Should You Stop Contributing to Our IRA’s and 401k’s?

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Episode Transcript

(00:00):
All topics and securities mentioned on straightTalk from the House or for informational purposes
only, and should not be usedas investment advice. T Anton Investment House
does not offer tax or legal advice. Investments or investment strategies covered are not
a recommendation or solicitation to buy orsell. The security's past performance is not
a guarantee of future performance. Thisis straight talk from the House with certified

(00:22):
financial planner Tracy Anton right here thirteenten WIBA. Of course, Tracy comes
to us from t Anton Investment House, a fee only fiduciary with offices right
in Middleton. The telephone number fort Anton Investment House six O eight five
zero one fifteen forty nine. That'ssix O eight five zero one, fifteen
forty nine. And the website tAnton Investment House dot com. That's t

(00:44):
A N t O N investment Housedot com. Not only is it a
great resource to get to know Tracyand the team at t Anton Investment House,
it's also a great opportunity if you'relooking for money management to portfolio management
to schedule an appointment again right onthe website t Anton Investment House dot com,
and again the telephone number at theoffice right in Middleton, six eight
five zero one, fifteen forty nine. That's six eight five zero one,

(01:07):
fifteen forty nine. Tracy, howare you doing this morning? I'm great,
John. How about you? I'mdoing great? And I told you
when you sent over earlier the outlineare kind of our topic for conversation this
week. I said, oh,this is good. It's it's should we
stop contributing to our iraise? Andfour oh one case? How did this
topic come up? What's the what'sthe impetus? As they might say,

(01:27):
Well, I was doing some researchon the new rules for beneficiary I Raise
and I came across this article byEd Slots And I've referred to Ed before
on this program. And the articlewas called stop contributing to I Raise in
four o one case. So Edis a nationally recognized IRA distribution expert,

(01:47):
and I respect the guy. Ithink he knows a lot and lots of
advisors would agree with me on that. And so in this article, though,
he said that this decades old strategyno longer works, and he said
it's time to reduce IRA balances,not increase them. And you know,
it's a picture of somebody with abig handout like stop. And I thought,

(02:09):
well, this is really interesting becauseusually when you have blanket advice,
it's kind of the opposite. Andnow he's going the other way and we'll
see what I think and later onthat should be interesting. And I gotta
as you were kind of alluding tothere, it seems like we've always been
told max out those contributions. Whyis the perception or the perspective or the

(02:30):
thinking, why may that be changing? Well, it's true in traditional retirement
planning, we've always been taught tomaximize our contributions if you can. If
you're cash, will allows for it, basically to defer your retirement accounts and
four O one case and over thedecades, this has kind of been proven
to be a good strategy to addmoney to retirement accounts. And the main

(02:52):
reason that he's saying that this taxrates right now are historically low and that
they will increase in years to come. So he says, you are only
adding to your future tax bill andretirement by maximizing him now. So therefore
he thinks the strategy no longer works. And again this happens because as tax

(03:14):
defer it accounts grow long term hesays, your tax bill will increase,
and that bill will have to bepaid at higher tax rates, you know.
So the whole thing is is whattax rate are you in now and
where do you project to be inthe future. So obviously, if you're
in a low tax bracket, no, the wrath would be preferential for sure.

(03:38):
So if people are in the twelvepercent bracket, no, don't contribute
to four one case, you know, don't do pretext. But if you
But if you're in like the toptax bracket, I kind of think,
well, there's nothing wrong with contributingand getting you know, thirty seven percent
tax break today along with your statetax deduction of say seven percent, I

(04:00):
mean, you're saving over forty percent. So you know, it's something to
think about as where do you thinkyour tax rates are going. But his
main point though, and the reasonwhy he's saying this, is just that
historically tax rates are very, verylow, and that is true. Like
I was doing some googling shot andI know you're dying to find these numbers

(04:21):
out. I got my penny Andy, Yeah, so I thought, Okay,
what is the historical top marginal incometax rate? Because right now we're
at about thirty seven percent. Intwenty twenty five, that'll be going up
to thirty nine, almost forty percent. So you go back in like nineteen

(04:42):
early, nineteen hundred, nineteen thirteen, nine fifteen to top the total top
rate was seven percent. Well that'spretty low. But then you go and
you say, okay, nineteen eighteenand nineteen twenty one it was seventy three
percent was the highest rate. Thennineteen twenty two to nineteen twenty three is
fifty eight. Then in twenty fourwent down to forty six, and then

(05:02):
it went down to twenty five percent, but then jumped up to thirty two
thirty three. That's great depression,right, sixty three percent. And then
during the war, it looks likenineteen thirty six, nineteen forty, nineteen
forty one, you're looking at eightyone percent to eighty eight percent. Nineteen
forty four was ninety four percent toptax rate. So again that's why he's

(05:27):
saying that. So when people,you know, because the reason I'm bringing
up these tax rates is I've hadpeople say, well, doesn't seem like
they're that low, right, Idon't feel like it's okay, But you
have to look at a historic chart. And when you look at this historical
chart, you do realize that,you know, having a ten percent tax
bracket, which we have now thatgoes up, you know, to from

(05:49):
ten to twelve. You know,these are low rates and even twenty two
twenty four, those are low ratesrelative to history. Talking this morning was
sort of find financial planner, TracyAnton, Right, you're thirteen ten WIBA.
Don't forget about the website t AntonInvestmenthouse dot com. That's t A
N T O N investment house dotcom. A fantastic resource for you to

(06:12):
get to no tracing the team.Also great opportunity to schedule an appointment at
a time and a date that's convenientto you. Again, the website t
Anton Investmenthouse dot com. Telpan numbersix O eight to five zero one fifteen
forty nine. That's six O eightfive zero one fifteen forty nine. So
I'm guessing we probably don't want tostuff on our money in a mattress,
Tracy. What should we be doingthen? Instead? Well, and Slots
points out and I would agree heretoo that the best option, he says

(06:35):
is to replace tax defert accounts witha Roth Ira Roth four O one K
or roth simple IRA plans, andin recent years the government actually has provided
new incentives to push this change,and I think that's really neat as well.
So for example, the Secure Acttwo point zero and in many incentives
including ROTH four O one K matching, so yeah, and that's really really

(07:00):
cool I think. And also theemployer contributions, So it used to be
that the employer contributions had to beonly pretexts. Now they can be WROTH
as well, which is nice,and also eliminated rmds and WRATH for one
K is effective in twenty twenty four, so that's a really neat thing.
So there is more incentives, there'sthere's now simple and steps you can do

(07:24):
that are WROTH as well, andthose are really great options. So the
thing though, again I would cautionis is when articles are written like this,
you know it's not always true foreveryone, right, And that's the
thing it's like, in general,I agree with them, raths are awesome
and the way to go from alot of people, but it's not wrong

(07:47):
to do maybe a hybrid for alot of people as well, because there
are people that their incomes really arelower in retirement. Now it's surprising how
many incomes are not and that becauseyou have so security you know, some
people have a pension, you know. And then you start adding these require
minimum distributions, and even if youhave a million dollars in your account,

(08:09):
you're looking at four percent of thathaving to come out roughly, you know.
And that's just the start, right, Yeah, So you know,
it is surprising that for a lotof people it's not true that you'll have
lower income in retirement and therefore yourtaxes will be lower even if nothing else
changed in the tax rates. Butagain I would I would suggest it get

(08:33):
a plan done so that you knowwhat is your best option. I often
think that the best option could bea hybrid situation. Really good stuff this
week, very interesting. As always, we talk with sort of fine financial
planner Tracanton right here on thirteen tenWIBA. So the question I think a
lot of people that wonder as wetalk about this stuff, will these tax
deductions for those traditional iras or fouror one days, will those tax deductions

(08:56):
for those contributions? Will they belost or what's the sing we got to
keep in mind there, Yes itwill and according to Ed Slots, he
thinks that's a good thing. Hesaid, tax deductions really aren't worth that
much, especially when tax rates arethis low. So he says that a
tax deduction for an IRA or forone K is really just a loan you're

(09:16):
taking from the government that has tobe repaid in the future and likely at
higher tax rates. This is reallyimportant because if the tax deduction is taken
early on, obviously the accounts growtax deferred. This can cause a much
larger tax hit in the future becauseyour r and ds have to go or
will keep going up because they're basedon the account value. So basically,

(09:39):
in Ed's words, he would saya much larger loan payment during retirement when
the funds are needed the most.It's an interesting concept the way he looks
at it versus it's a loan,a government loan. I've never really thought
about it like that. But thething that him and I totally agree on
is and he points out that smarttax planning means taking income when rates are

(10:03):
low and taking tax deductions when incomeis high. And you know, this
is the key and why individual planningis so very important. We have a
financial planning software sean that projects amock up of your ten forty You can
even see your ten forty what it'sgoing to look like, saying year twenty
twenty four, twenty twenty five,and so on, and it shows it

(10:24):
year by years, so you cansee what kind of income you are likely
to have five ten twenty years fromnow. And I had a client in
my office yesterday and he was like, wow, he goes, it's right
there. You know, so insteadof us getting in our heads thinking well,
what will my tax rates look likeand how will that be? We
don't know the tax table, ofcourse, but at least we can project

(10:48):
what your income is going to beand say, well, what if nothing
changed in the tax rates, whatwould it even be? What would it
look like? Would you still bein that twenty two percent bracket? So
the client I just had, hehas a lot of money in his retirement
account, but he was surprised thatactually he does fall back down the twelve
or at least a period of time. Now you've got to look at it,
you know, five ten twenty yearsout, what are those numbers and

(11:13):
and does that make a difference?But I think it's really important. You
know, you can when you projectthese numbers, how you contribute, Because
you can contribute to after tax ordo like I said, you know,
if you still don't know, Istill think I don't know what bracket I
am or what I'm going to do. I don't think I'm in a low

(11:33):
bracket, but I'm not in thehighest. I'm in somewhere in the middle.
Well, then take a hybrid approach, but contributing some to pretax and
some to pose tax. It's alsoa nice idea. As he said,
the numbers are right there. That'spretty amazing, really cool stuff. So
you talk with certified financial planner TracyAnton. We're talking with Tracy about if
you're a new retiree, what abouttax deductions there which you've been thinking about,

(11:56):
and of course what tax what taxrates would do it as far as
affecting your withdraw We'll get the detailsfrom Tracy in just a moment. In
the meantime, you've been to thewebsite t Anton investment House dot com.
Head on over there right now againthat site t Anton investment House dot com.
Get schedule appointment right there from thewebsite or pick up phone call the
office right in Middleton six eight fivezero one fifteen forty nine. That's six
O eight five zero one fifteen fortynine. More straight talk from the House

(12:20):
with certified financial planner Tracy Anton isnext right here on thirteen ten WIBA.
This is straight talk from the Housewith certified financial planner Tracy Anton here on
thirteen ten WIBA talking about a veryinteresting article from ed slots. It's called
stop contributing two yet I ra infour oh one kse Get Tracy's feedback on

(12:43):
this. If you have been tothe website, check Tracy out online.
T Anton Investment house dot com calledthe office right in Middleton as well.
Six O eight five zero one fifteenforty nine. That's six O eight five
zero one fifteen four nine. Iswe kind of break down this conversation Tracy,
what should new retirees be focusing inon regarding their text aductions? Well
and recommends replacing tax deferred IRAISE andfour owe K contributions with ROTH iraise and

(13:07):
ROTH four owen k contributions. Andhe says instead of focusing on short term
savings by taking deductions, they shouldlook at the potential for long term savings
when those funds are withdrawal. Andhe said long term can also mean the
lifetime of your beneficiaries who inherit thosefunds and that will also be subject at
tax. So I agree totally withhim. It's a great idea to take

(13:28):
advantage of these after tax dollars.I've also said to clients many times,
you know, one, you're gettingclose to retirement, you're young, you're
under fifty nine and a half,So why not even do a brokerage account,
get prepared. I've got clients thatare, you know, fifty six.
I think he's a young guys tryingto wants to retire youngish, I

(13:50):
should say, and his wife,and they're they're gonna have a few years
where they're gonna need to tap money. Well, how about a brokerage account
where you know you're getting capital gainsrates? How about adding to your savings,
just beef up your savings. Anda lot of people are so busy
trying to pay off that two percentmortgage or three percent mortgage, Well how

(14:11):
about beefing up your savings really helpsthose transitions for people who want to retire
early. So good to have thatkind of an account too. Absolutely.
Talking with certified financial planner Tracy Antonright here in thirteen ten, WIBA wouldn't
your tax rate though, and incomebe lower in retirement since I'm not working
anymore or what's right? I meannow you would think so, right,

(14:33):
Yeah, But again according to Edand I and I've seen it too,
he says, it's a pretty bigmyth. He says he wrote a book
called why pay taxes now? Whenyou keep differing them and building your iry
until you are retired and taxes willbe lower question mark right. But for
most people lower taxes in retirement itis a myth because you have so many

(14:54):
things that are coming into play.You forget how much social Security is going
to going to have. You know, I had one retires like by the
time you add up that is boththe social securities and the pension, I
mean, you're looking at one hundredthousand. I mean, so he probably
won't be in a lower bracket.Right. So for those people too have
built large iras or large for oneK, taxes down the road will generally

(15:18):
be higher again as a result ofdeffering those withdrawals until they're required. So
this triggers larger IRA tax bills whenRMD become required. So you know,
the question is is, well,I'm just going to keep waiting to take
out money from my IRA. Well, you might want to rethink that.
If you're over fifty nine and ahalf and you don't have a penalty,

(15:41):
how can you do some conversion orcan you if you need money, should
you start taking money from your IRAat retirement even if you're under seventy three?
Interesting? What about withdrawing from theseaccounts? What's kind of the thinking
there? Yeah, it's a greatquestion. So according to ED, slots
for existing tax defer retirement accounts suchas foreign case should be reduced. Again,

(16:03):
he says through a planned withdrawal strategyto a roth IRA, he advises
not to wait until you have totake your RMD. So he says,
now that rmds are age seventy threeat seventy five, for some people,
delaying rmds might not be the bestlong term strategy. And by looking at
ways to withdraw funds out of yourI raise before is required to help future

(16:25):
tax exposure. And again, allhe's talking about there is converting to a
roth IRA or maybe doing qualified charitabledistributions if you're charity minded. So that's
the reason he's talking about that.And again it's this idea that these accounts
are very large and he's suggesting reducedthem. Now, I'm going to say
this. I again, had somebodyin my office and they said they went

(16:49):
to a seminar that talked about totallyreducing like eliminating their IRA or eliminating their
fore owen K, like totally gettingrid of it by doing one hundred percent
conversion. Now, I said it, you sure like that doesn't sound right
because you're going to hit higher taxbrackets, and he goes, no,

(17:10):
Tracy is definitely what he was talkingabout. He was saying, they move
all the money from pretax to posttax. So that's usually not the best
strategy either. I've got lots ofpeople that are doing a certain dollar amount
in a certain tax bracket, andas they climb brackets, they reconsider it
because you know, if you're goingto be in the top bracket eventually at

(17:30):
thirty seven, do you want topay that? Now. I've had a
few people say yes, but nota lot of people because you have to
add that plus the state tax,so you know, you're talking probably you
know, anywhere around forties some pluspercent on what you convert. So that's
the question. I don't think.Again, my thought is if he understood

(17:53):
it, right, that's probably notthe best advice either, And then it's
not what Ed is saying. He'ssaying, you know, reduce the amounts
in there. The hard part thatI have seen is that when people's balances
are so very large, it takesa large dollar amount of large commitment to
pay taxes and you know, youknow, one hundred thousand plus, and

(18:17):
you might not move the needle thatmuch because how many years do you have
to do that before you need tostart taking a distribution, before you need
to start taking or want to starttaking your soul security. That adds to
the number of what's income, andtherefore that adds to what your bracket.
Is really important questions and things tobe thinking about, Tracy, as we

(18:37):
talked to through this with the taxrates, you kind of touch on that,
like how do they affect your withdrawal? What do we need to know
in that area? Well, taxesmust be paid when they're due, which
is basically now, So in thecornerstone of basically wise tax preparation. The
majority of Americans are paying the lowestrates ever right now, and that trend
will last apparently in twenty twenty five. With the sunset here we're gonna have

(19:03):
increased rates. And the increased ratesthough, are not that much higher.
They are about three percent higher,So you know, it's it's such that.
Again, the point he makes overand over again is that tax rates
today are just low, and thereforeyou should be careful. Very good stuff
this week from certified financial planner TracyAnton. You heard Tracy mentioned roth conversions.

(19:26):
We're going to get into that alittle bit. We'll also talk a
little bit more about as far asthat strategy overall stuff with the details from
Tracy. In the meantime, Fbento the website t Anton Investmenthouse dot com.
Get on over there right now.Love to get you over there learn
more about Tracy and the team.Also, great opportunity if you're looking for
money management or portfolio management to scheduleappointment at a time and a date that's
convening to you. Again the websitet Anton Investmenthouse dot com and the office

(19:49):
in Middleton telf number six O eightfive zero one fifteen forty nine. That's
six O eight five zero one fifteenfor and I looked into our conversation with
certified financial planner Tracy Anton. Nextright here on thirteen ten WIBA. This
is straight talk from the house withcertified financial planner Tracy Anton here on thirteen
ten WIBA. Check out Tracy andthe team all the website t Anton Investment

(20:12):
House dot com. That's T AN T O N investment House dot com.
And also make an appointment right onthe website at a time and a
date that's convenient to you. Again, the website t Anton Investment House dot
com. Tell number six O eightfive zero one fifteen forty nine. That's
six to eight five zero one,fifteen forty nine. And Tracy, is
there's something that that ED doesn't doesn'tget right or something that kind of caught

(20:34):
your attention in this article. Yeah, so, Sean, I'm glad you're
mentioning this because the issue that EDdoes not address is that many people who
are receiving subsidized health insurance through Obamacaredo not want to convert money from their
I raise to the roth irase becauseit would show up as income and potentially
eliminate the ability to receive that subsidizedhealth insurance, which can be very substantial

(20:59):
for people. I mean, peopleare saving anywhere. I've seen people five
hundred, eight hundred or more savingmonthly from in there in Texas by just
showing low income. Now, howare they doing that? You're wondering,
Well, they're doing that by usingtheir living off of their brokerage account and
then and then doing it right orwrong, I'm not saying. But all
I am saying is is that that'swhy some people choose not to convert money

(21:23):
even when they're in a low taxbracket. Fascinating. So what about you
know, we've talked about a retirementstrategy and roth conversions. Is ever too
late to do a wroth conversion?What do we need to know in that
area? Tracy? Really no,Sean, I mean, there's no one
age or income requirement. Used tobe I don't think it was. I
think it was like one hundred thousandthat you couldn't if you made more than

(21:45):
that, you couldn't convert to aroth. But now you can convert anything
you want, any amount you want, at any age. You simply pay
both the federal unstate tax on theamount you convert at your ordinary tax bracket.
And I think it's just important forpeople to consider whether or not it
makes sense for you and also whetherit makes sense for your beneficiaries. So

(22:10):
I would recommend again getting a financialplan done and seeing how it could benefit
from you. Now, I again, I love conversions. We've had lots
of people doing conversions at my officebecause what's happening is you're taking money into
from your willing to pay the taxtoday, and you're saying, you know
what, I think the tax billtax tables are going to be higher later,

(22:33):
or I know that I'm not goingto be in a lower tax bracket.
In fact, I might even bein a higher tax bracket because I
have all these income sources, orsimply I believe that tax rates are going
to be higher later. And yousay, I'm willing to pay the tax
today and then it'll grow tax freefor you. And what a great,
great opportunity there, not only foryou because you might have thirty years in

(22:56):
retirement, but also for your beneficiaries. It's a really great vehicle. And
you know some people say, wellwait a minute, that won't they just
get rid of that that roth iraum and they'll make me, you know,
take it out or they'll make mepay tex. Yeah. You know,
there's no rm ds for individuals nowfor for requirement and distributions for roth

(23:19):
iras you know, could they changethat. They can change anything, but
the reality is is they probably won't. They probably would not. They would
probably grandfather that. That's again whatI personal take on it. It's really
great to hear about the options thatI have options. It is a great
thing also if you've been looking formoney management, award folio management, to
start that conversation and do it today, all I got to do is set

(23:41):
on over to the website t Antoninvestment House dot com. That's t A
N t O N investment House dotcom. From the website, it's schedu
appointment at a time and a datewith Tracy and the team. Again that
website t Anton investment House dot com, or pick up phone gam a call
six O eight five zero one fifteenforty nine. That's six O eight five
zero one fifteen forty nine. Tracy, It's always great chatting with you.

(24:02):
You enjoyed this most beautiful day?Oh you too, Sean, Thanks so much,