Leah Woodford 00:00
Hi, and welcome to Retire Smart Austin. I’m Leah Woodford, and with me today is Phil Capriotti Sr and John Solyman CRPC of Empower Wealth & Tax. Welcome back to the studio, gentlemen, you guys are looking sharp today.
Philip Capriotti 00:48
Well, thank you, Leah, appreciate that. So are you, my dear.
Leah Woodford 00:51
Well, thank you
Philip Capriotti 00:52
Very good to be back in the studio with you and with John. And thank you for having me. Oh, it’s our pleasure. So, I think we’re tackling another topic today.
Leah Woodford 01:00
Yeah, we are. We’re talking about protecting lifetime retirement income, specifically taxes.
Philip Capriotti 01:09
John, you want to kick it off? Or do you want me to kick this thing off?
John Solyman 01:12
Well, I will say one thing, that the more you save on taxes, the more you get to keep in your pocket and get your saving to last your lifetime. But I know you’re the boss. So go ahead.
Philip Capriotti 01:26
You know, my entire life, I’ve never had anyone call me the boss, not my wife, that’s for sure, not employees. But I got to say, I really like the respect. He’s a true pleasure to work with, not only that, extremely knowledgeable. I would say the biggest expense in retirement for those of us who have saved diligently are taxes. And I learned this, you know, as a, you know, as a tax professional, for so many decades, I never, I really drank the Kool Aid as well when the naysayers used to say, Save now, while you’re working, put into 401(k). I mean, I started saving back when there was a Keogh plan, and that was only for executives, back when I was a manager with bankers driving casually, many, many moons, back in the 80s. But at any rate, I actually drank the Kool Aid there. I was young and impressionable. But again, we weren’t sporting a debt of upwards of $40 trillion and I believe that for those of you who are watching us, you have to understand, I’m nothing against politicians or anything like that, but many of these politicians, originally, when they went into Washington, it was to go for 10 years and become public servants. Now it’s more like self servants, and they because they’ve grown addicted to spending borrowed money, and the problem with that is they’ve grown addicted in spending our grandchildren’s inheritance. So with that being said, the old saying back in the day, and you folks probably remember this, is, go ahead and save for your retirement your 401(k), we’ll give you a match, whether it’s 3% or whatever it is, and when you retire, you will be in a lower tax bracket. What they should have said is, when you retire, you potentially could be in a lower tax bracket. Because what we’re seeing for most of us, especially like myself and many of you, we have children, we have grandchildren, we’ve worked hard. We’ve raised our children to be good, hard-working taxpayers, but most of all, we’ve saved in these retirement accounts. And many of the folks that come into our office, they have seven-digit retirement accounts, many of them eight-digit retirement accounts, because they’ve really invested well. They’ve had good investment advisors for accumulation, but none of them have done tax planning. I had even have clients that have come into my office in Horseshoe Bay and their CPA told them it doesn’t make sense to do Roth conversions. Wow. So, I had to give the CPA a call because and I had to talk with him, and I said, Have you run an RMD distribution report? And he and he’s like, No, I haven’t done that. I said, Well, how could you give such- you’re a fiduciary? Wow. And I told him, you’re a fiduciary. You cannot tell folks not to do a Roth conversion because it doesn’t make sense this year, and it actually- so, what I did was I sent him a copy of the retirement income plan with a copy of the RMD distribution, okay? And then we did a Zoom meeting, and he saw the light. He said, You know what? Now I understand it’s not just taxes this year. We have to look at taxes five years from now, 10 years from now, 15 years from now, we have to look at what happens to the death of the first spouse I go for married, filed, joint to file and single now my surviving spouse, she goes from the best tax bracket to the worst tax bracket. And I’ve made no plans so with any anyway. So today we’re going to focus on that. And I would say the biggest expense you have in retirement if you are a hard worker and a good saver, are taxes. Wow. And so that’s really what we want to dive into. The first thing is, and we’ve talked about it before, RMDs required minimum distributions now with the secure act 2.0 I won’t go in ancient history with the 1.8 with the secure act 2.0 they made our they’ve changed our first RMD age. If you’re born 1960 or earlier, your first RMD as at age 73 now if you’re born after 1960, 1961 and so forth. Your first RMD age is 75 and basically what they’re doing is, I see it taking a common sense approach to it is they’re allowing these investment accounts, these retirement accounts, these pretax accounts, to continue to grow, compounding annually, especially in these wonderful markets that we’ve been having, earning over 20% three, four years in a row. So, at any rate, when we look at these 401(k)’s, this is also what they’ve also done, is they’ve done us a favor. They’ve now given us more time to do Roth conversions, because with secure act 1.0 we had to take our first RMD at 70 and a half. Then they changed it to 72 but they eliminated the stretch for the kids and grandkids, meaning they have to now empty the account within 10 years, not take RMDs based on our children’s life expectancy. So, they eliminate that. So now for you CPAs out there, make sure you advise your clients properly, remember your fiduciary and do the planning. Don’t look at the taxes this year. Don’t necessarily look at what the Part B IRMA is going to be. That’s an additional tax on the Roth conversion. When we have a client with a million, 2,000,000, 5, 10 million in an IRA, do a required minimum distribution report, an RMD report, to look at each age based on the rate of return of their portfolio and what they’re spending, what their annual income needs are, make sure that their RMDs do not blow up their tax brackets in their mid, 70s, 80s, 85 and so forth. And if you’re unclear on what we’re talking about, please call our office. Okay, and I’ll be happy. I do a lot of training classes with CPAs understanding taxation on future distributions. We’d love to help you. So, with that being said, taxes, taxes, taxes, if you’re not focusing on reducing your taxes in retirement, or your financial advisor, or even your CPA, have not talked to you about it, go to empowertaxbill.com, that’s empowertaxbill.com to determine whether you have a potential tax issue coming up in retirement.
Leah Woodford 08:22
So, Phil, how often do you go into training for taxes to be able to talk to your clients? I mean, I know you have to go twice a year. Can we talk about that a little bit?
Philip Capriotti 08:34
Yes, yes. That’s good. Thank you for bringing it up. That’s great. You know, a lot of financial advisors do not really have to do continuing education in Texas for their Series 65 for many of the licenses, whether it be the 766, and so forth, which allows you to be a fiduciary and talk about taxes, wills and trusts and things of that nature. Back in 2008 I decided, again as an accountant, I decided to, I went to a workshop in Las Vegas with Ed Slott and Company. Ed Slott is a CPA who is known as America’s IRA expert. And the three days I spent with Ed Slott and company, I realized that if I was really going to be proficient with structuring comprehensive retirement plans, I needed to do tax planning. So, Ed Slot, you have to understand that the government changes the tax laws Several times during the year. They change IRA rules and distribution rules several times during the year. So, with Ed slot, we have continuing education monthly, and every six months we have to test out. Ed wants to make sure that you understand new tax law, new IRA rules, any type of conversion, changes and so forth that they’ve made, so that we can relay them to our clients so we can keep our clients proficient. What I like to do with our clients is we send out a weekly newsletter letting them know changes in their Medicare, Social Security, but mainly these IRAs. We also send a second newsletter out letting you know the changes in our managed portfolios. You know, we manage hundreds of millions of dollars’ worth of client portfolios. So, clients need to understand several different things. How are- How is risk going to affect their retirement? How are returns going to affect their RMDs and put it all together in a written return? So, over the last 18 years, I’ve done over 36, I’m getting ready to do my 37th certification, and a lot of advisors drop out of Ed Slot. Now, I’ve asked many of them why, and it’s the constant education, really.
Leah Woodford 10:53
So, why don’t my why isn’t that required for financial planners? I mean, taxes are such a big part of retirement.
Philip Capriotti 11:01
It’s one of those little, deep, dark secrets and black holes that people fall into. And you know what? Obviously, congressmen or folks that write the laws haven’t really required it, and maybe the financial industry shuts that conversation down.
Leah Woodford 11:19
Hold that thought, we’ve got to cut to a quick commercial break, but we’ll be right back with Retire Smart Austin.
Philip Capriotti 11:28
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Leah Woodford 13:00
Welcome back Austin. I’m Leah Woodford, and with me today is Phil Capriotti Sr and John Solyman CRPC with Empower Wealth & Tax. And we are talking about why financial planners are not going back for education, recurring education, is it? They’re lazy. I don’t get it there.
Philip Capriotti 13:20
And you know, these bills have come up in Congress, and they have been stomped out, stuffed out, okay, and many times. And I personally believe, and again, this is just a theory. I don’t have any documentable proof, but I believe the financial institutions don’t within, and many states do require, but it’s minimum. I think the financial institutions may have some culpability here, because I believe that they may realize that a lot of their advisors who have 20, 25, 30 years in the business, may just say, Hey, I have enough money. I’m not cracking the books anymore. I am not going to recertify every six months. I’ll just simply tell them, check with your CPA, check with your attorney, you know, check with, I don’t know, your brother-in-law. That’s really scary. Well, the thing is, I would say to you folks, when you talk to your advisor and you do a review, and you ask them, Do I have a tax problem with this large IRA or large 401(k), if they tell you, if they do not, sit down and put together a written, comprehensive, tax efficient, RMD requirement of distribution plan, where you can see what They’re going to look like each year to educate you, if they tell you, go talk to your CPA, fire them, I would say, fire, pick up the phone, get on empowerrothquiz.com click the QR code, dial 888-818-6557, the fact of the matter is, when you. When these massive RMDs are going to be called, when these markers are going to be called in by the federal government. And they’re also talking about in Secure Act 3.0 by the way, reducing the uniform life expectancy code. They never made any major changes in the uniform life expectancy code. That’s the code that helps you determine how much you have to take out of that IRA, whether you need the money or not. Okay, so they’ve- they basically- they changed the RMD age from 70 ½ to 72 in Secure Act 1.0, they eliminated the stretch IRA for our kids and our grandkids, they made it so they have to empty these accounts within 10 years? Well, many of our kids and grandkids are still working. So, if they have to empty an IRA, a taxable IRA account, that becomes a major tax trap. Also, if an advisor doesn’t want to do the heavy lifting and do the work, I would say they’re not earning their fee, because it makes them one dimensional. And to me, you have to have- cover all the bases. You have to cover the diamond. And the office should be a diamond.
Leah Woodford 16:08
Well, and if they’re, if laws are changing and things are changing constantly, how else can you have that education to pass on to your clients?
Philip Capriotti 16:17
Well, they basically just review performance. They look at different performance and different mutual funds, ETFs or stocks within the portfolio. They’re not looking at the growth of the portfolio. Many times, I talk to financial advisors, they don’t even know what the client’s annual income spent needs are. They never asked the question. They were again one dimensional. I had an advisor. I had a client come into one of our workshops over at Cedar Park Library. And this lady had just lost her husband, early 60s, had over $2 million sitting in the IRA, not spending. It really not spending, because they had other money and taxable accounts that she was living off of, to make a long story short, and she worked with one of the big box retailers. I won’t mention the name, but this gentleman was a certified financial planner, and he actually told her I was giving her misinformation. I love this about doing Roth conversions. I actually ran a retirement income plan, but again, I don’t want to demonize other advisors. All I’m saying is your advisor should be your tax advisor, your portfolio advisor. They should help you with your estate planning, and they should cover all of these bases, including new tax law changes to make you aware education will set you free in retirement. The more you know about the tax laws, the more you know about the retirement laws, the better positions you will be into to not make these retirement count- accounts a huge tax trap.
Leah Woodford 17:56
They are, and our kids get saddled with them if we’re gone.
Philip Capriotti 17:59
Many of the folks that we’re working with, they’re never going to spend all their money. We’re building generational wealth now, okay, but we’re focusing on tax free generational wealth. John, did you have something you wanted to add?
John Solyman 18:11
Yeah, to your point, though, there is a term for that RMD stage of your life, 73-75; they call it the tax torpedo. Okay, so that, because in a lot of cases, this tax bracket creep happen really fast for those that don’t prepare for their RMD earlier on, like 5-10, years before a lot of the people that we sit with the don’t take advantage of that stage when they stop working and to the point they get the IMD that is sweet spot of five to six years, usually, that you can take advantage of the rough conversion and all the opportunities. A lot of people don’t do that.
Leah Woodford 18:51
Wow, that’s so amazing. We’ve got to cut to a short break, but we’ll be right back with Retire Smart Austin, with Phil Capriotti and John Solyman.
Philip Capriotti 19:00
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Leah Woodford 20:32
Welcome back, Austin. I’m Leah Woodford, and with me today is Phil Capriotti Sr and John Solyman CRPC. Empower Wealth & Tax, and we’ve been talking about protecting your lifetime retirement, but we’re also talking about financial planners that aren’t doing their due diligence and continuing education.
Philip Capriotti 20:52
Well, you know, it’s a slippery slope. It’s not that they’re not doing due diligence. They’re not required to. So, it’s, you know, it’s like anything I’m going to do the absolute minimum. So, give an example. My father used to say to me, I would be walking through the living room, and there’d be a piece of paper on the floor, and I’d walk over that piece of paper, and my father would say, Phil, what are you doing? And I say, I’m on my way out, gonna play baseball. He goes, see that paper on the floor? Yeah, I saw it. He said, Well, why didn’t you pick it up? I said, because I didn’t put it there. He said, anything in your path make better as you move along. It doesn’t matter if you put it there, pick it up, throw in the trash, and then go on your way. Make it better. So, we’ve really fast forwarded that into our planning process. Make the clients return better, make their retirement income plan better, make their Social Security claiming strategy more tax efficient and better, make their wills and their trust. We’re going to do a show in a couple of weeks about the 12 Days of Christmas. Now I realize Christmas has passed, but we’re doing we’re going to do a show on the 12 different trusts, and who needs these different trusts. So, make the client better. So, with our planning service, what I decided to do is education, education, education. Just like Slot educates me, Ed Slot, we want to educate the client. So, when they come in to our office, we’re going to run their written retirement income plan. We’re going to run their earnings statement with Social Security to find out what’s the best claiming strategy for them, and if they’re married, them and their spouse. We’re going to also run that RMD distribution report. We’re actually going to run a morning star report and portfolio observation. We do this free, complimentary. It’s my way of giving back to the community and helping folks become more educated. You know, we have literally 1000s of people moving into the Austin area from all over the country, and it’s amazing, many times they are working with their old advisors from where they came from, and but they’ll watch our show or listen to the radio, and they’ll come in, and it’s amazing, I’ll ask them, what type of planning have you done with your other advisor, even for folks that have lived here for years? And well, they do, they do a plan. He assures me that my plan is fine. And so, the Social Security Report, the retirement income report, all in writing. Don’t talk about it. That’s all lip service has to be in writing. Has to be updated each and every year, running the Morning Star Report, looking at the estate, the trust, all of that complimentary. I want the client to understand what they can expect from our firm if they come on and they’re fortunate enough, and we’re fortunate enough to work with them, and they’re fortunate enough to work with us as well.
Leah Woodford 23:52
So, what is the Morning Star Report for our viewing audience?
Philip Capriotti 23:56
John? I’m going to let you go ahead and take that away.
John Solyman 23:58
Well, to your point, first, I’m going to follow up with this. A lot of the clients, actually, when we talk about the tax planning and the Roth conversions and so on, they get scared about the tax bill. Okay, we help our clients through the process and the reporting how to generate the money from the current resources to actually pay for the tax bill through tax loss harvesting. We’re already expert, I would say, in tax loss harvesting, generate the money through the resources to pay for the tax bill. Now we will take it to the Morningstar report. So, the Morningstar report is actually when you lift up the hood, okay, an institutional level analysis on your portfolio that helps you see what’s the internal cost, how much you pay for every single fund in there. That actually helps you also know, if you really diversify a lot of our clients, they come in, they look at their portfolios, oh, I have a lot of funds in there. And when we actually look what’s inside those funds, we call it the intersection, we see what security is inside the funds. I sat with a client with a 500 pages report in there, when I look at it, the has major holding in some specific stocks. The point is, we know how much the cost internally, how much your tax drag, how much a draw down can happen if the market going a different direction, and ultimately, okay, fine, if there is room for improvement, and this is when we apply our resources that we currently have.
Leah Woodford 25:26
Wow, so much to learn.
Philip Capriotti 25:29
Yep. We’re going to do a show. Our next show is going to be on tax loss harvesting. We just implemented new software. We’ve been testing it for the last five years. So, most advisors do tax loss harvesting in taxable accounts once a year. We’re actually doing it weekly and weekly. Well, yeah, we can sell losses and sell gains to create zero net 0% tax bracket that we can use that money either to pay the tax on Roth conversions or to diversify into new companies like quantum computing and mini nuclear and things of that nature that may not be in these older portfolios, so to not take advantage of our resources, honest to goodness, and I believe this in my heart of hearts, we put together a plan. Over the last 20 years, I have organized this company now to where anything that has to do with retirement planning or efficiency of retirement, we offer the clients complimentary. We want them to come in and kick all four tires before they decide whether they need to upgrade their retirement professional. You have to make sure this money lasts for retirement. You have to make sure that you’re not giving a big chunk of it back to the government. We have no idea what tax rates are going to be 10 years from now, 15-20, years from now, Congress can raise them at any rate. So, we have to be proactive and create a plan to make sure that we’re following the leaders in the industry.
Leah Woodford 27:03
Well, maybe it’s time for some of the some of our folks in Austin, to maybe give your office a call. And maybe it’s time to divorce your current-
John Solyman 27:11
Second opinion.
Philip Capriotti 27:13
Well, sometimes, yeah, I don’t know. Divorce is a hard word, maybe a separation, second opinion. And here’s the other thing, folks, you know, as God is my judge, you don’t go to the first person to get the second opinion. You don’t go to the same advisor to get I’ve actually had folks come everything that you said is great. Let me check with my parent advisor, and I’ll tell them, tell the current advisor to call us and we’ll be happy to review it. But at any rate, that’s a beautiful thing. Thank you, folks. Dial 888-818-6557, and go on and hit that empowerquiz.com. God bless you and have a wonderful Retirement. We look forward to visiting with you.