Speaker:
Welcome to Roadmap to Retirement, the radio show with David Bezar, Karen Bezar and Brett Elam from Thrive Financial Services, who have been featured on Fox. ABC, NBC, The Wall Street Journal and more. Saving for retirement is a great start, but it’s what you do with this money that really matters. What’s your strategy to reduce taxes? Generate income in retirement, reduce your risk and get even more from social security. This is where you can count on straightforward and objective advice about how you can make your money go a lot further in retirement. Roadmap to Retirement, the radio show. Now, here are your host, David, Karen and Bret, along with Joe Krause.

Joe Krause:
Do you have a traditional IRA, 401(k) or any other type of tax deferred retirement account? If so you have a nightmare waiting for you in retirement and that nightmare is called required minimum distributions or RMDs. According to MarketWatch, if you overlook or make a simple mistake with RMDs, I quote, you could face one of the steepest penalties levied by the IRS, which is a 50% tax penalty. And that’s where we begin the broadcast today. Welcome in everyone to Roadmap to Retirement, the radio show, along with David Bezar, Karen Bezar and Brett Elam. David, all yours, sir.

David Bezar:
Good morning, everybody. Great time, great place to be on our show today. We got some great information. So, this is how RMDs work. When you turn 72, the government forces you to withdraw money from your IRA or your 401(k). This happens whether you want it to or not, and it doesn’t matter if the stock market’s up or if the stock market’s down. This could actually set off kind of a train a chain reaction of events you really never anticipated. That could end up costing you in ways that you never saw actually coming.

David Bezar:
We’re going to do everything we can today on this show to help you avoid that. So coming up on today’s show, five things you got to know about required minimum distributions. These include the single most important key to successfully navigating RMDs. How your RMD could trigger an avalanche of unexpected taxes and penalties plus the unforeseen consequences that your RMDs could have when your investments, during a downturn in the stock market or a bear market. And you’re not really going to like that type of a result. So, Karen’s going to kick it off. Karen, give us the basics on what RMDs are.

Karen Bezar:
As a reminder, our MDs, which we will keep saying throughout the show means required minimum distribution. So contributing money, you’re working and you’re putting money in your retirement accounts and you’re stashing away and you’re like, “Oh, this is awesome. I’m getting a tax break because I’m putting my money away.” When you turn 72 now, required minimum distributions are IRS mandated withdraws from your retirement accounts, 401(k) 403(b), regular IRA. The IRS requires these withdrawals to ensure that taxes are paid on amounts that were contributed, again, pretax, you never pay taxes on these accounts. So all your deferred earnings are going to be taxed and our MDs, I’m going to say that, are mandatory and they must be taken at a specified age, which is now age 72. So the IRS wants you to start drawing that money, either you need it, even if you need it, even if you don’t they don’t care. They just want you to pay those taxes and it’s frustrating for some people that we’ve seen that. Fight, Brett?

Bret Elam:
Absolutely. And you said some of those accounts, but it’s realizing it’s all these different types of accounts are subject to required minimum distributions, IRAs, including beneficiary IRAs, SEP IRAs, 401(k)s, simple IRAs, TSP plans for our government workers, 457 plans maybe for some of our city workers, 403(B) plans. Again, if you have a roll over pension, these are all things that we have to be conscious of, of talking about these required minimum distribution. So we talk about what is an RMD? What’s included? When do we have to start taking them? So realize there were some changes that happen. So for account holders who reached the age of 70 and a half before December … Pardon me. December 31st of ’19, required minimum distributions had to be pulled out in the year that in which you turned 70 and a half. Now, there was one exception, in the first year that you hit 70 and a half, you could defer to the next calendar year so long as you pulled it out before April 1st. But you would have to pull out to in that given year.

Bret Elam:
So going forward from there, you always have to pull that required minimum distribution before December 31st. Now, there were some changes. Again, we talked about the Secure Act, so that 70 and a half is now age 72. And what we have to do, again, so long as by December 31st we meet a lot of people that have multiple IRAs, 401(k)s all over the place. All Uncle Sam, the IRS cares about is that you’ve pulled the money out overall. It doesn’t have to come from each one, but just overall pulling it out so you satisfy the amount that you have to pull for the government. Pulling out from one IRA could satisfy all of them at the end of the day.

David Bezar:
Yeah. Now, here’s where the challenge kind of comes up for a lot of people that we visit with is how do you calculate the RMD? Now, again, if you’ve got one mutual fund working with one custodian, not that big a deal, they’re going to send you a form, but if you’ve got multiple accounts, like Bret just said, it’s your responsibility to really figure out the RMD calculation. So RMDs are calculated using IRS tables. And now if you’re interested in your detail person, you can find that in IRS Publication 590-B. These tables have factors for age and for several different types of situations, including those for certain types of beneficiaries. Also, in there is the Uniform Lifetime table, which is commonly used by lots of people.

David Bezar:
Most people just go by the old rule of 4%, but what they forget is that this ends up increasing over time. So, the RMD is calculated by taking the end balance from the December 31st of the prior year and then dividing that amount by the appropriate factor that we find on Publication 590-B. The amount must be taken by the end of the year that the RMD applies to. There also are life expectancy tables for a single life expectancy for a non spousal beneficiary of a retirement account, as well as one for spousal beneficiaries, where the inheriting spouse is more than 10 years younger than the spouse. So, you can see how easy it can become to complex.

Karen Bezar:
Let me try to make it a little bit easier. Here’s an example, right? So if the account holder is 75 in the year 2020, December 31st of 2019, her balance is $500,000. So under this scenario, the RMD for 2020, what you do is you take 500,000 and you divide it by 22.9, which is the number you’re going to get on the IRS life expectancy. That table, it’s called the life expectancy factor and that equals $21,834 and 6 cents. And as a reminder, you can take an RMD annually, you can take it quarterly, monthly, however, you’re going to set it up with your advisor. So just as confusing as that is something else that you might not be aware of is that taxes are lower now than they’ve ever been in 40 years. A lot of experts are out there economists and they’re saying, “Look, given our skyrocketing national debt and the trillions of dollars in economic stimulus that’s going on right now, there’s going to be some huge tax increases coming down are down our way.”

Karen Bezar:
So you don’t want this to happen to you when you’re stepping into retirement. It can take a huge chunk out of your deferred accounts, and then it can even affect your social security benefits. The more you go taking out those RMDs, the amount of money you take out has to go up, goes up every year. So right now, you can take advantage of some simple tax planning strategies. And these strategies really can reduce maybe even possibly eliminate taxes in your retirement. We want to show you exactly what these strategies are with our retirement tax analysis. So, our free analysis you’ll learn defensive tax planning strategies that could help you save tens of thousands, if not hundreds of thousands of dollars. And if you’re interested in getting that analysis, give us a call at 2159872430. Give us a call, again, 2159872430.

Joe Krause:
All right. Good stuff, Karen, and good stuff, David and Bret, to kick off our show, Roadmap to Retirement, the radio show, on Talk Radio 1210 WPHT. When we come back after our first commercial break, why Forbes is calling RMDs the IRS’ version of weapons of mass destruction. We’ll have that conversation after the break. Your required minimum distributions could set off a chain reaction of events, including stock market losses and avalanche of unexpected taxes and a lot more. That’s why it’s critical you have a strategy to navigate these issues long before you retire. Otherwise, it could take a huge chunk of your hard earned savings. We said that so many times, David, on this show. Welcome back everyone to Roadmap to Retirement, the radio show with Thrive Financial Services. David.

David Bezar:
Yeah, today, we’re talking about five things you got to know related to required minimum distributions. These things can definitely help you avoid costly taxes, huge penalties and fees. So in this segment, we’re going to talk about how you can avoid the RMD tax trap. You all know that that’s our favorite topic, how to prevent taxes for our fans of retirement. These things could cost you a fortune in your IRA, 401(k), social security benefits, Trigger Medicare Surcharges, all that craziness. So RMDs can trigger unexpected tax bills.

Karen Bezar:
I like that. RMDs are the IRS’ version of WMDs, which are weapons of mass destruction. You got a nice tax break when you started saving in that IRA or a 401(k) when you were working and putting all your money away. And then when you retire, you’re going to have to withdraw that money, and required minimum distributions definitely make that tough to get around. And that causes other chain reactions. In the case of your pretax contributions, there was a tax break at the contribution time made. And then any gains in your pre taxable accounts are also going to be taxed when you have to start taking them out.

Karen Bezar:
And when you withdraw these funds, remember the IRS wants their fair share so to speak, we always say, “You always have a partner in your retirement, and it’s the IRS.” And we find, or at least I find that, when we talk to people sometimes they’re like, “Why didn’t I know about this earlier? Why didn’t I invest a Roth IRAs earlier?” And Dave, we met with somebody yesterday and she’s like, “It was great in the beginning, but now as you’re in your 80s, things change and those dollar amounts go up.”

David Bezar:
Yeah. I mean, RMDs from traditional are taxed as ordinary income. So, you really got to remember that. This means that the amount of the RMD is added to the rest of your taxable income for the year and your traditional counts are those, this is where the confusion comes in sometimes, that are not Roth accounts, right? We use the word qualified non-qualified. So when we’re talking pre-tax, we’re talking about your qualified money. Now, any after tax contributions made to these accounts would be excluded from the amounts subject to tax, though, you will have need to keep track … It’s crazy. You’ve got to keep track of these after tax contributions or really can come back to bite you. Earnings on these after tax contributions will be subjected to taxes as part of the RMD. Now, there are no RMDs required on Roth IRA for the account owner or their spousal beneficiary.

David Bezar:
Non spousal beneficiaries who inherit a Roth IRA are required to take RMDs, but here’s the kicker. Those distributions are tax free as long as the five year rule for the Roth IRA was met. So the rule of Roth 401(k) account is subject to RMDs at age 72 under the new rules if left with the company. But this can be avoided by rolling this money into a Roth IRA account. So when you retire, when you leave that job, instead of leaving it in the Roth 401(k), you want to roll it over to a Roth IRA. And in addition to any taxes due, there are also penalties if you don’t take the full amount of the RMD for that particular year. And it’s a hefty penalty, the penalty is 50% of the amount not taken in addition to the taxes that will still be due.

Bret Elam:
It’s amazing how much detail is in the IRS code on-

Karen Bezar:
It’s confusing, no wonder people get confused.

Bret Elam:
… required minimum distributions. And what you realize is these RMDs that trigger higher tax brackets, taxation on social security. It could double my Medicare premiums. And you think about that penalties, taxes, my social security’s tax, Medicare, but here’s the problem. Conventional wisdom teaches us, “You know what? My income I’m going to need less than retirement, less taxes in retirement.” And that’s wishful thinking. You’re spending as much money if not more in retirement. And guess what? Your taxes could actually be higher in retirement. And here’s a common theme that I’m hearing from our clients that are walking in. Here’s the conversations. “Hey, how long are we going to be battling COVID?” You got the uncertainty there. “What’s the stock market. How’s that going to perform? What’s the economy going to look like?”

Bret Elam:
Here’s a big one right now, “How am I going to deal with my kids and grandkids now doing online school?” But let me tell you one thing that’s being ignored, taxes. They got to go up and the likelihood of them increasing, it could be as recent as next year. It’s as soon as next year. And guess what? All these tax plans are being rolled out right now with the election, just right around the corner. And guess what? None of them are going down. CNBC wrote, “The wealthier prepping for tax increases because government spending is soaring in both state and federal levels while revenues are dropping like a rock from the COVID-19 crisis.” So this can only mean one thing for you, monumental tax increases are right around the corner and could be financially devastating for those of you retiring within the next five years. Again, the money that’s being printed right now, somebody has to pay for it. Again, the stimulus just continues to go up and up and up.

Bret Elam:
And again, with that deficit that’s out there at some point in time, somebody has to pay for it. And if you’re nearing retirement and having to pull money from those accounts at the same time that taxes go up, it literally could decimate your retirement savings. Forbes had a great headline. It says, “Ready for this. We’re all not going to get COVID-19, but guess what? We’re all going to pay for it.” Again, I sat with a couple this past week and they had about $985,000 in between their 401(k)s and IRAs. And we ran this report, said, “Hey, if you take the conventional wisdom out under today’s tax code, forget future tax increases, you’re going to pay about $582,000.” Missus was about 125,223 and Mr. was a little over 456,000. How much they’re going to pay in taxes just on required minimum distributions? What we shared with them is, “Hey, we’ve gotta be proactive with all of these things.”

Bret Elam:
What we had shared with them is having some of these simple strategies and going through them ready for this? Went down to $246,000, $336,000 in taxes during their lifetime. I didn’t say they had $8 million. Not even a million dollars is putting another $336,000 back in your pocket. I don’t know about you, but that’s a lot of money.

Karen Bezar:
It’s a lot of money.

Bret Elam:
Whether it’s spending more time with the kids to grandkids, whether I’m going to go get the beach house, whatever it is, that’s a lot of money that could end up back in your pocket. So when you hear an example like that, and if I asked you, “How much money do you have in your 401(k) in that IRA? Guess what? We get an answer in two seconds, but here’s the followup question. If I said, “How much of that do you get to keep?” It’s the pause that we just went through right there. Because people don’t think about that. And you need to think about your 401(k) and IRA as a joint account between you and the government. Most people don’t realize it, but you could be paying a lot more in taxes on these accounts than you realize, unless you take advantage of some of those defensive tax planning strategies like I just about.

Bret Elam:
Again, we can show you exactly how much money you could save with a free customized retirement tax analysis. Again, that free tax analysis will show you defensive tax planning strategies that could help you save tens of thousands. But routinely, what we see is saving people hundreds of thousands of dollars just on taxes when we’re talking about your IRA, 401(k), pension, your other tax deferred retirement accounts. Now if you’ve saved $250,000, and again, if you’ve saved less, what you find is at that mark and higher on a lot of these strategies apply to you, but all means we can absolutely talk to you too if you have less than 250, but a lot of these strategies apply to more. Call us right now at 2159872430. Again, 2159872430.

Bret Elam:
I need you to think about this. Taxes are lower right now than they’ve been in over 40 years and the combination of the skyrocketing national debt, along with the government, continuing to print economic stimulus money can only mean one thing. And I think Houston, we’ve got a problem. Taxes are going up and you need to prepare yourself for it right now. Learn how you could protect your hard earned savings right now. Call us at 2159872430. Again, 2159872430.

Joe Krause:
Really good information, Bret. Boom, it’ll hit you right in the face. [crosstalk 00:19:20] It’s that’s not what you have in the account.

Karen Bezar:
It’s a WMD.

Joe Krause:
It’s not what’s in there. It’s how much you are keeping. We’ll get to our next commercial break. On the other side of the break, why the threat of sequence of returns risk increases every day. Back in a moment. You have an unwelcome surprise waiting for you in retirement. It’s called required minimum distributions or RMDs. Welcome back everyone to Roadmap to Retirement, the radio show here on Talk Radio 1210 WPHT.

David Bezar:
Yeah. So we’ve talked a lot about required minimum distributions. Remember when you turn 72 now, the IRS forces you to withdraw money from your IRAs, your 401(k)s, any other tax deferred retirement account. This happens whether you want it to or you don’t. So coming up in this segment, we’re going to talk about why required minimum distributions could actually decimate your retirement savings specifically in a bear market where even a short downturn in the stock market. This is going to be really critical to pay attention to. Stock market’s been on a huge run. We know it can’t keep going up. We believe it’ll go up. We believe it’ll go down. We think it’ll go back up. We know it’ll go back down. It’s just that’s the way it’s worked over the past 100 years. It’s going to happen again during your retirement, but the timing is critical.

Bret Elam:
And what’s terrible is, what’s the worst thing you can do when we have a downward market is pulling money from it. Now, can I tell you what’s even worse upon that is somebody forcing you to pull the money out during that downward market. And that’s it, required minimum distributions could pose a major threat during bear markets. Again, Karen said it when we started today’s show, whether you want the money or not required, meaning you have to pull that money out. Again, whether you want or not. And again, you’ll never get the money back. So again, it forces you to lock in those losses and you got to really, think about it.

Bret Elam:
You got all this volatility that’s happened over, again, through the year so far, it’s spend crazy volatility. Unemployment continuing to go through the work. I don’t care if you’re blue collar, white collar, all collars, everyone is losing their jobs right now. So many people that are out there. Guess what? What we’re talking about right now, pulling money out in a bear market just became a very real risk. And then even though the markets bounce back and my problem is what we hear a lot is irrational exuberance because the markets bounce back. But understanding even with suspended required minimum distributions for a year for 2020, it’s bad news for the future, 2021, 2022. And if you’re stuck having to pull money out during those bad times, you could lose a fortune.

David Bezar:
Yeah, this is a segment that people forget about when it comes to retirement planning and it’s called sequence of returns risk, right? I mean, simply, what is sequence of returns risk? It’s the risk of retiring during a downturn in the stock market. Now, if the stock market is falling during the first few years of your retirement, that combination of stock market losses and the need to withdraw money to pay for retirement, literally could have a devastating effect on your retirement nest egg. And then on top of it, if you’re forced to withdraw money from your account due to scheduled required minimum distributions, which your options are limited there, it can have even a more compounding effect. As a matter of fact, CNBC did an article, and one of the things I’d encourage you as a listener is to go Google sequence of return risk so you get a great understanding, because this is the one piece of the puzzle that if you don’t master, it could have a major, major problem for you.

David Bezar:
CNBC actually said, “Retiring in a downmarket can mean two thirds, less money for the rest of your life.” I hope he got that. CNBC reported, retiring during a down market can mean two thirds less money for the rest of your life. There’s a lot of great info here, right? Two people retiring just two years apart. The first one’s in a market downturn, the seconds in an upturn. 15 years later, if you look back that person who retired and took withdraws during that early period can end up having two thirds less for the rest of their lives. That’s a big, big deal. Now, we’re so used to the market going up, since the 2000s.

David Bezar:
We’re so used to it, but we got to remember history. There has absolutely been times in our past that we had extended periods of bear markets. And if you’re really paying attention to what’s going on with all the things that Bret said, stimulus, the balance sheet of the government just going through the roof. I watched something the other day that said Manhattan will probably never return. 60% of the restaurants will never reopen. I watched CNBC, Sam Zell was on it and said, “All of the financial district is basically abandoned at this particular …” If you’re just aware, if you just paying a little bit of attention, you got to say at some particular point, we’re going to see a pullback in the market.

Bret Elam:
Yeah. Just pay a little bit of attention. David said it right there. Again, so much dislocation between the market’s-

Joe Krause:
[crosstalk 00:24:50] It’s so hard hear.

Bret Elam:
And thought it is, but it’s a reality, and it’s our job to just talk about what’s true out there. And David did a great job of talking about the two different people retiring during different downturns. We illustrate this, we talk about this on our webinars and our workshops and here, even on the radio and people are like, “Oh, you’re choosing the right data points that you’re just abusing data.” And that’s what David said go Google sequence of returns risk. Again, when you have a 401(k) and you watch the market go down, it makes your stomach gets sick. But again, if you’re newly retired, you need to think about what David just talked about. And that added risk that we now need to think about. People think the biggest risk. It doesn’t come from the losses experienced today. Again, you need to keep in mind that once you start taking the income, especially during the market downturn, you’re more vulnerable. It’s exactly what David was just chatting about to the market volatility due to that sequence of returns risk.

Bret Elam:
Again, when you’re a retiree, now you have to, you’re withdrawing money and the market is down, again, those losses are locked in. And again, when the market comes back up, you lost that potential. You’re not going to have that money back into the market because now it’s being spent. So again, these losses will diminish those remaining overall assets. And what you find is you have to take out a greater and a greater amount of money year over year. And again, if you have that unfortunate luck of retiring amongst the several bad years, again, you don’t know what’s going to happen. I’ve been in this business, I’ve seen it in 2000. I’ve seen it in 2008. And we’re seeing it again about people that retire during those timeframes, were right back at work. And again, you have no idea when it’s going to happen, but we need to understand that that risk is very real.

Karen Bezar:
I agree. And stock market can be dangerous territory, but more so when you’re heading into retirement or when you’re in retirement. Remember, we saw stock market drop 36% in 22 days. I want you to remember that nauseated feeling when you saw the market ticking down, it was one of the fastest we had in history, and this was all due to the coronavirus pandemic. And could we have a second wave? Is this going to happen again? Stocks are going to start tumbling? We don’t know for sure, but unemployment is through the roof right now, we’re having talks over recession and many experts believe that stocks are definitely going to be primed for a separate drop. So if that’s what’s going on out there, don’t you want to prepare yourself, be prepared for this?

Karen Bezar:
This is some information we’ve heard, like David said, we watch CNBC, right? So, CNBC pundits say, this is exact quote, “They are urging investors not to be fooled by new highs in the stock market.” Look, we’ve had a magnificent V-shaped recovery in the stock market, but the stock market’s not a great reflection of the broader economy anymore. This is not me saying it. This is actually a quote from CNBC. The winners in this market are the companies that are most divorced from the underlying economy. The actual economy is in a precarious shape, especially now that the government stimulus package has run out and Congress went home for the summer, rather than trying to come up with replacement. I know there’s some talks going on now, but it’s a scary time. And there’s so much noise out there. It’s kind of like, “Who do I listen to?” And Dave, we say it a lot. We look at the stock market going up and then we drive by shopping centers and restaurants are going out of business, stores are gone, and we’re like, “I don’t understand this. This is not right.”

David Bezar:
Yeah. Even a matter of fact, the Oracle of Omaha, Warren Buffet, he basically has been someone who has never considered gold as an investment, but he just made a huge bet on the US economy. This is something that raises a lot of questions. He’s been so critical of gold as an investment saying, “It’s really got no utility.” And that the magic metal is no match for American metal. He once wrote that anyone watching from Mars or any other planet would be scratching their head over how we treat this shiny stuff on our planet. Yet Berkshire Hathaway just acquired nearly 21 million shares of Barrick gold worth over $560 million all while selling shares of Wells Fargo, JP Morgan in one of his filings that he has to do for Berkshire Hathaway. And he’s considered the greatest investor of all time.

David Bezar:
That’s a pretty good indicator. Now, again who knows, nobody’s got a crystal ball, so let’s just imagine this scenario for a minute. You’re retired. Things are going great. But something happens that triggers a significant downturn in the market. And your investments are way down. Now, you hope things are going to turn around, but they don’t. In fact, they only get worse and your investments continue to drop. You’re 72 years old, so the IRS comes knocking on your door. It’s time to collect their first required minimum distributions. So, you need to sell X% of your investments inside that IRA or 402(K). Now, unfortunately, you are forced to sell your investments at a loss and you got to realize you’re never going to get that money back again. That’s one of the many scenarios that could actually play out with your RMDs.

David Bezar:
And you got to understand, I mean, it could decimate your retirement savings and that’s not a scare tactic. I really want to stress that that is not a scare tactic. We just saw this happen when the market was down 30 plus percent. And it’s all because they didn’t have a strategy. So what I’m encouraging is learn how you could successfully navigate this required minimum distribution with one of our RMD analysis. What you’ll learn in just 30 to 60 minutes could literally save you tens of thousands, if not hundreds of thousands of dollars in retirement. So it really works best. But again, we are an open door policy here, but if you have saved 250,000 or more for retirement, give us a call 2159872430. Again, 2159872430. Get that analysis done and find out how to protect your retirement.

Joe Krause:
As we go into our final commercial break of the big show are the recent changes about required minimum distributions a blessing or a curse. We’ll share the answer when we come back. According to MarketWatch, if you overlook or make a mistake with your RMDs, you could face one of the steepest penalties levied by the IRS, which is a 50% tax penalty. Welcome back everyone to Roadmap to Retirement, the radio show. 50% David.

David Bezar:
And that’s just the tip of the iceberg, Joe. So, what we’re going to come up in our final segment is how the latest changes, and again, some of these things kind of slipped through in the middle of the night. They’re not headlines and people don’t necessarily get a pay attention to them. So, we’re going to cover the latest changes with the Secure Act and the CARES Act and how it could impact you and your required minimum distribution.

Karen Bezar:
Right. Remember, there’s the Secure Act. And then there’s the CARES Act. Secure Act was in last day of December 2019, they made this decision. So a reminder of the Secure Act, those who will turn 70 and a half on or after January 1st of 2020, do not need to start taking RMDs until age 72. And those who were taking RMDs before 2020, you still … Sorry. You still have to keep taking them. That might sound great. That’s the shiny part of the act, but they kind of snuck in there too, is that RMD rules for most non spousal beneficiaries, they changed under the Secure Act and beneficiaries will no longer, most beneficiaries, there are some restrictions, have to take RMDs on IRAs that are inherited on or after January 1st 2020. So, under the new rules, you don’t have to take an RMD, but very important, you have to deplete those accounts within 10 years.

Karen Bezar:
And it might not sound like anything, but if you have beneficiaries, this is a big darn deal. Now, we have the CARES Act. What did the CARES Act do? Because of the pandemic, they said, “All right, required RMDs,” I’m just going to say RMDs, “Aren’t required for 2020,” which is good. So they suspended the RMDs for your IRAs and any of your deferred accounts. And you did have a chance to put them back. The deadline is actually August 31st. So if you did take your RMD, you have to August 31st to replace any amounts that came out of your IRA. And people are like, “Hey, yay. I don’t have to take my RMD,” but maybe does it make sense that you take it or not take it? Or do you take a partial amount? We’ve had people ask us that question. That’s something to think about.

David Bezar:
Yeah, look, RMDs, They’re not easy. And what we try to preach here at Thrive is to be proactive in your planning. And we really mean that, proactive. These RMDs are often misunderstood, sometimes unfortunately, they’re totally ignored. The key to address the issue is to address the issue early so you can get ahead of any potential problems. Creating a withdrawal strategy from your IRA accounts 401(k) in your late 50s and early 60s could actually help you prevent needlessly paying thousands of dollars in taxes, penalties and fees to the government. So you really should be considering one of the greatest things that you can do, but you got to do it right. It’s not a simple process, because if you don’t do it correctly, you can end up pushing the wrong button, pulling the wrong lever. But a great strategy is a Roth conversion strategy.

David Bezar:
So, a traditional IRA allows a tax-free distributions, but when you withdraw that money, you have to pay the taxes. And when you turn 72, you’re forced to withdraw this money. A Roth doesn’t allow tax-free contributions. And I actually said distributions earlier. So, I’ll take that back. It just dawned on me in my head that that’s what I said, but so a Roth doesn’t allow for those tax-free contributions, but you pay zero tax when you withdraw the money in retirement and you don’t have to deal with the RMDs. That means tax-free growth flexibility when it comes time to the withdrawal strategy. And again, if you combine that with some other things, if you end up wanting to do a Roth conversion, how much should you do? If you do too much, maybe it triggers a whole bunch of other tax consequences like your Medicare surcharge levels pushes you into a different tax bracket.

Karen Bezar:
Pay more on social security.

David Bezar:
Yeah, and paying more of your social security benefit, all kinds of things. So it really does take a skilled operator to understand how to do it most efficient.

Bret Elam:
Yeah. I mean, David said the most important thing right there, you got to be proactive. And I love how you said it early. Not at 71 right before 72. Ideally, if we cut it in our 50s or 60s, it’s the more time the better off we will be at the end of the day between that and Roth conversions. And we talk about Roth quite a bit, but I’m actually going to great article. I’m actually going back to Kiplinger’s and I want our audience, we talk about Roth all the time, but here’s some other options of how to handle some of these strategies related to required minimum distributions. I’m going to pick a couple of them. There’s these carve-outs first one here is this thing called a Q lack, a Q lack as a qualified longevity annuity contract.

Bret Elam:
Essentially, what it does, let’s say you’re seven years old. “Oh, I don’t need all these RMDs.” You could take up to $130,000. That’s the maximum. And you can put it into one of these special annuity contracts. And you won’t have to take a payment until age 85. Again, one way to push those things way out into the future. Again, still have to pay taxes on some point, but you’re able to defer them all the way out to age 85. Here’s another one, something called NUA, it’s called net unrealized appreciation. We see people every day that have company stock in their 401(k) plan. And we see the mistake being made all the time. They call, they move money from their 401(k) to their IRA. And they say, “Do you want to move the stock?” And they say, “Yes, move it all.” No, we need to understand what net unrealized appreciation is. I just had a client and literally a month ago, had two and a half million dollars in IRA assets.

Bret Elam:
This is so important. We had over a half million dollars in company stock. So what it meant was he was able to move the company stock out of the 401(k) into a regular brokerage account. And all he had to pay taxes on was his cost basis. What he had paid all those years, it only applies to company stock. What the result was. He only had pay taxes on $35,000 of income, but was able to remove them was 20% of his assets or a half million dollars out of those future IRA contributions. Here’s another one. Something called gifts to charity. This is called a QCD, is another way to help out with RMDs is that once you required to start taking required minimum distributions, you can actually start giving your RMD away. That’s a big deal because it never hits the bottom line of income, nor most people are not able to itemize their charitable contributions anymore.

Bret Elam:
So, this is a way, it’s a great strategy on how you could give directly from your required minimum distributions and the income doesn’t even show up on the tax return. Here’s the last one I’m going to share with you here on today’s show, I’m going to call it the RMD solution. I’d love this, because you can be strategic with your required minimum distributions. A lot of people pull them out in January, it’s over said and done with, but here’s another way on how you could utilize that required minimum distribution. You could actually withhold the whole thing and have it pay for your taxes for the whole year. We get people that are driven up a wall. They’re like, “Bret, Karen and David, I hate paying these quarterly tax bills.” Well, if you be a little bit strategic, we can all of a sudden take them out later in the year where we have more finite detail on what those overall tax burdens are going to be.

Bret Elam:
You know what I love about today’s show? We’ve been doing this for now almost three years now, we did one whole show related to required minimum distributions. We’ve talked about it here and there. And now it’s all out of that came out of the IRS code. That was J thick. And yet there’s that much information about required minimum distributions and we’ve chatted about it today. And most people don’t realize that we’re not paying attention to it, but taxes are lower right now than they’ve been again in 40 years. And again, you can’t get tax experts, CPAs. You can’t get economist. You can’t get all those people to agree on one thing, except one thing taxes have to go up, again, with a trillion dollars in stimulus with the debt that’s spinning out of control. We need to understand that.

Bret Elam:
Now, if you’re here listening today and said, “Oh my gosh, there’s a lot that has to do with required minimum distributions.” You got to do me a favor. Right now, pick up the phone and dial 2159872430. Our staff is waiting to answer your phone call. And here’s my simple requests, just schedule a simple 15 minute discovery call. And then the conversation goes, “Oh my gosh, I heard all that on the radio. How does all of this apply to me?” And sometimes it’s a simple 15 minute call. And sometimes we take people through that complimentary process of saying, “Which one of all these different strategies and solutions apply that can help you best.”

Bret Elam:
So again, do me a favor, don’t wait, call right now, 2159872430. Again, paying future fewer taxes in retirement could help you do more, again, with your kids, your grandkids. Go away with them more, again, learn how much money you could save in taxes. Call us right now, 2159872430.

Joe Krause:
And the best line to close the show out today, it’s not how much money you have in your retirement. It’s how much you keep. Is that fair? That’s the right statement. Right?

David Bezar:
Very, very fair.

Karen Bezar:
Yeah.

Joe Krause:
That’s going to do it for Roadmap to Retirement, the radio show here on Talk Radio 1210 WPHT on behalf of David Bezar, on behalf of Karen Bezar and on behalf of Bret Elam, I’m Joe Krause. See you next time, everybody.

David Bezar:
Thanks for listening to Roadmap to Retirement, the radio show from Thrive Financial Services. If you’re like most Americans, you have more questions than you do answers about what to do with your retirement savings. If you have a question about your IRA or your 401(k), pension or other tax deferred accounts, if you have a question about reducing taxes, generating income or filing for social security, whatever it is, David, Karen and Bret are here to help. And often your questions can be answered in a simple phone call, just call 2159872430. 2159872430. And so no you know, new statements made during Roadmap to Retirement, the radio show, shall constitute tax legal or accounting advice. You should consult your own legal or tax professional on any such matters information presented is for educational purposes only, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities investment or investment strategies.

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