You guys are in for a fun episode . Do you remember story time when you were a kid ? That's what today's gonna be all about . Now I am going to be going over what the heck is tax planning versus having a tax preparer and I'm gonna explain to you a story that hopefully , is going to resonate with you , and I'm gonna tell it to you right now .
So I had a client come to me this was months ago and he said Ari , my CPA sucks . I said look , that's kind of a weird word and it sounds kind of mean Like why do they suck ? They said well , they didn't tell me tax brackets are going to change soon and that should impact my retirement . I said that's fair . What else ?
They said well , they didn't tell me that when I withdraw income in retirement , if they're from inherited funds , there's a schedule that I can withdraw from to optimize the tax that I pay . I said another good point , what else they went on and on about ? They didn't tell them about Roth contributions versus Roth conversions , versus this , versus that .
I said oh , I see what's going on . I think you're beating up a waiter . And they said I have no idea what you just said . I said I think you're being up a waiter . And they said I have no idea what you just said .
I said I think you're being really mean to a waiter who is your tax preparer , who's trying to bring food to your table and 500 other tables . And I paused and they said , huh .
I said you're mad because your CPA is not doing everything that you see on my screen here , and just for those of you listening on the podcast app , I'm going to explain this as well . But , once again , I do all these episodes both on the podcast app and on YouTube . So if you want to watch this on YouTube , you can see it here .
The difference here with tax planning is we are the ones doing the Roth conversion analysis , the tax loss , harvesting the tax gain , harvesting the charitable , the healthcare , the real estate , equity compensation , and so they said okay , so like , have I been like incorrect as to what my CPA is supposed to do ?
And I said kind of , because your CPA it's not a competency thing . They don't have the capacity to be able to file your return and be proactive with your planning because they have so many clients .
They're just trying to file your return and if they do a good job , they're hoping that you pay them again next year , and so the difference between what a CPA does and what we do is very different . We do what's called tax planning and our goal is to ensure that your tax strategy is minimizing your lifetime tax bill , not just a single year .
So all of these strategies , this checklist of what do I do with the business , what about Social Security ? What about charitable giving or saving strategies this is generally what a tax planner does .
So I imagine most of you out there , if you have a financial advisor , if you were to go ask them this and I encourage you to do so and say , hey , I have a tax question , can you help me ? They would probably say you should go talk to your CPA .
And then , if you go to your CPA and you ask them any question about investing , they're going to say , yeah , you should go talk to your financial advisor and you are going to be playing middleman with a new job as a coordinator .
So the second story before I go through some real examples for you guys because you know I always want to hit both of those during these episodes is someone came to me and they said I'm retired , and I said I don't believe you . And they said , well , you're nuts , Like you don't sleep next to me , so how the heck would you know ?
I go , yeah , I just don't think so . And they're like well , you're crazy . I said I am a little nuts , but that's beside the point . I said I bet you're going to coordinate your retirement between a financial advisor , a CPA , health insurance agent and a state , and on and on and on . And they said , yeah , isn't that like how this works ?
Isn't that how I do this ? I go no , that's what an advisor should do . They should be your quarterback to do all the holistic planning . So we are the ones that identify hey , should we be doing conversions ? Should we be doing this tax strategy ? We don't file your return .
We work with a CPA of your choice , or you , if you're your own CPA , which , yes , sometimes I recommend people firing their CPA because it's a simple situation and they can do it themselves . Other times they'll go look , it's like , just , I don't have to do it , it's nice , you guys are going to coordinate it for me . My life's even better .
We have people that do both of those . The idea here is , with tax strategy , there's a reason that I talk about this like crazy , so you can see it on my screen , but I'm going to be able to explain it for you guys equally as helpful today . So the whole concept behind the strategies I talk about when someone retires early is this idea of cauliflower .
Now , many of you have heard this before Cauliflower like literally the vegetable . Now I kind of regret it because cauliflower is pretty good and some people are like you should have chose a different vegetable . But you know , whatever , what vegetable is worse than that ? Put it in the comments or send me an email and let me know . So here's the idea .
The idea is a lot of you make a really healthy income and then when you retire , you go . This is amazing . I paid so many taxes while I was working . Now I'm retiring early and I have this opportunity to , like , pay no taxes . How great is that ? I mean , I just paid so much for so many years and some of you will do that .
And then later you're hit which what is called required minimum distributions , where eventually your 401k or IRA forces you to take out more money than you'll probably need . At the same time , you have Social Security . At the same time , you're probably spending less because you're in your mid-70s , so your health and energy isn't the same .
So you kind of have this big tax bomb coming . So some of my clients go . I get your story . What the heck is the point ? Right , and I'll say the point is , when you retire and have the opportunity to pay no taxes , I want you to pay taxes . And they're like okay . So all you confirmed was you're the worst financial advisor ever .
I go , I hope not , because I hope what you just see here is if you're willing to eat a little cauliflower or pay a little bit of taxes during your tax window , the time from when you retire until Social Security gets turned back on or other income sources like a pension , come back on .
Generally , if you retire at 60 and you're going to turn on Social Security at 67 , that gives us seven years to do really good tax strategy . It can make a big difference .
So if you look on my screen here and I'll explain it equally for those podcast listeners this is showing 400,000 more tax dollars , and the reason it's showing that is because here's someone that's currently 54 , and then they retire and at 56 , there's no more income . So the green is them doing Roth conversions and they're retiring really early .
So their required distributions are not going to start until 75 . They've got a long time to do these conversions . Others of you not real English right there , I don't think others of you is a real thing , but many of you should , I say will go oh , that's so cool . Why don't I do more of this fancy tax strategy ?
And if you look at my screen again , you're going to see it's going to show and I'm going to explain it's going to show and I'm going to explain it once again .
I'm a podcast listener myself and when I listen to podcasts who say what I just said , I'm like hey , can you make sure to explain it good for the listeners over here that are not watching on YouTube with all those ads . So there's $1.8 million fewer dollars from the strategy on the screen here because some people come and they go .
I'm so excited to do this tax strategy stuff you talk about . Ari , I did it all right when I retired and I'm like don't do it all because you paid so much more in taxes than you needed to . But the reason tax strategy is such a big thing is it can be the difference of literally 1 million plus tax free dollars versus someone who's going .
Actually , I'm going to try to be more intentional with my strategy . And so , because of that , maybe , if I'm , you know , doing the right conversions over time , maybe there's , you know , 200,000 more tax free dollars versus some people all say I wish you did nothing at all and they go what do you mean ? That's not tax strategy . And I go .
I'm going to tell you the best tax strategy ever Ready . And they go okay , I go . The best tax strategy ever for your plan is to stop working , and I want you to stop tomorrow because if you keep working , you're just going to be adding more income to your tax deferred accounts , your 401k , which is already very healthy .
So by you continuing to work , you're not giving me , your advisor , the opportunity to do this tax strategy . So I have a client that has $6 million in their 401k and they're in their 60s and they don't like what they do .
And I'm like look , you don't need to keep working and in fact , if you were to stop working and your income became zero next year , we could do Roth conversions , which could make you way more money than when you were working . And then they're like wait a second .
So , like I make a hundred thousand a year right now , you're saying maybe I should stop working , do this conversion thing , because it might make me even more than that . I go , that's exactly right . But then I'll go even deeper and go . The next step is to go . Wait a second , maybe we also spend more money .
And the mistake that I'll see people make in an unethical practice that I'll see advisors do is they'll say hey John , hey Jane , why don't you guys ? Just , I think you could get by on 4,000 a month in retirement . So that big travel ? Yeah , don't do that . Oh , help kids ? No , don't do any of that .
Trust me , you should just live off 4,000 a month , you'll be fine . Well , what that advisor might be doing now , this is malicious thinking , but I've just seen it . So I'm being honest with you guys . That advisor is basically saying why don't you enjoy your retirement less ?
I don't know if you just heard the honking outside my door , but they're equally upset right now , so just messing around .
But by you spending less money , your 401k will grow more , because I'm not pulling as much from it , so it's going to keep growing , which means your tax burden will be even bigger , which means the Roth conversion value it will look more important , meaning if you have $5 million or $500,000 and you want to do Roth conversions on your screen , if you run a
projection like what I'm showing you which , yes , you can do that inside of this Academy tool Well , it's going to show that you're going to have way more money .
If you have $5 million and do Roth conversions because it's basically saying $5 million and I'm just taking my basic calculator here If you take 3.8% of that , what's happening is that's $190,000 that you have to start taking immediately the first year and you probably have social security and other income sources .
So you might have like $250,000 that you have to take out when you're 75 , and then 280 , and then 300 , and then 330 , and then 370 . And so now you're going to be 80 years old , having to take up $400,000 . And so it'll look like Roth conversions are super valuable . But you know what the better hack is before doing these fancy tax things ?
Maybe we retire way earlier , maybe we spend more money , because that's the easiest hack to all of this and that's why this analysis needs to go deep . So , yes , tax strategy is huge .
Yes , you should stop beating up your CPA if you're worried they're not doing the best tax strategy for you in the world Some of you , by the way , are CPAs listening to the show and you're like Ari , you're speaking my language . Why don't people recognize that , like I don't have the capacity to do this , I'm filing returns all the time .
Others of you are like , look , I would love to do this . I just want to make sure . Meaning CPAs , I'd love to do this . I don't have the capacity because , once again , I'm so busy . So , hopefully that you can see this tax planning , this tax strategy . This is one of the big reasons people reach out to Root , because this is what we specialize in .
It's coordinating the taxes with the overall holistic strategy . And you can see on my screen .
If you want to go , run your own projections , which I encourage you to do , and I'm explaining it for you podcast listeners if you click here and here doesn't help you podcast listeners , but if you're on my screen , you can basically choose to look at a tax return of yours in the future .
So you could look at a 2030 return or a 2035 return , or you could basically create scenarios to understand your income better . So in the future you can see , maybe I should eat some cauliflower , maybe that doesn't make sense for me . So hopefully , this was helpful , just thinking deeper on this tax strategy , this tax planning versus tax preparation .
What's the difference ? What do I need ? Some of you guys are reaching out to me going . I really want to work with your team and get this tax strategy and I'll say you don't need to pay us . Yet . You're 45 years old with a million dollars in your 401k . You should start saving to your superhero account .
You should start investing , being more intentional , but you don't need to start this tax strategy to this degree . This cool concept I'm talking about Roth conversions , or paying 0% in taxes , which I didn't go over today called tax gain harvesting , where you intentionally sell something to not pay any taxes , which is what a lot of the very wealthy people do .
That is something that you should do when your income is dropping , when you determine I'm in a good spot to retire early . I now want to even put some more gas on that fire to make me more tax-free income which , by the way , that is my background .
I worked at a company called Nuveen specializing in creating tax-free income , and I said why isn't anyone talking about this stuff when someone retires early and you can massage their income ? And they told me don't worry , ari , that's old , boring people and I said don't worry , I quit . So , with that being said , I'm a very transparent guy .
Many of you know this . I joke that I'm the meanest financial advisor . I try not to be mean In fact I don't think I'm mean , but I'm very transparent and I just that's how I live my life . So hopefully this was a helpful episode . If it was , let me know , send me an email , drop it in the comments , literally any way you guys want to . Let me know .
I love getting to make videos for you and keeping them different and keeping them special and trying to keep it fun and entertaining at the same time . So doing my best for you guys . Love you . I'll see you next week . Thank you for listening to another episode of the early retirement show .
If you have a question that you want answered in a future episode , you can always go to my website , earlyretirementpodcastcom . That's earlyretirementpodcastcom , and you can go ahead and submit a question that I'll look to answer in a future episode . Thank you all for listening .
Please do rate it , review it and share it with someone who you think would benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice .
Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action .
I certainly appreciate it and I will see you all each week . Thank you for listening to another episode of the Early Retirement Show . If you have a question that you want answered in a future episode , please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice .
Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again , please . Someone who you think will benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week .
Thank you for listening to another episode of the Early Retirement Show . If you have a question that you want answered in a future episode , you can always go to my website , earlyretirementpodcastcom . That's earlyretirementpodcastcom , and you can go ahead and submit a question that I'll look to answer in a future episode . Thank you all for listening .
Please do rate it , review it and share it with someone who you think would benefit from this information . If there's anyone out there that you know , please be smart about this and I will see you all each week . Thank you for listening to another episode of the Early Retirement Show .
If you have a question that you this podcast should be construed as financial , tax or legal advice , consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice .
Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again . Please do rate it , review it and share it with someone who you think would benefit from this information . Hey guys , it's me again . Please be smart about this .
Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action . This podcast is for information only . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice .
Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action .
This podcast is for informational purposes only . Hey guys , tax or legal advice each week . Thank you for listening to another episode of the Early Retirement Show . If you have a question that you want answered in a future episode , you can always go to my website , earlyretirementpodcastcom . That's earlyretirementpodcastcom .
Consult with your tax preparer or financial advisor before taking any action . Thank you all for listening . Please do rate it , review it and share it with someone who you think will benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week before taking any action .
This podcast is for informational purposes only . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again . Please be smart about this .
Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . I certainly appreciate it and I will see you all each week . Thank you for listening to another episode of the Early Retirement Show .
If you have a question that you want answered in a future episode , you can always go to my website , earlyretirementpodcastcom . That's earlyretirementpodcastcom , and you can go ahead and submit a question that I'll look to answer in a future episode . Thank you all for listening .
Please do rate it , review it and share it with someone who you think would benefit from this information . If there's anyone out there that you know , I certainly appreciate it and I will see you all each week . Thank you for listening to another episode of the Early Retirement Show .
If you have a question that you want answered in a future episode , you can always go to my website , earlyretirementpodcastcom . That's earlyretirement should be construed as financial , tax or legal advice . Consult with your tax preparer or finance advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again .
Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial or legal advice .
Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action .
I certainly appreciate it and I will see you all each week . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only . That you want answered in a future episode .
You can always go to my website , earlyretirementpodcastcom . That's earlyretirementpodcastcom , and you can go ahead and submit a question that I'll look to answer in a future episode . Thank you all for listening . Please do rate it , review it and share it with someone who you think will benefit from this information . If there's anyone out there . That you know .
I certainly appreciate it and I will see you all each . Hey guys , it's me again . Please be smart about this . Nothing in this podcast should be construed as financial , tax or legal advice . Consult with your tax preparer or financial advisor before taking any action . This podcast is for informational purposes only .