Episode 119 – Income & Tax Planning in Retirement

On this week’s episode of Retirement You Radio, Brian Quaranta discusses capital gain taxes, Roth IRAs, required minimum distributions, and various strategies for how to minimize your taxes in retirement.

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Radio Show Transcripts

Announcer 00:00

Information provided is for illustrative purposes only and does not constitute investment tax or legal advice. Information has been obtained from sources that are deemed to be reliable, but their accuracy and completeness cannot be guaranteed. Neither Brian Quaranta nor his guests are liable for the usage of information discussed always consult with a qualified investment legal or tax professional before taking any action.

And now, Retirement You Radio!

Asset protection, tax reduction, holistic planning

Featuring Pittsburgh’s wealth financial and income coach, Brian Quaranta.

Brian Quaranta 00:38

Income planning for retirement is critical. But planning for taxes is even more important; we’ll explore those options on today’s show and more when we come right back on Retirement You Radio.

Steve 00:53

Hey, welcome, everybody. This is a Retirement You Radio increasing your financial IQ with Brian Q. Brian Quaranta, of course. He is President and CEO of Secure Money Advisors he uses he is a fiduciary. He is an independent. He’s got some experience got a great team of folks. And it’s always fun to chat with you, Brian. Hi, how are you?

Brian Quaranta 01:11

Steve, how are you doing?

Steve 01:13

I’m well, thank you again. Yeah, this is I mean, again, I know that we talk about taxes in retirement, I think every week and I know that you at secure money advisors have some great strategies out there. But it’s worth talking about, again, it’s worth sort of shaking the tree a little bit, if you will, because you know, I think, I mean, you’ve said it to taxes probably gonna go up. So, let’s protect ourselves now.

Brian Quaranta 01:36

Yeah, there’s not too many people. If you ask, if they feel taxes are going up in the future, you say, you think taxes are going up or down the future? Most everybody will agree they’re going up. And of course, the current administration has even said that they’re gonna go up, especially in the area of capital gains tax. I mean, have you seen that where they want to increase that capital gains tax to pouch income threshold to about 40%, from 20%, which is the high end right now to 40%. Which is just incredible if they were to make that happen. I mean, I think I had read over the weekend that there was about a trillion dollars in unrealized capital gains, can you believe that. So that means if they raise capital gains tax rates, to 40%, you’re talking about a trillion dollars, potentially, that they could get those tax dollars on if they become realized. But when it comes to planning for retirement, it’s absolutely important to consider how taxes could knaw away at your nest egg, and this is something that I’m very, very passionate about. Because I think one of the biggest bill of goods that we were all sold, were these traditional IRA accounts. And the reason I say that is because we were told that when we put money into an IRA account, or a 401 k or a 403, B, that when we make that contribution, we’re going to get a tax deduction off of our gross income, which means we’re gonna pay less taxes. Now. The problem is, is that money grows, it grows tax deferred, and that pot of money gets bigger and bigger and bigger. And then eventually, we have to start taking that money out in the form of withdrawals, maybe because we need additional money on top of what we’re going to get from our Social Security and pensions in retirement, we’re going to have to pay taxes on it. But maybe you don’t even need to take withdrawals. But you’ll be forced to take withdrawals at 70, to something called the RMD, where you’re going to have to pay taxes on it then. So, taxes, there’s two things that will completely gnaw away at your overall wealth in retirement. And that’s going to be taxes, and inflation, you know, so let’s just talk about taxes for a moment. So, keep in mind that if you’re investing money today, in any account, other than a Roth IRA, or some type of non-qualified account, when you pull money out of those accounts, you are going to have to pay income taxes on that money. So, let’s just suppose that you need $10,000 A month in income from your retirement account, and you’re in a 20% tax bracket? Well, we know that you’re going to net $8,000. After you pay taxes. Well, what happens if tax brackets go to 30%? Well, that same $10,000, withdrawal is not going to net you 8000. It’s going to net you $7,000. What if they go to 40%. Now, it’s going to net you 6000. So just from taxation alone, you have less and less money now add inflation on that, and now you’ve got a compounding problem. So how do we create tax free income in retirement, you do this through the use of a Roth IRA. And a lot of people might say, well, I don’t qualify for a Roth IRA, I make too much money. Or, you know, whatever it might be, they might feel that, you know, their company doesn’t offer a Roth, or they might not meet the income thresholds. But you can do backdoor conversions. Backdoor conversions allow us to go from taxable money to tax free money but a Roth account if you can save money in a Roth version of an individual retirement account or 401 K plan You could set yourself up for a pretty straightforward way to get tax free income. While your contributions are not tax deductible like they are with a traditional retirement account distributions made after 59 1/2 are generally tax free. So, the maximum you can contribute in a year to a Roth IRAs $6,000. $7,000 if you’re age 50 or older, however, the amount starts phasing out at income of 125,000 for a single taxpayer and 190,000 for married couple filing joint tax return and disappears at income of above 140,000 for schools and 208,000 for couples, and this is why I say, you know, there’s some people out there that might not qualify, and this is what is backdoor conversion. So, Roth 401 K accounts are way more generous, there’s, there’s, you know, there’s no income cap. In our again, we’re talking about a Roth 401k Here, and a lot of companies, you know, and if you’re listening to this show today, you should be asking your company, if they have a Roth component to their retirement account, because this will help you in retirement, as you start to generate income, we always talk about the five key areas of retirement planning on retirement, you radio, and that is income, taxes, investments, healthcare and legacy planning. So why are our income and taxes next to each other? Well, it’s because we know that 85 to 90% of the people retiring today are not going to be retiring with a pension. So, you get the look at a married couple getting ready to retire, typically, their only source of guaranteed income is going to be social security. So that means that they’re going to need to generate income from somewhere, most likely that’s going to draws from the 401k plan. Well, if we can make that 401 K plan, a Roth 401 K plan, that means any withdrawal that we take from those accounts is going to be tax free retirement planning is more than just an investment strategy. It’s more than just having mutual funds and stocks. It’s understanding that you’ve got to have an income strategy based around good tax advice and good tax strategies. You have to have good investments that are either tax efficient or tax free, you should have a health care plan and you should have a legacy plan. And this is why we always offer the complimentary reviews on the retirement you radio show. And for the next 10 callers who call in right now we’re going to give you a complimentary review. Now if you’ve ever wondered to yourself, or you’ve thought to yourself, geez, I’d like to retire. But you know, I’m going to need income from my investments. And I’m just not sure how to take it or I’m not sure you know when to collect my Social Security. Or maybe you’re in a position like a lot of our clients are where they say, Look, I’m at a point where I’ve accumulated enough money, but I can’t afford to lose a lot of that money because I just don’t have the time to recover it. Our Right Track Retirement System is designed to help do an analysis to determine whether or not you’re on the right track. Now, I’ve said this a number of times before, but I’ll see people charge 1000 2000 $3,000 for the types of reviews that we’re going to do complimentary, if you call him but you’ve got to do your part, you’ve got to call us schedule a time to come in. It’s about a 45 minute to an hour appointment, we’re going to we’re going to go through a number of different key areas when you come in. And it’s going to be extremely beneficial because you will leave here with an idea of how you can improve your situation. So, we’ll even run you a customized utilize proven strategies techniques which can turbocharged your income and put in a position to where you don’t have to worry about so again for the next 10 callers. That’s a comprehensive Right Track Portfolio Analysis that we’re going to give away complimentary with no obligation

Steve 08:33

800-656-8616 you heard Brian, 10 callers right now get that comprehensive financial review, you’ll see where you are today. But more importantly, you’ll find that you’ve got a roadmap that can help get you to where you need to be when it comes to retirement 800-656-8616 10 callers right now 800-656-8616

Brian Quaranta 08:55

When we come back, we’re going to continue to talk about those tax strategies that can help your retirement when we come back right.

Announcer 09:04

When should I take my Social Security? How much risk can I tolerate? I’m afraid I’m overpaying my taxes. Did I save enough? I can’t keep up with all these rules. There are a lot of components to your retirement planning, and it can seem overwhelming. It’s time to establish a partnership with a professional who can provide you with a written plan the proper strategies and then be there with you along the way. Call Brian Q 800-656-8616 or text Brian Q to 800-656-8616. Call or text Brian Q to 800-656-8616

Steve 09:45

And we are back on Retirement You Radio, increasing your financial IQ with Brian Q. Brian Q of course is here. He is President and CEO of Secure Money Advisors among so many other things. And this is a pretty exciting show. I mean, you know, and I know taxes isn’t necessarily exciting, but it’s exciting when we can keep those taxes to a minimum. I mean, I’m all for paying what we owe but don’t want to pay more than that.

Brian Quaranta 10:08

I’m okay with paying my fair share. But I don’t want to pay more than my fair share, you know, you want to arrange your affairs in a way that you pay the least amount of taxes possible. You know, there’s nothing unpatriotic about that. As long as we’re using the, you know, the tax rules in our favor. So that’s, that’s what this is all about. One of the other things that we could do, Steve, other than the Roth IRAs is you could use a health savings account. You know, if you have access to a health savings account, which can only be paired with High Deductible Health Plans, it can be used as a way to plan for some tax-free income and retirement. Unlike with similarly named health flexible spending accounts, you don’t have to spend HSA money with a certain timeframe. HSA contributions are tax deductible, gains in the account grow tax free, which we’re always nice anytime you’re going to let my gains go tax free, that’s nice. And withdrawals, as long as you’re used to pay for qualified medical expenses are also tax free, the free. And I think I had read somewhere that if you’re 60 and older today, that your expense in retirement, when it comes to your health care cost is going to be over a quarter million dollars over the over your over your life expectancy in retirement. So, if we have a pot of money that we’ve been getting a tax deduction on, and that money has been growing tax free, and when we go to pull money out, it’s tax free, and we can use it towards our health care. Well, to me, that’s just like having another Roth IRA, if you will, right?

Steve 11:36

Yeah, I mean, it really is. I mean, that’s a win win win. It’s a tax deduction going in, it grows tax free. And I think that’s something that people don’t really realize is that your contributions to that HSA can be invested just like an IRA or a Roth IRA.

Brian Quaranta 11:51

That’s exactly right. That’s exactly right. Now, think about it. It’s kind of like a Roth IRA on steroids, because that’s good. That’s a good one, Steve. Yeah, it’s exactly right. It’s because it’s real medical. But you know, we don’t get the tax deduction with a Roth IRA, right. So, we always have to pay taxes on the money, and then we can contribute it. But with the health savings account, we actually get that tax deduction, and then it grows tax free, and the withdrawals are tax free. Now, that is just a lot better than a regular Roth IRA. But again, I mean, these are tools, right? I mean, it’s not like you’re gonna go out there and, you know, throw all your money into an HSA account, because you can only use it for qualified medical expenses. But since we’re all going to have medical expenses, anyway, it’s certainly a good strategy to entertain, especially if your company has already given you one.

Steve 12:39

Well, and again, especially if you’re, say, in your early 50s, or even late 40s, and you know that you’ve got an A, you’ve got a high deductible plan. I mean, imagine being able to sock away, you know, what, $3,600 a year, or 72, for a family, you know, for five years, or six years or eight years, think how that’s going to grow. And then the older you get, the bigger it’s going to grow, and you can use it, it’s just a win win win to me.

Brian Quaranta 13:05

Yeah, it really, really, really is, you know, other things that you can use, especially if you have unrealized capital gains is the opportunity zones, you know, where we can kind of kick the capital gains down the road. And these are areas of the country that have been identified as opportunity zones, where we can actually move money from, let’s say, you know, let’s say you’ve got a building you own or a stock you own with a big capital gains tax on it. And you don’t want to pay that capital gains tax, and maybe you want to kick the can down the road, well, you could move that into an opportunity zone fund, and they’ll allow you to invest in the opportunity zone. And they’ll give you up to a 15% tax deduction when you cash it in as long as the money has been there for at least 10 years. But, you know, what are we really talking about here? We’re talking about tax strategy. See, you don’t know what you don’t know, right. And for most people, typically, when they’re looking at their investment strategy, they’re looking at how the investments have done how the investments have performed, but I don’t care if you investments have done 20 25% year in gains, if you’re in a situation where you’re going to be in a highly taxable situation, and you’re not looking for ways to get the IRS out of the picture. You’re just setting yourself up for a potentially big tax hit down the road. I mean, think about the secure Act that was signed into law back in 2019. I mean, that was one of the biggest tax grabs we’ve seen. I mean, it used to be that we will be able to pass our retirement accounts like our IRAs and 401K’s to our beneficiaries, and they would be able to stretch that money over their lifetime. Now they’re going to be forced to pay taxes on that money within the first year that they received it or by year 10. There was a great article in Money Magazine that really explained the tax grab, that comes to our retirement accounts. And since if you look at where most Americans have the largest source of their monies, it’s typically in some type of 401 k 403. B or IRA account. But there was an article in Money Magazine about a son that inherited his father’s half-a-million-dollar retirement account, the son was the primary beneficiary. So, the son does what a primary beneficiary does, he calls in the company and he says, hey, look, I’m you know, the primary beneficiary, they said, Okay, fill up this paperwork, send it in. So, he does, and the company sends them a check for 500,000. Well, two weeks later, he gets a 1099, which basically means he’s got $500,000 in income, well add that to the income that he was receiving. From his own employment, the article and Money Magazine went to say that the son owed 200, over $250,000, in taxes on that IRA money. So, working with a firm that focuses on helping you develop tax strategies around your money so that you can get the IRS out of the picture, and you and your family, and your charities and your loved ones can keep the majority of the money. That’s how you want to plan. And that’s exactly what we do here at secure money advisors, we help you focus on those five key areas of planning. Number one, and most importantly, as we teach you the best ways to develop an income plan to get your income as high as we can, as safely as we can as quickly as we can. Number two, we want to develop a really good tax strategies to help you pay the least amount of taxes. Number three, we want to own good investments, tax efficient investments, and we want to own investments that are going to get the job done. Number four is health care. We want to make sure that if anything ever happens to you that you’ve got a good health care strategy. And of course, when it comes to the time that the good Lord takes you home, which we also know is your legacy strategy. We want to make sure your families, your charities and the people you love, get the money and not the IRS. That’s what the right track Retirement System is all about. Let me ask you this. If you weren’t on the right track, when would you want to know that? When would be a good time for you to know that most people say to me, Brian, if I’m not on the right track, I’d like to know that now. If you were on the right track, when would you want to know so for the next 10 callers, we’re going to give you a complimentary right track review. This is a portfolio analysis of what you’re currently doing. We bring you through those five key areas. So again, for the next 10 callers who call in right now we’re going to give you a complimentary right track portfolio says at no cost. We’ll even run a customized income plan utilizing proven strategies and techniques. We could turbocharge your retirement income and take the worry out of living too long again, for the next 10 callers. That’s a comprehensive financial review at no cost.

Steve 17:26

800-656-8616. Get that comprehensive financial review that Ryan just talked about. Plus, all the extras that go along with it. You will see where you are today. But more importantly, you’ll find that you’ve now got a roadmap, a guide that’s going to help get you to where you need to be when it comes to retirement. 800-656-8616 again, 800-656-8616 quick break for us. We’re gonna come right back and continue the conversation with Brian Quaranta on Retirement You Radio.

Announcer 17:58

You see a doctor for your health, sometimes a specialist, a mechanic for car problems. Anyone under 20 for your smartphone; “well, duh,” you need to look at retirement that way. You need help setting up a plan that avoids pitfalls and provides lifetime income. You need a retirement that you can enjoy without the worries. You need someone who can help take the mystery out of retirement. You need Brian Q. Call 800-656-8616 or text Brian Q to 800-656-8616 Call or text Brian Q to 800-656-8616.

Steve 18:40

We’re back on Retirement You Radio increasing your financial IQ with Brian Q and boy, you’ve been doing a great job of doing that today. Brian, I’ll tell you, I mean, again, you know, when you just lay it all out there in terms of the bucketing strategy and you know, just helping folks understand that it doesn’t have to be a big, complicated mess. It can be something very straightforward. And just lay it out on paper. So, you see it. That’s got to be you know, we started the show talking about stressors. I mean, that’s got to be a huge stress relief, just to see it laid out on paper.

Brian Quaranta 19:12

Yeah, it is. I mean, and we see it in 20, you know, 21 years of practicing now. I know it because I see it in the conference room. I mean, people come in, say, Look, you know, we’ve been to three, four different financial advisors. And, you know, we’ve just decided to come with you guys. Because it was number one, you guys have really broken it down to where we understand it. And you’ve made it very simple and easy for us to understand. But more importantly, it’s because we’re bringing them through what a real written plan should look like. And when people see a real written plan, they go, Oh, this is what retirement planning is. See, I think people are just so used to thinking that the retirement plan is a bunch of statements. And it’s just not how it works. You know, there’s three very important documents we use here that secure money visors as part of the written plan number one, and most importantly, is the cash flow model. And the cash flow worksheet that we use has all the sources of income each year that you’re getting those sources of income, we take into account taxation, we take into account what your expenses are, whether they’re going up or whether they’re going down. And that’s nice. I mean, a lot of people in three to four years or maybe five years or 10 years, they might have a car that’s paid off or a mortgage is paid off. And so, their schedule of expenses go down over time. So, they pick up more cash flow as their scheduled expenses go down. But what happens if tax rates go up at the same time that their expenses go down? What impact does that have? Are they going to be required to take more money out of their retirement accounts? What happens if their spouse dies, these are all things that we can figure out on the cash flow worksheet. And we can run lots of different scenarios. So that we can make all these things happen on paper so we can be better prepared when they do happen. But we can also put enough pressure on the plan itself to make sure that it’s actually going to work so that when you are retired, you’re not waking up with anxieties or worries of whether or not this thing is going to work, we want to make sure it absolutely is going to work. And we’re looking at the black and white math to make sure that we know that we have a plan in place that’s going to work well.

Steve 21:11

And you know, not only the math, but you take the emotion out of it, it’s so easy to get caught up with, especially when we’re talking about our money, it can get pretty emotional for the for, you know, for the individual, but you see it differently, you’ve you’re that second set of eyes, that looks at things a little bit differently,

Brian Quaranta 21:28

people need to realize that, you know, we’re human beings too. And yes, I manage money for a living. But at the end of the day, I want to report good news all the time to my clients, of course, and you know, so we, you know, we have a vested interest in making sure that not only do the plants work, but also for the clients to hang around for a long period of time. You know, and we’ve got a very good retention rate, you know, we’ve got a 98% retention rate, you know, we just don’t have people leave, because you know, of the planning that we do, and, and when people have a plan in place, even when you have a pandemic, like we did last year, nobody’s calling into our office panicking, because we’ve already looked at worst case scenarios in the planning model. So, we know that the planning is going to work. And that’s the peace of mind and clarity that people get, I think that people panic when they only have statements coming in. But when you look at a real investment plan, which focuses on five key areas, it focuses on your income, your taxes, your investments, your healthcare, and your legacy. And when you have all the i’s dotted, and all the T’s crossed, and those areas, that’s when you experience that calm peace of mind that everybody is looking for when they shift into retirement, even if there’s chaos going on in the outside world.

Steve 22:39

I like it 800-656-8616. Let’s jump into a couple of these questions here. While we have time I’m going to start with Tyler, what advantages do exchange-traded funds have over mutual funds?

Brian Quaranta 22:51

Well, exchange-traded funds are simple. I mean, they just trade like a stock.

Steve 22:55

That really is important. I mean, that really is a major difference, isn’t it?

Brian Quaranta 22:58

Yeah, I mean, you know, it is a big difference, actually. I mean, you know, unlike mutual funds, you know, ETFs, you know, they’re also very tax efficient. You know, there’s no investment minimums, you know, many mutual funds, have minimum investment requirements of maybe 2500, or, or $5,000. And ETFs, on the other hands can be purchased, you know, with as little as one share. And that’s, that’s the other thing, too, is that, you know, a, you know, if you were to sell a mutual fund right now, throughout the day, you wouldn’t get the price and until the end of the day, which is called the nav or the net asset value, where with an ETF, you’re literally trading it like a stock share. So, if I, if I bought apple right now and sold it, now, I get the price. If that was a mutual fund, you got to wait till the end of the day to get the price and a lot can happen from the morning till the end of the hole. Of course, it could. And they’re also lower costs. And it really is kind of the future. I mean, if you look at where investing is going, I mean, a lot of big-time money managers are leaning towards ETFs because they’re much more nimble, much more cost effective. The mutual funds kind of a little bit of a dying animal, if you will. Yeah, terrible analogy. But it really is, I mean, but things change over time, you know, product designers get gets smarter about how things are designed technology allows us to design products that we normally not be able to create. So, they are very beneficial to, and a much more cost-effective way to go and investing.

Steve 24:24

I like that. I mean, because I know people will ask me well, I hear about an ETF. What is it? Well, I’m not an advisor, but I kind of understand why they might be advantageous to put into a retirement portfolio.

Brian Quaranta 24:36

Oh, yeah, very advantageous, much more nimble, much, much more cost effective and they’re much more accurate in the day to day trading.

Steve 24:44

I like it. And you know, boy, we’re up against the clock already. Brian, why don’t we go ahead and invite folks to get on the on the horn and call you one more time one last time today.

Brian Quaranta 24:52

That’s right, folks. And for the next 10 callers who call in we are going to give away that the right track retirement meaning now it’s again, it’s a no cost, no obligation. to you. The reason I call it the right track retirement meeting is because that’s the number of questions I always would get is Brian, I just want to know if I’m on the right track. Am I doing the right things? Let me ask you, if you’re not on the right track, when would you want to know that? Would it be beneficial for you to know that now versus later? I think it would, but I could be biased, I don’t know. But look, we’ve seen other people charge. I have seen people charge so much money for the work that we do up to $1,000 or more. We do it at no cost. We’re literally going to help you take the mystery out of financial planning, it’s going to be simple, easy to understand. I’ll run a free report for you. We’ll look at a tax analysis we’ll run a customized income plan, utilizing proven strategies that can literally turbocharged your income retirement. More importantly, I want to help you take the guesswork out of financial planning. Let’s make this simple and easy to understand. You’ll have more peace of mind and confidence going into retirement, but you got to do your part. You’ve got to pick up the phone for the next 10 callers. That’s a comprehensive financial review that we’re gonna give away complimentary at no obligation

Steve 25:57

800-656-8616 You heard Brian; the next 10 callers are going to get that comprehensive financial review plus all the extras that he just talked about. And you will then have a roadmap a guide that can really help get you to where you need to be when it comes to retirement 800-656-8616, again 800-656-8616 or text Brian directly, that’s BrianQ to 21000 text BrianQ to 21000. Brian, as always, a pleasure to be here, it’s one of my favorite hours of the week right here.

Brian Quaranta 26:29

Well, thank you Steve. It’s always a pleasure being with you and folks, we will see you again next week right here on Retirement You Radio.

Announcer 26:40

Information provided is for illustrative purposes only and does not constitute investment tax or legal advice. Information has been obtained from sources that are deemed to be reliable, but their accuracy and completeness cannot be guaranteed. Neither Brian Quaranta nor his guests are liable for the usage of information discussed. Always consult with a qualified investment legal or tax professional before taking any action.

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