Tax Shield

ABOUT THIS EPISODE

On this episode, Eddie discusses the Tax Shield. This is the comprehensive guide to planning for taxes when it comes to your retirement. Our government is maxed out, and it is only getting worse. How will this affect your retirement? Tune in to find out all the details. 

If you want to read the entire story, pick up a copy of his book Easy Retirement Solutions now available on Amazon.com 

To learn more, visit Eddie online at: https://www.padlockretirement.com/ 

And welcome to the easy retirement solutions podcast with financial expert and number one Amazon bestselling author Eddie Bennett. Each episode features helpful insights, practical tips and reliable strategies to help make your retirement as enjoyable as possible. For the next few minutes, enjoyed listening as co host Dave Henning talks with Eddie Bennett about the retirement secrets your broker doesn't want you to know. I am Dave Henning and I'm with Eddie Bennett today. The Co offer with Sean feel of easy retirement solutions. The uncomplicated truth on retiring with is fantastic, and let's bring us up to date here. Uh, Eddie, uh. First of all, I love that quote at the end of the last chapter. It's about about Noah's Ark and the the, the the the quote. It said, if I can find it here, there we go. He said always plan ahead. It wasn't raining when Noah built the ARC. Yeah, I love that quote. It's so good. Uh. And so I was. I was with a gentleman who just got a new car and I rode with him to, uh, our men's Bible study this morning and uh, I thought, I thought of what you do, kind of like buying a car. Um, when you buy a car this the salesman tells you, okay, this button does this, this button does that, but basically you don't need to know how an internal combustion engine works. You just put you just put the key in and turn it on right and so and so that's that's my little preface as to what you do for people is there's a certain amount that they're going to know and there's a certain amount that they're not going to know. So what we've covered already is we talked about your story, how you got...

...involved in the business and what it means to you and your family and how that's worked out moving back to a little old Georgia, and then we talked about your co author, Shaun's black ice experience. And then in chapter two we talked about, uh why, retirement shield, chapter three, Social Security Shield, chapter four, income shield. So today we're into chapter five. Let's talk about that, shall we? Eddie about the Tax Shield? Taxes, you know, it's so important. I think we, uh we it kind of bled over in the other chapter. Um Taxes are the big elephant in the room right they're not going anywhere and they're going up. So it's Um, most people get the least amount of advice in this area. Um. So this is the part that we love to help people the most in, because this is where they don't find anyone helping them, typically at all. Um. This is what we see. Your your financial advisor or your investment advisor will say contact your C P A, right, and your c p a will say, well, that's a question for someone else, that's an investment question, right. So you never get any concrete answers and a lot of times they'll say two different things to conflicting things. And so we'll try to take a look at it as a third party. Obviously you need C P A S, you know. Um, there there for a reason, but having a third party taking a look it's kind of what we do. Um. You know, when it comes to taxes and setting up tax strategies, you know there are ways that you can't avoid certain taxes or or limit them. Excuse me, Um, avoiding was pretty difficult. So legally right, exactly. Yes. Um. So you've got some some examples here in this chapter. The text tie a bomb. What does that mean?...

Well, I mean the tax time bomb. It really just kind of goes over the fact that most people today, Um, have money in a four oh one K, right, or a four three B and a lot of people don't understand how that works. Um. But just to just to kind of setting this up, just so we understand something about taxes, is that about two years ago, sixty six percent of every dollar that you paid the government in taxes went to social security, Medicare, Medicaid and the national debt. The remaining, you know, percentage of that dollar went to the two hundred trillion dollars of debt. Well, that's about two years ago. It's about ninety two cent on the dollar is going towards social security, Medicare, Medicaid and national debt, and that leaves eight cent of every dollar to cover every other obligation. You can think of a lot that they've done, even recently, right. There's so many obligations that are government has uh put themselves into. The debt is just increasing and so the time bomb is this. Taxes are going up, Um, but for a lot of people they just don't realize that they have for the past thirty years put money into an account and they've been told this one thing you're saving money on your taxes. Well, that's true, right. If you make a hundred thousand dollars a year and you save two dollars, you know in your four Oh one K you put a year, you get to deduct that, right. It's basically Um pre tax dollars. So it just kind of comes off the top and we think that's really good. But let me just paint a paint a picture, Um, let's say. Um. Well, first off, here's something that we we we always the money that you put in of a four one K...

...will be taxable, the money your employer puts in, so you have a match that would be taxable, and also the growth. See. A lot of people think, well, you know, I'm because here's the thing. You, as the employer, are excusing me, the employee. You're only saving the tax money that that's coming out of your pay check. That's it. And so here's an example. Let's say over the next thirty years you put in seventy five thou dollars of your salary, you know, hundred two hundred dollars of pay period or something like that, and so you've invested seventy five thousand. Your employee matched it. For seventy five thousand, and so between the two of you you've put in a hundred and fifty thousand and you've had some really good growth over the years and that hundred and fifty thousand has grown to three hundred. You know, Hooray. You know, we've doubled our money. A lot of people have the misconception that you pay taxes on that seventy five that's the only thing you put in, but that's not correct. You pay taxes on the full three thousand. So that's a lot more and that's where that that time bomb comes in. Um. That's a big deal. You know, a lot of people aren't thinking about that. And and since pensions and things that are going away, besides my federal employees that I love to work with, no one else has pensions. That's why I like working with federal employees, because they still have that three legged stool. Um. But most people do not have that Um, and so most people are relying heavily on these pre tax dollars and that it's it's just tax deferred, right, and deferred means at some point we're gonna have to pay them. Um. There has been some things that have that that have came down the pipeline that are helping right with the secure act. Nineteen, Um, they even, you know, they've increased your R M D s with is...

...required minimum distributions. You now can wait until age seventy two. Right. Well, that's pretty cool. A lot of people don't realize that a required minimum distribution is when you are, first word, right, required to start taking minimum distributions from your account. Well, what if I don't need it? It doesn't matter, Uncle Sam needs money, because when you make distributions out of your taxable accounts, you pay taxes on that. So, Um, that's the big thing, right. That's the thing with taxes. A lot of people don't see. Um, is that Um, all of the money, even the growth, is going to be taxed. And of course, as you are well aware, I know, in some states so where just the tax on a gallon of gasoline is a dollar fifty, is tax money for that particular state nameless at this point. Uh. And then you've got sales tax. Some some places have tax for groceries, there's no tax for groceries, and etcetera, etcetera. So it's an interesting, uh Juggling Act to figure out how can I at least keep my money for retirement. But that was an excellent explanation of what you're talking about. As you mentioned, it kind of mirrors some of the other things that we've talked about and and have to have to consider. So at least clarify correct me if I'm wrong here. If it's the if it's the required minimum distribution, at least isn't the concept of that, at least on the good side, spreads that out over years and you're not just paying a lump sum on that, on that profit that you've made, etcetera. Correct. Yeah, it's just the percentage. It's that there's a certain percentage based on the amount that you have Um and at age seventy two used to be seventy and a half. Right now at seventy two, and so that they've just it basically gives people more...

...time to put in some strategy. So a lot of people say, well, I've already retired, so there's nothing I can do. And there is things you can do, some of the things that we talk about. Uh, that's a great strategy. Is Wrath conversions, and a lot of people know what a Rath is. Some people do not, but basically it's just the opposite right of of a of a four one K, a traditional IRA or wrath. When you distribute the money, when you take money out of the account in retirement, Um, you don't have to pay taxes on it because you already have paid the taxes. Now there's a very few things where you can never pay taxes on anything, but roth conversions are very good because if you can start building yourself a bucket of money that's tax free right in retirement. Um. I ask people all the time, do you want to pay taxes on money? When you buy a car? Now, I mean not like sales tax, I mean like when you distribute this money to yourself, you're gonna pay income taxes. When you're if you have to go on a vacation, you want to pay income taxes on that. When you put a roof on your house, like when you do anything and you take money out of a qualified account for one K or something like that, you're gonna pay taxes. And so one of the strategies that we talk about Um is uh converting portions of your account over time, Um, over to a roth and so that that extension to seventy two gives people more time to do those things. But just case in point, you know, if you've got a couple hundred thousand dollars in a traditional account, we're probably not gonna recommend you convert all of it at once, right, although, um, there are limits to contributions to a raw but there are no limits to converting to a raw. But very rarely are you gonna do the entire thing at one time because, remember, anything that you convert over you have to pay taxes on...

...that year. But let's say that you can convert it now at ten percent and let's say in the future taxes are gonna go up to and it doubles. Would you rather pay taxes on ten or on twenty? Um, you know, I think we know the answer to that, and so those are some of the solutions, Um, that we try to put in place for people. Once we look at their plan, once we take a look at everything that's going on, you know, is a Roth conversion right for you potentially? Um, you know, it's one of those things that, Um, we want to try to provide answers that a lot of people don't. You have questions to these things and a lot of people don't have the answers to Um. And the only reason why we know that is because we talked to a lot of people all the time. And when we talk about these strategies that are like, we've never even heard of this, that we could do this. You know, we thought roths were for young people. You know, it's like, well, no, there for everyone, if they're used correctly. So and then there's something you talk about called the widow attacks. Of course that's what a lot of retired folks get to at some point, is unfortunately. But what does that mean? Well, you know, a widow tax is something that very few people consider, which is, Um, my wife is two years younger than me and you know, she she makes better decisions, so she'll probably live longer than me. Right, but statistically speaking, Um, women do live longer than men, and so most people that we see, uh, you know, in a marriage, Um, the woman outlives the man. Um. Well, they call it a widow taxes because you may not even realize this, you know, but you are probably filing your taxes jointly, right, um. So if you're married, you're you're filing your taxes jointly. That's one of the great things about you know, the marriage tax exemption right, you pay less in taxes.

There's a there's a higher threshold, basically on the amount of money that you can make. Well, if you if your spouse is deceased, you go back down to the single right, to just the you're no longer filing jointly. You're now filing your taxes as a single individual. And guess what, the limits are lower. And so you could potentially be paying more in taxes just because your spouse passed away. So a lot of times we look at it and it's like, you know your pension will be decreased or it will go away. You know your social security will decrease or, since you're taking his on now, yours is going to decrease. Um. And and now, since you are now filing your taxes as a single person, Um and not jointly, now your taxes are going up. And we see people get squeezed and and people just don't think about those things. And that's just some of the things that we put on the plate for people to see. We'll talk about it later about what ifs. Right, Um, that's that's where we live, isn't what is to prepare for those situations? Here's a quote from Warren Buffett. Everybody knows the name Warren Buffetts. Somebody is sitting in the shade today because someone planted a tree a long time ago, and that points right to the fact that people need to talk to you, the sooner the better. Thanks for listening to the easy retirement solutions podcast with retirement planning expert and number one Amazon bestselling author Eddie Bennett. Learn more or get a copy of Eddie's book when you reach out to him at easy retirement solutions DOT com. That's easy retirement solutions dot com.

In-Stream Audio Search

NEW

Search across all episodes within this podcast

Episodes (8)