollars that you worked for. If you put a few of your dollars away for retirement. Now your company is nice enough to match those contributions.

They are not nice enough to pay the tax on those tolerance oriented right so what your company is essentially doing is transferring their tax liability on to you by matching your 401(k) there dollars that if the company had kept them they would have to pay tax on. By matching your 401(k) contributions. They shift that liability on to you and you get to pay the tax on those dollars.

Once you retire very kind of them right that you heard that clear business owners if you want to save a little bit of money and you want to start a 401(k) for your business.

Give us a shout.

Here Sean planning and 800-338-5944 and that is by no means a slight on companies that offer that 401(k) match.

That is a huge benefit to their employees.

However, as a worker saver trying to reach retirement capturing that match is also of huge importance. We need to make sure were capturing that match. So if you decide instead of to defer and delay paying the tax on your own dollars and instead pay the tax now and get them into a Roth 401(k).

Yes. Bottom line, the company still matches you still get to capture that. It's just that your dollars will go into one side. The Roth 401(k), the company's match will go into the traditional tax-deferred 401(k) when you retire.

Turn 59 role that money out you will have two pots of money one that's your dollars that is tax-free. One is the company's dollars that is yet to be taxed and will have to cross that tax Trowbridge when we retire, but still beneficial in capturing match.

Absolutely there is no other place where you get a guaranteed return on your money with the Machina. Whether it's 100% dollar per dollar.

That's 100% immediate return on the dollar that you contributed. You put in one, it turns into two immediately if there's a 50% match. I don't know anywhere else where you can get a 50% guaranteed return on your investment you put in one dollar your company puts in $0.50 really I don't even care if it's a 10% match. If your company is offering a match on the dollars that you contribute, you should absolutely be taking advantage of that. At least up to the limit of what they match. Now, Dave Ramsey's harvester probes.

Dave has his baby step process in order of operations, but once you get to step four. Absolutely. If you are on a step where you are saving and investing for retirement. The first place that you should put those dollars is inside a company plan. If there is any match on the table once again. If you're just hit into the show. I am aimed shot here with my wonderful husband Peter Rochon here Sean planning in the studio this wonderful Saturday morning. If you are interested in a copy of my husband's new book, understanding your investment options pick up the phone and give us a call at 800-338-5944. Again, that's 800-338-5944 and today were talking about the timely and exciting topic of taxes. There is a difference between tax preparation.

That's what everybody is scrambling around to do right now tax prep versus tax planning, tax preparation is historical in nature. It looks back at what already happened. It looks at 2018 and prepares the documents to tell the federal government whether we pay just enough underpaid or overpaid. Not a whole lot that we can do to change what's already happened a few moves and strategies that you may consider in order to save a dollar or two here or there, but tax planning is a whole different story that looks forward into future years and strategically looks at what we're doing today and what will be the effects and the consequences into the future when we use those dollars that we save or invest in.

That's the approach that we take it Rochon planning is looking for doing a tax forward planning approach and with proper planning, it can save you thousands, tens of thousands, hundreds of thousands of dollars over your lifetime in unnecessary and excessive taxes were not talk about loopholes were not talking about invasion. We are talking about strategies and options that are morally, legally and ethically possible. Not only possible but allowed and expressly given to us in the tax code and we look at how to take advantage of those so that we can control our tax liability and we help you with that as well. When we design a structure that retirement income planning. If you'd like to get that put together the phone.

Give us a call 800-338-5944. Here Rochon planning were here to help in any way for folks of all walks of life, say did a great job of explaining the differences between tax preparation and tax planning where the difference between contributions and conversions. Yet there's a lot of confusion in the contributions and conversions tend to write that discussion is two distinctly different things. So a lot of people specifically higher income earners think that they are eliminated from the potential and the possibility of getting there dollars growing tax-free because when you earn over a certain amount you begin to become eliminated from making brand-new contributions to your Roth IRA account or even the deduction on a traditional IRA. However, if you got that Roth 401(k) at work. Those income limitations don't apply.

Another reason why it's so important for so many to find out about that Roth 401(k), but a contribution putting new money into one of those accounts is different than a conversion. If I have already built up a account that is tax-deferred dollars 401(k) or an IRA and I want to move those dollars across that tax Trowbridge into a tax-free account. That is what is called a conversion not a contribution and there are not limits there but we do implement some strategies to help people control the taxes along the way. Once it's over that Trowbridge those dollars are hundred percent yours. They can grow, you can take income from them all, tax-free. You've already taken care of Uncle Sam. So it does make sense in a low tax environment to maybe consider converting some of those IRA or tax-deferred dollars over to a Roth IRA. However, if you got 400,000, 500,000 million dollars in an IRA account.

You don't want to do it all at once. That's going to mean that you paid the highest amount of tax possible. What you want to do is strategically do we call maximizing your tax bracket, but minimizing the tax payment and that is by looking at the tax bracket. The are currently in and converting over an amount that will keep you with in that bracket not bumping any dollars into paying a higher tax rate so it is one of the things that we do. Looking at converting and maximizing the tax bracket.

However, I do want to put a caveat on that that I see a mistake, commonly being made or at least considered is that you use the money with in your IRA to pay the tax on the conversion. If you do a conversion from a traditional IRA to a Roth IRA you absolutely want to have some cash outside of the IRA with which to pay the tax with think about this, especially if you're doing this before 59 1/2 if you take money out of the account to pay the tax that is considered a withdrawal so that money. Not only will be taxable to you because you've withdrawn it so you're paying tax on the money that you're using to pay tax but also if you're younger than 59 1/2.

That is a early distribution subject to the additional 10% penalty.

So say that I did want to convert $20,000 from a traditional IRA to a Roth IRA. I would not want to use the money inside that account to make the conversion.

I would need to have about $4000 sitting in a bank account that has already been taxed to pay the tax on making the conversion otherwise. When I convert that $20,000. It will cost about the $4000 in tax so we use the money that's in the account to do that will now it's only 16,000 but that 4000 that we took out is subject to taxation plus the additional 10% penalty so get strategic moves. You gotta know what you're doing here but there are strategies available right now to take advantage of or to consider to minimize your lifetime tax liability, and it may cost a few extra dollars this year, but over time that compounding interest that Albert Einstein said is the most powerful force on the planet is working completely in your favor rather than splitting that power between yourself and Uncle Sam who would love to take advantage of those compounded dollars.

We want to stay in your tax bracket.

We want to move money over with in that tax bracket and another great idea is using your return. If you think you're going to get a $4000 tax refund and your let's say in the 20% tax bracket.

Instead of taking that refund in and blowing it. Maybe you should use that to convert over $20,000 from a tax-deferred IRA to a Roth IRA would be of great use of those dollars to get more of your dollars growing tax-free for you. So a couple strategies there again and then these are the types of strategies that we look at each and every time we help someone analyze their portfolio their investment and their retirement accounts and their plan for the future. Making sure that we are being proactive to keep as many of our dollars working hard for us. Many people come to the unfortunate realization and end up burning through the tax retirement nest egg quicker than expected because they've planned and growth income numbers so the biggest tax mistake Peter is forgetting about taxes yet we call that the gross planning mistake and I see it. Unfortunately, way more often than I should and it's it's just a matter of not forgetfulness, but the lack of reminding ourselves in and proper planning is that we have built up these retirement accounts in tax-deferred tax status is deferred does not mean forgotten right. Uncle Sam never forgets about a dollar dead but I promise never forgets about a dollar, especially if he has allowed you not to pay your tax on it when you originally earned it. They keep account. They keep tabs on every dollar. Not only that you put in, but that grew from the dollars that you put in, and they have a plan for how to tax it. Unfortunately, I see people forget this fact. And so they've got the nesting they got $500,000 750 a million $2 million in their retirement accounts and that number gives them the confidence to say I am set to retire but what they forget to factor in is that when they take a dollar out of those accounts that Uncle Sam is going to take a bite out of them.

That's got a cross that Trowbridge so your number muncher yes your million dollars is not $1 million. It's 650,000 750,000 that's what you have to spend in retirement. So forgetting about that is one of the biggest mistakes and again I call it the gross planning mistake taxes are our largest known expense in retirement and there some other potential expenses that could be larger healthcare.

Things like that but as far as known certainties. Our largest expenses going to be taxes. It is 1/3 to 1/4 at least of your retirement net worth. You need to plan accordingly and again as we are putting these specific written retirement income plans together for our clients showing them how to translate and transition that lump sum that they've saved into the income that they will need to be able to spend and pay their bills in retirement.

We are taking a proactive look at the tax planning for them and with them to show them exactly not only what they'll be able to pull from those accounts. But how much of that they will actually get to keep to cover the bills and expenses and spending in the fun things they envision retirement to be about and know what Amber after we run through that practice, a lot of them feel very relieved that I wasn't certain on how much income I could generate or how much I would get to keep, and with that income.

Planet removes a lot of that doubt and worry gives a more peace of mind and confidence gives him some assurance on what they can spend this year next year in the hereafter and not risk running out of money into all their future.

Like to sit down for your complimentary review here at Rochon planning we are here to help pick up the phone and give us a call at 800-338-5944, 800-338-5944 one more tidbit before we go. There are certain ages that you need to earmark that when you reach and attain this age, there are things that you need to do in order to better position yourself for retirement at age 59 1/2 and a lot of people probably understand. That's the age that you can pull money out of an account without that 10% penalty on anyone can do it. However, it's also the age that many companies allow you to take money out of the 401(k) while still continuing to work for that company and contributing to the existing 401(k) and still capturing the company match.

So if that money there has already built up to a sufficient amount that can help you in retirement. You don't want to leave it exposed to the limited options inside the 401(k) you want to begin to actually position it for retirement. That's absolutely in age to pay attention to, and then 70 1/2 another big one because if you have those tax-deferred accounts by 70 1/2 Uncle Sam has a plan. He is going to force you to begin to take money out if you don't believe that you got a debt inside of your IRA.

Just wait till 70 1/2 and Uncle Sam begins to collect minimum payments just like your mortgage payment or your credit card bill is called required minimum distributions. If those are your concerns once again.

Here Rochon planning we are here to help pick up the phone and get us a call at 800-338-5944 and remember we're not just about comprehensive planning protection saving strategies and investment planning. We do offer those group plans are for businesses that allow you to pay for policies for your employees.

You can write out on your taxes as well. If you are interested pick up the phone and give us a call at 800-338-5944 were helping people protect what's important and identify opportunities at Rochon planning. We look forward to hearing from you again if you're taking your planning your financial future. Seriously, you're willing to invest a little bit of your time were willing to donate some of ours.

Never any charge for radio show listeners looking to get that plan put together or just review your plan. Make sure there are no holes left unaddressed, pick up the phone. Give us a call 800-338-5944, 803 385-9440 can also visit us and from our family here is that we look forward to hearing from you. Things are talking to you next week. This is been planning matters radio

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