Perform a strategic rollout.
Not a rollover.
In this episode, I'm going to address the question, "What should you do with a 401(k)
before retiring?"
Get ready.
You're going to be shocked and surprised with my advice.
So, I'm Doug Andrew and I've helped people prepare for a comfortable retirement now for
more than 4 and a half decades.
I've been so blessed in my career to educate thousands of people through my 11 books thus
far and this YouTube channel, 3-Dimensional Wealth is really about you and empowering
you with knowledge and information.
Now, a lot of people as they approach retirement, ofttimes, they've sort of had their head in
the sand so to speak.
And they are about to retire it's open season now.
And the IRS is hunting for you and you've got to come out and deal with reality that
this money that you've been accumulating in tax-deferred IRAs, 401(k)s and the like, you're
going to have to pay taxes on that.
And so, you ofttimes are surprised when you find out, "Wait a minute.
If I pull out $100,000 a year out of my 401(k) portfolio, I'm only going to net about $70,000
to buy gas and groceries or prescriptions or golf green fees.
Because you have to pay the tax.
And if you can't get by on that, that means in a 33% tax bracket, you have to pull out
50% more money.
You have pull out 50% more money.
You have to withdraw 150,000 out of a 401(k).
Pay tax of a third between federal and state tax in 41 out of 50 states in the United States,
we have a state income tax.
But you have to withdraw 150,000 to net 100,000 to live.
And so, this causes people to outlive their money.
But there's another danger, it's market volatility.
See, a lot of people accumulate their money in the market.
And when they retire, they want predictable income streams and Wall Street was never designed
for you to actually sell.
When you ask an advisor on Wall Street, "When should I sell?"
And they will say, never.
And so, you have to begin to strategize so that you want to get the taxes over and done
with (in my opinion) before retiring.
This is a strategic rollout that I'm going to explain in this episode.
Get the taxes over and done with in 5 years or maybe a little bit longer.
And then enjoy tax-free income thereafter on as much as your retirement resources as
you possibly can.
So, get ready to learn how to do that.
So, before I proceed to share with you some examples of what I call strategic rollout,
(which is a term I coined years ago) let's make sure you understand the difference between
a rollover and a rollout.
See a rollover I often say is like going from the frying pan into the fire.
You're just simply continuing to defer and delay the inevitable --procrastinate paying
the tax.
When has procrastinating anything turned out good for you?
It hasn't for me.
So, when you roll money over from a 401(k) to an IRA and you continue to defer, defer
thinking that's the smartest thing to do because you're avoiding tax, you're not looking really
at the impact over your entire lifetime from a tax standpoint.
You continue to defer and delay.
And then you are forced to take it out at age 72 now based upon your L/E. L/E is life
expectancy.
And then most advisors give you the poor rotten advice to take RMDs.
I think that's the worst advice ofttimes for retirees.
And you'll understand why as I proceed here.
So, a rollover is continuing to defer and procrastinate.
A rollout, you want to get the money out of those IRAs and 401(k)s sooner than later strategically.
And you're going to see how I usually do this over a 5-year period.
Why?
To basically get the taxes over and done with sooner than later.
But it's what you do with the after-tax money that makes all the difference.
So, I'm going to share with you a strategy that I call a strategic rollout.
It's (again) not a rollover because (again) I think that is like going from the frying
pan into the fire.
But the reason why advise many, many people at retirement to consider rolling the money
out of a 401(k), for example, is to get the taxes over and done with sooner than later.
Get your money out of the markets so that you are not subject to the market volatility
and you cannot take predictable income out of an IRA or 401(k) portfolio that's invested
in the market.
So, in answer to the question "What should you do with a 401k before retiring, I would
recommend getting that out.
Because I'm a skier and I think that at the end of the day is when I noticed most people
breaking their legs and crashing and burning.
And so, retirement is sort of like at the end of the day.
And I would recommend that maybe you ride the gondola lift down to the bottom to arrive
there safely.
Instead of risking, crashing and burning by leaving your money into IRS and 401(k)s being
clobbered with tax and also subject to market volatility.
Does that make sense?
So, when we talk about a strategic rollout, I want you to stay with me to the end of this
episode so that you can claim your free copy of my most recent bestselling book The Laser
Fund.
It's over 300 pages of charts, graphs, explanations.
But also, subscribe.
I post an in-depth answer to a financial question almost daily on this 3-Dimensional Wealth
channel.
Hit the notification bell and you'll be notified every time I post a new educational video.
Now, a strategic rollout is where you're getting your money out of your IRAs and 401(k)s that
are yet-to-be taxed over usually a 5-year period strategically.
Depending on upon the tax bracket you're in in a given year or the room that you may have
in a given tax bracket.
And get in the taxes over and done with.
And when I say, strategically, maybe during years where your income was less.
Like in 2020, a lot of people, their income went down because of covid-19.
They were laid off or whatever.
And so, there's times when you ought to take money out and get the taxes over and done
with sooner than later.
You could access up to $100,000 out of an IRA or 401(k) in the year 2020 because of
the covid-19 pandemic and not paying a 10% penalty.
Even if you're under the age of 59 and a half.
So, a good tax advisor will help you understand how to roll it out.
But I've usually done it over a 5-year period.
I'm going to give you examples of this.
And then you invest or reposition that net after-tax money into something that's going
to be tax-free from now on.
Okay?
And people say, "Well, what's that?
What's tax-free?"
Because most advisors say, "Well, what are you going to do?
You're going to pay the tax and where are you going to put it?"
Into something that's tax-free from now on.
And my favorite vehicle which I call the Laser Fund will actually blossom in value at the
end of the day when you pass away.
Reimbursing you sometimes many fold what you paid in tax during the rollout process.
And so, oft times, I've helped many people offset the tax during the rollout.
But by resurrecting or creating new deductions that they didn't have before.
So, I'm going to give some examples of how I've done this.
So, with a strategic rollout, I want to give you some examples of how I've done this for
people to save hundreds of thousands of dollars of unecessary tax.
I remember 2 school teachers, both the husband and wife taught school for tears.
And they had money in the states 401(k), 403(b)s, tax-sheltered annuities.
And when they came to me, they had about a quarter of a million dollars at the time which
was a lot of money back then in yet-to-be-taxed accounts.
And their advisor had told them, "Oh, if you don't need the money, continue to defer."
Now, they had just passed age 59 and a half so they could access money without a 10% penalty."
But see, their advisor were short-sighted.
They did, "Oh, if you don't need the money, keep deferring until you're aged 70 and a
half."
And back then that's when they had to start withdrawing money or else they would incur
a 50% penalty.
So, let's just assume that their 250,000 in their 403(b)s and 401(k)s were earning about
7.2% which is approximately what they were.
That means it would double in 10 years by age 70 in a half to a half million.
Then I show them with my software doing a strategic rollout compared to if they left
in the 401(k)s and 403(b)s and taking RMDs, required minimum distributions what the difference
would be.
They were shocked to see that if they took out the RMDs for the rest of the husband's
life and assuming he passed away first and then the wife's lifetime, they would shell
out at least a quarter of a million dollars in taxes.
And they went, "What?"
I said, "Oh, I think it's going to be higher really because I think taxes will go up down
the road."
They go, "Golly.
We never thought this would happen."
So, I showed them a strategic rollout.
And in a nutshell, we reduced the tax from 250,000 down to 60,000.
They said, "Wow.
We like this.
But golly, it's going to hurt."
And I go, "No.
You're going to pay tax sooner or later."
We pulled out 60,000 a year over 5 years.
That's a total of 300,000 because it was earning money interest as we were doing the rollout
over 5 years.
They ended up paying 12,500 a year in tax over 5 years so they only paid 60,000 in tax
instead of 250,000 by putting it off.
Now, we actually offset the tax by resurrecting deductions on their house and their cabin
and their condo.
And so, we reduce the tax down to 20,000 and actually down to zero.
They were so happy because we got the 250,000 actually up to 300,000 out, rolled out with
no tax-consequence.
We do this all the time.
I've done it for a widower who ended up at age 70 and a half being told by his advisor,
"Hey, just take out RMDs."
On 600,000 at a 4% payout was only $24,000.
He had to pay $8,000 of that in tax and he only netted 16,000 to buy gas and groceries
and prescription and golf green fees.
That's pretty pathetic.
Instead, we did a strategic rollout and we ended up getting 750,000 out because we were
earning about 8% in the meantime.
But we were able to offset the tax by resurrecting and creating new deductions on his rental
properties.
So, we successfully got 750,000 out of his IRAs and 401(k)s over a 5-year period.
It was generating rates of return of 8 to 10 percent.
Golly, 8% on 750,000?
That's 60,000 a year of tax-free income versus the 16,000 after-tax income out of his 401(k)s,
Boy was he ever happy.
We do this all the time.
We had husband and wife both physicians, they had 4.6 million in their 401(k)s.
They were going to have to pay tax if they strung it out of at least 2.6 million.
Their advisor said, "They can afford 2.6 million."
I said, "Well, let's ask them."
I wasn't able to save them all 2.6 million.
We only saved them 1.2 million.
They are so grateful because that 1.2 million of otherwise payable tax is funding their
family bank generating 100,000 a year of tax-free cashflow for their grandchildren.
And then great-grandchildren for college funding, for military service, religious missions,
all kinds of humanitarian experiences that they want to have for their family.
Folks, this is so dynamic.
We took a couple in California from the highest tax bracket to a zero percent tax bracket
in 5 years.
They now have 8 million dollars generating between 600,000 to 800,000 a year of tax-free
cashflow.
They don't even need that much.
The most they have taken out is 300,000 tax-free.
The rest is just growing.
You can do this too.
So, as people ask, "Golly, what should I be doing with my 401(k)s and the like before
retiring?"
In this episode, I've admonished you to get the taxes over and done with sooner than later
and reposition the net after-tax monies into something that's going to be tax-free from
now on.
So, let me connect the dots.
I firmly believe that most people are way top-heavy at retirement in yet-to-be-taxed
IRAs and 401(k)s and the monies usually invested in the market.
What am I recommending?
Get the money out of the market.
Create predictable cashflow.
You cannot get predictable cash flow when your monies in a volatile market.
You move it out.
You do a strategic rollout and put it where?
I would recommend that you put it into a tax-free bucket and not a Roth.
Not municipal bonds.
I've outperformed what municipal bonds earned for years by using the laser fund.
So, in the laser fund, you're able to move money and create tax-free income.
So, let just cut to the chase.
Many couples who came to me and said, "Golly, we have enough assets, 2 or 3 or 4 million
to generate very comfortably 200,000 of income in our retirement years."
And I go, "Way to go.
But I see a problem here."
And they go, "What's the problem."
I said, "Well, it's all showing up on the front of your 1040 tax return."
And they go, "Well, you mean, there's a way to avoid that?"
I go, "Yes."
Now, I have to cure that tax dis-ease because when you're not at ease physically, that's
called disease.
But a lot of people are not at ease financially because of the amount of tax they're going
to pay.
So, by doing a strategic rollout in 5 years, I've successfully taken many people from paying
tax on200,000 of income down to only paying tax on half that or even 80,000 of that.
In other words, in 5 years, we've transferred 120,000 of annual income off of their tax
return because it's coming out of their laser fund, the tax-free bucket.
I would love to gift you a free copy of my most recent bestselling 300-page book, The
Laser Fund which is actually 2 books in 1.
I'll tell you what.
I will pay for the book.
You go to Laserfund.com (it's on the screen here) and claim your free copy.
You contribute a nominal amount towards the shipping and handling.
I'll cover the rest of that cost and I will send out a book to you.
There's also options there for you to listen and learn and watch and learn.
But here's to your brighter future.