Ep 58: America‘s IRA Expert, Ed Slott
Ed Slott is a nationally recognized professional speaker, television personality, and best-selling author. He started his own business Ed Slott and Company, which has become one of the nation's leading source of timely, accurate IRA expertise. He then went on to start a program called Ed Slott’s Elite IRA Advisor Group, which was developed to help top advisors maintain a mastery of advanced retirement account and tax planning laws. Ed talks to us about some of the most common problems he sees in people's retirement accounts, relevant strategies to potentially. help lessen the tax burden, and why now is the best time to take action.
Podcast Transcript
Ed Slot (00:01):
Well, somewhere somebody's got to pay for it. And who are they going to go after? The same thing Congress does whenever they need money which seems is all the time to pay their bills, they raid your retirement savings because it's the low hanging fruit, like a big juicy steak for Congress just waiting for them to take a bite out of it.
Speaker 2 (00:26):
This is The Retire Happy Podcast with John Iammarino, fiduciary financial advisor at Securus Financial in the San Diego area. And Thomas O'Connell, president and managing principal of International Financial Advisory Group Inc in Rockaway, New Jersey. Together they'll be keeping retirement happy from coast to coast.
John Iammarino (00:50):
Welcome back to another episode of The Retire Happy Podcast. I'm your host on the West Coast, John Iammarino, and I am joined as always by my esteemed cohost on the East Coast, Tom O'Connell. Tom, how are you doing?
Tom O'Connell (01:03):
I'm doing great today, John. How are you?
John Iammarino (01:05):
Good, good. I just got back from a nice old weekend in Park City where I experienced weather under 60 degrees.
Tom O'Connell (01:12):
Ah, very nice.
John Iammarino (01:14):
Yeah. Yeah.
Tom O'Connell (01:14):
You're closer to the sun.
John Iammarino (01:14):
Yeah. So anyways folks, we have a great show lined up for you today. We started our interview series off of the bank talking with the CEO of Brookstone Capital Management, Dean Zayed. And now we are going to be talking with probably one of the industry's most knowledgeable and impactful speakers. I've attended three of his IRA workshops, I've read his books. He's a phenomenal speaker, really an industry genius. But I'm going to pass the torch to his good friend Tom for the intro. Tom, take it away buddy.
Tom O'Connell (01:53):
Well thanks John, I appreciate it and this is truly an honor, a privilege and a pleasure to introduce this gentleman who is known throughout the industry as America's IRA expert. Ed and I go back all the way back to almost 20 years all the way back to the dates when he first began his elite IRA program. He's been a friend, a mentor, someone that I've looked up to, someone that is always there when I need anything as far as IRAs or with helping my clients and things like that. So truly, truly, truly, this is an honor and I'd like to introduce our audience to Mr. Ed Slot.
Speaker 2 (02:42):
Ladies and gentlemen, it's Ed Slot, America's IRA expert.
Ed Slot (02:52):
Thanks Tom. Great to be here with you.
Tom O'Connell (02:54):
Well, thanks Ed. We really truly appreciate you coming on with us today. We've known each other going way, way back to-
Ed Slot (03:02):
That's right.
Tom O'Connell (03:03):
The Scottsdale, Arizona days when you were first in the program, right? I'm privileged to be in your second graduating class. So I've been with you in the IRA expert organization for nearly 20 years now.
Ed Slot (03:20):
Yeah. It's a lot of studying and working, that's for sure. And your clients will benefit. They have already benefited for, like you said, over 20 years for having knowledge that a lot of other advisors just don't have.
Tom O'Connell (03:33):
Yeah. You see, I'm amazed at how we as an organization are really separated from the rest of the group, if you will, in our industry. I won't say frightening, but it's surprising sometimes when I speak with new clients or prospective clients about things that have been done or haven't been done that for our organization and the people who've trained with you just find natural progressions of process. One of the biggest things and one of the first things that you taught us was looking at beneficiary documents. And it's amazing to me today to still find ex-wives or ex-husbands, deceased parents and kids maybe that people don't even talk to anymore that are still named on those beneficiary documents.
Ed Slot (04:28):
That's right. That's one of the biggest problems. In fact, I don't know if you remember them, one of the classes a couple of years ago, one of your training workshops, I mentioned a case, we were covering a case and I had gotten called on the attorney for this case. So the attorney calls me up and you know it's already bad if I'm getting a call from an attorney on an IRA case, it's off the rails already. And she said, "Yeah, I'm on this case. So we're a $3 million IRA, went to the wrong beneficiary because beneficiary forms weren't checked." So she started filling me in on the details and I stopped her. I said, "Wait a minute, I know this case. I teach this case at our advisor training programs. That's you? That's your case?" She said, "Yeah."
Ed Slot (05:10):
What happened was the financial advisor moved from one company to another financial company, and that happens, they move around, but the IRA that moved over to the new company, nobody updated the beneficiary form. Nobody checked it, nobody even looked at it for years and years. Well now the guy has died, everybody's looking at it now and now it's a major multimillion dollar lawsuit. So she wanted to know if I would be willing to serve as expert witness on the case. And I said, "But on whose side?" She said, "Well, we're representing, we're defending the financial advisor and our case is going to be that it's not his job to check beneficiary forms." I said, "Well, I can't do that." First, the advisors that we train, like you said Tom, we drum it into their heads from the first day and it's in every program, check beneficiary forms, check beneficiary forms. It's in every course manual I've ever written. So Tom's probably been seeing the same thing for 20 years, banging them over their head.
Ed Slot (06:08):
It's been in every one of my public television shows, every seminar, every presentation, in every one of my books, check beneficiary forms. And now you want me to get up on the witness stand under oath and say, well, it's not that important. I can't do that. Now the courts will decide who gets the money. This is not going to end well. Now it's out of control. It's kind of like that movie Thelma And Louise. Instead of the car going off the cliff, it's that person's IRA and there's going to be major lawsuits. There are major lawsuits already. I don't know how it ever ended, but you may recall us covering that case-
Tom O'Connell (06:45):
I sure do.
Ed Slot (06:47):
A few years back and it went to the wrong beneficiary. So what happened was the original beneficiary was a trust because it was such a large IRA, but when they moved it over to the new institution, whoever entered the information at the new institution just put the estate. There's the default beneficiary, nobody ever checked it. Well, it went to different beneficiaries through the estate. So the beneficiaries that were supposed to receive it through the trust, they got nothing and they probably ended up with nothing because the beneficiary form trumped everything. So there's a case, plus all the cases that we've covered in our training sessions, the ex-wife, the ex-husband, the children getting disinherited. I mean, this is one of the worst mistakes you can make. If somebody gets disinherited, to me that's 100% tax. I don't think it can get worse than that.
Tom O'Connell (07:36):
Oh, for sure. And again, this is one of the very, very first things that we learned from you. And like you said, I think this is almost your opening statement in every training class that we have every year.
Ed Slot (07:49):
Opening and closing.
Tom O'Connell (07:51):
Yeah. For sure, for sure.
John Iammarino (07:53):
Now Ed, you were talking about trust there and I think in our practice, Tom, I see a lot of people come in and they're looking at the trust as the main document, the most important document. And so I just want to clarify for the audience, which is going to be more important, the trust or the beneficiary document?
Ed Slot (08:15):
They're two different documents. The trust is just an entity. It could be a corporation, a person, a trust, whatever, that's just an entity. The beneficiary form controls. That says where the IRA or your 401K or your retirement savings go after death. If you name a trust, it's not for everybody. But many people with very large IRAs do name a trust because they're worried about the beneficiaries maybe squandering it, especially if they have young grandchildren. They're worried about them getting into financial trouble, bankruptcy, divorce, lawsuits, who knows, maybe they just can't handle money, or even with a spouse that may have trouble handling money or might be preyed upon by financial predators. So that's a reason to name a trust.
Ed Slot (08:59):
But many people that named trusts before the secure act changed a lot of the rules need to review those because most of those won't work anymore. So a trust is just another entity to leave it to if you want extra control or protection after death as a check on your beneficiaries to protect it for them and from them. If you don't have a problem with your beneficiaries getting the money, you could leave it right to them. You don't need a trust. But the beneficiary form in almost every case will trump, override the will. That's the document that will determine who gets the money.
Tom O'Connell (09:35):
So you made a statement and I think it's important for us to reiterate it for everybody out there, and that is the secure act changed the rules on trusts and that if you have a trust, then it certainly and most importantly needs to be reexamined. Wouldn't you agree?
Ed Slot (09:54):
At a minimum needs to be reviewed, probably revised or scrapped all together. And it didn't change the rules for trusts, it changed the payout rules for beneficiaries. But if a trust is the beneficiary, the trust is also affected like any beneficiary would be.
Tom O'Connell (10:10):
So besides maybe a trust document being outdated and obviously the beneficiary forms not being reviewed, would you say there's one or two more mistakes that you see people doing over and over again with their either IRAs or qualified accounts?
Ed Slot (10:29):
Well, I'll tell you one. We just saw a case, this is another one, Tom, you may have seen us teach, the old case on the once per year IRA rollover rule.
Tom O'Connell (10:38):
Oh yeah. Yeah.
Ed Slot (10:39):
Now this involved a New York tax attorney. So even tax attorneys, they must know the rules. No. A matter of fact, it was a federal case, literally. And this is where we got the new more strict rules for once per year IRA rollovers. So you could lose your entire IRA just by making an incorrect rollover or ineligible rollover from one IRA to another. People move money all the time. They see a new or go to a new advisor and they say, oh, good, I'll move my million dollar IRA or 100,000 whatever to the new place, but nobody ever advises them how to move the money.
Ed Slot (11:17):
You should be moving it as a direct transfer, but most people get a check and if they get a check, take possession and roll it over to the new place and they had already done one in the past 12 months, that new one is not eligible. And if it's a person's life savings, the whole account, the whole thing's taxable. And if they're under 59 and a half, 10% penalty. So you could lose your retirement savings just by not knowing how to do an IRA rollover properly.
Tom O'Connell (11:45):
And that's 12 months from when you do the rollover, it's not a January 1st to December 31st 12 months.
Ed Slot (11:51):
Right. That's a good point. That's an excellent point. Especially coming down towards the end of the year here, people think, all right, I could do one now in December and one in January. No, that's in the same 12 months. It's a fiscal year. If you do one today, you can't do another one for 365 days. A good advisor, somebody like Tom who again, this is Tom, we bang you over their head with this. What do we say? Only direct transfers.
Tom O'Connell (12:15):
Right.
Ed Slot (12:15):
Never do these 60 day rollovers. There's this old saying in football, I don't know who said it, I used to say who said it but in every program I said who said it, somebody would correct me and say, no, no, you're wrong, it's my college coach. They would all take credit for their own college. So the saying was in football, if you throw the ball three things happen and two of them are bad. So I'll give you a crack at it, either one of you. Who said that?
Tom O'Connell (12:40):
Vince Lombardi?
Ed Slot (12:41):
Yeah, no. Nobody really knows. I looked it up on quotes.com, closest I got everybody thinks it's Woody Hayes from the Ohio State University because you can't say it without the Ohio State University. But if you really want to know and you want the authority on this which is Google I guess it's general somebody, Tom or John Neland or something like that, some general Neland from the University of Tennessee. Anyway, so if you throw the ball three things happen, two of them are bad. If you do an IRA rollover like these 60 day rollovers, three things happen and they're all bad. This is no win. You have the 60 day rollover rule, you have the once per year and if it happens to be from a company plan like a 401k, you have 20% mandatory withholding.
Ed Slot (13:30):
These are all horror shows waiting to happen. Tom knows and this is one of those areas where his clients will never have this problem, never ever do rollovers. Only direct transfers where the funds go directly from wherever they are, the IRA or 401K to the other IRA without anybody touching the money in between. You will never have a problem that way.
John Iammarino (13:51):
Absolutely. Now Ed, I think Tom will concur that aside from the IRAs that we focus on a lot in our planning, another area that we focus on is taxes. And what is probably some of the most important advice in today's environment that you can give our listeners that they're probably not doing?
Ed Slot (14:13):
Get that money out. You have to understand, this is a simple thing, but when I mention it at seminars to consumers, I see the look and they say, oh, that's interesting, like they didn't know it. IRAs are not tax free, they're tax deferred. They were always deferred. There's a big difference between tax deferred and tax free. And that big significant difference comes down to one little three letter word, Y-E-T, yet. Tax deferred means you won't pay taxes on that money yet, but you will at some future time, probably at a higher balance, at a higher rate as opposed to tax free which means you'll never pay taxes on that money. The problem is your IRAs and 401ks, they're tax deferred. So you have to plan for the taxes coming out. The only way you can get money out of that... And that's the point, why have a retirement account if you'll never use it?
Ed Slot (15:11):
And even if you say no, I'll never use it, you're forced to use it because they have required minimum distributions starting now at age 72. So there is no choice. The money has to come out, not if, but when. So it's all about the taxes. So the strategy is always, and this is the foundational principle of all great tax planning, and you could make a fortune, you could save a fortune in taxes just with good tax planning, always pay taxes at the lowest rates. In other words, like a stock. Buy low and sell high. Now I didn't make buy low and sell high up. That's a good one too though. Write that down. Buy low, sell high.
Ed Slot (15:49):
The old comedian, Henny Youngman once said, "I'm putting all my money in taxes, the only thing sure to go up." He was right. He said it in a funny way back in the '50s or '60s. But that's what we're doing. We're buying the tax rate. It's a total bet on future tax rates which I think can only be higher in the future. So the plan is to get that money out while rates are as low as possible which may be right now for most people.
John Iammarino (16:18):
Now Ed, Tom and I both have the same disdain for our politicians. But just to ask you and to reiterate, what's that four letter word that our politicians just don't seem to get?
Ed Slot (16:32):
Well, what I always say in seminars, the four letter word that's the biggest threat to your retirement savings... In fact, when I do consumer programs I ask them a question. What do you think the four letter word is that's the biggest threat to your retirement savings? And they yell out, kids. I know that's a lousy investment. Where's the payoff there, right? Used to be the American dream was to own your own home, now it's getting the kids out of it. So it's not kids. The four letter word is math, M-A-T-H. The writing is on the walls. At some point, rates are going to have to go up, our exploding debts and deficits. I mean, they used to make a joke, a billion here, a billion there. It's not even billions anymore. Now it's trillions.
Ed Slot (17:18):
We never even had the trillion dollar conversation. Now it seems like in the papers everything's a trillion here and a trillion there. Well, somewhere somebody's got to pay for it. And who are they going to go after? The same thing Congress does whenever they need money which seems is all the time to pay their bills, they raid your retirement savings because it's the low hanging fruit, like a big juicy steak for Congress just waiting for them to take a bite out of it. So your retirement savings are easy pickings.
Tom O'Connell (17:49):
There's a saying that I like to use which is, the two places that have the easiest grab for the government are retirement accounts and dead people, because dead people don't vote unless you're in Chicago.
Ed Slot (18:01):
Oh yeah, dead people are great. They love hitting dead people. They don't vote, they don't complain and they don't write letters to the government.
Tom O'Connell (18:08):
So there's another four letter word which you've used in many of your programs as author of what, eight or nine books and seven or eight PBS specials? The YOYO acronym.
Ed Slot (18:21):
Oh, right, right. Yeah. YOYO, yeah. It stands for you're on your own. Everybody thinks everybody took care of it and this is why we train advisors like Tom O'Connell, who if you just came in, he's been training on this kind of specialized knowledge, the tax planning for over 20 years. This to me is critical. If you don't have an advisor that does tax planning, you don't have an advisor. And you know, Tom, we run across advisors here and there that say... I mean, sometimes I do programs for financial groups. They say, oh, you can't say we do tax planning. They have it all over their literature. We don't do tax planning. It's like kryptonite to them. No, not tax planning. We can't say those words. But I tell them, if you're going to touch an IRA, you're doing tax planning. If you're advising on a Roth conversion, you're doing tax planning. If you are advising on rollovers from 401ks to IRAs, you're doing tax planning. If you take an IRA contribution, you're doing tax planning.
Ed Slot (19:21):
So you better get somebody that knows how to do tax planning because they shifted the blame to everybody. All these guys think the other guy's taking care of it. The attorney thinks the accountant took care of it, the accountant thinks the financial advisor took care of it, the advisor thinks the cat took care of it. Nobody took care of it. So you need to really work with an advisor. Remember, these are your retirement savings. This may be for many of you your largest single asset, the one you work most of your working life for. And many of these decisions and strategies you have to do in taking money out and distributions, you don't get a lot of second chances.
Ed Slot (20:02):
Unfortunately, not only are these tax rules that we train on that I was talking about how Tom takes training on them among the most complex in the tax code, but they're filled with landmines that can just blow up your IRA, and there's not a lot of second chances. The laws are very rigid and unforgiving like we were talking about that once per year rollover. If you blow that it's taxable, it's a fatal error. There's just no fix. So I say a lot of people are actually out there on their own. What I said on that first show many years ago that you're referring to, I said, we're in a YOYO economy, you're on your own. But it's even worse now. Not only are you on your own, but you're looking all over the internet for advice. You get the worst information. I mean, it's inundated with useless and maybe dangerous information.
Tom O'Connell (20:53):
So you had mentioned about our math situation and paying taxes today. Can you elaborate on what I think are the two best directions? You know what they are, but I'll-
Ed Slot (21:06):
Yeah, Roth IRAs and life insurance. And again, I don't sell life insurance. I'm a tax advisor. I don't sell stocks, bonds, funds, insurance, annuities. I'm a tax advisor and an educator for advisors like Tom. And I have to tell you, the tax exemption for life insurance, I'm talking about permanent cash value, I have this myself, is one of the single biggest benefits in the tax code. Not used nearly enough. And now Congress has made this much more valuable with the secure act. Once they eliminated the stretch IRA, the IRAs just don't work as well after death for your children and grandchildren. So that's one option. The other option is Roth IRAs and they have both the same idea behind them. Take the money out now, start drawing down your IRA while tax rates are at their lowest. Of course, you need to work with your own tax, financial and estate advisors because everybody's situation is different.
Ed Slot (22:03):
The big plan is to start taking down this taxable IRA which will only be a tax mess every day that continues to grow. The debt builds against you for Uncle Sam, not for you. So over time, take down that IRA and either convert to a Roth... Yes, there's tax upfront but remember, you're not losing money. This is money you would've had to pay anyway. There's no choice. It's not if but when, so pay it while it's low. It's like paying off a mortgage on your IRA before it gets out of control. You can convert to a Roth IRA where it begins to grow tax free or use it for a life insurance policy, I've done both of those for my family, or some combination. With the life insurance, you can build cash value that can be drawn out if you need it in retirement. It's not just for beneficiary payoffs. I say that because when you mention life insurance, most people when I do it in programs, they give me that look, that what's in it for me look. I just pay everybody and I drop dead. What's in it for me?
Ed Slot (23:07):
Well, what's in it for you? First of all, you are providing for your children and grandchildren so they can have a boatload of tax free money. But who cares about them anyway? This is about you. You're creating a fund of money you can access in retirement. If tax rates go up in retirement, anything tax free becomes more valuable. You can access that cash value without increasing your income. And yes, it's true. If you take out of that life insurance policy, so the kids will get less, who cares about them anyway? They're going to end up with plenty. You worry too much about them. This is more to your benefit and same thing with the Roth. You want to create streams of tax free income and retirement as a hedge against what the uncertainty of future tax increases which look pretty likely will do to your standard of living in retirement.
Tom O'Connell (23:59):
And one of the other built in benefits to those insurance policies is the long term care benefit.
Ed Slot (24:05):
Oh yeah, I have that myself. I think that's one of the best things. Most people still don't know about it when I talk about it, the long term care rider. In fact, I switched over my life insurance I think maybe six, seven years ago, something like that when I first heard about it. And it's great, you don't have to worry about these long term care policies. Nobody can understand them anyway and it always turns out whatever you have isn't covered. Here, you can pull right out of your life insurance policy if you need long term care and you don't have to rely on the kids to come up with the thousands of dollars every month for your care. That's why I did it. I mean, what I was thinking, if I happen to need nursing care, everybody knows what that costs, the last thing I want to do is rely on my kids to come up with the thousands of dollars needed for every month. If I leave it up to them, who knows where the heck I'll end up.
Tom O'Connell (24:58):
Well I've met your daughters and they're pretty nice so I'm sure you'll be okay, but I can't say that for everybody.
Ed Slot (25:03):
I want to know it's taken care of for me and you should too.
John Iammarino (25:10):
Now, Ed, back at the Brookstone conference in Las Vegas on the topic of Roth conversions, and you actually had a newsletter on this topic, the topic of Peter Thiel and the $5 billion Roth. Would you care to elaborate about Peter Thiel and how the media alleged him to game the system?
Ed Slot (25:30):
Yeah, we're still talking about that. Anyway, he did nothing wrong is the bottom line. All he ever did in 1999, just to set the record straight, he contributed $2,000 to his Roth IRA which was the legal limit. And if you're wondering, well, how could he do it? His income's so high. His income was almost nothing then. He qualified for a $2,000 Roth IRA contribution. That's the only money he ever put in his Roth. Now he used 1700 of that 2000 to buy the PayPal stock at one 10th of 1 cent per share and the rest is history. PS, now he has 5 billion in a tax free Roth IRA. Good for him. I wish it on everybody.
Tom O'Connell (26:17):
And because of the secure act, they changed the Roth rules on us now haven't they?
Ed Slot (26:22):
Well, they're proposing it. In some of the proposals that are out right now, they're proposing big penalties on people with really large IRAs, 10 and 20 million. I don't understand why if everybody's played by the rules, but that's the way Congress goes. People always ask me, can you trust Congress to keep its word that these tax laws will last? Because when you're doing retirement and even estate planning, you're planning over a long period of time. You have to know these tax rules will hold. So people always ask me, well, can you trust Congress? No, I always tell them. You can't trust them as far as you can throw them. As CPAs, we have an old saying. We say tax laws are written in pencil. So you have to take that and take advantage of what you can now, but tax laws could change. So you really can't trust Congress to keep their word on anything and that's why you have to stay up on the rules and move around and zig and zag around them like with the secure act. Now life insurance seems to be a much better alternative.
Tom O'Connell (27:24):
So we do know that after 2025, the Tax Cuts and Jobs Act will sunset. And so for those who are wondering about tax rates and math, if nothing else happens, we know in 2026 that taxes will be higher. So this is one of the first time-
Ed Slot (27:43):
Yeah. Income taxes and estate taxes.
Tom O'Connell (27:44):
Right. So we do know, again, Congress is very good at doing nothing. So if they do nothing and continue so for the next few years, we know for certain that taxes are going to be higher.
Ed Slot (27:57):
Even if the rates don't go up higher, Tom, if you do nothing now... You can't ignore the problem. It's like the sign in my dentist's office, ignore your teeth and they'll go away. You can't ignore the problem. If you do nothing and just let your IRA grow and grow... And a lot of people are seeing their statements. You probably have lots of clients, Tom, that say, wow, look how my stock market took off, look at my IRA, look how much money I have. I have to tell you, what the market gives you the tax man can take away.
Ed Slot (28:27):
So every day that goes by that your IRA grows and grows, it's also growing for your secret partner, Uncle Sam. Think about this. Your IRA is a joint account with Uncle Sam. If you think about it that way, you would do something about it. You've got a partner on your IRA. Get rid of your partner. Ask anybody in business. If you got rid of your partner, wouldn't you have more money? Just saying. Don't look around, just saying. You want to get rid of your partner and have your IRA or 401K growing 100% for you. I'm a big believer in tax free because to me, tax free equals tax freedom.
John Iammarino (29:05):
Ed, and that's a great point and I think another area that Tommy and I really talked to clients about too when it comes to Roth conversions, I think in my office I really get a lot of response from this is not only do you have to worry about tax rates going up, but Tommy and I focusing our planning on retirees. You have the widow tax, what happens if one of you dies? You have an IRA, now you go from married filer to single filer and your income most likely goes down and your taxes go up.
Ed Slot (29:38):
That's correct. That's why at the end of the year like now I tell everybody, and Tom, you heard this on our last elite workshop. I said, go back through your clients and identify every married couple. There's no question, one of them or maybe several of them have lost a spouse this year where a spouse died. For that couple, you may want to do a Roth conversion this year because the widow or widower next year will be just as you said, will be filing single where the rates skyrocket. This may be the last year for that widow or widower to get a Roth conversion in at married filing joint rates on the final joint tax return.
Tom O'Connell (30:20):
What predictions do you have for 2022 and going forward?
Ed Slot (30:27):
You're in New Jersey, right Tom?
Tom O'Connell (30:29):
Yes.
Ed Slot (30:30):
So one of your famous New Jersey people is who? Yogi Berra. Whenever anybody asks me about what the future is, I go to Yogi Berra. He said, "I never make predictions, especially about the future." But I'm looking not only next year, I'm looking longer term because maybe next year taxes won't go up. You got to look long term if you're planning for retirement and beyond for your beneficiaries. I think long term taxes will go up. And again, if you do nothing, your IRA just continues to grow and the larger it is, the more likely it is... Now you may like that. Who doesn't like to see an account growing and growing? But the larger it is, the more likely it is that if tax rates do increase you're going to be right in the crosshairs.
Tom O'Connell (31:22):
I remember one function, and I'm going to paraphrase a little bit, but one of the functions a consumer said something to the effect that I heard what you said 10 years ago and I did a Roth conversion and tax rates haven't changed. And your response, do you remember what that was?
Ed Slot (31:39):
Oh, yeah, no, it was a guy in one of our two day trainings. This was recently and he got up in the back of the room and he said, "I told them all about Ross, that I believe rates are going to go up." And he stood up from the back of the auditorium, big room and yelled out, "Ed, I was at your two day training program for financial advisors 10 years ago in Las Vegas and you said that same thing back then that taxes would go up and it didn't happen. In fact, taxes went down so you were wrong. What do you have to say about that?"
Ed Slot (32:13):
I said, "Well, if you had listened to me these last 10 years, all of those gains..." I didn't know this, but it just happened to be that 10 year period. The last 10 years is the largest I believe bull market in history. All of those gains would have been growing tax free for you in your Roth. Now you still have all those gains, but half of that is going to be owed right back to Uncle Sam. So all you did was build a savings account for the government. You should get a thank you card from the government.
John Iammarino (32:44):
Which would probably be why you named your book The Retirement Savings Tax Time Bomb.
Ed Slot (32:50):
That's right. It's just going to blow up at the end. Look, everybody associates me with IRAs, but they're not good. The idea was good years ago. Little by little they chip away at it, they change the rules. You've got to start moving to tax free just to protect yourself from future higher rates.
John Iammarino (33:08):
In your workshops, and if you wouldn't mind sharing with our listeners, what is your secret to building wealth?
Ed Slot (33:16):
Secret, long-term planning, looking at the long game. Years ago I was at... I never even knew this. Oh, I forget what book she wrote. I was in Atlanta at a program and I happened to be walking around town. I don't know if you've guys have ever been to Atlanta, but it's probably the easiest place on earth to get lost. Every street is named Peachtree, okay? I don't know who designed it, but you ever noticed that?
Tom O'Connell (33:44):
Yeah.
Ed Slot (33:45):
Yeah. I was walking around and I came across and there I see the Margaret Mitchell house and she wrote the famous Gone With The Wind I believe in 1935. So I learned about her. I saw some of the stuff there and I didn't know it took her 10 years to write that book. But what was most interesting, she wrote the last chapter first. She began with the end in mind and that to me is the secret to building wealth. Where do you want to end up? Well, if you want to have more and more of a tax free, do something now. The secret is to get rid of the tax bill now.
Ed Slot (34:22):
So people ask me, Ed, what's the secret if you have a lot of money in IRAs, in 401ks, which is where most workers have their money, most investors have it now, how do I accumulate the most wealth? Pay taxes now. And I say that, they say, well, what kind of secret is that? If I pay taxes now I have less. Not when you'll need it in retirement which is when it counts at the end of the game. Begin with the end in mind. Plan for the end in mind. You don't want to get to retirement... Sure you have a big retirement account, but if rates go back up to 40, 50, 60%, who knows what, then all you did was, like I said, build a savings account for Uncle Sam. And I don't even know if you know this, he's not even your real uncle so there's no obligation there.
John Iammarino (35:06):
And Ed, would you mind sharing the analogy because you say it masterfully how you equate retirement and life to a football game?
Ed Slot (35:15):
Look, retirement has two halves. The first half, the second half. So it's a football game. In retirement, the first half is those 20, 30, 40 years of building, working, saving, and investing. Most people don't play in the second half of the game when the money has to come out. Most people, by the time they are ready to retire they look at their balance, look what we did, we have all the money we'll ever need for retirement. They pat themselves on the back, they walk in at halftime and they think they're done. IRS comes out, they're playing the third and fourth quarter, they're playing nobody so they win. There's an old saying in football, the score at halftime is irrelevant. Give me the score at the end of the game and then I'll tell you who won. Look at how many games, I noticed this more and more if you're a football fan, are one in the last two to three seconds? You ever noticed that? A last minute field goal, the time is out. Even basketball games, that last minute buzzer shot.
Ed Slot (36:11):
You got to look at the second half of the game. That's where you win the retirement game. So the other analogy, same thing with golf. You have the front nine and the back nine. You have to play the second half of the game. That's probably the single biggest mistake. We talked about a lot of mistakes, but the single biggest mistake is not to play in the second half of the game. Now most people don't know how to play in the second half of the game because most of their advisors don't know and it's pretty dangerous. This is why we train financial advisors like Tom. Very few have the knowledge that he's built up over 20 years to be able to help clients play that game all the way through the back nine or the second half of the game.
Tom O'Connell (36:51):
So I'm going to veer off just a wee bit because there was a new IRS ruling or there was some articles over the weekend, Ed, and I'm sure you saw at Wall Street Journal and some other publications and it's probably of interest to a lot of our listeners because they are getting a little bit of the gold and silver bug. You want to talk about that case?
Ed Slot (37:10):
Yeah, the gold fever. Now this is something again, Tom, you're going to remember. Matter of fact, if you look back in July almost 10 years ago, July 2012, we did a whole newsletter and we've constantly again been banging you over the head as advisors to help clients steer clear of bad information, especially online or on TV. So this involves holding gold in your IRAs and you've probably all seen the commercials. They have some celebrity on there, he's mister suave celebrity with his smoking jacket and his brandy and he's in his den with all his dark wood holding his gold coins and says you could have it, puts it in his safe, then he goes on his private plane. All the trimmings of wealth, that whole picture.
Ed Slot (37:56):
But he reminds me of actually that scene in the Titanic where the guys are drinking brandy and the ship is going down because that's what happens. But people see this. There's websites saying you can store IRA gold at home. Bottom line is you can't. We've been telling you that for years. Well, in this recent case, and again, a federal case, a tax court case, some poor woman, a nurse from Rhode Island lost her entire retirement savings. She had to pay over 300,000 in taxes because she did everything that they said on the website. She did everything that she saw on TV. She got this gold because she got scared. See, this is why you need an advisor to bring you into reality. You can't watch this stuff on TV and say, oh, I'm going to lose my money. You think having gold coins in your safe is going to save you when the whole world falls apart? No. Nobody. I mean, I don't know what this mania is to hold gold.
Ed Slot (38:53):
And you can invest in gold in your IRA, but you do it the right way. You have to go through a trustee, a custodian, and you cannot store the gold coins at home. This woman did that because she saw that online and then she checked the website and all of that and the IRS hit her for a full distribution plus penalties over $50,000. She got hit with an assessment of over $300,000, wiped out her retirement savings and here she thought she was making moves to protect it. She lost over 300,000 of it in taxes and penalties. 50,000 was penalties and she claimed in her defense that she was relying on professional advice which would normally get you out of the penalties. But the court said no, that's not professional advice. You're using questionable internet schemes. That's what they said.
Ed Slot (39:44):
That's not professional advice. Had you had professional advice, they would've told you if they knew what they were doing not to do this. But you didn't, we're going to hit you over 50,000 in penalties, total lost over $300,000, a lifetime's worth of savings gone because of bad information on TV, on the internet, maybe bad advisors. You got to get somebody that knows what they're doing in this area. This is not something where I would bet my entire retirement savings on something you saw online.
John Iammarino (40:16):
Yeah. And I think that's a big issue that we see as advisors is a lot of people think they can do all of this by themselves because they see the commercials or they listen to Fox Business or MSNBC and they think, we don't need to have a professional guide us. We can do this by ourselves. But I mean, how many times in the last couple years alone has tax law and estate laws changed?
Ed Slot (40:47):
All the time. But there are things people can do on their own, maybe investing, but when you're talking about IRA and 401K and 403B, retirement money, they're subject to a whole different set of very complex rules. And it's done that way because these are tax advantaged accounts. You're getting an advantage, the advantage of growing it tax deferred or even tax free with a Roth. But to get those advantages for life, you have to play by a whole different rule set, a whole different playbook. And this is not something most people can do on their own. One mistake, it could be a fatal error and everything's gone.
Tom O'Connell (41:26):
And a lot of people don't even know that there's two separate playbooks, one for IRAs and one for 401ks and other government sponsored plans.
Ed Slot (41:36):
Right. It's very complex. As you know Tom, we do sessions. Sometimes we focus just on four... Last workshop, we did a whole section on 457Bs, these governmental plans that's a different animal. One time we did the TSA plans, these federal employee plans and 403Bs and 401ks. Each is their own little animal and you really have to know what you're doing. And of course, IRAs, IRAs, simple IRAs, Roth IRAs, there's so many, it's like a jungle of IRAs with all these different animals and they each have their own makeup and rule book.
John Iammarino (42:11):
Yeah, absolutely. And then of course they all have their own RMDs also.
Ed Slot (42:15):
That's right. Required minimum distributions. Yeah. There's so much you need to know. The reason you may think that you don't need to know it because it may be the advisors you're working with, they don't know it themselves. They're the most dangerous. The biggest problem is when an advisor doesn't know that they don't know. Then they're in happy land, then they're dangerous. With advisors we train like Tom, I'm not saying they know everything, but they have us as a back office. The big difference is they know what they don't know and they know what to ask. Their antennas are up when... For example, we were just talking about it, I'm sure if somebody came in to Tom and said, oh, I saw this commercial on gold in IRAs, I'm a little worried about the market, what do you think? He would lay the law. There's no way you would fall into this trap.
Tom O'Connell (43:02):
Absolutely. And again, it's thanks to you that we have this kind of education and this kind of platform to work with and off of. I don't even know how many times that I've called you or emailed you or Sarah or Ian or any of the other people that are on staff that... Like you said, I email over with a question for a client and I mean, sometimes it's within five minutes I have that answer. So it's been an incredible experience and journey and I'm so grateful for it because I'm not sure where I would be professionally without the kind of education that you've given me.
Ed Slot (43:39):
Yeah, but you knew what to ask. That's the point. The average advisor may not know that.
John Iammarino (43:45):
Absolutely.
Tom O'Connell (43:45):
You do have your new book out, The New Retirement Savings Time Bomb which I would recommend to anyone and everyone who has any type of retirement account to pick that up and read it. Are there plans for a new PBS show?
Ed Slot (44:01):
Well, I can't tell you. If I tell you I have to kill you so I can't tell you now.
Tom O'Connell (44:06):
All right, we'll wait then.
Ed Slot (44:08):
I don't know why it's such a big secret, but I'm not allowed to say anything. You know why? We are planning to record one, but everything's up in the air with a lot of the restrictions at certain studios whether we can get in or not. That's what's up in the air.
Tom O'Connell (44:21):
Okay. The ones that you have out there are still excellent watching-
Ed Slot (44:26):
Oh yeah, they're still going. Yeah.
Tom O'Connell (44:27):
And learning. Again, not only the book, but I would recommend to everyone to catch your latest program on PBS. And when you watch it, you're just going to be I think flabbergasted at what you didn't know.
Ed Slot (44:40):
Yeah, I think you were there for a few of the filmings weren't you, Tom?
Tom O'Connell (44:44):
First four or five, yeah. Whenever you did it in New York or in the city or up in Albany I was at all of them. The only ones that I missed were the ones in Florida.
Ed Slot (44:52):
Right, right. Yeah, we did that one in the villages. We had some crowd there, boy.
Tom O'Connell (44:57):
So any last thoughts, ideas?
Ed Slot (45:01):
The idea is to examine what you have. Most people don't even know what they have. Take an inventory of how much might be at risk, you might be shocked. If you have a 401k, what about a 401k from a prior employer you may have forgotten about or a 403B or IRA? Somebody should know where everything is. And once you have that inventory, work with an advisor that has this specialized knowledge like we've been talking about so they can create a tax plan. The whole idea is for you to have more, keep more, and make it less. It always comes down to this with taxable accounts like this like your IRA and 401k. Everybody complains about taxes, but you can do something about that. The more you plan, the more you keep.
Ed Slot (45:45):
Benjamin Franklin, one of our founding fathers, you may know him from the $100 bill. But then you might say, well, I don't know him as well as I should. Well, that means you don't have enough $100 bills, so you better do some more tax planning. He said, "In this world, nothing is certain but death and taxes, except with taxes you can get an extension and you can do something about them."
John Iammarino (46:08):
Well said, well said. Well, Mr. Slot, we appreciate you coming on The Retire Happy Podcast. Again, we encourage all our listeners to go out and buy Ed's book and if you have PBS, check out the Retire Safe and Secure With Ed Slot. Tommy, any last words?
Tom O'Connell (46:27):
No. Ed, just thanks again. I truly appreciate our friendship and your mentorship. We all owe you a debt of gratitude.
Ed Slot (46:36):
All right, well, happy New Year, everybody. Enjoy it. Main thing, healthy, happy, safe and stress-free retirement.
John Iammarino (46:43):
Well said. And to all our listeners, this is our last podcast for 2021. So I want to wish everyone a Merry Christmas and a happy New Year. And Tommy, we will see you next year.
Tom O'Connell (46:56):
Take care, everybody.
Speaker 7 (46:58):
It's easy to get in touch with John and Thomas. If you're more on the West Coast, give John a call at (858) 935-6210. That's (858) 935-6210, or go online to gosecurus.com, that's gosecurus.com. If you're more of an East Coaster then call Thomas, (973) 394-0623, that's (973) 394-0623 and online at internationalfinancial.com, that's internationalfinancial.com. And you can of course always just check the description or the show notes section of today's show for all that contact information. Don't forget to subscribe on your favorite podcasting apps and we'll see you next time on The Retire Happy Podcast.
Speaker 7 (47:48):
Investment advisory services offered through Brookstone Capital Management LLC BCM, a registered investment advisor. BCM, Securus Financial and International Financial Advisory Group are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. The opinions expressed by John Iammarino, Thomas O'Connell and guests on this show are their own and are based upon information considered reliable, although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated are not guaranteed. Past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it is suitable for your specific situation. This program is designed to provide accurate and authoritative information with regard to the subjects covered.
Important Info
Securus Financial: https://www.gosecurus.com/
International Financial Advisory Group: https://www.internationalfinancial.com/
Call John: (858) 935-6210
Call Thomas: (973) 394-0623