How Can I Save $500k of Taxes in Retirement by Changing the Distribution Method between Age 65 & 90

Secure Act 2.0: Are you 65 or older and going into Retirement? Will you be affected by the new Retirement Minimum Distribution(RMD) changes headed your way? It seems very likely congress will pass the new Secure Act 2.0 which will most likely shift your retirement plan, Chances are most of us will be around by the 2030s. In today’s segment, Troy Sharpe outlines what these changes will look like for both new and old retirees.

What is The Secure Act?

Mark: We’re talking the Secure Act 2.0. It’s in front of Congress right now. The House has passed their version, the Senate has their own version. We’re not really sure what’s going to be in the final bill, but we’re pretty confident it’s going to pass. It’s bipartisan support. Some of the keys mandate automatic enrollment in 401(k) plans at a rate of at least 3%, and then over time, getting it up to where you’re actually contributing 10% of your pay. Workers do have the option to opt out,

Now, you were talking about the 401(k). I’m right on board with you because I have no clue when it comes to finances and how to do things. I can tell you that maybe four years ago when the markets were really good, and I’m looking, because I did a target date for it, I’m 62, and I think I did one that was like 2025 and I’m like, “Holy cow, I’m not making hardly any money right now.” I changed it to 2035 so I could actually take more risk, get more gains. I have no idea, Troy, that’s really the problem, because the 401(k), even though it’s helping us save our money, it’s certainly not a pension plan like our grandparents had.


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Troy: Yes, and again, I don’t want to spend too much time on this, but a lot of it comes down to, from my perspective, let’s say– One day I want to have a pro bono department here at Oak Harvest Financial Group where we just help people, we don’t charge any money. It’s going to be lower-income, lower-asset people.


Mark: So, for me. I like it.


Troy: Try to just help people get on the road. Financially, we’re not there. I can’t hire 25 people, pay them a salary, and then not have any type of revenue come in. I do have a business to run. Part of the problem is, if I wanted to go and help, and I do want to help, that’s why I started the firm, but If I wanted to help people, let’s say, between the ages of 20 and 30 at a company make good decisions with their 401(k). One, those people typically aren’t going to have the discretionary income to pay what it costs for my time to actually help make their decisions or to help do the planning for them.

They can’t afford for me to come in and spend 25, 30 hours over the course of a year helping them figure out their best insurance options, helping them figure out how much to put to the 401(k). Should we put it into the Roth? Which mutual funds? When are we going to rebalance? All of the time that it would take, it would be completely unprofitable for us. It’s not just us, it’s almost every financial advisor out there. The less money you have, the less likely you are to receive help from a financial advisor because time is money. It’s just, it’s how the world works.

You have a tremendous conflict of interest within the mutual fund industry itself inside the 401(k) industry. What ends up happening is no one’s paying attention, no one’s helping because these people aren’t worth the time from a value perspective that someone would have to put in in order to help them make the best decisions. Now, I don’t know what the solution is. I’m not going to sit here and tell you exactly what the solution is, all I know is the 401(k) marketplace is inefficient, it has significant conflicts, and it’s a mess. It really truly, truly is.

Now, if I had to guess, I would assume technology is going to play a very, very big role in this to some extent. I’m sure there’s someone out there working on it, but I doubt the government’s going to figure it out, and that’s just me being honest. Let’s talk about RMDs with the Secure Act, because that impacts you, that impacts your retirement, and that impacts what we do here for you, which is income and tax planning. Mark, what are the RMD rules with the Secure Act?


Mark: The Secure Act in 2019, went into play in 2020, changed the Required Minimum Distribution age from 70½ to 72. This Secure Act 2.0 will move that from 72 to 73, then a few years later will move it from 73 to 74. Then within a 10-year period, so by 2032, for example, the Required Minimum Distribution age will now be 75.


Troy: What does that mean for you? We can have more time to do tax planning because you are not forced to start those distributions? Pretty soon it will be age 73. Now, if you’re already taking RMDs, this law is most likely not going to apply to you, but if you’ve yet to begin, then this absolutely applies to you. Pretty soon, it’ll be 73. It’s going to buy us one more year from the current law, but two and a half more years from what it used to be at 70½. From all the way up to 73, we can start to tackle the problem that is your tax-infested retirement account.

We did an analysis recently for prospective client that came in and he said, “Troy, I’ve listened to you on the radio, I’ve watched a lot of YouTube videos, and I’m really curious how big the tax problem is that I have inside my retirement account.”

The first appointment here, we’re just getting to know you, we’re really trying to identify if you’re a good fit for us and what we do. Then, of course, you’re trying to see if, “Hey, are these guys for real, and are they a good fit for me, and do we have a relationship here, and what does this look like?”

Once we’ve identified your concerns and your goals, what we’re trying to accomplish with the money, where it’s at, how much it is, your income needs, or what type of income you may have in retirement, all the objective and subjective data a financial adviser goes through with you on that first visit.

Our team, between the first and the second visit, does a financial analysis and tax analysis of your investment portfolio, of your income needs, how long the money is expected to last. Starting to look at adjustments that we can make to get you more income, to help you pay less tax.

When you come back on that second visit and we sit down we start to go through this with you, what we’ve uncovered during that analysis session– For this particular client, when we looked at the way that he was withdrawing from his retirement accounts or the way he was in intending to and versus the way that we said, “Look, this is mathematically when we crunch the numbers, if we do it this way instead,” it was over $500,000 of estimated taxes that he could save from age 65 to age 90 just simply by changing the distribution method.

You really have four different distribution methods and you have thousands and thousands of possible, probably millions I’m sure, permutations of those possible distribution methods.

You can take all from your retirement accounts, you can take all from what we call the taxable or non-qualified accounts, you can do a split withdrawal strategy or you can start to incorporate Roth conversions. If you incorporate Roth conversions, that’s where we move money from the tax-infested retirement account over to the tax-free Roth IRA. You have to pay taxes on that conversion. The goal there is to identify what tax bracket are we targeting, how does that impact you today?

Then also, when we extrapolate all these numbers out over the next 25 to 30 years, what makes the greatest impact over the course of your retirement with respect to your objectives? Your objectives play a very, very important role in this because, for example, let’s say you want to make sure that there’s money left for the kids and you don’t want to give them too much, but you want to make sure that they have a step ahead because you think times may be harder in the future.

Well, that plays into the Roth conversion strategy because the Secure Act, old Secure Act, and the new one, I guess, if we left it all in retirement accounts, let’s say you have a million bucks to pass on, you don’t really pass on a million dollars because they are going to have to pay income taxes at whatever rates are in the future on that full retirement account. They may end up only getting $500,000 or $600,000.

Now, that’s better than nothing. It’s more than I ever got. Still, it’s part of the tax strategy, or the tax strategy is part of the overall legacy strategy. Your objectives and what they are, they tie into that overall tax plan. 1-800-822-6434. What I’m explaining here is the retirement success process, and then what you receive is what we call the retirement success plan. It’s comprised of a risk management and investment plan.

Income plan. Where are we taking the income from? How much? I want you to take more income, not less. We believe in what we call a dynamic spending plan, but we don’t want to take too much because if things don’t work out, obviously, we’re in a bad situation. We really need to stay connected to how much money we have, how much we’re taking, and how that impacts the greater picture.


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Step three, a tax plan. We want you to pay less in tax. Pay your fair share, but there’s no reason you should pay a half million or a million more than a simple tax plan could help you save. Then number four is healthcare. That’s a big one. Number five, of course, is the estate planning, the legacy planning. It’s so much more than just making sure you have your basic documents and your beneficiary designations in place. Some of you don’t care who the money goes to, that’s great. The government has a plan for you. If you’re fine with the government getting most of that money over time, then that’s fine with me as well.

If you want the money to go efficiently and to be protected, and I’m talking about asset protected– For example, right now here in Texas, your retirement account is fully protected. When your kids inherit it, it loses those asset protections that are currently in place for you. Now, what happens if your son or daughter gets married or they are married? Then what happens if they get divorced after receiving an inheritance? That divorced spouse may get half of your retirement savings.

You have to do the planning. Do you think your kids are going to come see me if you’re not a client or come see someone like me to do planning once they receive this inheritance from a legal standpoint? Lots to do here, and that’s why we call it the Retirement Success Plan because it’s all designed to create a product at the end that gives you a great likelihood of complete success. That means spending what you want to without the fear of running out, but also making sure that your family’s taken care of. Oak Harvest Financial Group, visit the website, check out the YouTube channel Oak Harvest Financial Group.


Mark: Investment advisory service is offered through Oak Harvest Financial Group LLC. Oak Harvest Financial Group is an independent financial services firm that helps people create retirement strategies using a variety of insurance and investment products. Investing involves risk, including the loss of principal, any references to protection benefits, or lifetime income, generally referred to fixed insurance products, never securities or investment products.

Insurance and annuity product guarantees are backed by the financial strength and claims paying ability of the issuing insurance company. Oak Financial Group LLC is not permitted to offer and no statement made during this show shall constitute tax or legal advice. You should speak to a qualified professional before making any decisions about your personal situation. We are not affiliated with the US government or any governmental agency. This radio show is a paid placement.