Tax Planning

how to unlock the ultimate estate plan

How to unlock the Ultimate Estate Plan

When you find your critical financial decisions warrant professional counsel and advice.

Speaker 1:           From the Clear Channel Studios, a Professional Edge by scene g Todd Tax Attorney CPA and Certified Financial Planner is providing general information related to taxes, investments, and estate planning. This information is not to be perceived as providing individual legal, tax or investment advice as each individual’s circumstances are unique. Being a listener does not create an attorney slash CPA or an investment advisory client relationship. Each individual’s personal situation is different and seeking one-on-one advice whether a licensed [00:00:30] professional is recommended, securities and fee only investment council is provided through Schwab Institutional Member S I P C. This is Professional Edge, a program designed to help you understand the importance of getting counsel and advice from a licensed professional and help you appreciate the significance of being able to integrate your investments, tax planning and estate planning into one cohesive plan to prevent an unintended consequence. We will be talking with Scene G Todd of Estate Management Counselor’s, llc.

Speaker 1:           Estate Management Counselors, LLC [00:01:00] is an independent fee only investment management firm based in Atlanta with a satellite office in Columbus, Georgia that serves select clients throughout the country. Their goal is simple to make sure their clients feel confident and secure about their financial future. Seen is a truly qualified professional. He is a licensed tax attorney, a CPA and certified financial planner. He is also an adjunct income tax professor at the University of Georgia. One unique thing you might not know about scene, he attends the National Rodeo Finals. [00:01:30] Each year we will be talking with scene.

Speaker 2:           Good morning Chris. How are you today? Hey, good morning, scene. Doing well. How about yourself? I can’t complain. Be good. Beautiful. Sunday morning. Yes it is in fall Now it’s cooling off. Weather feels good. That’s right. Head to North Georgia. Look at some of the leaves. Oh yeah. How was that? Uh, it was good. Good. I haven’t made it up there yet, so No. Uh, gotta make the trip. I need to hurry because they’re gonna be gone in what, another week or so? Right. So we have a, uh, great show coming up today. It is last week. It is a huge [00:02:00] title, so stay tuned on this one. Don’t fall asleep while read the title. Uh, basically it’s increased Spendable Retirement Income by implementing tax reduction strategies to pay the IRS less. All right. So let, let me go over that one more time. <laugh>. Yeah.

Speaker 2:           That is a lengthy title. Uh, increased Spendable Retirement Income by implementing Tax Reduction Strategies to Pay the IRS Less. Mm-hmm <affirmative>. That’s what we’re gonna talk about this week. And you know, the reason for that is we spend our lifetime saving and investing [00:02:30] and then when we come to retirement we have to a turn the spigot on to have spendable retirement income. But it’s not really the gross number that we need to concentrate on. It is the net spendable dollars. So we need to implement some tax planning strategies to get more net spendable retirement income. So that’s sort of the focus this week. But last week we talked about beyond IRA fundamentals and we talked about a regular IRA and a Roth ira. [00:03:00] And if you have a tax deductible contribution to a regular IRA that’s gonna save tax dollars today. But when you take that distribution out in retirement, all the distribution has to be 100% included in taxable income.

Speaker 2:           Now, that also has an effect for retirees who is are receiving social security income because that goes into the calculation of their modified adjusted gross income. So that’s one calculation that retirees [00:03:30] need to make and say, if I’m gonna take a retirement distribution from my IRA account, how, if any way will that affect my social security? Mm-hmm. <affirmative> meaning am I gonna have 0% of my social security subject to income tax 50% or 85% of my social security subject to income tax? Right. And that’s math that we do with some software that we have for some tax planning that we put together for our clients. Mm-hmm. <affirmative> next we look at or compare that to a Roth IRA account. And [00:04:00] when I make my contribution this year, it’s not tax deductible. So I forego the tax savings this year. Mm-hmm. <affirmative>. But when that grows to let’s say $30,000 and we take that distribution out, that is a tax-free distribution.

Speaker 2:           Therefore it is also not counted in my account for my modified adjusted gross income on determining how much, if any, of social security is included in taxable income. And we went over the contribution limits. [00:04:30] Uh, most of our listeners out there are very aware of this, but if you’re under the age of 50, we can contribute $5,000 to either one of these accounts and if we’re 50 plus, then we get to make up an additional thousand dollars for a total of six. Now we have to have earned income in order to make that contribution to either one of these accounts. And we also have to be cognizant that that limit is for both accounts, not just one account. Right. So we think the magic bucket [00:05:00] is the Roth account because I would forego a little bit of tax savings today in a regular IRA contribution when I’m making the Roth contribution and therefore have the magic bucket and receive all my distributions out income tax free in retirement.

Speaker 2:           So, you know, some of our listeners out there, they may still be working and you know, they went to their tax preparer and they said, well you’re not eligible to qualify for a Roth contribution [00:05:30] because you make too much money. Mm-hmm. <affirmative>, well give the office a call, we can sit down and show you exactly how we can get around that income limitation and not go to jail. Um, yeah, we don’t wanna do that. No <laugh>, it’s what we call a Texas two step. Uh, we have to do a couple transactions to make that eligible to get inside that Roth ira. Mm-hmm. <affirmative>. So if you’ve been told that you’re ineligible because you make too much money, that is definitely a reason to give Tina a call. Uh, sit down with us behind closed doors and we’ll show you how to get that [00:06:00] done. The number 14 is 8 7 7 6 5 4 9 7 9 8.

Speaker 2:           And then we also talked about, you know, beyond IRA fundamentals on taking required minimum distributions. A lot of listeners out there, they’re retired and their tax strategy is, I’m gonna wait until I’m 70 and a half before I take any IRA distributions. That is the required minimum distribution date, age 70 and a half. Well, that might not be the best case because [00:06:30] you might be leaving some money on the table because you’re not maximizing your marginal tax bracket. So it might make sense that you take some of those dollars out before reaching H 70 and a half. Right. Pay the marginal tax rate on it today. You don’t have to spend it. Mm-hmm. <affirmative>, but now put that in a after tax savings account and invest it back again. But you’re utilizing your marginal bracket because when you reach H 70 and a half underneath a regular ira mm-hmm. <affirmative>,

Speaker 2:           You’re required to make those distributions, you don’t have an option. [00:07:00] Right. You are required, have no choice but to do that. Correct. That’s correct. And if you have a Roth IRA that’s completely different. There is no required distribution date. There is no required minimum distributions to ever take on a Roth ira. Mm-hmm. <affirmative>. So now hopefully listeners will understand why we consider that to be the magic retirement bucket because we only have um, a minimum amount that we can put in there that’s 5,000 mm-hmm. <affirmative>, but the [00:07:30] compound growth of that and we never have to take it out based on the IRS rules. Right. So I like that flexibility for our client in planning for their retirement income. Mm-hmm. <affirmative>. So that was there. Um, beyond the IRA fundamentals, again, we talked about the designated beneficiary trust being who is the beneficiary on your ira. And as a listener, just think in your head, okay, I have my IRA account or my 401K account and I have a primary beneficiary if I’m married, that’s usually [00:08:00] my spouse.

Speaker 2:           Mm-hmm. <affirmative>. And then if I have some kids that I name them on, the contingent beneficiary is equal. Gotcha. Well, okay, husband’s working wife is stay at home, husband passes away and the wife then inherits that IRA account. Mm-hmm. <affirmative>, she rolls it over to her name, she can keep the tax deferral going. Okay. That’s a basic plan. But now what if wife gets remarried and they’re happily going along in about three years, four years, five years. [00:08:30] Um, she decides to name her new husband as the primary beneficiary. Mm-hmm. <affirmative> kids of the first husband as contingent. Unfortunately she passes away now who has husband number one’s money, probably husband number two. Husband number two. Right. And the kids of husband number one are completely disinherited. Hmm. Not probably the plan that husband number one wanted to have happen. No,

Speaker 3:           Probably not

Speaker 2:           <laugh>. So, um, here’s a way to structure it a little [00:09:00] bit better and a little bit differently. Mm-hmm. <affirmative>, we draft a designated beneficiary trust and name that as a primary beneficiary. Then when husband passes away mm-hmm. <affirmative> wife is entitled to use that ira, but she doesn’t have ownership of it. Gotcha. So therefore when she passes away, any remaining balance inside that IRA goes down to husband number one’s kids in equal shares or however it needs to be divided. Mm-hmm. <affirmative>. But with that plan, there’s no chance [00:09:30] that husband number two would ever receive the balance of that ira. Gotcha. You know, because women can be swooned by love, love is blind. Mm-hmm. <affirmative>, um, you know, go ahead and name husband number two as a primary beneficiary. Right. He’ll take care of my kids from husband number one. Uh, I don’t know, <laugh>, it’s hard. Say there’s no guarantee.

Speaker 2:           Right. But with a designated beneficiary trust A D B T as the primary beneficiary, then you’re definitely going to be assured mm-hmm. <affirmative> that husband, number one’s children would receive [00:10:00] any remaining balance after his wife passed away. Right. So we give her access to it, but we don’t give her ownership to that. So we look at that and you know, that’s a clear example of how working as a tax attorney, a CPA and a certified financial planner putting these puzzle pieces together mm-hmm. <affirmative> because this plan of a distribution on the IRA is actually estate planning. Mm-hmm. <affirmative>, but it’s also financial planning. It’s gonna roll into one, isn’t it? And in order to [00:10:30] get the estate plan properly done, then you need an attorney to draft the right documents. Right. So clients work at one place with us, the estate management counselors mm-hmm. <affirmative>, and they put that all together and that way they know their financial plan is okay, their surviving spouse is taken care of, they know the kids will inherit.

Speaker 2:           So their estate plan’s done. Mm-hmm. <affirmative>. So, and also as a CPA, then we make sure that the tax deferral strategy is implemented and available to the surviving spouse or the children. [00:11:00] Right. So that’s one thing. And then, um, the next thing we need to look to is how we’re going to increase our spendable retirement income by implementing some tax reduction strategies. Now this applies to all listeners, whether they’re in the highest marginal bracket or in the lowest marginal bracket, but it is a true net benefit. We’re trying to increase the net spendable dollars to our listeners. Stay tuned.

Speaker 3:           All right, sounds good. Scene. And of course, if, uh, folks [00:11:30] wanna get in touch with you to find out more about what we were talking about, they can do that by just giving you a call at eight seven seven six five four nine seven nine eight eight seven seven six five four ninety seven ninety eight. You can also check out the website too. A lot of good information right there can answer some of your questions as well. EMC advisors.com. And as always, if you wanna send your question in via email, you can do that. Send it info@emcadvisors.net. Stay tuned. We’ll have more of the show coming up

Speaker 1:           [00:12:00] With today’s financial markets, are you getting the personal and professional attention you and your money deserve? Clients of a estate management counselors benefit from having one set of professionals advise them on their tax estate planning and investment advice. We call that the professional edge scene. Todd is a tax attorney, CPA and certified financial planner. With over 15 years experience, he welcomes the opportunity to assist you in preparing for retirement, [00:12:30] implement effective tax planning strategies, and to help you properly plan your estate. His radio show the professional Edge is aired weekly on Sundays at 9:00 AM. If you are interested in meeting with scene, call his office at (877) 654-9798. That’s 8 7 7 6 5 4 97 98. We’ve all thought about it. Everyone listening will need one. Not having one can cause untold heartache, family conflict escalating to the point of a lawsuit. One simple thing that avoids all that. [00:13:00] An effective estate plan. As a practicing tax attorney seeing Todd with estate management counselors has completed over 1000 estate plans during his 15 years of professional practice. He can help you implement an effective state plan, coordinate your financial accounts, and make sure you have named the proper beneficiaries to maximize your tax savings. Call 8 7 7 6 5 4 97 98 today and let tax attorney seen Todd help you implement an effective estate plan. Call 8 7 7 6 5 4 97 98 [00:13:30] today.

Speaker 3:           Welcome back to Professional Ledge with scene. Todd, I’m Chris East. We appreciate you taking out some time on the Sunday to listen in and learn a lot of information and definitely got you covered. He wears a lot of hats and I saw you bringing the big truckload of hats with you today, <laugh>. That’s

Speaker 2:           Right.

Speaker 3:           We’re gonna get a bigger studio. We

Speaker 2:           Gotta keep [00:14:00] switching ’em out. Yeah. You know, I got the uh, little visor when I’m doing the CPA work. Mm-hmm. <affirmative> and a little calculator, <laugh> and uh, then the attorney, I got the glasses on. Yep. And, uh, CF p, just sort of nothing.

Speaker 3:           So we just need a bigger room so we can put all that stuff in there cuz you’re just a wealth of information. But, uh, a lot of good information on the show today. And as always, if you wanna get in touch with scene, give ’em a call. 8 7 7 6 5 4 9 7 9 8 8 7 7 6 5 4 9 7 9, 8 10. A little little bit later [00:14:30] on during the show we have another giveaway. Yes, we do. So we’ll be doing that before we wrap up this, uh, after or this morning I should say.

Speaker 2:           And here’s my soapbox again, Chris. Okay. Uh, listeners, listen in. Uh, you have to get your estate planning done. Mm-hmm. <affirmative>, um, bad.

Speaker 3:           Take his advice, do it.

Speaker 2:           Bad things happen to good people. Yes. And, uh, there’s no guarantee for tomorrow. So with that, if you don’t have your estate plan in place, please give Tina at the office a call, coordinate a meeting and get the documents in place. Especially if you’re married, [00:15:00] minor kids, second marriages with mixed families. Um, it’s just a lot easier on everyone going forward if you have your plan in place. Mm-hmm <affirmative>. And with a basic estate plan, you know, a lot of people don’t know where to start and that’s why we have drafted how to unlock the Ultimate Estate Plan. It’s free information. They can call the office (877) 654-9798. Ask Tina, send that copy out. It [00:15:30] is complimentary because half of all the listeners out here do not have any estate plan in place. That’s what the numbers tell us. So that’s my challenge, that’s my soapbox. Uh, you’ll continue to hear that almost every week.

Speaker 2:           Chris <laugh>. Sorry about that. It’s got alright though. We’ll let you slide on it. Yeah. All right. All right. So let’s jump into increasing spendable retirement income. And as we look at clients’ portfolios that come in and we review them, we’re seeing older clients that have way too [00:16:00] much risk. Just heed that warning. Uh, as an older listener, you have too much risk. That means you have too much money in the stock market. Yes, we’ve had a tremendous run, but there’s no guarantees for tomorrow because past performance is no indication of what the future performance is gonna be. And, uh, hometown favorite I, you know, pull this example and we’re trying to increase your retirement income and a lot of our listeners down here in Columbus have Aflac stock. It’s currently yielding [00:16:30] 2.8% and these are as of 6 30 20 12. And the five year return, unfortunately has been minus 1.31%.

Speaker 2:           And if you look at an alternate fund, the yield is 5.74% and the five year return is 2.87%. So if you take 2.87% and you subtract the minus 1.31%, we’re looking at a 4.1% annual difference. But you gotta remember [00:17:00] folks, that is over five years, it’s a five year annualized difference. So if we had the $200,000, it’s not just $8,000 per year, but it’s 20, uh, 245,000 because you gotta remember we’re having that 4.17% annualized difference every year. And that’s compound growth. So if we continue to hold the Aflac stock, we originally started with $200,000 and we take the minus [00:17:30] 1.31 annualized return, at the end of that five years, we have an account value worth $187,000. Yeah, you earned some dividends on that through the yield, but now your account value is at $187,000 versus $245,000. That alone is $58,086. That’s real money. That is about $10,000 per year.

Speaker 2:           And that’s where, you know, working [00:18:00] with us, we look at it, we’re not emotionally attached to any one investment such as listeners down in the Columbus area or even in Atlanta. We love Coca-Cola, we love Home Depot, the hometown favorites. But you gotta separate what is actually good investment planning and retirement planning. Mm-hmm <affirmative> because $58,000 over five years time, that’s real money that, uh, buys a lot of vacations. It supplements the income a thousand dollars a month. Yeah. So that is increasing [00:18:30] your spendable retirement income just by making one move. Mm-hmm. <affirmative>. So, um, that’s one strategy that we look at and say, okay, is there any way to reposition the portfolio which is actually gonna grow in value and have a greater yield than your current portfolio? Right. So we look at that. Another one that we look at is, okay, a lot of our listeners out here are investing for retirement income.

Speaker 2:           Their vehicle of choice is [00:19:00] bonds. Well, bonds don’t have a preferential tax rate. They are treated as ordinary income and therefore they’re gonna go into the calculation of modified adjusted gross income. Mm-hmm <affirmative>, how much is social security’s gonna be impacted by that zero, 50% or 85% of your social security wouldn’t be included in tax income. Right. But if we change that investment and move it over to dividend paying stocks, then that’s gonna get a favorable 15% tax rate. [00:19:30] Now some of the listeners are like, well that’s not guaranteed until, uh, 2013. Yeah, that’s exactly correct. That could expire in December. Mm-hmm <affirmative>. But think of the three, four years backwards. Historically, if you would’ve had a different set of investments paying dividends, those would be taxed at a lower tax rate. Mm-hmm. <affirmative>. So it’s your net spendable dollar that we’re worried about. Right. So does it make financial sense to reposition the portfolio into dividend paying [00:20:00] stocks to pay a lower tax rate?

Speaker 2:           And again, it might not make sense given what current bonds you hold in the portfolio. We just have to look at it, take a snapshot and that’s why, you know, listeners out there can give Tina a call. Mm-hmm. <affirmative> schedule that appointment and take a look at it. Again, it’s behind closed doors. It’s only between them and the listener. Right. Then we say, okay, how long have you held these investments? Because if you’re trying to time the market, [00:20:30] which hopefully our listeners are not doing that mm-hmm. <affirmative> because day trading doesn’t pay. Yeah. <laugh>, um, we try and counsel our clients to a, be able to hold investments for long term and that means a year and a day. That doesn’t mean we’re gonna buy something and hold it for the next 15 years because things are gonna be definitely different 15 years from now mm-hmm. <affirmative>. But if we’re gonna sell something, we wanna be able to have a long-term capital gains tax rate and long-term capital gains is one year and one day it’s not 365 [00:21:00] days.

Speaker 2:           Right. You know, I went over that in class and uh, stumped several of the students cuz I said if you hold it for 365 days and sell it isn’t long term. Mm-hmm. <affirmative>, the definition is a year and a day. Ah. So we gotta have 366 days, therefore we can sell it in its deemed long term. Mm-hmm. <affirmative>, therefore we get that long-term capital gains preferential rate, which is 15%. Right. Again, that could sunset, but right now that’s the plan. Mm-hmm [00:21:30] <affirmative> and of course in a leap year. A leap year again 360 7. 360 7 Exactly. I was paying attention <laugh>. There we go. So we have that in the mix that we have to look at to say what makes sense financially. And some of our listeners out there may have substantial gains that are in their portfolio. Well if the sunset provision, you know, this financial cliff that everybody’s talking about happens, then that 15% tax rate goes up to 25%.

Speaker 2:           Mm-hmm <affirmative>. So [00:22:00] we have $10,000 or 10% difference and if we have a $200,000 gain in a position that 10% that’s $20,000. So are you gonna wait until January one or January 5th to make that sale and pay an extra 10% income tax? I don’t know. Doesn’t make sense financially. Maybe, maybe not. It depends on each individual’s listener’s situation. And then to increase your spendable income in [00:22:30] retirement, all the listeners have to generate a certain amount of retirement income and we look and see, okay, they may be fortunate enough to have a defined benefit pension plan. Mm. They may have had some money put away in a 401k which is now rolled over to a self-directed ira. Right. Or some listeners may have just slept it in the 401k and that in and of itself they need to call me <laugh> because there’s reasons why you don’t want to do that.

Speaker 2:           Mm-hmm. <affirmative>, um, beyond tax reasons, but that’s for a different show. [00:23:00] Um, then we also have our other investments that are generating interest income, dividend income. And when we put that all together, we wanna make sure that social security is not gonna be jumped up from 0% to 50% to 85% included in taxable income if we can help it mm-hmm. <affirmative>. Right. Sometimes listeners will have too much income and therefore there’s not really any social security tax planning that we can do that makes financial sense. Mm-hmm <affirmative>, it’s just what [00:23:30] it is and you gotta include 85% of your social security and taxable income. Right. So we look at that and you know, part of this is the retirement income that you generate. You know, we look at Schedule B as in boy, which is your interest in dividend statement and also Schedule D, which is capital gains and losses.

Speaker 2:           Mm-hmm <affirmative>, that’s why we have individuals bringing their tax return because that gives me a very good picture of what’s transpired in their retirement income portfolio. [00:24:00] So we back into that and we say don’t pay tax on any money you’re not spending. So that’s an underlying principle that we have, but if the client’s gonna spend all this retirement income, then that’s okay to show it on Schedule B. But if they’re not spending all that interest income that they’re earning or dividend income, then it might make sense that the, we reposition part of these investments so that the dividends are gonna be paid in [00:24:30] a tax deferred account such as an IRA or a Roth ira and we try and get the capital appreciation inside a after-tax account. So that’s putting all the puzzle pieces together to say it’s your net spendable retirement income that you have to focus on.

Speaker 2:           Mm-hmm. <affirmative>, it’s not just the amount of income that’s generated. Because for example, let’s take a cd. If I have a thousand, a hundred thousand dollars CD and CDs [00:25:00] are paying 1% mm-hmm <affirmative>, then I’m gonna earn a thousand dollars. Well you think you earned 1% but not really because now I have to include the thousand dollars in taxable income. Right. When I include that in taxable income, if I’m in the 25% bracket mm-hmm <affirmative> 6% state of Georgia, I lose 31%. So I didn’t earn 1%, I’m down to 69, just call it 70 basis points in terminology and it’s [00:25:30] seven tenths of 1%. Well if it, oh God, if inflation is running 2.7% mm-hmm <affirmative>, then you just lost 2% of your purchasing power real safely. Yeah. So that might not be the best strategy going forward to increase your net retirement spendable income. Exactly. So be sure to stay tuned for some more strategies to increase your retirement income.

Speaker 3:           Sounds good. Scene and of course they can always get in touch with you by calling 8 7 7 6 5 4 9 7 9 8 [00:26:00] and Tina it will answer the phone and get you set up on an appointment, get all the info that you need. You can also, uh, check out the website too. A lot of good information there at your fingertips. Anytime you wanna take a look@itemcadvisors.com and if you have a question, you can email that in to info emc advisors.net. Stay with us. We’ll have more of the show coming up.

Speaker 1:           Do you wanna feel more confident about [00:26:30] making the right investment tax and estate planning decisions today? These decisions are more complex than ever. Have you thought about working with a professional advisor and not sure who to turn to? Not sure what qualifies one to be an advisor. Seeing Todd is more than qualified as a tax attorney CPA and certified financial planner seen is with estate management counselors. Estate management counselors operates as an independent fee only investment advisory firm. They’re dedicated to gaining a personal understanding of their client’s objectives and implementing [00:27:00] professional counsel and advice to achieve those objectives. So take a second to talk with scene Todd to learn how you can benefit from their multi-disciplinary practice where they coordinate their clients legal tax and investment strategies into one comprehensive and integrated plan to enhance and protect their client’s financial security. You can reach a state management counselors and speak with scene Todd by calling 1 8 7 7 6 5 4 97 98. That’s 1 8 7 7 6 5 4 97 98 As [00:27:30] a tax attorney CPA for over 15 years scene, Todd has implemented over 1000 individual estate plans. He has recently authored an especially helpful guide How to unlock the Ultimate Estate Plan. This guide has helped many individuals to understand the benefits of an estate plan and how to avoid unintended disasters. Scene has made every attempt to write this in plain English to receive this valuable guide how to unlock the Ultimate Estate plan. Call 1 8 7 7 6 5 4 97 98 [00:28:00] and request your complimentary copy today or by emailing your request to info emc advisors.net.

Speaker 3:           Hey, welcome back to Professional Ledge with seeing Todd. I’m Chris East, the horse Chris East today for some reason I don’t know what’s going on. I haven’t been outside or been on any rollercoaster screaming or any concerts. I don’t know, it’s just my voice is going out on me.

Speaker 2:           Haunted

Speaker 3:           House. Ah, [00:28:30] it must be <laugh> <laugh>. If you’ll get in touch with scene, you can give ’em a call. 8 7 7 6 5 4 9 7 9 8 8 7 7 6 5 4 97 98. Let’s jump back into it.

Speaker 2:           Okay. We’re increasing our spendable retirement income this week, Chris. These are the concepts that we’re talking about mm-hmm. <affirmative> and uh, we’re gonna implement some tax reduction strategies that way we can have more to spend. Okay. If we don’t send it off to Washington mm-hmm. <affirmative>, then we can keep it here at home and spend it, increase the economy around Columbus, Phoenix [00:29:00] City. So I’m gonna tell our listeners, I want you to go back to school. Okay. With that in mind, if you go back to school, a lot of individuals want to take a, uh, let’s say a class in Italian or some history class because you’re getting ready to travel over to Europe. Well with that, if you enroll, um, you don’t have to get a degree in that program in order to qualify for a credit. And basically that is the [00:29:30] American opportunity credit or we also look at, um, the

Speaker 2:           Other credit on education. Sorry for a pause on that, Serena that I had. Um, basically we can, on the American opportunity credit, if you want to go back to school and get your college degree mm-hmm. <affirmative>, um, we can take up to $2,500 as a credit and for our listeners out there, a credit is a dollar for dollar reduction in your tax liability [00:30:00] mm-hmm <affirmative>. And then we have the lifetime learning credit and that is the first 20% on the first thousand dollars of expenses. So we can have $2,000. So if we spend $3,000 enrolling in an, uh, tie in language class mm-hmm. <affirmative>, we can take up to $2,000 of a credit and basically the computation is 20% on the first $10,000 that you spend. But [00:30:30] here’s the thing, Chris, you don’t have to be in college. Mm-hmm. <affirmative>, guess what? You can even enroll in a electric class.

Speaker 2:           Mm-hmm. <affirmative> how to be an electrician, you know, fundamentals of elec, be an electrician in a community college, pay the tuition and we can deduct that as a credit on your tax return. Hmm. So that gives you spendable dollars and again, a credit is a dollar per dollar reduction in your tax liability. Okay. Then if the listener out there has some foreign investments inside their portfolio [00:31:00] mm-hmm. <affirmative> and there’s some foreign tax paid, then we gotta make sure that we code that on the return properly to have a foreign tax credit mm-hmm. <affirmative>, and again, that’s a dollar per dollar reduction in their tax liability. Then if you’re a listener out here that is charitably inclined and your, let’s say giving, uh, 5,000 or $10,000 to the building fund of your current church mm-hmm. <affirmative>, most clients, most listeners, [00:31:30] um, not clients after we go through the analysis. Right.

Speaker 2:           But, um, as a listener, you’re cutting a check out of your checking account for that contribution. We’ll see 5,000 go out, you know, early in the year, and then we’ll see another 5,000 go out in November, December to make the $10,000 contribution mm-hmm. <affirmative>. But they’re sitting there with highly appreciated assets in their portfolio. Well they’re giving the charitable contribution with after tax dollars. Mm-hmm. <affirmative>. So [00:32:00] our recommendation out to our listeners is that you take part of your highly appreciated stock and make the charitable contribution of $10,000 there. Right now you may have paid only $2,000 for it, now it’s worth 10, you’ll get a charitable deduction for $10,000. Okay. But if we sold that 10, subtract the two, we have $8,000 of long-term capital gain mm-hmm. <affirmative>, we don’t want to do that mm-hmm. <affirmative>. So [00:32:30] somehow the money got in the bank account that we’re writing the $10,000 check for, but there’s more tax efficiency by just handing over or transferring that stock over to the charity, let them sell it.

Speaker 2:           And with them being a nonprofit organization, they will not have to pay capital gains tax. Okay. So they still get the net spendable dollars 10 grand, but you as a taxpayer, you don’t have to pay that capital gains in order to send the $10,000 off to the [00:33:00] charity out of the checkbook. Gotcha. So it’s just a little bit more, uh, efficient on planning the tax strategy to give the same amount to charity, but underneath a more tax efficient structure. Okay. So hopefully that will help the listeners out out there. Um, I think we need to turn to the emails, Chris and uh, last show was beyond the IRA fundamentals mm-hmm. <affirmative>, and here’s an email from Betty. Um, I’m married and my husband has a large amount and his 401k, [00:33:30] shouldn’t I be the primary beneficiary on the 401K by previous see him? The contingent beneficiary is our two kids.

Speaker 2:           Isn’t that the right plan? Um, Betty, I think you would be named as a primary beneficiary on that account and have the kids as a contingent beneficiary. That’s probably what 95% of our listeners out here has. Mm-hmm. <affirmative>. But here’s sort of the downside that we talked about last [00:34:00] week is Betty, if you get remarried, you can actually leave that to your new husband to the detriment of your two kids with your first husband. Right. And there’s no guarantee that you won’t do that. You may sit there and tell your husband, now I’m not gonna remarry, you’re the love of my life, but things happen on through life. So that is one thing that, you know, you can’t guarantee that with just being the primary beneficiary. Mm-hmm. <affirmative>, we can keep, [00:34:30] keep the tax deferral going, but um, there’s no guarantee that your two kids right now are gonna receive those funds.

Speaker 2:           Right. That’s why we said put a designated beneficiary trust in place that allows you access to the monies if you ever need it. Mm-hmm. <affirmative> use it, take your required minimum distributions, but then when you get remarried, you can’t update that beneficiary to your new husband. It’s gonna always go to your two current children. Gotcha. [00:35:00] And we also make sure that you’re not gonna disinherit your grandchildren mm-hmm. <affirmative> in case one of your children pre-deceased. Right. So we make sure that that is the right structure. Um, fortunately you have a primary and contingent beneficiary and not any beneficiary at all. So, um, Betty, if that makes sense to you, give Tina a call. Mm-hmm. <affirmative>, uh, next one came in from Mary Ruth. I’m widowed and not sure where to begin. My husband managed all [00:35:30] investments and I have continued with the same stock broker. I don’t know if he is any good or not. <laugh>,

Speaker 2:           What should I do? Just being honest isn’t <laugh> <laugh>. Um, Mary, here’s the first thing I’m gonna tell you. I, I don’t know when you lost your husband. Um, my condolences out to you for that, but I tell all my clients and anyone I meet with, whether they retain my services or not as a widow, do not make any major financial decisions for a year. Mm-hmm. <affirmative>, you’re [00:36:00] not capable. You have just suffered an emotional loss that you can’t comprehend. And most people who have lost a spouse, they don’t know unless they’ve went through it. Right. So do not make any major rash decisions. Sell the house, uh, move all your stocks to cash, um, buy all bonds, don’t make any major decisions. Mm-hmm. <affirmative>. So that’s number one. Number two, I would recommend that you put a budget together because if your husband managed all your assets, you need to [00:36:30] know what income’s coming in and what expenses are going out.

Speaker 2:           Right. That’s the best thing that you can do. And we have forms for that. If you want to call Tina at the office, she’d be glad to send you out a budget form and that way you get a handle on what’s coming in versus what’s going out. Mm-hmm. <affirmative>, then we can set down and analyze what the portfolio is doing to generate income and what benefits you’re entitled to, meaning [00:37:00] what life insurance that you had, uh, individual policies or group policies. So that way you gather all the assets. Then once you have your budget figured out, then you can determine what makes the most financial sense going forward. Mm-hmm. <affirmative>, and again, do not make any major financial decisions for a year. Yeah. It’s give you plenty of time to get everyth everything situated. Right, right. Let the dust settle. Mm-hmm. <affirmative> because you’re in a fog. So that’s my recommendation out to you Mary Ruth.

Speaker 2:           Um, [00:37:30] hopefully that will help you. Here’s the next one, which came in from Jill. I do own Aflac and have for some time. It’s a great company. Why did you recommend selling the stock on the show? Uh, Jill, I’ve never recommended selling anything on the show. I can’t do that. You’re not my client. Any of the listeners are not my client. Right. I’m just showing or trying to have the listeners evaluate that there’s different options available. Mm-hmm. <affirmative> and being emotionally attached to a stock can be very costly. Right. [00:38:00] Just for example, um, look back to WorldCom. Uh, most people forgot that name. I sure haven’t mm-hmm. <affirmative>, but WorldCom, all the employees were heavily invested within that company because they had a belief in the company it was doing well. And anybody that said, uh, to diversify away from WorldCom, they thought you were crazy. Mm-hmm. <affirmative>

Speaker 2:           And they didn’t. Well what happened was WorldCom went into bankruptcy and those individuals lost their portfolio. Yeah. [00:38:30] Not seeing that that’s gonna apply to Aflac or any other company, but that’s something that can happen. And also there’s other investments available mm-hmm. <affirmative>, which are performing as well, if not better. And you’re not emotionally attached to it. Right. I’m not, I’m independent. Mm-hmm. <affirmative>. So, um, if you took it as me saying to sell Aflac, no, I’m just saying that you need to evaluate your current situation because it might make financial sense. Right. Depending [00:39:00] on your individual circumstance. Mm-hmm. <affirmative>. So there’s no one blanket statement. Right. Next one, uh, came in from Bill. Thanks for the show. Hey Bill, you’re welcome. Um, what you described as a D B T, can you do a stretch IRA with this as the beneficiary? Uh, bill, you’ve obviously been reading some magazines mm-hmm. <affirmative>, uh, to put some terminology in there as a stretch ira. Absolutely, yes, bill, we mainly what the D B T does is allow the spouse access [00:39:30] to the money, then we allow that to go if there’s any balance to the kids mm-hmm. <affirmative> and we structure to where they can take it out, the required minimum distribution over their life expectancy to stretch that IRA out. Right. So great question Bill. Um, thanks for tuning in and make sure to continue to listen as we increase the retirement spendable income.

Speaker 3:           That is correct. And also keep listening because we have a giveaway coming up. I’ll tell you what, let’s do that in the next segment. How about that? All

Speaker 2:           Right, let’s do it.

Speaker 3:           What’s up? Stay tuned. [00:40:00] Professional Edge with scene. Todd, I’m Chris East as always. You can get in touch with him by calling 8 7 7 6 5 4 97 98 8 7 7 6 5 4 97 98. And also check out the website too. You can get a lot of good information there. EMC advisors.com will have more of the show coming up. Stay with us

Speaker 1:           With today’s financial markets. Are you getting the personal and professional attention you and your money deserve? Clients of estate management counselors [00:40:30] benefit from having one set of professionals advise them on their tax estate planning and investment advice. We call that the professional edge scene. Todd is a tax attorney, CPA and certified financial planner. With over 15 years experience, he welcomes the opportunity to assist you in preparing for retirement, implement effective tax planning strategies and to help you properly plan your estate. His radio show the professional Edge is aired weekly on Sundays at 9:00 AM. If you are interested in meeting with scene call his office at (877) 654-9798. [00:41:00] That’s 8 7 7 6 5 4 97 98. We’ve all thought about it. Everyone listening will need one. Not having one can cause untold heartache, family conflict escalating to the point of a lawsuit. One simple thing that avoids all that. An effective estate plan. As a practicing tax attorney seen, Todd with estate management counselors has completed over 1000 estate plans during his 15 years of professional practice. He can help you implement an effective [00:41:30] state plan, coordinate your financial accounts and make sure you have named the proper beneficiaries to maximize your tax savings. Call 8 7 7 6 5 4 97 98 today and let tax attorney sing Todd help you implement an effective estate plan. Call 8 7 7 6 5 4 97 98 today.

Speaker 3:           Hey, welcome back to Professional [00:42:00] Ledge with scene. Todd, I’m Chris East Tay, we appreciate you, uh, listening in today. A lot of good information headed your way and as always you can get in touch with scene eight seven seven six five four nine seven nine eight eight seven seven six five four nine seven nine eight and keep that phone number handy because right now I have a nice little giveaway for you. A free book, the big retirement risk, gotta give it to the first seven callers. So do carefully. 8 7 7 6 5 4 9 7 9 8, 8 7, 7 6, 5, 4, 9, 7 9, 8. First seven [00:42:30] callers. Get a copy of the book, the Big Retirement Risk absolutely free.

Speaker 2:           It’s a good read Chris. Yes it is.

Speaker 3:           So now carefully and good luck to you.

Speaker 2:           All right, here we go. We’re continuing to increase your retirement income via tax reduction strategies. So we talked about a couple things on that. On taking distributions from a regular IRA or a Roth ira. Roth IRA is income tax free. Regular IRAs are taxable as ordinary income. [00:43:00] Regular IRAs have uh, required minimum distributions at age 70 and a half. Roth IRAs do not have any required minimum distributions. So we touched on that and then we also have to look at tax deferral strategies because if you’re not spending your retirement income but you’re still getting this retirement income, that doesn’t make financial sense in our opinion. Mm-hmm <affirmative>. So we wanna earn those tax dollars but we wanna earn those in a tax deferred [00:43:30] basis. And you say well I can’t put any more money in an IRA and I can’t put any more money in a Roth ira.

Speaker 2:           Uh, there’s no other way I can do it. And there the answer is yes there is and you can implement an annuity mm-hmm <affirmative> an annuity grows tax deferred some. Well the ones that we recommend for retirees are a fixed indexed annuity, which means that your principle all $100,000 in our example never goes down in value. [00:44:00] And you can have it to where it is a fixed agreement with the company. Mm-hmm <affirmative> and they would pay let’s say 3% for the next five years. That the end of five years if you withdraw your money then you’re gonna have to pay tax on that growth. Right. So, but you’re not paying tax on it while it’s growing. Mm-hmm <affirmative>. So it’s growing tax deferred, just the same thing as an IRA and that growth would come out income taxables ordinary income. [00:44:30] But if you’re taking that distribution out of that annuity, then hopefully you’re spending it.

Speaker 2:           So again, if you’re spending the money, it’s okay to pay tax on, but if you’re trying to grow your money, just like retirement savings, you got a 401k that’s a tax deferred account or an IRA that’s a tax deferred account. These work the same way it grows tax deferred, you always get your principal back income tax free. Right. So we looked at that and one [00:45:00] example was if you had a hundred thousand dollars CD and you were earning 1%, then you have a thousand dollars of interest income. Mm-hmm <affirmative> ran it through the tax machine of 25% federal 6% state of Georgia, that’s 31%. So now you’re down to seven tenths of 1%. But you gotta remember that seven tenths of 1% is what you actually have as net spendable income. Mm-hmm <affirmative> not much money. No. So, um, you actually [00:45:30] went backwards safely because inflation’s running at 2.7%.

Speaker 2:           So therefore you lose, you lost 2% purchasing power over the last year by being safe. Hmm. You can’t continue to do that. Right. And interest rates are projected to be at this low rate until 2015. Hmm. That’s a what the Federal Reserve announced. Um, that could change in any day but there’s no likelihood that it is gonna change. Right. So if you have a CD in October, a CD rollover [00:46:00] month, um, give Tina a call at the office, uh, (877) 654-9798. Schedule a consultation and you know, it’s a free consultation. Sit down and say okay, what’s the better alternative? And it’s not the same blanket answer for every one of these listeners out here, Chris. It all depends on what they’re trying to accomplish. Mm-hmm. <affirmative> because if they’re trying to get some retirement income, well then we gotta have it generating more than seven tenths of 1% [00:46:30] now.

Speaker 2:           Right. So there’s alternatives available. Um, definitely increase that net spendable retirement income. That’s our complete focus this entire session. Mm-hmm <affirmative>. Um, the other thing that we look at, if you run your budget and you’re retiree and you need to have 2000 extra dollars a month mm-hmm. <affirmative> because social security pension, um, those add up and you’re still short $2,000 for all your bills and uh, other expenses for food. [00:47:00] Right. Then you don’t want to take any risk on that. So that’s where we put in place a guaranteed income stream. Mm-hmm. <affirmative> and what we do is we put that on deposit and now we get that money back guaranteed. So it’s called a single premium immediate annuity mm-hmm. <affirmative>, which guarantees that you’re going to receive back $2,000 a month for the next three years. You can do these longer, but we don’t recommend ’em, especially in this low interest environment.

Speaker 2:           [00:47:30] Right. So for the next three years, you know that $2,000 is gonna come in every month. Mm-hmm. <affirmative> just like clockwork. Now at the end of three years, we then reassess the situation and we say, okay, $2,000 is not what it used to be three years ago. Right. So now we need $2,200. So we take out of the investment portfolio a sum of money to guarantee that we’re gonna get $2,200 for the next three years. Okay. Now when you receive [00:48:00] this $2,200 each year, all of that is not gonna be subject to income tax. Okay. It’s called an exclusion ratio. Mm-hmm <affirmative>, which the Internal Revenue code allows us to apply on the single premium immediate annuities. Right. It’s called a spia, not all of it, but part of it. Correct. Only a small, small fraction is gonna be included in taxable income. Gotcha. So therefore when it comes tax time, we know what your retirement income plan is because at tax [00:48:30] time you’re not gonna have to claim that much as taxable income.

Speaker 2:           Right. If you’re not claiming very much as taxable income, then we can probably reduce the amount of social security that is subject to income tax. Mm-hmm <affirmative>, if we reduce the amount of social security that’s subject to income tax and we reduce the amount of income that’s taxable now we’re gonna send to Washington a lot less money. Yeah. And therefore if we send a lot less money to Washington, you’re gonna have a lot more to spend in retirement. So that’s the plan [00:49:00] that we put to play and that’s putting together a certified financial planner and a tax attorney and a CPA by putting all those professional designations together to make the recommendations to our listeners out here. Okay. That’s a significant difference than just a stock broker or a one 800 number mm-hmm. <affirmative> because you know, everybody’s talking about retirement income planning, but they also gotta have that tax advice and the one 800 number people, [00:49:30] um, listeners out there that’s using that service.

Speaker 2:           Yeah. Call ’em up and ask ’em for tax advice. Mm-hmm. <affirmative>, they’re not gonna provide it. Ask your stockbroker for tax advice. They’re not gonna give it because they’re not authorized to give it and they’re not licensed to give it. Mm-hmm. <affirmative>. But tax planning inside your retirement plan is a significant component because if you do it wrong, Chris, you’re gonna lose 31 cents on the dollar. That adds up quick, doesn’t it? Well, 31%. Mm-hmm. <affirmative>, I mean think about that. You earn [00:50:00] 10 grand and you lose 31% because you didn’t do an effective tax plan, you’re down to $6,900. That’s a lot different than 10. Exactly. So, um, definitely keep that in place. Um, then we gotta make sure when we analyze and look at your retirement income plan that you are maximizing your marginal tax bracket. And with that being said, for some reason a lot of listeners out there think that they’re gonna wait or the best [00:50:30] strategy is to wait to take their required minimum distribution or any distribution from their IRA when they reach H 70 and a half.

Speaker 2:           Well that doesn’t necessarily make the most financial sense, especially if you’re in a very low marginal bracket. Let’s say the year after retirement, we can wash some of that money out and be in the 15% tax bracket. We can still save that money, but now it’s out of the tax machine. Mm-hmm. <affirmative>. So therefore that would make more financial sense over [00:51:00] the long term strategy than just wait until age 70 and a half. Now I’m required to take required minimum distributions and I don’t have any options. Right. So what we’re trying to do is build up two buckets or actually three buckets in order to have for retirement income planning purposes. Mm-hmm. <affirmative>, we have our after tax account, which is a regular brokerage account, savings account or CDs. Right. And then we have our IRA account or 401k and we have a Roth [00:51:30] IRA account and there’s a magic mix on what monies you pull out from each one of these buckets.

Speaker 2:           Okay. To utilize the tax code on that. Um, then we look and see which account makes the most sense. And I will tell you it does not make the most sense to draw down all of your after-tax money first leaving all of your money in your IRA until age 70 and a half to take it out. Right. So as a listener you [00:52:00] gotta take that. If that’s your strategy, there’s a better strategy available mm-hmm. <affirmative>. Um, then we also look and say okay, for reducing your income taxes, we take a look at the client’s 10 99. So they get reported from the different mutual fund companies or the brokerage account or even their interest income mm-hmm. <affirmative> and we figure out what the tax consequence is. And back in 2000, um, seven and eight [00:52:30] when the market took a correction mm-hmm. <affirmative>, we were seeing individuals that were receiving a 10 99 that their account value had dramatically fallen, but they had a tax consequence.

Speaker 2:           Hmm. You know how that happens? That was it. Basically inside a mutual fund, they have what is known as a turnover ratio. Mm-hmm. <affirmative>, that means that mutual fund manager is buying and selling, buying and selling. So if he holds ’em for short term mm-hmm. <affirmative>, then we’re gonna have capital gains that we have to report. [00:53:00] Well think about that. Capital gains on a portfolio that went down in value. Wow. Yeah. That’s, that’s a significant tax consequence, right? Mm-hmm. <affirmative>. So that’s where, again, being a CPA and a certified financial planner, we look at that and see if there’s gonna be an unintended or unintended tax consequence mm-hmm. <affirmative> by owning this mutual fund where the manager thinks that they’re going to turn it over 200%, that means they started January one and they changed the entire [00:53:30] portfolio twice over. Wow. So that creates a tax consequence, which has to be reported by the mutual fund holder mm-hmm. <affirmative>, which is the listener out here. Yep. So we gotta make sure that we have that um, in place. Again, folks gotta make sure that you have your estate plan in place. Be sure to give Tina a call to get your guide to how to unlock the ultimate estate plan and be sure to tune in next week as we learn how to avoid common estate plan pitfalls.

Speaker 3:           All right, sounds good. Seeing and, uh, recapping [00:54:00] that phone number real quick in case someone needs it. 8 7 7 6 5 4 9 7 98 and always check out the website too. You get a lot of information right there. EMC advisors.com and if you have a question or you have, uh, some info that you’d like to get, you can just send them an email info@emcadvisors.net and Tina will respond back, or I guess you will too. Absolutely. One of you will respond back and, uh, get that information out to ’em. So scene, enjoy the show today as always, and catch up with you next week.

Speaker 2:           All right, have a great [00:54:30] week. Chris,

Speaker 3:           You too sing.

Speaker 1:           Do you wanna feel more confident about making the right investment, tax and estate planning decisions today? These decisions are more complex than ever. Have you thought about working with a professional advisor and not sure who to turn to? Not sure what qualifies one to be an advisor seen Todd is more than qualified as a tax attorney CPA and certified financial planner seen is with estate management counselors. As estate management counselors operates as an independent fee only investment [00:55:00] advisory firm, they’re dedicated to gaining a personal understanding of their client’s objectives and implementing professional counsel and advice to achieve those objectives. So take a second to talk with Seen Todd, to learn how you can benefit from their multidisciplinary practice where they coordinate their clients’ legal, tax and investment strategies into one comprehensive and integrated plan to enhance and protect their clients’ financial security. You can reach a state management counselors and speak with scene Todd by calling 1 8 7 7 6 5 4 97 98. [00:55:30] That’s 1 8 7 7 6 5 4 97 98.

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