Business Innovators Radio - Interview with Ron Cook Owner of Cook Tax & Retirement Discussing How Taxes Impact Retirement

Episode Date: September 14, 2023

Ron began his career in the insurance and financial industry in 1988 and has included banking, mortgage origination, and retirement income planning.Throughout his career, he has learned that if you help people address their concerns, you will have a gratifying business. Steering people toward a more stable and predictable retirement is his mission, as he continuously strives to provide better strategies to procure the greatest amount of income for his clients while preserving the integrity of accumulated assets.Ron’s true passion is spending time with his wife and four children. He also enjoys golf and boating.Learn More:https://cooktaxandretirement.com/Licensed Insurance Professional Respond and learn how insurance and annuities can positively impact your retirement. This material has been provided by a licensed insurance professional for informational and educational purposes only and is not endorsed or affiliated with the Social Security Administration or any government agency. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. 20578 – 2020/11/12Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-ron-cook-owner-of-cook-tax-retirement-discussing-how-taxes-impact-retirement

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 as Ron Cook, who's the owner of Cook Tax and Retirement, and we'll be talking about how taxes impact retirement. Ron, welcome back to the program.

Hey, Mike, thanks for having me back. It's wonderful to be here again. You know, I guess I'll just give you a word of warning. We don't have nine days straight to talk about how taxes impact retire because I think that's about the length of time that it would take to address that topic, right? I mean, we, you know, there's only two things guaranteed in life. What death and taxes? So we know the taxes are a thing.

So talk a little bit about how you begin. working and talking with your clients and teaching them about how taxes impact their retirement? Well, you know, it's, I've seen taxes as a big thing. Again, you probably've had this same experience too much that, you know, a dad's, you know, probably if you sat at a table with them, the big chat of the day would be what at the dinner table taxes, right? They hated taxes, a big argument of point. Well, you know, the mean now actually getting into business and, you know, back in, you know, back in 19, so many years ago, back in 1983. But, God, you know, like, all of a sudden, I'd go to my tax guy.

There was a difference, and this is what I want to explain. There's a difference between tax prepping while getting your tax return done and tax planning. And so now, yeah, I mean, all right, so let's think about, and this is going to make perfect sense when I say this and you're going to go, oh, wow, a light bulb's going to come on. but you're going to say, hey, listen, I've gotten my taxes done. And basically what I did is every year, like you, if you're self-employed or not, or if you go to your tax guy or tax lady, what do they tell you? They go, oh, by the way, Ron or Mike, are you using your IRA at work or are you

contributing for your retirement years? No, well, you should. And then we start contributing into the 401k IRA, whatever it is, plan, right? and Ira. So basically we put this money away and for a later date when we hit it after 60. And there's rules to that money, of course, the 59 and a half rule and we'll talk about that after. But, you know, what happened is we have all of these years that we start putting money away. And what they don't do is they don't teach you about tax planning. Like what happens? What happens to me at age 60 when I need this money and I got to start pulling money? Or we talked about the 59.5 rule. If you

took money out early, there's a tax penalty. Now, I said, well, I didn't know that. Well, people have taken lots of tax penalties because they put a large amount of money in their IRAs, and they don't even have emergency funds set up. But yeah, we pay more every month for a cell phone or other kind of, you know, cable services and whatnot. Now, let's talk about the tax planning portion. When we hit age 60, nobody ever taught us what those tax consequences are that all that money that was tax deferred. They're going to call in the cows, man. They're going to say, hey, Ron, hey, Mike, man, I need some of that money.

The government's going to say, every dollar you make, it's not about tax deferred. We want that money now. They're going to start calling in the clouds, so to speak, back into the barn. So they want that money. And now, of course, the small amounts that we were putting in there were very small. Now, and then so it really wasn't a big deal. But when that thing's grown over, you know, 20, 30, 40, 50, 60 years, and that thing's grown a lot, and it might be hundreds of thousands of dollars,

maybe millions, God bless your heart and soul if it is, you know, the more money that's in there, the more taxes you have to pay. And unfortunately, some people don't look at that tax advice. Now, I'm not a CPA and I don't do tax prep or anything like that anymore, but we do tax advisory work where we'll actually talk to somebody and see if you could put you into a better tax situation with our experience. Now, this tax planning is so important, Mike, because then later, after hit that 59 mark was a big mark. And then later, before it was 8, 70 and a half rule.

But now that's actually bumped up. It was 72, 73. And it could be for other people beyond, you know, if you were born before 1960 or over 1960, it could be a 75 years old where we have to start pulling money from our, what, from our retirement accounts. It's a forced distribution. So forced and required. And I think that it's interesting the way that you laid that out where the government, it's kind of like they see this huge accounts receivables. You know, they've got this huge money that's due to come in in time.

Well, they need it now. So how are they going to get more of it? Let's start putting these trigger points in and require people to take money out at certain ages and trigger. and trigger the taxes because they know that people put it in way back in the day, you know, free tax because 401Ks, IRAs, things like that. Well, now how do we trigger it? We got to make them take it. Yeah.

So now by taking it too, you know what's crazy? It's like when you have to take it, now that actually could impact somebody's social security. That could impact. Wow. Somebody's, yeah, somebody. So if you start taking money from your retirement accounts, depending at what age or the forced distribution or the.

you know, the RMD age, well, hey, I'm telling you one thing right now. It's like people need the plan. And if you're not planning, you know, I hate to say it, but you're going to, that's why people talk about it. And they hate taxes, but they really don't know why. And some people, their social security gets taxed and they don't even know why. And it's like, wow, how does this happen? And it's, you know, it's a bad thing to go through. Some people retire early and they took it early, but because they made money, which isn't a bad thing. Everybody wants to make money. And so all of a sudden, Mike, boom, you know, you take out this distribution and it could

impact your Social Security tax. It could impact your, guess what, your Medicare. Yeah, we had a guy. This is the craziest thing because I said, when are you going to retire? He says, well, I'm going to retire this year, like in December. Well, you know, he didn't tell us the whole story. And what happened was he came in later. He goes, oh, man, because he wanted to become a client of ours.

And I go, man, you need to disclose all this stuff. You can't be hiding. He goes, well, I didn't think of it. And I go, that's why if we sat down and we would have went through from A to Z, and we would have found out and asked you those questions. One thing that he got was a sales bonus of like $30,000. So his Medicare went up from, you know, just a normal like $260 or $70 a month to like over $390. dollars. Another guy sold an income property had the same thing happen.

You know, and he wasn't a Clay. He goes, oh, man, I should have talked to you guys first. And I go, well, you can now. But we can maybe show you some ways of getting a hold of, you know, Social Security to lower those issues. But anyways, yeah, there's things that people really need to look at, Mike, they're in this taxis. About the requirement minimum distribution triggers, what happens if someone gets to that age and they even, you know, sometimes people don't even know about it, but let's say that someone knows, okay, I've got to take out this much money, but they go, you know, I got a bunch of money stashed here. I did this side project and I don't need it this year, so I'm going to not take it. What happens if they don't take it and they miss it? Yeah, well, that's a problem. I mean, there's a 50% penalty. Now it's a 25% penalty,

you know, back when it was 70 and a half. Now it's like a 25% penalty. Imagine being penalized 25% because you didn't know. Now, this is another thing. I had a guy, he was, retired and we went through one of the educational events that we were doing and guess what he said oh i'm all said i said did you pull your required no i don't i'm all set like i have my money in a five-year cd at the bank and i said yeah and i go but still i said you hit the required minimum distribution age did you pull money out no he goes well it just it's a five-year thing i don't have to touch i go no you you have to pull that money out of that cd because it's a IRA and guess what if you don't do it, there's going to be a penalty to you of 25% this year.

He did not know because he put his money, because into those, one of those new, you know, they have these CD rates that are supposed to be phenomenal right now, but who knows what they, you know, like before they were like 1% or half a percent. Now they're 4 or 5%. Who knows? But, you know, it's just crazy what you're seeing out there. There's a lot of people that have multiple accounts. So they worked at a job for 10 years.

They had a 401K. they rolled it into an IRA when they moved to another company, 10 more years, they worked there and did the same thing. So if they have a couple three IRAs and this required minimum distribution hits and they take it out of IRA number one, do they have to also take it out of IRA number two and three? Possibly it depends how it's titled, how it's held. If it's 401K plan or an IRA, it's totally different and they need to know those tax laws. That's the point I was trying to get at is, you know, you might think you check the box by going, yeah, I pulled it out of this. But what if IRA, 23, 4, whatever is a different kind? You just didn't know that, but you have someone look and double check for you.

Yeah. So imagine this too, Mike. If people had enough time frame because they're in their 60 or maybe 55 and you had those five or 10 years before you were going to start, you know, taking Social Security or possibly retire. Well, imagine being able to know ahead of time. what those consequent. Imagine if you could have did some proper tax planning. And you've heard of people like talk about Roth IRAs. Well, is it good for you or not?

I don't know. The thing is, if it could make sense for some people, because if they could start to set up, like say if they set up an annuity payment and they had that money coming out of that large IRA. And then what happened was the account value started dipping when they hit that 73, 74, 75 mark, that could actually lower their required minimum district. amount by a whole ton. Another thing is they might be able to sweep some money into a Roth account and strategically

plan it out. Maybe high income earn as if they have such a high income, they might not be able to contribute to a Roth, but you could always backdoor it and actually take into a Roth conversion, which a lot of people don't know about. But in order to do that, it's got to make sense. It has to those number of equations have to make sense, Mike. Well, like, oh, go ahead. Oh, yeah.

And that's why I've seen, like, because those are things that have actually helped, you know, lower people's, you know, Social Security tax. That has helped, you know, having a Roth IRA. So if they do take distribution later and also inherit that money, that there's no taxation on it. And also one other thing that that you could look at that does that is cash value life insurance and another thing that's I won't go down that alley. But, you know, you know, the equity in people's homes can actually act like that where it doesn't show up on the tax return as income. Well, you know, these are things that are using taxed advantage tools to make sure that someone can make the possible, you know, move well ahead of time and defer, defray, reduce, mitigate, however we want to think about it, some of the taxes. There's never a way to get out of taxes. You know, we know that.

But you gave a couple of those examples. And I wanted to ask a question about the Roth conversion, like we've said before. There's not one solution that works for everybody, you know, like a cookie cutter. But if a Roth conversion is looked at and someone says, you know, I know that Roth IRAs can grow tax free. And I've got a bunch of money over in this qualified plan. Let me look at starting taking it out and rolling it into there. You're going to trigger the taxes. Well, isn't it true that if you trigger taxes now when we know what the tax rate is,

we also know that in 10, 20 years, probably the taxes are going to continue going up because we see that deficit going up. So a conversion strategy could be a good option. Yeah. And sometimes timing, just that right age right before they retire, like that age group. So in other words, if you're still working and you're making $100,000 or $80,000, does it make sense to do it then? Or does it make sense more where you have that when you can actually see the number is the plot of it? like how that you might have that window of opportunity to be able to do those tax conversions when you retire and then all of a sudden start to make money moves but having the right thresholds so that you're not jumping over those income thresholds to put yourself in a in a predicament.

Because if you do these things correctly, what it's going to do for you in retirement is astronomical. It's going to give you more money to spend. It's going to give you ways if you pass away a better inheritance. It's going to actually, you know, it keeps more of your money in the account. to grow, too, if you do things correctly. And that's important. I think people still want to have some, you know, growth there. And also they want to protect their money. And also, too, they don't want to give up their lifestyle, things that they're doing on a monthly basis or a daily basis. People don't want to give that up. But if those other things, taxes happen, market laws,

all those types of things, or if you get bopped with a, because you didn't do the tax prep properly and then you didn't do your tax planning, it could be, you know, detrimental to your financial career there. Yeah, that's up. You know, and once the toothpaste is out of the can, you can't put it back in there. So you better know those kind of things on the front end, right? Sure. That's so true, Mike. Yep, that's a huge point.

So talk a little bit just, you know, in a 30,000 foot overview about the other tool that you mentioned with the cash value life insurance. I think that sometimes can be confusing to people to think, wait a minute, life insurance as an investment. What? Well, you know, before we go down that road, too, let's, you know, Like if you think about, let's talk about the required minimum distributions from it. The only reason why I'm saying that is that if you think about that number when it hits, the government, I have this thing that they have called government math. That math equation is where they have a percentage and that either percentage goes up or guess what happens?

That it's a divisor that goes smaller. It's a divisor that keeps getting smaller. So what that enables, no matter what, each single year with that retirement account, you keep pulling money out of those accounts, guess what happens? You guess it's a nutty thing. You just created, the government created with you and I, their own private annuity. Wow, yeah. Isn't that crazy to think?

Now, imagine after you know your income limits and how much money's coming out of there. Yeah, now let's talk about backing it up with life insurance. Let's talking about is life insurance good for me. Can I qualify for life insurance? Because cash value, some people started those types of things a long time ago. When they put certain, you know, within a 10-year window, they started putting good amounts of cash away and then a separate bucket to diversify their portfolio or whatever.

Well, imagine that money that if they passed away, they would get tax-free at death, which is kind of a nice thing to have. And now that could pay taxes on your estate. That could give money. if you have those required minimum distributions coming through the door or maybe other things where you could pay for a life insurance policy, you had income maybe sooner to start drawing down on those IRAs so that you don't get caught up in that RMD crunch. It might be a financial move where you could position money for your kids to inherit tax-free. Or maybe put your wife in a bit as about the, you know, already to, you know, the reason why a lot of us got life insurance when we were younger to pay off the house. at term insurance and we tried investing in different things. But then sometimes there's a

mistake that happens in life. We get laid off or we get sick. And then some people don't pay the premiums. And then we try to get it later in life. And then all of a sudden, guess what happens? It's it gets astronomical and cost. And then so if you can, I mean, maybe as a secondary type thing, I think it's part of the plan that you should look at life insurance. There's this, F-I-U-L is called F-F-F-F-F-Densed-U-Vu-EU-RICT that works kind of like a fixed-indexed annuity. It follows a stock market index, and it can have some growth potential in there. You could use it for college planning. You could use it for loaning out a lot of the money to yourself and taking loans from it.

And if you take a loan from a cash value life insurance, guess what it is? It's not taxable. Yeah, that's income that doesn't show up on your tax return. And the keyword there's fixed. We like that. guaranteed. We like that. And am I correct? And also thinking, if the market tanked, you don't lose any money in it at all. You can't go down. That's correct. That's huge. That is huge. Now, again, and then there's a whole life that does that too. And a lot of people, they just sometimes

want some more flexibility so they'll end up moving more towards maybe possibly a fixed indexed universal life policy. Yeah, the kind of cool stuff. I mean, it's a very good tool to plan. If you can qualify. Again, you have to qualify, meaning that if you had some pre-existing conditions, it has to go to underwriting. It might be a little longer. It doesn't mean that you're totally excluded, but, you know, there are some planning tools. But it's a good option to have. Good option to explore. Yeah. So let's wrap up with this, Ryan. I think this has been so powerful to think about taxes. And yeah, we know that it's there. But here's some ways to maybe, you know, defray or mitigate there. Think about an example of maybe a client you've worked with that they came in and you started

showing them some of these strategies to lower taxes. What did that do for them in their retirement like being able to create that legacy giving it on to their family? Well, you know, that's the really good thing. Like I've seen things so powerful where if people get in, you know, and they trust somebody by talking, first having a conversation and then actually doing some exploratory and then coming up with a plan, a financial plan, an income plan, that's so important because then you can start looking at the numbers, knowing what those tax consequences are so that during that tax window that we talked about, you can actually plan on possibly doing a Roth conversion or doing different things. Now, we've had people come in where we've sat down with them and showed them how to do Roth conversions. We've showed them how to do correctly or something that made sense for them. also too we've had people that just you know they would have they would just going to come in and

just stop pulling money and they they took money out of an IRA they were going to maybe you know buy a house for their daughter and it's like you're going to get killed in taxes also did you know that it's going to drive up your Medicare cost and they had no clue and it's like they go man I'm glad I came and talked with you it's like I was just going to pull the money Ron to be honest with you but I figured that you know my wife said go in and talk to you yep good thing They did. Good thing. I mean, that's a huge mistake. And imagine being penalized because you pulled money out of your own account. Trying to do a good thing for your family. And your Medicare doubles the $390 a month and your wife's. It's like, holy smokes.

Well, two lessons there, Ron. One, listen to your wife. And two, get with Ron and have him look at your situation and say, here's where you are. Here's where you need to be. here's some things we can do and consider. So I think that's just been so eye-opening for some of these points you brought up here. So if someone, whether their wife told them or not, but if someone is interested in learning more and connecting with you, what is the best way to do that? Well, I know that people don't like talking about taxes, but when you win that game, it's so much better. So if you want to win that game, make sure you try, you know, give us a buzz.

Or, you know, go to my website, go to CookTax and Retirement.com. so it's cook, tax, A&D, Retirement.com. And definitely check out a website and get a hold of us. Awesome. Well, Ron, thank you so much for coming back on. It's been a real pleasure talking with you. Thanks so much, Mike. Look forward to chat with you again, my friend.

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