Episode Transcript
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(00:01):
In your corner, saving one investorat a time, working for clients,
not companies, all while bullyproofing portfolios. Totally committed to sharing your academic truths
about missing always representing Main Street andnot Wall Street. Team. It's your
Son Money team, and this isthe Sound Money Investment Show with Drawn Financial
(00:23):
Advisors. Hello and welcome to theSound Many Investment Shows. Brown Financial Advisors.
I'm Greg Brown and I'm James Worth, and we are a registered investment
advisor firm. We are independent.We do our for clients and not companies.
Tracy for a complimentary and personalized financialincome plan, give us a call
(00:43):
five one three, five seven,five nine sixty five four. If you're
seeking advice on old folan K fourthrough B, some type of employer sponsored
plan, or even still an NUAanalysis before you make that perhaps faithful IRA
rollover decision. All those we canhelp, give us a call five one
three five seven sixty five four.Kind of works like this. If you're
(01:04):
longer at the company, then asa rule, your money shouldn't be there
either. Our website Brownfinancialdvisors dot Com, email team at Brownfinancialdvisors dot Com,
our home offices in mail work butwe sub locations in blue Ash, Westchester,
and Florence. Right, Well,today we're going to tackle a topic
called conversion strategies to consider now understandingthat there are different tax strategies that you
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can take advantage of that will helpyou with well in today's market, between
the way investments are, tax code, the structure of taxation, tax brackets,
and looking forward into your retirement,how you'll take your retirement savings and
investments and use them in the bestway on a tax efficient, net net
basis to satisfy your cash flow.You know, many people believe that the
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very common myth that's out there,even a misconception, it can play a
major role in your retirement. Becareful what you believe, be careful who
you listen to and why the myths. In this case, it deals with
an IRA, you know, anIRA or a pre tax company plan like
a four to one K that eventuallybecomes an IRA when you roll it over.
It's all pre tax, never beentaxed before money. Okay, Now,
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the four and one K has beenquite advantageous and convenient as they've been
made available through employers. And youknow, not only four one ks,
but for tax well tax exempt organizationslike schools and you know, hospitals,
healthcare. Four O three b's okay, so four and one K or four
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or three B. Let's say youhave an account balance in an IRA.
Let's say you've rolled over your fourweek four three B and you're sitting out
there pre retirement, heading in retirementin an IRA, or you're still maintaining
a traditional four week all these pretax moneys in this case an example of
five hundred thousand or maybe a million. As you're working and you continue to
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pump those monies into via contributions andmatching into that account, you're starting to
think about that nest egg as awhole number, as a big, one,
single number in ways that you mightbe able to begin to use it
in your retirement. So if thatbig number is five hundred thousand or again
a million dollars, there's your nestegg. You want to use it for
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a retirement. Well, whether it'sgoing to be for income or to buy
things, a second home, whateverit might be. You believe that account
balance that you see on your statementthat's the amount of money that you'll be
able to use the retirement. Right. Well, unfortunately it's not the case.
And this is where the myth comesinto play. Remember those accounts are
tax deferred accounts. You still haveto pay income taxes on those moneies once
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you draw it out. So let'ssay your balance, James here is like
five hundred thousand dollars. You havea combined federal and state and local tax
liability. Say your tax liability istwenty five percent. To keep it simple,
this means that you can use howmuch seventy five percent of your IRA
or three hundred seventy five thousand ofthe five hundred thousand dollars. It's not
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all five hundred thousand dollars yours,the other twenty five percent or one hundred
and twenty five thousand not really beingyours. It's because it belongs to the
taxing authorities. So and these taxdeferred savings vehicles, well, they've become
the forefront, the primary, thepedestal, the pivot of retirement plans for
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today. So not to say they'rebad, because they're a great vehicle to
help you build that nest take forretirement. But maybe there are some different
strategies that can help your money workmore tax efficiently for you in retirement.
So today we will discuss various conversionstrategies where you can convert in part or
in total your tax deferred assets toassets with tax free growth. There are
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some pros to doing this as wellas some cons so we want to make
sure you understand both before deciding ifthis is something that may benefit you.
All right, now, here's somethought provoking questions to type into today's show.
So, for starters, what exactlyis a roth conversion strategy and how
could it at least potentially benefit meor the collective we in retirement? Now
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going back to what it is orhow it could work and maybe how it
could benefit you. So the Wrothconversion strategy is not simply let's just take
your entire IR and convert it toa wroth, because well, what's that
going to do to your tax rate, your tax brackets? If you do
it all, It's like how doyou swallow a camel one bite at a
time. That's kind of the wholepoint about a Roth conversion strategy. So
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the next one, what should weexpect future income tax rates to be?
I know this seems like a rhetoricalquestion when you say, well, are
they going to be lower in thefuture? Very unlikely, but it's still
a so you're saying there's a chance, all right. What is the great
American savings myth? How can conversionstrategies help with recent legislation and also tax
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increases that have been put into place. How does an index universal life insurance
policy work? And just to setthe stage for acronyms here, when we
say IUL, IUL stands for indexeduniversal life. What are some of the
downsides of converting money from the traditionalirays or to rock irays or possibly even
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the IUL. Are there certain strategiesthat should be considered when we're in some
type of a market downturn or perhapseven a full on bear market. How
do conversion strategies affect spouses and alsopotentially the beneficiaries? Now, the last
one seems like a rhetorical question.Who should I speak to a financial advisor
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or tax advisor when deciding if aconversion strategy is right for us? Greg?
How about that last one? Ithink you got to come see us
because we're filled with ideas on howto handle every situation as uniquely as it
actually is. And then the backdropof all things financial we do, investments,
insurance, tax advisory, tax prep, estate planning, income planning will
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help you with SoC security maximization,pension maximization, those decisions surrounding pensions.
Take some as a monthly payment,take some as a lump some, take
all this, alump some and makeyour own systematic payments, your own self
funded pension. By investing it.You can invest the difference between a single
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pay and a joint pay. Ifyou take the single pay at the higher
amount, you can invest the differencein insurance as a death benefit. You've
heard many of these things, andmaybe some of these strategies you're familiar with,
but how do you assess them?Project them? Put your foot in
that shoe and see if it's walkableand if the plan is workable. We
can help with all of those things. We'll take your investments as they stand,
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your version of your plan all thingsconsidered. Will analyze this investments.
We'll look for hidden spread, speedes, margins, loads and expenses. We'll
see if you have redundancy and positionsthey are inefficient. Will verify that the
current risk you're taking is actually therisk you can actually tolerate. Through all
seasons of investing, we'll make surethat the investment dollars are broken into buckets
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with a purpose with a job descriptionthat they actually align with your intended purpose
and your preferred outcome. We'll lookfor legacy aspects. When you're done with
your money. What happens next isyour number one beneficiary named Sam as an
uncle Sam very well can be Wesee it happen day in day out.
We want you to succeed on purpose, and to do that, you need
every tool with an unbiased approach,with someone who works for you in your
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corner. That's the finiciary to putyour interest verse in every situation and to
remove conflict from the equation. AndI guess I'm saying that's us, James,
that's us. It's main Street withmain Street helping we all us on
the same side of the table.So it doesn't have to be either,
or it can be both. Itcould be both a financial advisor and a
tax advisor, all in the samecompany, all at the same place.
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That's Brown financial device. Sure asyou put calls wickn out five one three
five nine six five four, Well, James, when you talked about tax
rates, is the future going tobe higher or lower? You know,
I just got to thinking, Well, it's as unfortunate as it seems.
You look at say, Democrats andRepublicans and how they differ on how they
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embrace and engage tax policies, andI find generally that Republicans or Conservatives lay
out a tax change in code,if you will, by policy that's more
favorable to all taxpayers. It hasa little something of an incentive and a
relief and a help and a handup for every taxpayer in each bracket.
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Typically now now conversely, almost alwaysDemocratic proposals and taxation seem to differentiate wealthy
versus less than wealthy, and theyalways determine and dictate the terms conditions of
what wealth is measured. By currentadministration keeps floating tax proposals that seem to
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seem to embrace some campaign promise thatwas four hundred thousand above will be affected,
afflicted, and those below will beleft pretty much as they were.
That's just not true. But justthink about what it really is. What
percentage of taxpayers actually pay the taxbill? We heard fifty seven percent of
taxpayers don't actually pay taxes. Wow, that was a new survey. That
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means forty what three percent pay allof it? Now you break that down
into what percentage pays the most,like ninety percent of that is by the
one to five percent. So nowonder they stratify tax code to disenfranchise certain
voters of income because the lion's shareheadcount household of actual voters that fall in
the other category they seem to preserveis nothing more than a political poy to
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gain votes. So it is hardto predict the future of tax code because
you don't know who's running for whatand who's going to succeed in federal,
yes and national level. But wewere here to be your tour guide to
get you through any and all thoseconditions. When we say conditions, that's
what we're here for. All politicsaside used to see it. Our purpose
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not happenstance with us and you workingtogether all right again our phone number five
one three five nine sixty five four. Stay tuned listening to the Sound Money
Investment Show with Brown Finance Advisors hereon fifty five KRC detalk station. Opinions
expressed are solely those of Brown FinancialAdvisors and should not be interpreted as specific
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advice. Materials presented are believed tobe from reliable sources and no representations can
be made as to its accuracy.All ideas and information should be discussed in
detail with one of our qualified investmentadvisors prior to implementation. Market based investments
involved risk and past performance is noguarantee of future results. Insurance based investments
offer guarantees based upon the claims payingability of the issuing company. All insurance,
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tax and mortgage services are offered throughBrown Insurance and Tax Advisors LLC.
Brown Financial Advisors and Brown Insurance andTax Advisors are affiliated companies and may only
transact business in those states in whichregistered or were otherwise legally permitted. Welcome
back to the Sound Money Investment Showwith Brown Financial Advisors. I'm Greg Brown
and I'm James Boorth and we arean independent registered investment advisors firm. We
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door for clients, not companies.That's Main Street and not Wall Street.
Our phone number five one, three, five seven, five nine to sixty
five four, our website Brownfinancial Advisorsdot com, email team at Brownfinancial Advisors
dot Com, and our home officeis in Milford, but we also have
locations in Blue Ash, Worchester andFlorence. Greg Well continuing conversion strategies to
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consider because understanding different tax strategies canhelp you take advantage of what's best for
you down the road. Now,with this topic, it's just there's no
pre retire or retire that should takethis subject lightly just to emphasize it.
It revolves around taxes, and taxesare a way that if you're not careful,
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even inflation being kind of an invisibletax, but you feel it.
Actual taxes all reduce the spendability andavailability on a net basis of money you
have to support yourself month after monththroughout retirement. There's an old saying it
mentions only two certainty certainties in life. You've heard this many times, death
and taxes, right, just maybenot in that order. Well, people
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are living longer today, longer thanever, and so there's little light,
just little light. I don't thinkit's all that funny actually, because we
know taxes can affect retirement, andyour only solution for it is to have
enough money to last a lifetime,support you through a lifetime, not have
your you know, you outlive yourmoney, make sure your money outlives you,
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or die on time. What kindof options are those? But the
other certainty here between these two backon taxes it's something we all have to
deal with throughout the entirety of ourlife. We all have to pay our
fair share of taxes throughout life.But we do have some pop news for
you right now. If you're retiredor thinking about retiring the next five to
ten years, there are several strategiesthat you can utilize to help you mitigate,
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reduce, manage, captivate, capturewhatever, incarcerate some of the taxes
you could potentially be paying in thefuture. James, Well, just to
remind you here that these conversion strategiesare going to be discussing are not quite
for everyone. Now. Yes,in general most people could benefit from a
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Roth conversion, but at the sametime, whose taxes are you going to
be paying or prepaying? Is itfor your benefit or is it maybe for
the beneficiaries benefit. A lot oftimes what we hear from our clients is
that they're wanting to prepay taxes viaa Roth conversion for their beneficiaries, and
at times we do kind of haveto bring them back in and say,
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well, you know, before youdecide to do that, which is a
you know, it's a great thingto do, by the way, but
at the same time, whose retirementcomes first. Your retirement comes first.
You have to plan for your retirement. You and you know, the collective
view at this time might be justyou individually, it might be you the
husband and wife, team, spouse, whatever the case may be. That's
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whose retirement plan must come first.That means, before you make that decision
to convert to a ROTH, whatdoes it cost you, not only in
taxes, but what could it potentiallycost you in Medicare premium increases. That's
one of those little hidden land mindsfor people typically aged sixty five plus,
is that if your income gets toohigh, then the government has someone named
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Urma waiting for you to double,perhaps even triple your Medicare Part B and
Medicare Party premiums. So something tokeep in mind is that not only the
direct taxation, but also the indirecttaxation via increased in Medicare premiums could be
waiting for you on the ROTH conversion. So that's why we say it's not
maybe for everyone, but it issomething still to be taken into consideration.
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And that's true. When you comein, we will take exactly that in
consideration. We'll do a five toten year whatever period of time. Roth
conversion illustration that will take you fromwhere you are at your tax bracket or
our total tax liability, up tothe next bracket if you like to go
to the next one after that.You know some people are in the twenty
two percent and they think, well, if you take me up to the
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full twenty two percent bracket with allthe income I can take in without going
to the next bracket. Oh butwait, the next bracket's currently twenty four
just two percent more. Well,show me an illustration takes me through that
too. But wait, slow down, As James is saying, we need
to take a holistic approach and notjust see what income we add related to
brackets, related to taxes you arewilling to pay to liberate more of your
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money from tax deferred to tax free. We have to assess from a cash
flow standpoint your monthly Medicare premium ifit if it doubles or triples, as
he says, by the impact ofERMA. Hello IRMA if you're listening,
stay away right now. If youdon't know who or what IRMA is.
It stands for income related Medicare AdjustmentAmount. That's that's IRMA for you.
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It means that if your income spotsabove a certain level. Currently that is
ninety one thousand if you're filing singlehead of household or separately, and double
that for people filing jointly. Butthere's a little bit more to it than
just simply that. And remember this, if you're both on the same ticket
married finally jointly, then those Medicarepremium increases are times too. Both the
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husband and the wife could be penalizedboth for the Part B premiums and the
Part D premiums. This could getexpensive, so be careful. As as
usual, it's all about the totalcost of an action or what you do.
It's similar to fees. We hearall the time, these major brokerage
firms that advertise, and you hearcliches say, you know those that have
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football stadiums and name BacT him andrun Super Bowl commercials. All those firms,
those banks, those brokerage firms,those elitists. If you will,
well, they can lost lead theirfee and then gouge you in the funds
and investments they utilize. We don'tdo that. So if you're fee shopping,
let's say our fees at or evenslightly higher than something that's been lost
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led by a brokerage firm. Don'tbe fooled. Total cost of ownership.
We're going to come in competitively ator below and provide you with all the
resources you actually do need, notjust one trick pony stuff, a holistic
kind of like the Mayo clinical financialservices. So with this Wroth conversion,
same thing. We've got to considerthe total cost of the transition or transaction
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in liberating your money and setting itfree. All right, Greg, what's
next? Well, let's see,I suppose conversion strategies themselves. You know,
you kind of talked about the Wrothconversion, but it's mentioned earlier.
Qualified account balances such as an IRAfour UK or company plan work. They
can be a little deceiving. Whatyou see may not be what you can
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actually get tax So you're likely pumpingmoney into these accounts each and every year,
you know, while working contributions matching. You receee the statements to show
the balance. They're continuing to grow, hopefully and over time they will.
You can trust capital markets over longperiods of time three five, seven,
ten years, rest of your forever. Don't get caught up in the three
days, three months, three yearsthat can throw an investor under the bus
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of getting reactionary emotional. Don't havean emotional relationship with your money. Keep
it fact based and focus and longterm objective will will be the difference.
But anyway, over a twenty tothirty year span of doing this kind of
contribution matching thing into employee sponsor plans, the growth is probably going to be
pretty significant and eventually you'll get tothe board we feel comfortable enough to pull
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in the trigger on retirement with anest egg like that that you've built.
Why not right, But do notlet that number fool you that you see
on the statements. These are taxedfort accounts, so you don't pay taxes
until you start drawing the money outof them. Once you start drawing the
money from these qualified accounts, typicallyafter age fifty nine and a half,
so you avoid early distribution penalties,which you know you pay taxes plus a
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ten percent penalty. Few exclusions apply, but such is also the age seventy
two. You know, if you'renot drawing it out because you don't need
it, say at age sixty,and you're able to retire off of other
sources of income, you don't havea real need for drawing these deferred accounts.
Well, good, that's very goodfor you. So unfortunately, at
age seventy two, you've got thisthing. It used to be age seventy
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one and a half, but it'snow age seventy two. Required minimum distribution
the minimum amount you must take froma qualified account each year based on the
balance of the end of year prior. This amount of money, whether you
need it or not, you haveto take pay taxes on it and kind
of buy Uncle Sam as you go. Well, it's typically required to begin
taking this minimum distribution so that youpay the taxes on this money that's just
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not been taxed yet. Right,Sam's tired of waiting for his money.
So you may be asking yourself,is there a way to reduce the amount
of taxes paid throughout your retirement Andthe simple answer is yes. There are
a few strategies you can use tohelp listen the tax liability throughout your retirement
years, and we want to brieflytouch on two of these. James has
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kind of touched on roth and someof the total cost considerations there, but
there's some more details to throw it. Oh. Yes, when you're looking
at the details of what to convert, how much to convert, and you're
looking at maybe how to maximize yourtax bracket. Here's what that means.
If you're going to be overall ina twelve percent tax bracket, you should
know in advance what the upper limitsof that tax bracket happens to be.
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If you're in a twenty two percenttax rate or twenty four or twenty eight
percent tax bracket, again, whatare the upper limits of those brackets?
How can you maximize or fill upthose brackets without going over so you stay
within a defined cost of what theconversion is going to be. You know.
That's where we come in also aswell, is what the tax planning
of how does this impact when youstart doing this over a one, three,
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five or even tenure time frame,how much you should maybe convert in
any one given year. That's partof the equation. The other part goes
into Social Security, not only thedirect taxation on your on your benefit,
but also the indirect taxation and wentionbefore about the Medicare prements, So those
are those are all part of likethe the math equation that goes into trying
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to figure out what's the best wayor the best amount perhaps to convert in
any one given year. There's moreour funder breath the office five one,
three, five, seven, fivenine, sixty five four collus we can
help stay tuned listening to the SoundMoney Investment Show with Brown Financial Advisors HEREUND
fifty five car see the taxation Welcomeback to the Sound Many Investment Shows.
(22:56):
Brown Financial Advisors, I'm Great Brownand I'm James. More than we are
a registered investment advisor firm, weare independent. We do it for clients
and not companies, and it doesreally all start with the plan. That
means having a plan, knowing whatyou own, why you own it.
So whether you're seeking advice on OLDfour and K four three b IRA rollover,
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investment planning, retirement planning, incomeplanning, tax planning, social security
maximization, roth conversion analysis like we'retalking about today, the INUA analysis and
for some even perhaps an in servicerollover. All those and more we can
help five one, three, five, seven, five nine to sixty five
four. Our website Brownfinancial Advisors dotcom, email team at Brownfinancial Advisors dot
(23:40):
com, and our home office isin Milford, but we also have locations
in blue Ash, Leicester and Florence, Shaw well, James. Just as
a reminder for folks out there thatare transitioning in their employment or career path
and you have a four to oneK or a four three B or sub
type of deferred company plan to rollover, do not immediately roll it over
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into your next employer's four one Kor tax deferred plan. Please contact us
gain control privatize your private investment plantoday. Come see as for a holistic
plan. It'll be complementary. Thatmeans no cost. Will sess where you
are. We'll put together a projection, a plan. We'll do all the
analysis and share with you, andwe'll provide all the recommendations at no cost.
(24:26):
We'll present to you what we thinkyou should do and how you should
do it, and ask you toconsider working with us as we'll work for
you and with you for many yearsto come. And with that good set
of information, you know, withgood information, people make good decisions.
You'll be empowered to determine if it'sa yes or a no, or maybe
a not right now. All ofthat's fine, but no, there's no
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meter running. You invest a littletime in us, We'll invest a lot
of time and resources in you toget to that point, full disclosure,
transparency. You'll know all the costsanything involved, and you'll know exactly your
part, our part, and oursuccess as we troject that together. But
you might also be considering, areyou facing a pension decision or a company
(25:10):
buyout? What are you looking at? What is staring you in the in
the face. We will help youwith those financial decisions. Don't go it
alone. Many of these financial decisionsare one off, once in a lifetime
events probably if not ever repeated,not more than one more time and the
rest of your career. Get itright, Get it right this time.
(25:30):
Give us a call five one threefive seven five nine six five four five
seven five nine six five four emailsteam at Brownfinancial Advisors dot com and we
hope to see you soon. James. You mentioned as we go through additional
strategies IUL which just you know acronymcity here, but Index Universal Life strategy.
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This is just another strategy. There'sreally two in terms of tackling tax
You can tackle taxes a living benefitsuch as this first example, or you
can do it as a death orlegacy benefit, which will be a secondary
example. But in this example,Index Universal Life Insurance also referred as IUL,
it's another strategy to help potentially saveon taxes throughout your retirement years.
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Now, like any type of lifeinsurance, you should have a suitable need
for the death benefit, an insurableinterest, which I believe you have in
yourself and your loved ones right,and an IUL well, it can provide
an income tax free payout to beneficiariesupon death of you. The insurance.
Just like any death benefit, lifeinsurance pays when someone dies, and it
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pays tax free. Same story there. However, the difference in IUL compared
to term life or other forms ofpermanent life insurance is they're designed to build,
if designed properly and uniquely, tostack up a bunch of cash value
as time goes on. As premiumsare paid so much splinters off to pay
the death benefit, the balance isintently overpaid to build a large cash value
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inside that instrument that then has interestcredits paid as an investment if you will,
where interest credits are paid on thecash value as it grows linked to
the stock market index or indicies.It could be Dow s and P five
hundred nastac all the above, youget participation in the upside of those indicies
with none of the downside. Soalthough it sounds like a security, this
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is not a security. It's notan equity, it's not a stock,
it's not a bond. It's aunique way to on a fully insured basis
linked to the performance of separate indicesto get the upside with the downside.
Now, this cash value is notdirectly invested in the market or an index
either. Again, it's it's heldan account and interest credits are applied as
they reflect the performance of a separateindex, the performance of a market without
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being in the market. Very interesting. The index is just a measuring device.
Fe will again to determine the amountof interest credit that's going to be
the rate that's paid on the cashvalue of your account as it grows over
a long period of time up untilfrom the time you develop the strategy to
the time you begin utilizing the strategylater in life. So now we want
to go over a few of thepros and cons of the potential use of
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this. But keep in mind you'regoing to be able to use this cash
value in a unique way. Aswe kind of swim through this example,
pro growth potential, one of themost significant advantages of an IUL is the
potential for healthy gains in the cashvalue, healthy and safe gains. Safe
safety always with insurance is based onthe claims paying ability of the insurance company,
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of course, but they have along track record of being very healthy
and helpful in this particular area.Now, the policies have more cash value
growth potential than other life insurance products, certainly more so than Universal life or
whole life. Of course, termlife has no cash value. You build,
no value. You outlived the term. It's gone. You paid all
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that money month my year of theyear for no reason. Sorry you didn't
die on time, right, Butthey can be purposeful. Not this totally
different animal. Policyholders in this caseget the benefit of the crediting floor,
typically zero or one percent, sothe cash guys protected against loss due to
any market performing poorly, meaning likethere wasn't a good market out there to
link to to make anything, sothey minimally guarantee you as something anyway on
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top of your cash value. Jamessome other advantages. Well. Another advantage
is the tax advantage. Major advantagehere on taxes, because cash value in
an IOL accumulates not only tax deferredbut the death benefit, as we mentioned
before, is tax free chier beneficiaries. Now you can also draw moneies from
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these policies in the form of aloan. Now where that comes into play
is this is where the concept ofa tax retirement is applicable. Yeah,
this is where the cash flow comesfrom this instrument in retirement. So the
loans. Notice that I didn't saythe word income when I talked about taking
moneys from the policies because policy loansare not, at least according to the
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government, considered as income. Thatmeans it doesn't show up on your tax
return. That's how such a benefitto you during retirement. That's how you
can actually generate really a tax freeretirement. Now it is important to note
this might be one of those consthat policy loans and withdrawals will reduce the
available cash value and death benefit,and that could potentially cause the policy to
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lapse or effect guarantees against lapse.So you do want to be cautious about
how much you take out when youtake that out. But again that's part
of the planning process of doing theseiuls. Yes, we illustrate those carefully
and conservatively to avoid that kind ofoutcome. But that's just one of those
warnings it's compliant to throw in therefor you to be aware that a lapse
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could occur if it's mishandled, wewill not be mishandling it. And of
course this whole concept. You noticehow James emphasized he didn't say income,
and I said cash flow. Thisretirement's about cash flow, and this is
another way for you to create abucket of money, grow a bucket of
money, access that bucket of moneyas cash flow on a tax free basis.
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And what's cool is whatever's left inthe bucket when you kick one still
goes at say tax free death benefitto your beneficiaries and errors, so there's
a little bit of tax goodies togo around for everyone. I mentioned.
The alternative is before we go intosome additional benefits of whether it's a second
to die policy or this type ofindex universal life for cash flow cash creation
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based on cash values, but overfundingthe premium etc. As we just described
is keep this in mind. Thesesame types of vehicles can be used to
not have a build up of cashvalue, have it build up a death
benefit, be used on a secondto die basis for legacy not living benefit.
Not retirement benefit, but legacy benefitbecause we know your tax deferred resources
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might leave a pretty darn big taxbill in the end that people inheriting your
money from I raise will have ahuge amount of income reflected on top of
their other income. It might besome of their best career path earning potential
years as empty nesters, saving morethan they ever had, lower expenses they
ever had, and here they getall this money from you that's never been
taxed. Boom, highest tax bracket. So an alternative is to use the
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second to die where you get iton you and your significant other, and
then when you both pass, thispays a death benefit into the estate that
can offset or pay or eliminate allthe taxes of your tax deferred accounts that
are taxable, leaving your estate andall your party gifts and prizes going to
their family and the people you intended. But other benefits of these James,
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of just these policies index universal lifewould be what well. Big one is
the long term care benefit or potentiallong term care benefit. This is true
if not only with the iuls butother life insurance as well. Is that
you can attach a long term carebenefit and that's going to help pay for
potential long term care stay. I'vesaid potentially, because not everyone's going to
go into a nursing home. Itjust maybe seems like it. But the
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addits are about fifty to fifty thatas someone ages into retirement that eventually they
will need some type of a nursinghome or long term care stay. Yes,
much friendlier underwriting than actual traditional andthat's the entire point of all this
is that many people cannot qualify fora long term care insurance policy. And
this isn't a replacement in some waysfor a traditional long term care insurance policy.
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It's a hybrid approach as an assetbased policy approach, it says I'm
going to use this asset in oneway or the other. And the long
term care insurance also is kind ofa user or lose it proposition. So
it's not exactly a replacement for longterm care insurance, but it's a very
effective planning tool that can help peopleto cover what could otherwise be a major
(33:52):
hole in their retirement plan. Well, there's more. There's much more.
I found theutment doubt this five one, three, five, seven, five
nine to six five four call uswe can help let's stay tuned listening to
the sound Manufestment Show with Brown FinancialFosors fifty five kr s Detok station.
(34:17):
Welcome back to the how Many InvestmentShows. Brown Financial Advisors. I'm Greg
Brown and I'm James Borden. Weare a registered investment at Fostors Farm.
We are independent. We do workfor clients and not companies. Our fund
number five one three, five sevenfive. I'm sixty five four. Website
Brownfinancial Advisors dot com. Email teamat Brownfinancialdvisors dot Com. Our home office
(34:39):
is in Milfurpool West. Have locationsin blue Ash, Leicester and Florence.
Right well. Conversion strategies to consider. We talked about the pros of an
index Universal Life also known as IU L. We looked at it from
two ways, the cash value buildup of using it for retirement purposes and
be able to turn around and takinga U tag exempt you know, tax
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neutral, tax free withdrawals on anincremental basis like monthly over your retirement time
frame as additional tax free income.Okay, so keep that in mind.
That's a that's a strong benefit.Now a con along the cons you have
limited gains perhaps I mean you eitherdo or you don't. I don't.
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This is just for compliance purposes.I'd say limited gains, unlike the equities
or other investments that are directly tiedto the stock market. I'd just like
to stop there and say unlimited gains. No limited gains. Yes, But
when you look at eliminating the downsideof a market investment like the iuls have,
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like fixed index inuities have, likefixed anuities have, there's no market
direct participation in the market, soyou eliminate the downside. So I always
want to hit the pause button rightthere and ask myself, well, how
much of the upside of market participationin form of interest credits in these types
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of products, how much the upsideof a market do I need without any
of the downside to actually be asgood as or better than full market participation
with all the ups and downs.Okay, so now roll the tape,
we go forward and say, Okay, I don't know the future, so
I can't answer that. I cantell you historically it's been a worthwhile investment
to have a balanced investment strategy,and that's what we like to do for
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folks, is have fully insured investmentswith guarantees of income to get the cash
flow gap covered in your retirement.Social Security plus these types of solutions equals
a I know so retirement, andthen all the rest of your money can
be invested in adjusted risk appropriately toyour risk tolerance, in market investments that
can go up down, sideways.But we'll grow and expand and build your
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wealth over time and remain liquid toyou for different purposes. So that all
came from just these trigger words limitedgains. As we're tracking the cons of
an index, Universal life iuls havea cap or max when it comes to
gains inside your policy. So althoughyou cannot go below the zero percent,
okay, zero's your hero, youcan't go backwards. You'll have a maximum.
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For example, let's say have tenpercent of the upside that you can
make in a given year tied toan index. If the market read to
take off and go up twenty percent, you'd get ten. If it went
up twelve percent, you get ten. If it went down twenty percent negative
twenty you would get zero. Butyou see the power of it participating on
the side and eliminating the downside.So I don't know if I made that
much of a con Actually I thinkI made it a continuation of a pro
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another con risk factor. It's withmany product links to equities, products that
are linked to equities, and IULis not free of risk. If the
interest credited does not equal what thepolicy is expected or shown illustrations over time,
you may not get the growth thatyou anticipated, and the premiums could
even be potentially increased in future years. What I'm really saying with that is
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that if it fails, if marketsaren't strong enough that even link to that,
you don't make enough interest credits togrow the cash value of your money.
Then meanwhile, back at the ramps, the cost of continuing to pay
and support the death benefit part ofthe life insurance policy might equal or overwhelm
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the increases and cause a decrease inthe underlying cash value. Okay, that's
not due to any other risk otherthan insurance costs more than what you're making,
and that can start to limit thedeath benefit and can limit the effectiveness
of this is as a tax freesource of cash flow in retirement. So
just something consider fees and cost another. Confees are typically front loaded and built
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into the complex crediting rates approach,which may be confusing to some. I
like to simplify it. Okay,why didn't you get twenty if the market's
up twenty and you only got ten? Because having zero risk costs something,
right, So forget all the complexity. I just made it simple. Of
course, it's going to cost somethingto limit your downside to zero while giving
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you a good positive effect of participationin the upside over long periods of time.
Anyway, certain fees can include premiumexpense charge, administrative expenses, insurance
costs, surrender charge. But youknow what, folks, those are all
fully disclosed up front, and they'rebaked into the illustrations, and they are
fully illustrated, so you go ineyes wide open. These aren't sucker punchos
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or real pitfalls or trap doors likeon doctor Evo. You know, nothing
like that. So, just likeany financial product, there are fees tied
to products such as these too.So now that we understand the basics of
a ROTH conversion and now IUL strategy, we want to explain why now in
particular may be a great time toconsider one of these opportunities. And if
now does not seem like the righttime for you and your particular circumstances,
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there may be a better time inthe future. Well, we need to
be here for you either way,and the sooner we start to assess this,
the sooner we'll both know when isthe right time. We know that
you know it's always the right timeto do the right thing, and it's
it's never wrong. So now it'sa good time to at least fully assess
this. The points that we're aboutto make to you next can help you
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determine if and when it's the righttime for you. All right, So,
current tax rates are likely to goup. Now if you think about
what we consider or what's termed theTrump tax cuts, are approximately seventy five
to eighty percent of the American publicdid actually benefit or receive tax cuts via
the Trump tax cuts or whatever youwant to call the Trump tax cuts.
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Nevertheless, here's kind of the point. Tax brackets that were say, for
example, fifteen percent became the twelvepercent rate, what was twenty five percent
became the twenty two percent rate,and so on. That's the reason why
most people benefited. The ones whodid not really benefit from it are from
the Blue states like California and NewYork that have really high not only property
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tax rates but also state income taxrates. So these are the types of
people that didn't really benefit from theTrump tax cuts. Now here's the assumption,
and it's not much of an assumptionof why the future looks like it's
going to be higher rates, perhapseven significantly higher rates. Kind of goes
like this, there's trillions with thet trillions of dollars being spent on various
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programs, bailouts, steamuless payments,our current debt deficit servicing that debt has
just gotten a little bit more expensivewith the raising interest rates. These all
suggest that taxes will need to goup into the future to help pay for
these different types of programs. That'swhy we do expect at least somewhat of
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a tax increase for the future.Greg, what's next, Well, how
about defense against the Secure Act.One of the many changes that took place
in the Secure Act was accelerating incometax on non spousal inherited iras, subject
to a few exceptions, of course, but now it's been made a ten
year payout after the owner's death.So if you're a non spouse beneficiary of
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an IRA that you inherit from aloved one, you now have T minus
ten years incounting to completely empty thatIRA and present it before the altar of
Uncle Sam for taxation. So wewill help illustrate the best way to take
that in relationship to your current taxpicture, your current income picture, your
current cash flow needs, and overallplanning picture, and we'll look at ways
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to offset your taxes while you enjoytaking in this new form of income.
So what are your options. Well, you could take it all at once,
right, Well, that just addall of what you inherited onto your
income for that year and be taxesincome. So it's going to be wise,
to say the least, to spreadit out over time. But in
the end you only have ten yearsto do it. So you can do
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it a little bit each year,all the first year, any combination of
the years, all at the endof ten years. Yes, all the
above, but what's best for you? Now? Let's say a person inherits
a million dollars of a traditional IRA, the original account owner, say,
died in twenty twenty or after andfill under this edict. The beneficiaries now
have to withdraw that money to beredundant but clear within a ten year period.
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In other words, you have todraw out an average of one hundred
thousand dollars a year from that account. Now you're likely to bump into a
higher tax recker, right, Justconsider the brackets for a moment. Take
your current tax bill income throwing anextra hundred grand and see where you land.
Good news is years one through ninethere's no required minimum distribution. Bad
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news, by the end of yearten, the entire account must be liquidated.
So by doing a Roth conversion orusing an IUL strategy, you can
perhaps avoid this scenario for your lovedones as beneficiaries someday, and if not
completely avoid, maybe at least mitigatewhat the damage would otherwise be. Now.
That also leads to reasons not todo a conversion at least right now
is you may bump into the notonly the higher taxes, but you will
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absolutely pay upfront taxes on those conversions. That means from the Roth conversion IUL
strategy, if your upfront taxes aretoo expensive or unaffordable. That's the main
reason why not to do the Rothconversion. Let's t wrap this up.
Yeah, you might end up withtoo little money to actually live on too.
That's why we need to get together. Call us today. We can
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help James a fun number at theoffice. Five one three, five seven,
five nine sixty five four Again fiveone three, five, seven,
five nine sixty five four call uswe can help now on behalf of Greg
and myself James. We want tothank you for listening today, have a
great week and remember this sound money, where good things are believable, achievable
and true for you