Business Innovators Radio - Interview with Paul Stawinski, CFF, CLU Founder of CLU Wealth Advisors Discussing Tax Efficient Investing

Episode Date: March 5, 2024

CLU Wealth Advisors is a full-service wealth management firm that specializes in personal and corporate financial planning including comprehensive wealth accumulation and estate planning. Our focus includes clients in the entertainment, fashion, and music industries, high net-worth individuals, and businesses. Our objective is to provide stellar service by communicating with our clients regarding all aspects of their financial lives.Founded by Paul Stawinski CFF, CLU Wealth Advisors, has maintained relationships with clients in ways only a boutique business can, acknowledging and focusing on the individual needs and solutions specific only to them. Our practice centers its Financial Planning strategies around each individual’s investment and Insurance objectives, wealth management needs, and risk tolerance, providing a complete financial platform for our client’s lives. Paul is a Certified Financial Fiduciary.Learn More: http://CLUWealthAdvisors.comSecurities are offered through Garden State Securities, Inc., (GSS). Member FINRA, SIPC. 328 Newman Springs Road, Red Bank, NJ 07701. 732-280-6886. Advisory services are offered through Garden State Investment Advisory Services, LLC, an SEC-registered Investment advisor. CLU Wealth Advisors is an independent branch office affiliate of GSS and GSIAS.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-paul-stawinski-cff-clu-founder-of-clu-wealth-advisors-discussing-tax-efficient-investing

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 Paul Stavinsky, who's the founder of CLU wealth advisors, and we'll be talking about tax-efficient investing. welcome back to the program.

Thank you very much, Mike. Great to be here. Hey, so I take from the topic here that there's investing and then there's tax-efficient investing. So let's get started off with the first question that comes to my mind. What's the difference between investing and tax-efficient investing? This is a topic that we can probably write three books on. However, today I'm just going to give an overview.

Tax-efficient investing is not necessarily just. just picking a vehicle. It's looking for both accumulation and distribution. I'll give you some examples. You know, qualified assets are one way to do investing. Obviously, that's your 401k and IRA, 403B, a 5457 plan. Those are qualified assets. And they come with pros and cons. They're then non-qualified investments and non-qualified investing. And those can be simply a savings account, a CD. It could be your brokerage account. It could be an annuity, and frankly, it could be a life insurance policy. So all of those, again, we can pick apart all day long. But I think generally I'd like to talk just today about what the real

options are and maybe go from there into more detail. Yeah. Yeah, because I think that there's a big significance in how this is handled as it relates to wealth management, right? Because if you do it the right way, the wrong way, the pros, the cons, and you don't take into consideration. consideration of the tax-efficient side of things, it's probably like punching a few more holes in that proverbial bucket and letting leakage happen. Exactly, exactly. Let's start, I guess, with qualified assets. You know, qualified investing is something that we've all become accustomed to reading our 401K, and we put our maximum way in our 401K, we got our match. That's all well and good, but I don't think people really understand what that means long-term in taking money out

and how that investment is taxed ultimately. And, you know, there's a number of different iterations of what qualified plans are, and they all have limits, basically, meaning the IRS is saying you can only put in X amount of dollars. I mean, we all know we can put $7,000 a year into an IRA or a combination of Roth IRA and IRA. And I'll talk a little bit about the difference between those two, you know, options. But then you have 401K, you have CEPs, you have KOs, you have defined benefit plans. All of these are wonderful, you know, places to put money, but you only should put money there that you know exactly what you're going to take out and how you're going to take it out. So if you want, I can go through some of these, but you tell me where you want me to head.

No, you've got the track laid out. So we talked about qualified, let's roll into non-qualified and Roth and some of those considerations. Sure. again, non-qualified can mean anything other than a qualified plan, meaning qualified plan is nothing more than you're taking a tax deduction for the contributions you're putting it to your plant. Again, it can be an IRA, it could be a 401K. However, you have to be aware that when you take money out, you're going to pay tax fully on whatever you put in. Because when you put it in initially, it was pre-tax, like your 401K gets deposited before you have taxes taken. out. And so it stands to reason if I wasn't taxed on the front end, I'm going to get taxed on the

back end. Correct. And that's where the misconception is that, oh, this is great. We're building up all these funds, but they don't take into consideration what happens when they start taking money out. Now, there's a couple of things we should consider. First of all, you know what a Roth conversion is. So if somebody has qualified assets, one of the things they can do is convert that to a Roth IRA, pay the taxes now, and then all of the future earnings and all of future income or withdrawals come out tax free. So that's a form of both a combination of qualified and non-qualified. So those are interesting. If you're talking about truly other than savings in brokerage accounts, you know, there are certain things that annuities work very well with. And again,

annuities have some bad stigmatism to them in some, you know, like some people, have this, oh, I don't want to talk about an annuity. Well, if you look at what annuities can do, they can actually cover you in other ways that qualified plants can. For example, if you use an indexed annuity, there's no loss if the market has a downturn. So if you have a negative market, arrow every year. If you have a positive outcome in the market, then whatever index you're invested in, you'll receive the interest that would have been accrued in that index. So from that perspective, you're mitigating risk right away. You're also...

Yeah, and safety. That's really what it comes down to. And, you know, you can produce, you know, like a lifetime income, for example. You know, most people say, okay, you know, put this money away and, you know, when I go to retirement, I'll take it out of our 401K. But do you know how long money will last, you know, in retirement, especially not knowing what the future holds in terms of health care costs, taxes? So if you have the option to have... a guaranteed lifetime income, it's worth its weight in gold in some respects. And you can actually do that for you and your spouse. So there's a lot of things that, you know, an annuity might not be

their first choice in terms of, you know, right off the top of your head, you want to just do something, but they have excellent, excellent opportunities. And again, money grows tax deferred there, okay, until retirement. And the only thing that you're going to pay tax on there is to gain. So if you have a gain, which hopefully you do, you'll pay tax on it. But you're not going to pay tax on the whole thing at ordinary income tax rates, which you would do in a qualified plan. So those are kind of some of the main indifference. And the other avenue that I think is being underutilized is the life insurance. People say, oh, yeah, here we go. It's not. Life insurance is there for a bunch of reasons. First of all, protection. No question about it. We all want to protect our families, our business, or whatever it is. But the IRS at some point in about 10 or 15 years ago decided that people who are not using life insurance just for the form of a death benefit. They were actually using it as a tax shelter. And they said, okay, wait a minute, we're not going to

let you put unlimited amounts of money into a life insurance policy and then be able to take all that out plus the gains tax-free, which is what you can do in a life insurance policy. It's structured properly. So they developed. something called a mech limit. It's called a modified endowment contract limit. Basically, it says, based on age and the amount of coverage you have, you will have a maximum amount you can put in to a life insurance policy. Now, why would you want to do that? Again, if the IRS is telling you they're going to limit you, it would probably give you a good indication that's probably beneficial for you and not for them. Yeah. And I think that the other aspect, I mean,

there's probably many, many aspects there too. But if you're being told, hey, when you put money into this vehicle, like this account, life insurance account, it's going to grow tax free. I think that the big thing that people get kind of confused on is, hold on. I thought life insurance happens when you die and you get a certain amount of money, but there's a whole lot of living benefits that you can tap into while you're still alive, right? I mean, that gets to the point of, you know, why would this be a beneficial while I'm still living? Exactly.

You know, there's also the guarantee of a permanent life insurance death benefit. If you buy term insurance, for example, very cheap. However, at some point it's going to lapse or it's going to fall out of its 10, 20, 30 year timeframe. If you then go to buy life insurance 20 or 30 years from now, believe me, it's going to be a whole lot more expensive. So, you know, doing that planning up front will allow you to have something that is meaningful. It's a self-completing prophecy, by the way. Let's assume that you can't live for the rest of your life the way you expected. And you die prematurely.

The life insurance will be a self-completing prophecy. So it'll pay your beneficiaries. Although you didn't have the time to save the money, you'll have it in the death benefit. Well, and the other thing that you, when you mentioned there about term and the whole life, you know, What if you got that 15 or 20 year term and it expires and you need to get another term policy, you might not qualify health-wise. You know, there might be some concerns that way. So not only are the premiums going to be sky high because you're older at that point,

there might be some health considerations there. So I think that the phrase that I heard you say, I kind of keyed in really strongly for me is properly structured. So this is not something that someone could just hear, oh, that sounds good. Let me Google it, set it up done. it's got to be set up and structured the right way or else there could be some consequences, right? Oh, without a doubt. You know, when you're thinking about investing, whether it again is a qualified plan

at your employer, there are limits again. You can't put in certain amounts more if your employer is matching a certain level. These don't have any of those levels, but they do have that maximum amount for the tax deferral. But the money invested compounds year after year without tax. If you did a calculation of what that really means, if you had a taxable account like a brokerage account and it earned 10%, believe me, you're not going to net 10% at the end of the year if you're going to pay taxes on it. Here, that's going to compound all the way through and allows every dollar that you have invested to work for you. In 10 years, for example, if you had a 7% rate of return, in 10 years, your money will double.

It's called the rule of 72. That's not unattainable, as a matter of fact. Now, if you have that in a taxable account, it may or may not be a fait accompli because you're going to have years that are very, very negative. I mean, we don't have to go through the number of years that I've been in this business and seen 2008, last year, for example, and other years that we've just had a tremendous downturn in the market. That will destroy your portfolio. You know, it's also the sequential, a sequence of investing is a whole other area. But depending upon when you put the money in, it can have dramatic effects on what happens. Well, also, and again, I'm just kind of the third party listening in going, ooh, what about this?

What about that? So I think that our listeners might also think this same way. When you're thinking about a certain retirement type account like you've been mentioning and you start putting money in, what if you needed to reaccess it? Well, if it's a certain type of account, you might not be able to reaccess it without penalty, taxes, things like that. So on this permanent life insurance plan, if you need to reaccess those funds for some reason, how does that work? Well, that's a great point. I missed that one. I should have mentioned that. When you have a qualified plan, depending upon your age, obviously, but if you're below 59 and a half and you, as Mike you just said, have to take money out for an event,

whether it's medical, whatever, bought by a boat. I don't care what you want to do with it. you're going to pay a 10% penalty on top of ordinary income tax. In a life insurance policy or, frankly, in an annuity, a non-qualified kind of vehicle, you're not going to have those penalties. And, you know, again, there are events in your life where you will need to have cash flow. And, you know, as you pointed out, it may not be opportune for you to do that since you're going to pay taxes on it and then pay penalties on top. So, yes, it has a lot of advantages.

Yeah, huge. So what's next? We've talked about qualified, non-qualified, some of those type of accounts. What's the next thing you advise clients on as it relates to tax efficient investing? Well, you know, again, I think you have to determine what you have a spendable income and then determine how much of that spendable income you can invest. And then it's a matter of looking at where you want to put that money for the short run and the long run. You know, there's a lot of vehicles that you can use, but it's really use of money that has to be considered. And again, there's numerous kinds of investments we can make inside or outside of brokerage accounts or inside or outside of, you know, qualified plans. But you have to be careful because, again, if you don't have downside protection, there's something that I use a lot lately. It's called a buffered account. Now, basically buffering to you and I made me something. different than it does in the investment world. Buffering just means you have a cap on the upside,

and you have a cap on the downside. Now, you give up a little bit of the upside because you're capping your downside risk, but you have a tremendous amount of protection in the event that we have a terrible market. You actually have a downside risk of 10, 15, 20, 25, 30 percent so that you don't have any risk whatsoever unless the market loses more than 30%. Now, that has never happened in my lifetime. I don't think it has ever happened except I don't even think it happened in 1929. It may have for a couple days, but it came back quickly. So the bottom line is you can set your parameters and your limits for risk. And that's what I've been using an awful lot. I, you know, there's plenty of, you go on Facebook, you go on, you know, YouTube, you go on Zoom, I mean, Instagram. Everybody's

talking about, is there going to be a big crash coming? Is we going to have a correction? Yes, we probably will. I can't determine when that's going to happen. But if you have one of these buffered or covered call option kind of strategies, which is really what they are, you're buying covered calls so that you have an upside and downside protection, you know exactly what your risk is. When you don't have anything like that, you're totally exposed. Again, unless you're in an index life insurance policy or an indexed annuity policy. You know, hearing you mention these various tools and considerations, it makes me think there is not one cookie cutter templated solution for every single person. And Paul Stavinsky is going next, next.

So you've got to assess to see what the client needs and what age they are and when they plan to retire and how long they all of those things. And then you start putting into place some recommendations. and I get the feeling that Paul does not say, okay, Mr. and Ms. Client, here's what you need to do and you have no other choice. You lay it out and help them understand and then guide the process. Well, it's very important. This is exactly what I do. For example, a Roth conversion. People always should convert to a Roth.

Well, you might. That might be the best thing to do, but it might not. But how old you are. If you're older, you know, closer to retirement, Roth conversions are probably not the greatest idea in the world. if you have a longer span, which basically means that I don't know how everybody else feels, but we are in such a terrible deficit in the United States. I cannot believe that the government will not increase taxes in the future. Yeah.

So if you're going to convert to a Roth now, you're converting it when you're going to pay tax at a lower tax bracket, presumably. And that's why it's a good idea to think about it, consider it, and act on it if it's good for you and think about it if you're not going to do it now, maybe a little bit in the future. But you're right. Taxes and the efficiency of when you take that distribution makes a big difference. Yeah, it really is. And the big temptation I think we all have regarding solving problems we have, whether it's physical, financial, whatever is. Let's go to Google and just go figure it out. The problem with doing that with many of these things that you're talking about with conversions

or these financial tools is if you do it the wrong way or the wrong sequence or the wrong order, it could really sets you up for some devastating effects, whether it's penalty-wise or taxes encouraged. So I think the encouragement there is, let's just hear some of these things and go, ooh, that kind of caught my attention. Maybe I need to get some extra guidance on this. So if someone is thinking maybe Paul can take a look at their situation, what's the best way that they can learn a little bit more about what you do?

and reach out and connect with you. Well, you can certainly call me. My number is in 917, 969, 8287. You can reach me by email, which is PJS at cLUwealth.com, or probably the easiest thing to do is just go to my website, which is, of course, www.cels, in plural.com. Excellent. Well, thank you so much, Paul.

It's been a real pleasure chatting with you today again and really appreciate your insights. Thanks, Mike. I really appreciate having me. 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.com.