Wealth from Wisdom

The Tax Secrets of the Uber-Rich … That Could Save You Thousands

April 22, 2017
Wealth from Wisdom
The Tax Secrets of the Uber-Rich … That Could Save You Thousands
Chapters
Wealth from Wisdom
The Tax Secrets of the Uber-Rich … That Could Save You Thousands
Apr 22, 2017
Carson Wealth
Show Notes Transcript

How do the uber-rich get away with paying a fraction of their fair share of taxes? What do they know that others don’t know? This week’s show is about revealing the tax secrets of the uber-rich that save them thousands of dollars every single year, join Ron and Paul as they tackle these secrets for you.

Speaker 1:
0:00
Okay. And here's the legal Mumbo jumbo. The opinions voiced and from wisdom with Ron 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 and may 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 Cwm LLC, an sec registered investment advisor,
Speaker 2:
0:31
Doug market hit another old time. Records as much as $10 billion in social security benefits go unclaimed every single year. Federal Reserve announced that they will raise interest rates by 250 the skyrocketing cost of healthcare and retirement could now run 350,000 for retirement. Today is a whole new ball game. It's loaded with challenges, obstacles, and trap doors that 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 you're listening to wealth from wisdom. I'm here today with my cohost, Paul was Paul. Welcome. Hey Ron, thanks for having me. According to Motley Fool, well, Warren Buffet made 11.6 million in gross income last year. He only paid 1.8 5 million in federal taxes and that's roughly 16% and that seems low.
Speaker 2:
1:31
I granted, but consider this when you can look at the fact that he actually in the year 2016 net worth increased by $12 billion. You heard that, right? $12 billion. His effective tax rate as a percentage of that gain was less than 1% by the way, buffet himself has complained. There was quite the controversy sometime ago when he came out and said, hey, I pay a smaller rate than my secretary, and so he, he agrees with us. He thinks the tax system is, it's complicated. A lot of people don't understand it and a lot of people can have resources, can take advantage of a lot of these loopholes and you're probably thinking, Hey, I want to take advantage of these loopholes. How did these guys pull that stuff off? Right? It's true. Many of America's wealthiest individuals use tax laws to their benefit and as a result, they get away with pant, a fraction of the taxes as a percentage, most of them than you do.
Speaker 2:
2:38
In some cases it's even lower than the middle class, but some of these benefits don't just favor the rich. They could benefit you too. You're simply not taking advantage of him and Paul, it's no different than wheat. Last week talked about $10 billion of unclaimed social security benefits. It's not because people don't want the money, they're not aware. A reason 10 billion get left on the table when it comes to mist used opportunities within the tax code. I don't know for sure what the number is, but it's probably a hundred times greater than what it is on unclaimed social security benefits because this is something everybody could do. You could benefit from the exact same laws that benefit buffet instead of needless to giving your money to the government unless you enjoy doing that because they're doing such a good job with it. And what we're going to talk about on today's show is real strategies for real people.
Speaker 2:
3:34
Things that we've actually done here at the Carson grew up and our partners around the country have done for their clients. Actually, Ron, have you found people that enjoy pain? A lot of money? The government? No, cause no, but it may just because I'm focused mainly in the United States. Maybe there's parts of the world they love doing that, right? Uh, but what I think is interesting is is we're all creatures of habit, right? So what happens, a lot of people every year they go and take care of their taxes, complain about it, and then move on and don't make any adjustments or changes. And when it doesn't have to be at buffets level, it can be at any level of wealth. You got to understand what's going on with the taxes and make continual adjustments. It's just not stuck in one moment of time. That's right.
Speaker 2:
4:13
It's, you know, it's like you can't just shower once in your life and be clean, but you can not miss a beat. France about a strategy here, Paul, this is one where periodically someone will come in to see us. They've already done a rollover, sold companies stock, roll it into an IRA, and by the time we get there, it's too late. Remember, the IRS is not forgiving. There's no do overs here. If you screw this up or your team screws it up, you're going to be the one that has to pay. And what I'm talking about right now is net unrealized appreciation or Nua in this really refers to the ability for you to take a distribution of employer owned stock from a qualified plan. Typically you'd find this in a 401k plan and the way it works is the employer shares a distribution out of d, The shares are distributed out of the plant to you and then you pay ordinary, ordinary income tax only on the cost basis.
Speaker 2:
5:12
So let's say you work for Xyz Company and that your costs basis as a dollar a share and uh, and the stock's worth $10 a share. When you take that stock out, you're going to pay ordinary income tax on the $1 a share only not on the 10 then what happens is you have the ability to pay long term capital gain tax on the balance of it rather than ordinary income tax. And that is a huge advantage when you think about 10% of it is ordinary income tax. And Paul, if they don't do this, they end up paying 100% it ordinary income tax rates, which are, which much, much higher. So we see this and we scratch our heads going where was the advisor and the team on an inappropriate recommendation because typically these kinds of rollovers aren't small. They're normally a multimillion dollar rollover
Speaker 3:
6:04
all around. We were just working with the family that a joy and the Carson grew up here and it was so fascinating to me because we went through and explained how this work, they work as a publicly traded company. I won't share the name here. Uh, but they had a lot of stock options and many of you do. We all love working where we work. You Know Ron, we love of course where we are and what we're doing here, but everybody does, you have a passion for you are and if you have a chance to invest in your own company, you do that. But at some point you're going to retire and you've got some very low cost basis stuff. So Rhonda was fascinating to me when he came in here and he was making a decision whether or not he wanted us to help with this planning is investments. We gave him this idea and he looks at myself and our wealth enhancement group and said,
Speaker 2:
6:47
you've just paid your costs, your fees for your lifetime based on this idea. Because I've been to three other advisors and nobody told me about this, which is amazing to me. But Hey, it's is the point of working with people who understand sophistication but also can take advantage of the simple things that are out there for all of us. Yeah. And I wish there was some way that clients could see when they log onto their advisor's dashboard to understand you'll how they're doing that. There's also something. So it's VOR value of relationship because it's these things that you know, working with and having an effective plan can save you so much money. And how do you quantify that? I mean, I know it's a number but it doesn't show up in performance or it doesn't show up and, and necessarily the advisory fee that they're paying on assets.
Speaker 2:
7:37
Let's talk about another one. And this is 83 B election and 83 B election converts future company share value growth from ordinary income tax to longterm capital gains tax. We actually use this here at the Carson Group for all of our stakeholders. Uh, you guys, all, many of you have equity in the firm and we make an 83 B election so you can then get taxed as long term capital gain taxes. So the way this works is it's a restricted or public company. Stock unvested recipient may frontload the ordinary income tax value and the year of the grant by making this 83 B election within 30 days of the grant taxes paid on the fair market value of that share grant, the election and the current catchy or payment allow for an increase in value and that all gets counted as long term capital gains tax. Again, when you can play the arbitrage between ordinary income tax and longterm capital gains tax, it's huge.
Speaker 3:
8:38
Yeah, right. I can't tell you how much this helps. Many of us work for what we consider small businesses or private businesses in a way that we reward our stakeholders or many of, you know, we call employees stakeholders is through option grant, phantom stock type programs. But you're going to get taxed at some point, but how you get taxed, whether it's 5% more, 10% more, 20% more can make a material difference on the value of that compensation your employer's providing you. And so it's always interested me that people and employers don't take advantage of this ability to provide your key stake holders some meaningful value in the company, but also help them think about a tax perspective. And Ron, I mean when you build our internal planned years ago, it was one of the things I was so impressed with that you and the team put together was you were saying to your stakeholders, he's not only want to give you option to own part of the company, but I want to look at your net tax impact of what it actually looks like for you as you get to realize the value.
Speaker 3:
9:38
Here's another feel as were, I hadn't planned on talking about this particular topic, but let's talk about divorce for a second. So often, you know, when you get divorced, you have to split assets up. And sometimes if you don't have a team that's been effective, you need to look at what those assets are and what the unpaid tax and what kind of assets they are. Is this something that's gonna be taxed as long term capital gains tax or is it retirement plan assets? It's all going to be taxed as ordinary income tax rates. I've actually seen post divorce, someone comes in and went through a divorce, I need to hire a new advisor, don't want to stay with my spouse's adviser. And you're like, well what did he get? Well, he took all the company stock or the business city had and I got all the 401ks and all that stuff and I'm like, man, you got duped because you know the stuff that you have carries a big load of taxes on it.
Speaker 3:
10:27
The stuff your spouse got was very tax efficient or maybe stuff that had very high cost basis. So make sure if you're going through a divorce or thinking about going through a divorce, you really want to understand the type of assets that you're going to receive in the divorce. Yeah, well, I mean one of our advisors here, Teresa went through this just very recently with the family. And so if you're, if you're presented with this challenge, you know, and obviously it's an emotional situation going through divorce, you need great council through this. And it was fun to watch Theresa give the spouse, you know, now former spouses advice on which assets to take, especially when the spouse doesn't understand everything or it wasn't, it wasn't maybe we talked about last week, the nondominant spouse is, here's someone else that can really help them figure out what's the best assets to receive.
Speaker 3:
11:13
Absolutely. So are you blindly trusting your financial adviser? I mean to do the right thing with tax planning, right? Are they being proactive? Are they looking at the things that you need to do? Um, also as part of the, you know, it's just not being proactive on taxes, but it's also on, are you paying a lot of additional fees, hidden fees, backdoor payments, and you don't even know it. And this can amount to an enormous amount of money over even the short term. But it really compounds when you look out 20, 30, 40 years and it should make you furious. Matter of fact, doesn't Saint Louis today given a talk to advisers saying, law, the regulation we're getting is regulation we deserve because we have not been totally transparent with the consumer.
Speaker 2:
11:54
And so you see they're all whining about all the regulation. It's like we've asked for it. Wall Street has really, really ask for it and you know, we want you to know what you're paying in fees. We want you to know how bad it is or isn't it right? Get it, get a second opinion, but we'll show you exactly what the total costs are. It's not just what you're paying your advisor, it's what everybody's hand in the till. What does that, it's quick. It's easy. It won't cost you a dime. It's straightforward. It's objective and we can give it to you. The answers at (888) 419-8513 give us a call. (888) 419-8513 that's eight eight (841) 900-8513 how do the Uber rich pay fewer taxes than you? What tax secrets do they know they could save you? Thousands. We're going to reveal more of these strategies and our next segment, and if you're a small business owner, we have an idea that you've probably not heard of and it'll make a material difference on the taxes you may not have to pay. I'm Ron Carson off my cohost, Paul West. We'll be back in a month.
Speaker 4:
12:52
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 baron. Taller Foam advisor, Ron Carson. Welcome back. I'm running
Speaker 2:
13:06
Marcel, my cohost Paul West. Thanks for joining us today on wealth from wisdom. How did they get away with it? According to the Motley fool, buffet increases wealth by $12 billion in 2016 yet as effective tax rate was lower than 1% and he himself has said this is not right, but it's the legal way. The tax system is structured. Buffet is just one example of the Uber Rich. You legally, legally, legally get away with paying a fraction of their fair share in taxes. But what may surprise you is these tax acres just don't favor the rich and the first segment. Paul, we talked about a bunch that people could use and they can benefit you too. The idea is take a look at it. I mean we have a guy or a woman doing your pet taxes, that's fine. They're looking in the rear view mirror. What happened there?
Speaker 2:
13:52
Calculating what you, oh, they're not going to proactively think about the things that you should be doing and just give you some perspective on what the, the stakes are. The lowest brackets, 10% but the biggest brackets, 39.6% so there's a, there's a delta there of a lot that could really, really make a big difference in the amount of taxes you pay. Yeah. Ron and I think a lot about this is everyone out there, many of you have considered or maybe you are doing your taxes on your own and what happens? You're only looking in that rear view mirror because you're just taking the data you got and all of your 10 99 [inaudible] and everything else, plug it in into a platform and then you're done and you're, and you're happy if you don't pay taxes. But the reality is, is there's so many of the things you should be doing to look forward. And I think that's why it's important. And I don't need to work with a tax professional planner. I think you said it right. CPAS work with history of planners work for the future and you need that all CPAS, but, but most are so doggone busy, they don't have enough help. They're not bringing professionals in
Speaker 3:
14:53
that, yeah, they're not being as proactive as I think you, you would want them to be. Yeah. And I love this run. So I was talking actually with the CPA the other day and he said, Paul, I can't stand it. When a client says to me, darn it, I'm so upset on paying capital gains. And he looks at him and he says, everybody should be happy if you're paying the capital gains. Guess what? That means you made money and if you make money, that's a good thing. So at some point you're going to have to pay tax on that gain. So it's okay if you need to pay tax. And I get people get frustrated with the way our government waste money, but thank God we don't get all the government we pay for a lot of it. Here's a great example of just sequencing incomes and when you're thinking about if you're going to pass money on, we actually had an example where 93 year old lady had an annuity contract with 250,000 in gains and this was going to be taxed as ordinary income and the mom did not need any of the withdrawals to live on.
Speaker 3:
15:52
So what was going to happen is these 250,000 gains are last in first out. So her cost basis, what if she put into it was the last to come out. So 100% of it is going to be taxed. Her son who would inherit the annuity when his mom passed away, which would have been subject to ordinary income tax on the full $250,000 yet his mother's only taxable income is potentially social security payments below the threshold of 34,000 and a small pension. So what we did here is by withdrawing the annuity funds 50,000 annually, the mom effectively paid a very low tax rate. The Sun is at a much higher tax rate. So we're able to get the money out and she could still have the money just in from one account to another, pay the tax and a low tax rate. And then at death when he inherits it, there'd be no taxes.
Speaker 3:
16:42
So we're able to convert to a very low curve, very low tax bracket away from her son's very high tax bracket. Wow, that's great Ron. I mean that's just an good example of a strategy that you can evoke, but not everyone thinks about that. So one of the things you mentioned in there was so security and when you ask most people, is social security taxable? Well either, hey, they don't know or or B, they assume it's not. But that's not the reality that most of people, if you're single, it's not tax up to the first 25,000 and if your joint filings for your taxes up to the first 32 but if you're a joint filer and married, once you get over 44,000 income, social security, 85% of that is tax trial. And so that's why you got to think about tax on a tax. You are like, yeah cause this is money you tax they took from you to put into the, it does upset a lot of people, but that's the way the tax code structure. Yeah. But that's also why when you're figuring out your social security payment, when to draw upon it or not, you need to look at that because that could have an impact and yeah, you want to maximize it. But if you're in an extremely high tax bracket, waiting that extra year may not be worthwhile for you. It May. So Paul, one
Speaker 2:
17:50
of the things we've done is small. If you're a small business owner out there and you're paying a lot of tax, there's a section of the internal revenue code is 88 31 B and under this section, and this is, this is an amazing benefit, a company can elect to be taxed solely on net investment income when gross annual premium is 1.2 million or less. So what this means is you can set up, let's say you're a business owner and you already have insurances that you know, against loss of chewing your business or liability or whatever it is. You can buy insurance from yourself. You can set up your own captive insurance company, you can pay up to 1.2 million think Visher it's actually increasing in 17 at least 1.2, I think it's 2.2 this year. And all of that is a 100% tax or not tax, but deduct it against ordinary income tax.
Speaker 2:
18:44
Your kids could own it. So it's a bait way to the insurance company to, to pass wealth on. And when you pull the money out through, uh, through a, either a claim or to yourself, it's longterm capital gains tax. Very, very effective. It's been around for a long time. Now you could hear some negative negativity around it because there were some abuses. You have to have real insurable risk and there's a whole process to go through to certified that. That's true. And you really do that. What a game changer for many of our clients. I mean to be able to convert that kind of money into not only the ordinary income tax play, but also estate taxes if you want to pass wealth on to the next generation. Yeah, I mean risk avoidance is key with this strategy or on, I think about there's many small business owners that listen to the show.
Speaker 2:
19:31
You're one on one. We're all participating. What keeps us up at night? The risks in the business, right? It's not where we know what the opportunities that present themselves, but risks keep us up at night. So here's, here's a technique you can use. If you really have avoidable risk and you have a way that you can offset it, no different than you all, most likely by your PNC, your liability, your directors or you know, all of those things you buy. Here's another way to potentially calculate and avoid the risk, but have some tax opportunities if it's appropriate for you. And I'll warn you right now, if you go ask your tax advisor, most of them have never heard of it and it's just easy to just dismiss it. Um, view. If you look at the, the IRS actually came out and not only reaffirmed but increase the amount you could put away into a captive.
Speaker 2:
20:17
But they did tighten up the rules to quit people from, cause you know, the, the abusers people that really didn't have these true insurable risks, but that's, that's a biggie. And enabled to reduce your taxes. Um, you know, you think about all the different ways Paul know, first of all, take advantage of the sweet spot. You know, it's like where do I want to take income in, where it's going to be at the lowest tax rate. We've talked about that. Also managing withdrawal sequencing. So win win in what age? We're going to give an example later on on that. Also keeping an eye on asset location. You'll, where do you, where do you hold these assets? The rules on social security taxation. That's another biggie. You just talked about it, you know, when should you take it once you just take social security, um, and then deductions.
Speaker 2:
21:00
I mean a lot of people are sloppy with deductions. I mean you should be giving really low cost basis stock never give cash. Um, although a lot of people do it and one of the biggest mistakes people make in retirement is just not understanding to access. They're so focused on returns and investment fees and expenses. And believe me, we were focused on those as well, but taxes are going to have a much, much bigger impact then. Then probably all of those combined times two or three, it's just, it's just a much bigger deal. Yeah. And Ronnie Brown. One thing, I mean many of us are charitably inclined and what's the first thing we do when we get asked for a donation? We think we need to pull out our checkbook to send money and send cash. But often it's a better technique to send if you have some appreciated securities of a value that you're willing to donate.
Speaker 2:
21:49
And we help, we help our clients with this all the time. We're on it. And it's so fun to do because one, they get the benefit of they have an appreciated security too. They get to help a charity out in three they get the tax benefit that goes along with it versus writing the check they share, they get a benefit for the charitable donation, but they can double up on that with it's a highly appreciated security. That's right. Yeah. So, so again, what you're going to give the charitable donations and some years too, if you've been giving for several years, you may want to bunch those into a year and let them know I'm going to give you three or four years in this particular year and then nothing. And so there's ways that you can also going back to the sequence and give income, there's times that it makes sense to take the income time.
Speaker 2:
22:30
It makes sense to double up on deductions. Could be charitable, it could be other deductions. So you itemize versus taking the standard deduction. Yeah, and there's a lot of times it pays to to alternate those every other year. All Up Hill. Don't even realize that the charity you're donating to actually has an account set up for this cause. They to realize the benefit it is for their donors or maybe there's a community foundation that you have interest in and you're not sure who you want to give all the money to. Ron, you can still gift the shares to that foundation. You still have control of to figure out which charitable company you want or entity you want to give the shares too, but you get them out of your taxable estate at that point by getting rid of them earlier and this is what we've talked about on on really all of our shows so far is really managing wealth isn't just about the investment management and the risk decisions are really important, but all this other stuff is as much if not more important to ensure that you can get and enjoy the senator living which you've grown accustom.
Speaker 2:
23:26
You know our advisors here at the Carson Group and our partners all around the country work with all kinds of people. Um, some have modest means, some are very, very wealthy, but the common theme everybody has is they want to know how to optimize their social security benefits. Think about it over the last several decades, they contributed hundreds of thousands of dollars to social security and they want their money back. I mean, I don't know. You and I aren't going to probably see in a event, but I would like to get it back as well. Even if you've made a modest income, you've probably contributed at least six figures of social security and that kind of money can go a long way in retirement. Claiming benefits is very complicated. It's riddled with all kinds of potential trap doors. You make one mistake and it could cost you tens of thousands of dollars you used to get a longterm do over on this.
Speaker 2:
24:13
Now after 12 months it's irrevocable. You can't go back and do anything about it. We've generated a customized social security analysis and it's free. It shows you precisely how and when to claim your benefit. If you're eligible for additional benefits and how you could potentially pay fewer taxes on those benefits, it's, it won't cost you a dime as complimentary. Be One of the first callers to get this customized analysis at (888) 419-8513 that's eight eight (841) 900-8513 (888) 419-8513 some people pay through the nose and taxes and retirement, Wallace savvy. Few pay far, far less than you do. The question is do you want to be one at the pays? Far less coming up. We're going to talk about some additional strategies we're going to cover. Again, small business owners. If you're out there listening, we've got an idea that will knock your socks off. I'm Ron Carson with cohost Paul West. You're listening to wolf from wisdom.
Speaker 5:
25:10
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'm Ron Carson with Mike
Speaker 2:
25:24
cohost, Paul West. Thanks for joining us today. And wealth from wisdom. Many of America's mega wealthy use tax laws to their benefit. And as a result, they get away with paying a fraction of the taxes that you do, at least as a percentage. Even buffet here in Omaha, Nebraska has made the comment that it's unfair that his secretary paid a higher effective tax rate than he did. But these tax benefits aren't just for the rich. They could benefit you too. You're just not taking advantage of them. It's no different than a $10 billion of unclaimed social security benefits every year cause you don't optimize it. This is even bigger because less can make the difference between a lot of extra money at retirement and a lot less. We're going to continue to talk about small ideas, big ideas, medium ideas, but they're cumulative and they add up and they're really, really can make a big difference. So Paul, you've got a great example.
Speaker 3:
26:15
Yeah, let me just talk about someone who just came to us recently and needed help. So Ron, this was interesting. We got a 73 year old. And what happens after you're age? 70 and a half. What do you have to deal with an IRA? You got to start taking distributions. Yeah. People don't know about RMDs is known as a required minimum distribution. RMD. Yeah, pretty simple term. But not everyone's aware of it. The calculation, maybe not so simple. But it's simple enough once you work with an advisor and their team to do that. But you've got to take out this minimum out every year and guess what? You're going to be paying taxes on this. So part of this calculation is based on your age and longevity and what that looks like. Well, the reason why they ever wants to start is they want to start collecting their tax at some point in time in this.
Speaker 3:
26:58
So this individual, because had incorrectly set up their date of birth with a custodian, missed three years of tax, excuse me, of their RMDS. Wow. So not only is that penalty is 50% of what you should have taken. Yes. Yeah. That, that's a gigantic penalty. And when we inform this individual, of course there was a men's concern and probably say fear at that point in the time because no one wants to certainly get on the wrong side of the IRS ever. So what we had to do was immediately take three years of distributions tech catch up, all of those that were missed. And we took a current year distribution because we wanted to show a sign to the IRS that we were trying to catch this up and get equalized as much as possible. First of all, the person was very thankful that we thought of it, but he also was, this isn't the first time this has happened with the IRS.
Speaker 3:
27:49
So the IRS has actually given guidance on what to do in these situations. So we gave guidance to this individual on what to do. And this included there, there's a waiver of is called the shortfall penalty. So you mentioned it's 50% so you can actually submit a waiver letter to the IRS saying, hey, here's what happened. And I didn't mean to, it was completely an error that happened. I shouldn't be charged a 50% penalty, but to prove to you, I took out my three years immediately. Then I'm behind. Plus I took out my current year and this letter was then submitted to the IRS and there's been no mention of the penalty, no determination yet, but the person felt better that they got guidance on how to solve the situation. Now, that hopefully doesn't happen to very many people, but you need to know how to respond.
Speaker 3:
28:38
If you do get an attack situation, uh, you got to think about how to do that. But also it's a little bit surprising to me that individuals don't realize that they got to take this required minimum distributions at 70 and a half the April following the year, you turn 70 and a half. You need to have a plan and you need to have looked at everything else. It just don't go start taking it because there's lots of different ways you can withdraw it. Let's, here's another example. 65 year old widows receiving her deceased husband's social security payments. We'll add to her own benefit. Increase the age 70 at 8% a year. By the way, this is that optimization strategy we're talking about currently receiving a small pension payment. Potential sources of income include an annuity in a $50,000 gain in a live photo, taxable life, ordinary income tax rates.
Speaker 3:
29:24
That means last in first out. We talked about that. All ordinary income tax rates. So the IRA value is a 400,000 with projected RMDS, required minimum distributions at 70 a 14,000 by taking 10,000 annually from 65 to 69 the gain in the annuity will be included in taxable income before 70 before they have to start taking the RMDS. This is back to what we said earlier about sequencing your income. So RMDs begin on the IRA withdrawal and her higher social security payment begins at 70 and the timing of this game before 70 makes her avoid stacking income on top of income and her social security payments only includable in taxable income up to 85% of the payments received. So there's also a benefit there for social security. Some thought went into this strategy for our client, but it also makes little things like this can really add a picis substantial savings.
Speaker 3:
30:20
Yeah, Ryan's me. Every single family situation has to be personalized. Everybody needs a game plan and I think about many people have tax deferred accounts, so whether it's their IRA, their 401k, and they have taxable accounts, their individual, their joints, what they have with their family, et cetera. There's no perfect way or cookie cutter way to say how much should go into each. It really has to be the right amount for you based on your tax situation, based on what your needs are. We've got to look at your what your living expenses. Of course, we'd love to defer taxes as long as possible, but then if we're getting to RMDS, it may make a lot more sense to pull the money out of your IRA versus your taxable account based on where your tax rates are. That's where you have to have professionals working with you, not only on which accounts best for you, but which accounts best for you from a tax perspective and then how are you making your investment decisions because all of a sudden if you've got to start pulling your money out of your investment account and maybe have a downturn in the market at that point in time, you're not going to want to do that.
Speaker 3:
31:17
So you've got to figure out what this right combination is and you really need professionals have a CPA and a financial planner with your wealth advisor helping you put that puzzle together. That's why it's important. We talked about this last week is when you're evaluating who you're going to work with, make sure it's a fiduciary required to put your interests first and then they had a minimum. They have at least one CPA, one attorney once CFP, one CFA, if they're managing your assets that are part of the team so they can coordinate all this stuff. Nothing drives me crazier than to have my friends getting a better deal than I am. And when you think about as someone else paying a lot less taxes than you, you know, maybe they're putting in the same hours you guys make about the same income, but you notice they've got a lot of nicer things and you do a guarantee or they figured out a way to minimize legally minimize the amount of taxes.
Speaker 3:
32:07
Not too long ago I was at a conference, Paul, I'm checking in, I was at the Ritz Carlton, the Barron's conference and I'm seeing the, that my rate, um, was like $200 more. I heard someone else check in and the lady said, you know, it'd be x. And I'm like, why am I paying $200 more? You know, for the night, while they hadn't gotten the barons rate in there. But at first I was going to be like, am I really paying 200 more for the exact same room? We don't want to pay more than we need to. And it drives us crazy. You've been on an airline before where you might've paid three or four or five times
Speaker 2:
32:41
what the person's paying in the seat next door. Don't do that. And I was a little too little too soon based on United. But that's all right Ron. Oh yeah. On, yeah. Yeah, you had a nightmare coming back from Augusta risk, something like that. But as we think about it, it's you're so right Ron, we have to figure out ways to figure this out. And one of the best things that people don't know about Ron is when they make changes to their tax situations and income levels changes. They don't know about quarterly payments. So if you're, if you're listening now and you've had a tax situation change, maybe you were employed before or maybe you're self employed now and you've been doing this on your own, I hope you're paying attention to the quarterly tax estimates that are due. And then how are you funding those?
Speaker 2:
33:27
Some people take out the full money at the beginning of year and just keep it all in the cash. But are you missing out on market opportunities because you're holding the cash or they wait too late and they have to sell a security too late because they didn't think about that on time. So another tax strategy, Ron, that people need to think about is how are they preparing for their quarterly tax payments that are due if they're on the quarterly tax filing timeline. Yeah, because what you're going to liquidate to pay the taxes could create more taxes. Right? Exactly. Or not if you haven't had a game plan of what you're going to use or what you're going to sell in order to pay the taxes. If you've saved 500,000 in an IRA or 401k, you know it's not really 500,000 because you still owe a ton of taxes on that.
Speaker 2:
34:09
We've talked about that Paula and I have today, but here's something that's going to shock you. Some people will pay through the nose in taxes when they withdrawal this money from their retirement accounts, while a few will legally pay a lot less tax. That's what we've been talking about. All the strategies on how to reduce or in some cases almost eliminate what those taxes are. You could potentially save thousands on your IRA and 401k and keep this money for yourself. Yes, you could. It's absolutely possible. Let us prove to you how we can help you save thousands of dollars in a single tax year with our tax reduction analysis. Give us a call at (888) 419-8513 that's (888) 419-8513 it's your choice. Pay The IRS and keep the money for yourself or keep it for yourself. Eight eight (841) 900-8513 coming up next segment. If you're a small business owner, we're going to talk about eight 31 B and captives. Also, if you're a farmer, if you're a farmer listening, you're going to want to pay attention to this. Next idea. I'm Ron Carson with my cohost Paul West, and you're listening to wealth from wisdom.
Speaker 5:
35:29
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
Speaker 2:
35:38
of Fame Advisor, Ron Carson. Welcome back. I'm Ron Carson and thanks for joining us. If my cohost Paul West on wealth from wisdom, it's been reported that Americas will overpay their taxes to the tune of at least a billion dollars every year. $1 billion. Is it possible your needle? See writing a check to the IRS this year when you could've kept that money for yourself? This may shock you, but you could have more control over how much you pay in taxes in retirement more than any other time in your life. Yes, the code is complicated, but there's lots of ways you can reduce your taxes. You should take control, learn what all your options are. The mega wealthy do this. We talked about buffet effectively paying one less than 1% on his total net worth and ordinary income taxes last year and we want to be able to help you do this every single year. Paul, a couple of additional examples here and what is on 401k's, uh, how much money you have, have you saved in your 401k and other retirement accounts?
Speaker 2:
36:41
Don't forget you still have to pay taxes on that money. We've talked about that, but here's one that people miss in that is keeping your flexibility on when you can pull out of a 401k. Everybody always says, I'll just roll it over into an IRA. Rolling it into an IRA may not be in your best interest. Um, leaving your money in a four o one k even if you leave your employer. So you can access the funds after age 55 because on an IRA, you can't take it out till 59 and a half unless you want to pay a 10% penalty. So we've actually made the recommendation not to roll over our clients old 401k because they may need access to these funds prior to age 59 and a half something that's clearly there's a conflict or cause advisements roll it over. They want to manage the money, but that may in fact not be in your best interest.
Speaker 2:
37:32
And this even applies if you're not, if you're not 59 and a half, you want to think about keeping this, this optionality open. Now if you're a qualified public safety employee, this provision applies at age 50, then 55. So that gives you almost 10 full years of optionality of having access to the money. So just rolling it over isn't necessarily the best thing to do. Yeah. And you should be getting this guidance and this is where Ron is so important that you're working with a fiduciary and it makes you think we do a lot of second opinions and someone, uh, several months ago came in with their 401k and we looked at it and they said it, should I roll it over or should I bring it to all of you? And our guidance was there. 401K was doing exactly what I was supposed to do for that individual and we told them to keep it and they looked at a shot. You're the only group that actually told us to keep that because what was happening around is the other people giving them advice. We're looking out for their own best interest rather than the client's best interest. And it makes me think about retirement plans. We look at a lot of retirement pant plants. So if you want a
Speaker 3:
38:36
second opinion, we're happy to do that. But a recent retirement plan, we looked at these individual had a lot of different investments, but one of the investments was in the s and p 500 so most people think, oh it's invested in that is probably very low costs through an ETF. Guess what? It didn't list the ticker symbol, but it listed the name. So you go look up the name and you look up, it was a mutual fund. You go look up the share class. They were paying over 60 basis points for an s and p 500 index fund. Really know that even existed anymore. Well they hit it though. Look at it. They could have listed the ticker so more people can find it. They didn't do that. They made you go through the work of find the name, find it on a website, find the ticker symbol and do that. So it was amazing to me. And that's why looking at your retirement plan, because then the taxes you pay later are going to matter. But you got to see what you're paying right now.
Speaker 2:
39:25
Here's a great idea for your farmers out there. Have you heard a silo bank? Uh, you ask yourself, what's a silo bank? In Layman's terms? It's simply a way and I, Hey, I deal with this, I'm, I'm a farmer at heart. I still involved in in Carson farms, but let's assume you're a farmer who owns this silo and you're 65 years old and you'd like to quit farming, but you have a hundred thousand bushels of corn in the silo. It would normally sell the core and the following year and all the expenses to produce a crop are in the previous year. So you've got all this just pure income because you don't, you're retiring. You don't have the income of putting the next year's crop in. Normally you'd have to pay, let's call corn at four bucks. It's not even that today, but they'll say it was for $400,000 which would put you into a high tax bracket and also cause your social security to be taxed at 85% very, very expensive tax wise.
Speaker 2:
40:18
What to do is, let's put you in the banking business. By having a silo bank function on your farm, you can allow a tenant farmer to use the grain and the silo tracting drew grain that the tenant takes out no different than a withdrawal from a bank. It's alone for their operation for the year. Then harvest occurs in the tenant replaces a grain, so they put it back. This is a win win situation because a tenant uses the green without having to borrow from the bank or farm credit and the retired farmer is afforded the ability to sell his grain at his own pace. So spreading it over, talking about sequencing income here and there's also allows the not to have the grain get bad and spoil because we deal with that as well. So this is really a great idea. It allows a farmer to better utilize tax elections for farmer, for the farmer improvements. The tenant can also have some help without paying the interest rate of an operating loan. Really great idea and something you can legally do and set up.
Speaker 3:
41:23
Yeah. As a that's, that's a fascinating situation. They're on him. It's like Caterpillar turning into a butterfly. Just turned it into something beautiful that you were able to figure out a technique to help out many farmers.
Speaker 2:
41:35
I think another idea to help people and what they're concerned about is Medicare. Ron, and it's amazing. We see so many people ask us questions about Medicare. But another idea to help from a tax perspective is at what level do you keep your adjusted gross income or your Agi is what many of you here. Yup. But your medicare premiums can rise based on the level of your Agi. So we've actually helped many families, especially as you're getting in November and December, keep your AGI below a certain threshold and then it keeps your medicare premiums from the following year at a smaller level. So if you're not thinking about this, it's another thing you can that can impact your net income or your net tax or what's your really your net cashflow by taking advantage of these thoughts and techniques you can use. That's excellent. Yeah, that's a great idea.
Speaker 2:
42:28
I mean, we've said it several times on today's show, but the biggest mistakes people make in retirement is not understanding taxes. They get so focused on returns, investment fees and expenses. One of my best friends of board members, Steve Lockshin always says, you know, planning trumps, I can create so much more value and tax planning then I can and all these other things. But most people spend 90% of the time worrying about those things and they really neglect all these other things that are just so critically important. And you know, the IRS is not forgiving. You can't wing it and hope to go back and make a chance. I mean, in the case of not taking a distribution, maybe you can go get some relief. Maybe not. It depends. Do you remember getting your first paycheck as a kid? I sure do. You probably don't realize this, but you've been contributing to social security dating all the way back to that very, very first paycheck.
Speaker 2:
43:18
In fact, between you and your employer, you've contributed as much as 12.4% of your annual income to social security or talking about paying the taxes on taxes tax at 12.4% and over 40 to 50 years and it could make your four one k contributions look like chump change. The claiming these benefits as complicated tons of trap doors. You could easily leave thousands of dollars on the table, possibly more. And we want to help you get every nickel of your benefits from our latest social security report. It's a six page report. What is complicated and confusing makes it simple and that's what we really do at the Carson Group. We make the complex simple. How do we do that? Through transparent's fees and costs, helping you establish and keep on top of an effective game plan and we give you advice in a common language we can help give us a call. (888) 419-8513 that's (888) 419-8513 (888) 419-8513 I'm Ron Carson cohost Paul West. You've been listening to wealth from wisdom. We'll see you next week.
Speaker 6:
44:24
Ah Huh.
Speaker 5:
44:34
Social Security, income taxes, estate planning. Every week we 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:
44:48
Okay. And here's the legal Mumbo jumbo. The opinions voiced and from 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 into directly. Investing involves risk, including possible loss of principle. No strategy assure success or protects from loss. Past performance is no guarantee of future results. Advisory Services offered through Cwm, LLC and SEC registered investment advisor.