David, Karen, Bret, and Joe discuss all things Thrive, including why you should be up-to-date on your knowledge of RMD\’s, or required minimum distributions.

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I can\’t believe it David, but we are down to, if there were a calendar or a clock in front of us right now,  everything is clicking over into 2019.

It\’s just flying by Joe.

It\’s unbelievable.

I remember Bret and I sitting down and talking about what 2018 was going to look like. It felt like it was yesterday and here we are.

But we\’re loving it. It\’s exciting.

I do confess today, later this afternoon, I will be napping. I\’m going to take a long nap. We\’ve run two weeks in a row where we\’ve done three workshops throughout each of those two weeks, so six workshops in the past two weeks. It\’s something we just got to keep doing. We have to do it because the demand has grown so dramatically. People are bringing people with them. The quality of the information is improving because every day we see new situations that we bring to the community. So it\’s great. We\’re having a blast.

Karen, we missed you last week, but it\’s nice to have you back.

Thank you. I\’m happy to be here.

Yeah, it\’s nice to have you here. What\’s on the agenda Karen? What are you going to talk about today?

I\’m going to talk about everybody\’s favorite thing in the world as you enter retirement and you know it\’s coming down the pike, what we call RMDs, or required minimum distributions.

All right, good topic. Important with lots of details.  we\’ll get into that with Karen as we roll along here. Bret Elam will be with us as well.

Yes, I\’m actually going to be piggy backing into with what Karen\’s talking about. We\’ve been chatting about it over the past couple of weeks. Talking about all the year-end planning that need to be done. Some things, some of the aha moments, things that you can take advantage of before the year ends

There are some details that will get lost in the confusion of the holidays. The confusion of the noise that the celebration, the events, the gatherings, everything that takes place in the month of December. Give us an example of something that you\’re going to point out today when we get to your segment, Bret.

Yeah. So we meet a lot of people that have to take these required minimum distributions on an annual basis that may not otherwise need them. So we\’re going to continue our dialogue from a tax efficiency standpoint of some strategies to maybe get some of that income off your tax return in a legal and ethical way.

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David, it is also the time of the year where people start to, or perhaps they should, start to think about decisions they\’re going to make for taxes. What decisions they\’re going to make in \’18 that are going to have a lasting effect when the calendar clicks over in three weeks and we roll into 2019. Is that a fair statement?

Oh sure, absolutely. I think that\’s why the attendance and the requests for consultations with us are through the roof right now. I think people are finally getting to a point they realize that the tax code is changing and maybe have not yet really thought about what those impacts potentially are. So. we\’re getting a ton of requests specifically for our tax clarity analysis, and that\’s kind of where we take a look at what we call forward tax planning. That\’s where we get an opportunity to evaluate everything in the current tax year. So, we could potentially make decisions that, when we go to file starting the new year before April, we\’ve already kind of vetted that

I did want to give you an opportunity here in the opening segment before we get into the heart of the conversation today to touch on the four complimentary printouts or reports that somebody will receive when they engage with you or Karen or Bret.

To be quite honest with you, I think it\’s kind of unparalleled. That deliverable that we give, I\’ve been in this business now 30 years and any organization that I\’ve been involved with I have not yet seen as thorough of an evaluation on a complimentary basis.

It has four pieces to it. One is a social security maximization analysis, 567 different election choices that are available for people to ultimately maximize the benefit they receive lifetime benefit. So we run that analysis for somebody who has either not yet taken social security or may have.

I\’m actually going to cover that in my segment. We actually had one where a person has actually been collecting social security for a couple years, and our recommendation was to suspend it. I\’m going to cover that, and why.

Second is the tax clarity report, which shows that forward tax planning strategy. Those RMDs, what\’s it going to look like when I get out to that point. We also do an analysis which is a stress analysis on the overall retirement. What is the probability that your assets are going to last a lifetime, and we take so many data fields to come up with that report. Then lastly is the riskalyze analysis, which is where we basically test people\’s tolerance level compared to the actual risks that their portfolio presents, and how close are we? Are we in a good range there.

Those four complimentary reports are part of the reason or represent one of the many reasons why the Thrive army continues to grow and expand every single week

We turn to Bret Elam and we bring him into the conversation to start segment two of our four segments here, today.

Today, we just want to dig into over the past year as our Thrive army has continued to grow. Our passion for educating people through our workshops is higher than ever, as we talk about all these 2018 tax law changes. One of the biggest changes that happened, was about the word itemizations, and whether we are still going to be itemizing or not on our new 2018 tax return.

Of filers in this country in 2017, 30% of them were still itemizing and that number is now dropping down to 6% because due to the changes that were made. One of the biggest changes that was made has to do with a new concept called a qualified charitable distribution.

a lot of these changes to the tax code have been made, and mainly the biggest one is standard deductions. If I was a married filing jointly couple in 2017, that married filing jointly couple had a standard deduction of $15,200, and now for 2018 it\’s going to $26,600. So it\’s a pretty big increase.

That one change alone has everybody listening, or a majority of the people listening, not sure what to do. Is that fair?

That\’s very fair, and we meet a lot of people like this. Part of the Thrive Army come in and meet with us during the Thrive Retirement Roadmap Review. We find a lot of people are very charitable, and sometimes the reason people give to charities, good or bad or indifferent, is because of the tax write off that they would be able to get. What I\’m getting at is with these changes of the standard deduction going up so high, the impact of giving to a charity won\’t necessarily be there as much. So, in saying that, a qualified charitable distribution comes into play.

Let\’s talk about where it comes into play. When we\’re at the age of 70 and a half, we talk about these vicious things called required minimum distributions, which Karen\’s going to go a little bit deeper into them here in just a moment. We have to take money out of our IRAs, 401Ks, and plans of the sorts, whether we want that money or not. So in a traditional world where we\’re going to be giving money to a charity, how that works is you\’re going to itemize the amount that you\’re giving on your Schedule A of your tax return.

Because of some of these changes, the impact may be there like it was previously, but for a lot of people they won\’t necessarily have that quote unquote tax savings like they had before. So, where a qualified charitable distribution comes into play, is it allows for you to never have that income that you would have to take from a required minimum distribution. Never has to show up on the tax return.

That becomes a big deal, and we\’ve talked about things like Medicare surcharges.

So here\’s an example for you. Let\’s say we have a couple retired on social security, on pension. Life is good, he\’s got more than enough money coming in and then all of a sudden at the age of 70 and a half that you have to start taking out required minimum distributions. Again, for our listeners at that age of 70 and a half, remember it\’s about 3.6% of your overall IRA assets that you have to pull out at the age of 70 and a half.

So let\’s say for example, we have a million dollars in our IRAs, 401Ks. What that means is whether we want the money or not, we have to pull out almost 36 and a half thousand dollars, and that income shows up directly on the tax return.

As you\’re filling out that form to take your election of your required minimum distribution, with a lot of our clients what we do is we attach a letter of instruction that goes with that form that goes to your custodian. Whether you\’re with Vanguard, Fidelity, Prudential, MetLife or whoever the case may be, you have to actually provide the instructions directly to them.

Instead, I want you to send it to this church, this synagogue, the veterans, whatever the case may be. That money still ends up at the exact same spot that you had intended it to go to. However, now I\’m not going to itemize that gift on my tax return. That may not be a big deal because only 6% of filers are going to be going through an itemization moving forward. But, the bigger impact that that it has is that income never shows up on the first page of the tax return, making us show that much more income.

Nor does it have to. The income does not have to go on the front page, correct?

Well, at the age of 70 and a half, you have to take it as a required minimum distribution. When people come in during the Thrive Retirement Roadmap Review, we make them aware of the concept of a qualified charitable donation, a distribution. We\’ve gone through this analysis with plenty of people during this new tax code change over the past year now. You may be more beneficial of actually never taking ownership of that required minimum distribution. Actually, giving that distribution, you would have to take directly to the charity so that that income never shows up on your tax return.

Which you were going to do anyway perhaps.

If you took the RMD with the intent of giving it away to charity anyway, it would have shown up on your tax return. You\’d be required to report that.

Correct.

By using this strategy that Bret’s talking about, the money is still going to the charity that you intended, but it\’s going directly. Therefore, you don\’t have to have it show up on your tax return, which could be very beneficial that it may not have impacted a Medicare surcharge. There are a number of different things that, by it not showing up on your return, are a real positive.

Yes, and the end result is you\’re still doing what you wanted to do.

Correct. That\’s the bottom line.

You\’re still giving whatever that donation amount would be to the designated nonprofit or to the designated charity, but you\’re putting yourself in a position where you\’re getting the benefit of it

You\’re helping yourself. The bottom line is, get the money that you wanted to give to that same spot no matter what. What we\’re sharing with this strategy, is understanding how the concept works, and where it could be in your best interest to take advantage of that. It may even afford to give you more money because of the tax benefits that you\’d get from that qualified charitable distribution as opposed to conventional wisdom. Take my required minimum distribution, put it in my checking account, and then turn around and write the check to the charity.

I sometimes feel as though when I listen and consume the information that we discuss, the easy decision is not necessarily the right decision. It would be easy to just take the distribution, and then write the check where you want it to do. It\’s a little bit not more challenging, but more necessary if you take the next step. Is that fair?

It absolutely is. it\’s just understanding there are so many different ways to get to the same result. It\’s just figuring out which way is the most beneficial.

Bret here\’s a question. let\’s say somebody has a required minimum distribution in the total of $25,000. Do the rules allow that $12,500 to be received by the IRA participant, and go on the tax return, and the other $12,500 be a qualified distribution?

Because it can be part of, or all, it does not have to be 100% of your required minimum distribution. As David just shared, if my distribution is $25,000, and I\’m used to writing a check for $10,000, $15,000, $20,000 a year, don\’t change your number. Instead of it coming out of the left bucket, we want it to come out of the right bucket, if you will. Accomplishes the same thing, to the idea that you\’re going to pick up those tax benefits from that decision. Just taking that extra step of figuring out, does it make sense for me to go this way, or that way?

Thank you so much to Bret Elam for that good conversation in the last segment. Qualified charitable distribution is a topic that many will have to understand as we roll towards the end of the year. Welcome back to we welcome Karen Bezar back into the discussion. We missed you last week, but nice to have you back here today.

Thank you. Thank you for missing me and I missed everybody as well, so I\’m happy to be here.

Good. You\’re going to stay with us or stay on this topic Karen, of RMD.

So, to the average person out there without a financial degree, after you heard what Bret had to say, how\’d that make you feel?

It just makes me feel on behalf of everybody that we don\’t know. We make decisions that we don\’t know much about, and the importance of getting educated. Simply put, I don\’t know the answer. How many people can join me in raising our hand and saying we don\’t know the right answer to that scenario?

Right, and our goal all the time is to enlighten people to have a better understanding of the many moving parts to your retirement. So, why not at least visit our website, thrivefinancialservices.tyl16lnm-liquidwebsites.com. Please come out to a workshop if you want that to be your first step, because you don\’t want to be 70 and a half not planned for your required minimum distributions. Because one of the things you can somewhat control when you\’re looking to save for retirement, or you know you\’re going to retire down the road, is what you\’re saving and how much money you\’re saving. But, you can\’t control the effect of taxation, right?

What we try to do here at Thrive is we take a holistic approach, as financial advisors, to saving for retirement. One of the areas is taxation. How is that going to affect you?

I\’m going to do a simple definition for anybody out there who\’s not 100% familiar with this. RMDs, or required minimum distributions, are basically when you turn the age of 70 and a half, the government wants you to pay taxes on money that you\’ve never paid taxes on before because we have to pay for things.

Your RMD, or required minimum distribution, is a percentage of your total qualified assets. Qualified meaning 401K, 403B, any type of traditional IRA, and it\’s based on your age and life expectancy. That\’s the government\’s formula.

So as an example, this year, if you\’re 70 and a half, and you have $200,000 in qualified accounts, meaning you have not paid taxes or income tax on that, your required minimum distribution amount is going to be $7,299.27. If you happen to be 76 because you\’re a little bit older, the formula changes. With the same amount of money, $200,000 in your pool of assets, your figure now becomes $9,090.91. So you can see how your tax burden\’s going to grow.

Just for clarity, that distribution in your example of the $7,000 or the $9,000 comes from here, and now funnels over becomes reportable income on your taxes.

Right, and as you get older, the percentage that you have to take from your accounts actually gets bigger.

A lot bigger.

A lot bigger at any point. And you can clarify this Bret, at any age does it ever start going down a little bit or does the percentage always increase?

Nope, it always goes up. It\’s about 7 1/2% at the age of 85. We have to be conscious of that. Every year we have to take out more, and more, and more, on a percentage basis.

You know, we talk about buckets of money, so that\’s going to increase or force a higher tax burden to you on an annual basis.

And especially if you have appreciation inside there as well.

Right.

So again, that\’s why we\’re all about getting out ahead of it. Don\’t wait until required minimum distribution age to touch these IRAs. Tackle it as soon as possible. Just have a plan.

So, you can see it\’s essential to begin planning in advance, so by the time you\’re 70 and a half, you have maybe more options. So I met with a couple the other day. He\’s over 70 and a half, just not too much over. Retired a while ago, stopped working a long time ago, and he is kicking himself in the butt. He\’s always been his own financial advisor. He did a great job growing his money, but he said, \”I never thought about what we talked about in the workshop,\” which is if you\’re 65, 66, you are retired, not collecting social security yet, then start taking your money from accounts that you would have to pay taxes on in the future. He is just angry with himself that he didn\’t have advice or somebody to guide him with that in the future.

And Karen, it\’s a really good point and sometimes you struggle trying to understand how to do these discussions when you\’re communicating with the audience. We\’re not selling anything. The education that you get from the workshop, and from the reports that David outlined in the first segment, are priceless because they can help you with make the right decision.

So many times, we\’ve said, \”Decisions that you make today, you\’re going to realize tomorrow.\”When you realize the result of the decision, it\’s too late.

I hope people are getting some good information today. It\’s great information, but if it can help anybody out there with their retirement, I\’m happy about that. So, Bret also talked a little bit about one way, because we\’re not doing the itemization anymore, that you can eliminate that portion of the tax burden. But I have people who are passed 70 and a half. Just a little tidbit of information still working at their current employer and they have a 401K there. If you\’re still working, you have a 401K, and you\’re still working at that job, so you don\’t have to take your required minimum distributions. So anybody out there listening who\’s over 70 and a half, keep your money there if you\’re still working. The only caveat is if you own 5% of that company, or more than the 5% of that company, then you can\’t do that.

When would you have to take it? If you stopped working?

As soon as you retire.

So as soon as you officially stop.

Another area, and another person that we met with, who eventually actually became our client said, \”You know when you\’re working and you\’re young, they keep telling you, put your money in those IRAs and those 401Ks.\” She goes, \”I wish somebody would\’ve told me, hey, put your money into a Roth IRA.\” Because she said, \”I would\’ve put so much more money into that now.\”

She wouldn\’t be in the area that she\’s in now because the other side to this is you have to take your required minimum distributions. And what do you do with them after you take them?

Put them into something that you have to pay taxes on again? So that\’s how we take a look at everything. So, go to one of our websites, meetthrivefinancial.com or thrivefinancialservices.tyl16lnm-liquidwebsites.com Come to one of our workshops and we\’d love to do a tax clarity report and maybe we can help you before you get to the point where there\’s no return.

And I almost feel as though now with the latest tax changes and the structure that has now created a new bump in the road or a new direction for the road to go, which creates a whole other level of confusion. It\’s almost like starting back at the very beginning, no matter how many years you\’ve been doing your own taxes.

As soon as we get this all under control, guess what they\’ll do? They\’ll change the taxation on it again.

And to be honest with you, these changes that they made, remember they\’re here for eight years and typically they\’re good.

Nice job by Karen Bezar talking about RMDs. There is so much need for information, David, and really just by listening to Bret and Karen in our opening discussion, to hear and to measure the amount of information we need is mind boggling. We don\’t know what it is. We don\’t know what we don\’t know. That\’s an amazing thing.

Our hope is that we\’re delivering. We really hope that we\’re conveying a message to our audience that, number one, we care. Number two is we want to act as a true steward.

We really wanted to become that trusted resource for people to feel comfortable about navigating their retirement. Because I ask people all the time, why do they come to our workshop? The response we typically get is, \”I\’ve asked my accountant. I\’ve asked my financial advisor. I asked my banker and they all kind of pointed their fingers to each other.\” If it was a question related to taxes, the financial advisors say, \”Talk to the accountant.\” You go talk to the accountant, the accountant said, \”Well, your financial advisor should give you that information.\”

People would just get the run around and that\’s not something that we ever get involved because we\’ve made a decision to not be generalists but be specialists. When people are dealing with retirement, I call it the fourth quarter of life, you have one shot to do it right, and the goal is to make sure that your money lasts as long as you do. So the fact that we can instigate the conversation I think is a helpful process for people.

And I think today\’s a perfect example of that.

Yeah and RMDs are such a unique thing. There are people who just don\’t understand an RMD. They actually think it\’s a tax, right? So, I have had people say, \”Well, how much am I going to owe with my RMD,\” and what they were asking me is, \”How much do I have to take out and give to the government?\” I was like, \”No, no, no, that\’s not how it works.\” These are not people that are unintelligent. It\’s just that never really had to deal with this process, didn\’t plan ahead for it. Explaining that it\’s your money, you actually take it and get to use it, and then it shows up on your tax return can be tricky. It\’s not the whole amount of money, so that\’s just an example.

I think that\’s why it\’s important for people to get an evaluation. If it\’s with us, fantastic. If it\’s with somebody else who can provide the same comprehensive holistic evaluation, it\’s an awesome, awesome exercise to go get a second opinion, right?

I mean, why not take an hour out of your life and either go get absolute 100% confirmation that you\’re on track, maybe you find out that you\’ve got some minor adjustments that if those are made, you\’re going to be 100% okay. Or that you\’re really kind of trailing where you should be and there may be some opportunity to get you caught up and do the right things to make sure you have the retirement you desire. How could that be a waste of time to at least get that comfort and know with some level of security, yay or nay. Does that make sense?

It makes so much sense, that I just wish everybody in the Delaware Valley would raise their hand and come to a workshop.

Yeah and again, that\’s why we\’re doing as many as we do. You have to know that with all the people showing up, we obviously can\’t see everybody. You know what I mean? And not everybody thinks it\’s the right time, but I\’ll give you some examples. We have people that a year later end up coming back.

I actually, I sat down with somebody that visited with us at this time last year and we went through the Thrive Retirement Roadmap. We made our recommendation and truthfully the timing just wasn\’t right. Timing meaning, not really ready to make decisions and got a phone call and they say, \”Can I come back in? Can we kind of pick up where we left off,\” and, you know, sure. That\’s what we ended up doing and this was very unique. I\’ll actually share it with you a little bit, Joe, because a lot of times what we do isn\’t really the conventional, traditional results that people think, right?

We\’ve been trained to wait till age 70 and a half to take money out of our IRAs. I\’m going to give a very quick synopsis of this person we sat down with. Traditional says max, he wanted to retire. He\’s 62, 63, wants to retire next year. His wife\’s a little younger, she wants to retire at the same exact time. They wanted to start taking social security right away because they didn\’t have a pension plan. So, they want to start taking social security. What we ended up actually doing and sharing with them is that because of the way things are structured from a tax standpoint, and where their assets are, what they have available is they can delay social security. They can actually start taking distributions from their IRA accounts now.

So they\’re going to retire. Instead of turning on social security and getting a permanent discount, they\’re able now to delay it to the maximum. So a couple of good things happen. Number one is we increase cashflow a couple years down the road so they won\’t be needing to take distribution if they don\’t want to.

Number two, we end up increasing the survivor benefit of social security dramatically. Statistically because of age and gender, he will probably pass away first and because we\’re able to increase the amount he\’s going to receive on social security, the way social security works is that the surviving spouse gets the higher of the two social security benefits and loses the lower of the two. So we were able to increase that.

Instead of it being $2,600, we\’re going to make it about $3,500. So when he passes away, his spouse is now going to get a $3,500 check on a guaranteed basis. Would you agree that\’s probably better? If they would\’ve taken it when they wanted to take it, it would have been a permanent discount. So that\’s number one.

The second thing by taking IRA distributions now and using them as cash flow to live off of once they retire, we\’re also reducing the principal balance of the qualified accounts, the IRA accounts. So when they have to start taking the actual RMDs, it\’s going to be on a lower amount so it\’ll be less taxation. Now because of the way we\’re also structuring it, and their only income is going to be the distributions today, they\’re doing that at 0% taxes.

Let me just give a quick summary. The traditional way that they were thinking about, was the complete opposite of what we\’re sharing, but doing it the way we\’re talking about, we\’re able to increase social security benefits dramatically. We\’re able to pull money out today for them to live off of and retire at 0% taxation, and we\’re going to decrease the amount that\’s required minimum distributions at age 70 and a half. This means we\’ll probably be lowering taxes as well.

So if you had column A traditional, column B untraditional, what would you pick, Joe? After I share, right? A was what their advisors were saying, B what we were saying.

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It\’s B every single time.

B equals better.

Because it\’s just math, right? It wasn\’t like smoke and mirrors. We just went through the charts. We went through the actual math of it and I asked them, I said, “Do you see? Do you understand?\”. “How come my guy doesn\’t know?\” And I reply, \”I can\’t answer why your advisor doesn\’t know that, but we know here at Thrive, that\’s what we specialize on. Understanding how all of those moving puzzle pieces, what they look like separated. How do you put them together and make it a nice little picture.\”

That\’s what we were able to do, and that\’s so routine for us. I mean, it\’s not routine for the person who\’s seeing it for the first time, but for us we do it 15, 20 times a week.

I can\’t stress it enough. It is just unbelievable the value of information you\’re providing.

One other quick thing Joe, and I\’m just going to throw this in real quick. One of their other challenges that this particular couple had is they were going to have to pay health care. They were going to use Cobra to cover their healthcare, but because of the way we structured it, they\’ll be able to get a fully subsidized policy plan, healthcare plan, from the Affordable Healthcare Act.

So when they were going to spend $2,000 in Cobra to cover them until they got to Medicare, we actually showed them how to qualify for a subsidy using the Affordable Healthcare Act. It’s very comprehensive, these solutions that we bring to people.

Incredible information today from David, from Bret and from Karen. That\’s going to do it for our Roadmap to Retirement discussion this week. Thank you to everyone who tuned in, we hope you gained some knowledge regarding your own personal financial strategies that you can apply to your own situations. If you need consultation and want to talk to a professional, do not hesitate to get in contact, and schedule an appointment with us, here at Thrive!