Roll money out of 401(k)s.
In this episode, I'm going to address 401(k)s, what to do now?
Get ready.
President Biden is proposing some major changes and so, I want to empower you on what you
can do that's far better.
It's called a rollout.
Not a rollover.
So, my name is Doug Andrew and what do I know?
Well, I've been around the block for quite a while.
I'm nearing 70 years old.
I started in 1974.
And I've helped thousands of people optimize their financial assets and minimize taxes,
prepare for long-term goals like retirement and help them choose the best ways to save.
And it's not in traditional IRAs and 401(k)s.
In fact, I've never owned an IRA or 401(k).
I never will.
I've never owned a Roth IRA or 401(k), never will.
So, I've helped a lot of people cure their tax disease.
See, when you're not at ease physically, we call that disease.
When you're not at ease financially, because you realize, "Oh, my heavens!
My money in this tax-deferred IRA or 401(k) portfolio, now I have to pay taxes.
And I am not in a lower bracket?
I thought I was going to be in a lower tax bracket.
And Congress keeps raising taxes!
This was not smart!"
Yeah.
I've seen so many people get frustrated in retirement because they outlive their money
due to the negative impact of taxes, inflation, and market volatility.
So, I advise many people, "Hey, you need to do a strategic rollout.
Not a rollover."
Why?
Well, right now, President Biden is changing the way that people can get tax benefits out
of a 401(k).
Long story short, he no longer wants Americans to fund a 401(k) with pre-tax dollars.
Here to for, if you made 100,000 and you contributed 15% or 15,000 to a 401(k), you will only had
to report 85,000 on your 1040 tax return.
Now, he wants you to report the whole 100,000.
And he will give you a tax credit of 26%.
If you are middle income or higher, you just had a tax increase.
A contribution to a 401(k) is no longer as good as it used to be.
You don't get the same tax benefit you used to get.
So, I would recommend this is the perfect timing to get your money out.
The taxes over and done with sooner than later.
Here's why.
So, many times, I have found couples that would come to me.
They would look at their IRA and 401(k) statements and many times I would tease them a little
bit.
Now, I would say, "Oh, in your first appointment when you come, would you please bring your
after-tax IRA or 401(k) statements?"
And they would go, "After-tax statements?
I don't think we have those."
I knew they didn't.
I said, "Oh, well then, let me calculate it for you."
And they were shocked.
If they came in with a million dollars, and I show them the after-tax and they saw that
they only really had about 700,000 of that was their money, the other 300,000 belonged
to Uncle Sam, the Government.
They were like, "Wow!
I didn't realize."
Yeah.
Most people are shocked because they look at their IRAs and 401(k)s like it's this sumptuous
Subway hoagie sandwich depicted here on the left.
And then they go to retire and it looks like this unappetizing sandwich on the right after
the government comes in and takes their fair share of this sandwich because they say, "Oh,
everybody must pay their fair share of taxes."
So, I often ask, "Is postponing tax really a good idea?"
Postponing, another synonym would be procrastinating.
Why procrastinate paying taxes?
So, when people would come to me with their yet-to-be-taxed IRAs and 401(k)s, I would
say, "Man, were you planning your retirement or Uncle Sam's?
Look at the amount of tax you're going to pay the rest of your life on these things."
-"Yeah, we were told we were going to be in a lower bracket and we're not."
Yeah, you killed all your deductions along the way.
You were going down the highway with one foot on the gas pedal putting money in these tax-deferred
accounts but the other foot was on the brake pedal killing your deductions as you went.
And now you don't have any deductions and you're being taxed to death.
People are shocked when they pay back every dime they saved in tax over 30 years on the
contribution money the first 2 and a half, 3 years of retirement.
And then they pay it back again and again and again.
And by the time they die, they've paid back 12 to 15 times the taxes they saved over 30
years on the contribution phase.
So, let me show you something that is better.
These 2 things are certain.
This is the premise.
Money will never be worth more than it is today.
The cost of living is going to keep going up and inflation is going to get pretty bad.
And your current tax bracket is likely the lowest bracket you will ever be in.
I talk to audiences all over America.
And I will say, "How many of you feel that in the long run taxes in this country will
be lower?"
I got nothing but crickets.
"How many think that they're going to be the same?"
One or 2 little hands go up.
I say, "How many think they're going to be higher?"
A sea of hands goes up.
And then I ask, "So, why are you postponing tax, deferring an IRA or 401(k) to some future-perceived,
unknown advantage until your account is worth this?
And now you take out your money down the road when you're convinced taxes are going to be
higher later?"
That doesn't make sense.
-"Oh, are you suggesting a Roth?"
No.
I'm going to show you something far better than a Roth.
So, based upon this premise, I recommend a strategic rollout.
This is not a rollover.
A rollover as far as I am concerned is like going from the frying pan into the fire.
So, before I explain a rollout versus a rollover, if this is intriguing you, share with somebody
who really ought to watch this episode as you continue to get educated here.
Make a comment.
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every time I post an answer to a question that is asked 300 to 3,000 times a month.
This is about you.
I've been a financial strategist for 4 and a half decades.
Now, I dedicate my life to writing books and creating education like this so that you can
become empowered.
Be your own fiduciary.
You will look out for your best interest better than some financial advisor, I can assure
you.
I've been in this industry for nearly 50 years.
Trust me.
Here is the difference.
A strategic rollout is getting your money out of an IRA and 401(k) and getting the taxes
over and done with.
A rollover would be taking money in 401(k) and rolling it over to an IRA and continuing
to postpone, delay, procrastinate until your age 72.
And then taking out RMDs, required minimum distributions thinking you're saving tax.
I can prove mathematically you are not saving tax by stretching it out.
You are compounding that problem.
And when people see the amount of tax they will pay by posting and stringing it out until
their life expectancy and leaving it behind to their kids, and the kids have to pay tax
on it when they inherit it.
They go, "This wasn't smart."
I go, "I know."
So, perform a strategic rollout.
What is this?
3 parts to this strategy, you can use 1, 2, or all 3.
Number 1, you strategically reposition your retirement funds --IRAs, 401(k)s, 403(b)s...
It doesn't matter.
Subjecting that money to tax.
Whether you need the money or not.
You get it out and you pay the tax at today's lower rates rather than continuing to postpone
thinking taxes are going to be lower.
No.
Okay?
You get the taxes over and done with sooner than later.
Usually in 5 years is what I recommend.
Number 2, this is critical.
You reposition the after-tax money, if you pull out 150,000 and you pay tax of 50,000,
you net of 100,000.
Now, put that into something that's going to be tax-free from now on.
And my favorite vehicle which I call the Laser Fund, at the end of the day, when you die
will blossom and reimburse you for the tax you pay.
So, you're not out or anything.
Folks, you reposition the after-tax money into something that's going to be tax-free
from now on.
And when you do this, people say, "Well, then put it in a Roth, right?"
This is why a lot of people will rollover to a Roth because you pay tax, get it over
with and it's tax-free from now on.
Well, my Laser Fund has the 2 benefits that a Roth has.
Your money accumulates tax-free and you can access the money tax-free.
But it has 4 additional benefits that Roths will never have.
So, I've never owned an IRA or 401(k) or a Roth IRA or 401(k) and I never will.
And when you read the book, you'll understand.
But let me show you an example or 2.
The third thing is you can offset some or all of the tax by maybe resurrecting new deductions.
I'm going to give you some examples of this.
Then you offset the tax incurred during the rollout.
And I've done this for thousands of clients.
So, I'm going to give you some examples right now.
But when people come to me at retirement, because at retirement planning is totally
different than maybe what you did for your retirement.
I found that there's generally 4 buckets or places where people derive retirement income.
Some people don't derive retirement income from all 4.
But here are the 4 categories.
Investment income, real estate income, guaranteed income, and tax-free income.
I'm shocked how many people don't explore this one.
They don't even understand it.
Okay.
So, let's go deeper into these 4 income buckets.
The purple out here where most people are way too top-heavy when they would come to
me.
They would have most of their money in IRAs and 401(k)s in the market.
And I would go, "What are you thinking?
You should have no more than 30% of your money invested in the market in yet-to-be-taxed
IRAs or 401(k)s when you retire."
At least 5 years before you retire, you should start to do a strategic rollout.
Get it out this purple bucket.
You're in trouble here.
You're going to pay taxes through the nose and you're going to be subject to market volatility.
You need predictable rates of return in your golden years.
Now, some people like real estate, they think, "Oh, wow.
I'm just going to rely on my real estate."
A real estate can drop in value.
And frankly, a lot of people who own real estate properties are sick and tired of taking
out the trash, fixing toilets, evicting tenants.
They don't want to be management intensive.
And they're stuck.
Because if they sell it, they have to pay a capital gain.
Sometimes I show them just pay the capital gain and put the net into a portfolio of Laser
Funds.
And they're shocked that the income-tax-free beats what the rental income was.
And they don't have to fix toilets anymore.
But I would recommend no more than 30% of your money come out of the real estate investments
that you have.
Some people like the guaranteed bucket.
I will say between zero to 80 percent of your money could come from here if you are super
conservative.
This would be social security, pensions, maybe annuities.
But no more than 80% if you're super conservative.
I don't rely much on this one at all.
My favorite vehicle is this one.
The green one.
It's the tax-free bucket.
There's 3 general places that we usually think of qualify in this one.
And these would be Roth IRAs and 401(k)s.
Maybe municipal bonds and then my favorite vehicle --max-funded tax advantage insurance
contracts, what I call the Laser Fund.
Roths don't hold the candle to what the Laser Fund does.
Municipal bonds, you can't believe how many municipalities are going bankrupt these days.
I've always earned a rate of return of 2 or 3 percent higher than municipal bonds.
And especially Roths.
And I have 6 benefits with the Laser Fund.
Roths only have 2.
You can learn about them in my book I want to gift you here.
Here's the message.
I would recommend, you strongly study and consider doing a strategic rollout from the
purple bucket down here to the green bucket.
To where 40 to 60 percent of your income in retirement is now tax-free.
I have helped many, many couples take 200,000 of annual income that's totally taxable in
this bucket and get 120,000 of it down to this one.
And now they have 120,000 of tax-free income.
And they're only paying taxes on 80,000.
40,000 out of this one and 40,000 out of that one.
I saved them sometimes 35 to 40 grand a year in tax.
Over 25 years, it's a million dollars of tax savings doing a strategic rollout.
So, let me give you a few examples of this.
So, let me give a few quick examples that are actually these stories are told in my
book, The Laser Fund that I would love to gift you a copy of.
In this chapter on strategic rollouts, I talk about 2 school teachers, a husband and wife
that came to me.
And they had accumulated $250,000 years ago in their 403(b)s, 401(k)s an tax-sheltered
annuities.
Their advisor (because they were 60 years old) said, "Oh, keep postponing until you're
age 70 and a half and you have to start taking it out.
So, I did the math.
Let's say they earn 7.2% and that quarter million doubled to 500,000.
And then they took out RMDs.
They were shocked.
By the time they both pass away, they would shell out at least a quarter of a million
dollars in taxes.
They went, "Oh, my heck!"
You're not doing anything but continuing to postpone, delaying the inevitable compound
the problem.
In 5 years, we got that quarter of a million out of that IRAs and 401(k)s with no tax consequence.
We took out 60,000 a year.
We were able to pay tax only at 12,5000.
But I eliminated that by resurrecting deductions they've been killing on their rental properties
by refinancing them.
And being able to earn a higher rate of return than the mortgage cost was.
But I increased the tax deduction that they've been killing.
These are explained in my book.
I saved them a quarter of a million of unnecessary tax.
I had another guy, he was a real estate landlord.
He had 600,000 in his IRAs and 401(k)s.
At age 70 and a half, his wife passed away.
His advisor said, "I know your 600,000 in the market has dropped to below 300,000 twice
in the last decade".
This was 2,000 to 2010.
But he said, "Hang in there.
Hang in there.
And take out just 4% a year."
That's called a 4% rule.
Four percent on 600,000 is 24%.
He pulls out 24,000 a year, pays tax of a third --8,000 in his tax bracket, he is netting
$16,000 to buy gas and groceries.
That's pathetic.
I helped him get 750,000 on his 600,000.
He made an extra 150,000.
I pulled out 150 grand a year each year for 5 years.
Worst casxe scenario, he would have paid a quarter of a million in tax but he would've
netteed 500,000 in his Laser Funds earning 8 to 10 percent.
That's 40 to 50 grand a year of tax-free income now instead of 16,000.
But he had a bucnh of rental properties that we refinanced.
And we resurrected deductions he'd been killing.
I got his 750,000 out totally tax-free.
He is earning between 8 at 10 percent on that.
8% on 750,000 is 60 grand a year.
How much better is 60,000 a year of income versus 16,000?
Many years, he's been taking 75,000.
We quadrupled his net spendable retirement income with a strategic rollout.
We do this all the time.
Another couple, husband and wife, physicians.
Both were physicians.
They had saved 4.6 million.
I looked at them and said, "You're going to pay 2.6 million in tax if you leave it in
those 401(k)s and IRAs."
Their tax advisor, CPA said, "They can afford to pay 2.6 million."
And I go, "Let's ask them."
"Would you like to pay 2.6 million or would you like to save money?"
They go, "Hello?
We'd like to save some money."
I couldn't save them the 2.6 but I saved them 1.2 million.
We redirected 1.2 million of otherwise payable tax into what I call a family bank which is
now funding college for the children and grand children into perpetuity, humanitarian service,
religious missions, all kinds of things in what we call a family bank.
They are so grateful that I saved them 1.2 million of unnecessary tax.
We have another California couple in 5 years doing a strategic rollout.
We took them from the highest tax bracket to a zero percetn tax bracket.
We got 4 million out that has since doubled to 8 million.
They now have 8 million tax-free.
They have retired.
They are earning 10%.
10% on 8 million is 800 grand.
They don't need 800 grand.
They're only living on 300,000 of tax-free income.
But they don't have to even report it on tax return.
The IRS knows they're receiving it.
Their account is growing a half a million a year faster than they're taking their money
out.
We do this all the time.
If you would like to study these examples and stories and learn more, let me show you
how you can claim your free copy of most recent bestselling book, The LASER Fund.
If you simply go to laserfund, L-A-S-E-R...
LASER means liquid assets safely earning returns.
It's an acronym.
And the Laser Fund is a max-funded tax advantage indexed universal life insurance contract
that has been earning these rates of return that I've been talking about.
You can read how and why in this book.
And so, if you go to laserfund.com, click on the link below, you contribute a nominal
towards the shipping and handling.
I'll pay for the book.
I'll send this out.
It's 300 pages.
200 pages are charts, grapsh, and explainations.
You flip the book over, you read this one, this is 100 pages, 12 chapters with 62 actual
client stories like the ones I just shared with you.
So, this to your brighter future.
And make sure you learn how to avoid unnecessary tax.
Do something far better than leaving your money in a 401(k) or IRA portfolio.
Put it in a Laser Fund.