The Smart Take:
Believe it or not Congress actually agrees on something … that your beneficiaries shouldn’t be allowed to stretch IRA required distributions over their lifetime. Listen in to hear Kevin talk about this likely law change is an issue, who is mostly affected (hint: larger IRA owners), and what to do about it.
Prefer to read? See below for the transcript of the show.
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Kevin Kroskey – About – Contact
Introduction: 00:03 Welcome to Retire Smarter with Kevin Kroskey. Find answers to your toughest questions and get educated about the financial world. It’s time to Retire Smarter.
Walter Storholt: 00:14 Welcome to another edition of Retire Smarter. Walter Storholt alongside Kevin Kroskey for today’s show. Kevin, what’s going on with you this week? How are you, sir?
Kevin Kroskey: 00:23 Hey, Walter, I am good. Middle of summer, enjoying the weather.
Kevin Kroskey: 00:27 And enjoying talking about how we’re going to help people Retire Smarter.
Walter Storholt: 00:30 Oh, absolutely. And Retire Smarter. We shall see today because we’ve got actually a somewhat timely topic to dive into more on that in just a moment. If you’re a regular listener to Retire Smarter, welcome back. Great to have you with us once again, if you’re new to the program. Hello and let me tell you a little about Kevin. He’s the President and Wealth Advisor at True Wealth Design, serving you throughout Northeast Ohio with offices in Akron and Canfield and you can find the team online by going to TrueWealthDesign.com and this is the show for you if you are indeed looking to Retire Smarter. That name kind of says it all. We don’t have to go any more detailed than that. Our topic today is the Secure Act or in this, a clever headline that you kind of, you know, indicated to me here, Kevin, the “less Secure Act”, this is something that is going through Congress right now. It could mean the death of a common strategy called the Stretch IRA and it may have major implications for certain retirees when the world’s going on. Is the Secure Act good, bad or like everything else in the world? A little bit of both.
Kevin Kroskey: 01:27 I will a little bit of both. You know, there are several provisions that are in it and what we’re going to talk about today though is something that I think is very likely to happen. Typically you don’t really pay, at least me personally, I don’t pay a lot of attention to propose legislation because is there anybody that pays attention to the news these days? You know, a fair amount may be proposed, but what is actually passed and enacted is, you know, a fraction of that and particularly a lot less compared to say prior decades. But it’s something within the Secure Act, which is going to impact, you know, many of our listeners, many of our clients. And it’s also something that both parties really not only currently agree on but have agreed on for some time. And so it really seems like it’s just more a question of timing and more on the inevitable side.
Kevin Kroskey: 02:15 So we’re going to talk about it today and really the provision that I’m talking about is that the Secure Act as the name implies, is going to eliminate the ability for a beneficiary of your IRA to stretch payments over their lifetime. And that can have some pretty far-reaching ramifications on someone’s planning, maybe not so much their retirement planning. Certainly, there’s going to be things that we’re going to talk about that are going to kind of come into that. But when you think about your beneficiary, you know, obviously something has to happen for your beneficiary to inherit money. You know, Walter, I’ll toss you a softball here. What has to happen for her beneficiary to inherit money?
Walter Storholt: 02:55 Oh, someone has to die.
Kevin Kroskey: 02:58 Bingo. All right, Walter! All right, so I love it when somebody asks me an easy question, right?
Walter Storholt: 03:06 It’s like a goalie in hockey. Give him that one easy shot to get him warmed up and then he’s, he’s going to be better going forward.
Kevin Kroskey: 03:12 Yeah, we’re the much cruder you know, let me go get punched in the mouth and then it’ll be normal. Right? I’ll forgo that punch in the mouth. Thank you. But so whenever you’re thinking about this Secure Act and the Stretch IRA specifically, it’s really more about estate planning, but it does come into planning that you would do over your lifetime, throughout your retirement, but that may not necessarily be under the guidance of something that you’re doing to enhance your own retirement, but really enhance your estate planning and giving money to your beneficiaries and less Uncle Sam. So, that’s what we’re going to talk about today. What I should first mention is the Secure Act was passed in Congress.
Kevin Kroskey: 03:51 And I think if you just think about the number of votes that it was passed with, you’ll see, I don’t know what I was hinting at before, but the act was passed in May at a vote of 417 to 3 so I can’t do the percentage exactly off the top of my head, but 417 is a lot more than 3. That’s a technical term. A lot more than 3. So when you see that number, it really conveys, you know, where this preponderance of the thinking in Washington lies on this. And frankly, whenever the Tax Reform Act was passed in late 2017 we are really surprised that the elimination of the Stretch IRA, did not end up in that tax reform bill.
Kevin Kroskey: 04:44 So it seems inevitable Congress has really taken the position several times over the last several years that these retirement accounts are retirement accounts. You know their tax preference, you may get an advantage or deduction going in, grows tax-deferred and then you can defer it until you know, some later date in retirement and then it comes out. Or if it’s a Roth, you know you kind of have the opposite where you pay the tax, get over and done with also grows tax-deferred, but then it comes out tax-free. So whenever these are left on both the Roth as well as the traditional IRA or 401k, they have these required distributions that come out. So as long as you would name what is called a designated beneficiary. So basically you know somebody that you know, your son, your daughter, your grandchild, and actually name them as the beneficiary, they would be a designated beneficiary.
Kevin Kroskey: 05:35 So it sounds pretty straight forward. However, I can tell you in practice over the last couple of decades that people regularly screw this up. Our clients don’t because we, we review this on a regular basis for them. Make sure things don’t change or you know, something’s not hanging out, they’re straggling. But you know, what you often may see is for beneficiaries, if you look on your IRA or four on case statement and presuming that you’re married, it generally speaking should be your spouse is the primary beneficiary. So let’s say that you know your spouse is a hundred percent primary beneficiary and presume you have two kids and say they’re 50 50 as the contingent beneficiary. So that’s pretty standard. There may be some different flavors to it. Maybe there is a second marriage and kids from a prior marriage or there are some other family members for whatever reason the beneficiaries change.
Kevin Kroskey: 06:25 But the key is to actually name someone where the mistakes often happen is not even naming someone. So you know, basically if no beneficiary is named each of these accounts forms like on the IRA form or the 401k, we’ll have a de facto beneficiary flow basically going through the account. So what do I mean by that? Well, you know, Schwab or TD Ameritrade or Fidelity all have language in their IRA agreement as far as the presumed lineage for the beneficiary payout. Or they may just say, Hey, it’s just going to go to your estate. So neither of those are good. You want to take choice and control here. You want to make sure that you name a designated beneficiary. So everything that we’re going to talk about today is going to presume that you have in fact done that. I could rattle off at least a handful of examples though, where people that we started working with, usually the beneficiaries of a son or daughter of a parent that just passed away.
Kevin Kroskey: 07:24 Maybe mom or dad kind of screwed up and didn’t name a beneficiary beyond the spouse. And then at the second death, there was no more beneficiary. So it went to the estate and basically had some disadvantaged payout rolls and they weren’t able to stretch the payments over the beneficiary’s lifetime. And that’s really the key to this. So, whenever you think of a Stretch IRA and you have to take these Required Minimum Distributions. So if it’s your own IRA, you don’t have to start taking that. When you get into your seventies and it’s a fairly small percentage, a little bit less than 4% of the account balance. And then you start having to take more of that out over time as you age and your life expectancy decreases. And then once you do pass away and now your daughter inherits the IRA account and assuming just say that she’s 30 years old.
Kevin Kroskey: 08:14 So what happens there is she will have to start taking required distributions the year following your death based on the prior year or account balance. And for a 30-year-old, it’s a little less than 2% that they have to take out and they’ll have to keep taking out a higher percentage of that for each year thereafter. But in that example, the 30-year-old could stretch payments out for about 50 years over the lifetime. So you get the tax deferral benefits of that over 50 years for the beneficiary. You know, they don’t have to realize the tax, presuming that they’re not just going to cash out the IRA account and go blow it, go to Vegas or something like that. And actually you know, kind of be prudent with the money and keep it working. Or maybe you even left the IRA to the trust as a beneficiary which your son or daughter are beneficiaries of.
Kevin Kroskey: 09:02 So we’ll talk about that too where you can actually kind of control those payouts over time to make sure that they don’t go to Vegas and blow all the money. But when you look at it, so that 30-year-old, you know, if you are stretching the IRA, you take out 2% per year. It increases each year thereafter. You can stretch it out over 50 years in that example. But when you look at it, the Secure Act is saying, well Hey, you can’t do that any longer. Basically you have to go ahead and pay it out over a 10 year period. And a bill in the Senate right now is actually stating that, Hey, we don’t like the 10 years. We’re actually going to make a 5 so you’re going to potentially shorten these payout periods by a lot and when you do that, then it’s obviously going to force more income coming out of the IRA or your beneficiaries are going to be able to defer it over a shorter period of time and presuming that it’s the taxable variety and not a Roth IRA, then more of that income is going to be hitting their tax return more quickly and probably pushing them into progressively higher brackets.
Kevin Kroskey: 10:02 Certainly if it was over say a 5 or 10 year period, that would be the case compared to 50 years. And so where the first example we provided a 30-year-old inherits the money Stretch IRA taken out 2% per year if they have to take the payout over 5 years. Well, if you have 5 years, that’s 20% per year. So certainly 20% is larger than 2%. But if let’s put some dollar amounts to a, just to go ahead and drive this tomato stake into the ground. Let’s suppose that you have $1 million IRA that makes the math nice and easy to do in our heads and you have 2% per year. Well, 2% is a nice $20,000 that your daughter’s going to go ahead and have to take out in the first year. If it’s 20% then she’s going to have to go ahead and take out $200,000 and that $200,000 he’s going to sit on top of the income that she’s already earning or if she’s married is going to sit on top of income.
Kevin Kroskey: 10:57 But both she and her husband are already earning. And, everybody that has paid tax to a certain degree understands that as your income goes higher, what happens to your tax rate or Walter?
Walter Storholt: 11:12 Oh man, I can nail this one too. It goes higher as well.
Kevin Kroskey: 11:15 Yes. So these are good problems to have. But you know, certainly, we all have to pay our fair share, but we don’t necessarily want to leave a tip. So whether it’s a 10 year or 5-year payout, certainly 5 years would be much more disadvantaged. And frankly, well, if we go back to the, you know, not naming and designate a beneficiary and the IRA being left to the estate, presuming that the custodian that you utilize, again, Schwab, TD Ameritrade, Pershing, something like that, it doesn’t have some sort of catch-all language in their IRA agreement.
Kevin Kroskey: 11:45 The payout is over 5 year periods. So yet another reason why to make sure that you are naming a beneficiary and trying to stretch the IRA, presuming that it’s going to stick around, which as we always already said, is probably going to be going away. So when you think about what we already talked about, you can kind of sum this up, but the larger hiring, whether you know it’s $1 million or $2 million or even larger, the fewer beneficiaries you have, the fewer kids that you have and the more successful your kids are with their own incomes, the higher percentage of your IRA will go to Uncle Sam rather than your kids. So let me say that again because I think that’s important. All these numbers can really distill down to this, but you know, the larger your IRA, the fewer beneficiaries that you have, typically your kids and the more successful your kids are basically the higher tax bracket than they’re already in.
Kevin Kroskey: 12:35 Then the higher percentage of your IRA will go to Uncle Sam rather than your kids. Because again, in that example, that $200,000 let’s say your kids were making $200,000 so they’re in a 24% bracket. Your $200,000 sits on top of their $200,000 and all of a sudden you’re getting up into the upper 30% range in terms of the tax rate that they’re paying on what they are inheriting. So you know, again, Congress has made it very clear not only in the Secure Act but also on prior provisions, prior acts that were proposed but have not been passed to date, that they don’t want these retirement vehicles becoming estate planning vehicles so that they don’t want them to be a vehicle where you could pass wealth down for generations and what they would perceive as kind of precluding Uncle Sam from getting his money, his tax money, that he needs to go ahead and do the different government things that the government does.
Kevin Kroskey: 13:25 So it seems like this is really a foregone conclusion it’s going to happen. It seems like it’s probably going to happen with the Secure Act. We’ll see what the Senate comes back with. But with the way things are in Washington right now, again, there’s overwhelming 417 to 3 what was it, Walter? 99.2%
Walter Storholt: 13:43 You got it. And in today’s political climate, that’s pretty astounding. And it either tells you it’s an amazing bill that’s going to benefit society for years and decades to come, or there might be some ulterior motives built into it.
Kevin Kroskey: 13:56 Yeah, there are some other provisions that are in there that are a net positive, but for most of our clients and most of the people that are listening to this, the Stretch IRA, the elimination of it is really going to negatively impact Inherited IRAs and the estate planning that we would do with them before.
Kevin Kroskey: 14:12 So, you know, it probably makes sense, but at the same time, there are certain things that we can do, but before we get to some of the solutions and some of the things would be mindful about, I do want to comment on IRA trust. So whenever you have a trust, there are all kinds of different trusts that you can have. Typically, the one that most people are familiar with and most people have is what’s called Revocable Living Trust. So basically you could go ahead and put property like a house, a joint brokerage account, something along those lines into the trust. And basically it’s the same as thing as you during your lifetime. There is no separate tax return. There’s no separate tax ID. You pick up the income from the Revocable Living Trust assets, if any, on your individual tax return. But after death, these revocable trust typically become irrevocable.
Kevin Kroskey: 15:02 And in this example that we’re going to give, let’s assume that you know your daughter is going to inherit everything, but you just wanted to have some control when you’re gone. So maybe you’re a control freak. Maybe you’re doing this because someone like me talks to you about some of the benefits of control. Maybe there are concerns over your daughter or son spending the money in a manner that you may not exactly approve of and you want to put some safeguards on that spending. There are all kinds of different reasons why to use a trust, but it really controls after you’re gone. So there are two types of trusts, particularly when it comes to a Revocable Trust when it comes to these IRAs. And so again revocable during a lifetime but then irrevocable upon death and one is kind of Conduit Trust. So just as the name implies, basically it’s kind of a more of a pass-through.
Kevin Kroskey: 15:52 So let’s say that your daughter is named as the beneficiary but she could also be trustee other trusts, which you know, it goes ahead and makes the decisions in accordance with the rules that you pre outlaid in the trust. But basically what happens for the IRA accounts is she has to take the Required Minimum Distribution from the IRA. It goes to the trust and basically just through the trust, it’s fully distributed to her at her own individual income tax rate. Well, you may hear that and say, well why would I want to do something like that? Again, it comes back to control. So rather than her going to Vegas and blowing all the money, or you know, maybe potentially losing some of the money in a divorce, keeping the money in the bloodline, these are all aspects of control to make sure that the money’s there for your daughter and for her life and not going to get blown or lost to a creditor or a predator.
Kevin Kroskey: 16:42 So the Conduit Trust really just provides asset protection, but it basically the end result tax-wise is the same thing as if somebody who was named a beneficiary on the IRA account. The Accumulation Trust is a little bit more complex. So let’s suppose that your daughter has had some spending issues or let’s suppose that maybe she started a business and it’s a high-risk business. Maybe it’s going to fail. You don’t want to have the money subjected to creditors that she may owe and be liable for through her business. So, in the Accumulation Trust, the trustee has the ability to either accumulate the money in trust. So you would have to take the RMD from the IRA, but then you keep it in the trust. You would have to pay tax on the trust assets and on that income that comes out, or the RMD, I should say, let me just strike that.
Kevin Kroskey: 17:33 You don’t pay tax on the assets, but you pay tax on the income, which typically is correlated to the assets anyway, or they can pay it out just like the Conduit Trust. So you have that flexibility paid out or accumulated in trust. However, if you try to accumulate it in the trust, the top tax rate in the trust is hit at about $12,000 of income for a family. If you’re just looking at individual family, it’s North of $400,000 so the trust tax rates, you get to the highest bracket very, very quickly. So you may be able to protect money in an Accumulation Trust for the IRA, but really you’re not protecting it from Uncle Sam. He’s pretty much going to eat it all up. So, it’s really going to make these Accumulation Trusts for IRAs go away. So if anybody does have one of these, you definitely have to get that reviewed before you pass away.
Kevin Kroskey: 18:23 And before the Stretch IRA provision is taken away. So those are the two things really as a relates to the IRA trust. So, in general, we talked about, I’ll just kind of do a quick recap here Walter, but you know the Secure Act is likely to pass. It’s one of those things where again, both parties have long agreed on this. They don’t want retirement accounts being used as estate planning vehicles. And we may know this, but the government needs some money. So we have some growing deficits. They kind of need money and there’s a lot of money in them. There in 401ks and IRAs. So, they want that money to come out and by eliminating the stretch and fast-forwarding those payouts over either a 5 or 10-year period, we’ll see where it gets firmed up. More tax is going to be paid Uncle Sam more quickly unless your beneficiaries if you have an IRA and you have an IRA Trust that you’re using as a beneficiary, you really have to look at that.
Kevin Kroskey: 19:15 Particularly if it’s an Accumulation Trust. So what are some of the things that you should be considering, assuming that this does become law? I would say a few things. One with anything you need to review this stuff on a regular basis. You know, so for our clients generally we’re reviewing beneficiaries every 3 to 5 years we’re reviewing, you know, Hey, so-and-so is your power of attorney for finances. Here’s your healthcare power of attorney. Or these people, still the people that you feel comfortable naming. So that sort of thing. A lot of times you will find a new client that you know, they’re in their sixties their kids say mid-thirties and have their own kids at this point. And here their kids that are in their thirties the wills haven’t been updated and there are still guardians that are named for their now 30-year-old kids and their parents will.
Kevin Kroskey: 20:01 So yeah, I would probably a little bit overdoing that example for an update. But every few years, particularly as you know, kids are getting married, unfortunately, they get divorced, you know, things happen. Some kids may move away for a job. So maybe you want your healthcare POA to be closer. But for those reasons and many, many more, you want to at least review this every few years. You don’t necessarily have to go to your estate planning attorney to do it. We do it as part of our service for our financial planning clients here. So you got to review it, see who the beneficiaries are. If you have an IRA trust, again, probably going to make some changes there, particularly if it’s an Accumulation Trust, but some of the planning strategies that you’re going to be doing while you’re living and in your retirement. And one of, there are a few key ones.
Kevin Kroskey: 20:42 So we’ve talked about in some prior episodes about Roth conversions and just tax rates and particularly how tax rates today are very low because of that 2017 tax reform bill that was passed. And that’s going to be in effect at least through 2025. So assuming that no additional legislation has passed, tax rates will revert back or sunset as it’s known in 2026 certainly, you know, things could change maybe with elections where those tax rates change more quickly. But we’ll see what happens. So right now we’re in this low rate environment and if you’re in a lower rate today than when you’re likely to be in the future or what your beneficiaries for these Inherited IRAs are likely to be. Well, guess what? Probably a good trade to go ahead and pay tax at today’s lower rate and avoid higher rates in the future.
Kevin Kroskey: 21:33 And the way that you do that is not through a Roth contribution like while you’re working and earning, but through a Roth conversion, another C-word that you can do at any time, whether you’re working or when you’re retired. It just happens that when you’re retired, particularly in your sixties is one of these conversions is most advisable, particularly if that’s, you know, now with these low tax rates. So certainly looking at Roth conversions is one because then you can just pay a little bit of tax per year. You can spread it out over the entirety of your retirement, these conversions, and you’ve kind of done a de facto Stretch IRA because now you’ve paid a little bit of tax over many, many years compared to paying a lot of tax that your beneficiaries would pay over a 5 or 10 year period. Make sense, Walter?
Walter Storholt: 22:16 It all makes sense when you lay it out. It is a lot to absorb though. My head’s just sort of curious here, Kevin has to you as a planner, your team at True Wealth Design, how does this impact, you guys? Somebody in the office today probably meeting with an advisor, talking about their plan, talking about their future and their legacy and all of these different issues. Since it is kind of in limbo. I mean you don’t want to kind of pull the cart before the horse, right? And go ahead and start planning with this as assuming it’s going to be the way of the law, but at the same time you kind of are leaning that way. So just from a planning standpoint, how do you guys address these kinds of things when they’re sort of in transition or in the process of being passed?
Kevin Kroskey: 22:58 So I guess I’d say two things. One, we’re probably not going to take action on some proposed legislation. Let’s say this was something different. And let’s say that there’s some proposal that’s out there that I don’t know, it was just a proposal and maybe it is unlikely to pass. Certainly, we’re not going to be taking action on that for something like this. Frankly, a lot of the planning strategies that we’re already doing makes sense even more in light of the elimination of the stretch. So thankfully for us and for our clients, we’re already doing a lot of the things that need to be done. Certainly, the IRA Trust, these are some things that we do have for clients. Again, we’re not attorneys, we don’t draft the trust, but we review the estate plans will help co-create those plans for many of our clients in conjunction with the attorney, what have you.
Kevin Kroskey: 23:42 And we’re really the ones that do the proactive work there. You know, the attorneys just come in and are more transactional, reactive after we’ve done a lot of the big-picture thinking. But the Roth conversions are something that we do. There’s something else called asset location, which is a little wonky, but simplistically after you figure out what you want to own, then you figure out, well, in which accounts do I want to place those assets. So let me give you a really simple example. Let’s say that we have a 50% stock and a 50% bond allocation. And let’s presume that we have half of our money in pre-tax retirement accounts and half of our money in Roth accounts. And so what you see most, and it’s frankly, it’s pretty sad that I still see this today. I just saw it last week from a place for a new client that has an advisor and basically they had 3 accounts and they had 50/50 stocks and bonds and every single account.
Kevin Kroskey: 24:36 And each of those accounts had different tax ramifications. And so if I go back to this example that I had about, you know, 50% in pretax and 50% in Roth, which again are tax-free, you would put the bonds which twofold one, they’re more tax-inefficient because they kick off taxable income and bonds over time grow slower because they’re less risky compared to stocks. So you want to locate those assets within these IRA accounts that are yet to be taxed because you’re going to have less accumulation in there. You’ve already figured out what you’re comfortable owning and let’s presume that that is again, 50% stocks, 50% bonds. You don’t want to go any higher or maybe for other reasons you don’t want to go any higher. Maybe it’s an emotional reason, maybe it’s something else, but you want to place the higher growth assets in the Roth account.
Kevin Kroskey: 25:26 You can also layer in say a joint account or individual or a trust account, something that’s kicking off a 1099 that you’re receiving every January or February. Maybe you’re even getting revisions on those 1099 is it tends to happen more and more these days, but you kind of go through this sort of tax preference as well as an expected return ranking and then you decide which accounts to locate assets in all this sounds pretty wonky. There’s a fair amount of tax work that’s involved, but in terms of benefits, studies have shown that depending on your tax rate and time horizon, it may add somewhere between, I think 0.2% and 0.5% is a reasonable number to your net after-tax return. I’ve seen other studies or other, I’ll call them advisors or even some of these Robo advisors say that, Hey, that’s a 1% benefit.
Kevin Kroskey: 26:12 I think that’s, I think that’s BS quite frankly, but even if it’s a half a percent and you have $1 million, half a percent on $1 million is $5,000 per year. You do that every year for 30 years and ignoring any compound in there, you have $150,000 of benefits just from better planning just from this asset location. So maybe we’re doing Roth conversions. Again, that’s one strategy, kind of doing that a little bit each and every year figuring out how much we want to pay at today’s likely lower tax rate. Rinse, lather, repeat that annually and kind of stretch out those taxable conversions over a period of years. We’re locating assets in a smart manner within these different types of accounts and I somewhat would begrudgingly say it, but if the Stretch IRA is eliminated, then using life insurance is actually going to be a much more valid planning tool to use for estate planning and I say that’d begrudgingly because I know there’s probably just an army of life insurance agents that are out there that are just salivating for this law to be passed and then like, yes, we’re going to sell some high commission products now.
Kevin Kroskey: 27:18 While that’s going to make sense. I know Walter, I’ve seen it show up in industry magazines already, so I can only imagine, but what you’re going to have to do is in really the way that works is you’re just going to maybe use some of the required minimum distribution money that it’s going to come out, pay some tax on that and use the after-tax money to go ahead and pay premiums for life insurance policy. And as long as it’s properly designed and designed in favor of the person buying it and not in favor of the person that’s selling it, there’s really good, you can run a spreadsheet and show somebody how it’s going to leave probably a lot more to their beneficiaries than if you just left the IRA and were subject to these advanced payouts who are 5 or 10 year period. So those are the 3 big things that come to mind for our clients.
Kevin Kroskey: 28:03 Our clients, we do the first one and the second one, the Roth conversions and the asset location every single year. We’ve been doing it for well more than 10 years now. And then we’ll actually conversions. You’re able to do those really starting in 2010 but life insurance is going to be something where once this law is passed and depending on the size of the IRA, size of the estates, insurability of the client desire to jump through the hoops of even trying to get insurance. So the client, those are some of the things that we’re going to be talking about. That’s probably going to be a little bit different from what we’ve done in the past.
Walter Storholt: 28:33 Well, this is a really big thing that’s happening in the financial world. Would you say this is sort of the biggest news piece other than obviously, you know, market ups and downs and those kinds of things, but in terms of the structure of the financial landscape, this is the kind of the biggest debate that’s been waged since the Department of Labor’s Fiduciary Rule and that sort of thing.
Kevin Kroskey: 28:53 You know, if you look at our client, let me answer it this way. If you look at our clients, most of them have most of their money in these yet to be taxed accounts. You know, it was a thing that they were supposed to do, right? You’re supposed to put money in the 401k. Your employer is going to give you a match, you’re going to sock it away while you’re in a higher tax bracket and hopefully pull it out in a lower bracket down the road in retirement. Well, I used to say for a lot of our clients that have done quite well, they weren’t going to be in a lower bracket, in fact, could be in a higher bracket. Well, with tax reform, pretty much everybody, I mean there are certainly some nice outliers that are in higher tax brackets, but pretty much everybody has an opportunity from now through 2025 to being a lower bracket to do some of these things.
Kevin Kroskey: 29:35 And for these, the traditional role as a whole. True. So when you look at that and the fact that of the money is there, they’re really going to need to be taking some preventative action to go ahead and do this. And it’s, it just affects a lot of our clients. Now. If you don’t have any money and you’re just living off Social Security, then obviously it’s not going to impact you or you know, on the other hand, I mean sometimes you’ll have the really wealthy people out there like uber, uber, uber, wealthy. Typically they don’t have a lot of money in IRAs because of the limited contribution. Typically they sold a business or something like that and they have, you know, millions of dollars in those taxable types of accounts. So for them, the tax risk isn’t as prevalent. But for most of our clients that have done well, have worked hard, have saved, have lived below their means, have used these benefit plans from their employer that they should have been doing and that we often encourage them to do even more of, well, it was the right decision then. But where we look at, where we are at now, we may need to take some preventative action because one, they probably ended up doing a little bit better than what they thought they would when they started down that path. And then too, you know, we really have this good opportunity of a lower tax rate now and then three you know that they’re going to take the Stretch IRA away and you’re like, they’ll leave some money on, well, you know, an ounce of prevention is often worth more than a pound of cure.
Walter Storholt: 30:52 Well, if you’ve got any questions about the things we’ve talked about today and about the Secure Act and you want to walk through it with a member of the True Wealth Design team, it’s very easy to schedule a time to meet and talk about your situation, how it might be impacted by these rule changes. Certainly, there’s going to be a big portion of the population that this is going to hit hard if you’re not prepared for it. So see if you are in that group and you probably already have an inkling if you are or aren’t. And so it’s worth the phone call. You can actually schedule that phone call. It’s a 15-minute call with an experienced financial advisor on the True Wealth team by going to TrueWealthDesign.com and just click the “are we right for you” button there on the page, so just look for the “are we right for you” button and schedule your 15-minute call on TrueWealthDesign.com or if you happen to certainly be local in the Northeast Ohio area, you might be interested to check out the events tab on TrueWealthDesign.com you can find out about all sorts of really cool upcoming workshops that are going to be going on in the area that Kevin and his team are putting on.
Walter Storholt: 31:51 You can get all the details and even sign up right from your smartphone or computer on TrueWealthDesign.com we’ll put a link in the description of today’s show to that page as well so that you can access it easily. And Kevin, I know a lot of people that come to these events get a lot of education out of them, similar to what we talk about on the podcast, but they’re going to get it in even more flavor. Right. So I got some charts and graphs and some visuals to go along with it.
Kevin Kroskey: 32:14 Yes, we do. And you’ll get to meet some of the team there as well. But we’ve been doing educational workshops since 2008 I was actually a former high school physics teacher, so it just kind of, you know, basically we teach people about money and how to make smarter retirement decisions.
Walter Storholt: 32:29 That’s why you have the heart of a teacher here on the program every time. I see, okay. It all makes sense. Now, I didn’t know the physics teacher part of your background. I learned something new about you.
Kevin Kroskey: 32:37 Yeah, the, I guess the thing to maybe put a bow on it. I wasn’t a big fan of high school the first time and I don’t know what I was thinking about trying to make a career out of being a high school teacher. I learned pretty quickly that I didn’t like the rigidity, but I do like educating. Absolutely
Walter Storholt: 32:55 Very cool and physics. Interesting choice and then to take that in paralleled into the financial world, the rest of your career. That’s a pretty interesting transition as well. Well very good.
Kevin Kroskey: 33:04 That’s why we like the research and the evidence-based approach to what we do for planning and investing. It just kind of follows through.
Walter Storholt: 33:09 Sure does. You got the background that has sort of morphed and built its way into now the financial side of things too. Pretty neat to see that. Again, if you want to get in touch with the best place to do it is TrueWealthDesign.com all that information you want to find is there for those who are old school and still like the phone call method, I throw that out there as well just for you. (855) TWD-PLAN is the number to reach Kevin and the team. (855) TWD-PLAN, which the full number version of that is (855) 893-7526 for Kevin Kroskey. I’m Walter Storholt. Thanks for taking some time to join us. I hope you learned a little something on today’s show and we’ll see you next time. Right-back here on Retire Smarter.
Disclaimer: 33:55 The information provided is for informational purposes only and does not constitute investment, tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance references historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.