Trump's Tax Policies Impact on Your Retirement Planning. A CFP Explains
Craig Wear, CFP® presents a webinar excerpt explaining how President Trump's stated tax-policy proposals (making the 2017 Tax Cuts and Jobs Act permanent, holding capital gains rates steady, and preserving current estate tax exemptions) affect Roth conversion decisions—especially for "IRA millionaires" (household retirement accounts around $1M+). He emphasizes that the decisive factor for many high-balance IRA owners is the cumulative taxable lifetime impact of Required Minimum Distributions (RMDs) and the resulting increases in Medicare Part B/D premiums and Social Security taxation, arguing that accelerated Roth conversions remain time-sensitive and often beneficial despite lower future tax rates.
Chapters
Hey, you know, not long after the election, we started getting a lot of questions of people asking us in our all of our CFPs, what, what does this change? How do I react to it? What happens next? And so what's coming next for you to watch is an excerpt from a webinar that I did that tried to explain, best I could, kind of what we see as the changes and how your strategies need to be changed and more importantly, why there's even more urgency now in getting your conversions taken care of than ever before. So I hope the following information is beneficial to you that you get something out of it. I'll be back with just a real quick wrap up when this video is over. So enjoy. Hope you get something from it. So, yeah, today is all about Roth conversions and Trump's tax policies. What I think you need to know for this year to begin to the end of the year and then beyond. And I hope to leave you with some pretty good takeaways of what are the steps that really you can take to be able to have the biggest impact in your life. I've got an agenda first to tell you about. So here's where we're going to go today. First, I want to review what the tax policies are that are promised and how they're going to impact conversion opportunities. We're not going to do an exhaustive, here's what Trump says he's going to do. We're just going to stick to what, what will impact your conversion opportunity. We've had a very emotionally charged election season. About half of the nation is really excited about the result and about half the nation is shaking their head in disgust. And so I get that that's the beauty of our republic and the beauty of our democratic process is that whether you agree or disagree, we're hopefully going to have a very smooth transition to power. And so everybody goes to work to get their guy next time, if you will. So, but what I want to know is what's the impact going to be on the, the outcome of the election? I want to know what's the impact going to be on our investments and our, and on our conversions. And the investment area is not one that I've waded into a whole lot. And I'm not going to get real deep in it. We've discovered that the majority of our clients and people that come to our webinars are, we got a lot of folks that, that are DIYers, they're do it yourselfers. So they maybe tried the financial advisor world and just didn't have great luck or just wire where they don't want to. So I'm going to speak to the investment side of it. But if you have a financial advisor, I'm going to give you some information that would be good for you to go just talk to them about in terms of your investment game plan and I'll explain a little bit more about that to you along the way. But I want to see what's the impact going to be and then I want to know, hey, is it still worth it to convert? And we're gonna, we're gonna answer that by some, some pointed questions. But also I've got a real live client case that I'm going to show you. Yes or no, it's worth it or it's not worth it. And then we'll end with kind of a before year end checklist. That's what I'm trying to search for. And we'll see if we can give you some of that. This is a really large group today. It looks to me like there's close to 400 people that are online right now listening in. And that kind of ebbs and flows throughout the time. So there's a lot there. This is information that's really tailored toward what I call the IRA millionaire. So if you are not an IRA millionaire, meaning your household IRA 401k accounts does not approximate a million or more, I think there's still some good information in here for you, but I want you to take it with a grain of salt to some degree because the problems that we're solving with accelerated and aggressive Roth conversions are very unique to folks that have around a million plus in their IRAs. And I know if you have, you've got half that amount, then listen to what I'm, what I have to offer. But I would suggest you go back out to our website, Q3ADV.com and watch a couple podcasts where I talk about the four, the four instances where you probably don't need to do a lot of conversion. And there are other comments that if you're, if you're significantly lower than the million dollar balance. So what I'm going to, what I'm going to talk about is really unique to the IRA millionaire. So let me just get that off the table. You're welcome here and I hope it's great information. I just want you to be careful with what you do with that. As I've already said, we do have live chat going on. We've got, we've got Daniel and Anthony both Monitoring the chat. All your questions are private to them. They'll do the best they can to get to them. Realize, I mean, I'm already seeing over a hundred questions in the chat, so just put it in there. Hopefully they'll get to it before I get finished with what I'm doing today. But they're typically on these, they're kind of nose down, tail up, trying to just answer the questions the best. They can realize that with so many questions there's probably only so much, so much specificity they can give you. But we'll try, right? And we'd like to be able to do that at the end. I'm going to give you an opportunity for those of you that want to. You can have a complimentary consult with one of the guys on our team. I think our numbers are, I think we've got 11 or 12 CFPs that specialize in Roth conversion now that are, that work with us around the country. They are dedicated to Q3 advisors and we're going to give an opportunity. If you meet the right criteria and your mindset is that you want some help, then we want to be able to give you some help. Disclaimers we do not sell any financial products. We do not earn any kickbacks. When we refer you to like we've got a Medicare supplement, a couple of different people, and we send those out, we don't get any of their commissions back to us. We also don't manage client portfolios. So. So the investment themes I'm going to talk to you about are not offered in the context of talking you into moving your money with us because we don't offer that service. And yet we do provide our financial planning clients with analysis that help them to understand where they are, whether their portfolio is structured, where the risk that they're taking is getting the reward that they should be getting. So we do have a. I mean, I managed money for hundreds of clients for three decades, so it's not as though we don't know what we're talking about. It's just that we don't, we don't do that as, as a revenue stream any longer. Just so you know, kind of where I'm coming from when I make the investment talks. So since 2019 and I wrote the first book, the game plans we've put together, we measure what the taxes are going to be if they don't do, if you don't do conversions, and what the tax taxes will be projected over time if people do and follow our advice and go with whatever the Roth conversion strategy. We lay out the difference between those two in just these short 4 1/2, 5 years is already over 2 1/2 billion dollars of projected tax avoidance for our clients. And I get, I get excited about that. About every two months, I want to update the number, update the number, see how far we've come, because it means that the people that have allowed us serve them are going to see a real difference in their life, and they're going to really avoid some really nasty things that are coming down the pike. But, you know, based on what's happened recently, the question that we hear a lot in the conversations we've had in the last week is, gosh, is it too late for me? And so I want to address that today. I want to be able to give you some clarity of why it is or isn't too late. And I want to come to the bottom line so that you can act confidently on the plan you already have, or you can make some alterations to the plan that you have that you're not sure about, or you can just finally get with it and get moving toward it if we determine that you're really in the category where Roth conversions are really in a good shape for you. So a lot, a lot is, a lot is changing. I'm seeing Cabinet picks coming in. We had campaign promises. There's all kinds of things that are supposedly going to happen as soon as the inauguration takes place that are massive changes. But one thing that's not changing is our tax rates are not going to change. So the cost of converting over time just went down for everybody, but especially for you if you're that IRA millionaire. And I'm going to try to demonstrate some of these things to you guys. So in 2017 and during Trump's first administration, he enacted with Congress the Tax Cut Job Act. And what that did is it took tax rates. You can see here my pointer from your income. If you're in the 25% tax bracket, it took you down to the 22% bracket. If you're in the 15, it took you down to 12. If you're in the 28% bracket, it took you down to 24. And you can read the rest of the way. You'll notice that for higher incomes, the tax rates changed less. And that's significant for us to think about aggressive Roth conversions, because what's happened now is this automatic sunsetting of these tax decreases was supposed to happen December 31st of 2025. Well, now let's see where Trump is on that and what he's saying is going to happen. So the first thing is, one of the key components he said is he's going to make the tax cut job act permanent, including the tax rates. So that means that what was going to go up back up to 25% is going to stay at 22%, stays at 24. The higher tax brackets change pretty insignificantly. There's a little bit of a change when you get over 600,000 of total income, but it's still just 2.6%. It's less than a, I think just mental math. It's around a 7.5% increase off of the 37% rate. So he said we're going to make the tax cut job act permanent. He also has said we're going to exempt Social Security retirement benefits from taxation. Well, I don't know how that's going to play out, but if he does, that would be even more reason to allow you to adopt your game plan and to increase the amount that you're converting and to get it done sooner rather than later if conversions are still a good deal. So we just have to see what Congress does. I mean, he's got the House, he's got the Senate. There should be a pretty much a green light to just go do a lot of these things. But we have let's just see what they come up with. But waiting to see about what they come up with means let's see how good it's going to get or what impediments there are to doing the things that you want to do. The other thing that's relevant to some people is that he said, I don't want to make any changes in the capital gain tax. Well, you know, Harris was running on a platform that said she wants capital gains to go up significantly to 28%. But Trump has said, no, let's leave them where they are. And of course, his whole deal is he believes that by putting more money into your pocket, it stimulates the economy and things grow. And this is not a political conversation. This is just the facts of what he says and why the tax rates are going to stay low. But the capital gains thing becomes relevant for those of you who have significant assets outside of your IRA that you're going to be using to pay the taxes as you do the conversions. Now, it's pretty much locked in that those capital gains rates are not going to change, that you're going to still be able to do that. And a lot of people ask us, well, gosh, if I've got to Pay capital gains to get something converted, Is it worth it? And my, I mean, the math says absolutely, if you're a good candidate for conversions, you're much better to take it out of those assets where you only pay a 20 at the most, a 20% capital gains tax, than to pay ordinary tax and taking it out of the ira. So that's maybe deeper in the weeds than you want me to go on this, but I think that's a good thing and that's how it impacts where we are with Roth conversions. Estate taxes are also significant in that they're going to stay where they are, where they're going to stay at the current exemptions of 13.6 million per person or 27.2 million per couple. So you still have the ability to leave a significant estate to the next generation or to whoever your heirs are without risk of a large estate tax. So the questions that we're getting about converting post election are right here. Is it still a benefit to convert? Should I wait until next year? So if tax rates are going, are not going up, why should I even do Roth conversions? And those are logical and reasonable questions, but they're based on false premises and their logic is simply not supported by the math for IRA millionaires. Less than that, there are a different set of rules and there's a different way to approach Roth conversions. But these are triggered, those mindsets are triggered by what you've heard and read and seen for a long time by probably advisors that you trust, media outlets that you trust on other things. But unfortunately the math just doesn't support that. So we hear a lot. Look, you should, we hear that you should only convert if you believe your future tax rate is going to be higher than it is today, or that one, one should always defer tax to the latest possible time. I see that comment probably as these two comments I see on our social media advertising posted more than anything. And of course the response has to be so long that I just, I can't respond to those kinds of things. But there I understand why people think that, but the math simply doesn't support it. Or people also say, hey, you should never convert if you have to pay taxes for the conversion outside of the ira. The fear is I'm just giving my, all my money over to the government. And what they, in that case, they fail to realize that conversions generally don't happen all at one time. They happen over a period of years. And so the gains that you can get offset a lot of the taxes that have to be paid. But the thought process that you shouldn't is always triggered by these false premises that most of the industry has and they make logical sense. But I'd like to really make a point to you today, and I've struggled with how to, how do I make this succinct to where it really goes in the real issue at stake in Roth conversions is not really the tax rate today or tomorrow. Although I see posts on LinkedIn of CPAs who think that's really the only thing that matters. The real issue demonstrated through 14 years of specializing in this the real issue is the cumulative amount of your required minimum distributions over your lifetime and how they impact you that total taxable income over your lifetime from those required minimum distributions. If you're age 65 and you have an IRA, that's a million dollars. If you're at about a 6% rate of return on average, your RMDs are going to be 2 to 3 million dollars over your lifetime. And that's taxable income that's coming in that we find that the people that are in the best sweet spot to do conversions aren't going to need hardly any of those RMDs once they get to 73 years old. And yet it's taxable income that's just going to flood their tax return for the rest of their life and for their spouse if they're married. That taxable income is likely going to cause your Medicare Part B and and D premiums to just explode. And because they're going to explode, a lot of people get gun shy and they, they pull back from doing conversions at the, at their optimal tax bracket because they see what's about to happen to their Medicare Part B and B premiums. And it is significant, but it's only significant for a short period of time, then it goes right back down to the minimums. I think you're going to, I think we're going to hear, you know, the government has already come out and said what the inflation rate is going to be for Social Security benefits, but they haven't come out and told us what the new cost is going to be for Medicare Part B and D, which are income based premiums that have the different thresholds. I believe what's going to happen is we're going to, we're going to see a very big increase in Medicare Part B and D premiums that are going to scare some people and may scare people out of doing Roth conversions. But I'll tell you that while Roth conversions will ultimately save 80 to 100,000 in Medicare premiums. If you do them right, that means that it's just going to by doing Roth conversions, you're going to save even more Medicare premiums. And it's sort of like the notion of ripping off the band aid when it comes to the Medicare premium so that you get back to more realistic base premium amount. But I think we're going to see those are going to go up quite a bit. And for some people, that taxable income from the RMDs causes their Social Security to be taxed at a much higher rate. So we'll see what happens, how that plays out with the next administration. But the real problem is that cumulative amount of requirement and distributions is just going to flood your future. And it's not really more complicated than that. Hey, thanks for watching that excerpt of the video. I hope you got a lot of information from it. You know, I hope one of the biggest takeaways that you have from that little excerpt is that it's more critical in timing than ever to get an accelerated Roth conversion strategy in place for you right now. If you want more information and you want to kind of dig deeper into some of those areas, the full content of the webinar is available through clicking the link on this page. I hope that you'll take a few minutes, click through, watch the full webinar, and then decide for yourself what your next best step is. So hope it's of some benefit to you. Have a great day. God bless.
