This couple got out $300,000 tax-free. In this episode, we're going to
address the question, "Can I get my money out of my IRA with less tax?"
I'm Doug Andrew. If you're just joining me on this first episode, welcome. If
you've watched others, welcome back. I'm a financial strategist and retirement
planning specialist. I've been doing this for 47 years. And I helped a lot of my
own clients with these strategies. I'm going to share a story right now have
one couple. They were so cute but I saved them about 300,000 bucks plus in
unnecessary tax. But I love doing this. I write books and share these stories to
help people like you. In fact, back in 2005, I trained over 3,000 financial
advisors, CPAs, tax attorneys on these strategies. They're always blown away
with this particular story I'm going to share. In fact, I love all my professional
licenses automatically expire at the end of 2005 to become a consumer advocate. So,
this education is about you know about me. I want you to learn and get ideas. So,
I'm going to frame this with this couple they were both schoolteachers and they
came to me when they were about 60 years old. And I'm going to tell you what their
CPA told them to do versus what I told them to do. And once their CPA learned
about my strategy, he went, "Whoa! I've never thought of that before." Well, it's
unfortunate. Many people are given the wrong advice. To give you a little bit of
background, the husband was a schoolteacher. And his wife was. But he
came to one of my educational seminars. A 4-hour seminar where he learned about
5 different modules. Not only about how to best accumulate your money
tax-free for retirement. Be able to access it tax-free and when you die, have
it blossom and transfer tax-free. He was very intrigued with that. But he also
wanted to learn about how to manage his real estate a
little bit better because they had a few rental properties and so forth. And so, I
was teaching him the banking concept and how you can actually take advantage of
mortgage interest deductions to offset money that you take out of an IRA or
401K. You can even do this on your own house if you want. The wife had not been
to the seminar. So, she was very skeptical. And you know, I've seen this many, many
times. So, they come into my office. And they sit down. She was resisting me right
off the bat because he had been telling her, "Honey,
I'm thinking we ought to refinance our properties. Maybe even our cabin. Maybe
even our house." And she was like, "No way. No way.
That's my peace of mind." And I appreciate that. And she came in with these bifocals
and she was crocheting. And he said, "Okay. Now we're both 60. Since we're over age
59 ½, we can take money out of our plans. Because they had saved money.
Most school teachers will put money into a tax-deferred TSA's. Tax Sheltered
Annuities. The state's 401K. Maybe a 403B. And so, they know that when they retired,
they would only get the number of years they taught school times 2%. This was in
the state of Utah. But this is very common. So, if you taught school for
30 years, 30 x 2% of 60%. So, if a schoolteacher was
making 5,000 a month when they taught school the last few years, they
would retire and get about 3 thousand a month, 60% of that.
Most school teachers think, "Oh, I don't think I can get by." So, they are prudent.
They sock away money in the state's 401K. The 403B's, the tax children annuities.
And so, this couple had at the time $250,000 in
tax-deferred accounts. Now, their accountant said, "Do you need this money?"
"No, we don't need it." "Well, if you don't need it, I wouldn't touch it then." And
they go, "Hmm." Because I said the opposite in the seminar then he went to. The
accountant said, "Well, I don't know. This guy sounds crazy for telling you to take
money out of an IRA or 401K. Prematurely, when you
need the money, why would you do that?" And I said, "Well, let me do an illustration
for you." So, we have this software. This shows you the darkness of the night if
you keep deferring like the CPA was telling. See, the accountant said, "Well,
just leave your 250,000 in there. You've been earning about 7%,
it should double from 250,000 to 500,000." In the next 10 years, you'll be 70
½. At that time, by age 70 ½, they knew they had to start
taking out money. At least the required minimum distribution. That's called an
RMD. Or else you'll have to pay a penalty of 50% to the IRS on top of the tax.
So, most CPA say, "Keep deferring. Keep deferring. Let it keep growing tax-
deferred. And then at 70 ½, whether you need the money or not, we've
got to start taking it out. But just take out the required minimum if you don't
need it." And I go, "You know what? That's the worst advice I've ever heard. Let me
show you why. If I took their 250,000 in the illustration and we grew it to
500,000 over 10 years tax-deferred. Then we started the RMDs. Now,
that is based upon life expectancy. So, if your life expectancy is 20 years at
that age, you have to take out 120. You have to divide 20 into that you have
to take out one twentieth of that. And then every year you get older, you have
to take out more each year because the government wants all that money out of
those accounts and taxed before you die so they can tax you again
when you do die. This is the best savings bond the government ever came up with
for themselves." Now, they were shocked. Based on RMD's to the husband's life
expectancy and the wife's life expectancy... Even if their tax rates
didn't go up, they would pay well in excess of a quarter of a million dollars
of tax by stringing it out and postponing it. Because the money
continued to grow and the government kept having that partnership, that tax
lien on it. They went, "What? We're going to pay as much in taxes by putting it off
as we have in the account today? At age 60?" And I go "Yep!" Most
people don't realize this. They said, "What would you recommend?" I said, "You do a
strategic rollout." Now, there's an episode that show
you how to do this. But this is what we did: I said, "We're going to take the money
out and get the taxes over and done with sooner than later. This is going to hurt."
I felt like Sam I am in Green Eggs And Ham. "You will like this, you will see." "Oh,
No." Now, they actually at the end of 5 years said "Thank you. Thank You Sam-I-Am.
We like these Green Eggs And Ham." Because I had them pay take out about 60
thousand a year over 5 years. Now, 5 years times 60,000 is 300,000.
We got 300,000 out. They would pay tax of about
12,500. I arrange things so that the tax was about
12,500. So, you pay tax of 12,500 every year
for 5 years. That's a total of 60,000 in tax.
I went from them paying 250,000 in taxes by stringing it
out down to just 60,000. And they went, "Oh, but it's painful. We have to pay
the tax." I said, "What would you rather have?" 250,000 the you
paying tax or 60,000? "Oh, we'll do the 60,000." And then I said, "Good.
Should we move forward?" And the wife pulled down her bifocals and she was
crocheting and she's just.. "You're not going to try to talk us into mortgaging our
real estate properties?" I go, "No, you sort of made it clear that you didn't want to
do that." "Well, what would happen if we did?" I said, "Okay. If it were me, I would
resurrect deductions to offset the taxes." So, I showed them refinancing a property.
And it took the taxes from 60,000 down to 20,000. I saved
him another 40,000 by resurrecting tax deductions by simply
refinancing these properties, creating a tax deduction they borrowed the money, I
think at the time at 6% tax deductible it was in that cost of 4
after the tax savings. And they were earning 8% and their
insurance contracts. They were making 100%. She went, "What if we
mortgaged our cabin too?" "I thought you didn't want to do that?" "Well,
I just like to see the numbers." So, I mortgaged their cabin too and we took the
taxes from 250 down to 60 down to 20 down to zero. 5 years went by
and we got out $300,000 with
zero tax. We save them the quarter of a million in taxes by stringing it out. We
got 300,000 out of their IRAs tax-free. And we reposition that money into a
portfolio of laser funds. And guess what? When they came in they said, "Okay, let's
pay off our house." I said, "Okay. I went over to reach for the phone." I said, "Yeah,
we can just transfer that." Because we took the money (if we want to) and we take
it out of the laser fund we pay off their mortgage. And the net is more money
than they would have had have they done it the dumb way. She said, "Wait a minute,
would you do that?" I don't know. Because you're earning 32 thousand of interest
tax-free right now. The mortgage is only 16,000 on that portion that it
takes to pay off the house. That's 100% more. Why would you kill?
An investment that's making you 100%.
Twice as much as it's costing you. So, they kept the mortgage and you know what
they did with an extra 16,000 by doing that? They took their family and
all their grandkids on a cruise the next year. And they continued to have family
vacations with the purpose based on that arbitrage of using the money the
interest by having equity management coupled with their IRA, 401k roll out and
they have double to triple the net spendable retirement income because of
that strategy. How good is that?