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*A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies. All rights reserved.
Video Transcript
Rebecca Powers 00:22
Welcome to this week’s edition of on the money with secure money with Brian Quaranta. I’m Rebecca Powers. Of course, Brian created secure money advisors and you are securing money for 1000s of families in Pittsburgh and beyond.
Brian Quaranta 00:35
Yes, we are. It’s something that I have a big passion for. And you know, I mean, I think the most important thing people can do as they approach retirement, is look at protecting what they have.
Rebecca Powers 00:45
Protection, protection, securing, securing that is the whole point of this show. And everything that Brian does. It’s funny, you mentioned that about securing because so many of us are concerned about earning, earning, earning and the back of your book, there’s a time for earning. I know, You’ve taught us that. You say people are running out of money because they’re not earning the right returns. People are losing running out of money because they’re losing it at the wrong time. That’s right. So, I wanted to ask you about that. What do you mean?
Brian Quaranta 01:14
Well, if you listen to most people talk about the stock market. I’m talking about financial planners. Yeah. They’ll say, Well, on average, the markets done 8%. Sometimes you’ll hear 10%. Right? And they’re typically talking over a long period of time. Right retirements not a 50-year, timespan. Sometimes it’s only a 10-year period, right? And what is the market going to be doing at the time that you retire? So, think about retiring in 1999, when the tech bubble just bursted, and then you got 2000 2001 2002, we had a 10-year period from 2000 2010, where we call it the last decade because nobody had made any money. Folks that retired during that tenure timeframe, they had a lot of trouble, you know, in the early phases of retirement, and a lot of those folks have experienced the possibility of running out of money, right? And it’s because they lost money at the wrong time. Losing money at the wrong time means you lose money very early on in your retirement, when you start retirement withdrawals. And now that puts you at higher risk of running out of money while you’re still living.
Rebecca Powers 02:26
And we’ve said this before Einstein says it is the eighth wonder of the world compounding interest those who know it, earn it those who’ve don’t lose it. Yeah. So, timing really is everything. Because when you took that big loss in 2008, yeah. That power to earn compound more interest, it was completely depleted.
Brian Quaranta 02:45
Yeah, yeah. Well, look, I think you make a good point. I mean, the reality is, if you lose money at the very beginning of your retirement, and you’ve done nothing to protect a portion of your money, you’re in big trouble. Now, we can’t time the market, it’s very, very difficult to do. But what we can do is time our planning. So, the mistake that we’ll see a lot of people make is they wait until they’re ready to retire, to actually get a retirement plan in place. And an investment strategy is different than a retirement strategy. And a retirement strategy starts with understanding, what do I need this money to do? For me? What’s the primary purpose of the money you and I talked about this a lot is, what’s the job of that money? Right?
Rebecca Powers 03:29
Give it a job.
Brian Quaranta 03:30
Give it a job, if you ask most people. And most people that are watching the show, if I were to ask you, what is the primary purpose of your money? I will typically hear things like this. Well, it’s for security. And if I say okay, well, what is that security mean to you? Well, it needs to provide us with income. That’s what 90% Of the people will tell you. Well, if you need it to provide you with income, and your plan is built on an uncertain model, meaning, if you’re in the stock market, it’s uncertain, you have no idea on a year-to-year basis, what your rate of return is kind of it’s a gamble. It’s a gamble, you only know what your rate of return is going to be looking backwards. And this is why you’ll typically hear financial advisors say, well, on average, the market’s done this. And so, it’s also why they put in very small print, you know, past performance doesn’t guarantee future performance. And we know that if you don’t set up a retirement strategy correctly, meaning if you don’t set enough money aside to create time, with the money that you have in the market, because that’s the only way you win in the market is over the long term, right? So, you have to have- you have to have phase one of retirement. And the Phase One is I need to create a strategy that provides me with 10, 15, 20 years of income that I don’t ever have to worry about that’s built uncertainty, so that any money that I do have in the market can absorb the volatility because it has time to grow could have 1015 20 years to grow before we’d ever need to touch it. Right Typically, I like to set our clients up with a 20-year phase one strategy, and then have a 20 year long term market strategy. And that seems to work the best. And after 25 years of doing it, you know, I can see those results year after year.
Rebecca Powers 05:13
And when you’re talking about the bucket strategy, we talked about it before, imagine carving out a portion of your, like I did with my 401k carved out the section that I did not want to gamble, talk about how you secure you literally preserve and secure a portion of it, and you still let some of it ride to get those bigger gains if the market goes up.
Brian Quaranta 05:32
Yeah. So, we’ve all heard of asset allocation, right, where you buy different asset classes within your investments, so that you’re not all invested in the same thing. Right. And that is also known as diversification, right? Well, in retirement, we have to do something called income allocation. So, income allocation is different than asset allocation. Income allocation means I have to set up an allocation and different phases to start generating income. You can call them buckets, right? You could call it allocation, but we have to have certain time periods for certain monies. So, like I said, I liked it. We’ve called it buckets, I call it buckets in my book, right? But it really is an allocation strategy where you’re setting a certain amount of money aside for that income. What I find works best for that is an income annuity. Now, here’s why. So, a lot of people will use something called the 4% rule, okay. And if you want to figure out how much money you need to retire, here’s how you can do it. You got to figure out first how much income you’re going to need from your investments. And if you say, Okay, why don’t you get any $50,000 A year from my investments above and beyond what you’re getting Social Security, the way that you would figure this out is you take 50,000, and you divide it by 4%, using the 4% rule. And that would tell you, you would need $1.2 million in order to follow the 4% rule.
Rebecca Powers 07:03
But…
Brian Quaranta 07:06
But, I write about it in my book, it’s called sequence risk. And because you don’t know what rate of return, you’re going to get when you start taking withdrawals. And you can look this up, it’s called sequence risk. Depending on the order in which you receive returns, when you’re taking withdrawals will determine the success of your plan, whether you have money, or you run out of money in retirement, I write about a story about a bill and Jill in my book, and I explain mathematically with real market money using the S&P 500. Bill does perfectly fine, has enough money as he takes out this money every year. But Jill, because her order returns show up differently, because she retired at a different time period, she runs out of money. And this is what you have to understand. Because if you’re going to take money out of your market driven accounts, you just have to understand that’s a flip of a coin, you don’t know how it’s going to work out. And so, if you’re comfortable, having a retirement built on uncertainty, then use that strategy. There’s a lot of people that tell me they don’t want that though. And I’ve learned it’s really easy to tell somebody else to risk their money, especially if you get paid a fee or commission to do it. So, if you go to onthemoneyoffer.com, you can actually get a copy of this book absolutely free, I pay for the shipping and handling, I really couldn’t make it any easier to get this information into your hands. But in the book, I give you a step-by-step guide on how to go about building your plan, things that you need to start to consider that you’re probably not even having conversations with your financial advisors about most financial advisors focus on the accumulation part of your planning, meaning they’re helping you grow your money. But the accumulation strategies are much different than the retirement and distribution strategies when you start to take your money. And you’ll find when you read this book, there’s five key areas I talked about. There’s income, there’s taxes, there’s investments, there’s your health care strategy, and there’s your estate planning component, you need to know these things, you need to be informed and understand how they work. So again, go to onthemoneyoffer.com, we’ll send you a copy of the book. And while you’re there, schedule a time to come in and get a comprehensive complete, right track retirement review, where we can help you get more clarity around what you’re doing, and help you build a simple plan for retirement that will give you a peace of mind security. Or if you don’t want to go to onthemoneyoffer.com You can scan a QR code or just call the number on the screen 1-888-382-1298.
Rebecca Powers 09:32
And by the way, that first appointment is complimentary. That means free. That means absolutely no charge, no obligation and our promises you’ll never be sold anything. That’s the most important thing. When we come back. We’re going to talk about tax planning forward. Have you done that? Have you put in writing your tax plan that could save potentially 10s of 1000s of dollars, we’ll be right back.
Brian Quaranta 09:54
So, everybody can tell you how to invest your money. There’s not a lot of people out there and a lot of firms that can do teach you how to use your money. Most people also tell you that they’re scared. And the reason they’re scared is because they’re afraid of running out of money.
Neil Major 10:08
The last thing you want to do is have a really good job and you’re in your 60s retire, be looking for work again, in their late 70s.
Brian Quaranta 10:16
The average person might say, well, a good portfolio would be a good mix of stocks, bonds, and mutual funds. A good portfolio is all designed around the five key areas, income, taxes, investments, health care and legacy planning.
Neil Major 10:31
Because we’re not just product pickers here, what we do best here is we build retirement plans,
Brian Quaranta 10:36
9 out of 10 people, when they walk through the door would ask us, we just want to know if we’re on the right track. And I always say, if you’re not on the right track, when would be a good time to know it? Probably now?
Neil Major 10:46
People, you know, can actually see a vision once we start to really build out their plan.
Brian Quaranta 10:52
This is about you, if you’re not getting what you need, and you feel that when you walk out of the advisor’s office, it’s time to get a second opinion. And you can’t get a second opinion from the person that gave you the first the difference at secure money advisors, as a fiduciary firm, we help you manage the risk, build the income, and give you the retirement you dream of.
Rebecca Powers 11:23
Welcome back, we’re talking about securing your money specifically. for retirees. I think retirement is really your passion. And a big part of what nine out of 10 people who come into your office most don’t have a written plan. That’s number one. You told me that. But number two is they’ve never talked to them about tax planning forward. It’s the opposite of going to your CPA, he’s looking 12 months back doing a good job. Yeah, tax planning forward. How powerful? Is it when you show someone if we do it this way? And this order for you it can save X amount?
Brian Quaranta 11:55
Yeah, well, how many people go to their tax accountant, and the tax accountants asking them questions about their retirement planning strategy.
Rebecca Powers 12:02
None.
Brian Quaranta 12:04
None, that you submit your tax receipts, right. And they’re going to go in, they’re going to look back over the last 12 months, and they’re going to calculate how much you owe. Uncle Sam. Tax Planning is much different. The reason it’s different is because it starts now, you know, at 46 years old I tax plan every year, here’s why. When I save money on a year-to-year basis, that money will go into a tax deferred plan. And at the end of the year, the IRS allows me to do a conversion. Well, what I can do is I can go from a tax deferred strategy that will grow tax deferred over time, but when I withdraw the money, I’ve got to pay tax on it. And at the end of the year, I can convert that right now. So that in the future, the money that I’m converting, when I withdraw it, it’s all tax free, amazing. And so, these are simple things that if you can get ahead of very early on, they can make a huge difference. Because the time I get to retirement, a very large portion of my money will come to me all tax free. And that is one of the biggest things you can do a tax plan. But there’s a lot of other things we can do to that we can talk about, like starting a business in retirement, maybe off of a hobby that Yad Yeah, you know, people don’t even think about that.
Rebecca Powers 13:23
All right. I love it. And of course, it’s all legal. Everyone has the same tax code. People say, Oh, the rich get richer. They’re doing this. They’re following the same tax code that we all can take advantage of. Back to the CPA. Yep. They’re always in they do a great job. That’s their important job to give me all your receipts Rebecca, we’re gonna pay less, right? They’re gonna make us pay the least amount? Yep. But you opened my eyes a few months ago. You maybe don’t want to pay the least amount because taxes are on sale right now. You got we don’t know what they’re gonna be in 2025 was when that tax plan cut. Sunsets talk about the importance of kind of paying on the acorn instead of the oak tree. You want to pay, right? You want to pay taxes,
Brian Quaranta 14:04
The seed or the harvest, right> Yeah. So, there’s a gentleman out there by the name of Ed Slott was part of his elite Ira Advisor Group for quite a quite a bit of time. And he was recently quoted in The Wall Street Journal. He’s quoted quite a bit. He wrote a great book called the Retirement Savings Time Bomb, if you’d like to get it if you want to learn how to save a lot of money on taxes utilizing unique strategies. But one of the things he said is you should not be putting money into tax deferred accounts right now. You should be paying the taxes. And he got a lot of backlash. And the reasoning for it is he is right. The only time you defer taxes is when tax rates are really high. When tax rates are low, pay the darn taxes and put the money into a Roth IRA or a Roth 401K. No reason to go into a traditional IRA or traditional 401k and most companies out there today are going to offer you the option inside of your 401 K to either put money in the traditional 401K or the Roth 401K. Now, a lot of people that I speak with, don’t even know that this is available within their 401 K plans, because the companies aren’t coming out and saying, Hey, this is very important, you can either have taxable money or tax free money. And I wish they were because all of you would be benefiting better if you understood that you have an option in your 401K to put it into the Roth side, which is a tax-free side. And so, I would rather
Rebecca Powers 15:31
You’re blowing my mind right now, and it’s not age, you don’t have to be like 59 and a half to do the Roth or whatever, like, any age, so ask your employer Do we have a Roth IRA option?
Brian Quaranta 15:43
Yes, a Roth option in the form of options in the form of the 401 K. Now, here’s why this is so important. Let’s just make this math problem simple for a minute. Okay, thank you. Let’s say that we just put $100,000 into the traditional 401k. Okay, okay. Or we put $100,000 into the Roth 401 K. All right. Well, if I put it into the traditional side, let’s say that that $100,000 grows to $1 million over time. Okay. All right. I want to withdraw all $1 million. What does that look like? Well, when I withdraw that $1 million, that is all going to count as income. And that’s going to put me in the highest tax bracket edge, which we don’t know what that tax bracket will be 20 years from now. But let’s just say it’s 40%. So now, you withdraw that $1 million. And you now have $600,000 left, because the IRS,
Rebecca Powers 16:39
Which are in the 40% bracket.
Brian Quaranta 16:41
The IRS was your largest partner in that account.
Rebecca Powers 16:44
You have a silent partner in your life, and your marriage is called Uncle Sam.
Brian Quaranta 16:48
Right, they don’t they don’t show up for work, you know, but sure enough, when money’s coming in, you know, they’re there to take it like a teenage daughter, you know, the only the only other the only other group that I know that did that was like the mob, you know, it’s like extortion. So, I’ll give you an offer you can’t refuse. Yeah, I mean, so imagine that. So, you put, put 100,000 It grows to a million you pull it all out, you got 600,000. Okay, well, if I use the Roth portion, instead, I put the 100,000 and it grows to a million, I pull out the million, I have a million. That’s the benefit of the Roth, it’s all tax free.
Rebecca Powers 17:24
still allow that I’m kind of worried that in the end of 2025, that’s something that Congress can literally just rip away, they could well, I’m not saying they will, but it’s possible.
Brian Quaranta 17:31
Let me tell you, so, this would be like them ripping Social Security away.
Rebecca Powers 17:36
Oh, it’s that big?
Brian Quaranta 17:36
Oh, it’s that big. I mean, you would have tanks in the street.
Rebecca Powers 17:39
And why have I never heard that you could do Roth in your 401k? I thought it was you had to be 59 and a half, and then they allow you.
Brian Quaranta 17:45
You really have only seen the companies adding the Roth portion of the 401k, probably over the last five years. Okay. Okay. So, for a long time, that was never available, if you were going to put money into a Roth, you would have to put it in a Roth IRA. Right? And the problem is, is that if you’re a high-income earner, you might not even qualify to put money into a Roth IRA. Okay, because your income limit has to be below $140,000. All right. But a Roth 401 K doesn’t matter. You can be any income level and be able to contribute to that. And that’s very beneficial. Now, the other thing is, most people don’t realize that if you want to convert money, all right, so let’s say you’re, you know, let’s say you’re sitting on a $500,000 IRA account, and you’re a high-income earner, and you don’t, and you don’t qualify to put money into a Roth IRA. Well, you can convert, the IRS doesn’t care what your income is, when you convert, and this is what I do, I convert at the end of the year, why? Because they don’t care how much I convert, they don’t care how much money I make, I can give her any amount that I want. So, if I convert $100,000, at the end of the year, just debt gets just added to my income, but all that money moving forward, every dime it earns is all tax free. And this is why I want you to get a copy of this book, right track your retirement because taxes is a key component to your retirement strategy. When we’re really talking about taxes here, what we’re really talking about is protecting your purchasing power. What do I mean by that? Well, if you need to withdraw $1,000 out of your retirement account, and you’re in a 30% tax bracket, that means you’re only going to net 700 hours because you got to pay $300 in taxes. Well, that reduces your purchasing power, add inflation on top of that your purchasing power goes down even more. Why do you want to have a good tax plan because if you withdraw $1,000, from a plan that has eliminated the taxes, when you withdraw that $1,000 You get $1,000. I don’t care what the tax rates are, I don’t care if they go to 70% You’re not going to be affected. This is why I want you to have a copy of the book not only for the tax component, but also all the other things I talk about in the book here. So, call 1-888-382-1298 To get your copy and also schedule a complimentary write track review, it’s the best thing that you can do, you’ll get a lot out of the meeting, nobody from my team is ever going to sell you anything pressured to do anything. But if you really want to have a clear, comprehensive understanding of what you’re going to be doing a retirement and what a real retirement plan looks like, come in and get a complimentary right track review. Or you can go to onthemoneyoffer.com scan the QR code, many ways you can get a hold of us, but take advantage of the offer today.
Rebecca Powers 20:29
And when we come back, we’re going to be talking about the places where you can put your money to protect and preserve, we’ll be right back.
Announcer 20:44
The work never seems to end until the day it finally does. After nearly a lifetime on the job, you should be rewarded for all the time you spent working. Whether that’s crossing off items on your bucket list, learning a new passion, or rekindling the love of an old one. After all, life isn’t over when you stop working. It’s the start of an all-new chapter, the one where you’re the writer and you get to choose how your story will go. A way to achieve that is by having a clear financial plan to sustain your golden years, the biggest fear most retirees have is if they’ll have enough money to maintain the lifestyle they always enjoyed. Having a plan to help protect you against the curveballs life often throws will help to maintain your lifestyle. Call today to get your free written financial plan. See me live every day to the fullest and enjoy the retirement of your dreams.
Rebecca Powers 21:34
Welcome back to On the money with secure money with Brian Quaranta. I’m Rebecca Powers. And we’re talking about your retirement, your in-writing plan. That’s the first red flag if you have an advisor you’ve had for years, and you don’t have a portfolio, not just your portfolio from your stocks and bonds, but actually a written plan. We talked in the last segment about tax planning, that is one of the five key points that you put within their plan. Let’s touch a little more on some more tax strategies.
Brian Quaranta 22:02
Yes. So, let’s talk about flattening your tax. Okay. So, a strategy that can be done with flattening your tax would look like this. Let’s say you’ve done no tax planning. Okay. And you’re getting ready to retire in the next year, maybe two years. Okay. Probably not a whole lot of time to manage taxes there. Okay. That doesn’t mean that you can’t manage them for the future, though, right? So, here’s what a strategy might look like for that. So, I had a client come in, they had a little over a million dollars, and they were going to need income from that portfolio. Okay, so how did we manage that? Well, we know we need income within the next year. So how do we handle that, because they’re going to need roughly about $60,000 a year in income from their investments, they had about 1.1 million. And so, here’s how we managed it, we took 600,000 and we put it into the income annuity, the income annuity is going to generate over $61,000 a year for the rest of both of their lives. So that means it’s gonna pay $61,000 for his life, if he dies, $61,000 for his wife’s life here each year. And then if she dies, any balance will be paid out to the family. So, they never lose control that money. But here’s the key with that strategy. If they live a long, healthy life, which I expect them to do, they’re going to be taken out so much money that eventually that account balance is going to go to zero. And the reason why we use the income annuity is because once the account balance goes to zero, the insurance component of it kicks in and continues to pay them the $61,000 a year.
Rebecca Powers 23:36
So, that’s the guaranteed growing lifetime income. There are different types of annuities you can choose. Right?
Brian Quaranta 23:41
That’s right. And this is why this is why, you know, you’ll hear a lot of people say negative things about annuities, but they’re lumping them all together. This one is very simple to use. very user friendly. Very straightforward. Okay. And you know, you’ve heard me say it before, we insure everything in our life, we insure our cars, we insure our homes, we insure our health, folks, why in the world, would you not insure the most important thing that you will need in your entire life? And that is your monthly income? How could you possibly have a plan that you have no insurance for the income? What happens if that plan doesn’t work? What happens if you don’t get the right rate of return? What happens if your account balance goes to zero? You’re out of money with this plan. You don’t ever have to worry about running out of money now. So, we took 600,000 Put it there, the other 500,000 we put into a long-term market strategy. Okay. So, let’s talk about flattening the tax on that money. I’m sorry, that’s in the stock market that’s in the stock market. Okay, not tied to like an annuity note. That’s literally a much higher risk, much higher risk, but now we’ve created time, right? Because we have the first account paying at $61,000 a year. So yeah, okay, yeah. Let’s say this 500,000 goes to 600,000 700,000 800,000. Well, our tax problem starts to come back, right? It keeps growing the tax problem growing every time we earn money, because now again, that bucket is a bigger pile. So rather than letting that money defer within that tax deferred bucket, every time we make money, let’s pull that money out. And we can put it into a tax-free vehicle so that the earnings, right, let’s say in the first year, we earn $50,000.
Rebecca Powers 25:37
You’re protecting it. Like when you’re in the casino, you put some chips in your pocket. Got—
Brian Quaranta 25:39
I take that 50,000 out, we put it in a tax-free vehicle, right. So, we still have $500,000 in the tax deferred vehicle. But now we got 50,000 in a tax-free vehicle. Next year earns again, we take those earnings, we put it in the tax-free vehicle, if the next year it doesn’t earn, that’s fine. We don’t put any in a tax-free vehicle. But now we’re creating rather than this bucket just getting bigger and bigger with a bigger tax problem. We’re solving the future tax problem by creating this tax-free money by sweeping off the gains. And this is simple strategies that you can use to flatten your tax rate that a lot of people just aren’t hearing about. And you’re planning folks is really only going to be as good as the people giving you the advice. You just don’t know what you don’t know. And that’s the biggest challenge that we all deal with in life is what are the things that you’re missing? Right? What if you came in the secure money advisors, and we were to help you increase your return just a little bit, or we were to help you reduce your taxes just a little bit? How much better off could you potentially be just by designing a plan differently than what you might have right now. And you can’t get a second opinion from the person that gave you the first opinion. So, I highly recommend that you take advantage of our offer today. First off, if you go to onthemoneyoffer.com You can get a copy of my book absolutely free we pay for the shipping and handling, you can scan the QR code there while you’re there, schedule an appointment to come in a free comprehensive, a comprehensive right track review, where we’ll help you build a simple strategy that will truly give you peace of mind security and retirement or just call the 800 number on the screen there. And our team is standing by to take your call and help you get scheduled today.
Rebecca Powers 27:22
Thank you, Brian and that right track review that first appointment is absolutely free. It is complimentary, there is no obligation. They use third party software that actually shows you everything going on in your current financial life, the most eye-opening moment of my personal journey, getting to secure my money and finances. So, like Brian said, get a copy of the book. Let me find it. It’s wonderful, short, easy to read and we hope you learned something, and we’ll see you again next time.