Pay taxes now while values are low and tax rates are low. In this episode, we are
going to address the question, "Should I get my money out of my tax-deferred IRAs
and 401Ks sooner than later?" Yes. I want to show you why and how to do it
strategically.
So, generally speaking, there are unique situations and times that you may want
to seize the opportunity to get money out of your tax-deferred IRA or 401Ks
sooner, now, while values may be lower or tax rates may be the lowest you will
ever be in. So oft times, when the market crashes and we have a downturn, people
seem to get frustrated anxious, paralyzed and they want to hunker down and wait
till their account values get back up to the highest point again before they take
any action. No. This is a wonderful opportunity to get the taxes over and
done with on those I raised our 401Ks while the values are less. Also, there are
certain periods of time where tax rates maybe the lowest rates you will ever see
the rest of your life. For example, after September 11th of 2001,
President Bush lowered taxes the 28 percent tax rate went down to 25. And so,
I told many people back then "Hey, hey! Get your money out. Get the taxes over and
done with at 25% instead of 28%. And they were very grateful
because we rode the market back up again tax free after at that 3-year
recession. Well the same thing is true. Donald Trump lowered that 25%
down to 22% In fact, from the 22% bracket all the way up to just
24% is 155,000 more income that a
married couple final in a joint tax return can pay just 2% higher
tax which is still 1% less than the low rates that Bush put in that were
actually 3% less than where we'll probably go back to. So, your
current tax bracket is likely the lowest bracket you will ever be in. I'm a tax
strategist. I'm Doug Andrew and I've been doing this
for 45 years. I want you to save unnecessary tax. So, let me give you an
actual example using a little flip chart so that you can understand how to seize
this opportunity to save unnecessary tax. So,
let me give you a specific example. I'm going to simplify this because everybody's
circumstances are a little bit different. But there are a lot of people who will
have their IRA, 401k account values at a high point and just before a major crash.
This happened in 2001 to 2003. It happened in 2008. It happened from mid
February of 2020 to mid March. In 30 days, people saw their account values go down
by one third because the Dow Jones was at about 30,000 and it dropped
about 20,000 in 30 days. And so, people get really anxious and frustrated.
I understand that. But I said, "Hey, hey! Here's the opportunity here." So, let's say
in your IRA or 401K accounts before the crash, you had $900,000
accumulated in there. And it was in the market, of course. And then after
the crash, you saw that drop down by a third. And this was true for many people.
Instead of 900,000, they were down to $600,000
And what do most people do? They hunker down and they just say, "I've got to
wait. I can't do anything. I got to get back what I lost." And so, they want to get
back to this high-water mark of 900,000. Now, sometimes that happens in 6 months.
Sometimes it takes 4 years like back in 2004 to 2007. It took 4 years to
make up for a 40% loss. In 2008, when people lost 40%, it took 4 years to
get back to break-even. Because a 40% loss has to be followed by a 67%
gain. A 33% loss. See, that's a 33% loss down to 600. But a 33%
loss has to be followed by a 50% uptick in the market, 50% gain.
See, what's 50% of 600? 300. So, this has to increase 50%
to make up for the 33% that it lost. Does that make sense?
It takes sometimes year, 2, 3, 4 years for that to
happen. Here's the point: If you wait around for that to happen and the market
goes back up again to your value of 900,000... Now, how did that happen? Well,
maybe the government passed an economic stimulus package, a bailout package to
the tune of over 2 trillion dollars which they did in March of 2020. And
where's that money going to come from? You know that's about half of what the
IRS collects in an entire year in taxes? They're going to have to raise taxes. Hello!
And so the Congressional Budget Office, the general Accountability Office
estimates that taxes will likely have to go up to probably a 50%, 60,
70% especially if initiatives to gain popularity like
Medicare for all or or free college or whatever. Let's just use 50%. Here
maybe you were in a 33% bracket. That's not all your money. 900,000 is the
IRA, 401K balance. But only 600,000 of that was actually your money. If it's
600,000, only 400,000 of that is your money because a
third of that belongs to Uncle Sam in a 33% bracket. But let's just say
taxes go up now to 50%. What's 50% of 900?
450,000. So, you wait and it re-bounce to 900 now taxed. Okay, we're going to put
over here and this is taxed. Taxes in the future now at 50% are
450. So, you subtract out the 450. And what are you left with? Their
remaining $450,000 dollars to buy gas, groceries,
prescriptions, golf green fees. That's pretty pathetic. And based on the
financial services industry standard, most people only take out 4%
of that for retirement. That's pretty pathetic to be able to have only
four percent of 450,000. I mean, 4% of a
million dollars is only 40 grand a year and you have to pay tax on it. Can
you survive with a nest egg of 450,000 net to you? So,
let me show you what savvy smart people did
when the market was down. So, this is what I advised many people to do back in 2001
to 2003, in 2008. And again in 2020 when the market was down. And they thank me to
this day because of the amount of taxes they saved and how they protected
themselves. So, using that same example, let's say the IRAs and 401Ks
had a value of that 900,000 before the crash. This would
have been mid-february of 2020. And 30 days later, mid March, we
notified over 200 people, we knew we still had money in these accounts. It
says, "So, get out. Get out." And it depended upon how
much and their tax thresholds. But when though value in the market came down to
$600,000 in a 33% combined federal estate
income tax rate. Because I want to keep apples to apples here. What did I share
in the previous example, in a 33% bracket, you're going to pay
how much in tax if you take the money out? A third. So, that's 200
thousand. So, you take care of tax with 200 instead of
postponing and deferring and then showing up 450,000.
And so, that is the tax liability. Now, that leaves 400,000.
That 400,000, what do you do with? You reposition that into
a tax-free vehicle. What's my favorite tax-free vehicle? The Laser Fund. The
Laser Fund allows you to accumulate your money tax-free and then be able to
access it tax-free. You can put in large sums. You can dip into it without IRS
penalties. It blossoms and value when you pass away. It has all kinds of benefits a
lot more than a Roth. Now, you could actually roll this over into a Roth. This
is the net that would go over into a Roth. And that's a step in the right
direction. But see, Roth's have too many strings attached.
I have episodes that explain why the Laser Fund is called the rich man's Roth.
It has 6 benefits. Instead of a Roth, it only has to benefit.
So, why would I own a Roth when I can have a Rich Man's Roth, a laser fund that
has a whole bunch more and it doesn't cost me anything for those benefits.
Here's the key. If 400,000 goes into a
Laser Fund, you link it to the market but you don't put it in the market, this is
called indexing. So, I ride the market up. The market comes up 50% again. Remember, a
33% loss has to be followed by a 50% gain. 50% of 400 is 200. So, now, my Laser
Fund has $600,000 in it and that is tax-free. Now, if I have 600,000 tax-free,
what did my IRA or 401k have in it? It rebounded to 900. And people go, "Mine has
900, yours only has 600." Hello! Your 900 only 600 of it that was your money. The
other 300 wasn't yours. So, there's no difference except what? If taxes go up
and they will. When taxes go up to 50% then 900,000 only Nets you 450. I have
600. How much more 600 thousand than 450? I have an extra 150 grand
and I got my taxes over and done with for 200,000 instead of
waiting to get back up to 900 again in a tax deferred IRA or 401K. And then tax
of 450,000. I hope you're getting it. So, here are 5 key takeaways. You want to
consider getting money out of those IRA's and 401K's while tax rates are low. And
the values are low. You want to reposition that after-tax money into
vehicles that are going to be tax-free from now on. I would recommend the Laser
Fund because a properly structured and maximum funded laser fund will give you
the utmost liquidity safety and predictable rates of return. And their
tax-free to boot. Then you want to use indexing so you ride the market back up
again tax-free and you don't lose crashes next time. Also, you want to
understand and learn how the laser fund will help eliminate the dangers of taxes
inflation and market volatility. So, I implore you to get educated and watch
this episode right here. This will explain what the Laser Fund is and
you'll have an opportunity to get a copy of my book absolutely free. You just pay
the shipping and handling.