Video Transcript:
to you welcome to the weekend before we hit the weekend I want to share with you something that that came up in a recent client call and these are reasons why you don’t want to throw all of your money into an IRA or a 401k you remember a lot of financial planners are going to tell you look max out your IRA every year and max out your 401K every year because that is the absolute best thing you can do with your money I’m here to tell you that that can be a good plan but it’s not the whole story let me tell you why this year in 2023 you can put in 6 500 into an IRA and that’s 7 500 if you’re over age 50. you write all that money off against your taxes great deal right the problem is is even though that money grows tax deferred until you retire anytime age after 59 and a half when you finally go to pull that money back out it’s totally taxed as ordinary income tax think about this what you’re doing is you’re shifting your income from this year to a future year now that’s cool if you’re going to make less money in retirement but what happens if you have a very large Ira 401K balance because they both work exactly the same every year in retirement as you pull that money out that’s or all ordinary taxable income to you so what you want to take a look at is you don’t want to have all of your eggs just in your IRA and 401K basket because you could end up with a giant tax bill okay now remember even if you don’t spend this money and you pass it on on to your spouse or to your kids they’re gonna have to pay the same tax as well there’s no way around this so what are your other choices and what else might you want to consider I’ll tell you this very simply I have advised clients for 27 years the best thing that I’ve seen across all of the clients all the people I’ve come into contact with and all the wealthy people I’ve managed money for is multiple streams of income because it gives you choices it allows you to say look I’ll take my ordinary income taxable items like my 401k and my IRAs and I’ll take those out up to certain income levels basically I’ll max out my lower marginal tax breaks I know it’s a mouthful but what it says I’ll take the money out in retirement to a level where I’m not going to pay too much tax on it but then what do you do where do you get the rest of the money that you need to live on because we all know that Social Security it’s not going to be enough right even if it’s going to be there for everyone we certainly hope so but that remains to be seen so where else can you take money for from and what should you do today so here we go the first is a triple tax-free Health Savings Account don’t know if you’ve heard about these but there’s the limits are 3850 for individuals 77.50 for families and here’s what it is you put the money in today you get a tax break for it they give you a debit card okay and this debit card can be used for any qualified medical expenses this includes Dr co-pays it even includes aspirin down at the local corner store it’s pretty amazing this money you put it in you get a tax break for it it grows tax-free and as long as you use it for those medical expenses it is spent tax-free it’s a triple tax free account absolutely incredible caveat there is you have to have a health insurance plan that’s what’s called a high deductible Health uh plan which means that you know it is going to give you a certain kind of larger deductible and that’s how these HSA plans work now great account let’s let’s move on let’s go bigger now you can take a look at Roth IRA a Roth IRA very similar to a normal traditional IRA you put in six thousand five hundred bucks if you’re over age 50 it’s 7 500 but yet no tax break today none the beautiful thing is is once you put that money in it then is tax-free forever so it goes in no tax break but as long as you keep that money in at least five years until age 59 and a half all of the money that you put in all of its earnings are entirely tax free to you if you don’t end up spending everything it goes to your spouse it goes to your kids and they don’t pay a lick a tax on it either so Roth Iris are absolutely incredible so you have a normal IRA and a 401k where you’re deferring your income right it’s basically don’t pay now but you got to pay later a Roth is the exact opposite it’s pay now and never pay again so I think you can start to see the benefits of doing things like hsas and roths because now if you have all three sorts of accounts when you go to hit retirement you can take out from your IRAs and your 401ks at your lower tax brackets then you take out the additional funds you need from your Roth IRAs remember a Roth IRA also pairs up with what’s called a Roth 401k and as you would imagine that gives you some pretty hefty limits a regular 4K will allow you to put in 22 500 bucks per year if you’re over 50 that’s 30 000. the total contribution for employers and employees this matters if you’re self-employed or if you have a very generous employer goes all the way up to 66 000 bucks a year in addition if you’re over 50 it’s 73 500 so this is really good money that you could throw into a Roth and get that money totally tax-free all right so we took a look at two better options potentially to diversify your mix out of just IRAs and 401ks that’s an HSA account and a Roth count whether it’s an IRA or a 401k let’s go a little bit deeper now I hope I didn’t lose you before the weekend but let me let me show you what else you can do if you have your money in a normal taxable account not a Roth not an IRA not a 401k no special tax features you just go down to your local brokerage your bank you open up account in your name or in the name of your your living trust for instance that account has no special tax features okay there’s no tax rate for an event pay ordinary income tax on any interest that you earn and then capital gains on anything you’ve held over a year will be long-term capital gains under your short-term capital gains okay no special tax features but this is where it gets fun if you put an investment in just a normal account let’s say it’s a stock that pays no dividends you only pay tax on that stock when you finally go to sell it so if you buy the stock for let’s say 100 bucks a share and it goes to a thousand dollars a share you pay zero tax when you finally go to sell it let’s say five years later you pay tax on that let’s call it 900 gain right but the tax you pay is one of the lowest tax rates we have it’s called long-term capital gains it can be up to about half of what your longer your ordinary income tax can be and in some lower tax brackets it’s actually zero okay so long-term capital gain is a great thing so normal taxable account no special tax features but all of a sudden now you can hold an investment in there where you pay no tax until you finally go to sell they have another nice feature in these just normal basic accounts that’s what’s called a full step up at death so let’s just say you buy the same stock for 100 bucks goes up to a thousand bucks you gotta you know what is it 10 10 times your money but you don’t need to sell it because you don’t need the money and you just hold it forever I believe you I have a lot of older clients to do exactly this they just hold their stuff because they don’t need the money for from these particular stocks or these investment accounts something incredible happens then when they pass away when you pass away you get what’s called a full Step Up in cost basis what this means it means you paid 100 worth a thousand bucks you got a big gain in there you pay tax on it but if you have hold it when you die your 100 cost gets a full step up to one thousand dollars and your beneficiaries pay zero tax pretty amazing stuff so that’s a great reason to think about taxable accounts because you can hold Investments as long as you don’t sell them you might not be paying any taxes whatsoever and if they throw off let’s call it qualified dividends which many stocks will have qualified dividends those are not taxed at ordinary income tax rates they’re taxed at capital gains rates which again are dramatically lower so taxable accounts don’t don’t bat your iodine just because you don’t have the special tax features of let’s say IRAs or Roth IRAs they’re available to everybody and they have incredible features if they hold the right Investments all right now we’re almost done if you’re still with me congratulations I mean you’re really graduated you deserve everything you get this week and I hope it’s good for you uh so what we want to take a look at lastly is real estate okay if you hold real estate I’ll tell you right now you know very plainly I I’ve been an investment advisor and a financial planner going back all the way to 1996 now my wealthiest clients don’t just hold the assets with me they also hold real estate some of them hold a lot of real estate real estate has some incredible tax benefits so let’s just say for instance you know your personal house you can sell that and you get a 250 000 uh basically tax-free when you go to sell it gains if you’re married that’s 500 000 that’s a great benefit but remember if that’s held to just a living trust or your normal name this account through this this house when you die gets a full Step Up in basis just like an asset you held in another taxable account okay so that’s great stuff on your personal residence what about rental real estate got great benefits here as well you buy a piece of rental real estate let’s say you buy something for a million dollars let’s call it a duplex for a million bucks okay you’re going to get to depreciate that full million dollars over the useful life of that of that asset okay that could be up to 39 years so you know small tax break every single year where you’re writing off your cost for 39 years you might say Travis okay that’s not very exciting exciting I understand don’t worry it gets better if you do something called a cost segregation study what you can do is you go out and hire a third party Fermi so there’s lots of firms out there that do this very credibly and they’ll say look in your duplex some of these you know pieces of the real estate are going to last the structure the land those are going to last you know the entire time frame however some of these items according to the IRS depreciate over 20 years or less this might be something like the carpets or you know might be window coverings or the water system or something like this it’s got less than a 20-year depreciable life these items you basically segregate them out okay you get a separate report that says let’s say 30 percent of that million dollar property is going to depreciate in 20 years or less if you write that off this year you get something called bonus depreciation let me tell you what that means because it’s an amazing amazing deal that it’s offered you have to know about it if you stuck around this long you deserve to know about it bonus depreciation says that if you have items within your rental properties that depreciate 20 years or less you could write off 80 of those in year one against all of your other passive income let me tell you what this means you go out you put 200 Grand down on a million dollar property right say 200 Grand down take out a mortgage for let’s say 800 000 bucks then you do a cost segregation study three hundred thousand dollars is what you get to write off eighty percent this year so you put in 200 your first year write-off is 240 000 which is 80 of 300 Grand you write that off entirely against all of your rental passive income think about that it’s going to zero out your income most likely in year one two three four maybe even longer you keep on carrying that forward until it’s entirely used up so again huge benefits offered in accounts other than IRAs and 401ks in various sorts of accounts remember rental real estate personal real estate other taxable Investments all get a full Step Up in basis and there’s no step up in a regular IRA and a regular 401K so a lot of advisors out there are going to tell you look Max is out and then just close the book and I’ll tell you right now there is a lot more to the story if you like this I’ll be uh live streaming for you pretty much daily from here on in so I wanted to invite you come on come by and join like subscribe share with your friends have a great weekend
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