Business Innovators Radio - Interview with Ron Roberts Founder and CEO of Roberts Retirement Group Discussing Tax Planning for Retirement

Episode Date: November 27, 2024

Ron was born in Burbank California and grew up in the Mojave Desert. Being the first of six children born to deaf parents, he learned responsibility at an early age. His commitment to family and faith is unwavering. It’s the essence of who he is and the foundation of his business success. Living for a higher purpose and caring for others has always been Ron’s focus.After high school, he joined the United States Coast Guard where he learned about hard work, discipline, and duty. He enjoyed serving his country and helping to keep people safe. He grew in experience through training, education, and travel. He developed a love for the sea and enjoys boating and sailing with friends and family.After completing his time with the Coast Guard, Ron served on a mission for the deaf in Chicago for his church. While there, he formed the first deaf scout troop in Chicago for the Boy Scouts of America. Returning from Chicago, Ron attended college in Stockton, California where he met his wife, Julie. They were married in the spring of 1984. In 1991, Ron and Julie moved to Amador County where they enjoyed raising their four daughters in a close knit community. Ron’s hobbies include reading, boating, sports, and traveling with his family. Ron also volunteered at a private school where he taught history and American Sign Language. Family, faith, and community are the most important things that define Ron.Ron’s chosen vocation as a Retirement Planning Professional allows him to use his experience, his gifts, and his love for family to help people in a very special way. Ron has been in the retirement planning industry since 1990. Founded in 2002, Roberts Retirement has grown over the years to serve families in northern California and around the country.Ron has served as President of the California Estate Planning Counsel and continues to mentor other retirement planning professionals all across the United States. He is constantly educating himself on the most up-to-date investment strategies and changes in the financial industry. Ron is recognized as a leader in the industry, is a sought-after speaker, and has been featured in Senior Market Advisor MagazineLearn more: https://www.robertsretirement.com/Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-ron-roberts-founder-and-ceo-of-roberts-retirement-group-discussing-tax-planning-for-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 us Ron Roberts, who's the founder and CEO of Robert's Retirement Group, and we'll be talking about tax planning for retirement. Ron, welcome back to the program. Well, thank you, Mike. Well, I think we could probably spend about two weeks talking about taxes and tax planning, and this is such a vast topic.

So I'm excited to hear about how you advise your clients on this really relevant, important topic. Where do you start the conversation when you're beginning to factor in to your retirement planning, how taxes are going to impact? Yeah, so we talk about their existing plan. So say they've been participating in a 401K, have been participating in an IRA account, and explaining that the funding was pre-tax dollars that went into these plans. And then eventually when you do withdraw the money out of these plans,

you have to pay taxes as ordinary income. And so today, if you were born before 19, they call it required minimum distribution. For years, it was 70 and a half. So the year that you turn 70 and a half, you must take at least a required minimum distribution. So there's a calculation, and it's roughly less than 4% that you are required to withdraw.

So if you're born after 1960, or if you're born in 1960, it's age 73. So the year you turn 73, you're required to take out a minimum, but that is fully taxable. And if you're born after 1960, it's now age 75, that the required minimum distribution starts. So when that's explained, then we talk about their retirement plans,

if they're going to retire before 73, Yes, you can withdraw money because you're over 59 and a half because before 59 and a half, there is a penalty, it's a 10% penalty if you draw your money before 59.5. But now you're over 59 and a half. You can withdraw out of your existing 401k IRA account, and it is going to be taxed as ordinary income. if you don't need the income, you're able to defer it until age 73 or 75. There you must at least take a minimum amount each year as fully taxed. So the question I bring to them is this nation goes to what they call tax reforms. Our last tax reform was in 2017.

It will end January 1, 2026. So that means Congress, with the approval of the president, they're going to come out with a new tax reform. And again, we don't know what those numbers are yet. But as you and I know, we have a large debt. We have to fund plans like Social Security and Medicare, and there's other government plans that we have to fund. and so we all think, yeah, based on all these factors, our taxes will be going up. So currently, the government does control your future. The government does control your tax brackets, how much you're going to pay taxes on those accounts.

And we all think, yes, our taxes will be going up. So when that does happen, I will have less to live on and more to give to the government. So that's the great plan that we have right now. with your retirement. You know, you mentioned the deficit, and I know that there's websites that showed the ticker of how fast it grows every second, and it's just big. And the only way to tame it is to cut government spending, which we know won't ever happen, or to raise taxes. So probably if people were to ask, do you feel taxes will go up in the next five to 10 years? Most people would say probably yes.

And we do know that there's some tax help and things like that that might sunset or not or get extended. there's just a big unknown. So some of those tax laws really impact retirement savings, like punching a hole in the bucket. What are some of the tax changes that might be looming of the future that could help or hurt, you know, in the plan that we need to be aware of in putting the plan together? Yeah, there has been a gift that's been given to us by the government. and that gift is called a Roth IRA. The Roth IRA has been in place since 1997. How the funding goes with a Roth is quite the opposite

when you would fund a 401K or an IRA. In an IRA 401K, you're doing pre-tax contributions. That means you haven't paid the tax yet. and so that count will continue to grow at a deferred rate. And then at the end, when you are being taken out distributions, you're going to be fully taxed. Now, the question or what I hear often is we should be at a lower tax rate when we retire, meaning that we'll probably live on 60, 70% of our income, which we were making. now we're going to live on less income.

Makes sense. I'll be out of a lower tax bracket, meaning I'll pay less taxes on my distributions out of my retirement. But what I've been finding now, it's not the case. A lot of retirees are still paying the same amount of taxes

while they're working. And so what we explain with them is the government allows you to do a conversion. You currently, have these pre-tax dollars funding these IRAs, these 401ks, but you are allowed to convert it into a Roth. Now, a Roth is after-tax dollars. It means you fund a Roth, you pay the tax up front,

but you only pay it one time. But after that tax is paid once, that account will grow tax-free and your distributions will be tax-free. It kind of reminds me, I come from a farm background. And say you're going to plant a field of corn and you have that kernel of corn, you're going to plant into the ground. And then you're going to watch that corn grow to a stock. And then that stock's going to give you a one or two ears of corn. So the reason I use that as an example is an IRA is like you plant. You planted the seed in the ground, and then you have a harvest, and it's like you have 800 kernels in an ear of corn.

And so the tax man comes over to your house and says, I've noticed that you have a harvest. We're going to tax the ear of corn, which has 800 kernels of corn. That is what we call it IRA. Iraq is quite the opposite. The taxman comes over and says, I noticed you planted your seat in the ground, that one kernel, will tax that kernel once, but when that comes a stock and becomes an ear of corn, that is tax-free. So I let people know, do you want to pay taxes on a ear of corn, or do you want to pay a tax on a kernel of corn? And everybody said, of course, I want to pay tax on a kernel of corn because it's a smaller amount of money.

So that's the same thing. When you make a contribution into a Roth, you pay your taxes just that one time, that kernel, and then that money can grow and grow and grow in the future, and it's completely tax-free. So with a conversion, we haven't paid the tax yet. So, and we're allowed when we do a conversion, we don't have to pay taxes all in one tax year. We can do over multiple tax years. So it will pinch, but it won't hurt when we pay our taxes. So we control the taxes.

One of the things we look at is your existing tax bracket. We look at your existing income. We have clients who may still be working now. We may say, but let's delay your conversion until, say, next year when you do retire. And then we may want to convert it next year. or we may say let's look at your income now and this is where you're at, this is your bracket. And we may say if you want to maintain that same bracket, this is how much we can convert this year. Or if we look at the next bracket and say, well, if we go to the next bracket, we can be a little more aggressive in our conversions.

And that way we can convert in a shorter period of time. So people may agree, maybe you want to maintain our bracket or maybe go to the next bracket. bracket. We may do it over the next three, four, five, six years. And so over time, their 401k traditional IRA will now be all in what we call a Roth IRA. And then when they're ready to take income out of that Roth IRA, again, there's no required minimum distributions for a Roth because the taxes have been paid on it. But when you do take money out of it, it's called non-reportable income. That's the magical Roth. And so you are totally exempted from future government taxes. So when the government decides to increase taxes on us, your Roth is completely exempted from

this. And that just gives people reinsurance that the government no longer controls my retirement future doesn't control my future taxes because I repaid the tax. I did it based on today. It's done. I have a plan in place where I will have now tax-free income for the rest of my life. You know, I think we've talked about time before. You can't get time back. It's the most precious commodity. And we need to make sure you have your retirement plan in place well ahead of retirements to get time for it to perform the way it needs to perform. Talk a little bit about the time ahead of retirement that you should consider potentially a rough conversion with this respect.

This is where my mind is going. Okay, if I do the conversions and stages to maximize the tax hit like you were describing, and there's no way that anyone can do that on their own get with a professional. But now once that money's in a Roth, now all of the growth is tax-free. Well, you don't want it to grow for a week and then now I need it because there's not enough time to grow. So how much time should you allow for then that money to be in the Roth to grow to then have that tax-free growth? Yeah, again, those are going to be the questions I'm going to be asking, and because the answers can be different for different people.

So the question is, okay, when do you need income? If they give me a time frame, I can work with that. I can work with that. Or if they say, I don't need the income, that tells me, have time to do conversions. So I think that it's the answer to my questions in conversion. Now some people I may say, based on what you're answering my questions, doesn't make sense to do conversions.

Or they may be at a very low tax rate. They may be down in a 12% bracket. They may be down in a 10% bracket. They may be not paying taxes. And then we figure out, okay, this is what we can take out of your IRA and still not pay taxes. So again, it's everybody's different on different circumstances. So it's the questions I ask if it makes sense to convert or it doesn't make sense to convert or when the timeline is when they need income down the road in the future. So those are the kind of things I had to find out

and when we do a personal interview. Yeah, the right question just enlightens and opens up opportunities. I think that is really, really a great approach. You know, you mentioned the required minimum distributions, and then just now you said part of your questioning is if they don't need the funds, then we can do a different strategy. Well, what happens if someone is required to take out their minimum distribution and goes, you know, I don't really need it this year because I sold my RV

and I have some cash, so I'm just not going to take it out. Isn't that a problem with penalties? Yeah, the government is pretty strict about these rules. So say you're over 73 and you know you're required to take distribute at least a minimum. You can take more, but you have to take a minimum. them and say you go, you know, I don't really don't need income this year. I'm going to, I'm going to stop taking, I'm going to, I'm going to not take a withdrawal at all this year. There's a penalty, and it's pretty steep. It's 50%. And the penalty is 50% of what you must, what your R&D is. And so the

penalty is steep. So again, you have to follow the rules. So again, the answer to the question is, yes, I have to take the withdrawals no matter what. If I leave it as a 401k and IRA, I must take at least a requirement of distribution every year. Yeah. You know, when we think about the concept of taxes and retirement, it's not something that everyone is an expert in. So that's why they come to people like you. And even you probably have someone on your team or work with the clients. tax expert because some of these points that you're bringing up might necessitate a CPA coming in and

going, okay, here's what would necessitate us to do this strategy or here's what would happen if we do it that way. Talk a little bit about the team and making sure that the tax strategies are put into place with the right people. Yeah, so it's vital when you're doing this that you have a tax expert. And so the client may have a tax expert that files their tax returns is qualified. It could be a CPA. I just did one just a few days ago where we worked with his CPA and we did a conversion and we're doing over a five-year period. They felt that would be the most ideal situation. And we did and we did the tax withholdings and did all the right things that had to be.

be done. Or if the person doesn't have a CPA expert, then we have one. And we have one on our team and they have the ability to have a conversation with our CPA, going over their tax returns, going out their future income and making a plan in place and knowing how much we're going to withhold for a conversion sake and how we can get that recovered by future growth. and the make-up what we paid in taxes. So, yeah, it's vital to have a team member that is a tax expert when you do these conversions. Yep. You know, I think that a lot of times people don't realize the extent that taxes impact,

meaning if they have a pension, their pensions could be taxed. How are security taxed? It could be taxed at this level, that level. If you make a certain amount of money, then so talk a little bit about, how things like Social Security could be taxed. Yeah, so the current laws are based on if you're, if you make, you make income as over $32,000,

this is for married couples. If you make over $32,000 and under $44,000, uh, income, then 50% of your Social Security is taxed. Um, if you make over $44,000 of income, it's,

85% of your income, of your Social Security is taxed. And so the impact is when we do conversions, it's a plan that we set up in place that's going to be a gradual conversion over time. And then once it's converted, and now we can start taking future income out of that Roth, that income is non-reportable income. since there's non-reportable income, no 1099 income, since there's no income, because their only source of income was this Roth and their Social Security,

now their Social Security will be tax-free because there's no income reported from their Roth distributions. So they're going, oh, my goodness, now I have tax-free income come on my Roth, and now my Social Security is non-taxable, because I have no income that's been reported. So now my Social Security income is now tax-free. So I have a number of clients on that plan,

and boy, they're over the moon about it. And knowing that they won't have to file another 1040, but there's a lot of people don't know about this. Now, if we have a client has a pension, then we can't get around that because a pension is there and it's always reported as income. But if we have a client does not have a pension, pension, their only source of income is that 401k that we convert into a Roth, we can make that

tax-free income, and now they have tax-free retirement for the balance of their lives. I have a lot of people come up to me and say, Ron, why doesn't everybody do this? There's a couple of reasons. They did a study that they said that not more than 5% of those folks who have a 401 or IRA will ever convert to a Roth. And it said, there's two reasons. One is just pure ignorance. They don't know how to do it or way to do it. And the second reason is I have an advisor that's not instructing them do a conversion. But in our plan, if it's the right fit, it's a right thing to do, we do a Roth conversion. You know, that's a, again, I know we've mentioned this in our conversations before, but there's never one plan for every person. It all depends on what.

what you need. It all depends on your circumstances, but these types of things could be a great opportunity to minimize and mitigate taxes. Now, let's be fair, you can never eliminate. I'm confident that there's never a way to just completely eliminate taxes, but we can lessen them or mitigate them or plan for taxes. So so many of these points that you're bringing up are just so important, and I really appreciate you enlightening us on that. Thank you. I appreciate that. life. So if someone is interested in learning a little bit more about how maybe to mitigate their taxes in retirement, what's the best way they can learn more and then also reach out and connect with you?

Yeah, they can reach us by our email address, which is Roberts, R-O-B-R-T-S at Roberts. Again, R-O-B-R-T-S retirement.com. Or they can reach us on our website, which is robertsretirement.com, or they can call us at 209, 223-7870. Great, Ron. Well, thank you so much for coming back on. It's been a real pleasure chatting with you today. Well, thank you, Mike. It's been a pleasure as well. Thank 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. EntrepreneursRadio.com.