Business Innovators Radio - Interview w/ Michelle Boyce, RICP, VP w/ Rosenzweig Financial Services Discussing The Power of Tax-Free Income

Episode Date: October 3, 2024

Michelle has over 20 years of experience in Financial Services and her main goal is to always focus on her client’s long-term financial planning strategy to optimize retirement income.She prides herself on analyzing a financial situation, finding any potential issues, and creating adequate solutions to ensure her clients’ prosperous future. With her extensive insurance and planning experience, Michelle adds great knowledge to the already specialized team at RFS.She has worked in various capacities in the financial industry from being part of top producer teams to teaching new financial advisors through agency leadership. Michelle’s passion is to help educate consumers by taking complex financial strategies and explaining them in an easy way to understand the concept. Michelle is originally from Pittsburgh, PA, and a graduate of Penn State University in Business.She now resides in Boynton Beach, FL with her husband Rob, their two daughters Olivia and London, and their three pets. When Michelle isn’t working with RFS’s clients or spending time with her family, she is likely exercising or on her Peloton, competing her way to the top of the leaderboard. Michelle has always loved sports as she grew up playing Basketball, Volleyball, and Softball. While living in Pittsburgh, she became part of Steeler Nation, and that devotion has carried with her to South Florida.Michelle joined Rosenzweig Financial Services in October 2021 as Vice President, specializing in the professional marketplace.Learn more: https://www.rfsny.com/Registered representative of, and securities and investment advisory services offered through Hornor, Townsend & Kent, LLC (HTK), Registered Investment Adviser, Member FINRA/SIPC, 1 North Federal Hwy, Suite 201, Boca Raton, FL 33432. 561-314-3100, http://www.htk.com. HTK is a wholly-owned subsidiary of The Penn Mutual Life Insurance Company. Rosenzweig Financial Services is unaffiliated with HTK. HTK does not offer tax or legal advice. Always consult a qualified adviser regarding your individual circumstances.Retirement Income Authority is not affiliated with HTKInfluential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-w-michelle-boyce-ricp-vp-w-rosenzweig-financial-services-discussing-the-power-of-tax-free-income

Welcome to influential entrepreneurs, bringing you interviews with elite business leaders and experts, sharing tips and strategies for elevating your business to the next level. Here's your host, Mike Saunders. Hello and welcome to this episode of influential entrepreneurs. This is Mike Saunders, the authority positioning coach. Today we have back with us, Michelle Boyce, who's the VP of Rosenzwegg Financial Services, and we'll be talking about the power of tax-free. income. Michelle, welcome back to the program. Thank you, Mike. Happy to be here. Hey, you know, I love, I love the sound of that. Give me some tax-free income because I think if people were to say, you know, hey, on a scale of one to ten, how does this word make you feel? If we hear the word

tax, there's a pit in our stomach. So let's talk about tax-free income. Let's define it. You know, I don't think you need to get into too much detail there, but it's income that is tax-free. You don't need to pay the taxes. So that is just massive, right? Absolutely, right? So you pay the taxes during your working years and then all of that growth grows, you know, tax free. And when you use it, it's tax free at that point in time too. So two double tax free. Yeah, yeah, for sure. So talk about some of these benefits. How does that help to move a pre-retiree into that position of having that financial security? Yes. So, yeah, so I work with a lot of, you know, pre-retire. and retirees, you know, and we do a lot of modeling to say in projections of what does retirement

income look like, right? And your money can be taxed one of three ways. It's either be tax deferred. So when you take it out, it's fully taxable at ordinary income rates. It can be taxable where you pay capital gains or it can be in the tax free location where now you're not paying taxes on it. Right. So when most people get to retirement, most of their money is in tax deferred. So now they're paying all of the ordinary income when they take it out. So if they need $100,000 a year to live, well, they actually need to pull out $125, right, to net $100. The opposite side of that point is that if you had all of your wealth saved and tax free, if you need $100,000 to live, right, you only need to pull out $100,000. $100,000. That other 25 stayed in your portfolio was able to

grow was able to help you against, you know, ups and downs of the market, inflation and everything. So it has, having tax-free income has so many positive ripples throughout someone's retirement when they start taking their income. Yeah, that's huge. And I feel like the word compounding really plays in there, right? Because if you do it right well ahead of when you need the money, then the compound benefits of growing money tax-free before you need it, that really is a big momentum builder. Huge, right?

Huge. You'll probably see, like, I see a lot of things out there now, you know, about opening raw salaries for your children, right? And letting them have, and even if you're just putting in, you know, a couple thousand dollars a year, by the time that they get to their working age, just the miracle of compound interest are going to be millionaires, right? So we're starting to learn that now for like the kid, the, the, the, the, the, generation that are children. But unfortunately, we didn't really know that as well for individuals

that, you know, have been working for the last 30 years that are now getting ready for retirement. So we have to explore other ways to be able to get some tax free wealth. Yep. And I want to dive into that. But I guess one thing that makes me think about is what's the big need for tax free wealth, obviously? But how could tax changes coming up to the future really hit, hit this and make maybe dislodge a strategy? You know, do we feel? taxes are going to go up or stay the same or go down? Right. So, you know, I don't have a crystal ball, right?

But what I do have, I do have some facts, right? And the reality is when you look at the tax code and you look through history, we've been in some of the lowest tax rates in history for the last, you know, eight to 10 years with everything happening in our federal government, with the debt and this and that, you know, where the likelihood of tax is going down, is pretty slim. So they're probably going to go up. But even if they stay the same, right, because you're growing that money, you're going to, that miracle of compound interest, right? Those accounts are going to grow and then put you in a higher level because you're going to

have to pull that income out. So if you're a believer that tax rates are going to increase, or even if you're going to stay the same and the same tax rate, but you're going to need to take more money because of inflation, having tax-free income is just gives you more flexibility. because if tax rates increase just a few points, that's a few more dollars you need to pull out of your retirement account to get to net what you need. Yeah. You know, I love the point about the crystal ball, but there's indicators that we can kind of look at to go, yeah, but probably taxes are going to go up because, right? And my uneducated opinion is when you look at the deficit that's, you know, again, the hypothetical number of gazillions and bazillions. right. It's huge. The only way to attain that is to reduce spending. And I think everyone would vote

probably not too likely that's going to happen in the government or raise taxes. So do we feel taxes will go up in the next five to 10 years? Probably if there's two boxes, yes or no, the yes box is going to get checked. And we don't know how much. And we don't know what tax bracket will be in in retirement years, 10, 20, 30 years down the road. But if you can plan for tax, taxes going up at that point, then there's the power of that tax-free income like what we've been talking about. Exactly. And we didn't even touch kind of on the rippling effect, right, of having too much money that's in taxable income versus tax-free. So, for example, right, when you have tax-free income, that doesn't have the effect on the taxation of your Social Security,

the way tax-deferred income does, right? It doesn't have impact on your Medicare. surcharge the way that tax deferred income does. So these aren't even pieces that we talk about because it's not, you know, the big 25% bracket or the 30% bracket, but there's all these small rippling effects that are out there and they're real, right? Because people feel them through retirement that we can't necessarily even put a number on today because there's, you know, we just aren't sure. but there's so many positive effects of having that of that tax,

not having all your money in one bucket. You know, that domino effect. And probably those two you mentioned, there's three more that if you really dug in and you're like, yeah, and here's another one and here's another one. And,

you know, we talk about the compound interest, but it also, it's the compound effect of these little things. Like one thing, you know, leads to the other thing, which then compounds to mean it's even more advantageous to take care of

these things now. Exactly. So I think that is huge, right? So what are what are some of the strategies that people can be putting into place? And how does your approach to tax planning differ from what people typically are hearing? Right. So that's kind of the interesting part of this whole scenario, right? Because there's only a few places that you can actually get tax free income because it's a good thing. And a lot of them have limits around it. So, you know, the first thing that people always think of is, okay. Okay, a Roth IRA, I can do a Roth IRA, which you can depending on your income level. I like to say that the government decides if you're too successful or not of who can and cannot do a Roth IRA. You know, if you make over a certain amount of money as a single or a married couple, you're not allowed to do that. So, but if you're under those limits, you can. if you're fortunate enough to have a company that has now put a raw 401k option in,

that isn't a way that you can put in up to like $23,000 a year into those locations, but not every employer has adopted that yet. There's a unibond income, but that's really more for those in retirement, right, if they're looking for income. And then the last option is, you know, cash value life insurance, which a lot of people are not familiar with. They know what life insurance is and they think it as a death benefit, but this is a completely different design. This is the least amount of death benefit and the most amount of cash value because life insurance can be used tax free because it falls into that life

insurance realm. So those are always different options I look at, right, when we're planning with a client because we got to, the goal is for each of my clients to get some tax free income in the future, right and depending on all those ones you mentioned it's not a matter of which one do you want to do it could be a matter of let's do a little bit of this one and then layer in a little bit of this one and then a layer they could all be used right in in certain cases right you know one of our goals is to try to get you to the max tax free income that we can get to right because if you the more tax free income you have the less taxes you will pay in retirement the less that that eroding factor has an impact on your retirement plan.

So when a pre-retiree talks to someone about this topic, tax-free and taxes and mitigation, what are they typically being told? They're typically being told, I feel like they look at things on a one year at a time basis and not looking at things at a whole, right? It's a very micro approach and be like, oh, well, we can save, you should do this because you can save X amount of taxes this year, right? So maybe they save $5,000 in taxes this year, but over the course of their life, it costs them, you know, $300,000 in tax. But they don't tell them both sides of the point, right?

So how is someone supposed to make an educated decision? Because I think 100% of the time people would say, well, wait a minute, I'm going to save five today, but it's going to cost me $300 down the road. They're never going to do that, right? That's a bad deal. If you were on deal or no deal, that's a bad deal. Not going to take it. Right. Then how far do you look?

If they're being told one year down the road, what is your perspective? Right. So we look throughout their entire retirement and also to the next generation, right? Because likely there's going to be money left over, right? Even though I've met people that said, I'm going to spend every dollar and die the next day, the likelihood of that happening isn't very high. So if there, nobody is that good at predicting.

Exactly. Right. I will retire at this age. I will die at that age. And here's the money I need. Check. Right. They say people make plans,

you know, and then the higher powers laugh. Like, that's not how it works. So when we look at someone, we say, all right, let's look year by year,

right, of what this impact is going to have, not just this year, but next year. and then five years and 10 years. And then also the impact that has at your death and then to your legacy for their lifetime. Because that's how an analysis has to be looked at. We can't look at it short term.

You know, where this money is a, A, it's a finite amount, right? And it's not like if you make a bad money decision, someone has a money tree in their backyard where they say, hey, you know what? I'm just going to go pull out another $100 bill because I made a mistake there. that's not how it works. So we want to make sure that we're looking at things at a whole so that we can evaluate every decision to put you in the best place during your life, but also then put you in your errors in the best place if that's something that's important to you.

Yes, of course. So it kind of makes me think this when I'm hearing new things. Like, oh, tax free and oh, cash value lectures, oh, this strategy, that strategy. What are some of the misconceptions that you're finding? your clients having when they first come to you about these tax-free retirement strategies. What are some of the things that they're coming to you with? Right. So I'll talk about two different ones, right?

I'll talk about kind of Roth conversion and then cash about your life insurance. So oftentimes with Roth conversions, people are afraid to do Roth conversions because like, I don't want to pay the tax today. I'm going to pay so much in tax today. Like, okay, yes, you're going to pay tax today. but you're going to pay less tax than you are over the course of your life, right? Because they haven't sat down and looked at this, like I just mentioned, over a 20-year span.

They're only looking at it a single approach, right? And that's comparing apples and oranges. So if you can pay $400,000 in tax today on a Roth conversion because you converted your whole IRA, but that saves you a million dollars in tax over your life, maybe that makes sense to do. Yeah. So that's one miscarriage. And the reality is that a consumer doesn't have the software and the capabilities really to be able to go and run all those numbers to know if that's an accurate decision.

Like myself, Ken. The second part is a lot of misconception around, you know, using cash value life insurance is that they're thinking of it, well, it's more expensive, right? Because there's an insurance wrapper around it. And the reality is there is a insurance wrapper around it, right? So there is going to be that intrinsic cost inside of it. But that insurance wrappers is what allows it to be tax-free. And it's the only tax-free bucket that doesn't have any rules associated with it from the government, right? Of like 59 and a half or you have to keep the money in there five years without a 10% penalty or how much you can put in.

Or MDs. Exactly. Right. It's a private transaction between you and the insurance carrier. and if it's designed properly, which is like a big asterisk, right, it has to be designed properly to achieve the income goals that you want to. It's very, very powerful. And that actually is something I've heard. A lot of people might say, oh, well, that's just something new. I've never heard of that. So I shy away from things that are new. But doing cash value life insurance, the permanent life insurance option, when it's set up the right way, again,

huge point. This has been around for hundreds of years. Exactly. Hundreds of years, right? And if you go back and you look at different events in the world, right, that have really changed society and a lot of families that have a lot of wealth. You will always see that there was some sort of life insurance that was a part of that, right? Maybe for a legacy, maybe for for income planning. Like a true fact is that Walt Disney started Disneyland by loaning money out of his cash value life insurance to him. That's what got the idea started.

So like you said, it's been around for a long time. We find more and more unique uses of how to incorporate it into someone's financial plan based off what's happening in an environment around us. When we've been in a low tax environment, knowing that we're likely going to be, going to be in a higher tax environment, it's really time to start looking at those strategies and how to use them for someone to put them in a better position if tax rates go up. 100%. What's an example? Can you think of maybe a recent case study example? You've worked with a client where you've kind of layered in some of these tax free income strategies?

Yes. So I've a client who would be, she is putting a lot of money and she will. he's a professor. She's putting a lot of money into her retirement plan at work and they're matching it. She was putting money into a large amount into, you know, a taxable account, but she wasn't putting any money into a tax-free bucket. And she uses, she makes too much for a Roth, and she doesn't have that option through her employer. And she is single with no children, which with most people, you would say, well, why would you ever talk about, you know, life insurance for a woman who's single with no children, right? And the reality is because it had nothing to do with life insurance. It was the tax-free bucket that was available to her and her situation.

So, and she needed to save more money. So we just kind of shifted, you know, what she was doing. And now when she gets to retirement, she's going to have a lot more options because she's going to be able to pull money off of that cash value tax-free versus having to take, you know, more money off the other accounts if she didn't have that third choice. You know, shifted jumps out at me because like you were saying about, you know, the cash value and it's, you know, cloaked in life insurance. The premiums are more than what you would hear in a term policy. But when you can look at the overall steps that someone has already taken and you shift

with the currently doing, she probably didn't even feel that those premiums because you're just like, oh, let's take some of this, what you're doing here, put it over into this. And, you know, her bottom line stays the same. It's just that now these buckets are now properly distributed. Right. I always like to try to work within someone's existing cash flow, right? Because if you had it available to save, you'd be saving it, right? So it's my job to say, okay, what you're doing, how can we make it as efficient as possible?

Because that's all anybody wants is to know that they're doing the right thing, right? That I'm going to be okay, that I'm doing the best I can for my. situation. So I've been able to show them, okay, this is going to put you in a better situation against these different things, right? To be able to protect yourself more against taxes, be able to protect yourself more against inflation or market risk or a long-term care concern, premature debt, disability, any of those what-ifs that can happen through life. It's my job to be able to help you build a plan to be in a better spot within your existing cash flow if if those things happen.

Love it. Well, Michelle, it's been so enlightening. Again, all of these topics are things that people hear about and go, yeah, I'm glad we talked about that because I never would have thought the way that you're explaining it. So if someone is wanting to learn a little bit more and maybe visit your website or reach out and connect with you for that free consultation, what's the best way they can do that? Yes. So they can, you know, find me on our website, which is at www.RFsNY.com. It stands for Richard Frank SamnY.com. You can find me on there.

We actually do a monthly webinar series, and tax-free income was one of the topics I've covered earlier this year, and it's on the website. So you can listen to that webinar. And you can reach out just to have an initial phone call, ask some questions. Perfect. Well, thank you so much for coming back on.

It's been a real pleasure talking with you. Same, Mike. Appreciate you. You've been listening to Influential Entrepreneurs with Mike Saunders. To learn more about the resources mentioned on today's show or listen to past episodes, visit www.com.