March 8, 2023 • 32 mins
Buckle up for this one because Host Josh Bretl, founder of FSR Wealth Strategies, is not messing around. This episode of the Retirement Equals Freedom Podcast is getting down to the nitty-gritty of tax strategy for retirement.
Following up on Episode 32, as promised we’re getting the solutions and work-arounds for a range of tax-related challenges that all too often leaving us with a compelling desire to bury our heads in the sand.
This pod’s primary message is: Don’t do that! With a little sound financial advice and some planning, we can all set a course to enjoying the fruits of our hard-earned retirement savings.
You’ll come away with a better understanding of the downsides of mutual funds and a new way of thinking about capital gains as something to manage – not dodge at your own expense.
Just in the nick of time, Co-host Dave Schmidt gives us the break we need by introducing another round of “Get to Know Josh and Dave” followed by a DR2R that is somewhat obscure (and macabre) but highly effective! Enjoy updates, laughs and a whole new understanding of the interplay between sound tax planning and enjoying the kind of retirement you’ve dreamed of – and earned!
Don’t miss this cool new pod link resource with all the latest and greatest about Retirement Equals Freedom and one-click access to your favorite platform for listening!
If you haven’t already, please sign up for all the news you can use (+ lots of fun) at this link for the Retirement Equals Freedom podcast newsletter. You might also want to join the conversation at our private Facebook group, which you’ll find here.
Click here to explore the services that FSR Wealth Strategies offers and schedule a discovery call with one of the team’s CPAs. When it comes to living your best life, it’s never too early to get started!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Josh Bretl (00:01):
A lot of people just let things happen to them
and then problems can occur.
So people come into our officeand they say, I don't know
how I got to this position.
They just worked hardtheir entire life.
They put their head down, theyraised their kids, they put
money in their 401ks, maybethey inherited some money,
but they just worked hard.
And all of a sudden they getto retirement and they go,
oh my gosh, I've got theseproblems I didn't know I had.
(00:24):
And they're goodproblems to have.
They're better thannot having money.
But there's things thathave occurred, and usually
the way we see people dealwith them is they stick
their head in the sand.
Dave Schmidt (00:34):
Buckle up for this one folks cause
we're not messing around.
This episode, which is a followup to episode 32, gets down
to the nitty gritty of taxstrategies for retirement.
Our primary message,don't do that!
With sound, financial advice,and some planning, we can
(00:55):
all set a course to enjoyingthe fruits of our hard
earned retirement savings.
You'll come away with a betterunderstanding of the downfalls
to mutual funds and a new wayof thinking about capital gains
as something for you to manage,not dodge, at your own expense.
Enjoy updates, guffaws, anda whole new understanding of
(01:16):
the interplay between soundtax planning and enjoying
the kind of retirement you'vedreamed of, and earned.
This is The RetirementEquals Freedom Podcast.
Your host, Josh Bretl, is theowner of FSR Wealth Strategies.
And it's Josh, who for thelast few decades, has been
(01:36):
helping fine folks likeyou make retirement the
best part of your life.
And me?
Hey there, I'm Dave.
Josh's longtime friend,co-host, and huge fan
of Root Beer barrels.
You know those awesomelittle candies.
Okay.
I'm starting toramble like Josh.
So let me let you let meend my introduction so
(01:57):
we can start the show.
FSR Wealth Management is aregistered investment advisor
located in Elmhurst, Illinois.
Information and opinionscontained in this audio
have been arrived atby FSR Wealth advisors.
All information herein isfor informational purposes
and should not be construedas investment advice.
It does not constitute an offer,a solicitation or recommendation
to purchase any security.
FSR is not providing legal,tax, accounting, or financial
planning advice in this audio.
These views are as of thedate of this publication
(02:18):
and are subject to change.
(02:39):
Joshua.
Josh Bretl (02:40):
David.
Dave Schmidt (02:41):
Happy last podcast before the Super Bowl.
Josh Bretl (02:44):
Ooh.
Well, by the time thesepeople hear this, the Super
Bowl will be long gone.
Dave Schmidt (02:49):
Correct.
But it's the last time we'rerecording before the Super Bowl.
I would like you to explainto our dear audience what
we are sipping on right now.
Josh Bretl (02:56):
Sure.
So you help me with more thanjust the podcast in this office.
You actually help mewith all marketing.
And we do a newsletter thatcomes out monthly and inside
this newsletter we have someupdates as to what's going
on, some common sense things.
There's some reallygreat articles.
There's podcast episodesthat are in there.
There's some things to getto know our office as well
(03:18):
as we try and put somethingfun in there every month.
And this month was a videoof you and I making a
special Super Bowl cocktail.
Dave Schmidt (03:27):
In fact, Josh, it was our second Happy
Hour with Josh as I havecleverly branded our segment.
And our first cocktail was theBretl Autumn Old Fashioned.
Josh Bretl (03:38):
Correct.
Dave Schmidt (03:39):
It was a hit.
I think, if I'm not mistaken,didn't a food channel reach
out to you for the exclusiverights to the recipe?
Josh Bretl (03:45):
They did.
Remember when we talkedabout Jeff Mauro many,
many podcasts ago.
He officially is tryingto buy the rights to the
Bretl Autumn Old Fashioned.
Dave Schmidt (03:53):
You can't put a price on that.
Josh Bretl (03:54):
Yeah, well, he hasn't called me yet but
he's still trying, I think.
Dave Schmidt (03:59):
what's great about this recipe, Josh, is there's
some nostalgia here because oneof our favorite distilleries,
Journeyman in Michigan, we havemany fond memories there with
our group of homies and we usetheir coffee liqueur in this.
Josh Bretl (04:13):
Yeah, it was a lot of fun.
And for some reason we decidedto do that before recording the
podcast, which is, you neverknow what I'm going to say now.
Tax advice for everybody.
Dave Schmidt (04:23):
Just wait until I talk about Dave
relates to retirees.
That's going to be special.
Do you know what Saturday is?
Josh Bretl (04:31):
Saturday.
Saturday.
Saturday.
No.
Dave Schmidt (04:35):
It is the highly anticipated matchup between
Landon Schmidt and KevinCollins's son in basketball.
Yeah.
So I may or may nothave told Landon to
not pass and go for 30.
Just saying.
If there's any parents ofLandon's teammates, I'm sorry.
I may not sound great right now.
Josh Bretl (04:55):
So Dave and I have talked about our high school
glory days of playing basketballtogether for a long time.
Kevin was a friend of ourswho we played basketball
with, and then he just decidedto pick up and move out of
town and out of the country.
And now all of a sudden he isback in the Chicagoland area
and he has a son the sameage as Landon and you guys
are in the same basketballleague, which is kind of funny.
Dave Schmidt (05:13):
Yeah, it's on like Donkey Kong, baby.
Josh Bretl (05:16):
So that is the second old teammate
reference in two weeks.
I mean, last week wetalked about our friend
Mark Thomas, and Mark andKevin know each other well.
So maybe one day major Markwill move back to town and his
kids can play against you too.
I bet they they could beat you.
Dave Schmidt (05:31):
I bet you they're probably already 7'4".
Josh Bretl (05:33):
With rebounding arms galore.
This Saturday we had...
we've been lookingforward to this all year.
Right around Thanksgiving,Missy got tickets to the
ice castles in Lake Geneva.
I'd never been to them.
They sounded really cool and thepictures look awesome, but it
has been too warm to make ice.
And last weekend was the firsttime they were open because it
(05:54):
was cold enough to make ice.
And then this week itwas 45 all week long and
it rained all day today.
So they've decided toclose for the season.
So they had one day I thinkthey were open the whole season.
The poor Ice Castles.
Dave Schmidt (06:04):
Oh, that stinks.
Josh Bretl (06:05):
So next year we try again for more Ice Castles.
Yeah.
What are you going to do?
Poor Ice Castles.
Dave Schmidt (06:11):
Speaking of ice, I wish we could use some of
that in the office right now.
It is like a sauna in here.
I'm sweating.
Josh Bretl (06:17):
I just chewed into the microphone
a giant thing of ice.
I am so sorry.
Dave Schmidt (06:22):
Josh, how's the gallbladder doing?
Have you spoken to it sinceit was removed from your body?
Josh Bretl (06:27):
No, we're estranged.
Dave Schmidt (06:29):
There's no gallbladder Instagram account
that's keeping anything?
Josh Bretl (06:33):
No.
I think it went straightfrom my body to pathology to
wherever they take those things.
But I feel great.
I really feel outstanding,I'm eating well,
everything's hunky-doryin my book, which is good.
We're moving back into ourhouse right now, so I'm lugging
stuff all over the place.
Dave Schmidt (06:50):
And you made yourself sound like you're 84
by using the word hunky-dory.
I have a beautiful stack ofpaper here from Erin, and I
believe today I'll let youintroduce the episode, but these
look like familiar terms to me.
Josh Bretl (07:10):
Oh, well, they're only familiar because we
just recorded a podcastvery similar to this.
Dave Schmidt (07:13):
Oh, that's why.
Yeah, right.
Josh Bretl (07:14):
Yeah, this is actually part two.
If you remember the lastepisode, I started telling
you all these horriblethings that could occur.
And like my father likes toyell at me, never come to
me with a problem withouta potential solution.
And I said, well, this is goingto be the more important one.
This is going to be thesolution to the problem.
Because you know my beliefof owning your retirement and
(07:37):
owning the solutions that cometo you, but a lot of people
just let things happen to themand then problems can occur.
So people come into our officeand they say, I don't know
how I got to this position.
They just worked hardtheir entire life.
They put their head down, theyraised their kids, they put
money in their 401ks, maybethey inherited some money,
but they just worked hard.
And all of a sudden they getto retirement and they go,
(07:58):
oh my gosh, I've got theseproblems I didn't know I had.
And they're goodproblems to have.
They're better thannot having money.
But there's things thathave occurred, and usually
the way we see people dealwith them is they stick
their head in the sand.
Dave Schmidt (08:10):
If I'm understanding correctly,
this episode is the mustardto last episode's hotdog.
It's the giardiniera to lastweek's Italian beef, the
pepperoni to last week's pizza.
Am I kind of on theright track here?
Josh Bretl (08:22):
It's the solution to the problem.
I mean, it's the best part.
This is the episode ifyou're going to listen to an
episode, you want this one.
Dave Schmidt (08:31):
So, I'm right.
Josh Bretl (08:33):
Like giardiniera, like pepperoni, like pizza.
Dave Schmidt (08:35):
And mustard.
Josh Bretl (08:36):
Yeah, whatever.
So Erin is very detailed,and as I was reading through
this, she made sure to tellme that we were supposed
to recap the problem.
So I'm going to recapthe problems first.
So if you're talking aboutthe problems, actually this
is one of the two episodesthat we're not talking
about IRAs and 401ks.
We're talking about themoney that's not inside IRAs
and 401ks and some of theproblems that occur with it.
(08:56):
Now, first off, oneof the problems comes
to be mutual funds.
Mutual funds are a verypopular investment, especially
when you're just gettingstarted, but they also have
their own inherent problemsthat people don't deal with.
And what are those?
Well, first off,they're expensive.
You're going to pay anywherefrom 0.15 up to 1.5 to invest
(09:20):
inside of a mutual fund.
And that is on top ofwhatever you pay an advisor
or anything along those lines.
Now, obviously you want cheaper.
The cheaper, the better.
But with technology nowadays,for a lot of positions
you can actually replicateit with just plain stock,
which is free of charge.
So for example, people lovetheir S&P 500 index funds.
(09:42):
They're great.
Vanguard is a greatone, Fidelity.
They all have good S&Preplication funds and they're
going to range anywherefrom 0.08 up to 0.19.
But you can now buythe individual stocks
for free of charge.
And those stocks don't havethose underlying investments.
So that is a really smart thingto do when you have that option.
(10:03):
The next part as it comes intoplay, is those mutual funds,
when you own those, they havedistributions inside of them.
So they have capitalgain distributions and
dividend distributions.
We talked about those last week.
But those occur whetheryou like it or not, and
you have no control.
But when you own theunderlying stocks, you
have control over that.
You're begging mefor an example here.
Dave Schmidt (10:25):
I mean, I was just kind of like, punching you.
Josh Bretl (10:27):
Yeah, give me an example.
So let's say you own thismutual fund, and it is a
large cap growth mutual fund.
A mutual fund has itsown underlying rules
that it has to abide by.
They might own anywherefrom 30 to 300 different
companies or investmentsinside the mutual fund.
(10:49):
They all have certainpercentages and certain ranges.
And what they do is theymight say, hey, if it gets
out of range by X percentage,we have to rebalance and
bring it back into range.
It's called rebalancing.
It's a good processto have in place.
We rebalance all of ourclient's portfolios.
Dave Schmidt (11:05):
You helped me rebalance after
my second cocktail.
Josh Bretl (11:08):
I'm not giving you two cocktails.
But the rebalancing comesinto play if you have it
inside of a mutual fund,inside of not an IRA, that
becomes a taxable event.
They could be buying andselling inside of there
and there's capital gainsthat get pushed out.
Now what happens is, if youown the underlying stocks, you
can decide when to rebalance.
(11:28):
If it gets really out ofwhack, yeah, you may want
to rebalance, but if itdoesn't, you can kind of keep
it how you have it there.
So by owning those individualstocks, if you have more than
just, say, a couple hundredthousand dollars, you can
do it really efficiently.
And there's people who walkinto our office with millions
of dollars and they're sittingin expensive mutual funds
(11:50):
that there's a lot betteroption and ways to do it.
Does that make sense, Dave?
Dave Schmidt (11:55):
Yeah.
I mean, of course.
No, this is commonknowledge to me.
I'm letting yougo on a rant here.
Josh Bretl (12:02):
That capital gain distribution, those dividend
distributions, those arewhat we commonly refer to
as tax drag because they'recausing unnecessary taxes.
And when you pay unnecessarytaxes, that means you've lost
money you didn't need to pay.
Alex (12:13):
Hashtag tax nerd.
Josh Bretl (12:15):
Boy, I didn't think we'd get that in this episode.
Dave Schmidt (12:17):
Sure did.
Josh Bretl (12:17):
But when that happens, you can fix that.
It's like adding an instantrate of return to your
portfolio and you didn'thave to do anything for it.
Now, another problemthat occurs is you can
have high appreciation.
It's not appreciation likeI have appreciation for you.
It's appreciation as inthe value goes up, okay.
(12:39):
And we see this a lot.
Someone is working, actuallyhad someone in my office
this week that through work,they had acquired quite a
bit of shares of McDonald's.
They'd worked at McDonald'sfor a long time and so they
had about a $20,000 basis inMcDonald's, but their stock
was worth well over $400,000.
So what occurs therethough is that gain, that
(13:02):
difference is $380,000.
If they sell it,that's a taxable event.
Dave Schmidt (13:07):
That is a capital gain?
Josh Bretl (13:08):
That is a capital gain, my friend.
Oh, man.
Dave Schmidt (13:12):
I knew it.
Josh Bretl (13:13):
Oh, you're going to be like 60 and you're going to
be like, I can be an advisor.
Dave Schmidt (13:19):
Take me that long to pass all those
exams, that's for sure.
Josh Bretl (13:21):
That's true.
But that appreciation occurs.
Now, my opinion on thisis, that is there for you.
That money is there foryour use and your desire.
Now, what most people do isthey stick their head in the
sand and they say, hey, I'mnot going to touch it, I'm
not going to think about it.
Then why do youeven have the money?
If you're not going to use it,if it's just going to be useless
and you're afraid to touchit, what's the purpose of it?
(13:43):
Why have it?
But that money can make areal difference in your life.
It can make a differencein somebody else's life.
Now, the reason peopledon't touch it is because
there is a rule calledthe step-up in basis rule.
The way the step-up in basisrule works is, let's use
the person who came into ouroffice with McDonald's stock,
if they were to die with thatstock, all of a sudden the
(14:06):
capital gain gets wiped out.
And so they call ita step-up in basis.
The basis was 20, ifthey die with it, all of
a sudden the basis getsstepped up to $400,000.
Dave Schmidt (14:17):
The value of the stock?
Josh Bretl (14:18):
The gain value goes to zero.
It's in there.
So what you have it in therefor is called your basis and
what it's worth is the gainthere, or the difference
between the two is the gain.
And so when the basis getsstepped up, the growth or
the gain goes to zero, andthat happens upon death.
So people will often say, well,I'm just going to die with it.
And when that's thecase, your plan is death.
(14:40):
Your plan, I mean, you might aswell not even have the asset.
Now for some peoplethat make sense.
For some people they've got somuch money that death, okay,
you're going to leave a legacyanyways, let's plan on this.
But there's a real problem.
One of the big problems isthe step-up in basis is a
gift given to you by theUS tax code, and they could
change that in a heartbeat.
If you are planning that thewhole time, you are really
(15:02):
relying on the US governmentand you're giving them control.
You're giving them the abilityto set your control there.
Dave Schmidt (15:11):
You make it sound risky.
Josh Bretl (15:12):
It is risky.
It's very risky.
Now, if you're near dead,it's probably not much risk.
you know, our mission statementof making sure that your
retirement is the best partof your life, why have that
money if you're just goingto plan on dying with it?
But there's thingsyou can look at.
So one is, I tell you people,let's take control of it.
We can look atminimizing capital gains.
(15:33):
But there's otherways to do it too.
One is just having a plan forhow you're going to get it out.
Maybe we can get it out in whatwe call the 0% tax bracket.
By managing your income, whichcomes with good planning,
we can actually work ongetting stuff out at 0%.
So that person that we justtalked about, the 0% tax
bracket for them can go upto about $100,000 of income.
(15:56):
So if they have $380,000 ofgains, in about four years
we could get all that moneyout, assuming no additional
growth, for 0% federal tax.
That's pretty darn impressive.
That now all of a suddenyou've got that money there
for them to spend, to use.
It's no longer just a piece ofart that says McDonald's on it
that's hanging on their wall.
Dave Schmidt (16:16):
Or like emu artwork with McDonald's.
Josh Bretl (16:22):
Emu.
Like the bird or like?
Dave Schmidt (16:24):
Yeah, Emmanuel Todd Lopez.
Josh Bretl (16:25):
Yep.
It becomes usable then.
It's not just emu artworkwith golden arches on it.
But maybe you're a reallyhigh income earner.
Maybe you have large capitalgains, you've got dividends,
you've got rentals, you'vegot pensions, you've got all
sorts of things, and you'realways going to be in a
high capital gains bracket.
Well then maybe it's justmanaging it to get it into
the 15% bracket out of the20% bracket, or managing
(16:46):
it to try and avoid thenet investment income tax.
These are all things that I'mspeaking gibberish to you,
but they're all tax terms thatif you actually manage them
can be taken under control.
And the next one thereis charity is not a bad
way to go about too.
There is some really coolcharitable strategies that
(17:08):
if you're just going to leavemoney to the next generation
anyways, you can get a prettydarn big charitable deduction,
still leave the same amountto the next generation, but
also in the same time, converta large Roth conversion.
There's things thatyou can do that make it
really, really impressive.
And the other avenue isyou look at if you have a
high capital gain, thoseare the single greatest
(17:30):
assets for you to donate.
Everyone wants to be donatedcash, but Dave, if you wanted to
donate your shares of McDonald'sto me, I'll take them.
I'm not a charity, but youshould give them to a charity,
so don't give them to me.
But if you gave your sharesof highly appreciated stock
to a charity, you kind ofget a double deduction.
The way we talk about that is,if you just gave cash, so let's
(17:53):
say you gave $20,000 in cash.
You're going to geta $20,000 deduction.
But let's say you gave $20,000of highly appreciated stock.
So let's say the stock is a$5,000 basis, it's worth 20,
so it's a $15,000 capital gain.
So you're going to avoidthe $15,000 capital gain
and you're going to geta $20,000 deduction.
(18:15):
It's kind of like a doublededuction, so it's a
great thing to donate.
So I always tell people,don't give to charity just
for the tax deduction, butif you're going to give to
charity, get the biggest taxdeduction you possibly can.
All right, so whatelse could you do?
I mean, you don't have an IRAbecause this is not IRA money.
This is money that'snot inside of an IRA.
(18:35):
What should you do?
Again, this all comesto good, solid planning.
There's a few thingsthat we look at on here.
First off, one of the fewtax-free vehicles that we'll
utilize that is not an IRAand you don't have to qualify
from a financial standpointto it, but it's specially
designed life insurance.
If you have a lot ofnon-qualified assets,
(18:56):
there's some pretty neatthings you can do from a tax
perspective with speciallydesigned life insurance.
The other thing is usingsome tax deferrals.
So there's some things, maybeyou're in a high tax rate
right now and you want to avoiddividends and capital gains.
You can use some differentannuities to avoid income right
now and defer it to a spot whereyou're in a lower tax bracket.
(19:17):
There is a thoughtprocess on how you spend.
Usually we'll tell people tospend their non-IRA money first.
Well, there you want tomake that almost kind of the
safe money then if you'regoing to spend it soon.
And so you start spendingit down, you have a spending
plan to start minimizingsome of those things.
Charity is always a great play.
We talked about charityfor a few seconds.
(19:38):
But the last one there isappreciation versus income.
If you just love to have thestocks and that's the best
thing for you, inside of yournon-qualified account let's
look for stocks that are highlyappreciative versus stocks
that pay a lot of income.
So stocks that pay incomeare going to be the stocks
that are dividend payersand they're producing income
(20:00):
every year, which is ataxable event, versus a stock
that doesn't pay a dividendbut grows significantly.
That's a capital appreciationand that has a better tax
advantage for you thansome that's paying you a
dividend every single year.
So there's always this hierarchyof what you're looking to do
and with a good plan, you canreally maximize the value there.
(20:23):
Now, most people that comein and see us, they're
focused on their IRAs or401ks or Roth accounts.
But for about 25, 30% of thepeople that come in and see
us, this is also a problem.
And there are solutions to it.
And it's don't just die with it.
Don't just give up on the assetand pretend it's not there.
Because you'veworked hard for this.
Even though you don'tknow how you got to this
(20:43):
position, guess what?
You can fix it.
And if you're going to make thisthe best part of your life, this
is something you're going tohave to take control of as well.
There is my soapbox.
Dave Schmidt (20:57):
How do I put this lightly?
My head hurts.
This is, I think, your mosttechnical episode to date.
Josh Bretl (21:05):
Yeah.
I kind of thoughtthat was coming.
Dave Schmidt (21:08):
I mean, I'm sitting like, I know all
these things, obviously.
Josh Bretl (21:11):
Obviously.
Dave Schmidt (21:12):
But I mean to like...
Josh Bretl (21:14):
Yeah, before the episode, Dave comes
in and he goes, "Whatare we talking about?"
I go, "Don't worry, thisone's all on me, buddy."
Dave Schmidt (21:20):
all right, I'll just stick to my
cocktails and my DR2R.
I mean, if it weren't forthis cocktail, Josh, I
think I may have run out theroom crying and screaming.
I mean, that was hard knowledge.
Josh Bretl (21:38):
We give quarterly education
seminars to our clients,and Dave comes and helps us
record them and edit them.
He was in charge of the videoproduction for our last one,
which was all on Medicare.
And we have some podcastson Medicare coming up after
this one, but the topicbored the snot out of Dave,
(22:00):
and he could barely lookat the camera anymore.
Dave Schmidt (22:04):
In fact, I did submit my virtual
resignation after that event.
Josh Bretl (22:08):
You did.
You realized itwas kind of, Ooh.
Dave Schmidt (22:10):
Yeah, but then you bought me pizza that night,
and I'm like, okay, fine.
I'll stay on it fora few more weeks.
So yeah, there was pizza andthen, yeah, what, what, okay.
Josh Bretl (22:13):
We did karaoke?
Dave Schmidt (22:13):
Hey, Mr.
Josh, let's take a break.
You've been talking for solong and my ears are sore.
Let's not make them snore.
Listening shouldn't be a chore.
So let's get to know Josh andDavid, watch our ratings soar.
Josh Bretl (22:38):
That bird's my favorite.
Dave Schmidt (22:39):
The bee?
Josh Bretl (22:40):
Yeah.
We're going to come upwith a new one next time.
Dave Schmidt (22:44):
I challenge you to a new name of bird.
What is the average wingspanof an African swallow?
Josh Bretl (22:51):
That is not our question.
Dave Schmidt (22:52):
No, but that is Monty Python.
Again, I'm going back.
Josh Bretl (22:54):
Oh yeah, that is true.
Oh, man.
So I went back to the Pod Deckthis time and pulled a card here
because I was running out ofquestions to ask you, and this
one, we'll see where it goes.
You ready for it?
Dave Schmidt (23:07):
I'm excited.
Yeah.
Hit me.
Josh Bretl (23:08):
What is one surefire way to grab your attention?
Dave Schmidt (23:14):
Oh man, Josh, some of these questions are...
It's hard to find a singlepath forward, like your
favorite podcast questionbecause it's no such thing.
Josh Bretl (23:26):
There are times when I think I should show
Dave this card before thepodcast starts, but there's
something about the having toanswer it on the spot I think
our audience enjoys about you.
Dave Schmidt (23:36):
So I'm going to interpret this as I'm
sitting on the couch, orI'm at my day-to-day job and
something that is for suregoing to catch my attention.
It's going to be a movietrailer or some type of trailer
for something creepy like anew Tim Burton movie or show.
(23:58):
I think that always stops mein my tracks, and I'm like, oh,
yeah, there's something macabre.
Let me tune into this.
Not necessarily Tim Burton,of course, but something
more dark and creepy.
Josh Bretl (24:10):
I get that.
Dave Schmidt (24:11):
Because I do spend quite a bit of my time in front
of a television and computer.
Josh Bretl (24:15):
You do, yeah, you do.
I took this from adifferent viewpoint.
I do a lot of public speaking,and I've done a lot of training
in public speaking, and theytalk about the power of story.
So the value of a good story.
So if you come to any of myworkshops, you will know that
the first word out of my mouthgoes straight into a story.
(24:35):
Always.
I try and go into a story asoften as humanly possible.
But I have found my ownbrain all of a sudden
is attracted to stories.
You know, you scroll socialmedia and you have those
random videos that show up,and as they start telling the
stories, the words crawl across,I can't stop looking at it.
(24:56):
So you giving me a good story?
Now, I may scroll offif it's a stupid story.
Dave Schmidt (25:02):
I'm with you on that.
I get sucked into when peopleare rescuing random animals.
I'm like, oh God,I got to see this.
Oh, I wish I was that goodof a human being to do that.
Josh Bretl (25:11):
Oh yeah, without a doubt.
Dave Schmidt (25:13):
So yeah, you do love a good story.
You tell a good story.
Josh Bretl (25:16):
Sometimes they ramble.
Dave Schmidt: Sometimes they ramble. (25:17):
undefined
ALF (25:18):
Why must you needlessly complicate everything?
Dave Schmidt (25:22):
So a cop car just came flying in your parking lot.
Josh Bretl (25:24):
It was kind of weird.
Dave Schmidt (25:25):
It was kind of creepy, but it
made me think about this.
Dave relates to retirees, yeah.
Josh Bretl (25:34):
I can't wait to see where this one's going.
Dave Schmidt (25:36):
Well, look, my DR2R does not relate to police.
My pen is just falling apart.
Where do you buy thesethings from, Josh?
Josh Bretl (25:43):
Those are expensive pens.
Dave Schmidt (25:45):
Are they?
Josh Bretl (25:45):
You're manhandling the thing.
Dave Schmidt (25:46):
I did.
I mentioned earlier, thisepisode's a little hard for
my small little brain tounderstand, but I picked
up a few pieces and a lightbulb went off in my head
and I said, yes, I got it.
I know how I canrelate to this whole-
Josh Bretl (26:01):
I was worried about you relating to this episode.
Dave Schmidt (26:04):
More money, more problems episode here.
I mentioned thename Ichabod Crane.
You know who that is?
Josh Bretl (26:09):
I'm sure it has something to do with Tim Burton.
Dave Schmidt (26:10):
Yeah, but Ichabod Crane, you know,
Legend of Sleepy Hollow.
Josh Bretl (26:13):
Yeah.
Dave Schmidt (26:14):
So he's essentially assigned to the case
of the Headless Horseman in thesmall town of Sleepy Hollow.
He's from-
Josh Bretl (26:20):
he is not the Headless Horseman?
Dave Schmidt (26:21):
He is not the Headless Horseman, no.
He is a constable in New York,and he's assigned to this case.
And so he goes and bringshis fancy tools to the small
town of Sleepy Hollow, andhe arrives and he thinks
I got a lot going for me.
I've got these fancy newage instruments that I can
help solve crimes with.
No one else in this smalltown has it, but I have it.
(26:42):
Ichabod's kind of like retireesthat have all this income, Josh.
Would you agree?
And they think they're doinggreat, and they are doing great.
Like you said,money's a good thing.
But then Ichabod is taskedwith solving the crime
of the Headless Horseman.
He is not just loppingheads off, he's actually
taking heads back with him.
(27:04):
He soon realizes, oh, I'mnot in as great of a position
to solve these heinousmurders as I thought I was.
I don't know what to do.
In comes Katrina Van Tasselplayed by Christina Ricci.
You knew that, right?
Josh Bretl (27:18):
No.
Dave Schmidt (27:18):
No.
Okay.
Spoiler alert, she's agood witch and she kind
of foreshadows all this,and she gives Ichabod a
different perspective.
She says, "Ichabod, don'trely on your fancy tools.
It's just a matter of optics.
It's a matter of just seeingthings in a different way."
To me, Josh, you are likea Katrina Van Tassel.
Josh Bretl (27:38):
I'm a good witch?
Dave Schmidt (27:39):
You are a good witch.
You gave your clients kindof the ability to see,
hey, there is a good pathforward with all this.
You don't have to be stuckpaying all these taxes
that you don't need to pay.
So yeah, I get this.
This episode is rightin my wheelhouse, baby.
You, Katrina Van Tassel, andretirees are like Ichabod Crane.
Josh Bretl (28:04):
Do you know the last episode?
Dave Schmidt (28:06):
Yeah.
Josh Bretl (28:07):
Your DR2R involved...
It was AST9000 or something.
It was-
Dave Schmidt (28:15):
mST3K.
Josh Bretl (28:15):
Yeah, that one.
Mystery Science Theater 3000.
Dave Schmidt (28:18):
You went home and you binged it.
Josh Bretl (28:19):
Nope.
Haven't watched it still.
And there was all sorts ofweird names in there that
I didn't really follow orunderstand or any of that stuff.
It was hard to relate to that.
So you pulled it out againthis week with names and
characters that I haveno idea who they are.
Dave Schmidt (28:34):
Really quick.
Dear listener, Josh attendedthe premiere of Sleepy
Hollow back on that fatefulnight in November 1999.
He was there next to me,loving it as much as I did.
Josh Bretl (28:45):
November of '99?
I came home from collegeto go watch that with you?
Dave Schmidt (28:49):
You were home for Christmas break because it
was like around Thanksgiving.
Josh Bretl (28:52):
Oh, good God.
What did I see in you?
Dave Schmidt (28:54):
You probably paid for me too.
Josh Bretl (28:57):
Probably did buy your ticket and everything.
But I actually have a relationto this, believe it or not.
I actually thinkyou're pretty dead on.
Ichabod, if I'm hearing thisright, comes in to solve this
heinous murder and he thinkshe's got everything going.
And then he realizes,oh no, I really don't.
I've got these issues and Idon't even know what the issues
(29:19):
are at that point in time.
So kind of like retirees, theylook at their statements and
they say, man, I am great.
All of a sudden I've got thismoney I wasn't expecting.
I'm doing fantastic, butoh wait, I can't touch
this money, so I'm justgoing to die with it.
Or they don't realize thatif they did it in a slightly
different way that is moreefficient and well planned
(29:43):
out, that they could bein a much better position.
They could not haveto just waste it.
They could give a lot moreto their selves, to their
family, to their charity,whatever it might be, if they
just would seek out the righthelp and the right guidance.
So for as much as you pullrandom characters that very
(30:04):
few people care about torelate to, you're actually not
too far off, in my opinion.
Dave Schmidt (30:10):
Thank you, Josh.
As you're talking I'mthinking, you know what?
I'm always looking for a goodway to write a good story.
What if we do a mashup betweenSleepy Hollow and Full House?
Because your Full Housemoment is so majestic.
Josh Bretl (30:25):
Do I have to have a Sleepy Hollow moment?
Dave Schmidt (30:26):
I mean, well, you'd be really cool if you did.
What are you guysdoing for Super Bowl?
Anything?
Josh Bretl (30:33):
Missy is selling Girl Scout cookies
for the Super Bowl.
This year she is the cookiemom, as you know, and she's
scheduled a cookie booth andforgot it was Super Bowl Sunday.
She's in front of theYork Theater, which is
right next to Starbucks.
So she's in downtown Elmhurst.
Dave Schmidt (30:47):
Yeah, people be out and about Sunday getting
ready for the big game.
Josh Bretl (30:50):
That's my Super Bowl.
How about you?
Dave Schmidt (30:52):
Yeah, we're having the fam over.
I believe I'm going tobe making this new...
What did we call it again?
Josh Bretl (30:58):
The Scott Smith Super Bowl special.
Dave Schmidt (30:59):
Scott Smith Super Bowl special.
We're having the fam over.
I am in charge of planning thefood, and I have yet to send
out the email to plan it, soI should probably get on that.
Josh Bretl (31:09):
You should.
I'm taking the kids overto a friend's house and I
volunteered to bring my superspecial grilled shrimp recipe.
He's firing up the charcoalgrill, and we're going
to have a great time.
Dave Schmidt (31:19):
That sounds, can you make a stop in Glen Ellyn?
Josh Bretl (31:21):
Yeah, sure.
Dave Schmidt (31:23):
Is that sarcastic?
Josh Bretl (31:23):
Oh yeah, without a doubt.
Dave Schmidt (31:25):
Oh, well, in that case, Josh, bye.
Scott Smith Super Bowl special.
Scott Smith.
Josh Bretl (31:35):
Was that episode at all listenable?
Dave Schmidt (31:40):
It was hard.
Josh Bretl (31:41):
Yeah.
Yeah.
We'll see.
Alex (31:43):
Hashtag tax nerd.
A lot of people just let things happen to them
and then problems can occur.
So people come into our officeand they say, I don't know
how I got to this position.
They just worked hardtheir entire life.
They put their head down, theyraised their kids, they put
money in their 401ks, maybethey inherited some money,
but they just worked hard.
And all of a sudden they getto retirement and they go,
oh my gosh, I've got theseproblems I didn't know I had.
(00:24):
And they're goodproblems to have.
They're better thannot having money.
But there's things thathave occurred, and usually
the way we see people dealwith them is they stick
their head in the sand.
Dave Schmidt (00:34):
Buckle up for this one folks cause
we're not messing around.
This episode, which is a followup to episode 32, gets down
to the nitty gritty of taxstrategies for retirement.
Our primary message,don't do that!
With sound, financial advice,and some planning, we can
(00:55):
all set a course to enjoyingthe fruits of our hard
earned retirement savings.
You'll come away with a betterunderstanding of the downfalls
to mutual funds and a new wayof thinking about capital gains
as something for you to manage,not dodge, at your own expense.
Enjoy updates, guffaws, anda whole new understanding of
(01:16):
the interplay between soundtax planning and enjoying
the kind of retirement you'vedreamed of, and earned.
This is The RetirementEquals Freedom Podcast.
Your host, Josh Bretl, is theowner of FSR Wealth Strategies.
And it's Josh, who for thelast few decades, has been
(01:36):
helping fine folks likeyou make retirement the
best part of your life.
And me?
Hey there, I'm Dave.
Josh's longtime friend,co-host, and huge fan
of Root Beer barrels.
You know those awesomelittle candies.
Okay.
I'm starting toramble like Josh.
So let me let you let meend my introduction so
(01:57):
we can start the show.
FSR Wealth Management is aregistered investment advisor
located in Elmhurst, Illinois.
Information and opinionscontained in this audio
have been arrived atby FSR Wealth advisors.
All information herein isfor informational purposes
and should not be construedas investment advice.
It does not constitute an offer,a solicitation or recommendation
to purchase any security.
FSR is not providing legal,tax, accounting, or financial
planning advice in this audio.
These views are as of thedate of this publication
(02:18):
and are subject to change.
(02:39):
Joshua.
Josh Bretl (02:40):
David.
Dave Schmidt (02:41):
Happy last podcast before the Super Bowl.
Josh Bretl (02:44):
Ooh.
Well, by the time thesepeople hear this, the Super
Bowl will be long gone.
Dave Schmidt (02:49):
Correct.
But it's the last time we'rerecording before the Super Bowl.
I would like you to explainto our dear audience what
we are sipping on right now.
Josh Bretl (02:56):
Sure.
So you help me with more thanjust the podcast in this office.
You actually help mewith all marketing.
And we do a newsletter thatcomes out monthly and inside
this newsletter we have someupdates as to what's going
on, some common sense things.
There's some reallygreat articles.
There's podcast episodesthat are in there.
There's some things to getto know our office as well
(03:18):
as we try and put somethingfun in there every month.
And this month was a videoof you and I making a
special Super Bowl cocktail.
Dave Schmidt (03:27):
In fact, Josh, it was our second Happy
Hour with Josh as I havecleverly branded our segment.
And our first cocktail was theBretl Autumn Old Fashioned.
Josh Bretl (03:38):
Correct.
Dave Schmidt (03:39):
It was a hit.
I think, if I'm not mistaken,didn't a food channel reach
out to you for the exclusiverights to the recipe?
Josh Bretl (03:45):
They did.
Remember when we talkedabout Jeff Mauro many,
many podcasts ago.
He officially is tryingto buy the rights to the
Bretl Autumn Old Fashioned.
Dave Schmidt (03:53):
You can't put a price on that.
Josh Bretl (03:54):
Yeah, well, he hasn't called me yet but
he's still trying, I think.
Dave Schmidt (03:59):
what's great about this recipe, Josh, is there's
some nostalgia here because oneof our favorite distilleries,
Journeyman in Michigan, we havemany fond memories there with
our group of homies and we usetheir coffee liqueur in this.
Josh Bretl (04:13):
Yeah, it was a lot of fun.
And for some reason we decidedto do that before recording the
podcast, which is, you neverknow what I'm going to say now.
Tax advice for everybody.
Dave Schmidt (04:23):
Just wait until I talk about Dave
relates to retirees.
That's going to be special.
Do you know what Saturday is?
Josh Bretl (04:31):
Saturday.
Saturday.
Saturday.
No.
Dave Schmidt (04:35):
It is the highly anticipated matchup between
Landon Schmidt and KevinCollins's son in basketball.
Yeah.
So I may or may nothave told Landon to
not pass and go for 30.
Just saying.
If there's any parents ofLandon's teammates, I'm sorry.
I may not sound great right now.
Josh Bretl (04:55):
So Dave and I have talked about our high school
glory days of playing basketballtogether for a long time.
Kevin was a friend of ourswho we played basketball
with, and then he just decidedto pick up and move out of
town and out of the country.
And now all of a sudden he isback in the Chicagoland area
and he has a son the sameage as Landon and you guys
are in the same basketballleague, which is kind of funny.
Dave Schmidt (05:13):
Yeah, it's on like Donkey Kong, baby.
Josh Bretl (05:16):
So that is the second old teammate
reference in two weeks.
I mean, last week wetalked about our friend
Mark Thomas, and Mark andKevin know each other well.
So maybe one day major Markwill move back to town and his
kids can play against you too.
I bet they they could beat you.
Dave Schmidt (05:31):
I bet you they're probably already 7'4".
Josh Bretl (05:33):
With rebounding arms galore.
This Saturday we had...
we've been lookingforward to this all year.
Right around Thanksgiving,Missy got tickets to the
ice castles in Lake Geneva.
I'd never been to them.
They sounded really cool and thepictures look awesome, but it
has been too warm to make ice.
And last weekend was the firsttime they were open because it
(05:54):
was cold enough to make ice.
And then this week itwas 45 all week long and
it rained all day today.
So they've decided toclose for the season.
So they had one day I thinkthey were open the whole season.
The poor Ice Castles.
Dave Schmidt (06:04):
Oh, that stinks.
Josh Bretl (06:05):
So next year we try again for more Ice Castles.
Yeah.
What are you going to do?
Poor Ice Castles.
Dave Schmidt (06:11):
Speaking of ice, I wish we could use some of
that in the office right now.
It is like a sauna in here.
I'm sweating.
Josh Bretl (06:17):
I just chewed into the microphone
a giant thing of ice.
I am so sorry.
Dave Schmidt (06:22):
Josh, how's the gallbladder doing?
Have you spoken to it sinceit was removed from your body?
Josh Bretl (06:27):
No, we're estranged.
Dave Schmidt (06:29):
There's no gallbladder Instagram account
that's keeping anything?
Josh Bretl (06:33):
No.
I think it went straightfrom my body to pathology to
wherever they take those things.
But I feel great.
I really feel outstanding,I'm eating well,
everything's hunky-doryin my book, which is good.
We're moving back into ourhouse right now, so I'm lugging
stuff all over the place.
Dave Schmidt (06:50):
And you made yourself sound like you're 84
by using the word hunky-dory.
I have a beautiful stack ofpaper here from Erin, and I
believe today I'll let youintroduce the episode, but these
look like familiar terms to me.
Josh Bretl (07:10):
Oh, well, they're only familiar because we
just recorded a podcastvery similar to this.
Dave Schmidt (07:13):
Oh, that's why.
Yeah, right.
Josh Bretl (07:14):
Yeah, this is actually part two.
If you remember the lastepisode, I started telling
you all these horriblethings that could occur.
And like my father likes toyell at me, never come to
me with a problem withouta potential solution.
And I said, well, this is goingto be the more important one.
This is going to be thesolution to the problem.
Because you know my beliefof owning your retirement and
(07:37):
owning the solutions that cometo you, but a lot of people
just let things happen to themand then problems can occur.
So people come into our officeand they say, I don't know
how I got to this position.
They just worked hardtheir entire life.
They put their head down, theyraised their kids, they put
money in their 401ks, maybethey inherited some money,
but they just worked hard.
And all of a sudden they getto retirement and they go,
(07:58):
oh my gosh, I've got theseproblems I didn't know I had.
And they're goodproblems to have.
They're better thannot having money.
But there's things thathave occurred, and usually
the way we see people dealwith them is they stick
their head in the sand.
Dave Schmidt (08:10):
If I'm understanding correctly,
this episode is the mustardto last episode's hotdog.
It's the giardiniera to lastweek's Italian beef, the
pepperoni to last week's pizza.
Am I kind of on theright track here?
Josh Bretl (08:22):
It's the solution to the problem.
I mean, it's the best part.
This is the episode ifyou're going to listen to an
episode, you want this one.
Dave Schmidt (08:31):
So, I'm right.
Josh Bretl (08:33):
Like giardiniera, like pepperoni, like pizza.
Dave Schmidt (08:35):
And mustard.
Josh Bretl (08:36):
Yeah, whatever.
So Erin is very detailed,and as I was reading through
this, she made sure to tellme that we were supposed
to recap the problem.
So I'm going to recapthe problems first.
So if you're talking aboutthe problems, actually this
is one of the two episodesthat we're not talking
about IRAs and 401ks.
We're talking about themoney that's not inside IRAs
and 401ks and some of theproblems that occur with it.
(08:56):
Now, first off, oneof the problems comes
to be mutual funds.
Mutual funds are a verypopular investment, especially
when you're just gettingstarted, but they also have
their own inherent problemsthat people don't deal with.
And what are those?
Well, first off,they're expensive.
You're going to pay anywherefrom 0.15 up to 1.5 to invest
(09:20):
inside of a mutual fund.
And that is on top ofwhatever you pay an advisor
or anything along those lines.
Now, obviously you want cheaper.
The cheaper, the better.
But with technology nowadays,for a lot of positions
you can actually replicateit with just plain stock,
which is free of charge.
So for example, people lovetheir S&P 500 index funds.
(09:42):
They're great.
Vanguard is a greatone, Fidelity.
They all have good S&Preplication funds and they're
going to range anywherefrom 0.08 up to 0.19.
But you can now buythe individual stocks
for free of charge.
And those stocks don't havethose underlying investments.
So that is a really smart thingto do when you have that option.
(10:03):
The next part as it comes intoplay, is those mutual funds,
when you own those, they havedistributions inside of them.
So they have capitalgain distributions and
dividend distributions.
We talked about those last week.
But those occur whetheryou like it or not, and
you have no control.
But when you own theunderlying stocks, you
have control over that.
You're begging mefor an example here.
Dave Schmidt (10:25):
I mean, I was just kind of like, punching you.
Josh Bretl (10:27):
Yeah, give me an example.
So let's say you own thismutual fund, and it is a
large cap growth mutual fund.
A mutual fund has itsown underlying rules
that it has to abide by.
They might own anywherefrom 30 to 300 different
companies or investmentsinside the mutual fund.
(10:49):
They all have certainpercentages and certain ranges.
And what they do is theymight say, hey, if it gets
out of range by X percentage,we have to rebalance and
bring it back into range.
It's called rebalancing.
It's a good processto have in place.
We rebalance all of ourclient's portfolios.
Dave Schmidt (11:05):
You helped me rebalance after
my second cocktail.
Josh Bretl (11:08):
I'm not giving you two cocktails.
But the rebalancing comesinto play if you have it
inside of a mutual fund,inside of not an IRA, that
becomes a taxable event.
They could be buying andselling inside of there
and there's capital gainsthat get pushed out.
Now what happens is, if youown the underlying stocks, you
can decide when to rebalance.
(11:28):
If it gets really out ofwhack, yeah, you may want
to rebalance, but if itdoesn't, you can kind of keep
it how you have it there.
So by owning those individualstocks, if you have more than
just, say, a couple hundredthousand dollars, you can
do it really efficiently.
And there's people who walkinto our office with millions
of dollars and they're sittingin expensive mutual funds
(11:50):
that there's a lot betteroption and ways to do it.
Does that make sense, Dave?
Dave Schmidt (11:55):
Yeah.
I mean, of course.
No, this is commonknowledge to me.
I'm letting yougo on a rant here.
Josh Bretl (12:02):
That capital gain distribution, those dividend
distributions, those arewhat we commonly refer to
as tax drag because they'recausing unnecessary taxes.
And when you pay unnecessarytaxes, that means you've lost
money you didn't need to pay.
Alex (12:13):
Hashtag tax nerd.
Josh Bretl (12:15):
Boy, I didn't think we'd get that in this episode.
Dave Schmidt (12:17):
Sure did.
Josh Bretl (12:17):
But when that happens, you can fix that.
It's like adding an instantrate of return to your
portfolio and you didn'thave to do anything for it.
Now, another problemthat occurs is you can
have high appreciation.
It's not appreciation likeI have appreciation for you.
It's appreciation as inthe value goes up, okay.
(12:39):
And we see this a lot.
Someone is working, actuallyhad someone in my office
this week that through work,they had acquired quite a
bit of shares of McDonald's.
They'd worked at McDonald'sfor a long time and so they
had about a $20,000 basis inMcDonald's, but their stock
was worth well over $400,000.
So what occurs therethough is that gain, that
(13:02):
difference is $380,000.
If they sell it,that's a taxable event.
Dave Schmidt (13:07):
That is a capital gain?
Josh Bretl (13:08):
That is a capital gain, my friend.
Oh, man.
Dave Schmidt (13:12):
I knew it.
Josh Bretl (13:13):
Oh, you're going to be like 60 and you're going to
be like, I can be an advisor.
Dave Schmidt (13:19):
Take me that long to pass all those
exams, that's for sure.
Josh Bretl (13:21):
That's true.
But that appreciation occurs.
Now, my opinion on thisis, that is there for you.
That money is there foryour use and your desire.
Now, what most people do isthey stick their head in the
sand and they say, hey, I'mnot going to touch it, I'm
not going to think about it.
Then why do youeven have the money?
If you're not going to use it,if it's just going to be useless
and you're afraid to touchit, what's the purpose of it?
(13:43):
Why have it?
But that money can make areal difference in your life.
It can make a differencein somebody else's life.
Now, the reason peopledon't touch it is because
there is a rule calledthe step-up in basis rule.
The way the step-up in basisrule works is, let's use
the person who came into ouroffice with McDonald's stock,
if they were to die with thatstock, all of a sudden the
(14:06):
capital gain gets wiped out.
And so they call ita step-up in basis.
The basis was 20, ifthey die with it, all of
a sudden the basis getsstepped up to $400,000.
Dave Schmidt (14:17):
The value of the stock?
Josh Bretl (14:18):
The gain value goes to zero.
It's in there.
So what you have it in therefor is called your basis and
what it's worth is the gainthere, or the difference
between the two is the gain.
And so when the basis getsstepped up, the growth or
the gain goes to zero, andthat happens upon death.
So people will often say, well,I'm just going to die with it.
And when that's thecase, your plan is death.
(14:40):
Your plan, I mean, you might aswell not even have the asset.
Now for some peoplethat make sense.
For some people they've got somuch money that death, okay,
you're going to leave a legacyanyways, let's plan on this.
But there's a real problem.
One of the big problems isthe step-up in basis is a
gift given to you by theUS tax code, and they could
change that in a heartbeat.
If you are planning that thewhole time, you are really
(15:02):
relying on the US governmentand you're giving them control.
You're giving them the abilityto set your control there.
Dave Schmidt (15:11):
You make it sound risky.
Josh Bretl (15:12):
It is risky.
It's very risky.
Now, if you're near dead,it's probably not much risk.
you know, our mission statementof making sure that your
retirement is the best partof your life, why have that
money if you're just goingto plan on dying with it?
But there's thingsyou can look at.
So one is, I tell you people,let's take control of it.
We can look atminimizing capital gains.
(15:33):
But there's otherways to do it too.
One is just having a plan forhow you're going to get it out.
Maybe we can get it out in whatwe call the 0% tax bracket.
By managing your income, whichcomes with good planning,
we can actually work ongetting stuff out at 0%.
So that person that we justtalked about, the 0% tax
bracket for them can go upto about $100,000 of income.
(15:56):
So if they have $380,000 ofgains, in about four years
we could get all that moneyout, assuming no additional
growth, for 0% federal tax.
That's pretty darn impressive.
That now all of a suddenyou've got that money there
for them to spend, to use.
It's no longer just a piece ofart that says McDonald's on it
that's hanging on their wall.
Dave Schmidt (16:16):
Or like emu artwork with McDonald's.
Josh Bretl (16:22):
Emu.
Like the bird or like?
Dave Schmidt (16:24):
Yeah, Emmanuel Todd Lopez.
Josh Bretl (16:25):
Yep.
It becomes usable then.
It's not just emu artworkwith golden arches on it.
But maybe you're a reallyhigh income earner.
Maybe you have large capitalgains, you've got dividends,
you've got rentals, you'vegot pensions, you've got all
sorts of things, and you'realways going to be in a
high capital gains bracket.
Well then maybe it's justmanaging it to get it into
the 15% bracket out of the20% bracket, or managing
(16:46):
it to try and avoid thenet investment income tax.
These are all things that I'mspeaking gibberish to you,
but they're all tax terms thatif you actually manage them
can be taken under control.
And the next one thereis charity is not a bad
way to go about too.
There is some really coolcharitable strategies that
(17:08):
if you're just going to leavemoney to the next generation
anyways, you can get a prettydarn big charitable deduction,
still leave the same amountto the next generation, but
also in the same time, converta large Roth conversion.
There's things thatyou can do that make it
really, really impressive.
And the other avenue isyou look at if you have a
high capital gain, thoseare the single greatest
(17:30):
assets for you to donate.
Everyone wants to be donatedcash, but Dave, if you wanted to
donate your shares of McDonald'sto me, I'll take them.
I'm not a charity, but youshould give them to a charity,
so don't give them to me.
But if you gave your sharesof highly appreciated stock
to a charity, you kind ofget a double deduction.
The way we talk about that is,if you just gave cash, so let's
(17:53):
say you gave $20,000 in cash.
You're going to geta $20,000 deduction.
But let's say you gave $20,000of highly appreciated stock.
So let's say the stock is a$5,000 basis, it's worth 20,
so it's a $15,000 capital gain.
So you're going to avoidthe $15,000 capital gain
and you're going to geta $20,000 deduction.
(18:15):
It's kind of like a doublededuction, so it's a
great thing to donate.
So I always tell people,don't give to charity just
for the tax deduction, butif you're going to give to
charity, get the biggest taxdeduction you possibly can.
All right, so whatelse could you do?
I mean, you don't have an IRAbecause this is not IRA money.
This is money that'snot inside of an IRA.
(18:35):
What should you do?
Again, this all comesto good, solid planning.
There's a few thingsthat we look at on here.
First off, one of the fewtax-free vehicles that we'll
utilize that is not an IRAand you don't have to qualify
from a financial standpointto it, but it's specially
designed life insurance.
If you have a lot ofnon-qualified assets,
(18:56):
there's some pretty neatthings you can do from a tax
perspective with speciallydesigned life insurance.
The other thing is usingsome tax deferrals.
So there's some things, maybeyou're in a high tax rate
right now and you want to avoiddividends and capital gains.
You can use some differentannuities to avoid income right
now and defer it to a spot whereyou're in a lower tax bracket.
(19:17):
There is a thoughtprocess on how you spend.
Usually we'll tell people tospend their non-IRA money first.
Well, there you want tomake that almost kind of the
safe money then if you'regoing to spend it soon.
And so you start spendingit down, you have a spending
plan to start minimizingsome of those things.
Charity is always a great play.
We talked about charityfor a few seconds.
(19:38):
But the last one there isappreciation versus income.
If you just love to have thestocks and that's the best
thing for you, inside of yournon-qualified account let's
look for stocks that are highlyappreciative versus stocks
that pay a lot of income.
So stocks that pay incomeare going to be the stocks
that are dividend payersand they're producing income
(20:00):
every year, which is ataxable event, versus a stock
that doesn't pay a dividendbut grows significantly.
That's a capital appreciationand that has a better tax
advantage for you thansome that's paying you a
dividend every single year.
So there's always this hierarchyof what you're looking to do
and with a good plan, you canreally maximize the value there.
(20:23):
Now, most people that comein and see us, they're
focused on their IRAs or401ks or Roth accounts.
But for about 25, 30% of thepeople that come in and see
us, this is also a problem.
And there are solutions to it.
And it's don't just die with it.
Don't just give up on the assetand pretend it's not there.
Because you'veworked hard for this.
Even though you don'tknow how you got to this
(20:43):
position, guess what?
You can fix it.
And if you're going to make thisthe best part of your life, this
is something you're going tohave to take control of as well.
There is my soapbox.
Dave Schmidt (20:57):
How do I put this lightly?
My head hurts.
This is, I think, your mosttechnical episode to date.
Josh Bretl (21:05):
Yeah.
I kind of thoughtthat was coming.
Dave Schmidt (21:08):
I mean, I'm sitting like, I know all
these things, obviously.
Josh Bretl (21:11):
Obviously.
Dave Schmidt (21:12):
But I mean to like...
Josh Bretl (21:14):
Yeah, before the episode, Dave comes
in and he goes, "Whatare we talking about?"
I go, "Don't worry, thisone's all on me, buddy."
Dave Schmidt (21:20):
all right, I'll just stick to my
cocktails and my DR2R.
I mean, if it weren't forthis cocktail, Josh, I
think I may have run out theroom crying and screaming.
I mean, that was hard knowledge.
Josh Bretl (21:38):
We give quarterly education
seminars to our clients,and Dave comes and helps us
record them and edit them.
He was in charge of the videoproduction for our last one,
which was all on Medicare.
And we have some podcastson Medicare coming up after
this one, but the topicbored the snot out of Dave,
(22:00):
and he could barely lookat the camera anymore.
Dave Schmidt (22:04):
In fact, I did submit my virtual
resignation after that event.
Josh Bretl (22:08):
You did.
You realized itwas kind of, Ooh.
Dave Schmidt (22:10):
Yeah, but then you bought me pizza that night,
and I'm like, okay, fine.
I'll stay on it fora few more weeks.
So yeah, there was pizza andthen, yeah, what, what, okay.
Josh Bretl (22:13):
We did karaoke?
Dave Schmidt (22:13):
Hey, Mr.
Josh, let's take a break.
You've been talking for solong and my ears are sore.
Let's not make them snore.
Listening shouldn't be a chore.
So let's get to know Josh andDavid, watch our ratings soar.
Josh Bretl (22:38):
That bird's my favorite.
Dave Schmidt (22:39):
The bee?
Josh Bretl (22:40):
Yeah.
We're going to come upwith a new one next time.
Dave Schmidt (22:44):
I challenge you to a new name of bird.
What is the average wingspanof an African swallow?
Josh Bretl (22:51):
That is not our question.
Dave Schmidt (22:52):
No, but that is Monty Python.
Again, I'm going back.
Josh Bretl (22:54):
Oh yeah, that is true.
Oh, man.
So I went back to the Pod Deckthis time and pulled a card here
because I was running out ofquestions to ask you, and this
one, we'll see where it goes.
You ready for it?
Dave Schmidt (23:07):
I'm excited.
Yeah.
Hit me.
Josh Bretl (23:08):
What is one surefire way to grab your attention?
Dave Schmidt (23:14):
Oh man, Josh, some of these questions are...
It's hard to find a singlepath forward, like your
favorite podcast questionbecause it's no such thing.
Josh Bretl (23:26):
There are times when I think I should show
Dave this card before thepodcast starts, but there's
something about the having toanswer it on the spot I think
our audience enjoys about you.
Dave Schmidt (23:36):
So I'm going to interpret this as I'm
sitting on the couch, orI'm at my day-to-day job and
something that is for suregoing to catch my attention.
It's going to be a movietrailer or some type of trailer
for something creepy like anew Tim Burton movie or show.
(23:58):
I think that always stops mein my tracks, and I'm like, oh,
yeah, there's something macabre.
Let me tune into this.
Not necessarily Tim Burton,of course, but something
more dark and creepy.
Josh Bretl (24:10):
I get that.
Dave Schmidt (24:11):
Because I do spend quite a bit of my time in front
of a television and computer.
Josh Bretl (24:15):
You do, yeah, you do.
I took this from adifferent viewpoint.
I do a lot of public speaking,and I've done a lot of training
in public speaking, and theytalk about the power of story.
So the value of a good story.
So if you come to any of myworkshops, you will know that
the first word out of my mouthgoes straight into a story.
(24:35):
Always.
I try and go into a story asoften as humanly possible.
But I have found my ownbrain all of a sudden
is attracted to stories.
You know, you scroll socialmedia and you have those
random videos that show up,and as they start telling the
stories, the words crawl across,I can't stop looking at it.
(24:56):
So you giving me a good story?
Now, I may scroll offif it's a stupid story.
Dave Schmidt (25:02):
I'm with you on that.
I get sucked into when peopleare rescuing random animals.
I'm like, oh God,I got to see this.
Oh, I wish I was that goodof a human being to do that.
Josh Bretl (25:11):
Oh yeah, without a doubt.
Dave Schmidt (25:13):
So yeah, you do love a good story.
You tell a good story.
Josh Bretl (25:16):
Sometimes they ramble.
Dave Schmidt: Sometimes they ramble. (25:17):
undefined
ALF (25:18):
Why must you needlessly complicate everything?
Dave Schmidt (25:22):
So a cop car just came flying in your parking lot.
Josh Bretl (25:24):
It was kind of weird.
Dave Schmidt (25:25):
It was kind of creepy, but it
made me think about this.
Dave relates to retirees, yeah.
Josh Bretl (25:34):
I can't wait to see where this one's going.
Dave Schmidt (25:36):
Well, look, my DR2R does not relate to police.
My pen is just falling apart.
Where do you buy thesethings from, Josh?
Josh Bretl (25:43):
Those are expensive pens.
Dave Schmidt (25:45):
Are they?
Josh Bretl (25:45):
You're manhandling the thing.
Dave Schmidt (25:46):
I did.
I mentioned earlier, thisepisode's a little hard for
my small little brain tounderstand, but I picked
up a few pieces and a lightbulb went off in my head
and I said, yes, I got it.
I know how I canrelate to this whole-
Josh Bretl (26:01):
I was worried about you relating to this episode.
Dave Schmidt (26:04):
More money, more problems episode here.
I mentioned thename Ichabod Crane.
You know who that is?
Josh Bretl (26:09):
I'm sure it has something to do with Tim Burton.
Dave Schmidt (26:10):
Yeah, but Ichabod Crane, you know,
Legend of Sleepy Hollow.
Josh Bretl (26:13):
Yeah.
Dave Schmidt (26:14):
So he's essentially assigned to the case
of the Headless Horseman in thesmall town of Sleepy Hollow.
He's from-
Josh Bretl (26:20):
he is not the Headless Horseman?
Dave Schmidt (26:21):
He is not the Headless Horseman, no.
He is a constable in New York,and he's assigned to this case.
And so he goes and bringshis fancy tools to the small
town of Sleepy Hollow, andhe arrives and he thinks
I got a lot going for me.
I've got these fancy newage instruments that I can
help solve crimes with.
No one else in this smalltown has it, but I have it.
(26:42):
Ichabod's kind of like retireesthat have all this income, Josh.
Would you agree?
And they think they're doinggreat, and they are doing great.
Like you said,money's a good thing.
But then Ichabod is taskedwith solving the crime
of the Headless Horseman.
He is not just loppingheads off, he's actually
taking heads back with him.
(27:04):
He soon realizes, oh, I'mnot in as great of a position
to solve these heinousmurders as I thought I was.
I don't know what to do.
In comes Katrina Van Tasselplayed by Christina Ricci.
You knew that, right?
Josh Bretl (27:18):
No.
Dave Schmidt (27:18):
No.
Okay.
Spoiler alert, she's agood witch and she kind
of foreshadows all this,and she gives Ichabod a
different perspective.
She says, "Ichabod, don'trely on your fancy tools.
It's just a matter of optics.
It's a matter of just seeingthings in a different way."
To me, Josh, you are likea Katrina Van Tassel.
Josh Bretl (27:38):
I'm a good witch?
Dave Schmidt (27:39):
You are a good witch.
You gave your clients kindof the ability to see,
hey, there is a good pathforward with all this.
You don't have to be stuckpaying all these taxes
that you don't need to pay.
So yeah, I get this.
This episode is rightin my wheelhouse, baby.
You, Katrina Van Tassel, andretirees are like Ichabod Crane.
Josh Bretl (28:04):
Do you know the last episode?
Dave Schmidt (28:06):
Yeah.
Josh Bretl (28:07):
Your DR2R involved...
It was AST9000 or something.
It was-
Dave Schmidt (28:15):
mST3K.
Josh Bretl (28:15):
Yeah, that one.
Mystery Science Theater 3000.
Dave Schmidt (28:18):
You went home and you binged it.
Josh Bretl (28:19):
Nope.
Haven't watched it still.
And there was all sorts ofweird names in there that
I didn't really follow orunderstand or any of that stuff.
It was hard to relate to that.
So you pulled it out againthis week with names and
characters that I haveno idea who they are.
Dave Schmidt (28:34):
Really quick.
Dear listener, Josh attendedthe premiere of Sleepy
Hollow back on that fatefulnight in November 1999.
He was there next to me,loving it as much as I did.
Josh Bretl (28:45):
November of '99?
I came home from collegeto go watch that with you?
Dave Schmidt (28:49):
You were home for Christmas break because it
was like around Thanksgiving.
Josh Bretl (28:52):
Oh, good God.
What did I see in you?
Dave Schmidt (28:54):
You probably paid for me too.
Josh Bretl (28:57):
Probably did buy your ticket and everything.
But I actually have a relationto this, believe it or not.
I actually thinkyou're pretty dead on.
Ichabod, if I'm hearing thisright, comes in to solve this
heinous murder and he thinkshe's got everything going.
And then he realizes,oh no, I really don't.
I've got these issues and Idon't even know what the issues
(29:19):
are at that point in time.
So kind of like retirees, theylook at their statements and
they say, man, I am great.
All of a sudden I've got thismoney I wasn't expecting.
I'm doing fantastic, butoh wait, I can't touch
this money, so I'm justgoing to die with it.
Or they don't realize thatif they did it in a slightly
different way that is moreefficient and well planned
(29:43):
out, that they could bein a much better position.
They could not haveto just waste it.
They could give a lot moreto their selves, to their
family, to their charity,whatever it might be, if they
just would seek out the righthelp and the right guidance.
So for as much as you pullrandom characters that very
(30:04):
few people care about torelate to, you're actually not
too far off, in my opinion.
Dave Schmidt (30:10):
Thank you, Josh.
As you're talking I'mthinking, you know what?
I'm always looking for a goodway to write a good story.
What if we do a mashup betweenSleepy Hollow and Full House?
Because your Full Housemoment is so majestic.
Josh Bretl (30:25):
Do I have to have a Sleepy Hollow moment?
Dave Schmidt (30:26):
I mean, well, you'd be really cool if you did.
What are you guysdoing for Super Bowl?
Anything?
Josh Bretl (30:33):
Missy is selling Girl Scout cookies
for the Super Bowl.
This year she is the cookiemom, as you know, and she's
scheduled a cookie booth andforgot it was Super Bowl Sunday.
She's in front of theYork Theater, which is
right next to Starbucks.
So she's in downtown Elmhurst.
Dave Schmidt (30:47):
Yeah, people be out and about Sunday getting
ready for the big game.
Josh Bretl (30:50):
That's my Super Bowl.
How about you?
Dave Schmidt (30:52):
Yeah, we're having the fam over.
I believe I'm going tobe making this new...
What did we call it again?
Josh Bretl (30:58):
The Scott Smith Super Bowl special.
Dave Schmidt (30:59):
Scott Smith Super Bowl special.
We're having the fam over.
I am in charge of planning thefood, and I have yet to send
out the email to plan it, soI should probably get on that.
Josh Bretl (31:09):
You should.
I'm taking the kids overto a friend's house and I
volunteered to bring my superspecial grilled shrimp recipe.
He's firing up the charcoalgrill, and we're going
to have a great time.
Dave Schmidt (31:19):
That sounds, can you make a stop in Glen Ellyn?
Josh Bretl (31:21):
Yeah, sure.
Dave Schmidt (31:23):
Is that sarcastic?
Josh Bretl (31:23):
Oh yeah, without a doubt.
Dave Schmidt (31:25):
Oh, well, in that case, Josh, bye.
Scott Smith Super Bowl special.
Scott Smith.
Josh Bretl (31:35):
Was that episode at all listenable?
Dave Schmidt (31:40):
It was hard.
Josh Bretl (31:41):
Yeah.
Yeah.
We'll see.
Alex (31:43):
Hashtag tax nerd.
Popular Podcasts
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Nikki Glaser Podcast
Every week comedian and infamous roaster Nikki Glaser provides a fun, fast-paced, and brutally honest look into current pop-culture and her own personal life.