It’s the Roth guy with holistic wealth advisor. Jude Wilson, Hey

 

Marc Killian  00:20

everybody, welcome to the podcast. This is another edition of the Roth guy with Jude Wilson and myself to talk investing, finance and retirement. And Jude we might as well just we were just sitting here laughing about this. Was like, why don’t we just do a podcast where we show how to use the calculator at the tax bomb.com So how you doing, buddy?

 

Jude Wilson  00:37

I’m doing excellent. I am excited we’ve been talking about this. So I don’t know why we had thought about this

 

Marc Killian  00:44

before. Let’s just show it. I know it’s because I broke my finger. That’s what it is. Because we didn’t think about now that my fingers broke. I thought about, I don’t know, but we’re going to have some fun. We’re going to talk about this and demonstrate it. So we’ll pull this up on the screen. So if you go to the tax bomb.com this is basically what you’re going to see when you first get there, right? And so I thought, Jude, I just kind of be like a mock person. I’ll go through, fill out the form, and then you can kind of talk us through what we’re seeing and maybe kind of explain that to folks a little bit. Does that? How does that work?

 

Jude Wilson  01:15

That sounds perfect. And I think we should probably start off by talking about what the tax bomb is. Sure go ahead and we, we’ve talked about it in previous shows, but I particularly now, with all of the things going on in Washington, the big beautiful Bill has just passed, I think what people really need to understand, and we’re going to go in deeper in the big beautiful bill in other episodes, yeah, I think what people need to understand is that the tax cut and Jobs Act, the marginal tax brackets that were exposed to expire this year, at the end of this year, they’ve, depending on how you read the bill, they’re now permanent. Well,

 

Marc Killian  01:56

they’re permanent, as far as Washington is concerned, which is even permanent? Yeah,

 

Jude Wilson  02:00

exactly, exactly. So the message hasn’t changed, that we’ve been beating the drum on is that the deficit is increasing. We’re at the lowest tax brackets that we’ve been in in under a generation,

 

Marc Killian  02:15

and we’ll stay in there at least three and a half more years. At least three and a half. Right, right,

 

Jude Wilson  02:19

exactly. But at some point in time, the tax bill is going to come due, and if you’re planning on retiring in the near future, tax rates could be higher when you retire. That means less net income in your pocket. Because what most people don’t understand when you look at your 401 K statement, or your IRA statement, that number, that balance, that’s not really all your money, right? Part of that money is you’re in partnership with the IRS,

 

Marc Killian  02:51

yep, for sure. Yeah. And to that conversation piece, and we’ll do an episode on the BBB, probably for next week or the week after. But you know, the permanent thing, right? So this is the this, it takes another act of Congress. Basically, they were going to sunset, as we’ve talked about many times, you know, if something wasn’t done, something got done. So a future administration could change things, and probably will, but it would take, you know, a congressional act to do so. So basically, long and short of it means is we’re going to stay in low tax brackets for a little while. So if converting and doing Roth conversions, or just kind of being concerned about your tax footprint is a worry, this is a great tool to use that for, right? So let’s jump in, Jude, and I’ll just kind of walk through it, and you tell us what we’re looking at. Okay, you narrate and and I’ll drive. All right, all right. So go to the tax bomb. Yeah, right. So go to the tax bomb.com right? So you can see here on the screen, we’ll have that popped up for you, and I’m just going to do this live, and then we’re recording this here on the little software. So hopefully this works well for you. Go to the tax bomb.com and then click on, calculate your tax risk, which is right here. And there’s June’s lovely little face you can click on, you can click on that, and it’ll take you to their main website. Of course, there’s a number, if you want to reach out and get some help as well. And then you can go through and kind of fill this out. So you want to enter your current age, and don’t laugh, but I’m going to put my current age in there, so everybody be nice to me. And then current IRA, thank you. Current IRA or 401, k value, Jude, we’ll just, we’ll just do an even round number, just to kind of make this easy for people, right? So we want to do something like, what our 401, has it? Like, I don’t know, half a million.

 

Jude Wilson  04:30

Yeah, let’s do half a million. Okay,

 

Marc Killian  04:34

all right, and then average tax rate, I’ll just put in what I paid the last and what I was, where I was roughly at so we’ll go to the 20.

 

Jude Wilson  04:43

And that’s good, that’s good. That’s what I think I

 

Marc Killian  04:46

was in the 24 but it doesn’t give me that option, so we’ll go with 20. But anyway, so we’ll go to continue final step, right? Let’s see what happens here. Okay, and then it wants you to put your information in, and we’re gonna blast. Check this out from my personal stuff, right? That way, people don’t got too many fans out there. We don’t, that’s right. That way people don’t send me a message. So we’re going to block that stuff out, all right, so we kind of cut away just for a minute there, so I can put my personal information in there and keep myself a little bit private and and here’s my analysis, here’s the the email report that it sends you. And this is just kind of a quick summary, right, Jude, just to kind of give you an idea of where you might be. And then, of course, if you want to understand it better or follow up with a conversation, obviously, reach out to Jude and the team and get themselves, get yourself some time on the calendar. So let’s take a look at what we got in the email. Jude, so here’s what came in. So it kind of gave us the approaches for qualified accounts kind of gives you this first little bit of text. Here you can kind of read through all that good stuff, and here’s my analysis. So break this down for us a little bit.

 

Jude Wilson  05:49

My friend, yep. So what you have to understand is that with your retirement account, you have a mandatory amount of taxes that you have to pay. There’s no way around that, right? But anything above that mandatory is really optional, and that’s what it’s showing you here. Is that based on your account at a half a million dollars, and assuming that you’re still in the 20% bracket and a relatively conservative rate of return, 5% right? That’s pretty concerned. Yeah. What would your future tax bill be? And we broke it down into two categories. If you stay on track, just doing what you’re doing in the future, you’re going to have required minimum distributions all these years, you got into tax deduction for putting money away in your retirement account. But what Uncle Sam give it? Uncle Sam also take it away. So in the future, they there’s a requirement for you to take income whether you need it or not. And you know, every dollar you take out of your retirement account has to be taxed. So what we’re looking at in that, in in the first row, is total taxes paid on RMDs over your lifetime. And we assume your lifetime would be to age 90. Age 90,

 

Marc Killian  07:13

right? We see that right here. Okay, yep. So $268,000

 

Jude Wilson  07:19

now when that money that RMD comes out, and we’re not suggesting that you’re pulling out any more, just the minimum, that just the RMD when that money comes out, if you’re not spending it, you’re saving it. And if you’re saving it and you’re investing it, you’re going to have to pay taxes on that money that you’ve reinvested someplace else, whether it’s in a brokerage account, whatever you decide to reinvest it in, okay, so there’s an additional tax on those dollars, and we estimate that to be about $85,000 little bit, little bit more, okay, and then the last row is, what if there was a remaining amount in your IRA, or 401, K at death, what would the taxes have be owed on that? Now, obviously you’re not paying the taxes who, whoever is your beneficiary,

 

Marc Killian  08:10

who’s ever inheriting the the account? Right?

 

Jude Wilson  08:13

Exactly. So if you add all that up, you get to a grand total of $612,000 that’s saying, if you just continue to do what you what you’re currently doing, but, but here’s, here’s the big takeaway. Remember, I said there is a minimum amount of taxes that we can’t get around. If you look at the right side, it’s showing you, if we were to do some strategic planning and convert your money from always taxable the way it is now, to never taxable in the future, reallocating those dollars. You pay about $100,000 in taxes to do that. So

 

Marc Killian  08:56

let me pause you for a second. Okay, so you’re talking about a Roth conversion, right? Yes. Okay, yeah. So part of the part of the sorry, part of the BBB, right? So part of the, a nice piece of this legislation passing, is that we know what the current tax rates are going to be for the next couple of years. Let’s just say four years rounded off. So if you wanted to Roth over time, Jude, right, which is a strategy that will kind of help you with some of this stuff. And if it’s right for you, and you’re in a, you know, the 12 or you’re in the 22% tax bracket or whatever, right, this is what you’re you know, this is what you’re talking about. You’re converting this money and then paying this amount here, based on my numbers that I put in, absolutely,

 

Jude Wilson  09:36

based on your numbers, the potential tax liability to to convert, not only potentially in a Roth, but to look at a strategy, a holistic strategy, of moving your money from your IRA or 401 K that will always be taxable in the future to monies that will never be taxable again. It’s going to cost you about. $100,000 okay, can’t get around that. So here’s really the question, do you want to stay on track and pay 612,000 or do you want to do strategic conversions and pay 100,000 anything above that 100,000 is optional additional taxes that you can choose to pay if you stay just doing the same thing that you’re doing, without the advice or without the strategies to convert that money to never taxable in the future. And I don’t know anybody that wants to pay optional additional taxes.

 

Marc Killian  10:43

You don’t really, I’m surprised, maybe

 

10:46

Warren Buffett. I think Warren Buffett.

 

Marc Killian  10:50

So obviously, you know, Roth accounts, they grow tax free, right? So obviously, that’s, that’s the point. So as you’re converting over, you’re paying the taxes now, when you’re doing the conversion, and this is why, again, maybe converting over time is the strategy, Jude, so that you’re not bumping yourself up a tax bracket, and you got to have the resources where you’re pulling the money from. And that’s, again, part of the strategy about doing the conversions, but it’s growing this account to age 90, again, right? And keeping the tax bill as low as possible, as efficient as possible. And if we scroll down here. Jude just a little bit. You can kind of see the RMD kind of break down a little bit, which is interesting as well, right? So we have the account, we show how the accounts kind of growing the value, you know, the value is getting bigger. And then the old RMD age kicks in, and we got to start pulling some money out. Now for me, based on my age right now, based on the new secure act 2.0 changes, it would be 75 whenever I have to start my RMDs. So this is kind of a rough outline of what that might look like on a on an annual basis, correct?

 

Jude Wilson  11:53

That’s exactly it. And what we wanted to give people is just a quick understanding. This is a overview, but there’s much more strategy that goes into it. Like you said, we’ve got we could convert over time and maximize the tax brackets that you’re in. We can rip the band aid off and do them and pay and do conversions all at once, but we have to do the math and see where’s your break even, how that should be done. We’ve got to take into account surcharges on Medicare and how that could affect there’s so much more that goes into it. But if, if you walk away today, taking this calculator and saying to yourself, look, I see that, that if I stay on my current route, I’m gonna pay a whole lot more taxes, and that’s truly under your control if you seek a qualified professional to advise you on how to implement some of these strategies. And

 

Marc Killian  12:51

I just want to ask a couple of qualifying questions. I pointed to the wrong category. So I just want to kind of backtrack just for a second. Jude, since I’m doing this for the first time, and kind of having you explain it to me. So I put 500,000 in as the, you know, as my amount and my age. So this is basically saying, you know, again, with those assumed numbers from up here, right? So with an annual growth and tax liability, this is how it would grow, right? Because I put in my age at 53 so as I’m working my way up the 20, what is that? 23 years to RMD age, that account would maybe be roughly at about 1.4 mil, right? So the RMD? What is the RMD factor? What does this number here mean that it’s 75 24.6, what is that? Well,

 

Jude Wilson  13:36

you know, you and I don’t know when we’re going to pass away, but the government does.

 

13:42

Oh, okay,

 

Jude Wilson  13:44

so this is their prediction of your lifespan, and they use that factor to figure out how much money to take out over your predicted lifespan.

 

Marc Killian  13:54

Gotcha. Okay. So in this case, my first year would be 59,004 55 of this number of this 1.4 here, that’s about, roughly about 60 grand. They think I need to pull, or they’re probably gonna, I’m gonna have to pay my RMD on Exactly. That’s exactly correct. Okay? And then if this, it looks and obviously this grows each year, because the accounts

 

Jude Wilson  14:18

growing exactly, the accounts growing and your life expectancy is getting less the older you’re getting. So the more they want you to as you as you age, the more they want you to take out under your RMD factor.

 

Marc Killian  14:33

Gotcha. So this is the RMD amount, and this is the after tax RMD here, right? Exactly,

 

Jude Wilson  14:38

exactly based on that 20% bracket. That’s what’s net you’re putting into your pocket.

 

Marc Killian  14:46

Okay, right? That’s what you’re you’re pulling this out and you pay the taxes. This is what goes in your pocket. And then, to your point earlier, you know, unfortunately, Uncle Sam, you know, I know advisors say all the time. Hey, Jude, why are you making me take these RMDs? I don’t. I don’t need the money. I’m in good shape or whatever. I’m not making you. You’re not making you. The government is right. So that’s where you were talking earlier. If you wanted to reinvest that money or do something else with it, that’s fine, but you still have they want their cut

 

Jude Wilson  15:12

exactly, exactly. And oftentimes I have clients who don’t need the RMD, and they are asking, Where do I reinvest it? Can I put it back in an IRA or off. Most of the time you can’t, because you don’t have earned income at that time when you’re retiring. So the only real option is either spend it or reinvest it. And if you reinvest it and you make some money, guess what? Uncle Sam, what’s part of their cut? Yeah, I think one of the most powerful things I’ve ever heard about managing risk when it comes to retirement, most advisors talk about investment risks. You know, finish the set this sentence. If you’ve heard this before, Mark, don’t put all your eggs

 

Marc Killian  15:56

in right one basket. Grandma’s been saying that since I was like three, exactly

 

Jude Wilson  16:00

because we fear investment risk, but one of the things we don’t account for is legislative risk and tax risk. The tax code is written in pencil right now. Yes, the tax brackets are going to stay the way that they are for at least the next three years. Yeah, but we know where this train is going, we see the deficit increasing. The highest tax bracket that we’ve had in our country’s history was at the 94% now that was back in World War Two, so you’d have to make almost $3 million today to get into that 94% tax bracket. But that just goes to show you, the brackets can change, and the more tax you pay, the less net in your pocket for yourself and your family. Yeah.

 

Marc Killian  16:50

So just to remind folks again, I just kind of went through the calculator for you guys to check it out. So you know, when I put my information in, it popped up to this screen here, which is just kind of a quick, you know, summary of if you went with the different options. And of course, then it kind of gives you this information here where you can schedule time to, actually, you know, read it and break through it, you will get it in your inbox, which is what I did, which is what we just went through, just to kind of show some of those basic things. So at the end of the day, you know, it’s a quick guide to kind of give you a rough idea where you’re at Jude. And it’s important to then go in and sit down and put a full strategy together, because, like you said earlier, then you got to start talking about all the other pieces. This is just one piece, right? It’s just one piece of one account. You may have multiple accounts, or you may have, you know, you and your spouse. And then you got to think about the Medicare surcharges, those Irma surcharges, and you know, in which account are you pulling from? And do you turn this account on so that it affects social security? And do you security, and do you delay? So I mean all these things that we talk about all the time that make up this kind of complicated puzzle that is

 

Jude Wilson  17:51

retirement. Yeah, it is almost like a set of dominoes on the table. If you knock over one domino, it could knock over some of the other. So that’s why I stress to people. One, this is really important stuff, because at the end of the day, you worked really hard for this money. But two, you should seek a qualified professional that really understands how to put all of these pieces together so your net outcome is the best for yourself and for your

 

Marc Killian  18:18

family, absolutely. So we’ll show you one more time. Go to the tax bomb.com that’s thetaxbomb.com and again, you’ll see the little calculator kind of going there, and you could kind of scroll through, check some of this stuff out. And of course, you can always re link yourself back over to Jude’s main website, where you can get some time on the calendar. But there’s those links that’ll pop up as well when you go through the calculator. But if you need some help, check the Show descriptions below, because we’ll have some links in there as well, and hopefully that helps a little bit when we talk about this just about every week, or every couple of weeks at least. That gives you maybe an idea of what we’re kind of running through, and kind of where we’re trying to get you to go check things out, just so you can get a rough idea for yourself. So thanks for hanging out with us here on the Roth guy. Jude, thanks for breaking it down, my friend and I will see you on the next episode,

 

Jude Wilson  19:01

thanks for hanging out with me.

 

Walter Storholt  19:07

Financial Planning and advisory services are offered through prosperity Capital Advisors, PCA, an SEC, registered investment advisor with its principal place of business in the state of Ohio, centrist financial strategies and PCA are separate non affiliated entities. PCA does not provide tax or legal advice. Insurance and tax services offered through centrist financial strategies are not affiliated with PCA. Information received from this podcast should not be viewed as individual investment advice. Product discussions and illustrations are hypothetical in nature and will vary based on many factors, including, but not limited to age, health, product insurance carrier and product design, you should consult the insurance carrier website and policy for detailed information, for information pertaining to the registration status of PCA, please contact the firm or refer to the Investment Advisor public disclosure website, www dot. Advisorinfo.sec.gov, for additional information about PCA, including fees and services send for our disclosure statement as set forth on Form ADV from PCA using the contact information herein, please read the disclosure statement carefully before you invest or send money.

 

20:17

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