Transcript:

[00:00:00] Voiceover: Welcome to the Life Unlimited Podcast with Larry Heller. You deserve complete financial advice so you can confidently live your life your way for life. Now, let’s get into this week’s podcast episode. 

[00:00:19] Matt Halloran: Hello and welcome to another Life Unlimited podcast with your host, Larry. Heller. Today we’re talking about tax planning and investing, maximizing savings for work and retirement.

[00:00:28] Matt Halloran: All right, Larry. I don’t know how long ago it’s been since we talked about this, but when you and I first started working together many, many moons ago, you said that you were a recovering CPA, right? You remember that? It was quite a while ago. 

[00:00:41] Larry Heller: Yeah. No, I still use, I still talk about that. So that’s a pretty good memory.

[00:00:45] Larry Heller: ’cause I was gonna kind of lead with that anyway, so, uh, that abso absolutely. you know, I did. Was a CPA and I don’t practice that anymore, but it really helps when you’re looking at the investments and the planning together, to really see, okay, how can you save money on your investing?

[00:01:04] Larry Heller: I’m really shocked and surprised when new prospective clients come in and they’re, nobody’s really talked about a lot of these strategies that should be implemented because it’s really not what you earn. It’s, it’s what you keep after taxes. So why not incorporate these strategies?

[00:01:20] Larry Heller: It’s not gonna hurt the investing. So there’s so many different ones to look at. Not everyone is gonna, me. Not everyone is going to be [00:01:30] for everybody, but there’s a lot we can talk about while you are working. And then when you retire, there’s even different strategies to put in place. 

[00:01:38] Matt Halloran: And I don’t think people really understand that, that a lot of these strategies, the earlier that you employ them or deploy them in your specific, you know, longevity of your financial planning and your financial life can make humongous differences on On the amount of money that you have in retirement, and more importantly, uh, you know, even what you’re bringing home. So, okay. So we’re gonna start this off by talking about some of the things that you need to do while you’re working. 

[00:02:04] Larry Heller: Yep. yeah. So whether you’re working or, or you’re not working, one of the things that we talk about is, is capital gains.

[00:02:11] Larry Heller: so capital gains is really the, you know, the selling of a investment, for a profit, and you have to pay taxes on that. and yes, you, you don’t want to have taxes, uh. Dictating what your investment strategies are, but you wanna look at that and see what the capital gains are because that can kick you up into a much higher bracket in some of the investments that you, some of the other income that you have, um, and even the type of investing.

[00:02:38] Larry Heller: Over the last, oh, it’s been a while now. ETFs have kind of taken, um, hold because they don’t have capital gain distributions like mutual funds have. So I’ve spoken to people and they’ve had a down year and they get to the end of the year and they find out they owe money because they had capital gain taxes, and they go to the account.

[00:02:59] Larry Heller: How can that be? [00:03:00] And that’s because they’re in a mutual fund that that mutual fund had. People buying and selling. So they had a share in those capital gains and pay taxes on those capital gains. So, you know, looking at the type of investment to see if you can minimize what your capital gains are gonna be over the years, and this is every single year.

[00:03:21] Larry Heller: It’s not just one year. So that’s why ETFs are much more tax efficient. And if you can use the same exact fund that maybe you were going to, but an ETF, it could be so much better for you. so that’s really the, the first thing to kind of look at is, you know, how you were going about investing and what do you select?

[00:03:39] Larry Heller: The other thing is that I see,

[00:03:41] Matt Halloran: I’m sorry, ho Hold on. I’m sorry. Did, did we, did we do an episode on tax loss harvesting? Did we, didn’t you spend a, almost a whole episode on that previously? 

[00:03:49] Larry Heller: you know, we’re up to over 150 episodes, so I think that, I think we did, but, uh, so, uh, so maybe I’ll we’ll check and put it in the notes there, but I think we did a whole episode on, on tax loss harvesting because it’s, it’s so important if you don’t do it, you lose it.

[00:04:09] Larry Heller: Yeah. So yeah, so right now, if you’re listening to this episode in March of April already 2024, last year and last year and a half we’ve had, uh, an up market. But 2022 is a down market. And even if you are an up market market doesn’t mean that you’re specific investment is up for that [00:04:30] year. So at the end of the year, we look at all our clients and of course we want.

[00:04:34] Larry Heller: All their investments to be up, but sometimes because the market is down, that maybe one of your investments is down. And if you do nothing. Then you can’t take advantage of this down, mark this down. Um, tax loss harvesting. So one of the ways just to do this and we’ll go through quickly ’cause you can go listen to my full episode on it, is you sell, you book that loss, you buy a.

[00:04:58] Larry Heller: Almost identical fund or a similar fund. And then 30 days later, you, go outta that fund and back into that fund. So to avoid the wash sale and what you’ve now done, if you’ve now in the same partic, same places you would’ve been, but you’ve booked that loss for for tax purposes. So if you could do this, even if you don’t have gains to offset, you can accumulate these losses.

[00:05:22] Larry Heller: So when you do have gains, ’cause you can carry forward these gains, you can offset your taxes and a lot of times that’ll save you thousands of dollars on your tax returns by doing this. So make sure your advisor is looking at any tax loss harvesting on a year by year basis. 

[00:05:39] Matt Halloran: Now I. To Roth or not to Roth is the question here.

[00:05:43] Matt Halloran: ’cause you’ve got a couple of, uh, main points that you want to talk about, about traditional 4 0 1 Ks, Roth 4 0 1 Ks backdoor Roths. So let’s break that down. 

[00:05:50] Larry Heller: Yep. We’ll break that down. And I think I also did an episode on this too. So, uh, but knowing what tax bracket you are in and, and knowing what [00:06:00] tax bracket you’re gonna be in later on can be the difference again of a significant amount of taxes that you may, you may not.

[00:06:07] Larry Heller: May not pay. So should you be in a traditional IRA 401k or a Roth IRA of 401k And the, the, the rule of thumb is if you’re in a low bracket now and you’re in a high bracket, going to be later on, you want to do a Roth. If you’re in a high bracket now and you think you might be in a low bracket later on, you do it traditional.

[00:06:32] Larry Heller: And nothing to say that you can’t do, you can’t do both of those. So knowing what your brackets, who you think are going to be in deciding what they are because, we’ll talk a little bit about them in a little, in a little while in retirement with required minimum distributions being pushed further out, knowing what tax, a lot of people are gonna be in super high tax brackets later on.

[00:06:55] Larry Heller: So maybe now it’s okay. To do a Roth, even if you’re paying a little bit more taxes and saving a lot of money later on on that. So actually projecting that and planning that out is super, is super important. and people just don’t, they don’t think they, ah, I’m this, I’ll do this. Or they just say, Roth and they just.

[00:07:15] Larry Heller: Check a box on their 401k. they don’t ask anybody for help on which ones they should, they should do so especially if you’re, if you’re younger in a lower tax bracket. Ross could be the way to go. All right. Bonds and then there, there, oh, sorry. These [00:07:30] backdoor Ross that you, you mentioned and it’s Oh, yeah, yeah.

[00:07:32] Larry Heller: Yeah. It’s still, it’s still totally, allowed. They, the government has talked about closing some of these backdoor Roths. and there are certain, restrictions and there are certain rules you need to follow. you can go back to one of my, all the episodes on this. But being able to convert into a backdoor Roth where you’re taking a, a non-deductible IRA and you’re converting it into a Roth and there’s mega Roth conversions, uh, mega backdoor Roth conversions as well, you’re able to now again, have an investment that is gonna grow for you tax free, and you’re not gonna have to pay taxes when you pull the money out.

[00:08:10] Larry Heller: So again, it’s not. A lot of people were like, oh, what sector should I be in? Should I be in the stock market? Should I be in US market? Yeah, you wanna talk about that later on, but before you wanna kinda look at really the, the foundations and see which investments you wanna be and how to take advantage of some of these structures to save you a lot of money.

[00:08:31] Matt Halloran: Speaking of saving money and different sorts of tax things, right? So we always talk about stocks, bonds, and mutual funds, right? Uh, so the one thing that we haven’t really talked about is bonds. So let’s talk about it. 

[00:08:41] Larry Heller: So again, you know, knowing what tax bracket you’re in, is super critical for a lot of different reasons.

[00:08:49] Larry Heller: And, and one of it is, should I invest in taxable bonds or CDs or treasury bonds or corporate bonds, or should I invest in [00:09:00] municipal bonds and. How do you know what difference there, there is? So you need to know what tax bracket you are and what kind of returns you’re gonna assume in this different investment.

[00:09:10] Larry Heller: So if you’re in a super high tax bracket, tax free bonds much may be a much better way for you to go. If you’re in a low tax bracket, you may be in better off in corporate taxes. So again, we see this, we see people coming in and they have these bond portfolios and these. Bond mutual funds or ETFs. Um, and then we do the calculations and we show them, Hey, you could be putting much more money in your pocket by using tax free bonds.

[00:09:39] Larry Heller: So again, knowing which the right proper investment is for you in your tax bracket. and you know a little bit about the, just the tax bracket, and it’s really not really the investing side, but knowing what your deductions are and knowing year by year you may be in one high bracket in one year, in a lower bracket in another year.

[00:09:59] Larry Heller: There’s some different planning strategies. One could be bunching deductions, and maybe those years that you’re in. A low tax bracket, or maybe for some reason you didn’t work that year, maybe now you wanna do some Roth conversions, which we’ll talk about, which is mostly done usually later in night.

[00:10:17] Larry Heller: But you may be beneficial by doing it younger if you have some of these years when you have no income. We’ve actually seen people have do Roth conversions that doesn’t cost them anything because they didn’t [00:10:30] have any income. So whatever income they did on their conversions, they didn’t pay any taxes on it.

[00:10:34] Larry Heller: So they moved it from a. Taxable, eventually taxable withdrawal to a tax-free withdrawal. Hmm. So a lot of different things that you can do and you can look at while you’re working and while you’re going on to make sure that you minimize where you can as much as taxes now, but also set yourself up for 10, 20, 30 years down the road to, offset a lot of those.

[00:11:01] Larry Heller: A lot of times we’ll have clients that’ll come to us older on and they’ve got millions of dollars. In their qualified account, and now they have to take out these required minimum distributions and they’re paying huge amounts of taxes. Yeah. So it’s not just something to be doing while you’re working, but it’s something to think, think about later on.

[00:11:18] Matt Halloran: Well in and in a perfect world, right, people would be, you know, employing you early and getting advice, you know, in their twenties, thirties, forties with you. Uh, but you and I both know brother, that a lot of people are showing up, you know, will you five years from retirement? And they’re like, ah, I don’t know what to do.

[00:11:33] Matt Halloran: So let’s, let’s switch gears and talk about how you can go ahead and maximize, uh, you know, these tax efficient strategies when you’re getting closer to retirement. 

[00:11:41] Larry Heller: Yeah, so there’s a big change when you’re going from working to, to not non-working. And some of the strategies are, you know, first of all, which accounts to draw down and when.

[00:11:52] Larry Heller: and looking at the cash flow, I mean, we, we do as far of our planning each year in retirement, but [00:12:00] a whole. Cash flow analysis from where you are all the way through the rest of your life. And now when we do that, and we use certain projections, obviously rates or returns, but we can look and see what the tax bracket is going to be.

[00:12:14] Larry Heller: So, and now once we look and we see this tax bracket, things start to open up and start to look at some of the planning. So for example, you may be, I’m gonna pick 65, and you retire and you are, you are in the top tax bracket. And now you retire and you have no more income coming in. And let’s say you’ve elected to, uh, wait until, um, 70 for your social security.

[00:12:39] Larry Heller: You may wait until no more retirement, may wait until 70, and all of a sudden you may be in what we call a donut hall where you have very little income from 66 to. Right now it’s 73, but for anyone born in 1960 and later, the required minimum distribution is not until you’re 75. So you may have 10 years where you are in a relatively low bracket, and then all of a sudden if you wait and you don’t pull out your anything outta your retirement account for 10 years, now you hit 75 and you gotta pull out large amounts plus your social security.

[00:13:17] Larry Heller: All of a sudden you’re in the top tax bracket. Yeah, so it may, may be beneficial to pay a little bit each year or, and take money out of your IRA accounts or your quality, [00:13:30] your 401k, your qualified accounts rather than. spending down your non-qualified your cash accounts and waiting until late later on.

[00:13:39] Larry Heller: ’cause that’s what a lot of people have always been taught. Just keep deferring, deferring and deferring and yeah, that, that may make sense, but there comes a point where it may not make sense. So you have those, you have those years where you can do those when you’re looking at the, year by year and.

[00:13:56] Larry Heller: Seeing, okay, which accounts do we wanna take the money out of? And knowing what your tax bracket is and knowing what your cash flow is going to be, are you gonna have a windfall somewhere else? But planning for that is so, is so critical, when it comes to withdrawing your money. 

[00:14:14] Matt Halloran: Well, the second part of this, uh, outside of withdrawals is if you weren’t able to do a Roth conversion early in life, now might be the time to do that.

[00:14:24] Matt Halloran: So let’s break that down too, please. 

[00:14:25] Larry Heller: So we, we talked a little bit about the, what I call the don’t on hold, the lower income side of this. So now you have these years where maybe you want to, don’t need the income. So you have some o options to take money outta your retirement accounts and convert them into Roth conversions.

[00:14:44] Larry Heller: now there’s two reasons you want, you wanted, you may wanna do it for yourself. Self, cause it may be beneficial, but it also is going to help the next generation because when you pass away and your, your spouse pass away, that money goes to a non spouse. A [00:15:00] child, they’re forced to take money out over 10 years and a lot of times they’re already earning their high, high income at that point.

[00:15:08] Larry Heller: So now they have to take this money out of a, qualified account. over that 10 year timeframe, but it wouldn’t be great if they could take it out and not pay taxes. So we actually have some clients that are doing this really as a favor for their kids. So they’re doing some Roth conversions. They may be paying 12.

[00:15:31] Larry Heller: 17% taxes, but now they’re putting it into a Roth account. They still control that account in case they need it, but what they they’re now doing is when their kids, or maybe even their grandkids inherit this money, they will have to take it out over 10 years, but they won’t have to pay any taxes on that.

[00:15:50] Larry Heller: And that could be super beneficial and save them so much money if they, if you have an, uh, an IRA and you pass away and Mr. Let’s say it’s a half a million dollars and you’ve now got 10 years to take that out, it’s an extra $50,000 a year. Well, if you’re in the top, top tax bracket, you could be paying $20,000 a year on that 50,000.

[00:16:12] Larry Heller: Whereby if you did this Roth conversion earlier on, your kids will be able to get the. Full amount of that $50,000. So it’s so important and we spend so much time on looking at your tax brackets year by year, and not just worrying about your investments, but [00:16:30] looking at the taxes and looking at how you can have more money in your pocket, either while you’re working, while you’re retired.

[00:16:38] Larry Heller: Or how you can provide more money to your kids and your grandkids by minimizing the income taxes to them. 

[00:16:46] Matt Halloran: I know we’ve done episodes on social security, but you just kind of sprinkled some stuff in there. Larry, that I’d, I’d like to address before we wrap up Today’s show, uh, you know about, the election of social security and during retirement, when, when.

[00:17:00] Matt Halloran: Because there are so many decisions. I don’t remember what it was. I was on a podcast with somebody else. Heck, it could have been you, that there’s like 450 different variations or something like that on on, and questions that you need to know in order to elect social security that will be most beneficial to you, that that’s something that you have a lot of experience in.

[00:17:18] Matt Halloran: Would you mind just giving us a 30,000 foot view on the philosophy there before we wrap up the show? 

[00:17:24] Larry Heller: Sure. they’ve pulled back some of the options that you can do in the previous, you know, tax changes. But there’s still, knowing when to take your social security is, is, critical and it’s different for everybody.

[00:17:35] Larry Heller: I mean, if you wait to age 70 while you’re working, Your benefit’s gonna go up by 8%. Uh, so that may be something you want to take advantage of. But it depends, depends. Does your spouse have their full social security? because when you pass away, your spouse is going to lose. Their social security only get one Social security.

[00:17:57] Larry Heller: So maybe you want to bump that up or do you [00:18:00] know what your health situation is? So you wanna take your social security earlier. Um, and if both spouses are working, maybe you, maybe you don’t wanna wait till 70, maybe you’ll take it at normal retirement age. and what I talked about before, maybe you don’t really need the social security to live on, so you’re say, you know what, I’ll push that back a little bit, which now allows me to do bigger Roth conversions.

[00:18:21] Larry Heller: So it is not just one strategy. There’s a lot of different strategies that come into play, but don’t just look at the social security side, look at the tax standpoint, and you gotta combine all these strategies to see what works right for you. Of course, a lot of it all is what do you need? What do your, your income needs.

[00:18:39] Larry Heller: So, it’s a big puzzle and looking through all the, you know, the pieces to find out which is the best solution. View is something that we do and we very detailed and we doing it for all of our clients. 

[00:18:50] Matt Halloran: Well, here’s the million dollar question, Larry. Isn’t your tax professional doing all of this for you already, dude?

[00:18:57] Matt Halloran: I mean, uh, isn’t that their job? 

[00:19:00] Larry Heller: You would, you would think so. Now again, I’m a former CPA, so I remember that. But believe it or not, most tax professionals are not doing this kind of proactive type of planning. Yes. If you ask them a question and for us, we’ll do this analysis and we’ll. Send it to their account to get their blessing on this before finalizing and executing, make sure there was nothing that was, that was missed.

[00:19:28] Larry Heller: But most accounts are [00:19:30] really just doing your tax returns and they’re not looking at your. Investment strategy, your cash flow, your social security, your, your deductions. They’re, they’re basically doing it after the fact. Now, some may have conversations with you and do some high level planning, earl earlier on, but they’re not doing it at this particular, detail.

[00:19:50] Larry Heller: I wish that all accounts really were. Proactively involved in doing some of these. But again, if you can have your financial advisor, your wealth manager, coordinate that with your other professionals such as your accountants, and you’re getting a team approach, and now you’re fi finding ways of saving money, but also making sure that it’s blessed by the account.

[00:20:11] Larry Heller: So again, we do all, we do all this. Planning. We do a lot of this planning at the at year end, get the accounts involved to make sure that we’re both coming up with the best strategy and the best way of, of putting more money in your pocket. 

[00:20:26] Matt Halloran: Alright, Larry, if anybody wants to know more about you and get in touch with your firm to find out how they can go ahead and, you know, maximize their savings for work in retirement, where should they go?

[00:20:35] Larry Heller: Can go to our website, hellerwealthmanagement.com, and you can click on right there to schedule an appointment with myself or one of my other planners, um, or feel free to give us a call at (631) 248-3600. 

[00:20:49] Matt Halloran: You know, there are a lot of things, a lot of considerations you should have while you’re working and while you’re preparing.

[00:20:54] Matt Halloran: And then of course, while you’re in retirement, that really can have massive tax implications for you and your family. Make sure that you [00:21:00] go to Heller wealth management.com. Take a look, have a conversation, maybe just get a second opinion about what you could be currently doing and with the experience that Larry and his team have, you can truly.

[00:21:11] Matt Halloran: And maybe just have an alternate perspective that could make your whole retirement world even better. So for Larry, this is Matt Halloran, and we’ll see you on the other side of the mic very soon.