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 and gentlemen, so good to see you guys today. You look amazing
John Solyman 00:47
Thank you, yourself look amazing, too.
Leah Woodford 00:49
I didn’t get the blue memo.
Philip Capriotti 00:50
No, man, you’re- actually that outfit is beautiful. It compliments us perfectly. So, I just love the way you’re dressed. All right, now that we’re done patting each other on the back, what is our show today?
Leah Woodford 01:04
Today we’re talking about why most retirees fail when it comes to paying taxes. They don’t have a written retirement plan with tax strategies. I’m going to let you unpack that, John.
Philip Capriotti 01:18
Go ahead and kick that off. What are the top, I would say, I’d say there are over 30 reasons, but let’s just start with, like, the Top 10 Reasons why folks pay too much in taxes in retirement.
John Solyman 01:30
Well, I can think of too we would carry that back to you, Phil. So, I believe a lot of the people out there, they’re working or getting closer to retirement, they rely so much on their employer plans that’s offered to them, or the tax deferred plans that they put money in it through their entire career. And unfortunately, a lot of those folks, when they rely solely on those accounts, they have a tax ticking bomb- bomb that down the line. Okay, they’re going to wrap this tax to be do that we talked about in the other day. The other thing that I can think of a lot of folks, when they accumulate for retirement, they don’t keep in mind that the these should think about their exit and how much taxes they will be subject to when they start easing into retirement, and this is when RMDs and all the other stuff can come into play. I think the last thing that I can maybe think of, it’s a lot of our clients that are highly beyond higher net worth and higher income earners, the when they come in, they don’t take advantage of the, I would say, the donation and all the credits and all the qualified charitable distribution that they can make, okay? And that leaves them with a lot of big accounts, right, if I may, that are subject to a lot of taxes. And we all know taxes in the future, most probably is not going to go down with all the debt that we have right now. They probably will raise a tax bill in the future.
Leah Woodford 03:01
Of course they will. Well and Phil, think about this. You know, even our financial planner hasn’t even encouraged us to switch over to a Roth IRA, you know, I think it’s just kicking the can down the road.
Philip Capriotti 03:15
Unconscionable. It’s unconscionable. Many folks fail to project their taxes in retirement, just assuming they’re going to be in a lower tax bracket. Actually, it’s the best time to start your Roth conversions. And one of the previous shows I was talking about the advisor that told the- this lady, who was a widower, that she he actually had the audacity to say Roth conversions are unsuitable for you. Yeah, and, and held himself out as a CFP, but, and again, this is where continuing education comes in. But at any rate, enough of that, many folks fail to project future tax increases. They don’t actually put a written plan together to look at all right, if my portfolio is average in let’s use a conservative rate of return, eight and a half percent per year. Let’s say that’s what it’s averaging over the last 5, 10, 20 years each year, compounding annually based on what I’m spending, maybe I’m spending 100,000 a year. Maybe I’m spending 200,000 a year when we write all of this down, and then we apply inflation, I like to use a three, three and a half percent inflation factor, annual inflation factor. They don’t- they fail to project future taxes. They don’t think about the other thing is, they ignore tax brackets in retirement. So, one of the things that we do for clients right out of the gate, you know, I’ve had clients going, Yeah, I’m going to look at my Roth conversion at the end of the year. Why? Why are we waiting at the end of the year? We normally do a mock tax return for our clients twice a year. The first time I want to do it is in January, third, fourth week in January, first week in February. I want to estimate what I’m going to make. I want to estimate if my wife is working or receiving some sort of income. Estimate her income. And then I want to get a ballpark. I want to work within that 12% 22 and 24% tax bracket. I don’t really want to jump into the 32% bracket. So, we’ll do a mock tax return in the beginning of the year with for a new client. And say you could probably convert 150 maybe it’s 250 let’s do 100 now. Why, Phil? Why do we want to do it now? Well, because we can set up quarterly payments to pay those taxes. The taxes are not due for another 15 months. Actually, by January 15 of the following year, all your estimated payments have to be paid. But it allows that tax free Roth to grow tax free through the entire year, and then at the end of the year, I want to top it up. How much did you actually spend? Oh, we have another 60,000 we can put in that Roth before we breach that 20, that 32% bracket. So, there is a methodical plan that we set up for clients to do that. And I would say again, I know I sound like a broken record. I’m sorry, but I’m really concerned with taxes and retirement. I truly am for folks, not for me. I’m not worried about taxes and retirement. I don’t have any tax deferred accounts. All my government taxable accounts are in Roth, right where they’re supposed to all of my clients that have, I would say 90% of my clients who have been working with us over the last seven to 1012, years, all of their retirements are in Roth. They don’t have to take RMDs all of the distributions from the Roth cause their Social Security to be tax free. And when they’re finished with the account, whatever is left passes to their kids tax-free. So, while their children are working, they can use that tax free and build their own Roth. So, taxes in retirement, it’s really simple. If your average tax rate is 25% don’t you want to pay it on the contribution and not on the accumulation? Don’t you want to pay it on the 30 grand you throw into the account each year, or do you want to put it pay it on the 2.5 million you’re taking out when you’re starting to slip, when you’re in your 70s, 81 we’re not going to be slipping our 70s. We’ll say mid-80s, 90s. Okay, when you’re starting to kind of get forgetful, is when this tax time bomb or torpedo, as John put it, hits so avoid it and it’s real simple. All you need to do is pick up the phone, dial 888-818-6557, or click on empowertaxbill.com I mean, all you have to do is type it in, empowertaxbill.com, our landing page is going to come right up, and you can answer a few questions. Also, you can hit empowerrothquiz.com. It is free to thee, so take advantage of our knowledge and take advantage of the services that we offer, and don’t be one of those folks that ignore their tax brackets in retirement, right?
John Solyman 08:23
And to your point, Phil, actually, if you’re not working with an advisor that they do the planning with the tax lens on mind, okay, it can create a big problem down the line and life scenario this year, in 2025 the one big, beautiful bill came in play. And a lot of our clients, as Phil said, we look at their taxes and income throughout the year, twice a year, right? At least twice a year. That being said, there’s a lot of the Social Security bonus and credit that came in play throughout the year. So even at the beginning of the year, with the client that worked closely with us, we did some estimate for how much we can Roth convert throughout the year, but with those extra bonus credit that came in play, those folks, we were able to communicate with them at the tail end of the year and getting them to do more Roth conversion with no taxes, because that now we have more bonuses coming into play. So, when you work with an advisor or a team that have the tax lens in mind. It’s amazing how much you can do with your retirement assets on the long run, on the short term too.
Leah Woodford 09:29
Why are so many people reluctant to make that call, pick up the phone and call you and set the appointment, not just you, but I mean financial planners.
Philip Capriotti 09:39
Procrastination. I’m going to go with the number one procrastination, not only that, life gets in the way. They’re too busy. They think it’ll take too much time, most of the time. We will do all of the preliminary before you even meet with us. When you come into the office, we’re ready to go. We’ll do a telephone interview, gather some information. We have the onboard. Now we use a tool where you put your information right in yourself. It gives us an idea of where we are, so we can start creating a plan before we’ve even sat face to face, eye to eye, wow. I mean, we’ve made it really easy, consider what we’ve done over the pardon me, over the last 10 years. When we come back, I want you to grab a pen or a pencil and a pad, and we’re going to give you 10 of the top 30 reasons why many folks are taxed more than they should be in retirement.
Leah Woodford 10:32
We’ll be right back.
Philip Capriotti 10:39
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Leah Woodford 12:01
Welcome back, Austin. I’m Leah Woodford with Phil Capriotti and John Solyman, and we are talking about taxes. And if your financial professional is not having this conversation with you, make sure that you call Phil and his team. The number is 888-818-6557, again, that’s 888-818-6557, 888-818-6557, or click the QR code at the bottom of the screen. Welcome back, guys.
Philip Capriotti 12:27
Good to be back. Good to be back. And I had mentioned that we were going to actually give you the list, because there are so many different variables to consider. We’d need a show that would have to be about 30 days long instead of 30 minutes long. Okay, so number one, number one, top on the list, why folks are taxed more than they should be in retirement is not putting together a written plan with tax strategies. Written plan is fine, but the written plan must have tax strategies built into it. Their decisions are reactive. They’re not proactive. We like to get proactive. Get ahead of the curve. Number two, failing to project future tax increases. This is also they think that taxes are going to stay the same. They’re not looking I have a debt calculator in my office. Every single day. We’re looking at the national debt going up. We’re about ready to breach $40 trillion and that’s with the slowdown with the Trump administration. It was, it was, I mean, we can look at the speed of it, and it was almost mind boggling. Number Four or number three is ignoring tax brackets in retirement, not looking at exactly how much you can convert. And the biggest issue I see is not modeling and required minimum distribution report, not looking at “what is my portfolio averaging per year? What am I spending? What are my projected RMDs at each and every age?” This is one of the key components in a tax efficient retirement income plan. It’s amazing that folks don’t use it when RMDs hit folks, let me explain. It’s too late to do Roth conversions. The horse is out of the barn. Okay? The toothpaste out of the tube. Can’t get it back in. What happens is they still allow us to do Roth conversions, but we can’t convert we have to convert the amount above the RMD. So, let’s assume my first RMD is $70,000 why have to take that RMD? Now for most of you, you can also do QCDs qualified charitable distributions, starting in age 70 and a half. And that’s something we want to look at as well. Okay, but you have to structure an RMD distribution report, and then you can start to see, oh, my, if I can do these conversions, 50,000, 100,000, 150,000 then what is my RMD look at? So, we can model it for them to show them. Here’s your Roth conversion plan. Now this is how it affects your RMDs, and we can structure a plan that coordinates their RMDs with what their actual goal retirement income is. It doesn’t take a lot of work. It takes picking up the phone, dialing 888-818-6557, or click the QR code and go to empowertaxbill.com if you’re looking at us this morning and say, There’s no way I have a problem with taxes in retirement. I don’t have a large enough retirement plan, then you have another issue that we need to deal with, give us a call. You have your issue is to make sure your money lasts through retirement. Okay? But the majority of our folks have been good savers. They’ve been good stewards of their savings. They’re just not thinking about the taxes, because it’s not being brought to the forefront, I would say, also failing to do a Roth conversion plan. You don’t even have to do a Roth conversion. Just put the plan together and see how Roth conversions in that limited tax bracket will affect the RMDs. This is such a crucial part of tax planning, and I believe, in my heart of hearts, every financial advisor. If you hold yourself out to be a financial advisor, you should be doing this for your client each and every year. And by the way, if the firm you work with is not requiring you to do it, and what we’re saying here, and been saying for the last six years, makes sense, give us a call. I’m recruiting new partners. We will train you. We’ll help you open up your own office. We expect to open up between 12 and 15 offices in and around the entire city of Austin within the next five years. I can’t open the offices up until we have qualified trained fiduciaries to place in these offices to run them. And of course, we have a partnership that goes with that. So, you don’t be shy. Okay, I love financial advisors that call our office. Dial 888-818-6557, tell them you saw me talking and you want to come in for an interview to talk about possibly running your own office within power, wealth and tax.
Leah Woodford 17:21
That’s amazing. So, Phil, why are so many people reactionary when it comes to taxes? Is it just because of their current planners or education?
Philip Capriotti 17:32
They don’t know any better. You know you don’t know what you don’t know. My dad used to say, Don’t be an advisor. I can still remember him telling me, he said, You better know the entire law if you’re going to start giving recommendations to people. And this is one of the reasons that I enrolled in ED slot Ira master as a master lead Ira advisor. I see advisors that wash out. They start here in Austin, because all you have to do is click advisor near me, and then take it a step further make sure that advisor has 1000 2000 retirement plans under their belt. They’ve been in business 15-20, years. Just being young and just being a certified financial planner doesn’t mean you’re- the- you’re the best fit. You need a financial advisor that not only major- not only specializes in estate planning, but tax planning. And I don’t want a green turnip that just fell off the truck, so to speak. I want to, I want an experienced individual to help with this or and I want to wear with so it’s education, and also, they’re not anticipating legislative tax changes.
Leah Woodford 18:42
Of course, now this is perfect time to break. We’ll be right back with Retire Smart Austin.
Philip Capriotti 18:49
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Leah Woodford 20:22
Welcome back, Austin. I’m Leah Woodford with Phil Capriotti and John Solyman of Empower Wealth & Tax. And we are talking about taxes right now, but one of the things that I want to talk about and ask you about, Phil is we talk about retirement planning, but what about maintaining our lifestyle? How can we do that when it comes to retirement planning?
Philip Capriotti 20:44
Well, you know, they have these rules of thumb, which, as far as I’m concerned, in today’s day and age, just like with modern AI and quantum computing and technology, throw those old rules out. I’m just saying normally, with our clients, when you get ready for retirement, they say one of the rules are, plan for 80% of your income. Absolutely not okay. That’s if you want to- you live in a cave. I’m going to say, and a figure a speech, plan on 100% of your income and add another 15, 20% for vacations. We actually structure a vacation as a special expense in addition to the retirement income. And I will also want to plan for taxes and inflation. So, I’ll ask a couple you know, how much do you plan on- you know, you’re retired now, you should be taking vacations with the kids, without the kids, with friends, without friends, all of the above. How much? And I’ll have some folks say, Well, how about $7,500 and it’s always the guy, right? $7,500 a year, and a wife looks over at him like $7,500 a year. Obviously you’re not planning to vacations. We like to look at and it could be $7500 a year. Maybe your passion is to go camping at the state park a couple times a year. Maybe that’s $7,500 but it but for many cases, it’s 15, 25, 30,000 I had a client spend $100,000 on vacations last year, and they had a great year, and they enjoyed it, and we baked it right into the retirement plan. But John, you were going to say something about, we were talking on the break about…
John Solyman 22:34
The taxes, right? I- a lot of people out there when you mentioned the word taxes, the first right light bulb that comes up. It’s, it’s a bill, it’s something I have to pay, right, right? This is, I think we’re conditioned to think that way, right? Yes. But when you work with a planner or an advisor that specialize in tax planning, we see the word taxes as opportunities, okay, this is an opportunity for me to go in there, into the planning, work with somebody’s money and make sure that he’s safe on taxes. So, it’s the perspective, unfortunately, when you work with a lot of big box retailer, okay, taxes is a part, and I used to work with them, okay, taxes is a part that we are almost prohibited, okay, to go down this route with our clients, and we have to send them out in that area. So, I would say it’s the length that you look at is being comfortable. To be uncomfortable talking about your taxes with somebody that know what he’s doing, and opening the door for the opportunities on the short term and the long term when you talk about taxes. So, it’s a great point, though.
Philip Capriotti 23:42
So, your financial advisor should also be your tax advisor. Okay, not only that, many of the folks that come into our office, and we court our prospects, our potential clients, we’ll visit with them three times, at least three sometimes more times.
Leah Woodford 23:59
So, you’re dating them before you get married.
Philip Capriotti 24:02
That’s it. We’re dating them before, and they’re dating us. Okay? We don’t take on every client. I mean, there were days 20 years ago where that was not the case, but nowadays we take on we choose our clients, just as our clients choose us, and there are many reasons for that we have a relationship. We’re going to be living through the retirement. I have five children. Three of them are in the business. Most of the people that I hire, they’re young. They’re between 28-ish, between 25-30 and 35-40 the next generation. And then we have because we want, not only do we want to work with our retirees, but we want our advisors to work with their kids and their potential grandchild children when we’re doing generational one of the biggest issues that are getting into the tax planning is folks with taxable accounts. I’m going to get off a Roth. You have money that you already paid taxes. You have an investment Portfolio, and each year you get a 1099, for the interest in dividends, and it gets reinvested. Many folks are not doing tax harvesting. But once a year, and I’ve had folks come into my office and they never touch it. They tell their- the advisor tells them to talk with their CPA. So, we like to do tax loss harvesting either weekly or every two weeks. I want to sell losses, I want to offset by trimming some of the gains to give me a net 0% tax bracket. So, for instance, I may sell $5,000 worth of losses next week, $5,000 worth of gains. Now I have $10,000 worth of free, non-tax dollars that I can diversify into, new technologies, new stocks, new companies and so forth. Now, when you’re doing this on an ongoing basis, weekly, twice, 25 times a year, what happens is you’re really getting your money’s worth from your advisor, and you’re truly getting a diversified, modernized portfolio, as opposed to the old cake in a box portfolio, set it and forget it. Yes, Said, and forget it. You can go to one advisor, and we’ve known there, there are hundreds of them, 1000s of them, around the country, and I call them cake in a box. And I got that from Henry Lande, and I’m not like Henry. What is that? He goes everybody’s portfolios at the same it doesn’t matter if you’re in California, New York or Texas. They have the same mutual because the company tells them to sell these, they have the same portfolio. We like to customize our portfolios based on our clients, tax bracket, risk tolerance, suitability and needs for income. That’s the basis of a sound written retirement income plan. I know we’re getting- Go ahead John:
John Solyman 26:51
A good point, though. I know we talked about the Roth conversion. We talked about the taxable accounts. There is a lot of strategies that actually can contribute into nondeductible part of our employer and applying what we could and make a backdoor Roth, if you do it right, okay, you can do it tax free. You can actually do it without the tax bill. This client that make a substantial amount, they think they cannot do Roth. We can help you with that. With the back door, there’s a lot of stuff out there, so…
Leah Woodford 27:17
There’s so much- There’s so much to unpack here. If your financial planner is not having this discussion with you, make sure you call Phil and his team. The number is 888-818-6557, again, that’s 888-818-6557, or simply click the QR code at the bottom of the screen and thank you for watching Retire Smart Austin, we so we’re so glad you came.
Philip Capriotti 27:43
God bless you and have a happy retirement. It’s a pleasure working with you, Leah.
Leah Woodford 27:46
Oh, I love working with you guys.
