Essential Retirement Tax Objectives for Maximizing Your Savings, Ep. 240

In this latest episode of the Capitalist Investor, hosts Derek, Luke, and Tony dive into the ever-important topic of retirement tax objectives. With a mix of humor, hands-on advice, and deep dives into strategy, they tackle a myriad of pressing concerns for anyone planning for their golden years. Here are the five hot topics from this insightful episode:

1. The Importance of Distribution Strategy
Derek kicks off the substantive part of the discussion by focusing on the necessity of a well-planned distribution strategy. This means understanding how to manage withdrawals from retirement accounts like 401(k)s and IRAs to minimize tax impact. The decisions you make about how and when to draw down your savings can have a significant effect on your overall tax liability. As Tony points out, “The IRS does not call you when you mess up your taxes; they call you when you underpay them.” Hence, the sensitivity of your distribution strategy can be a key determinant in how much money you keep versus how much you owe.

2. Difference Between Micro and Macro Views on Taxes
Tony and Luke discuss the nuance between micro and macro perspectives on taxes, particularly when working with a CPA. A micro view focuses on minimizing taxes for the current year, while a macro view looks at the big picture, planning to potentially pay more now to save significantly in the future. The importance of this distinction can't be overstated, particularly when considering long-term strategies like Roth conversions. Tony emphasizes that “having a plan is one thing, but working with a CPA that has a macro view is another.”

3. The Potential for a Flat Tax System
The hosts delve into a thought-provoking discussion about the feasibility and implications of a flat tax system. Luke and Tony entertain the notion that while a flat tax might simplify the tax code, its implementation would need a gradual rollout to avoid shock to the economy. Luke provides a cautious note on this topic, “the problem with going down that path is the government’s motivation will largely be revenue-driven, potentially leading to high flat tax rates.” The topic ignites curiosity about future tax reforms and their potential impact on retirement planning.

4. Timing and Strategy for Roth Conversions
A significant part of the episode focuses on the strategic timing of Roth conversions. As tax rates are expected to increase, the hosts suggest that now might be an opportune time to consider converting traditional retirement accounts into Roth accounts. This proactive step could result in substantial tax savings down the line. Tony and Derek both emphasize that tax laws are continually changing, and what works today might not be the best strategy tomorrow, hence the importance of revisiting your tax strategies annually.

5. The Critical Role of Early Tax Planning
Derek underscores the importance of starting tax planning as early as possible. Contrary to the misconception that it’s something to tackle just before retirement, early planning allows individuals to leverage different strategies to minimize tax burdens during their retirement years. As Derek says, “The earlier you can start planning for your taxes specifically, the better off you’ll be and the lower your tax rate will be in retirement.”

Retirement tax planning is a complex and dynamic area that requires a blend of strategic foresight and adaptability. This episode of the Capitalist Investor serves as a valuable guide, shedding light on key aspects that can make a significant difference in your financial health post-retirement. Whether it’s understanding the nuances of your distribution strategy, considering the benefits of a macro view on taxes, or the timing of Roth conversions, there’s plenty of food for thought. Tune into the Capitalist Investor for more expert insights and practical

Transcript

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Hello and welcome to this week's episode of the Capitalist Investor. As always, you have me, diamond hands D, and the whole crew. Cool hand Luke, Tony the tiger. What's going on, guys? I'm back alive. He made it back. He's alive. Excellent work. Excellent work. Your life. Are you going out to. To New York more often now? As long as Mark has me out there, yeah, it's all up to big man. You know Tony and Mark, right? Big men and the block. But yeah, it's actually, as of this podcast being out, I will be out there on Maria the next day. So tomorrow morning, which would be Friday, tune on in nice, bright and early. Cool. Filling in for the big man, Mark. All right, awesome. How's your Lyme disease update? You get that? My eye hasn't been twitching and my facial movements have still been there, so. I think I'm okay. You know, I hear it's a big problem, though. Let's check. They were talking about it at the golf course. Let's check on. Lots of ticks out there. You gotta keep your head on a swivel. It's big in Maine, I guess. Maine, the New England area. So I guess I got lucky. If I would have camped in Maine, then I probably would have Lyme disease, but I'm good. All right, well, there's no transition from that, so we'll just go right into it. Planning corner this week, top retirement, tax objectives. And, you know, I think whenever we start talking about financial plans, you know, just talking about it, the more that different, you know, different situations come into play. They all kind of relate to each other. And taxes are a good one because the different choices that you make regarding your distribution strategy, kind of how you saved up into that, all have an effect on, you know, the outcomes and how much, you know, you will be taxed. So. So, yeah, distribution strategy. Well, I mean. Well, let's just think about it like, the IR's does not call you when you mess up your taxes. They only call you when you underpay them, right? Yep. And they'll probably, you know, you do your own taxes and they'll send you a refund, but who knows? Maybe it sparks an audit, who know? You know? But at the end of the day, it's on you to make decisions when it comes to your taxes, you know, and then, so therefore, you have to educate yourself on different strategies. So whether you do taxes on your own turbotax, you work with the CPA. Well, there's another roadblock, in my opinion, because what is that CPA's vision of your taxes, micro or macro? And the micro view is like, I'm gonna get you the biggest return this year. The macro view is like, hey, let's. Let's do some strategies. Pay more taxes this year because it will be worth more in the future. And maybe you pay tax less taxes in the future, is what I could or should be saying, you know, so, like roth conversion strategies, there's a consequence to that. You have to pay tax. Right? So that's kind of. That's kind of my thing. Well, I mean, the environment we're heading into, you won't even need an accountant, or you won't even need AI. There won't be even. You know, ir's just. We're going to pay all of our money to taxes. Just pay your fair share. Yeah, we're all going to be paying our fair share. 100%. Do you think we'll ever get to the point where we're. Everyone's just paying a flat tax? That's the simplest method. You know, most. It's not thousands of pages of tax law. It's, um. Here's about three sheets of paper. And this is how it works. The problem is with that is there's always a cause and effect to every change in the tax code. So, like, you change one small thing, then it's gonna make slow down business owners, you know, tax deductions in some areas, or it's gonna make someone else pay more money and someone less money. So it's like, you have to transition that slowly. Which would be nice to do if we eventually got there. Cause I think that would be the best solution to make things less complicated. But the problem with, if we go down that path is the government's gonna try to push it so much to the point where they're only gonna do it as long as it drives more government revenue, taxes. So maybe you'll see a 40% flat tax or something like that. It's not gonna be like 10%. It's gonna be like 40. Yeah. And I think the Runway would have to be very long. Like, hey, we're doing this in about five years, so get your stuff in order. Right? Like, they can't, can't just fix that. You can't just come up with that in September and implement it in January of the next year. Again, the whole, I just come on, let it out. I hate talking about taxes in general because we ignore the fact of, why do we even pay taxes? Like, what we like, we know we have to pay them, but we don't know where it goes. You know, we really don't look that deep into all the different laws that are passed and all that stuff. I mean, the revolutionary war, I think, was fought over 1% t tax or 2%. Now we're paying like 60%. When you add everything up to the. Government, we'll also talk about it like, not only do we pay it, like you said, we don't know where it goes, we also can't dictate how it's spent. Right. Really? Does that mean democracy is failing? Well, you elected those people to be in there to make decisions for you. Some people elected them in. So. All right, well, anyway, let's talk about retirement taxes. Let's just face on what's, what is in front of us now. And that would be all right. So when you're in retirement, you have to obviously make a paycheck for yourself. So distribution strategy, very important. The next thing is taxes are going up. So is it, does it make sense to do a Roth conversion right now? Because if, you know, when we wake up on January 1 of 2026, taxes are going to be different, whether they're going to probably be more of Biden. Joe Biden wins. And I'm sure Trump will make some adjustments because he's going to be inheriting us, printing trillions of dollars every hundred days. So something's got to give. So I guess we'll, I guess we'll find out. And then the biggest thing is, is that when you start implementing these strategies for taxes, you got to go back to the drawing board every year because things change. Tax laws may change, your lifestyle may change for the better or the worse, and also life happens. Hey, I need a new roof. I need, I need, you know, a new heater. Like talking tens of, you know, thousands or tens of thousands of dollars of things that just pop up. Well, if you start taking these distributions from your retirement accounts, it adds to your income and you're going to be taxed more. So a couple of things to think about there. But at the end of the day, you know, working, you know, it's on you to pay the least amount of tax possible now and in the future. So having a plan is one thing. Working with the CPA, that is more macro view is another thing as well. You know, make sure that they have your best interest now and in the future so that we can figure all that stuff out. Yep. And, you know, I would say just to add in one last thing, probably one of the more common things I hear from, from younger people maybe, you know, ten years away from retirement that, you know, maybe it's too early to start planning. I'd say taxes are the number one thing that you have to start planning for as early as possible, because it doesn't. There's, there's limited amount of things that you can do when you're already retired and the paychecks are already turned off and you're already pulling in income that you need for, for retirement. So the earlier that you can start planning for your taxes specifically, the better off that you'll be and the lower your tax rate will be in retirement. Not to toot our youth, but I actually had a really good conversation with a new client a week ago, and they're 70 years old and they have an accountant. They've had an accountant for like, 2030 years, guys 80 years old. And one of the reasons they hired us is because they're like, your guys are young, like, you guys are in your forties, thirties and twenties. Like, you guys are young and have new ideas. You're not just the 80 year old CPA. That's like Tony was saying, trying to save the most amount of tax today, not thinking about the future, but maybe not even, you know, listening every single day to what new options you have to try to save on taxes and, you know, financially engineer taxable money to reduce your taxable income for the future. So that's, it was kind of a unique perspective. It's like, you know, if you have a CPA for 30, 40 years, like, maybe they aren't keeping up as much as they should because they kind of like, just are in old ways of just, they think they know it all and, you know, they're not trying to adapt and evolve right here. It's like we, we have to always be evolving, listening and thinking about all these unique things. Yeah, that is a, that's a big thing. I mean, the other, the other thing is, is like a lot of, like you said, like, hey, let's. Let's try and figure out tax efficient ways. Well, the Roth Ira is the newest thing on the block, believe it or not, you know, but that comes with a consequence. I always have this conversation with somebody like, Tony, should I do traditional contributions or Roth contributions? And I usually ask, I'm like, well, how much money do you make? Because if you're in the highest tax brackets, you don't get a deduction for a Roth contribution, but you do for a traditional. So again, you gotta. It's not just a cookie cutter answer sometimes. So. For sure. So all right, well, thanks everyone, for listening this week. Always, always keep an eye on your taxes. Hopefully we're making that clear through these podcasts. But you know, a big issue out there, definitely for retirees. If you guys have questions, comments, show ideas, hit us up at info connect.com and we'll talk to you next week. The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment, legal, financial, or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.