Business Innovators Radio - Interview with Steven Michael England, President of Capstone Retirement, Discussing Tax-Free Retirement Solutions

Episode Date: November 11, 2024

Financial advisor and Retirement Planner since 1982, Best Selling Author of “The Wealth Lifestyle”, honored with numerous industry awards and honors of achievement. I value close business relationships with clients and treat them the way I would want to be treated.Learn more: http://www.thewealthlifestyle.com/This podcast is for informational purposes only and should not be considered legal, health, investment, tax, profession advice. We are not responsible for any losses, damages, or liabilities that may arise from the use of this podcast. This podcast is not intended to replace professional investment, tax, or legal advice. The views expressed in this podcast may not be the views of the host or the management.Influential Entrepreneurs with Mike Saundershttps://businessinnovatorsradio.com/influential-entrepreneurs-with-mike-saunders/Source: https://businessinnovatorsradio.com/interview-with-steven-michael-england-president-of-capstone-retirement-discussing-tax-free-retirement-solutions

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 the Stephen Michael England, who's the president of Capstone Estate Planning and will be talking about tax-free retirement solutions. Stephen, welcome back to the program. Thanks for having me, Mike. Hey, you're welcome.

So whenever we hear the word solutions, that presupposes that there's a problem to be solved. So tax-free retirement problems is a problem. We want to make sure that we have retirement set up with as much tax focus as possible. So where do you start that conversation with your clients? Well, what I find that most, the majority of my clients are, well, they're 60 to 75 for the most part, but most of all the people I talk to Mike, their retirement money, whether it's 401k, IRA, 403B, whatever it is, it's all pre-tax money. Most of it. Now, they may have some Roth, but the Roth is a small percentage because the Roth, which is, everyone says it's the all experts say the Roth is the best vehicle, but they haven't been out as long.

And most people, their employer sponsored plans where they've contributed and got matching, and that's really where they've accumulated their money, it's all pre-tax. So this is the big problem. When you think about your estate, you have real estate and you may have bought it for this. And when you die, it's worth this. but your airs get a step up and cost basis. If you have stock outside of a retirement plan, the same thing. You buy a stock and it goes way up in value and the person who receives it gets a step

up or gets their cost basis is on the date of death. So you get a step up. But with retirement money that's all pre-tax, you have a problem. it's tax at the highest tax rates and you have no cost basis. So if someone has 300,000 or 500,000 or a million dollars or $5 million in retirement money, and you'll find that most of it, it's all taxable, all of it, other than if it's a Roth. So you're creating, it's probably one of the biggest tax drops out there. And it's a concern.

And everybody wants a silver bullet to say, how can you show me how to get all my money that's never been taxed over to a rock that's tax free? Well, and there's a lot of things out there on Facebook and ads and anything that you could find. And they're providing, they're saying that you can do something that you can't do. So you have to have practical strategies that actually work and they're illegal to do. You can't be doing things that will get you to the trouble. So one of the keys is, I think, while you can do it, is taking pre-tax money and converting it over to a Roth. And everybody, it seems like, that's what they want to know about. And that's what they're concerned about because they know all that pre-tax money is a problem.

They know it's all taxable at the highest rates, federal and state. And they want to get it over to Roth. And they're not sure how to do it. And they need a plan to do that. And when I ask people if they have a plan in place, actually getting it over to the Roth, most people say no. And then when they try to, they talk themselves out of it

because they'll say, well, if I take much income, then I have Irma, the tax, you know, on Social Security, or I have my health care goes up, or I have this problem or that problem. So they're looking at all these variables, and they say, well, I think I might, you know, this could be someone has $2 million in money that's all taxable.

And they say, well, I'm 68 years old, and I think my wife and I've decided we're going to try to move over $25,000 a year. And I would tell them, you're not going to do anything to take care of that tax problem. I mean, it's a big problem. So when you have these problems, you have to not look at all the little nuances. You have to look at what is going to cost me the most money and how can I best fix that.

There are also strategies where you can get something to offset the taxes. So you'll pay the taxes, but you may be able to get an offset or a bonus or an incentive to bump you up on the other side, if you will, to kind of have a nice, nothing's perfect. There's no perfect way to get it over there, but you have to find the best way for you. And we have some excellent strategies, but far too many people I find

just don't have a plan to move it over. And then, of course, they've changed under the Secure Act, and then they had Secure Act 2.0, and then the IRS recently determined that beyond a spouse, if your heirs inherit your retirement money, they have to pay taxes on that money in about a 10-year period. So they're going to be paying taxes every year over 10 years on that money. And if you have children that have fairly good incomes,

then they'll be taxed heavily on it too. So it's rather sad when you think about it, where you work for 20, 30, 40 years, you've accumulated all this money, you've saved, you've done the right thing, you've got the matching from the employer, and you're looking at this big retirement account. It looks great on paper, but you haven't paid one, the first dollar of taxes on all that money. And it's a real problem. And you need, if you're going to do Roth conversions, my recommendation is you get it done by age 73 or price. You had said before about putting a specific plan in place and then letting it kind of do its thing. Don't put it in place and then give me some income off of that. You need to do it well ahead of when you actually need it.

And the same thing goes with what you're saying here. Know that a Roth conversion strategy may possibly be a help for you, but do it well ahead of when you actually need it because there are some moves that need to be made or taxes that need to be paid. and I know that you mentioned there's some things that can offset. So you're going to have to write that check to the government. But if this bonus or this thing comes in to kind of replace part of that or all of that, wonderful, find out what that can mean for you. But I think the big takeaway for me I'm hearing you say is if that's a good strategy, let's kind of put it down on paper and see what it would be, but put it in place sooner than later.

It's true. And not everyone should do rock conversion. I mean, sometimes it's just not worth the, you know, you have to look at the pluses and minuses, and sometimes it's just not worth it. And I find especially if people are age 70 or older, maybe they do. I think one thing that makes perfect sense that most people do is fill your tax bracket. So if you, most people think that whatever their income is, you know, if they make it a little bit more than, oh, you're going to put me in the higher tax bracket, then all my money is at this rate.

Well, that's not how it works. With taxes, it works in brackets. You know, the first, you know, you have a certain amount of money that will be taxed at 12 or 15. And the next block is this higher rate. So it works in blocks. Yeah, it's not, it's not, what you click into the higher bracket, they don't go retroactive back to the first dollar and put all of that at the higher bracket. It's, it's bracket to bracket to bracket. Right.

So if you were doing Roth conversion, think of this. what if you had $50,000 between what your current income was and before you went up to the next income tax bracket, then you could fill your tax bracket that year with that much going from your pre-tax money over to the Roth. And there are some custodians that will allow you. If you have your retirement money with them, they'll allow you to convert any amount you want over to Roth in a year. So you can look at it each year, but the whole idea you know, the more you can get over there, the better off you are.

But it's like you said, it's a work in progress and it's best to start early. It may take many years to accomplish it. And maybe most people probably won't get all their pre-tax money over. But that's okay. I think the more you can get over at Roth, the more it will help you. But you need a plan. and a plan is better than doing nothing because if nothing is done, can you imagine you work and save all your life only to find out that you lose 40 or 50% of that money and taxes on the other end? So it's a matter of principle, nothing else.

It's just it's a real problem. And it's never one size fits all. It's not like, oh, Stephen England met with client A and this was the plan he put into place for them. So now client B, C, D, E, and F came in the next day, and he did the same thing. Nope. It's never one-size-fits-all. And like you've already said, a Roth conversion might not be best, but what if it is? So get an estimate, get an analysis and see what works.

And I think that's the big thing to keep in mind. And it's also a piece of mind, Mike. You know, if you owned your home, this is kind of maybe a, it's just a different analogy, but I think it will if you owned your home and someone said you can when rates were low you can take out a mortgage it's 3%

and I can get you this and once you take that equity out of your house I can get you this guaranteed rate at 6% on this investment and so you can make money and so although maybe that's all true let's just say for an example that was true the numbers don't lie

and you could make money that way maybe you're just not comfortable doing that. Maybe you don't want a mortgage on your house. Maybe your house is paid and you just don't want a mortgage on. So the same thing with Roth conversion, don't let an advisor get you into something that you're not going to be able to live with, sleep at night, do. Even if the numbers say, oh, it's so much better off, you know, there's a cost to move that over there and can you live with that?

And can you afford to do that? So we look at all those things. It isn't, you have to have enough experience, and I've had quite a bit, and I'm not perfect, but I think having people comfortable and really finding out showing them what they can do and then seeing if it's something that they can live with, understand the limitations and those types of things. So you certainly have to take all that in a consideration of working with a client because some people just aren't comfortable. And there are other solutions.

There's other things you can do, not perfect, but there's other things you can do. For instance, if you said, I'm not comfortable paying all that tax over to get it over to Roth, but I'm really concerned that my kids will lose and have to pay tax on all this money and it will be taxable on that end, you could take some money out of your retirement plans by insurance that would provide tax-free money to your children to offset the taxes. And one of the most prominent CPAs in the country who writes many books and is a top educator, he talks about that strategy.

And I've used it for years. It's not perfect. And again, that's not for everyone. And you have to qualify for it. And but I think the reality of it is you need to do something. If you have all that money that's never been taxed, and it's going to be a ticking tax time bomb on somebody, on you, your spouse, your family. And so either a plan to get it over to Roth, buy some insurance to leverage some tax-free money to cover the taxes, or a combination, but you need to look at a plan to do something. You know, we've mentioned here, you know, like triggers, like taxes are a trigger that are going to impact your retirement.

And you can't avoid that. You know, the only thing, you know, guaranteed life is death and taxes, as they say. But one thing that makes me think about is what you're talking about here, like, okay, how can we mitigate this as much as possible? Would a Roth conversion? Question mark, let's find that out. But what about another trigger that could impact, you know, this retirement? aspect regarding taxes, but it's the requirement that when you hit a certain age, you have to take out certain minimum distributions from your account. Well, if you have to take that out of an account that's not been taxed yet, you trigger some taxes. So how do tax-free strategies impact those required minimum distributions? Well, ideally, if you could get your money over to Roth before, that's why we said right now the RMD age is 73. And, you know, that can change.

in the future, but most people remember when it was 70 and a half and 72, 73 right now. But that's why we recommend most people if they're in their early to mid-60s is to try to get their conversion done by age 73 so that you don't have those required minimum distribution. Got it. And if you do have those, there's some things you can do. one. Some people, they have taxes withheld from the required minimum distributions, and they take the net income, but having taxes withheld means they don't have to go into their pocket to pay the taxes. And for people that, let's say, they do not need the required

minimum distributions, but you have to take them, then maybe you provide a legacy plan for your family or for your spouse. So you're still recognizing those kind of things, but you're putting plans in place in advance of that, like in advance of the RMDH. That's a good point. It is because you can sometimes leverage your money to accomplish some things or to offset some of the problems that you will have with either taxes or, you know, income replacement or whatever it might be. and a required minimum distribution, even though some people might say, I wish I didn't have to take that. I've had people say,

can you show me a way where I can get around that? Well, I can't because it's an IRS rule. There's no way to get around it. But what if you turn something that's kind of a negative into something positive? What if you are able to use that RMD to accomplish something quite substantial? in your planning. And you can do that. But for most people, they want to try to minimize or

eliminate the RMDs. And really, the Roth conversion is the way to do it. But again, it's not for everybody. How do you do it? Do you just fill your tax bracket? Do you do more? How much? What can you live with? Yeah, it's a strategy. And it's not just cursory, check, check, check the box, done. I got it done. It is a strategy. And it reminds me of, playing chess, you make your move and you leave your finger on the piece to go, is this the right move? Is this the right move? So from what you're saying here, there are many variables that can be very beneficial and some very detrimental. It's a strategy. Make sure you have it in place and that's huge. So one thought that came to my mind is, is there a way that if you were

required to take that certain required minimum distribution out of an account that's never been taxed? So you know you're going to incur a tax. But then you use that and put it into some vehicle that then generates some type of a tax deduction or tax break. Yeah, you might have paid it out to the government, but maybe through that move, and we don't need to get into details of the, you know, the move or the strategy. But would then that be a possibility that you're kind of recouping some of that then later on down the road? Well, one thing, you know, I deal with a lot of clients that are, that donate or

tied to their church. And one thing that I would say, and it makes perfect sense, and many custodians allow you to do this, that you can have your RMDs go and are made out directly to your church or to your charitable organization. And so that that's an advantage by doing that. And so many people do that. or you could incorporate the RMDs. I think there's lots of things you can do and strategies you can use if you don't need the money.

You have taxes with health and do gifting to children and grandchildren. You can, like I said, buy insurance to offset to give tax-free money to spouse or family to offset the taxes if you don't get it all over to Roth. So there's a lot of solutions for that. But the biggest mistake people have is simply doing nothing, even if you just fill your tax market, do something, have a plan. And you look at it each year, adjust your plan. But knowing that really this tax on your retirement money that's fully taxable, think about this, Mike, most investments, you would have long-term capital gains tax rate on the money. if you did not have a step up in cost basis at death where there's really no taxes you would like in your lifetime you'd at least have the reduced or the low long-term capital tax rate but with retirement money not only is it taxed all the money is pre-tax so it's 100% taxable there's no cost basis it's tax at the highest income tax rates both federal and state if you have a state taxed.

So it's very substantial. I think it's the biggest tax problem that most people have regarding their, you know, financial and planning a state. So it's a real tax problem, much more so than real estate or stocks or many other things. It's something that's really, I call it a ticking tax time bomb. It's going to blow up on something. So reducing that or having a plan is certainly better than doing nothing. And it's not easy, but it's definitely beneficial if you can get it over. And we do have tools in the tool bag that can give you some offsets to cover some of the taxes to get it over.

And although those things may come with some kind of a cost, I would say it's better than much better than if you didn't do it at all. Yeah, and I don't know how all that works, but I've heard some of those costs, air quotes, would be, well, hey, we gave you this little bumper incentive, so you need to leave the funds in this specific account for X number of time. And when I hear that, I'm like, that's what I plan to anyway. So that's not really a risk or a cost.

So there's things like that just to consider. I think that's a great point that you bring up. There's no question. but I think the biggest thing that I see is I'm always talking to people that are just retired or planning to retire. And excuse me, I ask them if they have a tax plan in place and working. That's one of the holistic planning questions I have. Do you have an active Roth conversion strategy in place and working to minimize taxes? That's one of the questions.

And 90 some percent of the time. The answer is no. I've thought about it, read about it, thinking about it, would like to do it, but they're not doing it. So you need to do something. And even as I would say very few people probably could do this. But there was a gentleman that one of our fiduciaries worked with out of Texas. And he had several million dollars. And he did his, it was all pre-tax money. And he did his Roth conversion all at once, which causes you additional taxes, because if you do more than, what, $250,000 or $260,000 in a year, if your income is above that, something. Anyways, he was at the high rates to do it,

but he got it over there. He just pulled that band-aid right off. He did, and very few people can do that, but he was in a position where he could handle it, he wanted to do it. And one of the greatest stories I ever heard was I have a client who was, he was very high level with the IRS. He retired and he was a, he was a CPA with a private practice. And his clients were, you know, some of them owned hotel chains and, you know, very large clients.

He had few clients, but very large clients. And so he was a very smart guy. and he had his money invested in a pretty aggressive way. He picked his own investments, but they were high-risk investments. And in 2008, when we had the big financial meltdown, his portfolio went down, I don't know, 70% value or something. He converted right at the bottom, he converted everything over to Roth. and then of course everything came back up and just think of it you know what the market was then and now it's at 43,000 or whatever but he he was one of the few people that I ever talked to he

had everything in Roth because he switched it over at the absolute lowest time so that's the other thing if there's a big if there's a big drop and your accounts go way down it's a good time to switch the money over which it leads me to say this if you that's another danger though if you converted your money over and then the markets drop you that's that's not good you you've converted money over at the higher at the higher dollar amount so when you convert money over it's best to do it with something that has a floor or a base that will not go down value so needless to say you can't just do this on your own and roll the dice and hope I did it right and hope I did it at the right time. Get some help from someone like yourself that can look at the whole landscape, see what's best for you,

give options, and help you decide, just guide the decision process. It's true. And even myself, I help people in the planning process, but we use those fiduciaries that I work with that we use that facilitate the plan and make sure that they keep them in a certain tax bracket, et cetera, et cetera. So it definitely takes a team. It's not easy, but I've seen some very successful Roth conversion strategies work out. And I think it's probably the one of the biggest, it's the most talked about, but most overlooked as far as percentage of people that actually have a plan in place and it's actually working. Excellent.

Well, I'll tell you, Stephen, this has been some really great ways to think about options. for that tax-free retirement income strategy. So if someone is interested in maybe seeing what they could benefit from and just getting some options, what's the best way that they can contact you? They can email me, Steve at Capstoneestateplanning.com. Excellent. Well, Stephen, thank you so much for coming back on. It's been a real pleasure talking with you today.

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 entrepreneursradio.com.