Business Innovators Radio - Interview with Jeff Altman President of Altman Advisory Group-Roth IRA, 401K and IRA’s

Episode Date: July 16, 2024

I have been in the financial services industry for over 50 years. I am a certified financial educator and approved to reach continuing education to CPA’s by the state of Nevada. I reside in Nevada with my wife of 30 years. I have two children and two grandchildren. I am a combat veteran of the Viet Nam war and devote time to helping other vet’s in need. I derive great satisfaction from allowing clients to benefit from my experienceLearn More: http://altmanadvisorygroup.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-jeff-altman-president-of-altman-advisory-group-roth-ira-401k-and-iras

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 Jeff Altman, who's the president of Altman Advisory Group, and we'll be talking about Roth IRAs and 401ks. and those strategies. Jeff, welcome back to the program. Thanks, Mike. Glad to be here. Hey, so I know this is a really hot topic because we have been indoctrinated in decades past that you graduate college, you get your job, you start your 401K because most of the time pensions

are not available. So you get that 401K because that's what you do. Well, that plus the IRA strategy, is that the best thing to keep all your retirement money in question marks? So Let's talk a little bit about the 401k strategy and how that ties into IRAs and some opportunities that way. Where do you start advising your clients on regarding this? Well, first of all, again, I think it's important for us to understand history again and realize what brought the 401K about. Originally, the 401k was supposed to supplement our retirement. And what happened was most corporations who have, had pension plans, couldn't afford the pension plans any longer. It was just eating them alive.

So along comes the 401K. And Lee then said, okay, we're going to do some great things for you on this 401K. We're going to let you contribute to it. And we're going to also participate a bit. We're going to contribute some of our money to help you out. Well, the government truly wanted us putting money into these 401ks. And so they came out and said, okay, we're going to give you some other benefits. As an example, we're going to make your contribution tax deductible. We're going to let the money grow on a tax deferred basis. However, they then went ahead and inserted one sentence in there and said that ultimately all of this money is taxable. Income tax.

And then said, not only that is, first of all, you can't get to this money until you reach a certain age, 59 and a half. And then at a certain age, you must start taking this money out, or you're going to pay a penalty, a big penalty, a 25% penalty, which is a big mistake that sometimes people make. So the first thing about a 401k to understand is it's great while you're working, and it's great to make contributions that will equal the contribution that the employer is making, because that's free money. Yeah. But anything over and above that contribution, perhaps should be going someplace.

And again, that all depends on the individual. Now, it's also very important that upon leaving an employer, that 401K is transferred into an individual IRA account where you, the owner of this account, has the most control over it. When it's in the 401K, you really don't have control. You know, most of the time we go into the HR office and we fill out some paperwork. And this HR person, he's not qualified to tell us what we should do with our money, what we should do with our investment. And he says, okay, do you want a little risk? Do you want moderate risk? Do you want great risk?

Check the box. Sign the form. Yep. Next. And that's the extent of the advice we have. And many times, we don't even know what our 401K is invested in. Keep in mind, a 401k is a law. An IRA is a law.

It's not the investment. So step one is, when you stop working for this firm, it's important to roll over that money. Now, transfer that money. It must be transferred correctly. there are laws that affect this. And if it's not transferred correctly, we can wind up in effect having a 100% tax penalty. What's the correct way? Well, there's a direct rollover and there's an indirect rollover.

Now, a direct rollover is where the money is transferred company to company. Check never goes to the client. If you get received that check, it can be termed constructive receipt. The IRS says you can be taxed. Now, they do give you a period of 60 days to move that money. But they also limit you into the number of indirect rollovers that you have. On a direct rollover, the money's going company to company. you can do this as many times as you want.

There is no limitation. And there's absolutely no tax to be paid. But on the end roll over, you can do one every 365 days. Now, some folks make a mistake to thinking, gee, that's once a year. But it's not. It's once every 365 days. So timing is very important. Guidance is very important.

When we move that money, it's then important to understand how we transfer the money. How much can we transfer? We can transfer all of it, needless to say. And ultimately, it's going into an individual IRA account. again, we want to see a financial product that eliminates volatility, takes risk out of the equation, gives you opportunity for market returns. So again, we see that market go up 15%, go up 20%. You're going to realize that return. But if the market drops in value, you're safe. You can sleep at night. You're not letting your portfolio dictate. to you, but you are now dictating to your portfolio.

You know, I think that's a big piece that people are not picking up on is I've got this. I Googled something. I'm going to do that. And then it's too late. So it's that aspect of getting guidance and knowing, okay, I don't want to leave my 401k in the old company. So I need to put it somewhere. How do I do it?

How do I do it properly? And maybe you're going to put that into an IRA because that's what you've been told to do, because you don't want to, you know, incur the taxes. But let's talk about some of these opportunities and for other strategies because I know a lot of people have heard about Roth IRAs. So is that a strategy that people could take advantage of with maybe converting their 401K or IRA into a Roth? Roth is an excellent tool for tax avoidance and eliminating taxations. The phrase often said, do you want to pay tax on the seed or do you want to pay tax on the harvest? What do we mean there?

Well, think about a farmer. He plants his seeds and while they're in the ground and we're going through the growing process, they're really of no value until it comes time to harvest that crop. And now there's a great deal there to take advantage of. Well, the government's pretty smart. They said, look, we can afford to wait. to get our share, get those taxes, and we'll get it from a bigger piece of pie when the taxes will be higher. But then, my friend, you must pay those taxes.

You can't get away from it. In other words, you must take a distribution. And that's when it really hits you. Yeah. Now, converting to that Roth IRA allows you to pay tax on the seed, not the harvest. Yeah. Now, should everybody do it? That's a good tax question. And that depends on the individual, depends on their age, depends on their income. However, when you do fit the mold, when you do fit the profile, and it's going to work for you, it's going to eliminate income tax legally. It allows

you to pay the tax today while it's less. Now let the money grow on a, tax deferred basis, which in effect becomes tax-free, because when you withdraw this money, you've already paid the taxes. So you're taking it tax-free sum of money. Pay the tax on the seed, not the harvest. And here's a question that I would ask you is a lot of people would say this. okay, if I take money out of my IRA now to put into this wonderful sounding product called a Roth IRA so that my money grows tax-free. I love that.

But to get from step one to two, it's going to trigger taxes because you've not paid taxes on the original IRA. And so you're saying pay tax on the seed. So you're going to incur or take it on the chin, pay your taxes now. And that could be a shock to people, but you do it, you plan for it. so it's not a surprise. But I want you to comment on the fact that, well, in 10 or 15 or 20 years, what are the tax rates going to be?

We don't know. But potentially, we know what the tax rates are now because this is where we are. It may be a wise decision to take the tax and pay it now because when we look at the deficit that grows every second, the only way to tame that deficit is to lower government spending. which we know won't happen or to raise taxes. So if that's the case, probably in 10, 15, 20 years, taxes are going to go up. So talk a little bit about that mindset so that people can be considering whether this could be a helpful strategy for them.

Mike, this is a tremendous issue. I'm glad you raised it. I ask most clients, do you think taxes, income taxes, are going up or going down? Well, everyone after a quick moment of thought says they're going up. And that's correct. They have to go up. You know, if we look at history again, do you know it at one point in time in this country, the income tax rate was 90%. Wow.

90%. That was right after World War II, when the government needed money to recoup to pay for the war. Where does the government get money? It has to raise revenue. The only source of revenue our government has is the people paying income tax. Now, let's look at what's happening in our world today. We're in two wars right now, and we might even wind up in a third war, and Lord, help us if that happens. We have, again, inflation.

We have the need, tremendous needs going on as to government programs. right or wrong. I don't want to take a political stance. The point is, they're happening. They have to be funded. Now, the government, again, has no other way to raise revenue than to increase income taxes. And it's got to increase those taxes across the board. I don't care what your political stand is. Those are going to affect us. The taxes will be more. Believe it or not, 10, 15, 20, years from now when you're in the midst of retirement, you first of all, understand that when we retire, we need as much income as we do as when we've been working. Because it's often been said, oh, when I retire, I'm going to need less money. Believe me, folks, it doesn't happen. At seven.

Yeah, yeah, that's a misnomer because now you've got more time on your hands. So you're now going out doing more things, doing more recreation, traveling, spending. And I think that a lot of people exactly what you just said there, Jeff. Oh, I'm going to need less. Oh, I'm going to be in a lower tax bracket. Well, probably not. Probably not because not only are we hoping to enjoy our money more. Sometimes we have health issues and we're not able to.

That may further deplete our financial resources. So paying the tax today works in our benefit most of the time. Again, every individual is different. And this is why you need specializing. advice to tell you, yes, this is good for you. And here's the ramifications of it. And again, we have tax team available to say, okay, you know, if you don't have your own tax person, here's what you're going to look at in taxes, here's what to prepare for, here's how to do this. That's the key. Now, even if, like we've said several times, which is so key to keep remembering,

any strategy is not the right strategy for every single person. So considering a conversion out of a traditional Roth to a Roth, a traditional IRA to a Roth and incurring some taxes could be a good idea based on what you've said. But it depends on everyone's situation. But even if you did start delving into that, you're probably not going to transfer or convert all of your IRA into a Roth. You're going to have some leftover, which now is going to trigger these required minimum distributions. So talk a little bit about. how that works. At what age am I required to start taking money out of my accounts and paying taxes?

Good question. And RMDs, again, be a complex issue. First of all, you can't take R&Ds until you reach age 59 and a half or you're going to pay a tax penalty. But under current law, the age has been increased to 73 years old where you must start taking RMDs. And I say must because, you know, I have a lot of clients who have done well in life, that accumulated quite a bit of money. And they would love not to take the RMD. They'd love to be able to just pass that money on to the next generation. But they must start taking distributions.

Now, calculating that distribution, well, you know, that's an IRS table. It's based on a mortality table. They look at your age. They look at the value of the asset. And they tell you you have to take out X percentage per year. Everyone can look at that calculator, and that's fairly simple. It starts out roughly at about 4%, 4.5%. But now the key becomes, what if I have several IRA accounts?

Not just one, but I have several. Can I just add them all together in my mind and take out the correct percentage as a lump sum? Let's say as an example, you have two different IRA accounts. And each one has half a million dollars in it, $500,000. Well, you can calculate the total that's due, and you can take it out of either account and you're home free. But now let's say you have two IRA accounts and you have a 401K or a 403B or the like. In addition, can I group those together?

The answer is no. the distribution you take from that 401k must be separate and must come out of that account. Let's say you have several four, maybe you have a 401k and a 403B. Maybe you were working in the public field and then you became a school teacher or you have some other. There are so many different numbers. I can't remember all of them to tell you the truth. but they all fall in the same category. But if you have several of these accounts,

you must take your distribution, the percentage that IRS dictates via the mortality table from each separate account. So again, we get back to this is not something you Google, click, do, and think you got it right because like the scenario one you mentioned or scenario two, it might make logical sense, but you did it wrong. So get with someone that's qualified.

Now, one thing that came to my mind, you said, Jeff, what if someone is very well to do and they get plenty of money and I don't need cash this year? And here comes this time for RMD and they think in their mind, I'm good to go. What happens if they don't take it out? That is a mistake that many people make and it's a very costly mistake. RMD required minimum distributions. That means that distribution is absolutely required to be taken in that year. If you don't, you're looking at a 50% excise tax that you must pay in addition to the normal income tax that's paid on it. So you can wind up having to pay up to 70% of that distribution in taxes.

Terrible mistake that many, many folks make. Again, this is why you need guidance. This is why you need an annual evaluation of your accounts and being guided into the proper structure. You cannot commingle these accounts, and you must. take the R&D when required. You know, that's just a key because it's not like something, oops, sorry, I didn't understand it properly, and now don't penalize me. You know, the toothpaste is out of the tube.

You've already taken it. You've already incurred the penalty. So know what these are up front. And I guess the keyword there is required minimum distribution, not suggested minimum distribution. So that is just so important to keep in mind. And again, getting with someone that knows your situation, has a team of people around it, can give you all of these guidance and deadlines and recommendations, that will keep you from hitting these triggers and penalties and all of that. So that's just something really, really huge to keep in mind. So, Jeff, if someone is listening to this going, what if, what should I do?

Take a look at my situation. What's the best way that they can reach out and connect with you and look at. and learn more. Again, via email, text, telephone call, or going to the website and booking a free consultation with me, one-on-one, and learning exactly what your options may. We also offer seminars, webinars, be it, on various topics, that, again, we can invite you to,

There's no cost for that. You watch it on your computer from the privacy of your home, and you'll learn. Education is the key. Well, Jeff, thank you so much for coming on and talking about this really important topic of 401Ks and IRAs and all of those decisions that go into required minimum distributions. Thank you so much. Appreciate you coming back on. Thank you much for your time. 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. www. influential entrepreneurs radio.com.