The Tax Increase with the Build Back Better Plan | Roth Conversions will be Eliminated for Some

Mark: Welcome to the Retirement Income Show. I’m Mark Elliot, glad you’re with us today Troy Sharpe the CEO and founder of Oak Harvest Financial Group. Troy’s a certified financial planner professional CEO and founder Oak Harvest Financial Group. Glad you’re with us today. We’re going to talk a lot about what’s going on with Congress and the Build Back Better Plans and how the tax side of that. We’re finding out more and more all the time as this gets closer and closer to passing, I guess, going into actual practice.

There’s still a lot of moving going on. We don’t know exactly what’s going to happen, but we have a better feel for it. Troy’s going to talk about that a little bit. He’s going to talk about some of the recent economic changes. What’s going on in the world? Household debt that just came out, 15 trillion. Troy, there’s a lot of moving parts right now in our world, I guess, let alone with our economy. How are you?

Troy: Good. Good, Mark. The big questions and what we talk about here on the Retirement Income Show, it’s how do we translate what’s going on in the world when it comes to inflation that obviously is surging through the country and families are feeling it? The families that feel it the most of course are the ones with the lowest amount of income because a larger portion of their income is eaten up by inflation. How does what’s going on with inflation, the proposed tax policies, how is what’s going on with corporate earnings that impacts the stock market, all of these things, but the big questions are, do you have enough money to retire?

How do you translate or turn all of that money that you’ve saved in retirement into an that you won’t outlive? How do you feel secure about that? How do you pay less tax in retirement because most of us feel that taxes are going up? How do we make decisions today that improve our security, the security of our family in the future? What we’re going to do today on this show is, and what we do every week, but this one’s going to be a bit more focused on the data because there’s so much new data out there and the policy changes that we’re starting to have some more clarity on. help you understand what is going on in the world, how it impacts you, how it impacts your family and how it impacts your retirement. Lots of stuff to cover today, but it’s going to be a really good show.

Mark: Absolutely and, of course, you can always find out more about Troy and the team just by going to the website. That is oakharvestfinancialgroup.com, oakharvestfinancialgroup.com. If you have any questions you can always call the team. There’s no cost for this. 800-822-6434, 800-822-6434, the Oak Harvest Group located at 920 Memorial City Way right off I-10 and Bunker Hill. Then, of course, Troy has over 100 videos on YouTube. Just search for Troy Sharpe, Oak Harvest and you’ll find whether it’s about retirement planning, whether it’s about financial. Anything that has to do with your money, Troy’s got a video on it.
I could pretty much guarantee you that you subscribe. There’s no cost. You can even click the little button and you’ll get all the new stuff that Troy and the team are putting up right there on YouTube. Just search for Troy Sharpe, and Oak Harvest. All right, so let’s talk about some of these proposed changes. There have been a lot of changes, certainly, since this all started about a year ago, I suppose, or nine months ago. There’s a lot of moving parts in all of these changes or these proposals, Troy. Where are we now?

Troy: The context, I want to first provide to understand why some of these changes, although they may not necessarily impact you or your family right now, and some of them very well could and some of them absolutely will, where we’re at as far as a country. Mark, you and I were talking before the show, you had the US debt clock pulled up. If you haven’t seen the US debt clock, you can Google it just US debt clock. I encourage everyone listening right now when you get a chance to do that. Don’t do it before bed, it may keep you up at night, but what is the total US debt at right now?

Mark: Just a shade under $29 trillion at this point. I can tell you this Troy. If I move it to 2025, because you can move it backwards and forwards–

Troy: It has that timeline.

Mark: Right, if I go to 2025, this time of year, in 2025 will be 47.5 trillion.

 

Troy: Oh my gosh. From 29 to 47. That’s called an $18 trillion increase in the national debt in three years, really. Right? Because it’s almost 2022.

Mark: Yes, if I go back to 2016, it’s 20 trillion.

Troy: Here’s the thing. Now, I haven’t taken calculus in a very long time, but most of us understand what the rate of growth is but I believe it’s the third derivative in calculus, talks about the rate of growth. When Obama was president, President Obama, I’m pretty sure the debt went from 10 to 20 trillion under his presidency, and then from under President Trump’s administration, about 20 to 27, 28 trillion sounds like somewhere in that range and now we’re up to 29 trillion a year into President Biden’s administration.

Mark: You’re right because in 2008 Troy we were about 10.8 trillion in debt. Then you go to 2016. Trump takes over then, at that point, it had moved to what? 20 trillion is what it did.

Troy: Okay, doubled under President Obama. Almost doubled. Well, I guess not double but another 10 trillion, let’s call it almost under President Trump. Now the projection on that US debt clock is from 2021, where we are now the end of 2021 to 2025, the end of 2025, I presume.

Mark: Same timeline, same time of year. November of 2025.

Troy: Going from 29 to 47, so 17 trillion. It’s the accelerating rate of that rate of growth, which is scary, and if you were to extrapolate that out to let’s say 2030, 2035, 2040 where many of you that are retiring right now are retiring in 5 years or 10 years or maybe you’ve been retired for a few years, that starts to become a horribly scary rate of growth in the national debt. Most of us do believe that taxes are going to increase in the future.

These changes that are happening now, there are new taxes being added into the tax code that currently only impact people, primarily that are in that $400,000 to $450,000 range. There are some excise taxes for small businesses that are profitable, S-corps, LLCs, taxation for C-corps is also going up, but not as much as it was prior to when President Trump cut it from 35% to 21%, the corporate tax rate. The thing is though, when we start to put these arbitrary thresholds in place, for example, Roth conversions are going away for people who have– if you’re a single filer, have modified, adjusted taxable income at 400,000. Taxable income is after all your deductions. Your modified adjusted gross income is before either your itemized deduction or your standard deduction.

Taxable income Roth conversions are proposed to go away, if you’re a single filer and make more than $400,000 or you’re married filing jointly with taxable income above $450,000. Two things I want to point out here. One, I don’t like these arbitrary thresholds right in now because Congress deems that to be someone who makes so much money, that they can no longer do tax planning or tax conversions on their tax-infested IRAs into Roth IRAs. If you have a good job, you’re an executive at corporation or you own your business, you’re married, you have two incomes, you could very easily be up in that $200,000, $250,000 $300,000 income range. Obviously, this is not most of America, but it is a large, large portion of America.

Now all of a sudden, if you have 1.5 million, 2.5, 3 million, you’ve done everything right for your entire career as far as having a job, maintaining a job, staying out to trouble, not doing drugs, not excessively drinking alcohol, all the things that we want our kids to do. Keep your head down, go to college, start a business and do right by your fellow citizens and just be a good person, and you found success. Now, all of a sudden at this $400,000 income level, you can no longer do these conversions or 450,000 if you’re married, you can no longer do these conversions.

Who’s to say in five years or two years, or the next administration that now that Roth conversion elimination potential is at 200,000 or 250,000. Here’s the thing. Whenever you do a conversion, that adds to your Modified Adjusted Gross Income. If you’re making 200, 250, husband and wife for a small business owner, now you’re limited. You could only do a Roth conversion, maybe 100, 150, whatever those numbers are, you can do the simple math.

The problem is, if you’ve done all those right things, and you’ve contributed to your retirement accounts, and you’ve invested that money, it is not hard to save up $1 million or $2 million, but you have to save for a very, very long period of time. Not going to get into the basics too much here, but time is your most powerful element of all when it comes to investing. The sooner you start saving and investing, the miracles can happen.

“Compound interest,” as Einstein said, “is the eighth wonder of the world.” When you start to set these arbitrary thresholds, the potential now becomes for future administrations to lower those thresholds. Now, you’re stuck in a situation where you’ve contributed to your 401(k), you’ve participated in the economic system that is available to every single American, and every other person in the world, the US Stock Market, and now, you’re unable to proactively pay tax on that dollar, buy Uncle Sam out of your account to get that money into the tax-free Roth IRA.

Why does the government want to do this? Why have we for years and years and years been telling you that– while everyone else is telling you to put money into those 401(k)s, put money into those tax infested retirement accounts, for years, we’ve been telling people you need to get money out. You need to diversify your tax buckets leading into retirement, not just because of the national debt. The primary reason we’ve been telling people this is we are retirement planners. We’re planning for your entire retirement. This is what we do every single day of our lives.

We’ve dedicated our lives to it. We have a firm where everyone here has dedicated their lives to it. It’s our passion. When we extrapolate out, or we model 20, 25 years into retirement, when required minimum distributions, which currently start for you at age 72, this means you’re forced to take money out of those retirement accounts. When we’re doing income on planning, and tax planning, and we model out over the next 10, 15, 20, 25 years, if you do absolutely nothing with those IRAs, many of you will be in these huge income tax brackets because if you have a million bucks now you’ve done the right things. Maybe it’s 2 million, maybe it’s 3 million, whatever that number is, as time progresses, and those accounts earn interest and grow and grow and grow and grow, now you’re forced to start taking out a $100,000, $150,000, $200,000, $300,000.

Now, you add that on top of any– if you’ve made real estate investments and you have rental income, your social security, any dividend taxes or dividend– Excuse me dividends or interest, all of that is added together and you can very well find yourself having an income in your 70d and 80s of $200,000 $300,000, $400,000 and for many of you a lot more than that. The reason why we’ve been telling you to do that, and the reason why the government wants to eliminate these Roth conversions is because they understand the power of compound interest inside that retirement account and how many of you will be in these difficult positions down the road, where you’re forced to take these large distributions and pay taxes at what they believe– My opinion. I think they know based on the amount of debt we have in this country, where taxes are going in the future.

If you do nothing– and time is running out if you’re in these high-income tax brackets. I’m recording this in mid-November. You literally have a month and a half if you’re in those high-income limits, but you have to add in the amount of Roth conversion on top of all your income to get to that modified adjusted gross income, take your deduction to get to taxable income, which then is the $400,000 or $450,000 threshold, single versus married filing jointly, that will disallow you to do any Roth Conversation versions moving forward.
1-800-822-6434, if you want the analysis done. If you want to sit down, come in, have a conversation, see if we’re a good fit for one another. We’ll put it up on the board. We’re going to model out for you all these different– your spending, your income needs your social security, help you figure out that decision. Is it best to take it early? Is it best to take it later? Then the Roth conversion strategy, what is the best strategy for you and your family to go ahead, while you still can, buy uncle Sam out of that retirement account, and start to make some decisions before the end of the year?

Many of you won’t fall into this $400,000-$450,000 threshold. You still have time to do these Roth conversions, but please make no mistake about it. If you do nothing, many times, based on our analysis of– we’ve been doing this for years, helping people move millions and millions and millions of dollars of these tax infested retirement accounts into tax-free accounts, Roth IRAs, many of you will be shocked at how much you will actually pay in taxes if you do nothing versus how much you can save if you proactively go after this challenge that’s sitting in front of you right now. You have a limited window of opportunity. It’s that simple.

1-800-822-6434. This is The Retirement Income show. I’m Troy Sharpe. Give us a call. Let’s sit down, go through it, put the analysis up on the board, and let you see for yourself how much potential money you could keep in your pocket by doing these Roth conversions, but you have to do it strategically. We’ll talk about that after the break, the biggest The biggest I see people make with their Roth conversion strategy doing it themselves.

Mark: That’s ahead. Again, the number 1-800-822-6434. There’s no cost, there’s no obligation, there’s no pressure to talk with the team at Oak Harvest, 1-800-822-6434. What are some of those common mistakes in moving money into the Roth world? Troy will explain right after this. This is The Retirement Income show with Troy Sharpe, the CEO, and founder of Oak Harvest financial group.
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