Welcome once again to retire smart Austin with Phil Capriotti senior, he is the founder of Empower Wealth and tax. I’m your host, Mike spangle. Phil Capriotti, you’re looking great. What’s on your mind this week, my friend?
Spike, got a number of things rolling around up in the belfry.
All right, does it have anything to do with wealth preservation?
Absolutely does, you know you have to keep it light, I realized that we just celebrated our fourth anniversary. And that was really kind of nice. I didn’t realize it went by that fast, but it really did. So today, what I have rolling around in our topics today of the show are going to be three, we’re going to look at tax free investing, especially in retirement and we’re going to look at wealth preservation. It’s extremely important because now you’re in distribution planning, you’re taking monies out of these retirement accounts, and estate planning, they’re getting ready to change the estate planning rules, the uniform life expectancy code is going to be changing. In addition to that, we’re going to see other changes with the lifetime distributions.
So, as the saying goes a lot to unpack in today’s program. So don’t go anywhere over the next 30 minutes. We always want you to know though that you can get your own retirement review your own tax efficient retirement review, we’re going to be putting up the phone number QR code so many different ways for you to be able to get in touch with us. Unfortunately, this week, we’re gonna have to limit it to the first five callers or the first five folks who click on the QR code. I’m your host, Mike Spangler. So, let’s jump right into this. You just said something about some tax changes. Now what I love about it is it’s a power, wealth and tax. Most investment firms are just about the investments or the accumulation or even the income. But you have a strong, strong focus on the let’s live some changes happen here.
Let’s address that why many firms are not willing to talk about taxes is because they’re not allowed to many firms may be broker dealers. Now a broker dealer means you’re not holding a series 65 a FINRA series 65 license, you may hold a series seven or series 66 When you hold a series 65, and you’re a registered investment advisor and licensed fiduciary, that gives you the ability to work in all the different fields. So as everyone knows, my DNA is of an accountant and a tax person. I’ve been- I mean, this was this is my field of study when I went to college, and I’ve just continued it. Tax Planning and retirement income planning work hand in hand. Now, it’s extremely important. So, in our firm, we have 15 employees, we’ve hired many, you know, we’re hiring, you just hired two more for our new Horseshoe Bay office. But the point is, if we’re not looking at tax free planning, in retirement, and along with wealth preservation to go hand in hand, you can run out of money, no matter how many, how much you have.
Yeah, well, especially if we’re talking 10,000,015 20 million, because you said there’s some tax changes that are going to be happening. We’re not just talking about our federal tax brackets, you said something on our weekly radio program we just did a little while ago about estate taxes, those actually coming down. And when I say coming down, I don’t mean coming down in a good way of meeting the threshold of what you’re allowed to give. What are these numbers moving to?
Yeah, there are some settings. So, we have a couple of moving parts going on here. Number one, the Trump tax cuts expire December 31 2025. That gives us too strong years to exercise Roth conversions and move some of this taxable tax me forever money in these government accounts into my own tax free. We’ll talk about that later. What we really want to focus on is the estate tax rule changes are different tax cuddly different, alright. 20 plus years ago, folks, if you had an estate of over 2 million or 3 million you were forced to pay when you pass away, unless it was protected properly. We’re gonna get into that you were forced to pay a federal estate tax. Now there’s a difference between the federal estate tax and federal income tax. Most folks have completely forgot about.
We just don’t know the definition.
Well, here’s the definition right now. If you have an estate of over 13,610,000 and so forth, you have to pay an estate tax, federal estate tax, maybe in addition to the income tax, you have to pay the federal estate tax on any amount over that. Well, that provision sunsets in two years, and by 2026 is going to- if Congress makes no changes, it will revert back to the old limits. So, some of the folks in Congress are saying that’s good, we don’t want to change it, we want to because we need to, we need to help pay down our debt, and where are we going to get this money. So, they’re looking at a number of different options, but let’s just stick with the federal estate tax, which is also the uniform life gifting taxes as well. So, what they’re looking at doing is possibly making us be liable for estate taxes, federal estate taxes on any estate over 5 million, they originally wanted to bring it to three and a half million. So, one side of the party is looking at three and a half million, one side looks at 5 million. So, let me explain how this works. Let’s assume you own a ranch or you own a piece of property or you own a business or you own apartments or income producing, what they’ll do is at the death, okay, of the spouse, you now if that estate is valued at- let’s assume they make it 5 million, if it’s valued at, let’s say, 10 million, the first 5 million escapes federal estate taxes. But the difference between the 5 million and the 10 million is taxed at an average of 50% (What? 50%!) 50%. It starts at 45%. It’s a gradual increase, then it goes to 50, then 55. So, we say an average of 50%. The larger the estate, the larger the percentage, but we never really had to look at this or seriously consider it before. But these gift tax exclusions of 13 million, they’re expiring in three years, right? So, what we’re doing is we want to talk with people, warn them ahead of time, okay, if your advisor is not talking to you about this, chances are they probably are not a tax advisor. But we really want to put provisions in place in order to accommodate. And here’s my thought. I would much rather pass my estate on to my children and my grandchildren, without having to take a large chunk of it, close to 50%, to pay the government after I payed taxes for the last 50 years.
And we’re going to explain why that is and exactly what you can do to avoid having to pay those estate taxes, folks, please don’t go anywhere right now. What we’re trying to do is help you with wealth preservation, keeping it in your own family. It starts with a complete review; we will do that for you when you call the phone number. I also want to let you know this has been so exciting. We have been getting so many appointments from folks using the QR code. It’s so simple. Open up your phone to the camera function pointed at the black and white box down to the bottom of the banner down there. Click on it. It’ll take you over to our website and you can schedule an appointment right there. Do you want to keep more money in your own family stick around, don’t go anywhere more retire smart Austin with Phil. Right after this.
I watched my parents work, work themselves really to the bone. I saw my father retire at 63 and pass away. Six months later, once he had stopped working. My mom looked at me and she said, You better be an accountant. You better learn the tax law. I went to a private school, got a great education, lived in the library and graduated without any debt. I realized the benefit of being debt free at a very young age. And I also realized the benefit of educating and speaking to be one I liked working with folks who actually needed help. I started my company 17 years ago, and now we employ two CPAs and two licensed tax professionals. We have a legal arm that helps folks design trusts as well as wills. We have an insurance end that offers property casualty insurance, we sell health insurance, Medicare Supplements, long term care life insurance annuities, and we have wealth management that I started to work with Ed slot looking at tax efficient ways to have retirees or soon to be retirees retired tax free. If your accountant or CPA is not also your financial advisor, you really have a conflict of interest.
Welcome back to retire smart Austin with Phil Capriotti senior I’m your host Spike spangled today we’re talking about wealth preservation. For you, folks who live here in Texas. We want to keep more of our money in our own family. I mean, I guess you can go ahead and give it to the government if you want to Well, or you can try to use tax free investing strategies, which is what you want to talk about.
Well, we all want to pay our fair share. I mean, this is the way we were we were raised work hard, okay, and pay your fair share and do the right thing. And we all want to do that. When we get into return. Aren’t we’re not working anymore, we have to depend now on our savings, okay, and our retirement savings and how we take the savings out can mean a world of difference between how they’re taxed. So, the first thing we want to focus on, folks are tax efficient income strategies, we want to have tax free investments that provide us with income that do not affect our Social Security or taxation of Social Security benefits. The second thing is, we also want to look at investments that are exempt from capital gains tax, there are investments out there, there’s a plethora of investments out there that will offer capital gains exemptions, okay? And provide an opportunity to grow your wealth without having to pay additional taxes on it. Most importantly, are tax free withdrawals. And we’re going to have a whole show on this. You know, everyone who knows me, they’ve been watching the over the last four years understand that most of our clients have executed a Roth conversion process. Last week, we just celebrated five of our clients I’ve been working with for the last seven years, they had, they all had between one and $2 million dollars in their IRA, and over the five to seven years, over the seven years, we converted the entire taxable IRA, to a tax free Roth, we had a party in the office, five clients, they were and I and I told him, I said, you remember when we first started, I said, when we first started, when I said, Okay, we’re going to move this bout over to the Roth. So, it can earn tax free returns, we had to pay the government though, we had to pay him by the end of the first quarter, and you kind of like, Oh, I don’t really want to do that, it goes against my grain. And then the second year, you felt better about it. And then the third year, you felt even better about it. Normally, after the third or fourth year, you can now start to take earnings from the Roth, to pay the taxes on additional Roth conversions. So, there are a lot of different strategies that we use that are extremely creative and legal to help you achieve a 0% tax bracket in retirement.
And for our viewers, what I’m gonna do is kind of give them a reminder on this Roth conversion. You have all of these clients celebrating what it is, by converting over to a Roth, then, it does not affect RMDs, you do not have to take the money out in RMDs, it does not affect your provisional income, which is your Social Security, right, and then your kids are able to take it out as well. So, there’s so many different tax advantages, the pain is paying the taxes now.
Well, we’ll look at it. Let’s take a look at this. Okay, so here’s the idea, not Roth IRAs do not have any RMDs. So for these clients, now, they’ve maximized their Social Security, while we were maximizing their social security, we were executing Roth conversions between the husband’s Social Security, averaging about $50,000 a year, his wife spousal, and this is the norm somewhere around 20-22 thousand out of that 70,000 and social security, because they’re taking distributions from tax free accounts, primarily, just some of the earnings on the Roth, none of their Social Security is taxable. And so, their IRMAA isn’t even affected, they don’t have to take required minimum distributions out of a Roth, they can take it when they want to, whenever they want to buy a new car or anything. Now we have that account that’s forever, never taxed.
And you know what always blows my mind getting to sit across from you here in the TV studio and the radio studio is that these folks are able to have more money in their pocket. And you haven’t talked anything about higher returns investment strategy, chasing after the ups and downs of the market. We’re just talking about moving the chess pieces around to their taxes.
It all comes down to this folks, you can get taxed forever in your government qualified taxable accounts. Or you can be proactive and execute a Roth conversion strategy. When we structure a retirement income plan, we want to look at estimated RMDs, and how that’s going to affect the taxation on your social security, how it’s going to affect your IRMAA Part B and Part D premiums. The additional premium you may have to take when you have to take these RMDs How about the death of first spouse when you go from married filing joint to now filing single, I want my spouse to have my Social Security, her pension and tax-free income from our Roth. And so what we what are we done now that she’s moved spiraling single, because I’m sure she doesn’t have to be forced to get married number one, but more importantly, what we’ve done is we’ve set up a tax free plan, not just for the two of us while we’re alive, but for her because those figure we pass away before female counterparts, and then the kids don’t have to worry about also paying taxes when they have to empty these accounts within 10 years.
So, part of what you’ve been talking about, I think is also a kind of a tax diversification strategy. I mean, most of us Americans have been saving in those tax deferred accounts. 401 K’s 403 B’s 457s. What about outside of there? Is there other tax diversification we can use for tax free investing?
Yeah, there are both this leads right into that asset preservation. So, once we win you, you have to understand preserving your assets means paying less taxes. If you want to pay more taxes, that’s fine. contribute to it. Okay, write the government check. And I’m not trying to be sarcastic. But I’ve had folks say, I don’t mind paying it. In fact, I’ve given the kids enough, I want the government to take the rest of it. And I’m like, if that’s how you feel, that’s fine. You shouldn’t have to worry about doing Roth conversions, unless it’s going to irritate you to pay more taxes while you’re still alive. But what happens when you know when you take the tax bite out of it, you do not have to chase higher returns because your returns. In other words, if you are receiving a 7% return on your portfolio, modest report term, conservative return, and you do not have to pay any taxes on that, that’s the same as earning nine and a half percent and having to pay taxes in a 25 to 30% tax bracket, because we’re looking at the after tax effect on what my spendable or disposable income is. Right. Also, it allowed- and part of wealth preservation is risk mitigation. Alright, so we do not, especially when we’ve done Roth conversions, we do not have to chase a growth. Normally, when we set up a person’s portfolio, I want my every single day money, I wanted to make sure it’s tax free, and I’m talking about my yearly money, I’d call it like my paycheck. I want my Social Security, maybe you have a government pension, great, all that is good. But I want to make sure that any distributions that I take are not taxed at that higher tax bracket. The Comptroller General, they’re very straightforward. They’re telling us at 35 trillion in debt, once we hit 40 trillion, especially with interest rates they are and with all of our entitlement programs, taxes are going to go up now we’re going to end the Trump tax cuts again at the end of 2025. But they’re talking about imposing an additional 15-20, maybe 25%. additional tax on top of that, to keep pace with paying the debt so we don’t default. Right. So, if your current advisor is not talking to you about tax, tax free investing, and how to hedge against inflation. When you’re looking at your retirement income plan, it’s time to make a phone call, give us a call at 888-818-6557. And let us sit down for a complimentary consultation and talk to you about how we can help you improve your retirement income plan by getting you to as close to or at a zero-tax bracket on your title.
We’ve got a very short message break here. Don’t go anywhere. We’re trying to preserve more of your own wealth. And let me ask you and your retirement years which would you rather pay for your health care? $150 or $560? Do you think that would add up over time this is one of the reasons why we want to get tax efficient. Phil is going to talk about Medicare and how we preserve more of our wealth when we get back right after this. For the first five callers call that phone number you see right here 888-818-6557 So you can get your own tax and complete wealth review with Phil Capriotti, senior of retire smart Austin, we’ll be right back.
My personal feeling is that no one who has worked in this country and paid taxes for 50 years, or 55 years should ever have to pay taxes in retirement if you put a plan together. That is tax efficient, so that when you retire, receiving money from Social Security should be tax free. receiving money from your pension should be tax free receiving money from maybe life insurance policies are tax free. If you put together the right combination. What you can find is you can structure a tax-free retirement plan for just about anyone to accomplish any retirement income goal. I now currently have clients that one $120,000 A year 10,000 a month. And I have clients that we’ve worked with the last 10 years that pay zero taxes on that income.
Welcome back to retire smart Austin with Phil Capriotti, senior of Empower Wealth and tax I’m Spike spangled today we’re talking about preserving your wealth back as Phil does nearly every single week. But really, really with a tax focus today, keeping more of our money in our own pocket. It’s somehow even by getting tax efficient, moving over into these Roth conversions taking half a million 1 million, 5 million, 10 million, converting these into Roth slowly. Well, that- Thank you, thank you. I wanted to ask you that. Is it an all or nothing? How would one do this?
With two different scenarios. I’ve run about a dozen different case studies with actual clients. Okay, so some folks will say, Phil, look, I want to do the Roth conversions. I love the idea; I need to reduce my RMDs. I didn’t know about tax-free tax planning or retirement income planning, I was told, just put it in a 401k. Put as much as you can in a 401k. When you retire, you’re going to be in a lower tax bracket. Now we’re finding out that’s not so much or not necessarily so much we don’t we can’t predict the future. But the fact of the matter is, some folks will say, Look, I’ll be willing to do Roth conversions. But I want to stay in an effective tax rate of 15%. How much can I do this year. So, I have designed software and we’ve updated it, and it’s proprietary software, that helps us stay within that range, that effective tax rate, I don’t want to go outside of it. So, when we do our mock tax return, to estimate what we can convert to the Roth in the lower tax bracket to keep it confined, and that tax percentage, every single year will move, okay, this year, you can move 66,000 Okay, next year, you could move 80,000. So, in May that may take a nine or tenure process, what I’ve normally see is most folks after the first couple years, they’re like, they start to see the tax-free Roth starting to grow by seven 8%. And they’re like, I need to do more of this. Because my IRA has grown by seven or 8%. I gotta, I’m still not putting a dent in so many folks who say, Look, I don’t mind paying 20% If I can get them out of my hair, and my kids don’t have to pay my spouse don’t have to pay taxes. Yeah. So, we’ll estimate, we’ll set up a Roth conversion strategy that not only does not exceed what they’re willing to pay in taxes by executing the Roth conversion, but also making sure it doesn’t hinder or significantly increase their Part B premium, which is an IRMAA tax.
And I want to know about that. But real quick, again, just as a reminder, if you missed the beginning of the show, why is it that many financial advisors aren’t talking to their clients about this?
Well, there’s a couple of reasons on and in fact, I just had a very good individual, you know, we met a number of times, and he has a financial advisor from Boca Raton, I won’t get into all that. The advisor said it’s not worth it for you to pay the taxes now, because you’re stunting the growth, the money you’re giving to the government will not be allowed to grow. And I don’t concern myself with taxes, I don’t make assumptions that taxes will go up in the future, because we don’t know. So, me, I’m looking at it. And I take a look at the portfolio and looking at how it’s managed. It’s a fee-based planning. So, the portfolio, obviously to one or two things, he doesn’t want to take money out of the portfolio, because that’s going to reduce his assets under management. Okay, for the could be all right. The other thing is he’s not; he doesn’t really understand the benefits of tax free, or Roth conversions, right? Because when you look at it, our software, one of the nice things I love about our software, and I didn’t get an opportunity to complete this because he decided to stay with his advisor, and that’s fine. What we do our software says this is the amount of taxes you’ll pay by converting let’s say, x value of your IRA, taxable IRA, to a tax-free IRA. This is the at the same tax bracket in the same tax bracket. This is the amount of taxes you’ll save by moving it over to the Roth over the next three years, four years, 567 years, I’ve heard you say when you when you look at that, and I’m showing the client, this is what you say that’s hundreds of 1000s of dollars at the same tax rate, not even worrying about future tax and crisis.
And all I was gonna say was I’ve seen you do this. Now, we are not promising any kind of numbers, but we’re saying you can see the future amount in taxes, I’ll throw out a number, you could pay over 800,000 million dollars in taxes on your account. And which would you rather do pay a large amount or maybe pay 100,000 or 200 or 300, there’s no promises on the on the amount for you. That’s why we want to do the review.
It’s like having a partner folks, okay, if you have a partner and I don’t want to say a bad partner, we’ll just say it’s like having a partner. Okay, sometimes you want to take over the business maybe because your partner isn’t maybe weighing their fair share or they’re getting ready to retire. You’re buying out your partner, which is Uncle Sam, you’re buying out the government from taxing distributions from your hard-earned retirement savings or retirement income accounts. That’s what you’re saying. They’ve given us the door they’ve opened this store up they opened it up in 2010. Many if not most of our elected officials have already executed their own Roth conversions because they saw the light.
I would like to see the facts and figures on that.
If we could, if We could see it. But the fact of the matter is if you want to buy out the IRS, so that you are enjoying a tax free, or extremely tax efficient retirement income plan, make the call pick up the phone, come in, and let us help you. We have the knowledge, we have the expertise, we have the staff, not only that, we have the experience, because we’ve been doing it for over 15 years.
We’ll continue to keep that phone number up and the QR code as well. There’s one last question I did want to circle back to it. Because I said $150 in payments or 200? I’ll compare it to 560. What is the IRMAA? Tax? Can you explain that?
Yeah, so if you’re married, filing joint, excuse me, and you have income of over $190,000, and we’re looking at adjusted gross income or modified adjusted gross income, your premium for your Part B and Part D, Medicare, excuse me goes from 160 and change up to like 240 per month? Well, then you go a little further, and it goes to 329. And then 400, and then 500. So many folks say well, I don’t want to do a Roth conversion, because I don’t want it to affect my IRMAA. Well, here’s the thing. If you allow that money to continue to grow at 789 percent a year, as you have to start taking required minimum distributions each year, you’re going to have to take a larger percentage of a distribution in an increasing retirement account. Okay, because normally the RMD started about 4%. If you’re making 7% 8%, that accounts still gross. Well, the fact of the matter is, when we take a look at the total tax, guess what, eventually, it’s still going to hit your IRMAA. Because you’re going to be forced to take RMDs I’ve seen people have to take RMDs of 150, 160, $170,000 because they’re in their late 80s 90s. Eventually it’s going to (indistinct)
And then you add that on with the Social Security and you’re ready up in hybrid and you’re already up in high rates.
And you’re like many clients, especially when I have clients where a husband passes away, leaves a wife a significant IRA, and they’ve never really done any Roth conversions. And all of a sudden, mom’s now instead of file married filing joint, she’s filing a single return. And all of a sudden, in one year, IRMAA went up from 160 to 500. And she’s like what’s going on? RMDs were the were the culprit, we can eliminate RMDs by executing Roth conversion strategies.
Phil Capriotti, thank you so much. wealth preservation is the two names of the game today. We want to make sure that you keep more of your hard-earned savings inside your own family and your plan. Get your own complimentary review and your tax report right here from Phil Capriotti, Sr. First Five callers first five people who use that QR code down to the bottom of the screen. Thank you so much for watching call 888-818-6557. We’ll be back next week.
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