Retirement Planning Strategies That No One Is Telling You About | Retirement Planning Strategies at 60

We recently had a client passed away unexpectedly. I’m going to share with you in this video not the strategies necessarily that we use with the client leading up to this point, but how the strategies that we’re employing now in the planning techniques are so important.

This is where having a relationship with an advisor that understands you is so critically important. Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, certified financial planner, professional host of the Retirement Income Show and certified tax specialist.

So in this example, of course, the names are changed and some of the details are definitely different. But the overall concepts of what we’re going through from a planning standpoint right now are very important. We are going to relay them to you.

The goal of this video, from my perspective, is to help you kind of open your eyes and understand what planning strategies, what do we need to be thinking about whenever we’re on that step five of retirement? Three sixty, which is the estate plan.

Most of you think that an estate plan is a will, maybe a revocable living trust, but especially with this new tax law coming in, so many sweeping changes to the tax law. We’ve helped clients for years. When I say estate plan as part of our Oak Harvest Retirement Process process, what I’m talking about is how we help clients.
And it’s on the income planning, the tax planning, the investment management, all of that wrapped up. But how does that transfer to the next generation most efficiently? It’s not you don’t just go see an attorney, get a will and a trust and think your estate plan is complete.

It’s far, much more it’s far more than that. And I’m going to kind of share with you what I’m talking about in this video. So here we have John. He has a one million dollar Roth IRA. So over the years with this client, we were transferring money from his IRA to his Roth.

It’s something we do with a lot of clients. We are strong proponents in paying tax today at lower rates as opposed to higher taxes later. For most of our clients, He had a two million dollar IRA. Six hundred thousand in a non-qualified account.

Now, in this account, I’m going to for this example, let’s assume he has a four hundred thousand dollar basis. So all the positions that were purchased were purchased for four hundred thousand. It’s grown to six hundred thousand. This is going to tie in to the new tax changes.

OK, so this is what John passes away with. Under current law, there’s no estate tax, but the secure act passed a couple of years ago means this retirement account, this IRA, has to be fully distributed once the kids inherit it within 10 years.

That’s a pretty big problem. How are we going to distribute that? The Roth IRA, it will be tax free. And it also has to be distributed within 10 years. But once it’s distributed, it is still tax free. Even all the gains over the next 10 years will remain tax free.

But this one, the IRA, once it’s distributed, it’s 100 percent taxable at that point. Now the nonqualified account will come back and talk about that. In this example, two children to inherit all of these assets. James is married.
He and his wife have one hundred and seventy five thousand dollars of adjusted gross income. They have two children and he has an aggressive risk profile. Jenny, she’s single. She’s currently unemployed. She lost her job during Covid. She has no children.
And she’s more conservative as far as her investment profile. Her risk profile. So the question becomes. And everything is split 50 50, OK? But they have choices here. How are they going to distribute this retirement account? Well, part of the planning process means we need to have a conversation and we actually need to build a financial plan

for James and Jenny. So this is what we’re going through right now. Of course, they could just take the money, take the two million dollars, split it 50 50, pay taxes on it and blow a million bucks out of the window that quickly.
Of course, that’s not what the father would have wanted. They would have wanted the money to be used intelligently and over time. And fortunately, in this scenario that I’m working with, the kids are very good stewards of the money.

And they also want it to be there for the rest of their life. That’s not always the case. So the question becomes, or some of the things to point out here. Jenny, she’s single, which means she’s not in the married filing jointly
bracket. Obviously, so she can have less income before she goes into those next tax brackets. But she is unemployed, so she has no income coming in right now. It’s a prime position to accelerate those distributions from her part of the IRA.

She has no kids, so we don’t have to worry about tax credits or anything along those lines that may apply in this situation. And a very conservative profile. Well, that just simply helps us understand how the portfolio should grow over time.
We would actually talk to Jenny, help her understand about stocks, because most of the times we sit with children. They have no understanding about money. They have no understanding about the stock market. They have no understanding about saving, investing, et cetera.
So part of the first job here is to help Jenny understand how investing in good companies over time and reinvesting dividends or how the stock market works in general. Ideally, we would talk to her and help build out a plan to get a little bit more growth and just sticking it in cash or CDs or bonds or

something like that. But if she wants to stay conservative, then that’s her priority and that’s our responsibility to uphold that fiduciary standard. Now, James, over here, he does have an income, but since he’s married, he has about another two….

a hundred and eighty thousand that we could take out of that IRA this year before he got

out of that twenty four percent bracket. But here’s what we have to look at in the conversations we need to have with James and also Jenny. But first and foremost, this is a joint income. Is the spouse going to continue to work?

We need to map out essentially the income for both of these people, the estimated income to the greatest extent possible over the next 10 years. Again, 10 years. Why? Because that IRA, it’s a ticking time bomb. It’s going to go off.
It has to be distributed at that point, or there’s a 50 percent penalty plus taxes due on everything left in it. So is one spouse going to stop working to stay home and take care of the kids? Well, that would reduce the income.

Maybe a promotion’s on the horizon. Maybe more income is coming. Maybe they’re starting a side company. All of this needs to be taken into consideration. How much are we going to dedicate to college? How much are we going to dedicate for for personal use is maybe you’re going to buy a home.

So understanding both of their situations, mapping out the income and to the best extent we can, the taxes that they currently faced in their their situation, as is then translating that over to what is the best strategy for distributing the 50 percent of the IRA annually for them in Jenny’s situation.
Maybe she’s single now, but maybe she’s engaged and she’s going to be married in a couple of years, most likely. Well, we would maybe max out the twenty two percent, maybe the twenty four percent bracket right now with intentions of being able to do more out of that IRA down the road, which is in the married filing

jointly brackets. So customizing it, this is what we do for clients. This is what we do for the children of clients. But I want to provide perspective as to how you need to look at the planning when it comes to the estate side of things.

Now, next year, this is 2021. I don’t know when you’re watching this video, but next year it is probable, I’d say that what’s known as the step up in basis is going away. So under today’s law, this non-qualified investment account, if stocks are bought it for the current value is six hundred.
Under current law, they would inherit that six hundred thousand dollars tax free. As part of President Biden’s proposals or what they’re trying to to get passed through. And it looks pretty likely this will pass. They’re going to create that gain, that $200,000 of gain.

It seems like it’s going to be immediately subject to tax upon passing. OK, so at that point, we have to take that in to consideration, because if that gets split 50 / 50 now, that’s one hundred thousand dollars possibly of income going on each of their tax returns.

So we can take less out of the IRA. We need to take that into consideration. From a planning standpoint, if he didn’t die unexpectedly, what we would have done is had a conversation with him and say, OK, we’re.
In a good position, this particular client doesn’t need any of this, he had a pension, he had some other assets that was generating income, this was more growth for the kids. So one of the things we could have done is started to gift this account to the children or to a trust.

When you gift money, you retain the basis. But if he’d got it out of his estate and let’s say it was gifted to the two children. No longer the step up in basis would have been a concern, because gifting it to them, they would have retained that basis and they could have let it grow, grow
, grow, grow and not pay taxes until they sold. Now, under today’s law, you can gift up to 23.4 million dollars with no gift tax whatsoever. The annual exclusion for gifting is $15,000 per spouse, per child or to whomever.
But one of the proposals on the new tax legislation is trying to limit the amount of lifetime gifting from $23.4 million now under the Trump tax cuts, all the way down to one million. So for many of you, gifting may not be a viable, at least as viable the solution down the road.

But the power of gifting in this example is strong because that gifting strategy could avoid taxation on that two hundred thousand dollars of gain. Many of you have parents that are still alive. One of the things we do with clients when it’s an estate planning, when we get to step five of Retirement Process, we’ll look at what
assets you’re about to inherit now and what is the most efficient way. The strategy, given today’s tax law or the new tax law, to get that money over so you keep more money in your family. This is the big deal for for many people who have not just small businesses and people that have 5, 10, 15 million

dollars. But if your parents have an account that’s worth four or five hundred thousand dollars and maybe they’ve had Ma Bell and IBM and all of these blue chip dividend paying stocks for years, they could have a very small basis.
And if they don’t need that money, possibly a gifting strategy now is appropriate. There are many others. But just to open your eyes to what estate planning means to us and how it ties together, not just for the children and preparing for the future, but possibly to help you right now because you have parents and you have

money that you are going to inherit. Obviously, this is complex. And I’m just just touching on a tip of the iceberg here of everything that you need to be aware of. But I want to open your eyes. This is the purpose of this channel.
This is the purpose of our firm. This is what we do. So we need to figure out how best to stretch the IRA over that 10 year period, given the children’s individual income tax and future plans. And then with the nonqualified account, that also has to be determined, ideally leading up to retirement.

And if there was any type of non-qualified annuity or real estate, other assets require more specific types of planning. But I want to just get you thinking essentially what estate planning from the Oak Harvest Retirement Process perspective, what that looks like.
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