Leah Woodford 00:00
Hi, and welcome to Retire Smart Austin. I’m Leah Woodford, and with me today is Phil Capriotti Sr. of Empower Wealth and Tax. And today we’re actually going to be talking about 401, 401-Ks and Roth conversions, because you may have money in a 401-K that’s being taxed and you may not know it. So today we’re going to be talking about Roth conversions with Phil Capriotti.
Philip Capriotti 00:56
Good to see you. Good to be with you again, Leah. Really appreciate our time together. And Cynthia told me to say hello, and she appreciates you kind of keeping it, keeping it going. We want to give new content to our viewers each week. I actually had a client, Do you guys do reruns? And I’m like, Well, we had to do it a couple of times, but we don’t like to. We like to do new content. So today’s show is really an amazing show, because I’ve had people ask this: Why do other advise—Why don’t my, why don’t my, why doesn’t my current advisor talk to me about Roth conversions? I’ve had other questions. Why don’t advisors talk about Roth conversions? So we’re going to tackle the reasons why. Because you, you get mixed signals. I’m telling them, we need to make your retirement more tax-efficient, or you’re going to have a serious tax issue in retirement. Their advisor is saying, no, no, no, that’s not true. You know, basically what they’re saying is, stick with me. So we’re going to unpack the reasons why most advisors, especially advisors that work with big box retailers, don’t recommend Roth conversions. Okay? And there’s a number of them, and so we’re going to kind of dive right into them. I’m going to tell you right now, folks, if you’re with an advisor that’s recommending or hasn’t talked with you about potential Roth conversions, and you have an IRA, a pretax account, of 500,000 or more—a million, 2 million, 3 million, 5 million—you need to, you’re going to want to pick up the phone early, because we have 12 spots each in each week’s show, and we’ve been exceeding them. So dial 888-818-6557, or click the QR code for the fast track. This week’s topic is going to be amazing, and I’d like to meet with you in person. So if you’ve been watching this show, and apprehensive of calling, pick up the phone. Dial early, rather than later. So—
Leah Woodford 02:55
So Phil, I have a real quick question for you.
Philip Capriotti 02:57
Shoot.
Leah Woodford 02:58
When is a good time to consider a Roth conversion?
Philip Capriotti 03:03
Well, I’m going to start with Roth contributions.
Leah Woodford 03:06
Okay.
Philip Capriotti 03:07
The best time—because there’s two different things. Roth contribution, you can only do that while you’re working and have earned income. Roth conversion is, is primarily used after you stopped working and you have too much in the 401-K. Eight hundred thousand, a million, 1.5, 2, 3, 4, 5 million. We, we get all of them.
Leah Woodford 03:28
That’s scary.
Philip Capriotti 03:29
Well, it’s great retirement, but they’ve never done RMD planning. They have no idea what having—how much—they don’t know what the government’s cut’s going to be.
Leah Woodford 03:40
And can you tell our viewing audience what an RMD is?
Philip Capriotti 03:43
Yeah, an RMD, as you probably know from listening to us, is a, is a required minimum distribution. If you’re born 1960 or earlier, your first RMD comes in at age 73.
Leah Woodford 03:56
Okay.
Philip Capriotti 03:57
If you’re born 1961 and later, your first RMD starts at 75. So the government really wants these accounts, these pretax accounts, to continue to grow. Let’s talk about the advisors. Most advisors, unfortunately, especially big box retailer, I call it, you have a cake-in-a-box portfolio. Basically what they do is put a different name on it, but it’s basically the same cake, same group of mutual funds.
Leah Woodford 04:25
One size fits all.
Philip Capriotti 04:46
One size fits all, yeah. So many of these folks, and even if it’s a stock portfolio, you know, depending on—I don’t want to name any companies, but you all know ‘em, you’ve seen the advertisements constantly. So, firm structures and incentives. So most of the reason, one of the major reasons is that a lot of these advisors are product-driven. Okay, so they’re compensated based on product sales or AUM growth. They’re not compensated on tax planning. So because they’re not compensated on tax planning, we do the—
Leah Woodford 04:58
They don’t do it.
Philip Capriotti 05:00
They don’t do it. They don’t do it. And so, with that being said, it’s not a priority. So they don’t want to dance around the subject. They won’t even dance around subject. Many times, the advisor is intimidated with taxes. They’re unfamiliar with the tax code, tax laws, they’re unfamiliar with the client’s—even many times I’ll see where we set up a retirement income plan, they have no idea what the client’s Social Security strategy is. Why? They’re not compensated on them getting Social Security. Now, more and more advisors, after listening to me, especially here in Austin, over the last six years, are starting to get with it. They’re starting to realize, oh my goodness, we’re losing a lot of clients because we’re not doing— So now, it becomes, we gotta, it’s, we, it’s, we have to do it, or we’re going to see our practices diminish. Revenue-focused over tax efficiency. So big firms prioritize products like annuities, managed portfolios, that generate fees and commissions, okay. Roth, conversions don’t generate immediate revenue.
Leah Woodford 06:10
But Phil, a lot of people aren’t even aware of the, the fees that they’re getting.
Philip Capriotti 06:15
I’ve had both CPAs and other advisors say they don’t—they realize they don’t understand where the money is going to come to pay the taxes. We help the client develop a plan. Many times, these clients have hundreds of hundreds of thousands, at fifty thousand, a hundred thousand sitting in a bank, making nothing. And the idea is to buy out my partner, the government. And a lot of other firms, some clients who may not have cash in the bank, will take withholding from the IRA and then move the balance of the Roth. In other words, I might convert 150,000 and I’m a 20% bracket. I’ll send 30,000 of that to the IRS, pay them off, because they’re going to get it anyway. Now that 120 can grow tax-free, and I don’t have to take an RMD. Well, a lot of firms don’t want you to pay that early. They, they’re getting paid on the amount of assets. So giving 20% or 15% to the government means that’s 15 or 20% less that they’re collecting fees on.
Leah Woodford 07:17
Got it.
Philip Capriotti 07:18
And I, and I’ve seen this, I’ve seen it time and time again. But we’re, they’re missing the big picture. These Roth conversions are designed, number one, to help the client get their Social Security tax-free. The other thing, so if you’re receiving Social Security tax-free, and taking money out of the Roth to accomplish that objective, you actually—what happens is your portfolio actually grows to a larger number after the 5-, 7-, 8-year period that we’re doing the Roth conversions.
Leah Woodford 07:50
Amazing.
Philip Capriotti 07:51
I normally recommend doing Roth conversions sometimes while you’re still working, depending on how much you’re making. Maybe you’re only making a hundred thousand, a hundred and twenty thousand a year. Well, that gives us a lot of wiggle room. That gives us another two hundred thousand, two hundred fifty thousand before we jump into that 32% bracket. So for those of you who are watching today, I like to do Roth conversions in the 0% bracket, 10% bracket, 12% bracket, 22 and 24, depending on the size of the 401-K or the IRA pretax account, and depend on what your goal retirement income is. See, we have a formula. We custom-design not just your Roth conversion, but your portfolio, your portfolio’s investments based on what your needs are. I’m not concerned with assets under management. I’m not concerned with insurance product. I’m concerned that you retire tax-free, or at the very least tax-efficiently.
Leah Woodford 08:52
Well, and Phil, how many people are surprised at tax time when they retire? I mean, if you don’t have a plan like this in place, you’re going to get crushed by taxes.
Philip Capriotti 09:01
Here’s another thing that I’ve noticed with a lot of advisors. Folks will retire at 66 or 67, and they’ll say they want to take distributions from their IRA, and they’ll be like, No, you don’t want to do that. You want to go file Social Security. I’ve had advisors have clients file for Social Security earlier than they should have. Why? Because they don’t want them to take distributions from the portfolio. And again, I’m not trying to demonize all advisors. I’m just saying they’re all different. Like for us, for instance, we’ve been doing this now for, since 2010 when they changed the law. As an Ed Slott Master Elite IRA advisor, I’ve learned these Roth conversion techniques from Ed Slott. So with that being said, I’m more concerned with the client’s overall income being tax-efficient. I’m not concerned with what we’re managing. I’m not overly concerned with that. I firmly believe that if you paid taxes for the last forty, fifty, years, by 75 you should retire tax-free. We give clients a path to get there.
Leah Woodford 10:07
I love that. We’ve got to cut to a short break, but we’ll be right back, and we are talking about Roth conversion, so stay tuned.
Philip Capriotti 10:16
You know, folks, market losses aren’t the only risk in retirement. One of the biggest, most overlooked risks is the tax bill on your qualified assets: your 401-Ks, IRAs and all pretax investment accounts. As future tax rates change, so does the value of your retirement income. A Roth conversion will reduce your future tax exposure and create more predictability. But timing and strategies matter. Want to see if a conversion could be right for your tax-efficient retirement income plan? Take the Roth conversion quiz today. It’s free, and it can help you make a more informed decision about your financial future. Scan the QR code on the screen or visit empowerrothquiz.com to take your Roth conversion quiz today. Hello, folks. My name is Phil Capriotti Sr. You know, we have been helping folks like you create a tax-free retirement income plan for over two decades. I’m a firm believer that if you worked and paid taxes for the last 50 years, the one thing you shouldn’t be burdened with is excessive taxation at retirement. At Empower Wealth and Tax, we specialize in helping you reach your desired retirement lifestyle with a tax-free and tax-efficient retirement income plan. With the probability of taxes going up significantly in the future, let’s plan your retirement right. Call us today and start empowering your retirement right now.
Leah Woodford 11:54
Welcome back, Austin. I’m Leah Woodford, and today we are with Phil Capriotti of Empower Wealth and Tax, and we’re talking about Roth conversions today. So make sure that you click, or actually just go to empowerrothquiz.com, again, that’s empowerrothquiz.com, and let’s, let’s get started, Phil.
Philip Capriotti 12:14
Let’s talk about our competition, other advisors, and why they don’t make these recommendations. The two, the second most important variable through my experience over the last 25, 30 years is training and expertise. So for instance, many of these advisors simply lack tax education, tax experience. That’s why they say, go check with your CPA, who, by the way, also lacks the experience with respect to retirement income planning tax-efficiently. So we have a void right there between the lack of expertise with the event, the financial advisor and the CPA that’s looking at, how do I save you the most today in this year’s return? So many advisors aren’t trained deeply in the tax code nuances or Roth conversion optimization strategies. They simply don’t do it. They’re not paid to do it. The other, the other variables—
Leah Woodford 13:13
Hold on just a sec. You said something really powerful, Phil. They’re not paid to do it, folks. So they’re not going to do, they’re not going to check on this stuff because they’re not educated and they’re not paid to do this. Let’s talk about your education real quick.
Philip Capriotti 13:28
Gosh, we could spend a couple, we could spend a couple hours talking about that. I started way back when I went to a business school in Philadelphia called Philadelphia University. I went to their business school, graduated with a degree in accounting, finance and economics. So I, as far as taxes and accounting, I was a big fan of auditing. I was very fortunate because I had a, I had an offer with Price Waterhouse, which was at that, at that time, one of the big five firms, and then I also had an offer because of my insurance experience. I spent my last two years in college in the insurance industry, working my way through college, from Bankers Life and Casualty with entry level management. So through that, when I came out of college, I had two major offers, and that kind of was the foundation to where I am today. Getting back to why other advisors don’t really recommend, they’re, they’re, they have a fear of being wrong. They have a fear of being wrong because tax laws, they are, they’re complex, and they’re ever-changing. And many folks might even think, what if taxes come down? And I made this recommendation. Now, as far as I’m concerned, I believe that’s not using common sense, but that’s another story. The other thing is the credential gaps, so CFPs, okay, certified financial planners, and series licenses, series 65 and 66, they don’t equate tax specialization to the two, so they don’t want to touch it. Again, I’m an accountant and a finance—and a series 65 advisor. I’m an Ed Slott IRA master elite advisor for the last 18 years, okay? And have continued that education so we stay current on taxes. I own my own tax practice inside of our company, okay, in addition to wealth management, so we have always married the two. Also, continuing education doesn’t emphasize tax planning. And I believe as we move into the future, five year, 2, 3, 4, 5, years from now, advisors are going to look back and they’re going to say, We should have done tax planning. I believe big box firms, the cake-in-the-box firms, are going to realize—
Leah Woodford 15:51
Love that cake-in-a-box.
Philip Capriotti 15:52
—that they should have diversified as well. Okay, so with that being said, and then the last thing I would say is comfort zone. A lot of advisors, but whether male or female advisors, aren’t comfortable talking about taxes. And again, it all comes down to not being paid to talk about it, transferring responsibility—”just talk to your CPA”—and not really being acclimated to the client’s retirement income plan being tax-free or tax-efficient.
Leah Woodford 16:22
So, so Phil, but they—taxes and 401-Ks, they’re all intertwined. Why are they not communicating with each other? And, you know, social security, they’re all kind of in the same…
Philip Capriotti 16:37
I have a gentleman that works with the… I won’t mention the firm… Let’s, let’s just say the Fisher guy or the Eddie guy, okay. I have a, two gentlemen that I play golf with.
Leah Woodford 16:49
Right.
Philip Capriotti 16:50
Okay, and their advisors, and, with them. And they are told, Do not talk about taxes. These are the portfolios, these are the stocks that you sell, do not talk about taxes. Align yourself with the CPA and allow the CPA to talk about it. We have one advisor in Horseshoe Bay. He opened up an office right in a CPA firm. Okay? And again, that’s, that’s fine if you want to do that. But again, you need to be all-encompassing, because what’s going to happen is you end up getting bills from two different people, and many times, the CPA doesn’t understand the retirement income planning’s thought. They’re not looking at what their estimated RMDs are going to be based on their rate of return. Here’s my thought, and it’s really quite simple. If I want 200,000 or 150 or 100,000 in retirement, per year, and I want to index that for inflation, I don’t want get the one, to give the government 20% of it. I want to give the government 0% because I bought out my partner.
Leah Woodford 17:54
I love that.
Philip Capriotti 17:55
Uncle Sam and Aunt Samantha. I bought ‘em out. And also, you don’t have to do—every plan is different. Every Roth conversion plan is different. Many times we’ll have folks that are charitably inclined, so we’ll do QCDs to the charity. It’s all about tax planning, and it’s all about having the client’s best interest in in mind, not yours or your company’s. Be a true fiduciary. Work for the client, not for the firm.
Leah Woodford 18:25
So what are, what are a few questions people can ask their current financial planner to find out if they’re not really up on taxes and the things that they should be?
Philip Capriotti 18:34
The very first thing I would ask is, I want to see a copy of what my RMDs are going to be like at each and every age. And I want you to explain to me, if I’m married, when I pass away, what is my wife’s responsibility going to be, and how will her RMDs affect her tax bracket later? And if the advisor looks at you like a deer in the headlight…
Leah Woodford 18:59
Call Phil!
Philip Capriotti 19:00
…First of all, you should have already picked up the phone, but click—go on empowerrothquiz.com. Empowerrothquiz.com. Dial, 888-818-6557. It’s not good enough to work with advisor that’s just getting into doing Roth conversions. You want to work with an advisor—it’s like going into a doctor and working with a surgeon, and you’re his first surgery, or the first dozen surgeries. You want to work with a firm that has the experience and the staying power. We’ve been providing tax advice and tax-free retirement planning for 20 years. We have thousands of retirement income plans under our belt, that means thousands of families that we’ve helped.
Leah Woodford 19:44
Right.
Philip Capriotti 19:45
In and around the city of Austin and all through the entire country for that matter. So pick up the phone, give us a call, and we’d be happy to work with you, and I’d be happy to meet you.
Leah Woodford 19:55
We’ve got to cut to a real quick commercial break, but if you’re retirement professional isn’t having this kind of conversation, make sure you call Phil at 888-818-6557, and we’ll be right back.
Philip Capriotti 20:10
Hello, folks. It’s Phil Capriotti, Sr. Imagine reaching retirement with zero worries about taxes. That’s what hundreds of our clients each year have done by executing their annual individual Roth conversion strategy. At Empower Wealth and Tax we’ve helped thousands of people, just like you, turn their government tax-deferred retirement accounts into their own personal tax-free Roth IRAs and 401-Ks. Our clients are now thriving with the peace of mind knowing they’ve secured their financial freedom by eliminating their tax burden of retirement. If you want to know how, call us now and let’s see if our proven Roth conversion strategies are right for you and your family. You know, folks, you saved your whole life for retirement, but how much of it will you actually keep? If your money is in a traditional IRA or 401-K, Uncle Sam is your not-so-silent business partner. Every withdraw is taxable. And with future tax rates potentially increasing in the future, the cost of doing nothing may be significant. A Roth conversion offers a chance to reduce future tax exposure. Want to know what your future tax liability could look like? Scan the QR code on the screen, or visit empowerrothquiz.com. Take your Roth conversion quiz today.
Leah Woodford 21:49
Welcome back, Austin. I’m Leah Woodford with Phil Capriotti, Sr. at Empower Wealth and Tax, and we are really talking about some amazing things right now. I did, I was not aware that financial planners just don’t do everything that you don’t—that you do, Phil.
Philip Capriotti 22:05
Well, you know, you see, I worked with these firms. When I started this company in 2005, it was because they never made the change. They wouldn’t talk about taxes, they wouldn’t talk about estates. They would, they talk about estate planning, but they wouldn’t help you organize your will and trust, and what type of trust should you have. Okay, they’re just checking. they’re basically just scratching the surface. Okay, they’re not talking about Roth conversions, tax planning and retirement. They’re not thinking that many of these folks and many of us Baby Boomers, we’ve been hard workers, hard savers, and we’ve provided Social Security payments for our parents and even grandparents. So many of these advisors, I think, are just lazy or they’re restricted by the firms that they work with. One of the, you know, we were going through some of the reasons why advisors don’t recommend Roth conversions or don’t even look at it, and one of them is cognitive limitation and bias in advice. And I looked at this and I busted out laughing.
Leah Woodford 23:16
Right?
Philip Capriotti 23:17
Yeah, I couldn’t, yeah, I couldn’t believe it. So basically, what they’re saying is, many advisors spend too much time on your investments and tell you, telling you how well you’re doing on your investments. They don’t talk about tax buckets—where your investments are being managed. What, how tax-efficient is this portfolio going to be? And then one of the other terms that happened to cross my desk from one of our advisors is “analysis paralysis.” I busted out laughing! Analysis paralysis. So I started to read: the further complexities lead advisors simply not to do detailed tax preparation. See when I’m working with your tax return and I’m working with your investment portfolio, we’re looking at both ends, okay. It’s easy. Now I’m going to look at your trust. I’m going to look at your will, and we’re going to look at your insurance so you have cover law. So when we, when, when you have experts, like, for instance, we have 25 licensed professionals in our company that work out of our Cedar Park office, our Georgetown Sun City office and our Horseshoe Bay office. By the way, folks, if you’re in Lakeway, Dripping Springs, or down in Austin, we’re actually putting two more offices in within the next three to six months. So give us a call. What, what I’ve noticed is that the advisors just steer away from it, or they say openly, you don’t need that type of planning. You don’t have a tax problem.
Leah Woodford 24:48
Okay, but Phil, these people have worked and saved. You know, it’s not only making money. You got to keep that money too.
Philip Capriotti 24:56
If you—once you buy the, your partner out and the partner—if you’re saving into 401-K. And I would tell everyone, number one, if you’re still working, and you’re coming in the last five to 10 years of working, it doesn’t matter your tax bracket. Start putting money into your Roth 401-K. You can only do it while you’re working, and it doesn’t matter what your income is, high or low. The other thing I would say is, if you’re in a low income, if you’re making, if you have a significant pretax account, but you’re only making 50, 70, 100, 120,000 a year, and maybe your spouse is retired, not working, we also want to look at Roth conversions while you’re still working. After you retire, somewhere between 60, 62 and 73, is when we should do most of the heavy lift— Pardon me, most of the heavy lifting with the Roth conversions.
Leah Woodford 24:53
Wow.
Phil Capriotti 24:54
Every year you let go by without doing a mock tax return with your financial advisor and/or your accountant, is a year that you robbed yourself of becoming tax-free in retirement.
Leah Woodford 26:10
Wow.
Phil Capriotti 26:11
It’s one year that’s gone. And for those of us who are Baby Boomers, we know how fast the years go by.
Leah Woodford 26:17
They go by pretty fast.
Phil Capriotti 26:18
They go by really, really fast. And I won’t say it, but I—Well, in the heck I’ll say it. What the heck, we’re having fun anyway. I remember when I was working with Bankers Life and Casualties back in the 80s, I went to see this young lady, and she said, Mr. Capriotti, I got to tell you something. You give me a lot of good advice, but I wanna give you a little advice. I said, Mabel, what is that advice? She said, Well, life’s like a roll of toilet paper, son, did you know that? And I looked at her, and I was, like astounded, like you probably are out there. And she looked at me, and she goes, yep, the closer to the end, the faster it goes. So with that being said, as you’re as you’re entering your retirement red zone, okay. In retirement or have five or so years left, give us a call. Dial, 888-818-6557, if you’re not working with an advisor, if your CPA is not talking with you about Roth conversions, if your advisor is not talking with you about it, and you have saved considerable assets in pretax government retirement accounts, give us a call. Let us show you the way to tax-free retirement planning.
Leah Woodford 27:29
If you want to feel secure in your retirement years, make sure you give Phil and his team a call. That’s 888-818-6557. Thank you, Austin, and we’ll see you next time on Retire Smart Austin.
