April 2, 2024 • 33 mins
Summary
In this conversation, Bob Mannor, a certified elder law attorney, interviews Greg Kurinec, a certified financial planner, about financial planning for retirement. Bob and Greg discuss the importance of comprehensive financial planning, the role of a certified financial planner (CFP), and the value of professional designations. They also cover topics like retirement activities and identity, the shift from pensions to individual retirement accounts (IRAs), tax planning in retirement, the benefits of a Roth IRA, and the implications of the SECURE Act.
Both Bob and Greg emphasize the importance of collaboration between financial advisors and estate planning lawyers to create a well-rounded retirement plan.
Takeaways
- Comprehensive financial planning is crucial for a successful retirement, encompassing aspects including but not limited to investments, estate planning, risk management, and tax planning.
- The CFP designation is important when choosing a financial advisor, as it signifies that the individual has undergone rigorous education and maintains up-to-date knowledge in various areas of financial planning.
- When planning for retirement, it is essential to consider how you will spend your time and create a new identity beyond work.
- Tax planning plays a significant role in retirement, and strategies such as Roth conversions and strategic withdrawals can help minimize tax liabilities.
- Collaboration between financial advisors and lawyers is crucial to ensure that all aspects of a client's retirement plan align and work together effectively.
Advice From Your Advocates is Hosted by Attorney Bob Mannor, CELA
Guest: Gregory Kurinec, MRFC
Executive Producer: Savannah Meksto
Assistant Producers: Miranda Donaldson | Andi Conner | Samantha Noah
Learn more about Mannor Law Group.
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ABOUT US:
Mannor Law Group helps clients in all matters of estate planning and elder law including special needs planning, veterans’ benefits, Medicaid planning, estate administration, and more. We offer guidance through all stages of life.
We also help families dealing with dementia, Alzheimer’s disease, Parkinson’s disease, and other illnesses that cause memory loss. We take a comprehensive, holistic approach, called Life Care Planning. LEARN MORE...
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:01):
Welcome back to Advice from your Advocates.
I'm Bob Manor.
I'm a certified elder lawattorney in Michigan and we're
going to talk about somefinancial planning today.
This is obviously somethingthat is very important to
seniors and those about toretire, so we're very fortunate
to have certified financialplanner Greg Kernick with us.
Greg, how are you doing?
(00:22):
I'm fantastic, Bob, Thanks forhaving me today.
So tell us a little bit aboutyour practice.
I know you're in the south sidesouth end of suburbs of Chicago
so tell us a little bit aboutyour practice and what's unique
about it.
Speaker 2 (00:36):
Yeah, you know I've been doing this for it'll be 18
years this month.
Actually, I think I just passedmy 18th anniversary from when I
got licensed.
So I've been doing this a longtime and throughout my career I
have always worked exclusivelywith people at or near
retirement.
So retirement planning has beenmy focus, and the way that I
kind of fell into that niche isas I was first getting into the
(00:59):
business, not knowing whichdirection to go, heads are
spinning.
I looked to my parents.
I said, oh, I can work withpeople.
My parents' age I can relate tothat.
Other people, as I was goingthrough the business, related to
me as being one of their kidsand kind of growing, and as I've
been doing this for the last 18years, that's kind of how I
fell into this retirementplanning niche.
(01:20):
It's really something that I'vebecome quite passionate about,
obviously, if I'm continuing todo it.
So at my firm, we focus on allthe aspects of the financial
planning.
So everybody always wants totalk about investments.
That's the sexy part offinancial planning, but there's
so many other areas that we needto focus on.
You obviously know that estateplanning is a huge aspect and
(01:43):
that's something that I'vebecome passionate about as well
making sure that people have alltheir proper documents and
decisions in place beforesomething happens.
But then we also talk abouttheir risk management tax
planning needs, and then, ofcourse, we touch on investments
as well.
Speaker 1 (02:00):
Very good.
So then, tell me a little bit,or share with our audience, what
it means to be a CFP CertifiedFinancial Planner.
There's all kinds of lettersthat people put after their
names.
Some of them carry a little bitmore weight than others, and I
think CFP is one of those.
So tell us what that means.
Versus a registered investmentadvisor or a registered
(02:24):
insurance person, what does aCFP mean?
Speaker 2 (02:27):
So to me, a CFP means it's somebody, it's an
individual that is going to takethe time to look at all those
different aspects of financialplanning.
You know a lot of financialadvisors, financial planners
whatever title they want to callthemselves these days are
focused on investments andthings like that, because that's
how they get paid.
But looking at all the otherplanners whatever title they
want to call themselves thesedays are focused on investments
and things like that becausethat's how they get paid.
(02:47):
But looking at all the otherareas of the financial plan that
you may not be compensated on,to make sure that the individual
or the family that you'reworking with has all their ducks
in a row, they've taken a lookat everything.
Now we can't plan foreverything.
I use the line all the time thatwe plan and Dob laughs Okay,
but that's why planning is fluid.
(03:08):
Things are always going tochange.
You know we might have parentsthat die.
We might have kids that returnhome that we weren't expecting.
We might have market downturnsor market, you know, bull
markets that really help us inthe long run.
So I think a CFP is importantto have because it is somebody
that has gone through thenecessary education.
It's a rigorous program to gothrough.
(03:30):
They've taken the necessaryexam and then they have to
maintain that designation withrigorous continuing education to
stay up on all these differentaspects of planning.
That is why I hold the CFP asthe gold standard when choosing
a financial advisor.
Speaker 1 (03:46):
And I think that's important because, while
somebody can be excellent attheir work, the idea that
they've gone through this extrascrutiny, this extra testing,
that they have to stay up todate, that provides an extra
level of security for the folksthat at least this person has
made the effort to go through anextensive process to become a
(04:08):
CFP.
Speaker 2 (04:09):
Yeah, it is.
I was fortunate enough when I'ma graduate at Purdue University
and their program.
I graduated with a degree infinancial planning and their
program was used to meet thestandard of the CFP designation.
So I did my education while Iwas in school for four years and
then was able to take the test.
For people that did not havethat opportunity and there's
(04:32):
more and more universities thatare adopting that you know to
have to not only work your jobbut then go to those classes
afterwards to learn it it showsthat this is what they want to
do.
They really want to put theireducation, their interest
forward to provide the bestservice possible to their
clients.
Speaker 1 (04:53):
Not to get off sidetracked too much, but as a
fellow Big Ten alumni, what doyou think about the expansion of
the athletic?
Speaker 2 (05:01):
the Big Ten, when are we going to be at the Big 20
now, I think is, where are wegoing to be at the big 20 now, I
think you know?
Uh, I have a feeling we'regoing to be staying up for some
late west coast games when we'replaying at usc and oregon and
things like that.
But you know, we've beenplaying out in the pac-10 for
you know, quite a few years fora game or two.
So I don't think it's going tobe too much of a change.
But we have to keep up with thesec.
(05:23):
That's where we're at.
Speaker 1 (05:25):
If nothing else, we have to keep up with the FCC,
and as long as we beat OhioState, then I'm good with that.
Speaker 2 (05:32):
There you go.
Speaker 1 (05:36):
Okay, great.
So let's talk about this.
What is the typical, you know?
So someone comes in and they'regetting ready for retirement.
What are some of the you know,top things that they need to
start thinking about and whatquestions should they be asking,
both in trying to find afinancial planner, but also just
(05:58):
the questions they need to beasking to be, you know, start
getting ready for retirement.
Speaker 2 (06:03):
So the first question I always ask anybody and this
is whether they're sitting in myoffice for a meeting or I'm
outside in the summertime at abarbecue or a cocktail party or
something like that hey, what doyou do?
Oh, I'm a financial planner.
I work with people inretirement.
They go oh, yeah, I'm gettingready to retire.
And I don't ask people how muchdo you have, how much do you
(06:24):
spend, or anything like that.
The first question I always askeverybody is what are you going
to do?
How are you going to spend yourtime in retirement?
Because we have spent the last30 or 40 years our identity has
been our work all right, ourwork and our family Getting
ready to retire.
I'm assuming your family hasmoved out, moved on and they're
starting families of their own.
So now you have to fill yourtime.
(06:46):
So these people that like toretire in May or June, when it's
summertime yeah, it's reallyeasy to fill time in the
summertime.
I can go fishing.
I can go out for walks.
I can do that.
Then I can get through theholidays.
That's easy.
But in the middle of Januaryyou're in the Midwest.
We know how brutal it is.
Okay, what are you going to do?
Are you going to stare at yourwife or your husband and be like
(07:08):
, what are we going to do now?
Because I'll tell you one thingthey don't want you going to
doctor's appointments with them.
They don't want you goingeverywhere together.
You have to come up with somenew identity.
So when people are out therelooking for a retirement advisor
, when they're looking for afinancial planner, they should
be looking at somebody that isfocusing on, again, the overall
(07:29):
well-being, not just themechanics and the technical
aspects of the financialplanning, but somebody that
really has rooted interest inwhat they're going to do in
retirement.
I guess these are all thingsthat we don't get paid for.
But are you telling me how youwant to spend your time?
Ultimately, that's going todictate how we financial plan,
because that's going to tell mehow much are you going to need
(07:50):
to spend, how are you, where areyou going to live, things like
that, so it all does cometogether.
So, again, not just focusing onthe technical side but the
behavioral side and reallytrying to understand the people
as a whole side, and reallytrying to understand the people
as a whole.
So that's what you need to lookfor for a financial planner.
Rates of returns that's great,but it's not everything.
(08:11):
You can't judge everybody byrate of return.
Speaker 1 (08:14):
Right, yeah, no, very good point.
So you know, it's interestinghow things have changed over the
years, especially in theMidwest, where now for maybe our
parents or maybe ourgrandparents, they were relying
on maybe a pension that was aguaranteed pension, a defined
benefit, and that's rarer andrarer these days.
(08:36):
Right, a lot of people arerelying on their 401k or similar
qualified funds, and that's alittle bit more tricky to manage
, right?
Speaker 2 (08:47):
Oh for sure, For sure .
Back in the 70s, when they cameout with ERISA, they put the
onus on the employee to try andsave for retirement.
Now we're trying to save forretirement, raise our kids,
maybe put aside a little bit ofmoney to help our kids go to
college, and now we have to tryand put all the onus on us to
(09:08):
retire.
We don't have anything to fallback on.
It's become quite cumbersomefor a lot of people.
You know, and it's sad when yousee, when I see retirees and
they retire from some of theselarger companies, how much more
successful they could be becausethe larger companies have more
aggressive matching policies andbenefits and things like that
(09:28):
for those 401ks, versus if theywere for a smaller company and
really the complete onus is onthem.
They might be behind the eightball a little bit.
Now, with that being said, youknow, Bob, we're looking at our
parents or our grandparents thathad pensions.
They were retiring at what?
50, 55, maybe 60.
Well, now I see people retiringat 65 or 70 all day long, and
(09:51):
it's not only because they don'thave enough save.
That's not the case for a lotof people.
A lot of people they have towork till 65,.
A because of healthcare okay,Because healthcare in the United
States is very unaffordable,they have to work until they get
to Medicare but B, when I evenfirst got into the business, I
was planning for 10 and 15-yearretirements.
(10:12):
Now, when I'm talking to people, I'm planning for 20 and
30-year retirements.
We're all living a lot longer,so that money that we have saved
, we have to stretch it a lotlonger as well.
So those are some of thechanges that we're experiencing.
Speaker 1 (10:28):
And you know, when it comes to these plans that are,
the retirement plans, whetheryou know so, there's money that
you have invested.
That's what we would refer toas non-qualified, meaning you've
already paid the taxes on it.
But most of what we've justbeen talking about would be
qualified funds, meaning thateither there's some tax
favorable benefits, like a Roth,or that you haven't paid the
(10:51):
taxes on it.
That can get complicated from astandpoint of knowing what
should you do and making sureyou have a plan to say okay,
well, how do we address thetaxes associated with these
retirement plans?
Right?
Speaker 2 (11:05):
Well, and that's where my buddy if anybody's ever
watched PBS sees Ed Slott onthere the retirement tax time on
that's coming and that's how mybusiness has shifted so much in
probably the last seven to 10years.
A lot of my focus has been ontax planning and how can we get
these funds out of these 401ksand IRAs in the most tax
(11:27):
favorable way possible.
And a lot of that is hard forpeople to get their arms around
because they've been thinkingsave, save, save, grow, grow,
grow.
But if we have a couple thathas the million dollar 401k we
really know you and I know it'snot a million dollars, it's only
about $700,000 because UncleSam's coming to get his chunk of
it.
So how can we take out thismoney in the most tax favored
(11:51):
way possible?
And that might be some out ofthe box thinking that we have
hey, it's delaying SocialSecurity so we don't have as
much income, so we can take moreout of those accounts.
It's taking more out of thoseaccounts than maybe we need so
that we can fill up thosefavorable tax brackets the best
(12:11):
way that we can.
So really do it as much of thistax planning upfront than
having a plan for that, because,as we're getting money for
retirement, usually those areour highest earning years.
So there's not a whole lot thatwe can do.
And the Roth IRA is a greatthing.
It just hasn't been around forthis generation of retiree long
(12:31):
enough for them to have takengreat advantage of it.
So, again, most of their moneyis in these pre-tax accounts.
How do we get that out?
And there has to be a plan inplace to do that accounts.
Speaker 1 (12:42):
How do we get that out?
And there has to be a plan inplace to do that.
So I'm glad that you mentionedthat about when to take the
money out of an IRA or 401k.
Before we get into thespecifics of maybe being
strategic about when to pay thetaxes, I want you to talk a
(13:02):
little bit about whether or notyou should roll over your 401k
to an individual retirementaccount.
I know this is a very popularthing to do, but I've got lots
of clients that still they justkind of this is what they got
from their employer and theyjust leave it there even well
after they've retired.
Talk to us about some of thereasons why they might want to
roll that over rather thanleaving their old employers 401k
(13:23):
.
Speaker 2 (13:24):
Yeah, yeah, this has kind of become more of a
polarizing topic Again.
The investment advisor isthinking I need to get my hands
on that money so I can get paid.
All right, but as a financialplanner, there's a lot of other
things that we have to take intoaccount.
Number one is age.
This is a commonmisunderstanding.
(13:44):
A lot of people don't realizethat if you retire after the age
of 55, you are allowed to starttaking withdrawals from your
401k without any penalties.
Now, most people have that age59 and a half in their brain,
but they don't realize that froma 401k after age 55, you can
take withdrawals.
Now, the downside to that anydistributions from a 401k that's
(14:07):
a mandatory 20% tax withholding.
So if you're not in the 20% taxbracket or above, then you're
going to be withholding too much.
Now you'll get that money backin the form of a refund, but
essentially the government getsto hold on to that.
The benefit of rolling it from a401k to an IRA is the
independence that you hold, theability to invest it in the
(14:30):
world of investments that areout there.
So whether you want to buystocks or bonds or ETFs or
mutual funds or fixed annuities,variable annuities, any of that
becomes available to you whenyou put it into an IRA.
Now, typically with that,though, the costs are going to
be a little bit higher for it tobe in an IRA versus the 401k.
(14:50):
Okay, in the 401k, costs arelower because we're dealing with
a big group.
They've negotiated lower costsfor us.
It's very difficult to findthose.
A lot of people don't evenrealize they're paying fees on
their 401k, but they are.
Nobody does anything for freearound here.
So, keeping an eye on the costdifference between the 401k and
the IRA, we also know that our401ks are very limited on the
(15:14):
investment options that we havein there.
Those are pre-chosen for us.
I've seen some 401ks with asfew as six options and some
401ks with as many as over 100.
So it all depends on the plan,and that's something that you
need to keep in mind when you'retrying to make this decision on
whether to leave it in a 401kor roll it to an IRA.
(15:34):
There's a lot of moving partsthat need to be considered.
It's not just hey, let's get itout or let's leave it in.
Speaker 1 (15:41):
So one of the things that you had mentioned earlier
and I want to get back to is theissue of being strategic about
taxes, and I think this is veryimportant.
People don't think about it.
I had a somewhat distantrelative that I saw had posted
and she was surprised when sheturned, you know, 71 and a half
now at 72 with the SECURE Actbut when she got to the age
(16:03):
where they required her to takemoney out and she was upset by
it.
She just didn't understand theconcept of the IRA and she was
upset by it because she said,well, now I have to take money
out, I have to figure out how tospend it, and obviously you
don't have to spend it justbecause you're taking it out of
the IRA, right?
Speaker 2 (16:21):
Right.
Speaker 1 (16:22):
And so the concept I want to get at is the fact that
you know, being knowledgeableabout this and working with you
know people that have experiencein dealing with these questions
.
Because, like you said a minuteago, you know we're always
taught save, save, save, stockas much as you can into the IRA.
You know we're always taughtsave, save, save, stock as much
as you can into the IRA.
But then when you get toretirement, a lot of people
(16:44):
assume that the only thing, thebest possible answer, is just to
take out the required minimumdistributions.
Of course, the problem withthat is that you know now we're
going to still have that taxissue.
What did you call it?
The tax bomb a minute ago?
The tax time bomb, time bomb.
And so one of the things thatpeople don't realize is
somebody's going to pay taxes onthat eventually.
(17:06):
Well, it's either you or yourkids, and your kids might be in
that high income stage once theyinherit it and they might end
up having to pay a lot higherpercentage of taxes.
So this gets a bit complicatedbecause we're not just looking
at their circumstances.
(17:26):
Sometimes you need to look attheir kids' circumstances and
say, well, if they're in a hightax bracket.
Maybe we should start payingmore of the taxes during your
lifetime, while you're retired,and get that lower tax bracket
right.
Speaker 2 (17:32):
You just hit the nail on the head right there.
There's a lot of considerationsthat go into IRA withdrawals,
especially if we're going to goabove and beyond the required
minimum distributions, becausethat is a wake-up call to
everybody that oh, now I have tostart giving my distributions,
I have to start taking them eventhough I don't want them.
So that's my number one goal isto pay tax on my terms, not the
(17:57):
government's terms.
So trying to do that, but theconsiderations you just
mentioned if my kids are goingto inherit my IRA, okay, if
they're going to be in a highertax bracket than I am now, why
wouldn't I?
If, ultimately, I want to leavethis money to them, pay lower
taxes for them, whether it'sjust through straight
distributions or Rothconversions or some sort of
(18:18):
combination of that strategy,why wouldn't I?
However, if you're in a highertax bracket than your kids are,
then maybe you don't getaggressive on that conversion.
Okay, maybe you do only takethe requiremental distribution.
Or what if you don't havechildren at all?
And your point is to leave yourIRA to charity Well, charities
inherited completely tax-free.
(18:40):
So then yeah, at that pointyou're just taking what little
amount you have to and that'sthere as your safety net if you
need it for long-term care orsomething like that, and then
whatever's left over goes to thecharity.
So again, a lot of moving partsand things that we need to
consider.
I talked about tax planning,but that's why it's a plan, it's
not, oh, everybody should do aRoth conversion or everybody
(19:03):
should go as much as they can.
It all depends on everybody'sindividual circumstance.
Speaker 1 (19:08):
Yeah, exactly that's the same thing that we talk
about all the time.
When it comes to legal planning, people sometimes get into that
same mode that you were justtalking about, thinking that
there should be that sameconsistency for everybody.
And in our office everybody istreated uniquely.
Everybody's plan is going to bevery unique.
It's the you know you saidsomething about.
(19:30):
Well, you know some people say,oh, you should just do the Roth
conversion.
Well, that's true for somepeople, but that's not going to
be appropriate for everybody.
And that's the same thing whenit comes to legal planning.
People come in and they havetheir friend got a trust and so
they want to trust.
Or their friend got somethingwe call a ladybird deed here in
Michigan and they want aladybird deed.
Well, often what we have to dois look at it and say, okay,
(19:53):
let's look at your circumstancesand see if any of these options
make sense and what might makesense for your specific
circumstances, your specificassets, your specific family,
and all of those variablesshould be considered.
If you have somebody out therepreaching and saying, well,
everybody needs this thenthey're not given very good
advice.
Speaker 2 (20:13):
Right, the ability, and I make it a practice.
I'm going to do it right now.
This is going to be an Aussiemoron.
I make it a practice to neverspeak in absolute.
So I'm using an absolute to saythat, Because there is no
absolute situation for everybody.
Everybody is just a little bitdifferent.
Sure, is there a track for usto run on that we vary off our
(20:37):
track a little bit?
Yeah, everybody's going to takea turn left or right somewhere
down the road.
That's going to be differentthan the person before them.
Speaker 1 (20:45):
So we've mentioned this a couple times and I think
most people are very familiarwith this concept of the Roth
IRA.
But just in case some of ourlisteners aren't, can you tell
us a little bit more aboutwhat's the difference between a
Roth IRA and a more traditionalIRA?
Speaker 2 (21:00):
The Roth IRA the greatest thing since sliced
bread.
So our Roth IRA versus thetraditional Most of us are
familiar with the traditional,where we make a contribution for
the year and that contributiongets deducted from our income.
So for anybody over the age of50 in 2024, the contribution is
(21:20):
$8,000.
So if we made $100,000, wecontribute $8,000 to our
traditional IRA.
We are only taxed on $92,000 ofincome.
Okay, the Roth is just theopposite.
We still have the samecontribution limit.
So, again, $8,000 for anybodyover the age of 50, but we get
taxed on that contribution.
But what happens is we arenever taxed on that money ever
(21:44):
again.
So we get to get tax-freegrowth for however long we leave
it in the Roth IRA and then weget tax-free withdrawals on that
growth when we decide towithdraw it.
One more added bonus to the RothIRA is they don't have those
required minimum distributionsthat traditional IRAs have.
So again, it is a way to paysome tax now, especially in
(22:10):
today's income tax environmentwhere none of us have ever
experienced anything lowerbefore.
So why wouldn't we pay tax now?
Let it grow tax-free for thenext 20 or 30 years and, if we
need it, be able to withdraw itcompletely tax-free.
So that is the benefit that wehave with the Roth IRA.
I think it's fantastic.
(22:30):
As I mentioned before, theretirees that are coming up now
just haven't had enough exposureto it to be able to accumulate
as much money.
So that doesn't mean that youdon't have a't mean that you
don't have a successfulretirement because you don't
have a Roth IRA, or that youwon't be able to get any money
into a Roth IRA.
We just have to do some moreplanning for it Right.
Speaker 1 (22:50):
So, like you mentioned, you can do some
conversions and it's tricky.
You got to make sure you'reworking with you know,
experienced professionals, butyou can under certain
circumstances and you got tomake sure you're arranging the
money properly.
But there can be someconversions from a traditional
to a Roth right.
Speaker 2 (23:10):
Absolutely, Absolutely.
And again, you know, when we'relooking at the traditional IRA
versus the Roth IRA, again a lotof our minds are pre-programmed
I want the tax deduction now.
It's going to help me now.
It's going to help me now.
Let's think of it from afarmer's perspective.
I have this bag of seed infront of me where I have this
field of crop where I'd ratherpay the tax on this bag of seed
(23:31):
or this whole field of crops.
I'd rather pay the tax on aseed right now and let it grow
into that field of crops andnever have to pay tax on it
again.
Speaker 1 (23:40):
So we mentioned a couple times in passing this
SECURE Act, and so the SECUREAct took effect, at least by law
, on January 1st 2020.
Since it got passed in lateDecember and took effect just a
(24:11):
couple weeks later, the IRS wasnot prepared to actually tell us
what the law meant, and that'swhat a lot of laws these days,
in fact, most laws.
they pass the law, thepolitician passes the law, and
then the bureaucrats tell uswhat it means, and so they're
still issuing new rules on theSECURE Act.
But why don't you tell us alittle bit about the SECURE Act
and how some of that mightaffect some of this?
Speaker 2 (24:29):
Yeah.
So some of the biggest changeson the SECURE Act you had
mentioned it previously theRequire Minimum Distribution Age
.
That was moved from 70.5 to 72.
Then with SECURE Act 2.0, theymoved it to 73, beginning last
year, and then 10 years so it'llbe in 2033, they're going to
move the required minimumdistribution age to 75.
(24:52):
So they've realized, hey,people are living longer, we can
push out this R&D age a littlebit further.
So they've given us a littlebit of relief from that
standpoint.
As far as us planners, it givesus a couple extra years to do
some more planning for therequirement on distribution.
So that was the first thing.
But I think the biggest changeand the most confusing change
(25:13):
and the one they still haven'tfigured out yet is how we
inherit these IRAs or thesepre-tax accounts 401ks, 403bs,
things like that.
What they did is they've takenaway our ability to stretch out,
to inherit an IRA and stretchout those distributions over our
lifetime.
That was such a valuablebenefit that we were able to do
(25:37):
to take this tax time bomb, okay, and then give it to our kids
or whoever we choose, and thenthey would have to take a
requirement on distribution, butit was based on their life
expectancy, so it's usually verysmall and there was no end
point, so it's very, verybeneficial.
What they've done now isthey've shortened it from our
lifetime to 10 years.
(25:58):
Ok, so if I inherit a milliondollar IRA, I've got 10 years to
get that million dollars out ofthe IRA and out of my tax
return.
Now this is where it gets fun.
Okay, there's convoluted lawwritten.
There's convolutedunderstanding of the law.
There's convolutedinterpretation.
It's all weird where, if theperson that you inherited from
(26:21):
was receiving a required minimumdistribution, then you have to
receiving a required minimumdistribution, then you have to
take a required minimumdistribution.
But if they weren't receiving arequired minimum distribution,
then you don't and it just hasto be out in 10 years.
But, like you said, theyhaven't really straightened it
out yet.
So Secure Act came out in 2020.
We're four years in and they'resaying, okay, well, if you
(26:43):
haven't taken a required minimumdistribution for the last four
years, we're not going toanalyze you or anything, but
maybe you should startconsidering it.
And people are still waitingsaying, well, there's no law
that says that I have to.
So it's very, very confusingand, depending on the people, it
actually does make a difference.
I have some clients that didinherit IRAs and they're five
(27:06):
years from retirement, sothey're thinking to themselves
well, I'm not gonna take anydistributions now, I don't need
the money now.
They're not requiring me per seto take a distribution.
I'm gonna take it for thosenext five years after I retire
where I have no income.
That way, I'll be able to getthat money out in a tax-favored
(27:26):
manner and that's their plangoing forward.
And again it gets so confusingand the law is not well-written
or well-interpreted by anybody.
They're basically not enforcingit.
So it'll be funny to see whathappens in 2030 when this first
10-year period comes up, and tosee there'll be a mad rush
(27:46):
because if we have a youngerbeneficiary, they might say I'm
going to let that grow for thenext 10 years and I'll just take
one hit real quick and call ita day.
So it's really confusing.
I wish I had better answers forit, but unfortunately we don't
at this time.
Speaker 1 (28:02):
No, I think the way you described it is exactly
right.
And the thing is, though, evenin this time period of confusion
, it's so important for folks toget good advice from
experienced professionals,because, when you think about it
even that last scenario thatyou mentioned you have a younger
person that says, hey, I'm justgoing to let it continue to
grow for 10 years.
(28:22):
What that might end up doing iscausing you to put yourself
into the highest tax bracket.
If you're a younger person andyou're in a low tax bracket and
you let it grow for 10 years,that 10th year between federal
and estate income taxes, youmight pay 40% in taxes on that
income.
That maybe it was worth it tolet it grow for 10 years.
(28:45):
Maybe it would have been betterto try to keep yourself in the
lower tax bracket.
But the key on this iseverybody's going to be
different.
So if you inherit an IRA and ifit's a small IRA, it's $10,000
or $20,000, not that big of adeal but if it's a substantial
IRA that you've inherited, it'sreally important to be strategic
(29:06):
about, even with the notcomplete certainty about what
the IRS is doing, to bestrategic about when we take
that money and when we incur thetaxes on that.
It can make a big difference inhow much money you actually get
to keep.
Speaker 2 (29:21):
Yeah, and the advice that I'm giving to my clients is
we're always going to err onthe side of caution.
So I'm advising people, youknow what?
Let's take some RMDs from theseaccounts, just in case they
come back after us.
I think that's the safe andprudent thing to do until we get
some better understanding ofwhat direction they want to move
with the law.
Speaker 1 (29:41):
Well.
So, greg, I really appreciateyou being with us today.
You've gotten some really goodinformation here.
I do want to talk to you aboutone last thing, and that is the
interaction between financialadvisors and lawyers.
This is something that I thinkis pretty interesting, because
some people might assume thatthat's a standard practice that
(30:04):
when a financial advisor isworking on something and they
know that their client has alawyer that's working on the
estate plan, or when a lawyerhas an estate plan and they know
they have a financial advisor,that at some point the two
communicate and make sure thatthe plan is pointed in the same
direction.
That's certainly what we do inour office.
I think that is not the pointedin the same direction.
(30:24):
That's certainly what we do inour office.
I think that is not thestandard in the industry.
So, if you can, kind of commenton the importance of the
financial advisor and thelawyers working together, oh,
absolutely, and I think thatgoes back to the standard
practices of a CFP.
Speaker 2 (30:38):
I think my biggest role is almost to play
quarterback, and I know I don'tlike to use sports analogies a
lot or I try not to, but I thinkit's the simplest one to
explain.
Matt, you have to have all thesedifferent areas that we're
planning Now.
I said I'm passionate aboutestate planning, but I'm not a
lawyer.
I have to communicate with theattorneys to make sure that, hey
(30:59):
, this is what I'm seeing on myend.
Do you concur with this?
You've had conversations, I'vehad conversations.
Let's have a meeting of theminds to come up with this
strategy together.
If we're just expecting theother professional to figure it
out for us without having allthe information, because we know
that people always know theright questions to ask or know
(31:20):
the right way to answer thequestions, to give us all the
details.
So more heads are going to bebetter for us to come to a good
interaction, a good conclusion.
So I think trying to bring inall the different professionals
that we have, especiallyattorneys and CPAs and things
like that, to make a better offoverall result for our clients,
(31:40):
and that is going to puteverybody in a much better
position.
Speaker 1 (31:44):
Well, thank you, Greg .
So we've been talking to GregKernick, a certified financial
planner from Illinois in thesouth suburbs of Chicago.
Greg, if people have questions,what's the best way of getting
a hold of you?
Speaker 2 (31:59):
So best way to get a hold of me is to email me greg
at gregkernickcom.
Okay, if you wanted to call,I'm at 630-318-0655.
My website I'm going through arebrand right now so I'll get
you the new website here.
I should have it by the end ofthis week.
Bob, if you want to put it inyour show notes, I'll get that
over to you.
(32:20):
But otherwise, yeah, give me acall or shoot me an email.
Speaker 1 (32:24):
And I wanted to specify Kernick isn't quite
spelled the way it sounds.
It's K-U-R-I-N-E-C, so it'skind of a silent I in there.
Right, it does, it does, okay,well, great.
Thanks so much and thanks forlistening.
If you found this aninteresting conversation and you
would like to hear more aboutour podcast or any of the issues
(32:46):
that we deal with aging andaging adults, don't forget to
subscribe on any of the podcaststations that you listen to.
Thanks again.
Speaker 2 (32:56):
Thanks, Bob.
Speaker 1 (32:59):
All right.
Speaker 2 (33:00):
Very good.
Welcome back to Advice from your Advocates.
I'm Bob Manor.
I'm a certified elder lawattorney in Michigan and we're
going to talk about somefinancial planning today.
This is obviously somethingthat is very important to
seniors and those about toretire, so we're very fortunate
to have certified financialplanner Greg Kernick with us.
Greg, how are you doing?
(00:22):
I'm fantastic, Bob, Thanks forhaving me today.
So tell us a little bit aboutyour practice.
I know you're in the south sidesouth end of suburbs of Chicago
so tell us a little bit aboutyour practice and what's unique
about it.
Speaker 2 (00:36):
Yeah, you know I've been doing this for it'll be 18
years this month.
Actually, I think I just passedmy 18th anniversary from when I
got licensed.
So I've been doing this a longtime and throughout my career I
have always worked exclusivelywith people at or near
retirement.
So retirement planning has beenmy focus, and the way that I
kind of fell into that niche isas I was first getting into the
(00:59):
business, not knowing whichdirection to go, heads are
spinning.
I looked to my parents.
I said, oh, I can work withpeople.
My parents' age I can relate tothat.
Other people, as I was goingthrough the business, related to
me as being one of their kidsand kind of growing, and as I've
been doing this for the last 18years, that's kind of how I
fell into this retirementplanning niche.
(01:20):
It's really something that I'vebecome quite passionate about,
obviously, if I'm continuing todo it.
So at my firm, we focus on allthe aspects of the financial
planning.
So everybody always wants totalk about investments.
That's the sexy part offinancial planning, but there's
so many other areas that we needto focus on.
You obviously know that estateplanning is a huge aspect and
(01:43):
that's something that I'vebecome passionate about as well
making sure that people have alltheir proper documents and
decisions in place beforesomething happens.
But then we also talk abouttheir risk management tax
planning needs, and then, ofcourse, we touch on investments
as well.
Speaker 1 (02:00):
Very good.
So then, tell me a little bit,or share with our audience, what
it means to be a CFP CertifiedFinancial Planner.
There's all kinds of lettersthat people put after their
names.
Some of them carry a little bitmore weight than others, and I
think CFP is one of those.
So tell us what that means.
Versus a registered investmentadvisor or a registered
(02:24):
insurance person, what does aCFP mean?
Speaker 2 (02:27):
So to me, a CFP means it's somebody, it's an
individual that is going to takethe time to look at all those
different aspects of financialplanning.
You know a lot of financialadvisors, financial planners
whatever title they want to callthemselves these days are
focused on investments andthings like that, because that's
how they get paid.
But looking at all the otherplanners whatever title they
want to call themselves thesedays are focused on investments
and things like that becausethat's how they get paid.
(02:47):
But looking at all the otherareas of the financial plan that
you may not be compensated on,to make sure that the individual
or the family that you'reworking with has all their ducks
in a row, they've taken a lookat everything.
Now we can't plan foreverything.
I use the line all the time thatwe plan and Dob laughs Okay,
but that's why planning is fluid.
(03:08):
Things are always going tochange.
You know we might have parentsthat die.
We might have kids that returnhome that we weren't expecting.
We might have market downturnsor market, you know, bull
markets that really help us inthe long run.
So I think a CFP is importantto have because it is somebody
that has gone through thenecessary education.
It's a rigorous program to gothrough.
(03:30):
They've taken the necessaryexam and then they have to
maintain that designation withrigorous continuing education to
stay up on all these differentaspects of planning.
That is why I hold the CFP asthe gold standard when choosing
a financial advisor.
Speaker 1 (03:46):
And I think that's important because, while
somebody can be excellent attheir work, the idea that
they've gone through this extrascrutiny, this extra testing,
that they have to stay up todate, that provides an extra
level of security for the folksthat at least this person has
made the effort to go through anextensive process to become a
(04:08):
CFP.
Speaker 2 (04:09):
Yeah, it is.
I was fortunate enough when I'ma graduate at Purdue University
and their program.
I graduated with a degree infinancial planning and their
program was used to meet thestandard of the CFP designation.
So I did my education while Iwas in school for four years and
then was able to take the test.
For people that did not havethat opportunity and there's
(04:32):
more and more universities thatare adopting that you know to
have to not only work your jobbut then go to those classes
afterwards to learn it it showsthat this is what they want to
do.
They really want to put theireducation, their interest
forward to provide the bestservice possible to their
clients.
Speaker 1 (04:53):
Not to get off sidetracked too much, but as a
fellow Big Ten alumni, what doyou think about the expansion of
the athletic?
Speaker 2 (05:01):
the Big Ten, when are we going to be at the Big 20
now, I think is, where are wegoing to be at the big 20 now, I
think you know?
Uh, I have a feeling we'regoing to be staying up for some
late west coast games when we'replaying at usc and oregon and
things like that.
But you know, we've beenplaying out in the pac-10 for
you know, quite a few years fora game or two.
So I don't think it's going tobe too much of a change.
But we have to keep up with thesec.
(05:23):
That's where we're at.
Speaker 1 (05:25):
If nothing else, we have to keep up with the FCC,
and as long as we beat OhioState, then I'm good with that.
Speaker 2 (05:32):
There you go.
Speaker 1 (05:36):
Okay, great.
So let's talk about this.
What is the typical, you know?
So someone comes in and they'regetting ready for retirement.
What are some of the you know,top things that they need to
start thinking about and whatquestions should they be asking,
both in trying to find afinancial planner, but also just
(05:58):
the questions they need to beasking to be, you know, start
getting ready for retirement.
Speaker 2 (06:03):
So the first question I always ask anybody and this
is whether they're sitting in myoffice for a meeting or I'm
outside in the summertime at abarbecue or a cocktail party or
something like that hey, what doyou do?
Oh, I'm a financial planner.
I work with people inretirement.
They go oh, yeah, I'm gettingready to retire.
And I don't ask people how muchdo you have, how much do you
(06:24):
spend, or anything like that.
The first question I always askeverybody is what are you going
to do?
How are you going to spend yourtime in retirement?
Because we have spent the last30 or 40 years our identity has
been our work all right, ourwork and our family Getting
ready to retire.
I'm assuming your family hasmoved out, moved on and they're
starting families of their own.
So now you have to fill yourtime.
(06:46):
So these people that like toretire in May or June, when it's
summertime yeah, it's reallyeasy to fill time in the
summertime.
I can go fishing.
I can go out for walks.
I can do that.
Then I can get through theholidays.
That's easy.
But in the middle of Januaryyou're in the Midwest.
We know how brutal it is.
Okay, what are you going to do?
Are you going to stare at yourwife or your husband and be like
(07:08):
, what are we going to do now?
Because I'll tell you one thingthey don't want you going to
doctor's appointments with them.
They don't want you goingeverywhere together.
You have to come up with somenew identity.
So when people are out therelooking for a retirement advisor
, when they're looking for afinancial planner, they should
be looking at somebody that isfocusing on, again, the overall
(07:29):
well-being, not just themechanics and the technical
aspects of the financialplanning, but somebody that
really has rooted interest inwhat they're going to do in
retirement.
I guess these are all thingsthat we don't get paid for.
But are you telling me how youwant to spend your time?
Ultimately, that's going todictate how we financial plan,
because that's going to tell mehow much are you going to need
(07:50):
to spend, how are you, where areyou going to live, things like
that, so it all does cometogether.
So, again, not just focusing onthe technical side but the
behavioral side and reallytrying to understand the people
as a whole side, and reallytrying to understand the people
as a whole.
So that's what you need to lookfor for a financial planner.
Rates of returns that's great,but it's not everything.
(08:11):
You can't judge everybody byrate of return.
Speaker 1 (08:14):
Right, yeah, no, very good point.
So you know, it's interestinghow things have changed over the
years, especially in theMidwest, where now for maybe our
parents or maybe ourgrandparents, they were relying
on maybe a pension that was aguaranteed pension, a defined
benefit, and that's rarer andrarer these days.
(08:36):
Right, a lot of people arerelying on their 401k or similar
qualified funds, and that's alittle bit more tricky to manage
, right?
Speaker 2 (08:47):
Oh for sure, For sure .
Back in the 70s, when they cameout with ERISA, they put the
onus on the employee to try andsave for retirement.
Now we're trying to save forretirement, raise our kids,
maybe put aside a little bit ofmoney to help our kids go to
college, and now we have to tryand put all the onus on us to
(09:08):
retire.
We don't have anything to fallback on.
It's become quite cumbersomefor a lot of people.
You know, and it's sad when yousee, when I see retirees and
they retire from some of theselarger companies, how much more
successful they could be becausethe larger companies have more
aggressive matching policies andbenefits and things like that
(09:28):
for those 401ks, versus if theywere for a smaller company and
really the complete onus is onthem.
They might be behind the eightball a little bit.
Now, with that being said, youknow, Bob, we're looking at our
parents or our grandparents thathad pensions.
They were retiring at what?
50, 55, maybe 60.
Well, now I see people retiringat 65 or 70 all day long, and
(09:51):
it's not only because they don'thave enough save.
That's not the case for a lotof people.
A lot of people they have towork till 65,.
A because of healthcare okay,Because healthcare in the United
States is very unaffordable,they have to work until they get
to Medicare but B, when I evenfirst got into the business, I
was planning for 10 and 15-yearretirements.
(10:12):
Now, when I'm talking to people, I'm planning for 20 and
30-year retirements.
We're all living a lot longer,so that money that we have saved
, we have to stretch it a lotlonger as well.
So those are some of thechanges that we're experiencing.
Speaker 1 (10:28):
And you know, when it comes to these plans that are,
the retirement plans, whetheryou know so, there's money that
you have invested.
That's what we would refer toas non-qualified, meaning you've
already paid the taxes on it.
But most of what we've justbeen talking about would be
qualified funds, meaning thateither there's some tax
favorable benefits, like a Roth,or that you haven't paid the
(10:51):
taxes on it.
That can get complicated from astandpoint of knowing what
should you do and making sureyou have a plan to say okay,
well, how do we address thetaxes associated with these
retirement plans?
Right?
Speaker 2 (11:05):
Well, and that's where my buddy if anybody's ever
watched PBS sees Ed Slott onthere the retirement tax time on
that's coming and that's how mybusiness has shifted so much in
probably the last seven to 10years.
A lot of my focus has been ontax planning and how can we get
these funds out of these 401ksand IRAs in the most tax
(11:27):
favorable way possible.
And a lot of that is hard forpeople to get their arms around
because they've been thinkingsave, save, save, grow, grow,
grow.
But if we have a couple thathas the million dollar 401k we
really know you and I know it'snot a million dollars, it's only
about $700,000 because UncleSam's coming to get his chunk of
it.
So how can we take out thismoney in the most tax favored
(11:51):
way possible?
And that might be some out ofthe box thinking that we have
hey, it's delaying SocialSecurity so we don't have as
much income, so we can take moreout of those accounts.
It's taking more out of thoseaccounts than maybe we need so
that we can fill up thosefavorable tax brackets the best
(12:11):
way that we can.
So really do it as much of thistax planning upfront than
having a plan for that, because,as we're getting money for
retirement, usually those areour highest earning years.
So there's not a whole lot thatwe can do.
And the Roth IRA is a greatthing.
It just hasn't been around forthis generation of retiree long
(12:31):
enough for them to have takengreat advantage of it.
So, again, most of their moneyis in these pre-tax accounts.
How do we get that out?
And there has to be a plan inplace to do that accounts.
Speaker 1 (12:42):
How do we get that out?
And there has to be a plan inplace to do that.
So I'm glad that you mentionedthat about when to take the
money out of an IRA or 401k.
Before we get into thespecifics of maybe being
strategic about when to pay thetaxes, I want you to talk a
(13:02):
little bit about whether or notyou should roll over your 401k
to an individual retirementaccount.
I know this is a very popularthing to do, but I've got lots
of clients that still they justkind of this is what they got
from their employer and theyjust leave it there even well
after they've retired.
Talk to us about some of thereasons why they might want to
roll that over rather thanleaving their old employers 401k
(13:23):
.
Speaker 2 (13:24):
Yeah, yeah, this has kind of become more of a
polarizing topic Again.
The investment advisor isthinking I need to get my hands
on that money so I can get paid.
All right, but as a financialplanner, there's a lot of other
things that we have to take intoaccount.
Number one is age.
This is a commonmisunderstanding.
(13:44):
A lot of people don't realizethat if you retire after the age
of 55, you are allowed to starttaking withdrawals from your
401k without any penalties.
Now, most people have that age59 and a half in their brain,
but they don't realize that froma 401k after age 55, you can
take withdrawals.
Now, the downside to that anydistributions from a 401k that's
(14:07):
a mandatory 20% tax withholding.
So if you're not in the 20% taxbracket or above, then you're
going to be withholding too much.
Now you'll get that money backin the form of a refund, but
essentially the government getsto hold on to that.
The benefit of rolling it from a401k to an IRA is the
independence that you hold, theability to invest it in the
(14:30):
world of investments that areout there.
So whether you want to buystocks or bonds or ETFs or
mutual funds or fixed annuities,variable annuities, any of that
becomes available to you whenyou put it into an IRA.
Now, typically with that,though, the costs are going to
be a little bit higher for it tobe in an IRA versus the 401k.
(14:50):
Okay, in the 401k, costs arelower because we're dealing with
a big group.
They've negotiated lower costsfor us.
It's very difficult to findthose.
A lot of people don't evenrealize they're paying fees on
their 401k, but they are.
Nobody does anything for freearound here.
So, keeping an eye on the costdifference between the 401k and
the IRA, we also know that our401ks are very limited on the
(15:14):
investment options that we havein there.
Those are pre-chosen for us.
I've seen some 401ks with asfew as six options and some
401ks with as many as over 100.
So it all depends on the plan,and that's something that you
need to keep in mind when you'retrying to make this decision on
whether to leave it in a 401kor roll it to an IRA.
(15:34):
There's a lot of moving partsthat need to be considered.
It's not just hey, let's get itout or let's leave it in.
Speaker 1 (15:41):
So one of the things that you had mentioned earlier
and I want to get back to is theissue of being strategic about
taxes, and I think this is veryimportant.
People don't think about it.
I had a somewhat distantrelative that I saw had posted
and she was surprised when sheturned, you know, 71 and a half
now at 72 with the SECURE Actbut when she got to the age
(16:03):
where they required her to takemoney out and she was upset by
it.
She just didn't understand theconcept of the IRA and she was
upset by it because she said,well, now I have to take money
out, I have to figure out how tospend it, and obviously you
don't have to spend it justbecause you're taking it out of
the IRA, right?
Speaker 2 (16:21):
Right.
Speaker 1 (16:22):
And so the concept I want to get at is the fact that
you know, being knowledgeableabout this and working with you
know people that have experiencein dealing with these questions
.
Because, like you said a minuteago, you know we're always
taught save, save, save, stockas much as you can into the IRA.
You know we're always taughtsave, save, save, stock as much
as you can into the IRA.
But then when you get toretirement, a lot of people
(16:44):
assume that the only thing, thebest possible answer, is just to
take out the required minimumdistributions.
Of course, the problem withthat is that you know now we're
going to still have that taxissue.
What did you call it?
The tax bomb a minute ago?
The tax time bomb, time bomb.
And so one of the things thatpeople don't realize is
somebody's going to pay taxes onthat eventually.
(17:06):
Well, it's either you or yourkids, and your kids might be in
that high income stage once theyinherit it and they might end
up having to pay a lot higherpercentage of taxes.
So this gets a bit complicatedbecause we're not just looking
at their circumstances.
(17:26):
Sometimes you need to look attheir kids' circumstances and
say, well, if they're in a hightax bracket.
Maybe we should start payingmore of the taxes during your
lifetime, while you're retired,and get that lower tax bracket
right.
Speaker 2 (17:32):
You just hit the nail on the head right there.
There's a lot of considerationsthat go into IRA withdrawals,
especially if we're going to goabove and beyond the required
minimum distributions, becausethat is a wake-up call to
everybody that oh, now I have tostart giving my distributions,
I have to start taking them eventhough I don't want them.
So that's my number one goal isto pay tax on my terms, not the
(17:57):
government's terms.
So trying to do that, but theconsiderations you just
mentioned if my kids are goingto inherit my IRA, okay, if
they're going to be in a highertax bracket than I am now, why
wouldn't I?
If, ultimately, I want to leavethis money to them, pay lower
taxes for them, whether it'sjust through straight
distributions or Rothconversions or some sort of
(18:18):
combination of that strategy,why wouldn't I?
However, if you're in a highertax bracket than your kids are,
then maybe you don't getaggressive on that conversion.
Okay, maybe you do only takethe requiremental distribution.
Or what if you don't havechildren at all?
And your point is to leave yourIRA to charity Well, charities
inherited completely tax-free.
(18:40):
So then yeah, at that pointyou're just taking what little
amount you have to and that'sthere as your safety net if you
need it for long-term care orsomething like that, and then
whatever's left over goes to thecharity.
So again, a lot of moving partsand things that we need to
consider.
I talked about tax planning,but that's why it's a plan, it's
not, oh, everybody should do aRoth conversion or everybody
(19:03):
should go as much as they can.
It all depends on everybody'sindividual circumstance.
Speaker 1 (19:08):
Yeah, exactly that's the same thing that we talk
about all the time.
When it comes to legal planning, people sometimes get into that
same mode that you were justtalking about, thinking that
there should be that sameconsistency for everybody.
And in our office everybody istreated uniquely.
Everybody's plan is going to bevery unique.
It's the you know you saidsomething about.
(19:30):
Well, you know some people say,oh, you should just do the Roth
conversion.
Well, that's true for somepeople, but that's not going to
be appropriate for everybody.
And that's the same thing whenit comes to legal planning.
People come in and they havetheir friend got a trust and so
they want to trust.
Or their friend got somethingwe call a ladybird deed here in
Michigan and they want aladybird deed.
Well, often what we have to dois look at it and say, okay,
(19:53):
let's look at your circumstancesand see if any of these options
make sense and what might makesense for your specific
circumstances, your specificassets, your specific family,
and all of those variablesshould be considered.
If you have somebody out therepreaching and saying, well,
everybody needs this thenthey're not given very good
advice.
Speaker 2 (20:13):
Right, the ability, and I make it a practice.
I'm going to do it right now.
This is going to be an Aussiemoron.
I make it a practice to neverspeak in absolute.
So I'm using an absolute to saythat, Because there is no
absolute situation for everybody.
Everybody is just a little bitdifferent.
Sure, is there a track for usto run on that we vary off our
(20:37):
track a little bit?
Yeah, everybody's going to takea turn left or right somewhere
down the road.
That's going to be differentthan the person before them.
Speaker 1 (20:45):
So we've mentioned this a couple times and I think
most people are very familiarwith this concept of the Roth
IRA.
But just in case some of ourlisteners aren't, can you tell
us a little bit more aboutwhat's the difference between a
Roth IRA and a more traditionalIRA?
Speaker 2 (21:00):
The Roth IRA the greatest thing since sliced
bread.
So our Roth IRA versus thetraditional Most of us are
familiar with the traditional,where we make a contribution for
the year and that contributiongets deducted from our income.
So for anybody over the age of50 in 2024, the contribution is
(21:20):
$8,000.
So if we made $100,000, wecontribute $8,000 to our
traditional IRA.
We are only taxed on $92,000 ofincome.
Okay, the Roth is just theopposite.
We still have the samecontribution limit.
So, again, $8,000 for anybodyover the age of 50, but we get
taxed on that contribution.
But what happens is we arenever taxed on that money ever
(21:44):
again.
So we get to get tax-freegrowth for however long we leave
it in the Roth IRA and then weget tax-free withdrawals on that
growth when we decide towithdraw it.
One more added bonus to the RothIRA is they don't have those
required minimum distributionsthat traditional IRAs have.
So again, it is a way to paysome tax now, especially in
(22:10):
today's income tax environmentwhere none of us have ever
experienced anything lowerbefore.
So why wouldn't we pay tax now?
Let it grow tax-free for thenext 20 or 30 years and, if we
need it, be able to withdraw itcompletely tax-free.
So that is the benefit that wehave with the Roth IRA.
I think it's fantastic.
(22:30):
As I mentioned before, theretirees that are coming up now
just haven't had enough exposureto it to be able to accumulate
as much money.
So that doesn't mean that youdon't have a't mean that you
don't have a successfulretirement because you don't
have a Roth IRA, or that youwon't be able to get any money
into a Roth IRA.
We just have to do some moreplanning for it Right.
Speaker 1 (22:50):
So, like you mentioned, you can do some
conversions and it's tricky.
You got to make sure you'reworking with you know,
experienced professionals, butyou can under certain
circumstances and you got tomake sure you're arranging the
money properly.
But there can be someconversions from a traditional
to a Roth right.
Speaker 2 (23:10):
Absolutely, Absolutely.
And again, you know, when we'relooking at the traditional IRA
versus the Roth IRA, again a lotof our minds are pre-programmed
I want the tax deduction now.
It's going to help me now.
It's going to help me now.
Let's think of it from afarmer's perspective.
I have this bag of seed infront of me where I have this
field of crop where I'd ratherpay the tax on this bag of seed
(23:31):
or this whole field of crops.
I'd rather pay the tax on aseed right now and let it grow
into that field of crops andnever have to pay tax on it
again.
Speaker 1 (23:40):
So we mentioned a couple times in passing this
SECURE Act, and so the SECUREAct took effect, at least by law
, on January 1st 2020.
Since it got passed in lateDecember and took effect just a
(24:11):
couple weeks later, the IRS wasnot prepared to actually tell us
what the law meant, and that'swhat a lot of laws these days,
in fact, most laws.
they pass the law, thepolitician passes the law, and
then the bureaucrats tell uswhat it means, and so they're
still issuing new rules on theSECURE Act.
But why don't you tell us alittle bit about the SECURE Act
and how some of that mightaffect some of this?
Speaker 2 (24:29):
Yeah.
So some of the biggest changeson the SECURE Act you had
mentioned it previously theRequire Minimum Distribution Age
.
That was moved from 70.5 to 72.
Then with SECURE Act 2.0, theymoved it to 73, beginning last
year, and then 10 years so it'llbe in 2033, they're going to
move the required minimumdistribution age to 75.
(24:52):
So they've realized, hey,people are living longer, we can
push out this R&D age a littlebit further.
So they've given us a littlebit of relief from that
standpoint.
As far as us planners, it givesus a couple extra years to do
some more planning for therequirement on distribution.
So that was the first thing.
But I think the biggest changeand the most confusing change
(25:13):
and the one they still haven'tfigured out yet is how we
inherit these IRAs or thesepre-tax accounts 401ks, 403bs,
things like that.
What they did is they've takenaway our ability to stretch out,
to inherit an IRA and stretchout those distributions over our
lifetime.
That was such a valuablebenefit that we were able to do
(25:37):
to take this tax time bomb, okay, and then give it to our kids
or whoever we choose, and thenthey would have to take a
requirement on distribution, butit was based on their life
expectancy, so it's usually verysmall and there was no end
point, so it's very, verybeneficial.
What they've done now isthey've shortened it from our
lifetime to 10 years.
(25:58):
Ok, so if I inherit a milliondollar IRA, I've got 10 years to
get that million dollars out ofthe IRA and out of my tax
return.
Now this is where it gets fun.
Okay, there's convoluted lawwritten.
There's convolutedunderstanding of the law.
There's convolutedinterpretation.
It's all weird where, if theperson that you inherited from
(26:21):
was receiving a required minimumdistribution, then you have to
receiving a required minimumdistribution, then you have to
take a required minimumdistribution.
But if they weren't receiving arequired minimum distribution,
then you don't and it just hasto be out in 10 years.
But, like you said, theyhaven't really straightened it
out yet.
So Secure Act came out in 2020.
We're four years in and they'resaying, okay, well, if you
(26:43):
haven't taken a required minimumdistribution for the last four
years, we're not going toanalyze you or anything, but
maybe you should startconsidering it.
And people are still waitingsaying, well, there's no law
that says that I have to.
So it's very, very confusingand, depending on the people, it
actually does make a difference.
I have some clients that didinherit IRAs and they're five
(27:06):
years from retirement, sothey're thinking to themselves
well, I'm not gonna take anydistributions now, I don't need
the money now.
They're not requiring me per seto take a distribution.
I'm gonna take it for thosenext five years after I retire
where I have no income.
That way, I'll be able to getthat money out in a tax-favored
(27:26):
manner and that's their plangoing forward.
And again it gets so confusingand the law is not well-written
or well-interpreted by anybody.
They're basically not enforcingit.
So it'll be funny to see whathappens in 2030 when this first
10-year period comes up, and tosee there'll be a mad rush
(27:46):
because if we have a youngerbeneficiary, they might say I'm
going to let that grow for thenext 10 years and I'll just take
one hit real quick and call ita day.
So it's really confusing.
I wish I had better answers forit, but unfortunately we don't
at this time.
Speaker 1 (28:02):
No, I think the way you described it is exactly
right.
And the thing is, though, evenin this time period of confusion
, it's so important for folks toget good advice from
experienced professionals,because, when you think about it
even that last scenario thatyou mentioned you have a younger
person that says, hey, I'm justgoing to let it continue to
grow for 10 years.
(28:22):
What that might end up doing iscausing you to put yourself
into the highest tax bracket.
If you're a younger person andyou're in a low tax bracket and
you let it grow for 10 years,that 10th year between federal
and estate income taxes, youmight pay 40% in taxes on that
income.
That maybe it was worth it tolet it grow for 10 years.
(28:45):
Maybe it would have been betterto try to keep yourself in the
lower tax bracket.
But the key on this iseverybody's going to be
different.
So if you inherit an IRA and ifit's a small IRA, it's $10,000
or $20,000, not that big of adeal but if it's a substantial
IRA that you've inherited, it'sreally important to be strategic
(29:06):
about, even with the notcomplete certainty about what
the IRS is doing, to bestrategic about when we take
that money and when we incur thetaxes on that.
It can make a big difference inhow much money you actually get
to keep.
Speaker 2 (29:21):
Yeah, and the advice that I'm giving to my clients is
we're always going to err onthe side of caution.
So I'm advising people, youknow what?
Let's take some RMDs from theseaccounts, just in case they
come back after us.
I think that's the safe andprudent thing to do until we get
some better understanding ofwhat direction they want to move
with the law.
Speaker 1 (29:41):
Well.
So, greg, I really appreciateyou being with us today.
You've gotten some really goodinformation here.
I do want to talk to you aboutone last thing, and that is the
interaction between financialadvisors and lawyers.
This is something that I thinkis pretty interesting, because
some people might assume thatthat's a standard practice that
(30:04):
when a financial advisor isworking on something and they
know that their client has alawyer that's working on the
estate plan, or when a lawyerhas an estate plan and they know
they have a financial advisor,that at some point the two
communicate and make sure thatthe plan is pointed in the same
direction.
That's certainly what we do inour office.
I think that is not the pointedin the same direction.
(30:24):
That's certainly what we do inour office.
I think that is not thestandard in the industry.
So, if you can, kind of commenton the importance of the
financial advisor and thelawyers working together, oh,
absolutely, and I think thatgoes back to the standard
practices of a CFP.
Speaker 2 (30:38):
I think my biggest role is almost to play
quarterback, and I know I don'tlike to use sports analogies a
lot or I try not to, but I thinkit's the simplest one to
explain.
Matt, you have to have all thesedifferent areas that we're
planning Now.
I said I'm passionate aboutestate planning, but I'm not a
lawyer.
I have to communicate with theattorneys to make sure that, hey
(30:59):
, this is what I'm seeing on myend.
Do you concur with this?
You've had conversations, I'vehad conversations.
Let's have a meeting of theminds to come up with this
strategy together.
If we're just expecting theother professional to figure it
out for us without having allthe information, because we know
that people always know theright questions to ask or know
(31:20):
the right way to answer thequestions, to give us all the
details.
So more heads are going to bebetter for us to come to a good
interaction, a good conclusion.
So I think trying to bring inall the different professionals
that we have, especiallyattorneys and CPAs and things
like that, to make a better offoverall result for our clients,
(31:40):
and that is going to puteverybody in a much better
position.
Speaker 1 (31:44):
Well, thank you, Greg .
So we've been talking to GregKernick, a certified financial
planner from Illinois in thesouth suburbs of Chicago.
Greg, if people have questions,what's the best way of getting
a hold of you?
Speaker 2 (31:59):
So best way to get a hold of me is to email me greg
at gregkernickcom.
Okay, if you wanted to call,I'm at 630-318-0655.
My website I'm going through arebrand right now so I'll get
you the new website here.
I should have it by the end ofthis week.
Bob, if you want to put it inyour show notes, I'll get that
over to you.
(32:20):
But otherwise, yeah, give me acall or shoot me an email.
Speaker 1 (32:24):
And I wanted to specify Kernick isn't quite
spelled the way it sounds.
It's K-U-R-I-N-E-C, so it'skind of a silent I in there.
Right, it does, it does, okay,well, great.
Thanks so much and thanks forlistening.
If you found this aninteresting conversation and you
would like to hear more aboutour podcast or any of the issues
(32:46):
that we deal with aging andaging adults, don't forget to
subscribe on any of the podcaststations that you listen to.
Thanks again.
Speaker 2 (32:56):
Thanks, Bob.
Speaker 1 (32:59):
All right.
Speaker 2 (33:00):
Very good.
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