Cynthia, welcome to Retire Smart Austin. My name is Cynthia de Fazio, and I’m joined today by Phil Capriotti, senior of Empower Wealth and tax. And to our viewers at home, we’re talking about a very important subject today, dealing with Uncle Sam. We’re going to be talking about taxes. Phil, how are you today?
I am wonderful, and it’s so good to see you again. You look marvelous. What have you been doing? You look like you’re going in reverse with the age.
It could be the magic of bangs, maybe? I don’t know.
Oh, I like the bangs.
Thank you for saying that, and I love your suit, by the way.
Thank you. I appreciate it. You know, It’s summer now. We’re getting warmer, so we just gotta switch gears. I decided to expand the wardrobe, and as I was mentioning earlier, yeah, I told my wife, I said, Honey, I’m going to buy a couple suits. And she said, You gonna buy a couple suits? I said, yeah, yeah, I’m going to buy a dozen suits… Anyway. To make a long story short, I just wanted to kind of change things up. Get a little more modern, get a little more summery. And so along with our topic today, get a little more progressive, we’ll say,
Sure, sure, I love that. And obviously today’s topic is so important, so many people across the country are wondering about taxes right now, what their tax bill will be like in retirement. So, Phil, I should ask you, why did you choose this topic today to address for our viewers at home?
You know, I have a lot of folks that I talk to, and actually, these conversations have come up in the office with potential clients, and also on the golf course with different every time we play a round of golf, and I try to get out about four or five times a month, hopefully sometimes a little more, and we start talking about taxes, Phil, what do you do? And it’s kind of funny, because a lot of folks don’t really know me all that well, because I’m relatively new, only started a couple years ago, but taxes inevitably always come up. So, when I talk about tax planning and how important it is, I’ve gotten mixed emotions. I’ve gotten emotions where taxes really aren’t going to go up. It’s political suicide if they raise taxes. And some folks are actually foggy. They’re foggy. They’re not really seeing the forest from the trees. So, what it decided to do is, I said, let’s switch gears. Let’s do a history on taxes. Let’s do a history on the Roth, why it was designed and why it was passed through Congress, and let’s look at the past, because history has a tendency to repeat itself, and why do taxes go up? So, we’re going to talk about that specifically on how to implement tax free and tax effective retirement strategies within your retirement plan. Really important.
Phil, it is so important. So, this is the one time you’re going to be seeing us looking in the rear view mirror, looking back versus looking ahead, because it’s so important to take a look at where we’ve been historically with taxes. Let’s start with that. Phil, a little bit from what you’re seeing in your perspective, let’s go down the history.
Well, first of all, when we take a look at taxes, the first thing, the first question we have to ask ourselves is, when were taxes? Are federal income taxes actually implemented? Yeah, great question. Yeah, it is a good question. So, taxes actually started out back in the early 20th century. As a matter of fact, it was 1913 when Congress passed the 16th Amendment, and it was it was ratified. So, it’s now part of our Constitution. So, it’s ingrained. Basically, it allows Congress to levy taxes at any time, at any rate, what, and originally, when it was implemented back in 2013, they said, Oh no, no, no, don’t worry about that, any rate. We were going to start between 1% and 7% so that was the original tax code. 1% was the lowest tax bracket. The upper tax bracket was 7% that’s how it started. So, it just goes to and I see that look, and I see that and so but they but, but originally, a lot of the folks in Congress said, but we have to put a cap on it. We have to put a cap on it. And some of the other sides of the aisle said, Oh no, no, no, no, no, you can trust us. You can trust us. We don’t need a cap. 7% will be plenty. Well, what happened was a lot of different things happened. We had World War One that caused Congress to implement additional taxes, and we’ll get into that. But what they realized was they like spending other people’s money, and they especially like other people’s money to implement policies that get folks to vote for them. Now, prior to 1913 it was illegal to even buy someone a beer before they wanted to go vote. That’s where the prohibition of keeping the bars closed, but, but political candidate couldn’t even buy an individual beer because they would be misconstrued as paying or buying votes. That’s interesting. So that’s where it all started. So, we’re going to bring it fast forward. The initial rates range from 1 to 7% okay, and with the top rate, applying the 7% rate only on folks making 500,000 a year. Now we’re talking about 1913 here. Wow. So, $500,000 a year back in 1913 what’s the equivalent? Maybe 5 million today, absolutely. The it’s actually the equipment is about several million, okay, so about three or four. So, World War One started, okay? And this is basically the history during that world that war tax rates were increased significantly to finance the war. Does this sound familiar? Absolutely. So, the top tax rate folks reached 77% Oh my gosh. So it went from one to 7% one being the lowest 7% for folks making 500,000 at that time or more, to 77% and it and that happened in 1920, a short seven years, that 7 seems to come up 1 to 7 from 1913 seven years later, 1920 taxes ballooned up to 77% and that higher rate, top rate of 77% only affected folks making $1 million a year, which by the end of the decade, the top rate was about 25% but at any rate, then the Great Depression hit World War Two, and during that time, during World War Two, the top rates went up to 90% folks, wow, nine zero. So, it went from one to seven, wow, to 77 top rate to 90% and that stayed at 90% until 1960 President JFK. So, at that point, from 1960 to 1980 tax rates gradually reduced, and the top tax rate was as high as 70% and it was reduced to 50% just give me half. I’ll be happy with half. Just give me half. So what we are seeing playing out, because we’re going to talk about the reasons taxes go up, I’m going to say the excuses that are made for increasing taxes, there are a number of different things, but they went to 50% so with that being said, many legislators are talking about we should be very thrilled and happy that the tax rate is only 39 40% and that if tax rates go when tax rates go up an additional 20% even when they go up to 50% which is soon to be coming, it’s on the horizon, we should still be happy, because they were as high as 90% and 70% back in World War One and World War Two. Okay, so what we’re talking about here is not a depressing subject. You don’t realize you have a challenge in your retirement plan until you really do a deep dive and start to dive into your actual written, tax efficient retirement income plan. We talk about it at nauseum. We truly do about tax reduction strategies. One of the benefits of working with an ED slot mastery lead Ira advisor, which our firm is one of 17 years, is the tax planning. We have to focus on distribution planning and tax rates in retirement. As tax rates go up, we want to make sure that our retirement income plan is bulletproof with respect to being immune from further taxi increases. And we’re talking about the Roth IRA. So, get ready, folks in the as we continue to go along in the next segment. We’re going to talk about what causes tax rates to go up, and you’re going to draw a lot of comparisons from history from then and now, it’s almost frightening, so stay tuned.
Phil, thank you so much. To our viewers at home. There’s a number to call on your screen. That number is 888-818-6557, if you’re in the viewing audience today, and you’re learning for the first time the history of taxes, and we’re talking about the trajectory of where taxes can go in the future. Do you have a tax plan? I mean, a true tax plan, a written, tax efficient retirement plan? If not, this is the perfect opportunity to claim your spot today with Phil and his team, that number is 888-818-6557, if you don’t have a pen handy and you’re busy, you’re going out the door, just grab your smartphone, click on that QR code at the bottom corner of your screen. It’s even simpler still, and that will take you right to the landing page for Empower Wealth and tax and you can claim your spot accordingly. Don’t go anywhere. We’re talking all about the history of taxes, talking about where they’re going in the future. We have so much more when we return.
I first got in the financial world in college, the first year, summer, I got a position as a laborer underground and about 110-degree heat. After that first year, I realized there’s no way on God’s good green earth that I’m going to be a laborer for the rest of my life. So, it made me really buckle down to my studying. Second year, a friend of mine got his insurance license and worked with a company called the palm Ross agency. So, my very first week, I’m broke. I go in, they give me 50 leads that been worked by about seven different agents. So, I’m thinking, I think they don’t want to give me the new leads because I’m green. But okay, I’ll go on it. I had made more in that first week than I made in an entire month as a laborer. I did that my sophomore year, my junior year. In my senior year, I got ready to graduate. Well, I’m graduating top of my class my senior year. So, I’m getting offers now, and I have another offer from banker’s life and casually, to go into their entry level management program. I was the very first branch manager, the youngest branch manager with anchors life, and casually, I was running the Philadelphia office. By the time I was 25 I was running the Toms River New Jersey office, and I was running the reading office. So, my wife was not too happy with me at that point. So about three years later, I started my own company, and that’s when I actually decided to become independent, and then the rest is history. I’ve been in this industry for quite some time.
And welcome back to retire smart Austin. My name is Cynthia de Fazio, and I’m joined today by Phil Capriotti, senior of Empower Wealth and tax. And we’re taking a look in the rear-view mirror. We’re looking at taxes, the history of taxes, and most importantly, where are they going in the future, and how does this impact your overall retirement plan? Phil, what a great history lesson we had in our first segment. That was very enlightening.
Well, a lot of folks, you know, we get so busy, and we don’t really look at the past, but we all we know this through experience. We’re baby boomers. We are intelligent. Why? Because we’ve learned from our past. We’ve made a lot of mistakes in the past, and if you don’t learn, you kind of burn from it, right? So, so getting back to our Okay, quote, unquote history lesson, yes, from 1980 to 2000 now I remember these days, I had just graduated college, and shortly after that, got married and they we had further tax reductions. So, taxes actually dropped down to a top rate, pardon me, of 50% okay, and that was up through the beginning of the 21st century. So, in the early 2000s tax rates dropped. They dropped between the top rate of 35% and now with the new Obamacare tax it’s actually called something different. I won’t get into it. It’s designed to finance the Affordable Care Act. So, with that being said, that top rate is 39.6% let’s back up. We’ll back up to Congress saw this happening. They knew the taxes were going to have to go up. We kind of got a breather. Why were taxes going up? Because debt was increasing. Wow. Okay, so in 1997 just a quick just a quick history 19 seven. Excuse me, 1997 we had the tax reduction act, which was implemented by William Roth. He was actually a Republican out of Delaware, and they he put forth a bill to. Help folks save in retirement tax free. Wow. So, this is really where the Roth IRA came from. Senator William Roth. They used to call him Bill Roth, and he was out of Delaware. Boy. Delaware has changed a lot since then, but at any rate, with that being said, the idea was to put after tax contributions into a retirement plan that would grow tax free. In other words, pay tax on the seed. This is 1997 and then you could take distributions out once you reach 59 and a half. They limit it to 59 and a half tax free. So, you simply pay tax on the seed, you let it grow for decades and decades, and then you could take it out at any time. One of the codicils in that bill was there were no RMDs required from the Roth IRA, so you aren’t forced to take out a distribution. There was no age limit. And in addition to that, you could transfer it to your spouse. And back then, you could actually stretch the IRA to provide RMDs to your children and grandchildren. Of course, all of that is now gone, right? That is all gone. So, with all of that, the only catch was, with that particular plan, was you had to earn below a certain income to qualify. Okay, so if you earned over 80 or $90,000 you earned too much to put money into a tax-free plan. Oh, wow. All right. So, so the idea was, wait only the poor people. Well, yeah, we have to give poor folks a tax break. Was the idea that you’re going to see in 2010 that all changed. Okay? So, we actually had limits, income limits, on contributions to your Roth IRAs, and they didn’t have the Roth 401. Case like they have now, with that being said, in 19-, I’m sorry, in 2010 Congress met again. And by the way, when they passed this Senator, we bill, Roth, William Ross, the Democrats and Republicans actually talked to each other, and they actually got along. In fact, they were 400 there were, it was. The bill was passed by bipartisan support folks. It was passed with a vote of 85 to 14 from the Senate. Pardon me and the House Representatives passed it with a vote of 389 to 43 Wow. So, a lot of Democrats voted for this bill. They saw the benefit of it. Now fast forward, because, like my dad used to say, know the tax code, because normally, legislators change the tax code somewhere, there’s going to be a benefit for them, for us, but also for them, sure. So now we’re going to fast forward 2010 and 2010 as part of the Deficit Reduction Act, okay, which was passed by Congress. Again, there were only eight or eight to 10 dissenters in this bill Congress decided. Actually, the Democrats decided. They came out and they put their signature on this Roth, and they said, our debt is much too high. We actually have several trillion in debt. And in a way to reduce our debt, because, obviously, we don’t want to default on our debt. We’re going to allow for Roth conversions. Up until that time, it was strictly Roth contributions. Interesting. Now, in 2010 they open up the door for Roth conversions, Roth conversions. So, we’re going to talk about those Roth conversions, because what has happened is each and every one of our elected officials, and I’m talking with you folks out there, everyone has not only this beautiful pension when they retire, but they also have retirement accounts. So, from 2010 to 2011 then, in addition to paying down the debt, they’ve allowed us to take money from IRAs 401, case, move it over. If you it’s a 401 K, move it over to an IRA and then convert it to the Roth. Pay tax on the seed so they didn’t raise the income limit, but they allowed you to come through the back door and do a conversion. Okay, all right. Well, guess what, all of our elected officials, own folks, right? The Roth. So, pay attention, because when we come back, and I think we’re getting ready to go into a break, okay, when we come back, we’re going to talk about you following the leader. It’s extremely important to understand why. Why, where, when and how, and that’s how will taxes go up in the future.
Phil, thank you so much to our viewers at home. We know you’re learning a lot today about taxes, and now you’ve heard about the Roth conversion, and we talked a little bit about the back door Roth. Well, if you have questions about overall tax planning, Phil and his team have the answers for you again. All you have to do is pick up the phone and call in today. 888-818-6557, what you’re calling in for today is the tax efficient retirement plan, and you deserve to have tax efficiency in your retirement, right? You’ve worked your entire life to get to the retirement years. Take control of your own financial future, especially when it applies to taxes. If you don’t have a pen handy, that is okay, grab your smartphone, please click on that QR code at the bottom corner of your screen. It’s even easier. That will take you right to the landing page for Empower Wealth and tax. We’re going to take a very short commercial break. Don’t go anywhere. We’re talking all about the history of taxes and what’s to come in the future. We have more with Phil when we return.
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 so you may live every day to the fullest and enjoy the retirement of your dreams.
Welcome back to retire smart Austin. My name is Cynthia de Fazio, and I am joined today by Phil Capriotti senior of Empower Wealth and tax and we’re talking all about taxes today, the history of taxes, tax planning, and most importantly, where are they going in the future? Okay, Phil, where are they going in the future? What’s going on?
If it’s not obvious to most folks. It’s certainly obvious to those of us who are baby boomers that have paid taxes over the last 30-40, for some of us over 50 years. So, let’s talk about that. What allows Congress to pass tax increases or tax decreases? It really comes down to policy. It comes down to the policy makers. So, predicting future tax increases, the Controller General has already told us that with the increasing debt, we can expect taxes to go up significantly. So, the very first thing I have to tell you, and I don’t like to get political, and I won’t, but this election coming up is extremely important, because one side of the party wants to eliminate the Trump tax cuts. So, we’re going to start there. When the Trump tax cuts were initiated, the idea was, give government less money, give the actual taxpayer more money, and what will happen in result is we will see extensive growth, and we did. There’s no doubt about it, from 17 up until the pandemic, the market was had taken off. Prior to that, we were very, very weak, kind of like we are now. However, there are certain so there are economic reasons, there are political reasons, and then there are social factors that we see tax increases. So here are the major reasons why that caused federal income taxes to go up. Number one, sounds familiar, budget deficits, course, raising when the US is running a budget deficit. And right now, we just hit 35 trillion and counting, from all estimates, we’re borrowing $1 trillion every 100 days. Now, they put it on steroids, especially with all of the newcomers that we have coming into our country. So, there’s a growing concern that long let the long-term sustainability is simply not there. So that’s number one, the first reason. Second reason, demographic changes. We are now seeing the demographics in this country change significantly by political and social policies that are being implemented. That’s the second reason, taxes increase, and again, we’re just using the past. So as the population ages, we have less people paying into the system, which is another issue, and but this is going to affect the fund, our social security and our Medicare Fund, which is expected to go red somewhere around 2,033. Third reason that causes taxes to go up, increasing health care costs. Does that sound familiar? Of course. So, we take a look at the 3. Now increasing health care, funding health care programs, especially programs for the indigent, programs for the newcomers, programs, pretty much for everyone. This all is the burden of the taxpayer. As a matter of fact, if you look at the debt clock, you’ll see the tax, the total tax due for all taxpayers, it’s about close to 300,000. Per citizen. It’s about 100,000 Wow. So, each taxpayer is paying for about three citizens. Wow. The next thing that causes taxes to go up. Get ready, income inequality. Oh, boy. Okay. So, does all of this sound familiar? Okay, there’s a growing focus on income inequality. In other words, if I didn’t work for it. I still deserve it. Okay, and I understand. I would say that the United States of America is one of the most generous countries ever in the history of man. If you can’t make it here, you’re not trying. It doesn’t matter, as far as I’m concerned, it doesn’t matter color, race, religion, creed is irrelevant, because it’s open for everybody, but you have to have the chutzpah to want to do it. Next is political change causes tax increases. Changes in political leadership at any time can cause significant tax increases in the future. Now, when you couple all five of these variables together, we are almost certain to see number one depending on who gets elected. Okay, the Trump tax cuts expire January 1, 2026, that means your 12% rate goes to 15% that means your 15% rate goes to 18% it automatically increases in every single tax bracket, 20% and then load another 15 to 20% tax increase on top of that to accommodate all of the five factors that we outlined, voila. This is the reason to effectively produce a tax efficient retirement income plan.
Wow, Phil, thank you for an amazing and so informative episode this week. I really enjoyed it to the viewers at home. As you can see, you need to have your tax efficient retirement plan. It’s not even an option. You need it call in today to claim that spot with Phil and his team, 888-818-6557, or grab your smartphone, click on that QR code at the bottom corner of your screen. Even simpler, still, be safe, be happy and be blessed. We’ll see you back one week from today on Retire Smart Austin, take care.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
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.
