Business Innovators Radio - Interview with Dan Brooks, Founder of Xexis Private Wealth Discussing the Tax Implications of Large Retirement Accounts

Episode Date: April 18, 2024

Dan entered the U.S. Navy’s Nuclear Power program after high school and upon discharge, he purchased the family business which he operated for 7 years.After his father’s death, he discovered his father lost a small fortune due to bad advice from a stock broker. Dan decided to enter financial services to find out how this could happen and help others avoid it.In 2004 he completed the Certified Financial Planner coursework and in 2005 opened a Registered Investment Advisor firm.He owns both a Financial Advisor firm and a tax firm based in Lake Mary, Florida. Dan works with a Registered Investment Advisor firm that manages over $3 billion dollars and is one of the fastest-growing firms in the nation.Dan’s specialty is comprehensive retirement planning, including income planning, tax mitigation, catastrophic health care planning, Medicare, Estate Planning, and Generational Wealth.On a personal level, his proudest accomplishment was being a single father to his daughter, who is a Police Officer. He enjoys golf, hiking, traveling, cooking, and discovering new restaurants.Learn More: http://www.xexiswealth.com/Investment advisory services offered through Virtue Capital Management, LLC (VCM), a registered investment advisor. VCM and Xexis Private Wealth, LLC are independent of each other. For a complete description of investment risks, fees, and services, review the Virtue Capital Management firm brochure (ADV Part 2A) which is available from your Investment Advisor Representative, or by contacting Virtue Capital Management. Information provided is not intended as tax or legal advice and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-dan-brooks-founder-of-xexis-private-wealth-discussing-the-tax-implications-of-large-retirement-accounts

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 this Dan Brooks, who's the founder of Zexis Private Wealth and we'll be discussing the tax implications of large retirement accounts. Dan, welcome back to the program. Hi, Mike. Good talking to you again.

Yeah, I'm looking forward to hearing your thoughts on this because I think that we have been programmed as Americans to get your degrees and get your job and start your 401K or whatever retirement plan that your company has and maximize the contributions. And then when you get to retirement, hope for the best. But in reality, there are some tax implications that happen there. And so maybe some ticking time bombs that you're going to. going to point out. So get us started with your thoughts on that. And then we'll kind of dive into, does the planning process vary based on the amount of assets? Because we are mentioning large retirement

accounts. Yeah, you hit on a key point there, Mike, in that, you know, people were taught to max out their 401ks and IRAs and IRAs and whatever, all their retirement accounts. And they got the same advice everywhere they looked. It's like, look, don't pay the tax today. Pay that tax when you retire when you're in a lower tax bracket. And I guess that advice is fine if you are going to be in a lower tax bracket, but nobody thinks tax brackets are going down in the future. So that's point number one. But for a lot of people, it's too late.

You know, my clients are nearing retirement or they're just entering retirement, so they've already saved their money. And what they realize is that they now have a big tax nightmare facing them in the future. And you ask the question, does the planning process? process very, you know, based on the amount of assets a person has. And the answer to that is the process does not vary. The direction we go with it does vary, but a process is a process that, you know, our process is starting with education and analysis strategize and then showing people how to enjoy their retirement. So that process is the same whether somebody has $300,000 or $30 million.

It's just that the direction they go. Maybe the execution of that process could. vary based on the amount of the asset. Yes, that's right. And, you know, for example, there's certain things in the tax code that are just not available to somebody that has $500,000 that do become available to people that have more money. And that's just the way the tax code is written. We can't change the code. But, you know, you can take advantage of those.

But that's an example of difference. So I always like to clarify and define. So when I hear the word large retirement accounts, that could be. objective where someone could go, oh, my goodness, 100,000 is large, and someone else could say $2 million is large. What is your definition of large retirement accounts? Well, I think of it this way, when does tax planning become real critical? So, tax planning starts at about half a million dollars of retirement assets. And when I say retirement assets, I don't mean somebody's home. I mean IRAs, 401ks, TSAs, et cetera. So once you get to that half a million point,

And then tax planning becomes pretty important. You get above a million and a half, it really becomes critical. If you don't do tax planning, you know, once you reach a million and a half, two million of retirement assets, it's going to be, the government's going to love you because they're going to get a huge chunk of your money and your family isn't. So, you know, it's more of, you know, those ranges. You know, half a million should start being important and, you know, one and a half million to two million. It's critical. My industry tends to use tax planning as almost kind of a loss leader to try and get you to come in and talk to them. You know, they talk about Roth conversions as if everybody should do that.

And that isn't true. I mean, Roth conversions, we'll probably talk about that later, are important planning tool, but it's not, you know, just realize that it isn't necessarily right for you as an individual. Yeah. Does age play a factor in that tax planning? Because if the numbers of 500,000 and 1.5 million, just as that example, you might be at a certain age, younger age and hit that or you might be older. So does tax planning really ramp up when you get to a certain age or you really need to be planning it, you know, with enough runway ahead of retirement? Yeah, absolutely. You know, if you're if you're 40 years old and you've already got a million and a half built up in your in your retirement account. Imagine what it's going to be worth in your 65, 67, 73 when, you know, when the tax nightmare will hit if you don't do it. And the other side of that is that the more years that you have, the more you can mitigate those taxes.

There's, you know, there's tools to do that. So, yes. You know, the short answer is yes. Of course, age has a lot to do with it. Yeah. And that gets back to the factors that are involved in the strategy being recommended because there's not one strategy that fits every single person. So what is your age and how much do you have now? What do you need to?

All of those things factor in. So I think that's a really great point. So let's talk a little bit about when you were mentioning, you know, these amounts and someone might think, oh, a million and a half, that's a lot. And someone else might go, that's nothing. So when you think about wealthy people, what do you find that wealthy people haven't been told, you know, like some of the, you. these tax pitfalls with people with large retirement accounts, you know, that you don't want to find out too late. So what are some of those things?

You know, there's several of them. Probably the most common is that a lot of wealthy people have worked with an investment advisor. You know, we used to call them stockbrokers. And their primary focus, of course, is to grow a pile of money for you. And that's what they're trained to do. And some of them do a great job and some of them don't. But in any case, what they're trained to do is invest your money. what they're not trained to do is give you a picture of the future and say, you know, when you start taking this money out in retirement, you need to think about these things.

So what I find is when people come to me, you know, and they're 58, 59, 60 years old, and they're starting to plan for their retirement. We need to teach them how to switch their thinking from accumulation, you know, trying to keep growing their pile of money to, okay, what's the best way to, okay, what's the best way to, spend this money and protect it in retirement. So it's a different thought process. And, you know, they're not told things like, you know, Medicare has this, I think of it as a penalty tax for wealthy people called Irma, you know, income respect to Medicare amount or monthly amount, where you can pay actually a larger portion of your Medicare, depending on how much your taxable income is.

And a lot of people don't find out about it until it hits them. They get this notice in the mail that they owe another, whatever, thousands of dollars. Nobody ever told them it was even going to happen. Wow. You have these thresholds that you go $1 over the threshold, and your tax can jump by thousands of dollars. So that's just one example. You know, required minimum distributions, again, you know, at a certain age, 72, 73, depending on maybe even 75, depending on a person's age, they force you to start spending your money and pay the tax on.

Yeah. So if you're not prepared for that, if you don't plan for that in advance, it can be a disaster financially. But there's lots of tools available that people, most people haven't been told that they can use to mitigate those taxes. And there's probably a whole cadre of tools that, you know, oh, you could do that. And then it would confuse people. So you need to make sure that you're working with that guide that can make sure that that right tool is implemented at the right time. So I think that's really huge. You know, something else you said was interesting, the financial industry's inclination towards selling products, you know, over, you know, what's benefiting the company versus the client. It might not align with the client's best interest as it relates to taxes. You know, they might, you know, sell this product now and it triggers a tax when in reality you could have been delayed it a little bit.

Talk a little bit about some of those things that people need to keep in mind regarding, you know, the industry bias. Well, you know, let's face it, the industry is built as a sales organization. Everybody knows that. There's nothing wrong with sales. Everybody's selling something. But that's why, you know, I tell people that to look for a firm or an advisor that has a process that they lead with, not product. And it's so important. And you need a comprehensive firm.

And by comprehensive, I mean that they're taking. a look at the tax angle and they understand Medicare and Social Security decisions and estate planning and all of these puzzle pieces that people need to put together. A comprehensive firm will do that. You know, it's kind of, I like analogies. You imagine if in the medical world you had a primary care physician who spent a lot of time with you hours finding out about your health history and kind of your health goals and your family health and and so on. They spent hours and hours really interviewing you and getting to know you as a person and with a focus on health.

And then through working with that primary care physician, you find out they also right there in their same building have all of the specialists that you might need. You don't have to go to another building and wait six weeks to see a specialist. They've got them right there. They have a comprehensive medical practice where all of the people that you might need to give you optimal health are available to you. That's what a comprehensive financial planning firm can do. You don't have to go off to a bunch of different specialists and try and put it together yourself. You can have the firm do that for you. And they have all the specialists available.

That's huge. You know, we're talking about large retirement accounts and you've you've talked about there's a tax firestorm waiting you because some of these accounts like IRAs and 401Ks, that's pre-tax money and the government's never received their portion of that. So it's been growing over these years and decades. So what are some of the strategies that you recommend to minimize that tax burden? Because we can't eliminate it, but you can minimize it, mitigate it a little bit. Yeah, that's right. And sometimes not just a little bit, well, a lot.

Yes. So, you know, there's 10, 11, 12 different ways that we can show people to reduce their taxes. You know, to go into depth than any of them would take quite a while. But some of them are very simple. You know, for example, you can leverage charities to lower taxes, mitigate taxes. You know, if I tell people, look, if you could include a charity in your inheritance, but your family would end up with more money, even though. know the charity's going to get some, would you do that?

And I go, well, yeah, how could you say no to that? Right. Yeah. And it's true. You can do that. You know, and then there's what we'd call a little bit more exotic stuff, but it's not, you know, it's not gray area for the Internal Revenue Service. It's very common.

It's just that people don't know about it. Like oil and gas exploration tax credits, solar and wind farms, historical preservation. There's a lot of things that the government encourages people to invest in. they'll give tax credits back to them for doing this. So like I said, you know, there's 10, 11, 12 different ways of doing that. And what we do is we have specialists in each of those areas.

I like working with specialists. You know, this is all they do. They're not trying to do everything. So I'm, I'm kind of the generalist of understanding how all these things work together. And I'm the point of contact for the client. But I am not a CPA.

I'm not an attorney. I'm not an estate planner. I'm, you know, I don't specialize in any of those things, but I know who the specialists are. And I hire them. And some of them I even have on retainer for my clients. You know, I know we've been talking a lot about analogies. And it makes me think about, you know, a coach of a football team.

They know enough about the game, but they're not the quarterback's coach. They're not the wide receivers coach who brings, they bring in that specialist to really fine tune and hone those skills. So I love simplicity. I love clarity. And I think what you're describing. there's having that holistic approach. It's so important because when someone develops a relationship with someone like you who's guiding them through the process,

now all of a sudden you say, you know, here's our legal representative that needs to come in and talk about estate planning or whatever the case might be. That's a huge piece. And some of those tax burdens that you can lower and minimize with some of these things that are out there that maybe you just didn't know we're there. That's a huge aha for people. It is. Yeah, that's a good way to put it. And, you know, you mentioned, go ahead. I was just going to say you mentioned required minimum distributions. And that's a pretty big thing, RMDs.

And it makes me think about the fact that here's the government going, man, we're not getting these taxes being triggered, you know, to pay us soon enough. So let's put this thing in place called a required minimum distribution. So it's there and people have to take it. But the thought crosses my mind. What if a retiree goes, you know, I'm good this year. I don't need to take anything out because I've got whatever squirled away or I don't have as much need. If you don't take that, there's some consequences there, right? Yeah, yeah.

There's some penalties. And fortunately, they lowered the penalty a little bit. But it's still a penalty and nobody wants to pay. It's pretty hefty. And, you know, the real thing is why even put yourself in that position? Yeah. Why would you do that? And again, when there are tools available to you.

And again, you know, some of the stuff you can do for free, some of it's very inexpensive. Some of it's going to cost you thousands of dollars. But it's not a cost when you get bigger benefit than what you paid. And I always say if you're paying somebody a fee, but you're getting a lot more benefit than what you paid in a fee, that's a very prudent decision. Yeah. It's the people that are trying to be smart because they are smart. They're smart in what they do. But, you know, let's face it, we all know people who are very smart and therefore they think they're smart at everything.

And they end up making very poor decisions. Yep. Right. So I know we'll just kind of wrap up with this thought because we bring this whole concept to a close of, you know, how to make sure we're minimizing tax implications of large retirement accounts, there's a lot of things out there that are being marketed by the industry. And even though someone like yourself is the guide saying, here's some things to consider, a retiree still needs to feel comfortable and evaluate these options. What are some of those things that someone needs to keep in mind when they're making that

evaluation of some of the options? I think that that decision is very easy to make. If you meet with somebody, for example, There's these free dinner workshops all the time. And if you go to one, you know it's a thinly disguised sales presentation. But the key, Mike, is, again, process, not product. If somebody is talking to you about a product early on, it's a danger sign in my eyes. Because they should be talking about a process.

They should be finding out about you way before they ever talk about any product. It's like what they say in the medical industry, prescription without diagnosis without prescription is malpractice or maybe I got it backwards. But the point is, get the facts. Get the facts and then prescribe. You don't walk into your doctor and he says, hey, welcome, nice to see you again. I'm going to give you this prescription for XYZ. And it's like, no, I haven't even told you what hurts or what doesn't hurt.

So I think that's a big, big piece that when you're talking about process over product. Yep, that's an excellent analogy. Well, Dan, I think that there are a lot of people like that, you know, tax firestorm that's brewing for these large retirement accounts. I think it would be helpful for people to get that clarity and just understand their path forward. So how can people learn more and then also reach out and connect with you? Well, I have two companies, X's private wealth and acts of tax services, which work together. Those are hard to give verbally. So I have a website that people can go to that is ease-planning.com.

Ease is our method. That's our process, E-A-S-E. So if you go to ease-dash-planning.com, they can get to my website from there. Excellent. Well, Dan, thank you so much for coming back on today. It's been a real pleasure chatting with you. Thanks, Mike. You've been listening to Influential Entrepreneurs with Mike Saunders.

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