WCI #221: Beating the New Death Tax with James Lange

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here is your host, Dr. Jim Dali. This is White Coat Investor podcast number 221, beating the new Death Tax with James Lang. Welcome back to the podcast. It's been a little while since we recorded one. We're recording this on July 15th. It's going to run on July 20nint. So you're probably listening to this the end of the month, maybe even into August. I'm actually between two trips. Just got back from Minnesota where I was canoeing on the Boundary Waters with my family. We had a great time up there. Shout out to all of you in Minnesota. You have a beautiful state. We had a lot of fun. And then next week we're going rafting on the Green river here in Utah. So wonderful, exciting July with our kids. But in the meantime, we got to work this week. I got a bunch of shifts in the er and of course we got a lot of White Coat Investor work to do today. We're gonna have a great guest on today, but before we get into that, let's have a word from our sponsor. At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help. Thanks for what you do. I know a lot of you aren't out canoeing and rafting like I am this month. You're slaving away in the bowels of the hospital taking care of people. So thanks for doing that. It's not easy work and sometimes it doesn't even pay that well. For those of you still in residency, don't Calculate your hourly rate. That's a very bad idea. I did that once. It was a very depressing calculation I made. You don't want to do that.

All right.

We're still giving away anyone who refinances more than $100,000 in student loans through the WCI links. Free access to our flagship course, fire your financial advisor. Not only will you continue to get the amazing cash rebates that we have negotiated with each of these lenders, but now you'll also get another $799 in value. The course must be claimed within 90 days of loan disbursement. In order to claim it, go to whitecoatinvestor.com refi bonus after you refinance your student loans through wci links@whitecoatinvestor.com student loan refinancing all right, we've got a very special guest on today. I'll bring him on and then introduce him and we'll get into our conversation. Okay. My special guest today is Jim Lang. He's a cpa, a JD and owns a tax planning and a registered investment advisory firm. He's the author of Retire Secure, Pay Taxes later and the Roth Revolution, Pay Taxes Once and Never Again, among other books. Jim is a nationally recognized IRA 401 and retirement plan distribution expert and the president and founder of the Roth IRA Institute, which helps financial professionals and IRA and retirement plan owners to get the most from their retirement plans. Using Roth IRA conversions as an integral part of the planning strategy. Speaks all over the country and has been published many times in the Wall Street Journal and the Pittsburgh Post Gazette as a radio show and graciously had me on it a couple of years ago. We'll put a link to that in the show. Notes. More importantly, his ideas have affected my own thinking about investing and particularly the use of retirement accounts. We're also going to be talking today about about a book he came out with just last year, beating the New Death Tax. And you'll even have an opportunity as you listen to this rest of this podcast, to get that book for free, which is, you know, my favorite price. All right, Jim, welcome to the show.

Well, thanks so much for having me.

Jim, tell us a little bit about your upbringing and how that affected your views on money.

Well, the one thing that kind of stands out for my upbringing is after I came back from college, you know, some of my friends are getting cars, some are getting big checks, everything else. My dad hands me an envelope and I go, oh, boy, you know, what is this? I open the envelope and it was my first dental bill that I was expected to pay. And I think that that set me up for, okay, you know, we're not going to kick you out of the house, but you're on your own. Better go out and get a job and make some money because you're not on the dole anymore. And I think that that's probably a good thing. And I know that even though sometimes for business reasons and tax reasons, I want clients to give money to their kids because they don't need it and they're going to get taxed on it, but they very legitimately say, hey, I'm a little bit concerned about reducing motivation for people who are too young. So that's my early experience with money.

Well, certainly your dad seemed to understand that point.

I think he did.

And it's worked out well for you. You've been very successful in your career. Tell us a little bit about it, about both your education and your career so far.

Well, I started out as a young accounting major, got a job at a CPA firm, became a cpa, and then my dad gave me some other advice. He said, whatever you do, don't go to law school. So I had to go to law school. But it was a good experience because I was already. And I didn't come out, let's say accounting, and then go right into law. I worked for a couple years, was a cpa, and then went to law school, by the way, on my own dime at night. And I was terrific because I was at Duquesne, which is one of the two law schools in Pittsburgh. And the distinguishing factor in Duquesne is that they had a lot of adjunct professors for advanced corporate and law classes. So I had some great practical professors, and it was very good. And I worked for some of the big. Well, Arthur Anderson, which is no more. But at the time, it was one of the big CPA firms, one of the big law firms, built a little side practice. And then ultimately, when I got out of law school, I knew the corporate world was not for me. I'd already had a CPA practice, added an estate planning practice, and was off and running. And then later, I realized two things. One, there was a lot of power and actually being the financial advisor. And to be honest, there was more money in it. So I added that credential, too. And that's a nice combination to be a cpa, an attorney and a financial advisor. And we have. Even though we have three separate firms, they're ultimately under the same roof.

Yeah, it's a rare Combination, for sure. And obviously, you know, a lot of people hire an accountant and hire an attorney and hire an advisor and expect them to all to work closely together. But it's helpful when you get all of that in one person.

Well, yeah, and obviously it's not like I sit around and do all three functions myself. I have a staff of 22 people, but the CPA literally is sitting next to the estate attorney. And there's a lot of communication back and forth. And the other thing is, we have some, I don't know if you want to call them company values or company beliefs, but we're all working from the same core set of understanding. And we tend to be the concentrate on people that have IRAs, retirement plans, 401ks, 403B, SEPs, KIOs, etc. So we're a little bit of a specialty firm. If you have a $20 million business and you're interested in business planning, we're not the type of firm that you go to. If you have a big IRA or retirement plan and you're trying to get the most out of it and plan for it, and you're interested in Roth IRA conversions, that kind of stuff, that's closer to what we do.

Now, you have particularly strong feelings about IRAs, and about Roth IRAs in particular. I mean, you founded an institute promoting the Roth IRA. Why do you feel so strongly about Roth IRAs?

Well, I've felt this way ever since in 1997, they first proposed the law about Roth IRAs. And usually I ignore proposed legislation because then I get it mixed up with what they really passed and it's a big mess. So I usually ignore it. But when I read about it, I thought, boy, this is going to be so cool. And I took out an Excel spreadsheet because they didn't have all the wonderful software that they have today. And I started saying, okay, what if you don't do anything and you have the status quo? Then example number two. What if you do some Roth conversions and where are you in 10 years, 20 years? And then because of one of the great values of The Roth Roth IRA conversions, where will your kids be in 30 years and 50 years? And there was such an enormous difference between getting the Roth conversion right and not getting it right or doing nothing. I got very excited. And in medicine, as your physicians know, if they get very excited about an idea, they want to prove it to the world. They do their study, they try to get it peer reviewed, maybe I guess the highest in your world is the New England Journal. Of medicine, the equivalent of that in the CPA world is the tax advisor. I went to them, got permission to write the article, they published it, and that was, let's say, the beginning of my proselytizing, if you will, about Roth IRA conversions. And it's a matter of math. See, that's what a lot of folks don't understand. This isn't like you like Brahms, I like Mozart, or you like particular artist or musician, or people could have reasonable differences of opinion. This is a matter of math. And if you accept certain premises, which I'd be happy to go into if you like, but if you accept the idea of purchasing power as your measurement tool, given certain assumptions, you can prove and prove again and again and again the value of Roth IRA conversions. So I sometimes have this reputation boy Lang and his firm, they're really into Roth IRA conversions, and I would prefer the reputation. Lang and his firm love to run the numbers and they love to give objective advice. And more times than not, the objective advice is to do a series of Roth IRA conversions based on tax bracket. But sometimes we can't control our reputations.

Now, there are lots of ways to get money into a Roth ira. You can contribute in there directly for high earners, like most listeners to this podcast, you can contribute it indirectly via the backdoor Roth IRA process. You can contribute to a Roth 401, a Roth 403, or a governmental Roth 457, and then eventually roll into a Roth IRA. And you can do Roth conversions. The classic teaching on Roth conversions is that they're good things to do in low income years and particularly in the years between retirement and when you start taking Social Security. Obviously, Roth conversions make a lot of sense for people with estate tax problems too, if you have a very large estate. But would you go beyond there? Do you think people should be doing more Roth conversions than they are? And if so, what? Why?

Well, first of all, I agree with your premise. The best time to make a Roth conversion is when your income tax bracket is the lowest that it will ever be. So let's say that you're working and you're in your mid-60s and you're at the height of your career, you're in a very high tax bracket, then you're going to retire. Then at 70, you hit Social Security. At 72, you hit minimum required distributions. So your bracket's up here, Then it's going to sink. Then it'll stay low, then it comes up. Ideally, you do the Roth conversions in your low tax brackets. On the other hand, if you work out the math on just doing Roth conversions with a level tax bracket, you're still ahead. And if you believe, as I do, that in the long run income tax rates are going to go up, doing a Roth IRA conversion will have even more value for both you and your family. So just for example, even forgetting the Democrats and any legislation they might get passed, the 2017 tax cut and Jobs act says that the tax rates are going to go way up in 2026, meaning nobody has to pass anything. Tax rates are going way up in 2026. So it's even a greater incentive to make a Roth conversion. Even if, for example, you're older than 72, so you're already taking your minimum required distribution, you're already taking your Social Security. So that would sound like, oh, it wouldn't be that great to convert because you're already in a higher bracket. But if you're going to be in an even higher bracket because of the Tax Cut and jobs act of 2017, if, because your minimum required distribution is going to go up and up and up, if it's because eventually either you or your spouse are going to die and the survivor is going to have to file as a single, meaning the tax brackets go up and up and up, then the value of the Roth IRA conversion becomes that much greater.

Understood. And in case my listeners don't understand, the reason why it's beneficial even if your tax rate, your marginal tax rate doesn't go up is because you're moving money to pay the taxes on that tax deferred account from a taxable account into a tax protected account. And that's the benefit of converting even if you're in the same tax bracket. Correct?

That is correct. And you actually nailed the math on that, which a lot of people don't really get. But yeah, that's right. And there is another factor involved. This might apply to some of your older listeners reviewers, and that is the same tax law. The 2017 tax cut and Jobs act also reduces the exclusion. So now we not only have to worry about income tax, but we might have to worry about estate tax or transfer tax again. And if you are paying taxes on a Roth conversion, and we can get into this if you like, even though you're maintaining to start the same purchasing power, you're reducing your taxable estate, which by itself might save hundreds of thousands or in some case millions of dollars.

Yeah. If you got to pay 40% on all that money above $23 million or whatever the exclusion is right now, then that's great if you can reduce your estate size by doing a Roth conversion because you're really passing the same amount of money but paying a whole lot less tax to do it.

Well, that's true, but according to this new law, unless they change it, instead of 23 million, it's going to be 10 million plus inflation. Even call it 11 million. Well, now we're taught there's a lot of people between 11 and 23 million that are probably right now pretty relaxed. And even forgetting the federal transfer tax, many individual states have either inheritance taxes or pickup taxes or estate taxes of their own. So all these factors do favor Roth. Now I'm not saying you should just go out and convert everything because that's going to throw you into too high a tax bracket. But I think most IRA experts, in fact, I don't know one that would not say this would say for most people that they should convert at least a portion of their traditional retirement plan to Roth at some point in their life.

Yeah, I think that's fair to say for sure. So with the way the law is currently written, it's the state tax exemption is going to drop automatically in 2026 if Congress does nothing.

Yeah, it will. So in 2017 it was 5 million. So if you were married it became 10 million. The law says it's going to revert back to where it was in 2017 plus inflation. I don't know exactly where that would put you, but maybe at 11 million and maybe there will be additional legislation that will raise that. On the other hand, frankly, I am concerned with my clients who could go over the top. And if you go over the top, you know, it's like a 40 cent penalty. It doesn't start at 40%, but it can be a very substantial penalty.

It gets there pretty quick though.

It sure does. And if you can both reduce the size of the estate while maintaining the purchasing power and get a tax free growth on your retirement plan for generations or at least one generation or part of a generation with a new secure act, that's just a great way to go.

Yeah. Now you're a pretty big fan of retirement accounts in general, as am I. And your book at least retire secure. This is not the latest book, but one of your books. I think this was out Last updated for 2015 makes perhaps the strongest case I've ever seen for the use of retirement accounts over a standard taxable non qualified brokerage account. Several of the charts in your book show that preferentially investing in a retirement account, especially if there's an employer match can result in 50 to even 300% more money after 40 years of accumulation. And that tax sheltered growth benefit continues to accrue during the decumulation years. Why do you think so many people pass on these accounts and invest in a taxable account instead? Is it ignorance? Is it they want to invest in asset classes that are tricky to get into retirement accounts like cryptocurrency or real estate or why do you think they do that?

I suspect it's a combination of ignorance and stubbornness. For example, I work with a lot of university professors and at the University of Pittsburgh, once you've been there three years, if you put in 8% of your salary, the university will put in 12%. So that's 150% return on day one. All that money is tax favored. You would think that everybody who's smart enough to be a professor at the University of Pittsburgh would at least put in 8%. But they don't. So by the way, these are some of the same people, kids, medicine too, by the way. But anyway, I think a lot of people just don't know the math and they might get caught up in whatever the retirement plan options are. At the university level it might be Ti Cref or Vanguard. Different hospitals will have different providers. They might not have the exact investment that somebody might want, but usually they have a relatively good choice of investments. And if you want something a little bit whacked out, I shouldn't say that you want something a little bit different like cryptocurrency or something like that. We call that Las Vegas money. Do that outside your retirement plan. One of the ideas of working is to eventually, and this is one of the great points of your book is put money away while you are young. So when you are, let's say in your 50s, then working becomes optional. And I love that by the way. That's such smart advice and I don't know how many thousands of doctors that you have influenced by saying that, but it's terrific advice. And even for people like me who are working well beyond my mid-50s, it's great knowing that it's optional.

Yeah, that's for sure. I just gave a talk a couple of hours ago actually on Zoom and, and one of the slides I put up is my clinical schedule for next month and demonstrated this is what it looks like when work is optional. You know, there's no night shifts on there, there's very few shifts and there's plenty of room for vacations around them, you know, and so I think It's a powerful demonstration of just what you can do if you get your financial ducks in a row.

Well, yeah, I mean, you might actually. I don't know how good you are as a physician, but I suspect that you're probably close to being in your prime in terms of your knowledge, your experience, your expertise. You're good at it, you like it, you're providing a great service to the community. You're making money, and why not do it but on your own terms? You know, on the days that you want, you know, let somebody else do the night shifts, take a couple weeks and go to wherever you want to go. I think that that's just great advice. And your idea of getting people to do this early in their career as opposed to late, I think is wonderful.

Yeah, for sure. All right, let's get back to those retirement accounts. You also advocate for depleting your taxable accounts in retirement before touching either your tax deferred or your tax free accounts. Is there any nuance to that advice? And if not, why is that better than a more balanced approach of taking a little from this account and a little from that account and trying to set your tax rate?

Well, again, you know, I'm going to go back to this is math. You know, I don't think any of this is nuclear science. And one of the nice things about working with physicians and other scientists is that with all due respect, even though you guys can be a little bit stubborn and have your own way of thinking about the world, most of you are legitimate scientists, and legitimate scientists are data driven. So even if you come in with a certain idea and you see a spreadsheet and you're given the chance to attack the spreadsheet, which a lot of you do with zest, but the spreadsheet holds up and you see it well, subject to exception, which I'm going to get to, because there's certainly exceptions. It works out better if you spend your after tax dollars first. And here's the simple math. Let's say that you need a dollar to spend, and let's forget about capital gains for a minute. You need a dollar to spend, or let's say $100,000 to spend. You have $100,000 in your taxable account, you withdraw that $100,000, there's no tax on it. If you need $100,000 to spend and you go into your IRA, let's just say 28%. In order to get the 100,000, you have to spend, you have to take out 140,000 spend $40,000 in taxes. Now you have your $100,000 left. The $40,000 that you had to take out of your IRA that was used to pay the taxes on the IRA withdrawal is now no longer available to earn interest, dividends and capital appreciation, where if you just take the 100,000 out of your after tax account, you still have that 40,000. So the math on it, again, subject to exceptions, is that you want to preserve the money that you would have had to have paid in taxes when you make that withdrawal.

And perhaps more importantly, you don't have that tax drag that you get when money's growing in a taxable account. You know, every year it kicks out those dividends, it kicks out those capital gains. You got to pay taxes on them. As it grows, all that money in the retirement accounts is growing without that tax drag. And, you know, I wonder if that isn't the bigger factor even, because that percentage of the money is going to go to the tax man eventually, presumably.

Yeah, I guess I don't know which one is the bigger drag because I haven't tested them separately. It's an interesting question, but I'll just say I can reliably say that subject to exception, you're better off spending your after tax dollars first.

Yeah, for sure. What are the exceptions? Let's talk about those.

All right, so the exceptions. Let's talk about the old exceptions and the new exceptions. And the old ones still apply. The old ones might be based on tax bracket. So let's say, for example, you're at the top of, say, the 24% bracket. If you take more money out of your regular account, then your IRA is going to push you into potentially a higher than 24% bracket. So you're better off keeping some distribution so that you won't go beyond a certain tax bracket. The other exception that is new is it's now not a wonderful thing, or at least not as wonderful to die with an IRA or retirement plan, because under the SECURE act that just passed effective January 1, 2021, your heirs are going to have to pay income taxes subject to exception. Again, there's always exceptions. They're going to have to pay income taxes on the inherited IRA within 10 years of your death. So that's much faster than the old rule that said that they could defer it to some extent over their entire lives. So the heirs might end up in a higher tax bracket. So it might make sense for you to take some money out of your IRA if you want to take it to the next level. Do some Roth conversions, take money out of your ira, pay the tax on it, then with money that is left over, sometimes it makes sense to gift money to the next generation or the next two generations, have them invest it in something tax free like a 529 plan or their own Roth IRA or Roth 401K. And you end up with literally multi generational wealth far in excess of the status quo of doing nothing.

Yeah, for sure. When that next generation isn't maxing out its own retirement accounts. Getting money in there is even more beneficial than leaving an inherited ira.

Yeah, it certainly is. The other advantage is all that growth occurs outside of your estate. So again, if we do come back to 5 million each or 10 million plus inflation, say 11 million or even 12 million, then we're avoiding that problem. And we're also reducing state, whether it's Pennsylvania where I work and practice or a pickups tax. And many states have very high transfer tax rates. So it does a lot of good. And the other thing is, depending on how you feel about giving money to your kids, there's a difference between giving money to your kids and saying go out and get a Corvette versus here's some money, I want you to put it in your Roth ira. Show me the statement and if you do, I'll give you some more.

Trust but verify. Right, Trust but verify. Okay, so let's say you're heading into retirement. You've this retiree has followed your advice. They burned through their taxable account, they've got a tax deferred IRA and they have a tax free Roth ira. What principles determine which one they spend next?

Well, all right, so I'm going to go out on a limb here and I'm going to make a potential recommendation that might avoid this might be a violation of what I call the stomach test. So in your question you started with, okay, they've basically wiped out their after tax dollars. Now they have IRA dollars, maybe they have some Roth dollars, but gee, then the only money that they could spend would be their choice of IRA dollars or Roth dollars or there might be something else. So this is for the tigers. And I know that Jim, you have a number of tigers and you yourself might be called a tiger. What if they have a million dollar house that's paid up? Okay, what if they take some money from their house to either live or better yet or not better yet, but in addition to make a Roth IRA conversion? So let's say that they're in those sweet years between retirement in 70 or 72, they're in their lowest tax bracket and they need money to live. They love to make a series of Roth IRA conversions while they're in a low tax bracket. If they take the money out of their ira, they have to add that to their income. If you work out the math, it's slightly favorable, but it's not great. Taking money out of a Roth IRA to make more Roth conversions, I think that's going to be a break even in either case. It's not going to be great. But if they take money from their house with a home equity loan, a heloc, a reverse mortgage, that's a non taxable distribution. So they spend that money and maybe they take, let's say they need $100,000 or $200,000 a year for two years and they need another couple hundred thousand dollars to do Roth conversions. Then when they're 72 and they have these murderously high minimum required distributions on their Iraq, they start paying back the loan. Or this will really shock some of the readers. They never pay back the loan. And that's okay. But when you run the numbers on that scenario, sometimes the families are hundreds of thousands of dollars, sometimes more than a million dollars better off. Now that will violate the stomach test. And it's more important to sleep well than to maximize your retirement and your estate. But I'll just say that there's, you have more options than just going to your retirement plan in your Roth plan, assuming you have some other source of tax free income. And in this case, borrowing money would be a source of tax free income.

Yeah, it's like the old adage, you can either sleep well or you can eat well. So if you're having to not eat well, that's certainly a good option. I'm sure you're right though. A lot of people, and probably me too, wouldn't feel super comfortable borrowing against their house in retirement. Even if the numbers seem to work out well. Because those numbers will work out well throughout your career. If you run the numbers, it always makes sense to borrow all the equity out of your house and invest it in something with a higher return.

Well, that's a different idea. You're talking about arbitrage there. I'm not talking about arbitrage, I'm talking about tax planning. Now the fact that interest rates are pretty low today, you know, that helps this strategy. But for whatever it's worth, when I bring this up in real life, a lot of people start off with no, no, no. And you know, we like to run the numbers and test the different scenarios and one of the things that we love to do is start out with what I'll call the status quo. And I hate to say it, but if people don't think they have a problem, that they're not as motivated to do something than if they have the problem. But we sometimes run the status quo and we show massive amounts of taxes and then they feel a little ill like that. So sometimes some of these measures sound a little bit extreme all of a sudden. Don't seem so extreme. Now, by the way, I'm not going to recommend this for somebody who might get in trouble because they don't have the liquidity to, to make the mortgage payment or, you know, Dave Ramsey heard, heard this and probably, you know, go into anaphylactic shock. And so this is not, this is more like the more advanced and frankly, people who have more money idea. But it's not totally off the wall. And I'm a contributor to Forbes.com and I wrote an article saying, let your house pay for your Roth IRA conversion.

All right, let's talk about another thing a lot of people consider verboten. Let's talk about annuities for a minute. Who should consider an annuity as part of the decumulation strategy? And as a follow up, if you had the choice between annuitizing your taxable account or your ira, which would you choose?

All right. Well, first I want to distinguish between annuity and annuity. Okay? Because there's all kinds of different instruments. Typically products from an insurance company that are called annuities, the type that I'm not such a big fan of, are known as commercial or deferred annuities. They typically have very significant fees, commissions, and they are, I don't know how to say it nicely. And some of your listeners, and maybe even you have some, they're typically not purchased, they're sold. So sometimes some of those annuities might have a sales commission of 5, 8, 10, 12% to the salesman. And very frankly, in my line of business, in order to make that kind of money, I might have to work for 20 years where I run numbers and I do a lot of work. It'd be much better if I could just sell somebody an annuity. So. So sometimes they have worked out for people and sometimes if they were, you know, they often come with a guarantee. By the way, be careful because that guarantee is often a death benefit guarantee, not a living guarantee. Anyway. I've never sold one of those. I kind of call that going to the dark side again. I know that there's very reputable people who genuinely believe in them. And I don't want to rag on those advisors, but I'll just say that I'm not typically a fan of those types of maneuvers. Now, another type annuity that is called an immediate annuity is much more interesting to me. An immediate annuity. And by the way, with the commercial annuities, since they are so profitable for the advisor, they're always coming out with new ones. So every single major insurance company is going to come out with a couple every year. They all have slightly different rules and variations and things like that. So if you have one where a lot of times people come in to our office and they have one, we don't say, oh, you should sell it tomorrow, because a lot of times they have very valuable guarantees. We have to actually read the paperwork and find out what people have, which they often don't know anyway. That's the type I'm not such a big fan of. Then there's something called an immediate annuity. And an immediate annuity is a little bit of a substitute for the old pension plan. So the old TIAA CREF participants, including my mother, when she came to the end of her career, back then they had mandatory retirement at age 70. They said, Dr. Lang, you have X dollars in your TI CREF account. You must annuitize, meaning you give up the entire amount and we will pay you X dollars a month, every month, for the rest of your life. Now, she was 70 years old. I'm not exactly sure how long they expected her to live. My guess would be maybe in her mid-80s. She lived until 95, so they had to keep paying her. Now, that was a pretty good deal for her. Now, today that's not a requirement, but for a lot of people, annuitizing at least a portion of their retirement plan gives them at least a base income. And sometimes I like to say, well, consider annuitizing or do an immediate annuity for, let's say, the amount of the annuity and Social Security is, let's say, roof overhead, food on table, gas in car. So no matter what happens, you have a base. Now, right now might not be such a great time because interest rates are low. And the amount that you get is going to be based on how old you are and what the interest rates are. So I'm not sure now is a great time to annuitize. But an immediate annuity, which is kind of like a pension substitute, I'm not going to say is a terrible idea, by the way, that has very low commissions And I think you might even be able to do it. I think Vanguard and some other companies might have, in effect, no fee annuity immediate annuities. So again, I'm going to distinguish between types of annuities now.

So someone's decided they're the right person for an annuity and they're going to annuitize 25% of their nest egg or whatever, and they've got a taxable account and they've got an ira. Which one should they annuitize?

Well, if they annuitize their ira, the money that they're going to receive is going to be taxable. So particularly if they have not reached 72, they're in a low tax bracket. Maybe we're interested in keeping them in a low tax bracket doing Roth conversions. I might prefer doing the after tax dollars. And again, that's a form of spending your after tax dollars before your IRA dollars, which we talked about before. But on the other hand, I'm too much of an attorney and say it depends and each case is different, but the general rule is I would do it with your after tax dollars before your IRA dollars. The other problem is that you're kind of, you're committing yourself to a tax strategy when you're doing it with the IRA dollars and everything always changes. So I tend to like to preserve flexibility.

That's a good perspective. I like that. Now let's talk a little bit about these recent changes to the Stretch ira. Now, you've been writing about that for a long time when people were just batting it around in Congress. You were writing about it. You were writing about it as it's happening. You wrote about it afterward. I think you might have been more angry about those changes than any other single person in the country. Why did you feel so passionately about getting the word out about those changes to the Stretch ira?

By the way, a quick note on that. So you and I would go back and forth sometimes on email and again, you were on my radio show and I've always admired your work and told every doctor I know that they should go out and get white coat investors. I guess I emailed you about something and I didn't hear anything. And Sandy, who works for my office, she said, Jim's mad at you because you keep predicting the death of the stretch IRA and it doesn't happen. And it didn't come. I said, no, he's not mad at me. He gets 5,000 emails. That's a true story, by the way. But anyway, I did think that it was coming and we incorporated that in our planning more than five years before it came. I just thought it was too good. So under the old laws, and unfortunately the exceptions are relatively, under the old laws, you didn't need an exception. If you had an inherited IRA that his mom or dad died, they left you. Let's keep the math simple. A million dollars in your IRA and you were 40 years old at the time. And let's say that the, that you had a life expectancy. Again, let's keep the math easy at 40 years. So you take one over 40, or 2.5% of the inherited IRA, which was a million, which would be, you have to take out $25,000 in year one, then year two would be one over 39 times the balance. By the way, if you only took out $25,000 and the account was earning say 6%, then the account continued to grow even though you were taking money out. That was called the stretch ira and we loved the stretch ira. I was trying to get the stretch IRA and better yet, the stretch Roth IRA down to multiple generations. And to me it was nirvana, was doing a Roth IRA conversion, having to go to young grandchildren and get 80, 85 years of tax free growth. And we literally did build tax free empires with that or generations of tax free growth then. And it happens practically overnight, just literally several days before the end of the year, effective January 1st, as they said, no subject to exception. Instead of the beneficiary being able to stretch or defer the taxes on the IRA distribution, or the time that they have to withdraw money from the inherited Roth IRA over their lifetime, they have to take it all out within 10 years of the IRA owner's death. So just simple math. You inherit a million dollars, you do nothing. It's, it's invested at 7%. Now 10 years later, it's 2 million. Now you have to pay income taxes on 2 million, which is misery. Now, yeah, you can pay taxes a little bit along the way, but it's much, much worse, and I have all kinds of numbers to prove it than the old law. And to me the dilemma for IRA and retirement plan owners, and there's a lot of physicians, banks who tend to spend their salaries and they're not great savers of money outside their ira, particularly, you know, they have house payments and you know, they have braces for their kids and they're putting their kids through college, et cetera, et cetera, but they're dutiful savers in their retirement plan. So towards retirement they have these big IRAs and 401s and 403Bs and SEPs. And that's the main source of their money. And now they find out they have this massive income tax problem, not only when they're alive, when they have to take big minimum required distributions, but also after they die. So that's, if you will, one of the great problems that a lot of the older physicians have.

All right, let's turn the page a little bit and let's talk about another book you've written called Live Gay and Retire Rich. And I suspect you also have quite a few members of the LGBTQIA communities as clients. Now, these are all separate communities with unique financial aspects to their lives. But let's talk for a minute about same sex couples. I imagine that prior to same sex marriage becoming the law of land, that there were many investing, tax, estate planning and asset protection nuances and strategies that gay and lesbian people had to keep in mind. Have most of those differences gone away now? What unique aspects and strategies still exist for these communities?

Yeah, they have. And interestingly enough, everybody assumes I'm gay because I wrote that book. And not that that's necessarily a bad thing, but I'm not. But I wrote the book because I saw a really cool tax opportunity of how a group that I think has been treated unfairly could, in effect, gain parity. So under the old law, when you could not legally get married in most states. So let's say you were. You had a partner in Pennsylvania and you know, this was a long term relationship, two men, two women, and you lived together as husband and husband. You did many of the things that married couples do, but you weren't allowed to get married. Well, there were some terrible tax problems with that. Usually more for the older gay couples. One is there was disadvantages in calculating your minimum required distribution. Two, there was something called an unlimited marital deduction, meaning you can leave a billion dollars in your account to your spouse. Spouse, and there's no tax. And so they couldn't get married. So they couldn't get that. Three, there were Social Security benefits of being married. And particularly if you had two people of a couple with unequal Social Security records, if you were married, the survivor would be able to take the Social Security record of the first to die or the stronger. So all these benefits were denied same sex couples. So what I did is I said, well, gee, is there a workaround? And there was. So what I essentially said, go to New York. That does allow same sex couples get married in New York. Come back to Pennsylvania. Pennsylvania must respect the marriage of New York. So for federal purposes, even though you weren't allowed to get married in Pennsylvania, you were treated as married, which gave you the estate tax advantages, the Social Security tax advantages, etc. Now that you can get married in any state, that book is kind of moot. If I was to take the idea of that book, which is one of my long term projects, I would probably repurpose it and call it something cynical like get married for the money, the idea being that. And there's some disadvantages too, and I go through that in the book. But particularly for inheritance tax purposes, IRA purposes, and Social Security purposes, it can make a huge difference. So I was a big fan of it then. I still am. But the book itself should not. It has no more bearing for a gay couple than a straight couple. And frankly, there were, you know, there were obviously cases where people were not out, whether it was because of their job or their friends or their reputation or things like that. So I even had clients that secretly got married and they didn't have a wedding. They didn't tell anybody about it. But it was a form of protecting the survivor, particularly. So let's take your world of physicians. Yes, you might have two male physicians that get married, but you also might have a male physician and let's say a manual laborer. Well, the physician still wants to protect their husband and getting married might be a great way to do it. And with a prenuptial agreement, you could still protect money that you want to protect.

Now you've got a book coming out soon for professors, but I want to talk about the latest book that you've actually published, and that is this one that I referred to at the top of the podcast, the IRA and Retirement plan Owner's guide to beating the new death. Six proven strategies to protect your family from the Secure Act. Was the Secure act so bad that we need to be protected from it? I mean, yeah, the lower tax brackets had in the last few years, the 199A deduction. I've enjoyed all of that. Was the Secure act really so terrible? What's so bad about it?

Well, the Secure act is so terrible because here is the reality of the situation and I think you might be addressing. Well, I think that there's probably. You probably have a wider age range, but particularly as physicians age, and particularly if they've been following, following your advice. But many of them, frankly, aren't clever enough to slow down and control their schedule. They just keep working, working, working. And sometimes they're literally too busy working to Spend money. So the growth continues to go to go up, typically in their retirement plan, and then they end up with this income tax time bomb. So the status quo that used to be bad is now horrendous. And I did think, yes, this is worth a book. And I go through examples where somebody dies with a million dollars in an IRA under the old law, their kid, after using certain assumptions towards the end of the kid's life, is broke. I'm sorry, under the old law has 2 million and under the today's law has zero. Well, that's a big difference between your kid having zero and your kid having 2 million towards the end of their life. And no, I can't undo the law, but maybe you qualify for some exceptions. And there are a lot of clever strategies that can at least reduce the impact of the law. I'm happy to talk about those strategies, but that's the big picture is that the status quo is that your kids are going to get nailed if you die with a big ira. And it's going to be brutal. And there are proactive things that you can do while you're alive. And the earlier you start, the better, that will significantly enhance generational wealth.

Now, one of the things in the book that I thought was pretty interesting that I want to hear you explain is you mentioned that it can be more beneficial to your heirs to leave your IRA to a charitable remainder trust then directly to the heirs, which I found surprising because typically when you're using a trust like that, a charitable trust, you're kind of splitting the asset between the heirs and the charity. So how is it that it can work out to actually be more beneficial to leave it to a charitable remainder trust than to the heirs directly?

Well, first I want to give some limit on that. Since we wrote the book, we found more cases that it wasn't more favorable. It was maybe a tie or even less favorable. But if you had even some charitable intent, it was still great. But here's the basic math, why it's much better than you would expect. Let's just say the as is not charitable. Remain your trust. You leave a million dollars to one child. Keep life simple. The child must take that money out in 10 years. Let's forget about the fancy strategies where they take it out a little bit each year. They take it all out at the end of year 10, the money was invested at 7%. So that million is now 2 million. Then they have to pay tax on that 2 million, let's call it $800,000. So they have $1.2 million left. Or by the way they're spending along the way, which is probably more realistic. Example number two, you leave a million dollars to a charitable remainder trust. The trust is paying out. It's technically not income, but I don't want to get into that. They're paying out certain payments that are actually, let's call it a very good income to the beneficiary. And the beneficiary is only paying taxes on those distributions. But then instead of the beneficiary getting whacked with taxes in year 10, the plan continues and you don't have. The trust isn't paying taxes and the beneficiary is only paying taxes on their distributions. So you end up with a huge tax deferral. And yes, it's true when the child or the lifetime beneficiary of the charitable trust dies, whatever's left goes to the charity of your choice or even the beneficiary's choice. But that's still sometimes, depending on what assumptions you use, that's still sometimes better than just leaving it to the beneficiary outright. Now, one of the members on our team would say, hey, Jim, you should warn people that it really works much better if you have at least some charitable intent. And I would have to say that I agree with that.

Yeah, that's for sure. All right, well, it's. Now's the time to give something away here. I think we've got a sweet giveaway here. You've been very generous with this, but you are essentially giving this book away to everybody listening to this if they want to. If you would like beating the new death tax, you can get a copy of it by going to www.paytaxeslater.com getmybook. Now, the first 400 people who ask for a free book are gonna get a hard copy, but everybody who asks for it is gonna get an electronic copy. And so I'd encourage you to go check. Check this out. It's a super interesting book, especially for those who expect to have significant IRAs or already have significant IRAs and are looking at ways to maybe make sure as much of that money goes to charities and goes to their heirs rather than the irs. Anything else we should say about that deal, Jim?

I'm obviously a proselytizer of ideas and I love to spread the word, if you will, so people can keep some of their hard earned money. And I'm literally delighted to provide resources, whether it's a hard copy of the book. And the only reason why we had 400. It wasn't, you know, oh, hurry up and do it tomorrow. It was because that's roughly how many we had available. Otherwise I'd be happy to give away more. Maybe we can even order some more. But I do love the idea of getting that information out there. And very frankly, the thing that you told me that made me the happiest of our entire interview is when you told me that I actually influenced some of your thinking. And you are obviously an influencer yourself, which made me feel good. So I love the idea of helping people. There's also some charitable ideas in there that we did talk about that are relatively easy and very beneficial to both family and charity. So I would encourage everybody to take advantage of that offer. If you want to repeat it again, I don't want to sound like one of these guys on tv, so I'll let you have that job.

We'll put the link in the show notes as well. For those of you who are listening in your car or whatever, don't crash while you're writing it down. But it's paytaxeslater.com and one of the cool things about that book is one of your goals has been basically to influence other people to give a billion dollars to charity. And it wouldn't surprise me at all if you can hit that goal. Obviously it's going to be hard to know if you did or not, but I bet you will. So I think that's pretty cool.

Well, again, hard to measure, but there's that charitable trust idea and then there's another idea which I don't think we have time for that I think can get a lot more money to charity while at the same time benefiting your family or at least benefiting them more than the traditional method of giving money to charity.

Yeah, well, this will be listened to by 30 to 40,000 high income professionals at some point in the next few months. What have we not talked about that maybe they should know?

Well, it might depend on their stage in life. But let me say something that might apply to some of the older physicians that might be listening. If I was to say what is some of the biggest mistakes that many of my older physicians have made over time? So this is assuming that they're doing a lot of things right. Maybe they're listening to you. Let's say they get the investments right. Let's even say they get the Roth IRA conversions right. Let's even assume they get the estate planning right. Which by the way, hardly anybody gets right. Really, it's a terrible Problem, particularly when there's a big ira. But let's say that they get all those right? What do they often do that they could have done differently that if I had caught them 20 years ago, by the way, I was with them a lot of them 20 years ago, but they didn't listen is I would say figure out how much money you can afford to spend and then at least come close to spending it. And by the way, spending. No, seriously. And it doesn't mean go out and buy a new Cadillac or fly first class. It could be money to charity, it could be money to your kids. Buy experiences, buy. You know, I'm a big fan of taking your whole family on vacation. Right now I'm speaking to you from the Poconos where my father in law has been taking the entire family. He's 97 years old. He'll die with a few less dollars by the family memories he's created in the last 25 years. So be smart about your money, spend it on experience, gift it to your kids. And in addition to getting all the things like Roth IRA conversions and the investments. Right. And the estate planning, by the way, the estate planning is pretty horrendous for IRAs and retirement plans. And particularly with the secure act, people are going to get nailed. But I guess if I was just going to keep it simple, I would say the person who dies with the most money is not necessarily the winner. The person who has best utilized their money for themselves, their family, their charities, et cetera. To me, that person is more of a winner.

Good advice. That hearse is not going to have a trailer hitch, is it?

I don't think it is.

All right, well, James Lange, thank you for your time tonight or today and I appreciate you coming on the podcast. And I suspect you're going to be giving away all 400 copies of that book plus some. Well, I hope so, but we appreciate your generous offer.

All right, thank you so much, Jim.

Thank you. All right, that was great having James Lang on here. I really like his writing. He is not afraid to get into the weeds and give hard recommendations about stuff. And so I really enjoy his books. So many books out there are so full of fluff and stuff. His are not. They are full of examples and numbers and charts and if you're into the details, he's an author that I think you will like a great deal. At some point in our financial lives, it will be time to buy a home. A physician mortgage can be a good vehicle for a young doctor who's just out of school and has a more effective place to use their money than on a big down payment. These loans allow doctors to secure a mortgage with fewer restrictions and a lower down payment than a conventional mortgage. But if you're further advanced in your career or deeper into your journey to financial freedom, buying a home with a conventional mortgage and then later on potentially refinancing that loan to a better rate with a shorter timeframe could be a great move. Wherever you are in your financial journey, make sure you use the mortgage that will be most financially beneficial for you. Hop over to our recommended tab to learn more about all of your mortgage and refinancing options@whitecoatinvestor.com mortgage. You can do this and the White Coat Investor can help all right, don't forget if you need to refinance your student loans, and many of you will over the course of this fall as your interest rates go up from the 0% the federal student loans have been at. But if you refinance more than $100,000 in student loans through the WCI links, we are going to give you our flagship online course, Fire your financial Advisor. Absolutely. For free. To claim that free course enrollment, visit whitecoatinvestor.com refi bonus after you refinance your student loans through the wci links@whitecoatinvestor.com student loan refinancing. You have to do that. I think we've extended that through October 31st, but it's a great way to get pretty sweet value add to refinancing your student loans, which is already a great deal to start with. Thanks for those of you who've left us a five star review and told your friends about the podcast, our most recent review came in from tired parents of newborn twins who said, excellent podcast pro tip. You don't have to be a doc to benefit. Dr. Dali gives sound, well researched, important advice for anyone looking to maximize an investing strategy. While not falling for the latest gimmick, he's incredibly consistent with suggestions and directions. His website is also a great source for details like examples with screenshots or walking through spreadsheet formulas. Very little is spread specific to doctors, so don't let the title keep you away.

Shh.

Don't tell the doctors. They want it specific to them, but the truth is that 95% of personal finance and investing is the same for everybody. Keep your head up, your shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor Podcast.

My dad, your host, Dr. Dahl, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor. So this podcast is for your entertainment and information only and should not be considered official personalized financial advice.