Hello, Texas. Welcome once again to retire smart Austin with Phil Capriotti senior He is the founder of Empower Wealth and tax. I’m your host, Spike Spangle. And on today’s program, we are going to be talking about how you can use tax efficient strategies to fund your retirement and we’re going to talk about it with this man is Phil Capriotti senior, how’re you doing this week, buddy?
Spike, we’re doing good. We’re doing good. How about yourself?
Doing very well doing very well. But my concern about talking about tax efficient retirement strategies is maybe it’s too late. I mean, you spent three, four decades saving into tax deferred accounts. Can we go backwards? How do we change it up now that we’ve used these investment tools already?
Depending on the client’s net worth, it’s really never too late. I think I told you about the client, we helped with a 92-year-old mom, she had 2.3 million in her IRA, the four daughters were going to inherit it. She was livid that after her husband passed away, her RMDs went to over 175,000 for just that one year. And not only was she not married filing joint, she was now found single. So that caused her Irma premium jump up. And with that, with that individual with that lovely family, we ended up converting she had other assets, she had close to $3 million in taxable incomes, Bond stocks, things like that, that she’d never use, she’d never, you should never need the income. And so, we converted the entire thing for the Roth to eliminate. And she wasn’t really charitably inclined, except for our family. So, we didn’t have a QCD thing. So, we converted the whole thing over a two year period, the daughters were thrilled. The mom was absolutely thrilled. And two years later, her EREMA premium went down to back down to $160 a month, instead of which what she what she was paying was over 500. So, I wanted to talk specifically today about case studies, you know, we have been converting, we have been planning and organizing tax free retirement strategies for about 13-14 years now. We started doing this in 2010. So needless to say, I have literally hundreds of different case studies of clients where we’ve used similar techniques in different ways. So, I’ll give you an example. We’ll tee this up. We just finished with a client. They’ve been a client of mine for five years, exactly five years on the button. And here was the scenario. The gentleman had a 401k with about $1.6 million in it. Okay.
Mike Spangle 03:02
That’s what I’m saying three, four decades saving into one of those.
62 years old, wants to retire. He’s finished. Okay. And I understand that. Wants to play more golf.
I understand that too.
So, do I. Do you need Social Security. No, he didn’t need any he didn’t need social security. He had plenty of money in the bank, he actually had money in savings and checking in a six-digit range. So, he said, I’m concerned. He said, I know I’m not going to run out of money. And I hate it when somebody says I know because you know, you never know what’s going to happen in the future can predict the future. He said, I said what was your what’s your most important priority? So, I’ve been watching your show, listen to your radio for quite some time. I went and saw you at one of the library workshops. And you were talking about increasing tax free income and how to use insurance products. I said okay, so he was his biggest problem that $1.6 million IRA, but a time he has to take RMDs between 73 and 75. His estimated first RMD is somewhere in the neighborhood of 125,000. Now that’s all-taxable income is a required minimum distribution. And it’s based off of the growth of that $1.6 million over a 12-year period. Yeah, at six and a half percent return. We use the modest return to estimate it. So, he says What’s your recommendation? I said, Do you have a pension? He said no, I don’t have a pension. My pension’s my 401k. I said let’s set up I have a plan for you. And here’s the plan. We’ll take 500,000 of that money. We’ll move it over into an IRA. And we’re going to move it over into a specific type of increasing income annuity IRA, you have to be very careful with these things. And then each year what we’re going to do as you’re taking distributions, we’re going to convert that approximately 100,000-125,000 a year for the next four to five years, making sure we don’t get abused with the tax code. In other words, going over our tax limit. And then at that point after it’s finished, we’ll turn on increasing tax-free income, and will actually turn on your Social Security. He said, What does that how does that going to accomplish? I said, here’s the estimates at a four and a half percent return just if the annuity average is four and a half. Okay. This is what we can do. And while we’re doing the conversion slowly, so we don’t have an immediate major tax hit, once we do and if it’s done right now, these annuity companies, you have to have one that has number one, increasing income. Number two, has the ability to do internal conversions, most of them do not. And you also need an annuity that has no cap on your potential for earnings growth. We converted it over five years. Okay, this 500,000, he still owns the 500,000, he could take that money out. He wants to turn on a tax-free income, we turned on his social security at 52,000 a year, the annuity provided him income of 48,000. Roth income because we converted the whole thing to a Roth, he was over $100,000 in income. And from those two sources, Social Security and that annuity, which has an average inflation increase of about 3% per year, he was in the 0% tax bracket. In fact, he said I should throw I said, do we need to throw you a party, he says I should throw you a party. So, my point is there are a lot of different ways to use these products to do the planning. Many advisors, especially advisors that work with big box retailers simply do not have this these types of resources at their disposal many times because the companies want to allow them to get into tax planning, income planning. So basically, what we did was we took $500,000, we converted it over to a Roth and a five-year period, and we created his own tax-free pension. So, the next thing is, of course, his wife says what about me? I said, Well, you’re his spouse, if he predeceases you, you continue that income. What if there’s nothing left in the account? What if we spent it all it continues to you continue to receive income tax free, for as long as you live, unless you live past 120?
But and see and that’s what I was gonna say the one flaw in that beautiful story that you just told me that was strays from the beginning to end there was that he said the phrase? Will my 401 K is my pension. Exactly. It is not a pension; you can run out of that. So, you had to put it into tool that can’t run out until 100.
Well, here’s the other thing. Okay, now that we had his income and timeline set up for the income, we knew what their Social Security was going to be, we had an estimate on what the what the annuity would provide in tax free benefits. We understood that now, because there’s no market volatility in that fixed indexed annuity that we use to convert to his tax-free pension. Now, we were able to get a little more aggressive with his other investments, and we got a much better return. Instead of being in a 6040 portfolio or something like that, we were able to build a growth portfolio, we were able to look at a lot of different options. So, it allows once we have the mailbox money taken care of, that’s the key to a tax efficient retirement income plan. Once we have the Social Security, once we have your pension, which should be tax free, then we can go to work on the other investments. One of the keys here with these annuities, folks and certain ones, there’s really only honestly, I can count on two hands, how many I would personally own my No my own professional opinion, not that they’re good, bad or indifferent. They allow you additional benefits and features and many of these annuities don’t I want all of it in one.
I want to ask you about a little of those a few of those that would be in your handful of annuities if you don’t mind when we get back. But I’m going to do a very short message I can practice message break is about Phil Capriotti and the firm here so don’t go anywhere. It’s more information about what we’re talking about right now. How do we get you? How does Phil to get you? How does the firm get you to a tax-free retirement or at least as much as we possibly can. The way it gets started is with you making a phone call that phone number right down there on the bottom of the screen. You call that for the first five callers this week, we’ve got to limit it to that you’ll be able to come in and make an appointment. Phil will run the Morningstar report will run your tax efficiency report. We’ll take a look at your investments. And we’ll try to help you get as close to tax efficient as tax free as possible in retirement call 888-818-6557. Or you can use the QR code as well down to the bottom of the screen there. Open up your phone, use the camera function pointed at it. You can schedule yourself right over at the landing page there with Phil Capriotti, Sr, which annuities are in his handful, when we get back right after this?
Most of the folks that we work with are not going to outlive their money. When an individual comes into our firm the very first question they ask, How do I know you’re going to be here five years from now, your financial advisor and your licensed fiduciary, this should be a lifelong commitment. It shouldn’t be a revolving door, exercise generational planning, we have an opportunity to not only work together with retirees, but having my children work with their children, my grandchildren working with their grandchildren. So, we’re establishing a relationship that will literally go through several generations. I have three children that are actively in the business. My youngest son, Parker, who’s 22, is a junior trader, he works in our home office in Phoenix with foundations. He’s in a three-year mentoring program. My son Phillip is also a licensed fiduciary, he’s 41 years old, he will take over the business. And my daughter, Lisa, my oldest daughter, who’s 42 also has her securities and fiduciary license as well, this company will pass to my children, and hopefully someday to my grandchildren, but in the interim, teaching them through my example. That’s our firm.
how to get to tax free in retirement, that’s what we’re talking about right now with Phil Capriotti, senior of Empower Wealth and tax. If you just missed it, Phil will give you a little bit of a recap. But you took a period of time five years, moved money out of a 401k put it into an IRA with an annuity in there to be able to get to the tax-free income. What about the spouse? Did the spouse hop on board with it as well.
The very first thing, the very first thing is many IRA’s, so, while you’re still living, it’s actually well, first of all, you were in a community property state. So, like my wife says, you know, what’s mine is mine, and what’s yours is mine. So, but the key here is to transfer tax free income to the surviving spouse. And this is one of the many benefits and most folks don’t do, they don’t do this type of planning, because many times they either do not have the proper tools to execute it properly, or they don’t have the proper expertise. So, the key with this is this annuity is designed to be literally out of money. In other words, you’ve received all of these payments within about 12 years. That’s the way the actual error is design it after that you’re spending the insurance company’s money. And if we converted it properly, because we started it as a Roth, it continues as Rob. So, my answer to his wife was, of course, if he predeceases, you, even if there’s nothing left in the accumulated account, because you exhausted it by taking all these tax-free withdrawals, the annuity will pay you the same income with increases till your and until you pass on. Unless you live past 120 Note annuities are designed to pay to up to a 120. The idea is now we use that 500,000. And they don’t expect to spend more than that in retirement between their social security and that, but they have their other assets accumulating where we can do QCD from the RMD. So, we set up a plan to limit the RMDs to create tax free retirement income in coordination with maximize and associate security and also set up a QCD.
So, I think what a great perspective on it, because some folks might be listening and thinking is that an all or nothing or this person is talking about annuities? Because you just talked about no we’ve got our investment bucket over here, we’ve got our floor money, our bills, money, our you know, going on vacation money and so forth. But then you’ve got the rest of the assets growing as well. Or also, emergency money, it just- lifestyle money on the outside.
And number of different and their situation, understand. So, this is how beautiful this plan is. Okay, and you advisors pay attention, okay, you really should. Because if you’re not working with your clients in this vein, you really, in my professional opinion, doing them a disservice now that we turned on that tax free income, now that we turn on the Social Security, and they’re in this 0% tax bracket, now we can start doing additional Roth conversions that we had the income out of their IRA into a managed Roth account and investment Roth account at the lowest tax bracket. So, what we’ve done is we’ve turned on their income, they’re at the 0% tax bracket. Now at the 0% tax bracket I can convert at 100 120 550,000 a year within that 12 to 22% wiggle room range.
Because if you pay the taxes that so you’ve got the you’ve got the IRA already paid the taxes on that you’re getting your payments from. So, you still had another half million. So, you came in, it was about 1.3 million if you missed the beginning of the program there. So, we’ve got about half. So, what why do we need to pay the taxes? Is this for leaving it to the kids, so they don’t have to pay taxes on?
No, it has nothing to do with the children. Hopefully, if you’re great parents, your children are doing quite well. I told my kids, my children, their inheritance is their education, and good parents and good parenting. I mean, I don’t mean to be disrespectful. But the point is, no, this is so you will maintain tax free and tax efficient through your entire lifetime. You know, those of us who are baby boomers and most of us are that we’re getting ready to go into retirement our that’s our primary goal, our primary goal is not to get taxed to death, the returns will take care of themselves. It’s how much you have to give back to the government, in addition to right, so this is really part of tax planning, but it’s a comprehensive plan. It’s not a one and done. I actually had an advisor, tell a potential client actually came into the show that absolutely do not do a Roth conversion. Why What do not do a Roth because he actually said the gains that she’ll lose by paying the taxes won’t be worth it in the long run. I said, I’m an accountant. Here’s the spreadsheet. When we structure a Roth conversion, I say, here are the taxes, you’re going to save a tax bracket stay at the same rate. Over the end, this is how we’re going to reduce your RMDs. So many advisors just say it’s not that they don’t want. They don’t have the training.
Gosh, what even bothers me about this. So, let’s, let’s say you do the Roth conversion, you pay the taxes, right? Now, let’s say everything stays the same. And let’s say investments do what they’ve always done they average 7, 8, 9 percent historically, I’m not saying they would, it’s essentially going to be sort of the same amount. It’s I think, as you say, would you rather pay taxes on the seed or on the harvest? Let’s pay this down now. Because who knows where markets could be later, to say that you’re not going to have gains from that. That’s just amazingly irresponsible.
I didn’t understand about the advisor’s point of view, but I’ve seen it many, many times is that they’re not taking into account the growth of this IRA and how it’s going to affect the required minimum distributions. 5, 10, 15, 20 years down the road, they are not looking for it, if taxes don’t do stay the same. Or even if they grow, go lower, I, my thought is this if I have taxable money, I want to buy my partner out my partner is the IRS. Okay, I saved 25 years in a 401 K, I have a seven-digit 401k. Now I need to make sure that I have balanced in my retirement income plan, or I will be taxed to death in retirement if I don’t get a handle on these RMDs.
Phil, I’m gonna get you to run for Congress. Because what I’ve also loved that you say is you save time, by the time we get to be retirement age, we should have a tax holiday that we’ve paid our fair share in taxes, but what you’re doing and what I can tell it because it’s in your bones is that you want to help people get to a tax free retirement.
I want to help them design a plan. And even if they don’t execute it with our firm, at least we were able to help these folks see the light at the end of the tunnel. And now this particular advisor, with all due respect, I understand that, you know, he has his point of view. I personally don’t understand the point of it. And I and I realize what it is he really doesn’t understand the tax side of it.
Folks, retirement could be completely different than your parents or grandparents. It could be much longer, and we want to make sure not only that your money lasts, but that you’re paying as little in taxes as possible. And one of the ways that you do that is being proactive about it. You’re going to your CPA and saying I want to pay as little in taxes this year as possible. That’s just doing tax preparation. We want to do tax planning, tax forward thinking planning. Let Phil and his team run the no cost Morningstar report on your investment. Let them do the tax report. Let us do the entire complete investment review. And it’s no cost to you for watching the program here. Being a great Texan. All you have to do call the phone number down on the bottom of the screen 888-818-6557 more tax free retirement strategies can’t sync promises but strategies possibilities for you in retirement with Phil Capriotti, right after this.
The work never seems to end until the day it finally does. After nearly a lifetime on the job. You should be rewarded for all the time you spent working. Whether that’s crossing off items on your bucket list, learning a new passion or rekindling the love of an old one. After all, life isn’t over when you stop working. It’s the start of an all-new chapter, the one where you’re the writer and you get to choose how your story will go. A way to achieve that is by having a clear financial plan to sustain your golden years. The biggest fear most retirees have is if they’ll have enough money to maintain the lifestyle they’ve always enjoyed. Having a plan to help protect you against the curveballs life often throws will help to maintain your lifestyle. Call today to get your free written financial plan. See me live every day to the fullest and enjoy the retirement of your dreams.
Welcome back to retire smart Austin with Phil Capriotti, senior He is the founder of Empower Wealth and tax when we’re talking about tax efficient strategies. What I want to ask you is what about tax efficient? Investments? Again, we most of us have saved in those 401 K’s. When we move to retirement, should we be Googling and researching and going out on the interweb and looking for muni-bonds and things that are supposed to be you know, truly tax efficient? Are there tax efficient investments out there?
One of the troubling variables about searching on the internet is now you will be pestered by everybody who is because most when you’re so searching, doing a Google search on any of this information, all of that information is being sold to advisors to now call and to try to get you into work with them, which is all well and good. Maybe you do need that. The fact of the matter is, when you’re now talking with someone you don’t know, you don’t have a relationship with you know, I’ve had folks who have been watching for three years, I have a relationship with you, even though I know how to talk with you. Yeah, I love that. I actually thought, Well, that’s good, because that’s what we want to do. I feel like I know you Okay, now I’m ready to kind of work with you. All right, you’re, you’re really nice, a lot, a lot like the other advisors. So, with that being said, Yes, you can do your research, but be prepared. Okay, you hit with a barrage, I’m just going to call, call them call.
I’ve noticed that all of that kind of stuff, the retirement calculators put in your information, and then they never give you the final answer. The difference here is that with the program, not only are you providing the education, but you do actually provide the solution.
I give all of the credit okay to not only my work family, but I give all of the credit to Ed slot and company to be quite honest with you. When I met Ed slot back in 2008, and then became an advisor at slot advisor in 2009, I believe it was the for now in two I became an ad slot mentor 2007 became an advisor in 2008.
What a great year to be helping people with investments. 2008
Actually, actually it was a great year not for it was a great year for us, because we kind of saw it coming. It wasn’t a great year for a lot of folks getting ready to retire. Because when you have a 2008 like scenario, a financial crisis, which many experts are saying we’re headed up to, I don’t know, I don’t worry about that. What because if you have a solid financial retirement income plan, you shouldn’t have to worry about that. This is the only time you want to worry about that is when you have your all of your eggs in one bucket or one asset class, okay. But at any rate, when we want you get your retirement income, tax efficient, where your income goal, and your sources of income are correlated, if there is extra money in that IRA, and normally we use about a third, about a third, I want to convert to a pension and then about two thirds I want to convert afterwards, slowly so that at the end of my time, after 10 years, less than 12 years, my entire IRA has been Roth’d
You are the first person I’ve heard say- I’ve heard a lot of advisors around the country talk about Roth conversions, and you’re the first one in basically a sentence explain it. It’s not all at once. We’re going to literally set a schedule for it, do it over time and then eventually hopefully the entire bucket is as tax free as (indistinct)
Well see Spike we do many of our clients tax returns in the simple returns why? Because we really want to go over with, we want to look at their modified adjusted gross income. And we want to help them calculate how much can I convert this year without changing pardon me changing my Medicare so forth, but the key excuse me, is I want to get as much converted to tax free because I don’t know where taxes are going. I’ve talked with advisers How can you say the taxes are going up in the future? And I just look at (indistinct) and I say Have you not seen the national debt clock? Where’s this money gonna come from? Someone had told me that there’s $70 trillion in a 401k retirement plans.
Different plans across the country.
I thought it was less than that. I thought it was somewhere around 50. But the fact of the matter is one thing is going to remain constant, the debt is going to remain constant, entitlements are going to remain constant and increasing taxes are going to remain constant. So, it comes down to help those- what’s the old saying? God helps those who help themselves? Sounds right? Well, this is part of helping yourself, you do not have to execute the plan. But by not obtaining the knowledge from us by setting up that appointment, I believe it’s a crucial mistake.
It can feel overwhelming, but actually taking control of your taxes is helping you keep-
When we’re doing your tax return, I can say, Hey, by the way, Joan, you know, we can move $82,000 over to the Roth. And we can do that. And with a 50% effective tax rate, you have all this money over here doing nothing you have you’re paying, you’re paying taxes on the interest that it earns, why don’t we start it and inevitably, every single client with the exception of few once we start the Roth conversion process, and they start to see that IRA 401k account shrink, and their Roth account grow, they start to get it. In fact, I’ll have folks say, I can just start taking some of the earnings out of my Roth, and then I can convert more into the Roth or the IRA can I, without having a negative tax consequence.
And as long as I- one thing I think I remember from the exams is doesn’t the Roth have to been open for at least five years or something like that before we can start taking some from it?
The five-year clock has to do with taking earnings out, okay. And normally, in any Roth conversion plan, it’s going to take five years for us to build that account up to enough to either turn on increasing tax free income, or start to take earnings out, okay, in the form of tax returns.
So, we have we have to start the planning and invest the know kinds of Roth account, we’ve got to get started sooner than later.
Eventually Spike, I believe that Congress will pass a law eliminating Roth conversions or minimizing up you can own convert so much of this income or this net worth, because in anticipation of future tax increases, they’re not going to, I believe, that they they’re going to put restrictions on that.
Or even give a (indistinct) and say that Roth conversions no longer exist. I’m not speculating, I’m worried.
they might. But normally, when they’ve made radical changes like that, they’ve grandfathered old Roth conversions old laws, you’re grandfathered in, but they may not allow future conversions.
Phil, we’ve got to wrap up today. Tell the folks what they’re going to get when they get your Tax Review. 30 seconds.
Folks, just give us a call. If you’ve been watching for a while and you’ve been timid or not, uh, kind of concerned about calling in my staff, our staff is incredible, and they’re very, very helpful dial 888-818-6557 come in and let us structure a tax efficient retirement income plan for you. And RMD distribution strategy, as well as answer any other tax questions you may have.
Phil, thank you so much. call the phone number below. 888-818-6557 get started on your own tax efficient retirement with Phil Capriotti, senior of Empower Wealth and tax. Thanks so much.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management and Empower Wealth & Tax (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
