Why Most Financial Software Gets It Wrong

Hey there, you guys, this is Craig Weir. Welcome back. Today's topic is going to be, I think it's going to be a going to be great. I think it's going to give you a lot, a ton of information, especially those of you out there that maybe have an advisor that's maybe trying to tell you to not do Roth conversions or if you do it yourselfer and you got, you know, layers and layers of spreadsheets, you think you got it all worked out, then maybe this will be helpful to you too. But I guess we've titled today's episode the Roth Illusion why Most Software Gets It Wrong and what is there out there that actually works? You know, if you think you got a Roth conversion plan that's solid because you've kind of plugged the numbers into one of the big software like E Money or Rightcap or something like that, well, I'll just say, you know, think again. Today we're joined with one of the, one of the, we call him on the team, we call him the Professor. I don't know whether you know that, but behind your back you're the Professor.

I've heard it a couple times.

Daniel Jandro is one of our CFPs. He's been around for quite a while helping out a lot of folks on the Q3 team. So Daniel, thanks for joining me today and for all the research that you did getting ready for today. I think it's gonna be great. So here's the deal. If you are kind of the average guy and you got, you've saved your whole life, you got an IRA and let's say, say it's a nice six figure IRA, 401k, you're going to have RMDs that hit at some point down the road and you're going to have taxes that are owed because of those. But we've found that most people, with most people that are not above a million dollars in IRAs don't have really a huge problem that necessitates an urgency toward getting the Roth conversions done. Daniel, you've done a lot of cases. Would you agree that that's pretty much the case for us mere mortals that don't have millions and millions in IRAs?

Yeah, absolutely. I think over 15 years you've discovered that that's kind of a magic number. Now there's some wiggle room each side depending on circumstances, but the 1 million is a benchmark that I've seen over hundreds of calls. That really fits.

Yeah. And it, you know, I came through it through like you said years and years of just kind of. Nope, that doesn't work. Oh, oh, that works. And then just kind of figuring that part out. But you know, if you are that IRA millionaire, you are in the top 10% of savers in America. And the same, the same strategies that work for your brother in law that's got six or seven hundred thousand dollars out there are not going to work for you in avoiding taxes over the rest of your lifetime. You, you have to do things a lot differently and it requires a different starting point, it requires a different methodology, and the outcomes can be just really huge. So you know, Daniel, if people get, if they get Roth conversion, right, let's say that there's the IRA millionaire and they're listening in today and they're wondering what's the big deal about all this? You know, I make a lot of money. I don't know whether I should convert. I probably need to just wait till afterwards. But you and I know because we've done hundreds and hundreds of cases, we know what's at stake. So I don't know whether you have, do you have the ability to do a screen share to show people any of our, the calculator we have or.

Yeah, let me pull that up.

So folks, while he's pulling that up, what we've done is we've developed our version of an rmd, a required minimum distribution calculator. And it's not meant to be an exact science for you, it's meant to show you what's possible in your own Life based on 1200 at this point, successful Roth conversion stories that we've had with clients of ours. So it's really just a, it's really just one of those tools that we developed to get you to go, oh my goodness, aha, I see the problem now. So we'll put a link in the show notes to this calculator so that you guys can go try this out yourself. But maybe walk them through what's in here just real quickly and then we can move on to some of the other stuff for them.

Yeah, I think what we found across the Internet is there wasn't a good RMD calculator that really was accurate first of all, but good, gave you some of the nuance on the impact. So what Craig and the team designed was this. And it's a great starting route to understand where you're heading and some possible ramifications you gotta be aware of. So pretty simple. Anyone can fill this out. It's your date of birth, expected rate of return you put your, is your spouse a spouse, a primary beneficiary. And you put their age in there too. Total account balance and pre tax retirement accounts, 401k IRA. And then what you anticipate your annual taxable income is going to be throughout your lives. And that one's an important one because it'll help with the tax calculations. And then of course, you want to put your filing status, then you click calculate and you'll see all the calculations processing. And what it'll do is right away it's going to give you your projected first year RMD based on that account balance, based on that growth rate, and then what your estimated tax is and Projected balance at RMDH.

So what IRA balance did you put in on this case, Daniel?

$2 million a start.

Okay. And that's fairly typical of a lot of people that we, that we talk to. So what this report is saying is that this person's, this hypothetical person's first year RMD is going to be 100, almost $60,000. And a lot of people don't realize, you know, kind of where it goes from there. The. That means that your first year estimated tax just on, just on that and whatever other estimated incomes would be like 65 grand. So where do you go from here in terms of what you like to show people on the calculator?

Yeah, I think what I'm doing 100% of the time is diving into the comprehensive RMD report. You know, that's where the meat and potatoes are going to be. So when we're looking at that, all you do is enter your name, your email, and generate my report. And what it'll do is generate a report for you so that you can see the ramifications throughout your life, what could happen to your beneficiaries and what kind of savings our analysis shows that you might be able to achieve. And you can scroll down here and start to see some of the data and it'll give you a chart of how your account balance is going to grow. And then, oop, there's RMDs and estimated taxes and that continues. But what I really like is the PDF report. And this is something that I will send to most the clients I talk to. And what we're trying to do here is show you the ramifications of your current IRA and what happens if you stick to the IRS's plan rather than coming up with a dynamic proactive plan on your own or with an advisor. And they'll give you the RMD analysis that we already showed You. But then it starts to get into some really good stuff in terms of every single year, it's going to project your balance and your rmd and you can start to see the ramifications. So this client, they go from about 27,000 and then RMD is get tacked on and it's 64,000. And they continue to grow. As you get older, the IRS makes you take out more. And as your value goes up in your account, you'll have to take out more with that as well. At the bottom, you'll get your totals. And I tell you, the estimated tax is conservative. We want to under promise there. But it is something that can start to open some eyes on what the tax consequences will be, especially when you're dealing with $4 million of RMD. And it started with a $2 million IRA, but then the government forced them to take out $4 million. The next page is pretty impactful that I haven't seen with other RMD calculators. It's going to look at, okay, the tax game isn't over. You'll need to be aware that your beneficiaries will also have to pay taxes when the government forces them to take it out over 10 years. So we do a calculation on what you'd be passing on and what their total tax burden will be and what's going to go to the heirs versus the irs. And we'll give you a schedule on what that can look like. And that will really open some eyes of, well, we owe a loan to the government. If we don't pay it off, our kids are going to have to pay it off in 10 years. And then we'll get into some specific metrics that, that Craig, the coding team looked at across our whole client base. And what we're looking at here is if you are a Portfolio size of $3,000,000 to $4,000,000 at RMBH on average, what do our clients save in projected taxes? In this case, it's 1,640,000.

And what we're trying to do with this report is just show you people like you in your similar circumstances what we've identified as what the savings is if they get the Roth conversion piece done correctly. Right. And so before we move on, was there anything else on this report that you wanted to show?

No. It's available to anyone. You can have it emailed to you. You can have a Rothologist run it for you and email it to you. It's just really good information to start the conversation and make you aware of potential drawbacks and benefits to looking into this strategy.

Yeah. And I, I think, I think part of what we're trying to resolve is kind of what Daniel said. There are a lot of R and D calculators out there, but I didn't find anything out there that actually gave anybody any idea of what really how, how big a deal is this really going to be? And so we wanted to put together a tool that just opened your eyes and get, and get you thinking about it that but to get you thinking about it is one thing. To get you actually to take action and to get and to take the appropriate action is the, is really the bigger problem. And there are a few things that really keep people from getting it right. And I've taken some heat on social media because I like to say, look, if you're, if you're not doing accelerated conversions and you're an IRA millionaire, I've been as bold to say than whoever's told you to do it that way is just not right. And people like to, they don't like to hear that they're not right. And I'm okay with that. When I say what's right, I mean you get the optimal out, you pay the least amount of tax and you have the highest net worth that you possibly can. To me, that's right, everything, anything less than that, you're leaving money on the table and you're taking food off of the heirs table is the way that we have seen through thousands of iterations. But some of the things that keep people from getting it right are, oh, I mean I'll just kick it off and say just, just paradigms that you have. And it's not just that you have, but your advisors have paradigms like gee, you should never convert above your current tax bracket or what's another one, G? If you make a lot of money, you probably need to not convert at least until you retire. Can you think of anything else off top of your head, Daniel, of one of those kinds of paradigms?

Yeah, I think when you look at.

The overall picture is a lot of.

People just don't understand that we're not talking about paying taxes just for the heck of it, but you're going to have to pay taxes. So understanding that someone has to pay the tax bill is a logical step in terms of understanding your tax feature and how Roth converses canelcorp yeah, the.

Other, the other thing that limits people is it's kind of the same problem with doing retirement planning. Sometimes you just, if it's the first time that you've retired. It's really scary. In fact, you know, they say that it's the second most stressful event that a human being would go through other than. Other than the loss of a spouse. And so you're retiring, and now you get retired and you got this big pile of money. And now it's. Now all of a sudden people like us come around and think, say, now look, the way you continue to win the tax game is you accelerate it and you're at a disadvantage to some degree because you, you just don't have any experience with it. And so you pull out the spreadsheets and you carry your suitcases of your paradigms with you, and you set them down beside the computer and they sit there waiting for you, staring at you while you do your spreadsheets. And it keeps you from seeing all the options that are available to you. You've seen this with a lot of people that come and, you know, Daniel's on the front line talking to people day in and day out. But we have a lot of people who come to us. They're very smart people that are do it yourselfers and they, they got robust spreadsheets. What have you seen with that crowd, that of the folks that come to us with that regarding the experience issue?

Yeah, I think it's the same as why you go to a retirement planner to make sure your retirement's locked up is you're retiring for the first time. A financial planner has retired hundreds of times with their clients. And it's same thing with a Roth conversion is this is your first time looking at it. You don't know what you don't know. And if one variable is wrong, that can have compounding ramifications for, for generations. And that's a huge amount of risk to take that we really caution people that you better know what you're doing. I know it took me about six months working with you to master this strategy, let alone someone that doesn't have the tools that you provide.

Well, you know, I think, I think the hard part for us is that we, we've done this so much, and we've done it and we've seen so amazing results. And we've got 1200 families that we've helped at this recording. Collectively, we've developed game plans. Daniel and the, the other planners on the team have developed game plans that are going to help those people avoid, as of today, over $4 billion of taxes. And those were. None of them were done by converting at your current tax bracket for IRA millionaires, not a Single one of them. And so we look at that and we. It's kind of like we take that for granted that we just know what we know. But, you know, the people listening to this today, they're still. They still have some paradigms, and they're still trying to come along. And our. What we're really trying to do with you guys today is just say, look this. The amount that you can actually avoid paying in tax is enormous. And we produce just a guideline in the calculator. And then we're really trying to say the reason that you're not going to get that is because your advisor or your own spreadsheets are going to have some paradigms built in. And like Daniel said, one piece of information wrong, and it really messes up the calculations for a long time. And tell me, ask me how I know that. I mean, 15 years ago, man, Daniel, I didn't have software 15 years ago. There was no software that did Roth conversion work. You know, so it was. It was Excel spreadsheets, and I know how laborious those are. You want to change the rate of return, you got to make some changes. You want to change IRMAA assumptions. You want to assume you convert part of it and not all of it. You want to build in QCDs, you know, all these things in a spreadsheet, it takes hours and hours, and you get one cell wrong and the whole thing stinks. Right. But we've had some pretty smart people come to us with some of their own DIY tools that have worked okay for them, haven't they?

Yeah, absolutely. There is a point where we talk to people and they're extremely smart. Either they got someone in their camp that knows what they're doing, or they have a spreadsheet that by luck or skill, they found the right answer. And those are the type of people I enjoy talking to the most, is because how the heck did you arrive at this? I'd say that's way rarer than you think. Maybe once a month. But it's always refreshing to see someone that has it right because there's so many people that have it wrong that it really scares me.

Yeah. And you know, when. When people have it right, I know you especially, and all the. All the team, if they have it right. I mean, if we can't add any value, there's no reason that we want to take their time or our time. We just pat them on the back and give them a stick of gum and say, great job, you know? But on the other hand, we've Also got a whole lot of really smart people that are clients that thought they had it figured out. CPAs, tax attorneys, dozens of engineers, people that understand math and they do it for a living. And they, it's, it's just the lack of experience thing. And so we're not down on DIYers, we just are trying to get the attention of the DIYers so that for your benefit, you, you, you just pause for just a minute and think, is it possible that I might be missing something? Our experience says it's possible. You are not. But the overwhelming majority of the people come to us that do it their self. It's their first time. And I know the first time I did Roth conversion for my very first client, we left the money on the table. And I did that probably for a year until I really figured out how to start dialing it, dialing it in. But the biggest challenge comes down to Excel's not a terrible tool. It's just, it's just a tool that you really got to be precise with. But there are a lot of tools that are offered out there on the Internet for you guys to partake in. And that's really the subject that we wanted to come to today after, you know, 15, 18 minutes or so. And Daniel really did a deep dive into the, the little offerings and the big offerings, the great big commercial financial planning software, the Bowlands and the Maxifies and all those kinds of things. And I just, you know, I wanted to bring him on to just say, you know, Daniel, you know, what did you find? What, what advice can you tell people about the different tools that are out there?

Yeah, absolutely. So I'll start with what I started with and how I learned how to do financial planning. And it's a software called MoneyGuide Pro. I know a lot of financial advisors use it. It's really good at goals based planning. Can I retire? Can I pay for my kids college? It does Monte Carlo analysis, four scenarios side by side. I tried to run Roth conversion scenarios in, got about a quarter of the way there. And then I had to go to Excel and start to see what the ramifications are. And I could never get a point where I could optimize across it. So what it fails to do is optimize around Roth conversions. The next planning software that I've explored is Emoney. And Emoney is kind of one of the crown jewels of financial planning software. A lot of advisors use it. It's a great piece of software. It has all the bells and whistles, all the nuance you could possibly want for high net worth, ultra high net worth clients. But the Roth conversion software, it seems like something they just threw at. It's extremely manual, so you would need a technician that knows exactly what they're doing. It doesn't automatically include irmaa, and that can be hundreds of thousands of dollars. And it doesn't have any optimization. The third piece of software we see out there that's near and dear to my heart is rightcapital. And writecapital has great user interface, great client interface. It does almost everything E Money does without some of the very intricate nuance. And it does have a Roth conversion page and they put some work into that. Where it fails to do is it doesn't do a good job at comparing across the spectrum of strategies. It doesn't know how to find the nuance of when you've converted enough. And it doesn't do a good job of making sure you're doing it right. But rightcapable is a very powerful software. Just like e Money and MoneyGuide Pro, they all have their place. But it just seems like Roth conversion is thrown in in terms of consumer facing. We've explored maxify and Bolden in terms of off the shelf. Both have a lot of qualities. I like Maxify. You know, it is like you're going into an extremely advanced spreadsheet, something one of our smartest engineers would build. It's really good at determining how much you can spend, what your cushion is, how you maximize the spending throughout your life. For our clients, Craig, they know what they're going to spend. They've been budgeting for years. They're not looking to maximize spending. They're trying to maximize flexibility and reduce what the IRS gives them. That's where they fail, is the Roth conversion isn't geared towards minimizing risk, maximizing net worth. It's geared towards how do I maximize spending without any of those other qualifications. And it's extremely manual, just like Key Money. Bolden, I would say, is probably the consumer version of right capital. Very pretty to look at, great user interface, great onboarding. When it got to the Roth conversions, though, I analyzed the bracket approach, I analyzed the optimizer. And what the optimizer did is it scared me a little bit. It went with a five year conversion strategy, extremely aggressive. For two years we're talking about these people had $2 million is having them convert 75% in two years. And then the final three years it was having them convert $8,000 each year. I didn't understand the rhyme or reason I didn't understand where the math came from. I ran it through Rothology, your software, Craig, and it was not a good strategy. Extreme downside took all your life to break even. So that concerned me as well. But I do like Bold's user interface. I like their platform planning. I think the Roth Conversion optimizer can use some work and you can really get into trouble with that type of software. So those are really the five that I focused on and really enjoyed diving into. Found a lot of good things. Roth Conversions just seemed like a throw in in some cases and there's a lot of work to be done there.

Yeah. And I think the problem that exists today is the same problem that existed 15 years ago is that our industry unfortunately is, is kind of new to embracing Roth Conversion. And unfortunately, just to say it like I see it on social media, most of the people out there marketing Roth conversion are really marketing a product to, to fill a gap that you maybe don't even have. And so they're, they're trying to. It's almost like a shell game where, hey, look at this fancy annuity program that will, it'll pay all your taxes for you. Never mind the question. Well, okay, fine, that may be good for me, but what was the answer to the question? And the question was what's the, what's the optimal Roth Conversion strategy for me? And so that's, that's where this journey has taken us. And guys like you have come along and help me refine it and make it better and better and better. And we've done hundreds and hundreds of clients and folks, we're not selling software today. So that's not what this is about. What we're really trying to point out is a big lack that's out there. And if you trust in those other processes or you have an advisor that's using those other tools and every one of them are using one of those tools because they don't have access to what we had to go build. You're going to be leaving a lot of money on the table. And so I like to say that you have some really great, well meaning advisors that just are not specialists in this. And doesn't it make sense that, you know, we, I like to draw the analogy. A lot of time that clients come to us not to replace their financial advisor. They come to us. Well, it's you. If you're listening to this, you can probably get this analogy. If you got a primary care physician and they've taken care of you and your family for your whole Life. And you trust them, you like them, they were there when the kids were around, they were there when the kids got married and they maybe they're taking care of the grandbabies. But when you have a cardiac problem, that primary care physician is not going to go do heart surgery on you. Not because they're not smart enough, not because they don't care about you, but it's not what they do day in and day out. So a lot of people, their financial advisors keep managing their money, they keep doing some of the planning work for them. They come to us because we are that specialist. Daniel is among one of, I don't know, a dozen guys that we and ladies that we have that this is what they do. They and dozens of times every single month that they go through that. And, and you know, Daniel, you even commented that it took you a few months to get your head around what we really were doing. And so you could probably kind of speak to how that specialization really changes the way that you view a lot of the areas of our clients life financially, don't doesn't it?

Yeah, absolutely. I like to think you hired me because I'm a great financial planner. And I certainly thought I was a great financial planner before I joined and I was. But what I was missing is understanding the big picture. And the way you understand the big picture is understanding all the ramifications and practicing over and over and over. This isn't something where you want to do it once or twice a year. This is something where just like heart surgery, you want a surgeon that knows what they're doing with the scalpel and they're working on it every single day to be the best in the business. And what I learned is that's the only way to become a master. You don't do it by reading. You don't do it by someone telling you what to do, some YouTube video. You have to get in the trenches, do the planning, answer the top questions, run the stress tests, have the engineer, have the CPA client come to you with questions that you're going to have to research. And through that process, you truly become an expert master. And that's what took me six months. No lie. And I'm still learning every single day. But I believe through doing it every day that we've reached a level that is very hard to pass.

Yeah, well, and I agree. And it's because of your hard work and because of the number of people that you've worked with and you've learned from, you know, and you know, I think I think one of the, one of the biggest takeaways that I wanted to give listeners today was that if you're an IRA millionaire and you are not doing Roth conversions very aggressively, you're leaving a lot of money on the table. If you're doing Roth conversions and you haven't tested those across a variety of scenarios, including tax rates that would scare you to think about and dollar amounts that would give you the sweats to think about, unless you've actually ran those numbers and tested those, you're probably leaving a lot of money on the table. Our calculator will give you some idea of what is possible, what we've done with our other clients. But those numbers are for the math geeks in here. Those are the median numbers of different subsets of clients of ours. And so that 1.6 million that he showed you on the report earlier could have been 3.7 million because somebody else was maybe at 800,000 or something. The other, the other takeaway is that, you know, if you choose to go get to use software, just understand that there are some very severe limitations in what's out there. Um, our, our software is built off of the skeleton of data sets that we get from Right Capital. And then what I found, though, is that we have to take that data and we have to not change it, but we have to reorganize it in a way that it's easier to look at a variety of scenarios all at one time and include elements that Right Capital doesn't innately provide to you, but it's in the data. They just don't give it to you from the user, the user interface side of it. I don't know. I don't know. Can you add anything to that? The Right Capital relationship thing?

Yeah, I think Right Capital, like I said, is extremely powerful planning tool. But it comes down to it doesn't know what to do in the middle of surgery. It's going to take a machete, it's going to take a sledgehammer approach. In a lot of different instances. You go to a surgeon to know how to cut and when to stop cutting as well. And it's a bit morbid, but it is heart surgery. And we really need to zone in on. You just need to be precise, precise. And you can't just throw anything against the wall and hope for the best. You really should be being the best steward with your money and making sure you're being precise and optimized.

And so, I mean, the obvious, the obvious, the obvious point also in all this Is, is not that you're not gonna, you're, you can only get it right if you come to us. That's not what, that's not what this is about. You. We're, we're being as straightforward and honest as we know how to say. Here's what's out there. And it's not only to get you to come to us. It's mainly so that you understand the limitations of some of the other tools that you're working with and potentially the experience that maybe you don't have that somebody like Daniel and the other guys on the team, they do. They just, like he said, they. It's over and over and over and, you know, it makes common sense. Any skill that you acquire, you're a whole lot better at it after you've done it hundreds of times than the first time or two that you did it. And that's kind of what you've reiterated too, is that's what it, it did with you as you just kept doing it and doing it and finding the better and better pieces. And I'll tell you, Daniel is, he is highly revered by everybody on the, on the CFP staff. They look to him to answer questions about how to solve problems and he's always there willing to help. You know, If I had 40 of him on staff, we would probably, I'd probably have even less hair than I have today with all the, all the amount of clients coming through. Right. And the issue. Yeah, but you make it a lot easier for me. And you know, you, you've just been a great asset to our team and you're always such a giver in helping other people. And you know, you, you always are consistently get five star reviews from everybody that you work for. So yes, we would love to have you as a client. Yes, we believe we can find an optimal solution for you. Yes, we'd love to welcome you to our family of clients. And you know, our agreements have, have a statement in writing that I haven't seen from any other financial firm ever in my lifetime and I'm 40 years in the industry. And that is if we can't save you a half a million dollars of taxes, then we stroke a check and give you all your money back. You can go to our website at Q3ADV and check out our services. There probably will be something in show notes where you can go try the calculator and just see what's out there for you. And once you get the report, there'll be a way that you can connect with us. And set up a time that you can talk to Daniel or one of the other guys. And everybody is, everybody is great at what they do. They're very, very knowledgeable. We work as a team. The, the, all the CFPs work together on solving cases and presenting different ideas and that sort of thing. And so you're not going to, you're not going to find a slouch in the crowd. We got some good stuff for you. Any other last comments, maybe from you, about anything that's come to your mind that maybe people need to know before we sign off?

I think we've covered it all, but have to thank you, Craig. I think, like, I can speak with the whole CFP staff is we join to be mentored by what we see as a maverick in the industry, someone that's on the cutting edge, that's willing to go above and beyond and not sit back on old financial products, old software, but is gonna work his hardest to get people answers that they deserve. So it's been one of the biggest blessings in my life. So thank you.

Wow. Well, thank you. I appreciate it too. So there you have it. Another episode in the can and hopefully be great content for those of you that consume it. And we could help in any way we want to. And hope you just have a great rest of your day. God bless. Thank you, Daniel. Appreciate you being here.

Thank you, Craig. Thanks, everyone.