Wealth from Wisdom

Everything You Need to Know About Withdrawing Money From Your IRA and 401K in Retirement

May 27, 2017
Wealth from Wisdom
Everything You Need to Know About Withdrawing Money From Your IRA and 401K in Retirement
Chapters
Wealth from Wisdom
Everything You Need to Know About Withdrawing Money From Your IRA and 401K in Retirement
May 27, 2017
Carson Wealth
Show Notes Transcript

Contributing to an IRA or 401K is easy, but withdrawing this money in retirement gets complicated. If you’re not paying attention, you could easily trigger an avalanche of taxes, penalties and fees. Listen to Ron and Paul on why having a strategy is so important.

Speaker 1:
0:00
Okay, and here's the legal Mumbo jumbo, the opinions voiced and Wellframe wisdom with Rod Carson or for general information only and are not intended to provide specific advice or recommendations for any individual to determine what is appropriate for you. Consult a qualified professional. All indices are unmanaged. I may not be invested in to directly. Investing involves risk including possible loss of principle. No stretching assures success or protects from loss. Past performance is no guarantee of future results. Advisory services offered through CW m L L C an SEC registered investment advisor.
Speaker 2:
0:30
The stock market hit another all time. Records as much as $10 billion in social security benefits go unclaimed every single year. The Federal Reserve announced that they will raise interest rates by 250 the skyrocketing cost of healthcare and retirement could now run 350,000 planning for retirement. Today is a whole new ball game. It's loaded with challenges, obstacles, and trap doors, but you can do this and we can be your guide. Welcome to wealth from wisdom with Barron's hall of Fame Advisor, Ron Carson. Straightforward and objective advice and how you could make your money go further in retirement. And now here's your host, Ron Carson. Hi, I'm Ron Carson, and welcome to wealth from wisdom here today with my cohost
Speaker 3:
1:12
Oh west. Today we're going to talk about withdrawing money from Iras, four zero one ks. And you know, the question is, do you have any of these retirement accounts? And the answer is, of course we do. Contributing to these accounts over our lifetime is so easy to do. Everybody tells us we need to do it. Everybody promotes it. In many cases you've gotten a match and you've seen, you know all the charts about what it means to save money in these tax protected accounts. But then you get to the point where you've got to do something with it. And that is withdrawing money. And that's where things get fairly confusing and complicated. The how and the when is a big deal on all of these accounts. And it can have a really big impact on how much money you ultimately keep. And the last thing in the world you want to do is you sacrifice your entire life, but you're in a hurry to take money out and you don't have a strategy.
Speaker 3:
2:16
And what happens is you can trigger an avalanche of taxes, penalties, fees, higher taxes on social security, which Paul, we talk about a lot on this show and that I don't think of social security as some Freebie. This is also an account. You've contributed a lot of money too. And so we want to make sure everything works together so you don't end up with an investment, sir. Tax or higher capital gain taxes or even higher medicare premiums. Yeah, higher medicare premiums. The last thing you want at this stage of your life is a financial surprise that could lead to you having a lower standard of living. And today, I always love to say as a first day of the rest of your life, many people do not take the time to think about this in a holistic way. And even fewer people pay far less than you do and it's legal legally pay.
Speaker 3:
3:17
And the question and today's show is, are you going to be one of the few that have a well defined holistic strategy that legally pay only the minimum required by law? Or like we talk about Paul Social Security, $10 billion left on the table every year. Are you going to unconsciously contribute a lot more of your assets, not just the assets you have your eye on the 401k, the IRA, but also the unintended consequence of how that impacts everything else. And Paul, this is a biggie and this is such a, I mean baby boomers, they're retiring in mass. I think 10,000 a day is now in that 70 and a half with on an IRA, you have to start taking income out. Yeah,
Speaker 2:
4:04
right. It's, it's such a fascinating change that's happened over life. Cause I think about all of us that have our retirement plans and their 401ks or their Iras for the common connection on all of that is we're in complete control. A lot of people think about retirement plans and they backdate to what they remember growing up and they heard a lot about, uh, pensions and people receiving money. Well, it's completely different. Yes, there's still some pension plans out there where an employer is giving you a certain percentage or a certain fixed amount during your retirement. But most of us now have these four one k plans or IRA plans that were driving the wheel. Ron, I mean, we've got control, but what happens is, is many people have cruise control as they're driving and they need to watch out for what's going on. So it'd be fun to share some stories and some great guidance today on how to keep that your hands on the wheel and moving down the road just like you want to.
Speaker 3:
5:01
Yeah, that's right. And it's, it's, it's a big, you keeping your hand on the road. I love thee, by the way. I was in Chicago, Cleveland, Detroit last week, speaking to a lots and our financial profession, and I use your, your example on speeding. You know, most people think they're comfortable going five, nine miles over the speed limit, but they're going a lot. And that was on the show have taken way too much risk. If we, if we equate the driving analogy to this retirement plans, how many people are driving that same car and they got there, you know, there's steering rod is flawed. It's getting ready to break and veer them completely off the road. And that's why getting a second opinion, doing a full check of not only every component of the car, but also let's review your map where you're going. Is it the most efficient way is going to be the most enjoyable and safest way for you to possibly get there?
Speaker 3:
5:55
Paul, before we get into this week. So this is, um, more memorial day weekend and I just want to thank all the service people out there, uh, that not only those that are serving today, those that have served in the past. So we can do what we do in the United States of America with the freedoms and the liberties that we get to enjoy. And I also have had the opportunity, I've been blessed, uh, to spend time on the USS Abraham. Uh, also the USS Wyoming wants a nuclear submarine. The others, an actual carrier, which you got to spend two full days on at seed during operations and seeing our military, I think our military is not, I don't think there's been enough recognition given we all know they're good and they're mighty and it's the United States of America. But the professionalism today is, you know, I was in the army for the while.
Speaker 3:
6:49
I was, uh, I was actually a tanker. I went to Fort Knox, Kentucky for my armored school and you know, and I look at the people that were with me in the military way back then and they were good, hardworking people. La, lot of the same people I worked on the farm with today. It's very professional. You just like farming. You can't just might as an enough, these guys are really good at what they do. And I think they're, um, I don't know if they're under appreciated, but I don't know if people realize just how professional our military as, and again, a big thank you from the bottom of my heart. Yeah. Well thank you Ron. Uh, from all of us and everybody across the country. You think about all of you out there that have served and continue to serve. So thank you for that.
Speaker 3:
7:28
Uh, my father was just fortunate. I share this story with Iran. He did an honor flight recently, so just a month ago they flew 600 veterans, uh, on a plane and got to spend the day and it for the first time for many of them a chance to go see the memorial and the are the metro area there in DC. So it was just great to watch all of them be honored for what they've done for this country. Yeah, no, that is cool. It's cool if people step up and we had some local benefactors actually I know provide that and uh, and you know who you are. Thank you for doing that. They're always stepping up, uh, in our local community. So let's go through some of this. Get back to the topic of these retirement plans. You know, let's kill a few definitions. RMD, uh, stands for, I think we throw a lot of terms around in our profession and people are like, what's that mean?
Speaker 3:
8:11
While stands for a required minimum distribution. And that's something that baby boomers now are having to grapple with for the first time. And it really refers to that annual payout that savers must take from the retirement kitty. And this is required by law. And the first baby boomers are just now hitting the age of 70 and a half. And you're required required to take money out and there's a dizzying array of, of exceptions and deadlines regarding these payouts. Uh, but, but you do have to comply because the penalty of not complying is 50%. Listen to that 50% of what you should have taken. So you think about
Speaker 2:
8:56
your grinding away, you're sacrificing your entire life. And we've actually seen people come in that had not taken it for several years or they were taken out one of account, one account, and that coordinating it with other accounts that are all part of that calculation and some big, big penalties were paid. Yeah, right. A lot of people wonder why, well, why in the world did they come up with this RMD, their required minimum distribution role. And the big reason why is the IRS still want it to be able to collect taxes. They didn't want people to put money in these tax deferred 401k accounts or IRA accounts and then never pay anything on it until their death. So that's why they chose age 70 and a half for that to start. But what's amazing to me around is we hear people throughout wealth from wisdom throughout the entire country.
Speaker 2:
9:39
I was actually just out in our San Francisco office meeting with people and actually if later on several people from the show stopped by and said hello to us. Yeah, it was cool. Be used to thank all of you for listening. And when I was there, somebody asked me, he said, Paul, I've, I've gone through and I figured out I've got $800,000 in my 401k, I think I'm going to live 25 more years. So they divided 800,000 by 25 and said, hey, here's how much I can spend for a year. I said, okay, well what tax rate are you? They said, well why does that matter? And I said, oh, we're going to be in a situation here. You, you haven't thought about the tax consequences of pulling the money out of your IRA. And he said, no, I just figured I could take it out.
Speaker 2:
10:20
And I said, there's a reason why you haven't been paying in taxes all this year. And they got to get now think about their plan, about how to put it all together. So one of the big things I think for everyone is, is to watch out when RMD start, cause it could change your tax bracket. Ron. Many people don't think about that, that all of a sudden now you're pulling out a decent amount because you have to, they could impact you. Well, there's a lot of different ways of taking it out. So do you want to recalculate every year? Do you want to do a straight line? And it does matter. For example, this week I help a client set up a Muni bond ladder in anticipation of actually taking these proceeds out. And by the way, if you're sitting on cash right now, if rates go up, stay the same or go down a Muni bond lateral give you a much higher yield in any scenario with a short duration and something you should really be considering.
Speaker 2:
11:09
I mean, really going in and working through the math really opened my eyes. I had not realized that with rates where they're at today, even a rise in interest rates is better, much better than sitting in cash. I found it today, Paul and I were talking about the significant issues surrounding your money, like having an effective game plan. Um, but nothing, absolutely nothing. I mean zero will come from this unless you take action and we would love to be your guide, but the point is whether it's the Carson grew up and our wonderful 51 partner locations across the country or someone else's thing is go in, take action, take a look at it. Now we have something we will give you. It's our five step retirement master plan in this think tackles all key component. It does
Speaker 3:
11:54
a great job and that's a comprehensive plan and it looks at social security, it looks at your taxes, it looks at generating income, and then we look at the Iras 401ks, which we're talking about today. When we look at the risk of the portfolio, the healthcare, longevity, diversification, and a lot more it really, how do I have a holistic plan that works and makes sense for me? That's what's important and this doesn't cost you anything, so you've absolutely got nothing to lose. Call to schedule your initial analysis now at eight, eight, eight four one nine 85 13 that's (888) 419-8513 (888) 419-8513 coming up next, we're going to continue to talk about all of the pitfalls when you start to take money out in your IRA and 401k and how you could save tens of thousands of dollars if not more. I'm Ron Carson with my cohost Paul West, and you're listening to wealth from wisdom.
Speaker 4:
12:51
He's a published author and has been featured in Forbes, investment news, the Wall Street Journal, CNBC, and more. Now, back to Wellframe wisdom with Barron's hall of Fame Advisor, Ron Carson. Welcome back. I'm Ron Carson with my cohost
Speaker 3:
13:05
and thanks for joining us today on wealth from wisdom, this wonderful memorial day weekend. And again, just a slew it out to the professionals, uh, that protect us. It gives us great freedom, uh, and security to be able to live in the United States of America, Paul and do what we do and thank you from the bottom of our hearts. When you withdraw money from your retirement accounts, and we're talking about, you know what, Iras 401k's you've gotta be careful, you gotta be conscious, you have to be intentional and you have to have a game plan. Otherwise you could trigger all of these additional unintended consequences, higher social security taxes and investments, serve tax, higher capital gain taxes, even a higher medicare premiums. And the truth is that most people do not do not. You heard me right? Do not pay attention to this. This was one of the big areas.
Speaker 3:
13:58
We're able to add a tremendous amount of value and our clients legally pay the minimum and most people pay a lot of additional funds because they're not, they're not paying attention. Who are you going to be? You're going to be one that's intentional, that maximizes, hey, you worked hard to put the money in. Let's be really careful about how we take it out. And Paul, let's talk about some of the pros and cons of rolling into a 401k cause I think the default for a lot of advisors is just to roll it into an IRA. And sometimes that makes sense of a lot of times it doesn't make sense. And the reason, I hate to say this, you're getting that advice as they can't charge a fee away. And uh, and that is an absolute wrong reason to do it for the advisors benefit. It needs to be what's in your best interest. Yeah. I think about, you know, we talked about RMDS, required minimum distributions and the last segment, but the big question about make many of you get in retirement
Speaker 2:
14:52
is what should I do with this 401k so as we think about the pros and the cons is maybe we should talk about in a four in your shoes, you better be going to someone like you just said, that's putting your interest first. You better be talking with the fiduciary. Somebody is gonna help you put together your personalized game plan. And I mean every day here at the Carson Group and through our wealth from wisdom advisors across the country, this question comes up. So I think some important things to think about inside of your one k is what are all of the investment choices? I mean right now a lot of people have index funds or ETFs inside of there, but they don't really understand all of the expenses that go along with it. So looking at that and a lot of them have a finite number of choices.
Speaker 2:
15:34
If there's less than five or less than 10, is that really fair for you? Is that fair for your universe of what you wanna do? Um, other things to look at and say it's just touch on high apostle Paul because this is one where there was some really expensive plans out there, especially if it's in one of these group annuity plans and you have to look at not just what you, the fees you can see which will also have to evaluate the fees that you can't see now. This is going to get a lot better and even more transparent with the Department of Labor rules which are set to go into effect June 9th of this year. Who knows if that's going to get delayed. It's been a circus around that. But whether it goes into effect or not, you need to be asking the questions or have someone on your behalf really dig into the plan to truly understand what all of the expenses are.
Speaker 2:
16:27
Because whether you can see it or not, it's a direct headwind to the return you're going to get. Yeah. So one of the biggest benefits, Ron, of course, is changing from a 401k to an IRA, is giving yourself an open universe of investment choices. So that's one of the best things and the one of the biggest reasons why people do it, but it doesn't need to be the only reason, but it's one that why many people move to a financial advisor is to give them more discretion and thoughts on what they could actually invest in. Here's a great example around, so it was on the road recently out in Ohio, uh, talking with a company and many of their employees, they're on what they should be doing and what should the handle now nearing retirement of their 401k. And it was interesting. I said, okay, how many of you here in the room have logged into your 401k lately?
Speaker 2:
17:14
Or actually when was the last time you've made it logged in and look at your 401k and about 10% of the room raised their hand that they had even logged in in the last six months. So I said, when you logged in there, did you make a change? And everybody said yes. And I said, why did you make a change? You know what their answer was? No, I felt like I had to spell it was just took the time to log in or because they felt like, well I haven't done something. One other person said to me, well, my neighbor told me that they thought, uh, the international market was going to be good. So I thought I'd better make a change to the international market as well. There we go. Random series of decisions without, without understanding what that one move, how it fits into the overall game plan.
Speaker 2:
17:55
And I get, and this is where I talk about, you know our hands on the steering wheel run as a 401k. You do. So when you log in and you make that allocation change, you're not making a $1 decision or a $10 and you're making $1,000 plus decision, not only on how you're moving the money, but we're may go or where she at, where it may not go on where you want it to. So don't let emotion take a factor in your overall 401k allocation system. That's actually a big reason why to move it is to prevent yourself from making that irrational or emotional based decision. Well, yeah, so number one reason could be here on the list is his choice, but also high cost. The other Paul, and we see this all the time, a trail of lots of 401ks. They've had, you know, half a dozen plants, two or three plans.
Speaker 2:
18:41
They don't amount by themselves to a lot. So get them consolidated. So you can, you can pay attention to them and you may just roll it into wherever you're at. Most 401k plans will allow you to roll into the, so you don't necessarily have parole. Those 401ks into an IRA. It may be your best option to roll it into your IRA. It may not, but at least consolidate them somewhere. Yeah, and I think about other things that you have is your overall flexibility, Ron, in making decisions within an IRA is so much greater. You don't have to worry about inservice. Distributions are penalties that may be are tied to your retirement plan. So maybe we should talk about what are the reasons why I stay with my 401k Ron. Well, can I add one more letter rollover, and this is a Biggie, Paul. We just talked about bond ladders in the last segment is first of all, what if you have bond funds and you're a conservative investor?
Speaker 2:
19:32
I think bond funds, are you getting lots of risk and no return with where yields are today? Right? So here's what you could do though. You can roll it over and you could construct a bond ladder. We actually own the individual bonds. You know they're going to mature. You're not going to get a high yield today, but you're going to get it. Okay. Yield, especially with interest rates are you can buy, you can go out and construct a high quality corporate bond or Muni Bond. Now, you wouldn't want to put Munis in a retirement plan, but if you have cash that's not protected, it's taxable. You would want to do a Muni. Right now there's lots of good value, short term Munis or do the corporate ladder and then as rates go up, you're not getting hit and you can reset that ladder. You can't do that in a four one k plan.
Speaker 2:
20:19
Yeah, no, I agree Ron. I mean it's, as we look at, it's a great idea on why it's a good reason to move it out and other reasons to keep it though is you may have good investment choices in there or you may want to move it into a Roth Ira. Now, of course with the current administration, who knows if we're going to actually get to lower tax rates because that may now influence your decision. Well, let me give you a recent example on, so somebody was actually here in our office and had multiple 401k's, you know, that they'd rolled it over the years and had them. Um, and their last one they had, we went through and reviewed all of the investment choices. This is a very conservative investor, um, has a, what we call, remember if you're on our show here are family index numbers, the rate of return, you need to live out life the way you want to.
Speaker 2:
21:04
And by the way, on that index number, it's if everything goes as planned, but also what if you lose your job today? Just a reminder. So there's really two numbers you should be thinking about. Yeah. And this person to live out their life and to live their expenses and spend time with their grandkids was just barely over 4%. So a very modest return that they needed. And, and by the way, didn't want to take any additional risk. So actually inside of one of their 401k plants they had on, they had a fixed account option. And inside the fixed account option. It was currently paying 4% I was like, it was fantastic and I said to her, I said, you absolutely need to keep this here. It isn't a great thing. And the smile that came over her face, Ron was just music to my ears are beauty to my eyes because I trust you because you didn't try to go.
Speaker 2:
21:52
I've talked to other people and they wanted to roll that over. You gave me an honest opinion of what you thought. And that's important here because you may have a good 401k and it's not in your best interest to roll it over and you've got to look at that. Well, and another reason you would not want to roll your 401k overs if you plan to retire early or late, meaning that if you, if you're going to go early, you've got some flexibility on withdrawing the money out of the 401k or if you want to keep on working in the 401k, you do not have that requirement to make the 70 and a half distribution. You can continue to work in, even add to your, for one that's not as well known factor on. So that's good to share. Also you may want to invest in a Roth Ira a but you earn too much to contribute.
Speaker 2:
22:37
Another reason why you may want to continue to participate, uh, in your 401k the point here is it's not cut and dried. I think the, somewhere I saw a study that on financial advisors recommended like 98.6% of the time, but rollover and I can tell you 100% with certainty. It's not not that way. It's probably 50, 50 proposition about half the time it there. It really makes sense for you, uh, to make a change. Yeah. Well I think one of the biggest reasons why we recommend rawness cause people don't want a monitor and they don't want the stress of having to make their own decisions on their 401k. And so that's a big reason why people do roll over because we've shared on the show many times about what happens with investor behavior and they actually make a lot met less in the market than everyone else is because they buy and they should sell and they sell when they should buy. We're going to talk about that. Our next segment, we have some really compelling stats gonna blow your mind that we're going to share with you and this is information that will help you do much better in your investments in the future. But let's talk about the first paycheck, Paul. Man, I remember my first paycheck and I didn't realize it then. I do
Speaker 3:
23:46
realize it now that between what I contribute and the employer contributes, 12.4% goes into social security. You heard me rice 12.4% so when you're thinking about what you put in your 401k, what you're contributing to, social security is a heck of a lot more and it even starts earlier in some cases, 40 50 years and claiming those benefits from social security, we see it. It's complicated. A lot of bad advice has given both by Social Security Administration and people giving advice and there's a lot of potential pitfalls out there and you make one mistake. It easily can cost you tens of thousands of dollars. We have a really cool report. It's our social security report. It's six pages and it takes what's really complicated and confused and we make the complex simple hair at the Carson group. That's what we do and the best news is this is this will cost you a dime if you're in your 50s or 60s this is a must read report.
Speaker 3:
24:43
If you have at least a hundred thousand in retirement, be one of the first callers to get this report right now at (888) 419-8513 that's (888) 419-8513 call now, (888) 419-8513 how you avoid avalanche of taxes, penalties and fees. We're going to talk about that and how to make better investment decisions and how it's going to put money and your account. I'm Ron Carson with my cohost Paul West. And you're listening to wealth from wisdom. He's a published author and has been featured in Forbes, investment news, the Wall Street Journal, CNBC, and more. Now back to wealth from wisdom with Barron's hall of Fame Advisor Ron Carson. Welcome back. I run Carson with my cohost Paul West. And you're listening to wealth from wisdom. So we've been talking first two segments about Iras and 401k's and what people are realizing hopefully from listening to wealth, from wisdom as you're staring down the gun barrel of a mammoth tax time bomb.
Speaker 3:
25:45
When you take this money out of these accounts, you could trigger higher taxes on social security. You could create an investment, sir tax, higher capital gains taxes, even increase your medicare premiums. And ultimately you've put so much time accumulating, could cost you a small fortune when you're trying to take the money out. So we're talking about a lot of strategies, what you can do to maximize the efficiency of those withdrawals and make your money go as far as possible and the unintended consequences of all the other stuff to make sure you don't get hit hard and taking these funds out of your Iras and 401k.
Speaker 2:
26:22
It's such an important topic. But before we get to it, just want to thank again all of our veterans for your years of service, this Memorial Day weekend and thank you for all that you do. Um, I'm proud of this weekend Ron. Uh, my twins are going to be out in, are out here in the DC metro area and my daughter through her school got selected to actually lay the wreath on the tomb of the unknown soldier this weekend. So if you're out Arlington this weekend and listening to us on the show, um, my daughter's actually going to be out there and I'm like, I'm excited for her and she's super excited to see what a cool honor. Yeah, it would be able to do that. I was actually telling our producer Andrew about that and he said he remembers when he was out there and went on a school trip instead.
Speaker 2:
26:57
It was his best memory of doing that. So it's fun to see your kids get to do that. And what happens, by the way, Andrew doesn't get enough credit. He is an absolute stud rock star here. He's a, the millennials across the country are such a misunderstood group. You know, I do a lot of public speaking and I was at a conference and they were lamenting about how millennials wanted it all, wanted it now, didn't you know, did it, didn't do it their way and a and you're missing the boat. Oh, we have such an amazing culture at the Carson Group. Really driven by leadership from the top, but the magic that millennials and the energy and the creativity and everything and Andrew's a big part of that. I just want to thank him for everything he does every week for wealth, from wisdom and everything he does for the Carson Group, all to the wizard.
Speaker 2:
27:43
He's a rockstar comedian. Tracy Morgan said it best when she said, what I'm afraid of the IRS. So IRS, everybody's afraid of the IRS. I don't want to lose, um, uh, my money to the IRS, but I also would just soon overpay so I don't have to, I don't have to deal with the IRS. And I think a lot of people feel that way is, hey, I'll pay more just so I don't have the IRS breathing down my back. And that's the wrong approach here. You want to do everything you can do to legally pay as little taxes as possible. So all of the strategies we've been talking about today, uh, you wanna, you wanna, you wanna take every, every legal option you have, whether it's taking retirement plans out or just your tax planning, um, and versus just capitulating and just overpaying in taxes. Yeah, I mean, we're on, as part of the wealth from wisdom movement is helping educate consumers across the country on what's in their best interest.
Speaker 2:
28:42
And I think about, we've spent some time talking about RMDS, required minimum distributions and the need to pay at age 70 and a half. But what happens if you miss Ron and you don't make the hat, you don't take that distribution from your account. The consequences are severe. And unfortunately I ran into a situation with a family over the last year that when we learned about was they missed a distribution. And you know what happens is you know what the penalty is, right? If you miss a distribution, 50% of what you should have taken. Yeah. Yeah. So not only that, it wasn't just one year, it was two years. So we actually helped them and help them look at this and help them calculate two years of miss payment and then to put be back in good graces with the IRS, did two things. One made the third distribution soon as possible.
Speaker 2:
29:31
I mean immediately then. So that way they could showed proactive but also had to write a letter to the IRS because IRS will be forgiving if mistakes were made in good faith or there was a good cause or reason. So there's actually a letter you can write, there's a specific form. It's called 53 29 that you have to submit as part of this. But no one wants to be in that situation, Ron at all. No, because what it does is, okay, so you're right, the letter now you're on their radar. So, and even if you've done everything perfectly, no one wants to go through an IRS audit, which regardless of what they say, as soon as you get their attention, you've got their attention. Yeah, I don't, nobody wants that. So, uh, and as we think about it, so be careful when you're doing that.
Speaker 2:
30:12
I mean other things to be careful about is the withdrawal of money from your four one k there or from your Ira. There is different ways to select. Do you want withholding, do you want federal? But with Dalton, do you want state withholding? And by the way, off course, all of this is reported, the IRS and we know many of you prepare your own taxes out there and that's great. As long as you can do it correctly. And I know it's easy to follow the systems and some of these online places, but you're just typing numbers into a screen. You're not applying really professional thought to it. So be careful if you're doing that because if you miss something, you miss one field or one button can have a dramatic influence on, it's a domino effect, right? Paul just leads to lots of other stuff that isn't impacted.
Speaker 2:
30:54
Let's talk about behavior because investor behavior, whether it is, it's in every aspect of planning for retirement, executing a retirement, living in retirement, and it's not just about the decisions or behavior that you approach your plan with. I'm making withdrawals like today's topic, IRA's 401k's, but it's also on the market and people rarely get the returns. Matter of fact, on average, they don't even come close to getting the returns that of the stuff they actually own. And I love, there's a great quote from Warren Buffet. He says, our capital markets relocate wealth from the inpatient to the patient. And I think that's by and large true. But I'd like to have my own quote is if my 35 years in this profession or capital markets relocate wealth from those that don't have a plan to those that do have a plan and it just looking at this latest dalbar study that really goes back 21 years and it shows the average return and investor gets holding equities versus the index, and even even illustrate this point further, back in the 90s when the Fidelity Magellan Fund, what's the most popular fund in History? Nearly there was a piece in money magazine or Kiplinger, one of the two they showed that nearly 80% of those that held the Magellan Fund had actually lost money because they didn't own it at the right time. They were, they bought it, they heard it, they read it was a top fund and then it went down. Then they sold it, and so those that hung it out reap all the benefits. When I look at this dalbar study, you know, for example, going back for the last two oh one the average difference
Speaker 3:
32:40
between behavior and the actual investment itself as somewhere between almost 11% a year to a low of two and a half. Let's just say it's the year. The best year ever for the investor relative to what they own is 252.5% the average is about 400 basis points, 4% per year just on the investment side. Now let's start carrying that through. Your entire month plan is totally the difference between having a great retirement with the same exact amount of resources and not having a great retirement, not having financial peace of mind. Yeah. A lot of people run on think, set it and forget it, and then everything's gonna be okay, but that study is a perfect example. That doesn't happen. People set it and forget it, but it goes back to what I was telling you. People log into their account once every six months and they feel because they made the energy and effort to log in, they better make a change because they don't know when they're going to get back in there again.
Speaker 3:
33:36
And that, that, that study proves exactly what happens. They do it at the absolute wrong time cause they do it out of a matter of convenience or rather than strategy and part of a plan. You made a point, I mean it's like showering, you can't just do it once in your life and be good, right? It's continuous, it's continuous monitoring improvement. And so either you're doing it or you better have a team doing it. So one or the other needs to be looking at this stuff all the time. And when you think about how important your money and you're saving for your IRA or 401k, you got to have her strategy to withdraw it. Otherwise you're going to lose a significant portion of that money through the back door, which we've been talking about today, Paul, through needless taxes, penalties, fees, and we talked about the unintended consequences that can arise from all other areas of retirement.
Speaker 3:
34:23
Just because you haven't thought about this one and there's all kinds of strategies that could legally save you tens of thousands of dollars in taxes. Let's learn how it's a simple conversation. If we can add value to your situation, will tell you if we can't, we'll also tell you we're great at that because we don't want a relationship that's being managed well. Now it's easy to do. We'll do this analysis. You absolutely have nothing to lose if you have $100,000 do you want to learn how to make the most out of everything that you have? Be the first 10 qualified callers to schedule your initial analysis at (888) 419-8513 learn how you can legally maximize your retirement and legally pay the minimum amount of taxes and your IRA. And your four one k (888) 419-8513 call now, (888) 419-8513 coming up next, we're gonna talk about the most frequently asked questions and how to pay the fewest amount of taxes on your IRA and 401k. I'm Ron Carson with my cohost Paul West. And you're listening to wealth from wisdom.
Speaker 4:
35:31
Is it possible you could pick fewer taxes in retirement and keep this money for yourself? You could learn right here and right now on wealth and wisdom with Barron's hall of Fame Advisor Ron Carson.
Speaker 2:
35:47
Welcome back. I'm Ron Carson with my cohost Paul West. And you're listening to wealth from wisdom. So do you have money in an IRA? 401K of course you do. Pretty much everybody does. And you may even be a baby boomer. We have 10,000 turning 70 and a half a day. And it's tricky business withdrawing the money and we're talking. It's true. We're talking about Iras and 401k's today, Paul. But there's so many other things that impact, you know, social security benefits, capital gains, even higher medicare premium. And we've seen the difference between putting thought and intention behind the strategy. How's this piece fit in my overall game plan? And it makes a difference between really maximizing the taxes, which is a big piece because if you're paying it in taxes, guess what? You're in US spending those dollars. So in today's show we're talking about how to legally minimize the amount that you're taking out and maximizing all other pieces, social security and Medicare tax included.
Speaker 2:
36:50
You got Ron. So I think it'd be important to share with everyone what is the current state of the environment. Here we are in 2017 so actually a recent study here in May from fidelity investments shared that the average savings rate for 401k investors is going up. So that's good news. I'm glad to hear that people are listening and taking advantage of that. So this all investors thinking about what they put in plus with their employer puts in and sometimes employers put in a profit share. So now the average rate is 12.9% that's our record high. And so congratulations to all of you for listening and for making sure that you're putting in and taking care of yourselves from a savings perspective. But I think is interesting about this is there's also a record high on the amount of money that's inside of a four one k.
Speaker 2:
37:35
So right now the average 401k balance is $95,500 this is up from $74,000 just five years ago. So that is moving. Wow, that is surprising. Yeah. And it's great to see this four years ago, 75 to 95 years ago. Five years ago. Okay. But still, I mean that's, it's a great number to watch. I mean, so the market's moved up a little bit, but people are contributing more. And I think that the big part about it is, is people realize they've got to make the commitment to their own financial future. But also I think people are listening rom and once, one of the biggest mistakes people make, we as employers and you and I as business owners and others, we put out an employer match in for a reason. We want to do it as a benefit to all of our great stakeholders here at the Carson group. But all of you as business owners across the country do it for your employees. So what does the, one of the biggest mistakes people make, Ron, is don't put in enough to hit that match. I know it's free money, it's free. And we'll sometimes we see, or I'll, I'm always talking to young people and I give my advice whether they wanted or not. I to say I'm the world's authority
Speaker 3:
38:36
on my opinion and I encourage them and I ask, why are you not maximizing the match? Well, because of this or that, or I want to live life now. It's like it's free money. You know? So one less Starbucks. I know you like Dunkin donut. I, by the way, I'm going to Starbucks guy. Paul's a Dunkin donuts. So we got a battle going on back and forth and uh, and I love coffee by the way, but I love good coffees, which you find a Starbucks, not a Dunkin donut anyway. Anyway, get, there's so many, we call it leakage through the day. There's so many places that people spend money that if you could spend a dollar and get a dollar match or 50 cent match and that it's tax deferred and is going to grow tax free, you compound that over 2030, 40 50 years. We're talking about significant assets it, let's talk a little bit about the Trump tax plan.
Speaker 3:
39:31
Yeah. He's planning on slashing individual tax rates. And what this is doing is throwing a curve to people who are thinking about converting their traditional Ira and 401ks to Roth accounts. And here's the dilemma. You convert, now you pay tax at today's rates or you wait until rates are lower and it conversion will cost less. So the decision would be easier if a tax cut, we're a sure thing then absolutely you know, to wait to do the conversion. But here's something you may have not known because taxes owed. Unconverted sums, rate cuts could make a conversion less costly later. But what if you wait, so what have you make the decision? I'm going to wait and tax rates are not cut. Fortunately investors do get a Mulligan here and it's a process called re characterization and re characterization allows you to go back and undo the the tax event that you actually had and put it back in the traditional Ira with absolutely no tax consequences.
Speaker 3:
40:41
So we're talking about all the rules of pitfalls. So security, you don't get the do over here, you actually do get a do over so you can make the conversion and then you can undo it if you'd like. This is one of the few vehicles are few options you have in your life run to get that do over cause there's not very many. However, there is a time limit associated with it. So talk to your adviser on when that may be, but it is that a strategy that you can put in place because not many things I think about that you make a financial decision on, you can reverse or undo with there. You know, another thing people need to be thinking about too is the withdrawal rate. We spent a lot of time talking about uh, when to take it, how to take it, how to legally pay the minimum amount of taxes on it.
Speaker 3:
41:22
But a retirees portfolio withdrawal rate can make or bake, break the plan. If you take too much, you run the risk of running out of money prematurely and you take too little is also bad because you may have a much lower standard of living and your quality of life could literally suffer and then the number you can take. I hate rules of thumb. I see them all the time. It's not, it's individual. It's based on how much risk you're willing to take, what you want to own in that portfolio. The risk always has been, always will be. You as an investor. We talked about behavior minute ago, doing the wrong thing at the wrong time. So the withdrawal rate is 100% driven by what you own, not a rule of thumb, because for example, people say 4%. Well, if you're invested in fixed income today, 4% would be disastrous for your portfolio. If you're willing to own, um, some individual equities and you've, and you're, uh, you're comfortable with the fluctuation of those individual equities, then I think 4% could be way too conservative of a withdrawal. So it really has to do with your behavior and your testing of fortitude to withstand volatility.
Speaker 2:
42:41
Yeah. And Ron, to literally take that to another direction is sometimes life happens and sometimes as you have a 401k, you're, you're in a financial crunch and so you may need to take an inservice distribution from your 401k or you maybe have the ability to take a loan against your 401k. And there's obviously pros and cons and not enough time on today's show to go through those, but talk with someone because your decision there, if you have to guess what life happens and you've got to make the decision, but how you do it, how you approach it could cost you again, tens of thousands of dollars again, so think about the tax consequences of that.
Speaker 3:
43:18
I agree Paul, all of this today, everything we've talked about, wealth from wisdom, the little things done exactly right, having an astonishing impact on your life, your quality of life and how far your money will go and we're talking about tax traps and the way you can get caught up in them and how to save them, how to legally pay as little as possible. Social Security's another one of those areas of concern. You could be taxed on as much as 85% of your benefits and we can help you understand how to claim those benefits and how to reduce those taxes to a minimum. We have what's known as a customized social security analysis. It's quick, it's easy and won't cost you anything, but it could save you tens of thousands of dollars in saved taxes. If you have at least a hundred thousand for retirement, be one of the first callers to call us right now and receive this complimentary customized social security analysis. Call (888) 419-8513 that's (888) 419-8513 888400900 85 13 also to all of our servicemen out here this Memorial Day weekend. Thank you. Thank you for everything you do. Thank you for making United States great. Not again. It's always been great. We'll continue to be great and that's not possible without everything that you do. I'm Ryan Carson with my cohost Paul West. You're listening to wealth from wisdom and we'll see you next week.
Speaker 5:
44:46
Risks, social security, income taxes, estate planning. Every week we'd talk about how to make your money go further in retirement right here on wealth from wisdom with Barron's hall of Fame Advisor Ron Carson.
Speaker 1:
45:01
Okay, and here's the legal Mumbo jumbo. The opinions voiced and wealth from wisdom with Rod Carson over general information only and are not intended to provide specific advice or recommendations for any individual to determine what is appropriate for you. Consult a qualified professional. All indices are unmanaged, I mean not be invested into directly investing involves risk, including possible loss of principle. No strategy assures success or protects from loss. Past performance is no guarantee of future results. Advisory services offered through CW m L L C an SEC registered investment advisor.