Winning in Retirement

Core Roth Principles

• Akers Financial Group

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Brian Akers and Paul Franco discuss the importance of Roth IRAs for retirement planning. They highlight three core principles: eligibility, timing, and qualified withdrawals. Eligibility requires earned income, and contributions are capped at $7,500 annually for those under 50 and $8,600 for those over 50. Timing is crucial, as contributions should be made when tax rates are low. Qualified withdrawals are tax-free if made after age 59.5 and after a five-year holding period. They also discuss the benefits of Roth IRAs, such as tax-free growth and flexibility, and common mistakes like excess contributions and improper tax planning.

Unknown:

The following is a pre-recorded show. Welcome to Winning in Retirement with your host BRIAN AKERS, certified financial planner professional and founder of AKERS Financial Group. Now helping you win in your retirement. Here's BRIAN AKERS.

BRIAN AKERS:

Welcome to Winning in Retirement. I'm BRIAN AKERS, president and founder of AKERS Financial Group. We welcome you to our show. Here with me today is Paul Franco, financial advisor from AKERS Financial Group. Good morning, Eric. Good morning, man.

Paul Franco:

Good morning, Brian. How are you?

BRIAN AKERS:

I'm doing fine.

Paul Franco:

It's a good day.

BRIAN AKERS:

I was getting ready to call you AKERS, Paul AKERS.

Paul Franco:

Paul AKERS.

BRIAN AKERS:

Yeah, I can't give you my last name yet.

Paul Franco:

No, no. There's no way. I've been here for almost 10 years now, but no, I don't get that that luxury. We can hyphen

BRIAN AKERS:

it, Franco AKERS. No,

Paul Franco:

that'd be something.

BRIAN AKERS:

Nah, that's not. Doesn't

Paul Franco:

sound good. I like Franco. JPF has a better flow. JPFA would be a little bit tough, right? Yeah, let's not go there.

BRIAN AKERS:

I'm sorry for those listening. This is Winning Retirement. I'm BRIAN AKERS, and both of us are financial advisors, AKERS Financial Group, and we do the show Winning in Retirement. What we want people to do is to win in their retirement years by making wise decisions on financial planning and financial investing, financial insurance, everything that ties to your finances. This show is one of those shows where Paul and I have been putting together a show called Three Core Roth IRA Principles. That sounds very educational, very good, but the key thing is this makes you more money.

Paul Franco:

Sure does. Yeah, three

BRIAN AKERS:

core Roth IRA principles. These are some basic things. If all of us can just get this pieces, we think you're going to be better off.

Paul Franco:

Yes, yes. And Roth IRA is just is a passionate. I love talking about. I know you love talking about. So I'm excited.

BRIAN AKERS:

Yeah, Roth IRAs started in 1998, they used a Delaware senator, I believe, named Alan Roth

Paul Franco:

William. Yep,

BRIAN AKERS:

William Roth.

Paul Franco:

I think I just drove by the bridge and they had his big name on it, William Roth. Is

BRIAN AKERS:

Al's middle name or anything? Or I just made up Owl.

Paul Franco:

Maybe it is that, but I see the Roth name and it's on the bridge. So it's the

BRIAN AKERS:

Roth Bridge.

Paul Franco:

Well, now now I got to fact check it. Right? Is it William or is it? Is it the

BRIAN AKERS:

bridge in the retirement? Right, the tax the tax free bridge. What we'd say. Do they have a toll on that bridge?

Paul Franco:

They do, and I bet you Delaware knew that, naming that after him.

BRIAN AKERS:

Well, it's just like a Roth. There's a toll on the way in, but basically, you come off the bridge. There's not a toll.

Paul Franco:

Yes,

BRIAN AKERS:

I hope so. All right. So this show is about three core Roth IRA principles, and we're going to do is about smart moves before you retire, before you finish up working. That's our main theme. But we're going to understand Roth IRAs are built for any and all ages when the right opportunity occurs.

Paul Franco:

Yes. Yeah. It's never. It's never too late. Never too early. But I'm very excited to talk about this with you.

BRIAN AKERS:

Never too late. Never too early. So when you say never too early, how is too early? Is there too early?

Paul Franco:

I guess the technicalities. Yes, there would be too early because you have to have earned income. Have to have earned income. Yes. Yeah. Yeah. And it has to be earned income. Actually

BRIAN AKERS:

earned and and like run through a tax return tax form. Yes. It's not you don't give your grandkid 100 bucks and say oh that's your earnings. That's going to be your Roth. Has to be a 1099 to them. Yeah. Or w2

Paul Franco:

exactly.

BRIAN AKERS:

Okay, all right. These smart moves are very, very important to do. The first thing we're going to do is talk about most near retirees don't need more investing ideas when it comes to like fancy investing or trying to grow because they think they're close, right? They need to know the Roth IRA, the right way to treat Roth IRA, how to apply it, the Roth IRA brings so many opportunities on the tax-free side. It's like adding a final tweak to retirement, which really looks at hey, how much tax am I going to pay for the rest of my life, right?

Paul Franco:

Yeah, and like you said, it's it's a very relatively new idea, right? Late'90s was when Roth IRAs were even established, and so the vast majority of individuals getting ready to retire have the vast majority of their investing in pre-tax assets, not in Roth, and that's pretty normal nowadays.

BRIAN AKERS:

Is the pre-tax pre-tax? What does that mean?

Paul Franco:

Pre-tax meaning you got to take a tax deduction on your amount that you put in, and that ultimately grew for you, but then the downside being that when you take that money out later, you have to pay tax on it at your ordinary income tax rate.

BRIAN AKERS:

Yeah, so pre-tax is a fun thing because the idea over the years, back in the early '80s when they started out with 401ks, was you pay you get a deduction now when your tax rate's high, and when you retire, you're going to have low taxation, and because you're going to be living off a less, and then I believe the concept of hey, you're going to retire on less. Is that really what you want? Right. Yeah. We don't want you to go backwards in retirement. You know, we want you to stay where you're at or increase your lifestyle. Very important. All right. Officially, it's William Victor Roth Jr. There's no Al in there. I don't know. Well, I haven't called him Al Roth forever.

Paul Franco:

Maybe, maybe he went by that.

BRIAN AKERS:

I don't think so. I think it's just stuck in my head. All right, so that that is Roth. The Roth IRA is named after that center, and in 1998, Roth rule that was all part of Bill Clinton being president and Newt Gingrich running Congress, and then they it came with this. Actually, how. Them have a balanced budget for for two years in a row because they got people to pay tax now and then never again. That's what the Roth IRA is about.

Paul Franco:

Yeah, it's it's interesting when you have these conversations with with clients of ours, and they're like, "Why why would the government want to allow for this money to keep growing tax free? That seems too good to be true. Well, it's it's really not because you are paying the tax. You're paying it right now.

BRIAN AKERS:

Yeah. So I mean, Congress they love the idea of getting money now in today's revenue, and they they're not really thinking long term as it grows that we get more money later.

Paul Franco:

Yep.

BRIAN AKERS:

And so we see it as a great advantage for people if you can manage your tax brackets to pay tax now. Now we call the show three core Roth IRAs, but the coolest thing in the last decade is the Roth 401k has been thrown into here, Roth TSP, all kinds of Roth options. So we talk Roth; we're not just talking Roth IRAs. There's all kinds of combinations out there.

Paul Franco:

Yeah, and it's it's especially important when you do a good job of saving, which a lot of our clients do, and they're like, "Well, I've maxed out the Roth IRA. What's next? What else can I do? And there are other options.

BRIAN AKERS:

All right. So a Roth, the simple explanation of a Roth, a Roth. There's Roth IRA. They have a limitation based on income. There's also if you make too much money, you can't contribute to a Roth. But a regular Roth IRA, you can put money in. If you're under 50, you can put money in based on a certain number.

Paul Franco:

Yes.

BRIAN AKERS:

And then if you're over 50, they allow you to put a little extra called a catch up.

Paul Franco:

Yep.

BRIAN AKERS:

And these Roth IRAs, the money goes in after tax. That means after you pay your tax from working, you get that money into your bank. Then they can go in, and then you should record it on your tax return to track these cost basis over years. So if you ever want to get that contribution back, it can come out before 59 and a half tax free because it's the return of your own money.

Paul Franco:

Yes, yeah, very important concept. And it's when we're trying to build these plans out and we're saving money to Roth, like you said, you are able to take your contributions out anytime you want without tax or penalty. So we got to track that. If you know two or three years come down the road and you have to take money out, and we want to let the growth keep doing what it's doing, let it keep growing, we got to know what your contribution was. So we do have to track that on that tax form.

BRIAN AKERS:

Right. So you got to tell your accountants that you did a Roth IRA, and in January or May every year you'll get a tax form and that tax form gives you an IRA or Roth summary of contributions rollovers things like that. That's an important document to save to prove that you have a cost basis in these things.

Paul Franco:

Yeah, that that form is the right the 5498 Brian and isn't it funny when the taxes are all done and then we get calls. Hey, I just got this tax form in May. Yeah, why would they send this to me if I already did my taxes?

BRIAN AKERS:

Well, the reason we do is that the IRS wants to know about your IRA. They want to know about your Roth. They want to know about your withdrawals, your contributions, so that their computers can track when they get their money. And so it's a it's a good thing as a check, but it's not required to put on your return. Even though the contributions really need to be put on your return, and that's why you got to make sure you tell your accountants about your contributing in. It's very important that you understand if we put money in and we have an after-tax contribution, that you track it. If you don't track it, who's going to track

Paul Franco:

it? Right.

BRIAN AKERS:

This is very important if you do something that's not a qualified withdrawal. Qualified withdrawal. How would you define that, Paul?

Paul Franco:

So a qualified withdrawal for somebody who. Well, there's a few different qualified withdrawals, but the most ideal and sort of basic way of doing a qualified withdrawal in retirement would be somebody who's over 59 and a half being allowed to take out their growth completely tax-free inside of that Roth IRA, qualified withdrawal would equal to in that sort of situation when you turn age 50-nine and a half.

BRIAN AKERS:

Yeah, and that that means you can take the money that you put in and the growth out.

Paul Franco:

Yes, the

BRIAN AKERS:

key thing is the growth.

Paul Franco:

Yes,

BRIAN AKERS:

because if you do all the other paperwork right, you can always get your original money back out of IRA, right?

Paul Franco:

Yes, yes, and we've had that case happen before. There is even other qualified withdrawals you're able to do for first time home buyer, other sort of situations, and so those are pretty incredible flexible ways you can get money out of the Roth without penalty, but even with that, we we want. I mean, the design of the Roth is we want that money to grow for you tax free. Let that money grow.

BRIAN AKERS:

Yeah, that's cool. All right, let me ask some some things. One is is Roth IRA free money?

Paul Franco:

Not quite, because you got to

BRIAN AKERS:

pay on the way in. Almost like you said the William Roth bridge, you had a toll, right?

Paul Franco:

Yeah, you had to you had to pay up front. There's a

BRIAN AKERS:

toll on the way, right? There

Paul Franco:

sure is, and

BRIAN AKERS:

so that toll is going to be pay tax on before the money goes in, and then it grows tax free for qualified withdrawals. Now, how about this? Roth IRAs only for younger people, not for older people.

Paul Franco:

Ooh, yeah, that. Oh, I feel like I I feel I feel like even more now than ever. I'm having conversations with people getting ready to retire, saying, "What can I do to build some Roth in the portfolio? I think it's more important now than ever for people even getting ready to retire.

BRIAN AKERS:

Yeah, the fun thing is a lot of people work at golf courses. Those guys who work on the golf course are retired. They get the lower lower cost golf, maybe free golf, because they work at the golf course and they make the money. Whatever amount of money they make, we can put that into a Roth for them and their spouse, and that happens all the time. We usually do that after January. Once they get their w2 we can put that money in. So it's one of the fun things of the golf funds a Roth.

Paul Franco:

Sure does. Yeah, it's you get you make 15,000 in that time, and you're telling me I can put 8600 of that into my Roth. Yeah, that's incredible.

BRIAN AKERS:

Well, it's like this, Paul. It's like, hey, you got money in the bank, you earn 1% interest. I gotta pay tax on that. Hey, give me that 8600 Let's throw it into a Roth. You don't pay tax on it.

Paul Franco:

Yeah, exactly.

BRIAN AKERS:

That's pretty cool.

Paul Franco:

It is very cool, and and it's a great conversation to have for people that again, they've the reason a lot of folks get are able to retire is because they were good savers, and that doesn't always turn off, even when you do retire. So it's kind of kind of fun to fun to hold on. That's a whole nother show,

BRIAN AKERS:

right? Of people that have saved so much and they can't give themselves permission to use the money,

Paul Franco:

which is a problem sometimes. Well, it can can be

BRIAN AKERS:

comes in a state tax problem, and they build too big of a legacy, right? And that we can call that a problem. But good good

Paul Franco:

problem. We want

BRIAN AKERS:

people to use their money to enjoy it with the purpose they put and set in mind. Yes, I think it's very important to have it all together. So the key thing here

is this:

smart moves before you retire. A Roth IRA is one of them, and the core principles is really understanding, really about the eligibility and and how you can get into it. So one of the first core principles is eligibility and can you qualify for it? All extremely, extremely important. For over 30-five years, we have been helping Maryland families build secure retirements that won't run out of money. We know that creating a reliable income is one of the most important parts of any retirement plan. At AKERS Financial Group, we design personalized tax efficient strategies and to generate dependable retirement income from your lifetime of savings, so that you can enjoy your retirement with confidence. So what you do is give us a call at 833 win retire and schedule an in person meeting with one of our team of advisors. That's a three 3w I N R E T I R E A 33946 7384 or visit our website@akersfinancialgroup.com Scroll down to the bottom of our homepage and schedule a meeting right there, or call us at 833 when retire, or go to akersfinancialgroup.com What Roth strategy is actually available for you right now? We'll talk about that when we return.

Unknown:

You're listening to a pre-recorded show. Welcome back to Winning in Retirement. Call 833 Win Retire now to schedule a visit with Brian and his team and begin Winning in Retirement. Once again, here's BRIAN AKERS.

BRIAN AKERS:

Welcome back to Winning in Retirement. I'm BRIAN AKERS from AKERS Financial Group. Here with me today is Paul Franco. We're both financial advisors from AKERS Financial Group, and we put on the show Winning in Retirement Radio Podcast. If you go to our website at AKERS, that's A K E R S Financial group.com You can check out the radio podcast tab. You also check out the whole website about us and figure out if it's the right fit for you to give us a call to sit down and talk about your situation with one of our team of advisors. Today's show is called Three Core Roth IRA Principles. Here in the second quarter, we're trying to talk about what Roth strategy is actually available for you right now. Now for you right now, we don't know what you have. Yeah. All right. So, Paul, so what do you think? How do we do this? Yeah.

Paul Franco:

I mean, it's it's one of those things. Somebody might come in and say, "Well, what options do I have? My income, to my understanding, is where I can't contribute to Roth IRA, and that's what a lot of people think. Yeah. So, are there any other ways to save? So, what we try to do is we take a look at the their financial fingerprint, what buckets of money, what sort of accounts they have now, and then we kind of help guide them to pick and choose. Okay, well here is one way where we can get more Roth into your into your retirement plan.

BRIAN AKERS:

Yeah, one

Paul Franco:

example that might be in the 401k where yo you're telling me I can do Roth inside the 401k Well, when I log in, I do see that. I do see that as an option. Well, should I be doing that? That's what we try to help work through. Does it make sense to start putting some of that money even inside the 401k

BRIAN AKERS:

Right. So when we just talk about you and your situation, we need to know. We call it your your unique financial fingerprint. That's who you are, where you are right now. So the Roth IRA is an individual retirement arrangement, which is you and the Roth, and then there's your company and you and the Roth. There's your spouse and what options they have. There's these there's options out there, and what we want to do is see well what options make the most sense. So normally in planning for retirement, we go by this

basic advice:

maximize the match. What that means is, if at work they'll give you a match of of 3% of the first 3% you put in, we would say let's do a Roth four 1k Your money going in will be Roth. Your match would be pre-tax, right, Paul? That's

Paul Franco:

correct. Yes,

BRIAN AKERS:

and so that's one. That's the first step in saving is getting free money. We like free money.

Paul Franco:

Yes,

BRIAN AKERS:

and then you can fund the Roth IRA if you're under certain income levels for single or married, and you fund the Roth IRA to the max because that gives you total control. It's your money. You can get your contributions back. You don't have to wait till you retire or quit the job to get to that money. Even some four 1k you can't borrow the Roth portion as a loan.

Paul Franco:

You can't, yeah. And it's so interesting. Yeah.

BRIAN AKERS:

Well, you would think that that someday they'll change that law too, which they are, and some plans can allow it now in in this year. But recently, you couldn't do that until this coming year. All right. So the idea of strategies that fit for you-the person that's driving their car, driving their lawnmower, listening to the show-how do we relate to them? So, I think we got to talk about what do you do for work, what are where, where you, what are your options there, and then can you put money away to do a Roth IRA? We don't have to have a lot of money to start a Roth, do we?

Paul Franco:

No, you don't. You don't need a lot of money at all to start a Roth. And again, the reality is, it's getting to know you. That's the whole thing. It's getting to know you, what your situation is, understanding and trying to game plan what your tax bracket's going to be in retirement right now versus in retirement, it

Unknown:

is

Paul Franco:

getting to know you as an individual. That's how we can help work through. Well, while it's while it doesn't take much to get started with the Roth IRA, should we get started with a Roth IRA?

BRIAN AKERS:

Yeah, it's like, hey, do you got $45,000 or$46,000 And like, what do you mean by that? Well, can you contribute to a Roth? Do you have the money to put into a Roth? And depending on your age, could be 7500 for those under 50, 8600 above 50, and then a little bit more as you get older. The hardest part would then be is well, that's 8600 per person if you're married, and so that's what what's that number 17? Ooh yeah, 17

Paul Franco:

two, right?

BRIAN AKERS:

Yeah, absolutely. Yep. And then you look at your work, and you can put 24,000 plus more, and

Paul Franco:

and then now they give you catch up and super catch up if you're over 60 to 60 to 63 A lot of different rules, and but but

BRIAN AKERS:

it comes down to do you have the money to put it in?

Paul Franco:

Yeah,

BRIAN AKERS:

and do you have the money? What we like you to do is to begin saving. Let it be paying less by making it automatic out of your payroll. That's a good way. The other way is a Roth IRA, having the ability for us to pull money to an investment every month into a Roth and get that money into your contribution for the Roth. Or if you are retired and have a part-time job, you wait to January to April and you just write a check for whatever you made the year before.

Paul Franco:

Yeah, a lot of people don't realize that. Well, we can fund a Roth for the prior year all the way till tax time. It's pretty incredible.

BRIAN AKERS:

And then we haven't brought up those ciscated ones like backdoor Roth. Explain that real quick for me.

Paul Franco:

Real quick. Well, okay. The Paul Franco, real quick. Okay, so backdoor backdoor Roth is where you make a contribution to a non-deductible IRA, meaning it goes into an IRA, but you do not deduct your contribution when you do your taxes, and then you're a bit you're able to immediately convert that to a Roth IRA, and that's a it's a strange one extra step backdoor quote unquote, backdoor way to but put money into a Roth,

BRIAN AKERS:

and you have to do it with paper, and that paper is on the on your tax form. 8606 is the form you have to put in the the contribution that's a cost basis of the IRA.

Paul Franco:

Yeah, and it's important, Brian, to immediately convert it. I've had that case happen where it earned a little bit of interest, and so the amount that we converted, you know, $1.15 of that was taxable because it earned a little bit of interest in the IRA. Yeah, yeah.

BRIAN AKERS:

So we like doing this if you don't have an IRA, a regular IRA, because if you do a backdoor Roth and have an IRA, they prorate the cost basis, you end up paying tax, and sort of breaks up the whole concept, but backdoor IRA. The key ingredient would be is you don't have an IRA retirement account at the moment. You do backdoor backdoor IRA Roth combos.

Paul Franco:

Yeah, and there's that's an incredible way. And then there's the even extra sophisticated one, Brian. The mega backdoor Roth, right? You can do it inside the 401k It's pretty incredible.

BRIAN AKERS:

And that is basically where you put money in after tax.

Paul Franco:

You got to make sure your plan allows it, right? So if your plan allows it, you can put money in after tax inside your 401k, which allows you to put a little bit more. Actually, I would argue significantly more than you can put inside your regular Roth IRA. And then same exact concept, you can do an internal Roth conversion inside the 401k. But again. And very specific plan rules. You got to make sure you follow it tightly and correctly.

BRIAN AKERS:

Yeah. So today we're covering three core Roth IRA principles. Number one is eligible. Are you eligible? What are you eligible for? That's a core principle. Is by being eligible, then we can put money in. Most people, no matter what the age, are possibly or most likely eligible in some version of this answer,

Paul Franco:

yes.

BRIAN AKERS:

Now, how do we help you? We need information. We need pay stubs. We need pay stubs for everybody working. We need to actually turn the last couple years to see where it falls, so that we can say yes. These are your options.

Paul Franco:

Yes, exactly.

BRIAN AKERS:

Absolutely. All right, that's cool. Now, the timing of the Roth and trying to make it all work is a very important thing, and so that also ties the strategy. I like saving when you have the money. I don't like waiting. I don't like if you have five to 10 years trying to time the market. I think you want to invest that money, and I want it to grow.

Paul Franco:

Yeah, very true. It's it's almost like like have somebody when when you're home, not while you're driving, but go on to a compound interest calculator, and go. You can do it at investor.gov if you want to, and plug in just a few different figures, and watch what happens when you change the time, the length of years. Yeah, you can keep the same exact initial investment monthly contribution. You can call it a 10% return, 8% return, but if you cut that from a 10 year, like you start it when you're 50, and you're trying to start it at 50 in 10 year versus starting it at 4020, years, watch how different that how different that number ends up being just because of compound interest. It's incredible.

BRIAN AKERS:

Absolutely. So that's timing and letting your money grow. It's incredible inside of a tax free Roth. The other, I think, other thing to think about is precision moves that need to be made with Roth. That involves this whole strategy of contributing. Precision moves might be you're in a four 1k and you have at a certain bracket, and you can actually split your contribution, some pre tax, some Roth, and keep you under a certain level if you'd like to.

Paul Franco:

Yes,

BRIAN AKERS:

and sometimes you have to monitor that, especially as you get to higher and higher brackets.

Paul Franco:

Yeah, you're exactly right. We're not winging how much we put pre-tax versus Roth. There is a precise calculation we can work through to say how much you should have pre-tax versus how much you should have Roth. This

BRIAN AKERS:

also matters in something called conversion. Conversion. Explain that one, Paul.

Paul Franco:

Sure. Yeah. So Roth converting is a is a wonderful tool where you can take existing pre-tax money inside your IRA. If you have a traditional IRA, you can then pay the tax on that money now. Say you have a half a million dollar IRA, you can convert. You can you could say it's $10,000 You would pay tax on that $10,000 at your regular ordinary income tax rate. So you would again you pay the tax on it now, but now that $10,000 is now in a Roth bucket where when you take that money out, that 10,000 you can take out tax free, and all the growth on top of that also grows for you tax free.

BRIAN AKERS:

Absolutely. So we're talking about precision moves, how you can make these strategies work for you and get you the most you can to save. The hardest part is can you save? That's where all good solid financial planning comes in to get you the ability to save, and then knowing where to put that money when it comes to Roth or pre-tax, and then after it's there to invest the money and follow through. Good financial planning advice gets us through this whole process, and the core of eligibility is great, but you got to follow all the way through to make it work for the long term.

Paul Franco:

Yes, eligibility is a huge part of it, but timing, I would even argue, is just is a bigger portion.

BRIAN AKERS:

As we get closer to retirement, you need to think about the withdrawal rules, how it applies to you. There's something called a five-year rule on an IRA. What we can do to break the five-year rule is open up a Roth IRA today, fund it with a little bit of money. That starts your five-year clock. Period. Starts the five-year clock. Don't wait to retire and all of a sudden you put money in. You got to wait five years. If you don't have a Roth, let's find a. Let's open one.

Paul Franco:

Yeah, open it. You don't even need to max it out. Open it. Put 100 bucks into it. I just want to yell "Let's go" really loud.

BRIAN AKERS:

But the idea is a Roth IRA has to be open that starts the five-year clock. The five-year clock is part of the withdrawal rules. When you're 50-nine and a half, even if you're 50-nine and a half, you got to wait five years to get to the earnings.

Paul Franco:

Yes.

BRIAN AKERS:

Even if like people start at 70, you got to wait five years to touch it.

Paul Franco:

Yep. Yeah. Again, you can take your contributions out, but yes, that five-year rule is critical. So open it right now. Open it today.

BRIAN AKERS:

Precision move, precision planning is exactly what we try to do here at AKERS Financial Group. We are local. We're independent. We we don't report to a big company on Wall Street. We report to you. We do have offices in Lutherville, Farstill, clients all around the Mid-Atlantic regions, clients all around the country, even a few around the world. It's so easy to begin winning in retirement. Just give us a call and schedule your free meeting with one of our team of advisors by calling 833 win retire. That's 833 W. I n r e t i r e. We'll give you a call on Monday to schedule a free in-person meeting. Go to akersfinancialgroup.com or call us at 833-946-7384 to start planning for your retirement now. How can you use the Roth money that you saved? We will explain in a moment.

Unknown:

You're listening to a pre-recorded show. Welcome back to Winning in Retirement. Call 833 Win Retire now to schedule a visit with Brian and his team and begin Winning in Retirement. Once again, here's BRIAN AKERS.

BRIAN AKERS:

Welcome back to Winning in Retirement. The show today is called Three Core Roth IRA Principles, and we're talking about what you can do when it comes to putting together your Roth IRA, your Roth 401k, your Roth TSP. All of that applies to our topic today here at the middays, Paul Franco. Ready for the second half, Paul?

Paul Franco:

Very excited as always.

BRIAN AKERS:

Excellent. We've already covered one of our key principles. That was about eligibility, and then we started to talk about the other one called timing.

Paul Franco:

Yes,

BRIAN AKERS:

and timing is all about when can you do one, how can you do it, when you can withdraw, how it works, is the timing right for you, and does it fit?

Paul Franco:

Yes, and is it timing the conversion, timing the contribution very important?

BRIAN AKERS:

Yeah, so this quarter is all about you how you can use Roth money that you saved. So we can talk about all kinds of different stories of how they use Roth IRA money. One of the ones I've used on recently is that someone wanted to buy a house. They wanted to buy a house, and we were hitting a limit for too much income for Irma and all these other things in retirement. And I said,"Well, we can take this amount of money from the Roth, this from the IRA. We made that money in Roth the last three years, and all of a sudden we have money for your house, and they're like, "Oh, let's do it! And so we we sold the Roth, and we we gave that money for that. We gave the other money, and then now they're moved to their new home in another state.

Paul Franco:

Isn't that the best? You take money out of that Roth IRA. You work so hard to build up. It doesn't affect your Medicare premiums, like you said with Irma. Doesn't affect your Social Security tax. Yeah, it's just your money. It's 100% your money. It's incredible.

BRIAN AKERS:

That's the key ingredient about the Roth. When you put money into the Roth, the pain is when you put it in. Now, making sure you withdraw under the qualified rules is a very important piece. How you use it once you're over 59 and a half is just understanding what kind of money was put in as a contribution, as earnings, as is a conversion. Conversion money has a five-year rule every time you convert, right, Paul?

Paul Franco:

Sure does. Yeah, every and like you said, every time you convert. So if you convert 10,000 this year, that 10-year, that five-year clock, sorry, starts right in this year, 2020-six in this case, and you can do a conversion next year. Five year clock starts on that amount. You convert all tracked on that form, like you said, the 8606 form.

BRIAN AKERS:

But the hardest thing is this: when it comes to Roth, and if there is a penalty, it's only on the growth. Now, the younger we start, the earlier we start, and we let that money grow and grow and grow, could be a lot of growth. A lot of growth. Yeah. So waiting 59 and a half works out very well.

Paul Franco:

Sure does. Yeah. Now

BRIAN AKERS:

401k's We put money into there doing Roth, letting it grow is a fun thing. Making it be something that grows, like the stock funds, is what I like to invest in.

Paul Franco:

Yeah. I I'll give a story of that one. Um, I have a client of mine that is longtime radio listener that was interested in trying to get more Roth built out in his portfolio, he was in his mid 50s. Now he's now he's yeah he's almost 60 now, and he had an inheritance, so he had inheritance money that was non qualified. Okay, so it had it. So it had a little bit of different rules inside there, and he's like, "Well, Paul, I'm with my paycheck coming in. I don't know how I can put more into the Roth. I I am maxing out my Roth IRA, which is wonderful, but I want to. I have goals of being able to retire within a certain time frame. I know I need to save more. Well, what can I do? And so we what we ended up doing was again, and it goes back to that precision when you're working through tax planning and working through which bucket of money to draw from, Brian, what we ended up doing was we started taking draws out of the non-qualified inheritance to make up what he was getting in his paycheck, and taking a lot of his paycheck and deferring it inside that 401k to Roth, and so it allowed us to. He didn't. He didn't change his lifestyle at all he was still getting the same amount of income he was used to getting before just from two different sources one the inheritance and then one on a lesser paycheck that was going in but it allowed us to max out his Roth 401k and do his max out his Roth IRA and now we've had a few years of incredible growth inside those accounts, and we had that conversation not too long ago. And it's just like, well, we'd made this conversation. We did this conversation, you know, years ago, and now you're reaping the reward of that. And this money's grown for you tax-free. It's pretty incredible.

BRIAN AKERS:

I love tax-free when it comes to withdrawals. I also like tax-free when it comes. To inheritance, so whenever someone says, "Hey, I want to save money and I don't really need it, um, I don't want to pay tax on it. I want to give it to the next generation, and I want that to be a legacy, and I'm not inclined to charity. I think a Roth is a great place for money. Now, charity, the regular IRAs pre-tax, there's ways once you hit 70 and a half. You can use that money to give the charity year by year, but the Roth IRA becomes the actual legacy where the the inheritor, the person receiving that money, is going to have a 10 year of allowing the account to stay open after you pass away, and then all tax free to them. Yep. So I really like that. I like life insurance also because that has an explosion of value, all tax free. Yes, the Roth is just a 10 year count of tax free, which is nice.

Paul Franco:

Yeah, very nice. It's it's incredible. It's just having, and and a big thing I I think is very important. Brian is having flexibility. You know, it's it's this concept of we want to have Roth built out in this in these investments, but like you said, somebody who might be charitably inclined, you know, who who's able to take money out of their IRA tax free to give to charity after 70 and a half. Well, in that sort of situation, why would we want to convert everything to Roth, pay the tax on it now, if we're going to be able to give it tax free later for somebody who's charitably inclined, and that's where the planning and getting to know our clients and helping them in their situation-that's that's that's where we're we're able to provide significant value,

BRIAN AKERS:

right? So we're talking about three core Roth IRA principles. One was about eligibility. Second was timing, and so the reality of this-this is the answer that you got to

listen to, and that is this:

use the Roth to create flexibility in your lifestyle with using your money, so that you're not locked into one tax outcome for every dollar of your retirement income.

Paul Franco:

Yes.

BRIAN AKERS:

So use the Roth to create flexibility. So explain what that means when someone's applying it to their accounts. I

Paul Franco:

think I think that's a huge. That's a that's a wonderful point because flexibility means don't have all your eggs in one basket. Don't have all of it in Roth. Like you said, inside the 401k that match that comes from your employer is going to be pre tax. It's okay to have pre tax money, some pre tax money inside your retirement. There's a lot of books out there on you know, basically getting your your your retirement tax bracket to a 0% tax bracket. And while that concept can make sense, it's ultimately about, in our opinion, levelizing your taxes and having the choice and trying to pay the least amount of tax over your lifetime. In some situations, that might mean that we can take out of the IRA and pay less tax, and then in other cases, taking that money out Roth tax free can be another situation that might be better for you. And so, a real world example that might be a situation where you have IRA money in retirement, Roth IRA money in retirement, and you have to choose like you did with your client. Of hey, I need this money to buy a house, buy a property. I could take it all out of the Roth tax free. Sure, that's one part of it, but why not have some money come out of it pre-tax if it's going to keep you in a lower tax bracket and let that money still keep growing and grow for you tax-free. That's a really good real-world example of that.

BRIAN AKERS:

Absolutely. So, a Roth to create flexibility is one of these reasons-not just legacy for family down the road, but flexibility for you. So let's call that more of our greedy option. The option is, hey, you want money? Let's have buckets of money that have different characteristics. That could be, hey, that Roth bucket's all yours. I had a client inherit a Roth IRA from a parent, and they got that Roth, and I said that is all your money. The IRA portion that came over is not all your money. Right, it's like 70% your money. You take it all out in one time, it might be 55% your money. Yes, yeah. So it depends on who you're sharing with, Uncle Sam, or um, or or Marilyn,

Paul Franco:

yeah, they they get their nice share. Yes,

BRIAN AKERS:

well, they get their fair share, right?

Paul Franco:

Yeah, maybe. Moving right along. All

BRIAN AKERS:

right, that flexibility matters even in planning for things such as RMDs, Social Security taxation, income, other income sources. Understanding your Roth helps you decide between this. We've already talked about Medicare premiums going up, called Irma. How does this affect a Roth? I'm sorry. How does the Roth affect RMDs, required minimum distributions? How does it affect?

Paul Franco:

Right. So for somebody, anybody who's born in 1960 or later starts their required minimum distributions RMDs at 75 Now, for somebody who's been building and accumulating pre tax assets over a long period of time, and boy oh boy, I have some stories I could go through of that of just building and accumulating pre tax money, maybe under the impression that I'm building this. Up, not to be able to touch. I I live comfortably off my pension, my Social Security. Well, there is a time frame where you are required to take distributions out of your pre-tax assets, and that's based on a calculation of life expectancy. But you know, for every million dollars in pre-tax assets for somebody starting RMDs, it's roughly 30-7000 a year of required distributions, and so for somebody who says I don't really need that money, Paul, that's okay. I don't I don't need that. I have my Social Security, my pension. Well, you're actually required to take that out when you have a Roth IRA, not subject to RMDs, not subject to those required distributions. So those conversions, that tax planning you did ahead of RMDs, now you've built up a bucket of money that's tax-free that doesn't trigger RMDs on that portion of the money.

BRIAN AKERS:

Yeah, right.

Paul Franco:

Creates flexibility. So it's like the idea of well, you're going to be forced to take that money out when it comes to pre-tax assets, but the Roth money you can let continue to grow for you tax-free, or you know what's a bigger deal, Brian? You get the choice to be able to take that out when you want to.

BRIAN AKERS:

Well, flexibility and choice is what we want in financial planning. Now, I love Roth, I love IRA, but I also like having money that's in a taxable account where I have a lot of flexibility no matter what age, so there's the idea of your current age having multiple buckets accessible in your 50s, multiple buckets are accessible in your 60s, and understanding the full plan for those that want to build wealth and build a build a financial independence. It's so much fun building strategies to make it all come together. It's a it's what we enjoy doing. Yeah, we're

Paul Franco:

passionate about it. We we do love doing

BRIAN AKERS:

it. Yeah. So the idea in this quarter is really talking about how can you use your Roth Roth money, the money you put in there. Give me some examples. I'm probably do a couple hours of Roth that we've been able to do over time.

Paul Franco:

Absolutely. Yes.

BRIAN AKERS:

You know, we get that phone call from the kid, and they need 10,000 for some reason. You take out of the Roth. It doesn't punish you. Oh, it makes me, and it takes away from their inheritance, which is okay.

Paul Franco:

Perfectly okay.

BRIAN AKERS:

Oh sure. Now we all know the best part of retirement is getting your time back, where you can decide how to use it. Before retirement, your time is tied up with other commitments, mainly your job. A lot of that goes away in retirement. Your time is now consumed by things that you want to do. It's so easy to begin winning in retirement. You go to our website at akersfinancialgroup.com, scroll to the schedule a meeting section, and let us know you'd like to schedule your free consultation with one of our team of advisors. That's akersfinancialgroup.com, or you can call us at 833 win retire. That's 833 W I N R E T I R E. We'll give you a call on Monday to schedule your free in-person meeting. Go to akersfinancialgroup.com or call us at 833-946-7384 to start planning for your retirement now. What are common near retirement mistakes people make with their Roth IRA? When we come back, we'll go over our simple action steps that keep the Roth working for you.

Unknown:

You're listening to a pre-recorded show. Welcome back to Winning in Retirement. Call 833 Win Retire now to schedule a visit with Brian and his team and begin Winning in Retirement. Once again, here's BRIAN AKERS.

BRIAN AKERS:

Indeed, welcome back to Winning in Retirement. I am BRIAN AKERS. Here with me today is Paul Franco. We're both financial advisors from AKERS Financial Group. If you go to our website at akersfinancialgroup.com, you head over to the radio podcast tab. You can actually hear this this show right back on there and record it, so you can hear it again and again. You can always be listening to the same show or some of the 200 shows we have online right there.

Paul Franco:

So many, yeah. Or even if you you hear it and you think there's something you missed, you can always go back and it it'll be there.

BRIAN AKERS:

Or if you want the live version, just give us a call and then we can sit down and talk with you. It is a free meeting. We sit down and talk with one of the team of advisors where we talk about your situation today. We're covering three Roth IRA principles. The first one is about eligibility. That's a reason to call us. Second one is about timing, timing of doing it, and then the third thing is qualified withdrawals, making sure you're taking the money out properly. And so the principle of qualified withdrawals we started last time, but I didn't wave the number three flag. But the number three was understanding qualified rules. How to take it out when you put money into something? Understand how you get it out. A lot of people don't ask those questions. They they put money investments. They're locked in for 1016, years. They didn't know that, and then all of a sudden later on, we might come in say, you know, you you have access to this much money until 2040 right?

Paul Franco:

Right. Yeah. Exactly. So it's having knowing the rules, understanding when you can take them out, how you can take it out, how it affects other taxation is very important. In the case of the Roth, how it doesn't affect on the other taxation, which is pretty incredible. But understanding the rules is critical. All

BRIAN AKERS:

right, so this quarter we're going to cover the question of what are common near retirement mistakes people make with their Roth IRA. But Paul has an incredible quote he wants to start with. Are you ready, Paul?

Paul Franco:

Let's do it.

BRIAN AKERS:

I should have music for this, but go ahead

Paul Franco:

because I think it's critical. It's that the the it's not quite a quote, but it's that Roth IRAs are not only for young people. A lot of that's a misconception that it's only for you. It's that it's only for young people. That's not the case. When you're near retirement, that's the exact time when planning stops becoming theoretical, and it starts becoming practical. That's the reality.

BRIAN AKERS:

Those are such big words that I was not allowed to say those on the show today.

Paul Franco:

Yeah, it was a little bit of a tongue twister, but I think we got through it.

BRIAN AKERS:

So go over again. Planning stops.

Paul Franco:

Yes, there's planning stops being theoretical, where you just understand this theory of oh, I know I need to plan. I know the theory of okay, this raw so

BRIAN AKERS:

Roth's a great idea. I'm gonna do that one day. Yep. Or yeah, I really should talk about a Roth for next five years before doing one,

Paul Franco:

yep. Versus practicality of now, it is practical for you to do right now.

BRIAN AKERS:

Right.

Paul Franco:

I don't care if you're 25 years old or 55 years old. We need to be having those conversations of practical applications of what Roth can do inside your portfolio.

BRIAN AKERS:

I I open a Roth for an 80 year old.

Paul Franco:

Isn't that awesome? That's a that's a yeah. So what? So they're still they have some earned income then. How about earned

BRIAN AKERS:

income? They have extra, and they're they're finally ready to put some money in. It's really for the next generation. Good for them. And they're sick of paying tax on on on the extra money, and so they just put a little bit away like that.

Paul Franco:

Yeah, that's great. That's a great case. How about that?

BRIAN AKERS: My opinion:

Roths are little decisions that pile up to be a big decision and a big effect on your life, so the go from what was the word?

Paul Franco:

Yeah, theory. So theoretical. Okay, I can

BRIAN AKERS:

say the word theory.

Paul Franco:

Theoretical to practical, or theory to practice.

BRIAN AKERS:

And I love practice. I mean, I'm a basketball coach. I love practice because you get things out, and then it makes the game easier. So the game of investment and retirement is so much easier when I have flexibility and tools. I know that the money's in there. It's already paid the tax, so it's all your money. It's so much easier when people call in and say, "I need something.

Paul Franco:

Yes.

BRIAN AKERS:

Oh, hey, Paul. This week's been a run on people calling needing money.

Paul Franco:

Yeah.

BRIAN AKERS:

They've been calling, and guess what their number is this week?

Paul Franco:

What's the magic number?

BRIAN AKERS:

10,000 bucks.

Paul Franco:

Uh huh.

BRIAN AKERS:

And not once, five times, I've had the phone calls for clients asking for $10,000 All kinds of different reasons, but what's awesome in our planning at AKERS Financial Group, we have the buckets. Some of the buckets, I have the cash right there. The money goes out that moment. It goes out to them by the next day at the at the latest. Yep. Other ones are a little more complex. You have to sell something and take a couple days. We have to look at the IRA, the Roth, the year-to-date tax estimate before we send the money. And then if it's taxable, you can't take 10. You got to take more to get to 10, right? Yep. But the Roth, when I have a little bit of Roth to send them, if they need 10 out of the Roth, I send them 10. The count goes down by 10. That's it. I don't have to take out more because of the IRA. It's a big deal.

Paul Franco:

Yeah, it doesn't even show up on your tax return either. It's pretty incredible.

BRIAN AKERS:

So common near-term retirement mistakes people make is they put money in and then they take it right back out. They put money in pre-tax and then they pull it back out. They retire and they get retired. They retire midsummer, let's say, and they get a big lump sum of sick leave or vacation pay, all this, and then they use it all. It's gone, and then November, December, they want another withdrawal on top of that other income, the highest tax year in their life, and they didn't just wait to January to take the withdrawal.

Paul Franco:

Yes, yeah, very true, and very important on our side as planners because we help with that, we help work through. Okay, we can take some of that out this year, but can we push the rest of it into 2027 or the the following tax year and spread out that tax liability? That can save our clients 1000s of dollars in taxes. It's unbelievable.

BRIAN AKERS:

Oh yeah, so common mistakes for Roth IRAs. Oh my, let me let me start with just one. So the idea is this: you put money in a Roth, and then you need it the next week or two. That wasn't good planning, right? So, like, let's say a real young person, and that young person is trying to set goals for life, and we talk to them about building up the emergency fund, making sure you have it. Don't rush to do the Roth, even though it's a wise thing. And then both they'll say, "All this money's for retirement. I don't need it in any short-term money. The next month, all of a sudden, they're calling saying, "I need that money back. I got to do this. Yeah. So the fundamentals of planning is to build emergency fund, have enough money set aside so that you then could put money in retirement and not have to pull it back out. The Roth IRA is something to fund for yourself, for your future self, and let it let it grow. No touchy, no touchy. Yes, don't touch it. I had

Paul Franco:

another mistake that I I had earlier this year was so somebody somebody said they well they've been putting money into their Roth, they stayed. So this goes back to eligibility where you have. To watch out before at staying within certain income thresholds, that what happened was the income based off of earned income kept them within the threshold. But you know what they look at for the income? They look at your modified adjusted gross income. So what happened was a capital gain actually pushed them above the limit of being able to contribute to Roth,

BRIAN AKERS:

yeah.

Paul Franco:

And had we had that conversation before, I could have told them, "Hey, stop contributing to the Roth. We can stop doing it. You know, you're going to be, and that you're going to be above that income threshold. So what we had to do was we had to take the money out. We had to pull out the excess contribution inside the Roth, just because they didn't know that. Oh, but my earned income. When did you

BRIAN AKERS:

find that out? What what date?

Paul Franco:

I found out after tax after after the year was over for last year. Yeah, we called it before taxes of this year for 2026. So we were still able to do it without having to pay a penalty.

BRIAN AKERS:

Any excess contribution penalty type thing.

Paul Franco:

Yes, exactly.

BRIAN AKERS:

All right. So it's almost like the example I have is that the accountant says,"Oh, you couldn't fund the Roth? Pull it out. So they go and pull it out, and then then I'm like,"Well, why'd you pull it out? I could we could have switched it to an IRA. It could be deductible or not deductible, and most likely because your income's too high, it's going to be non-deductible, and then I can get it to a Roth through the back door.

Paul Franco:

Exactly, but just

BRIAN AKERS:

call the advisor after your tax accountant says no. If tax, I'm sorry, if tax advisor goes, nah, you can't do that. You say, let me ask my let me ask my advisor for more flexibility. What other choices I have to keep that retirement money saved? And so I I remember that one last year twice. Once I fixed it. Once they they listened to the accountant, pulled the money out, didn't even bother calling, and then all of a sudden it's like, ah, we could have fixed that one. Yeah,

Paul Franco:

and that's the you don't know what you don't know concept. It's like, oh, there's a way I can still put into Roth through a back door. Oh, well, that would have been nice to know. So they should have called you.

BRIAN AKERS:

Oh, but the idea is this: an advisor is an advisor. Let's run and buy them. Anything that sounds funny, you get told no by somebody. Let's run by the advisor, see if it's a definite no, or hey, let's let's see if there's a better way.

Paul Franco:

Yeah,

BRIAN AKERS:

how flexible can we be? It's a lot of fun being the advisor, trying to find the more flexible ideas.

Paul Franco:

Yeah, think of I I had somebody we we were talking and almost they I like the way they put it. It was like kind of like a quarterback, right? Yeah, a quarterback. It's like that's kind of what your financial planner is. It's like they they kind of help work through. They they they ultimately are like a guide for you when it comes to making these big decisions, big or small decisions. I thought that was a pretty unique way of putting it. But

BRIAN AKERS:

like quarterback.

Paul Franco:

Quarterback. I also heard like coach. I like using coach as one, but but the quarterback was a like a the one that kind of helps lead and helps work through these plans. It's pretty cool, or changes on the fly, audibles on the fly. Yeah,

BRIAN AKERS:

that's very true. So what happens is this: as a listener, you're thinking about the three core Roth IRA principles. You're thinking, well, what should I do? Well, the first thing you got to do is check your Roth eligibility. What are you allowed to do? How do you do that? You call us. You call AKERS Financial Group, and what we do is we sit down with you to go through your eligibility. Second thing you need to do is plan for timing, especially because near retirement compresses the decision window. You might want to do Roth contributions, but not conversions, while you're working, and then you might want to draw Social Security later to do a Roth conversion prior to Social Security because you might not need the money because you have enough cash to live off of. There's these tight decisions, and then the third

thing:

understand qualified rules because you put money in if you need it. Make sure you understand how you can get back get that money back out tax free, coordinate your Roth with your other retirement income so it supports your tax outcomes. All important stuff, right, Paul?

Paul Franco: That's the thing:

is it's having the having the plan in place, working through that, understanding when to do Roth,

BRIAN AKERS:

if

Paul Franco:

you can do Roth, the timing of doing the Roth, like you just said, it has an impact on other triggers when it comes to taxes, so we like you to have control over when you pay the tax.

BRIAN AKERS:

So your goal isn't just having a Roth. Your goal is using a Roth correctly, so the tax-free benefit is real when you need it. So that bottom line is not just to have a Roth. Now, if you're younger, I might say just go get one. But as we get closer to retirement, we want to use a Roth correctly by putting it incorrectly and withdrawing correctly. All very important.

Paul Franco:

Very very important. Yes.

BRIAN AKERS:

Yes. Roth is William Roth. You say

Paul Franco:

William? You told me William V Roth Jr. Right is what you absolutely. But you went across the

BRIAN AKERS:

bridge. I

Paul Franco:

did. I went across the bridge and I I told my wife Irina said you know you know who that Roth fella is just look it up it'll and then we'll make her look it up teller yeah

BRIAN AKERS:

oh my all right well Paul thanks for a good show today talking about Roth IRAs I know you love that topic yes it's a lot of fun yeah thank you all right what we want to do now is just basically close out the show we we thank you very much Paul we. We also thank you guys for listening for the show to the show, and we look forward to meeting with you. We want you to win in your retirement by taking this opportunity to begin planning with us at AKERS Financial Group. To schedule your free meeting with one of our team of advisors, go to our website at akersfinancialgroup.com, scroll to the schedule a meeting section, and let us know you'd like to schedule your meeting, your free meeting, right there. That's acresfinancialgroup.com, or you can call us at 833 when retire. That's 833 W I N R E T I R E. We'll give you a call on Monday to schedule your free in person meeting with one of our team of advisors. Start planning for your retirement now. Go to AcresFinancialGroup.com or call us at 833-946-7384 Thank you for listening. I'm BRIAN AKERS from AKERS Financial Group, and we want you to be winning in retirement.

Unknown:

You've been listening to Winning in Retirement with your host BRIAN AKERS of AKERS Financial Group. AKERS Financial Group offers securities through Architios Capital, an SIPC and Finra member firm advisory services are provided through Arcadius Wealth. AKERS Financial Group and Arcadios do not share any common ownership. Neither Arcadius nor AKERS Financial Group provides tax or legal advice. Advice given on winning in retirement is general in nature, and one should seek further advice from their financial advisor, broker, attorney, and/or tax accountant before investing. Be sure to read each prospectus carefully to understand all the risks associated with each investment, examples and scenarios shared are meant to be for illustrative purposes only. Past performance is not indicative of future results.