CW 463 – Ashlea Ebeling – Reducing Your Capital Gains & State Taxes with Attorney and Associate Editor at Forbes

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Welcome to the Creating wealth show. This is your host, Jason Hartman. And this is episode number 463. 463. Thank you for joining me, listeners near and far in 164 countries worldwide. Gosh, you know, if we could touch every country, wouldn't that be cool? I haven't noticed any listenership in North Korea. You know, that's a bummer. Oh well, yes, it would be great if we could touch countries everywhere. That would be good. And guess what? They discovered the most earth like planet yet just a few days ago. This one is, gosh, I think it's like 80 light years away. You know, that's not far. If you can, if you can just ramp it up to about 186,000 miles per second, you'll be there in 80 years. It's not bad, right? And you know, a spaceship is like a self driving car. You know how much I love the idea of self driving cars. In fact, on a day like today, I love it more than ever because I need to get in the car right after this and drive to the Socialist Republic of California for our wonderful annual Meet the Masters event. I'm so excited to see everybody. I know many of you listening will be there and it's just going to be a great time. So looking forward to that. But it would be so nice if I could get in that Mercedes that I described on the last episode and it would basically just be like my living room and it would be like not having any real break. I mean the break would be walking to the, the autonomous car, getting cocoa in the car, getting all the stuff I need for the event in the car, sitting there, maybe pull out the laptop, take a little nap. I don't know, location, location, location ain't what it used to be. I really want you to think about that as real estate investors. That means that you can live in Phoenix for a heck of a lot less money than you can live in Los Angeles or Orange county or San Diego. And heck with, with gas prices so low, you can just be there. You know, it's really easy to be there if you have an autonomous vehicle. It's no chore at all. In fact, it might be a nice pleasure. So that'll, that's something to think about. So Larry Summers, you know Larry Summers, he's the former US Treasury Secretary, AKA Lawrence Summers, of course. He is out talking about energy, about oil, about shale and how this could be America's next big economic booster. This is a Reuters article that I saw a couple things here strike me that are really interesting. He says the United States has the chance to be the energy economy of the next decade what Saudi Arabia has been for the last two or three decades. Summer said on Saturday the effect of allowing oil exports would reduce rather than increase American gasoline prices. Now, now, you know, we haven't allowed oil exports. I don't know if we've ever allowed it, but at least not in a long time. I don't really know how, how long it's been since we have it yet. I want to say that maybe it was like World War II is where we may, basically may have said that we don't allow, allow anybody to export oil from the US because, you know, the US Looks at that as though it's a big part of their national security. You know what, we didn't think we had much oil here until recently. Thank you to all of you geologists and you technological gurus and I'm sure there's some quants working for those oil exploration companies too, that figure everything out. So good to have people in the world that are so good at math and so smart. I'm not one of them. So I'm glad you're here to help us out with all this stuff. And you know, they, they go out and they, they figure this out. Suddenly America is like this energy rich country, right? We didn't think we were, but so much for Chris Martenson, who we had on the show a couple of times, who I like a lot and so much for all the peak oil people. Now some of the people say that, you know, shale and some of the fracking technologies and all of these sort of, we'll call them Energy 2.0 or Oil and Gas 2.0, maybe. Methodologies, they say that these wells will not last as long, or these fines, I guess they're not really wells, always. They will not last as long. They'll dry up sooner. And a lot of people disagree with that. I don't know who's right or wrong, but you know, the peak oil people and the gold bug people and the Bitcoin people, boy, they're real diehards, aren't they?

We shall see. We shall see, folks. But, you know, if America becomes a legit oil exporter, Summers actually could be right about that. Because you would think if you export something like oil that, you know, you'd sell it on the world market. And of course, that has to be traded in dollars, the reserve currency. So much for all those BRICs trying to trade outside of the dollar, huh? You're not making much of a dent in things if we've got such a commanding force in the oil market, that's for sure. But all the BRIC countries, you know, but what happens is when you export more and when you create more demand for your product, of course, you know, naturally, more efficiencies develop, more incentives develop, more people are out there working on how can we produce more, right? How can we produce more? And as they're working on that, that is likely to make the price lower. So I actually rarely agree with Summers, but on that I will say I agree that that probably would happen. Also, they talk about core inflation being very low in the US and around the world. And just a little reminder, we've talked about this many, many times, but when you hear about the core rate or core inflation, remember that that strips out food and energy. It's not in the consumer price index basket. When they talk about core, okay, whenever you hear that word core, kind of run for the hills because, you know, it's a misnomer. Now, granted, energy, especially oil energy is becoming much, much less expensive. And we'll see how long that lasts, you know, Really, I don't know, but it's amazed me. Remember, I only was right on one prediction. Okay, that it would go below 80. Right. And that it did in short order there. But we shall see what happens there. And you know, there's some forces out there that are lessening demand for oil now. And you know, why on a real estate show are we talking about this? You might be asking. Well, it's vitally important because as commodities investors, remember, we really are into the idea of packaged commodities investing, of assembled commodities investing. And so one of those commodities that is a decent sized component in the ingredients, if you will, in the ingredients of a house or an apartment building that you might buy is the cost of energy and the cost of petroleum products. Because there's a lot of petroleum products in the house. Heck, we. What do you think insulates the wires? Well, plastic products. Right. And what are those made of? They're made from oil. How about insulation in the walls? I bet there's a lot of petroleum products there. And, you know, it's just all over. This is everywhere, right? And so that may soften the cost of construction a little bit. But then you see these demand increases. So, you know, one of the things I learned about a long time ago was the supply demand curve. And at some point point, these two things in the world of economics, they meet, right? And when they meet, that means that demand increases as the supply becomes more affordable and more people buy and new markets are even created, expanding the whole size of the market. And so, you know, this could lead to a greater standard of living for people around the world and lead to increased demand. But ultimately, you know, maybe it softens housing cost a little bit. Maybe instead of the cheapest house you can build being $75 per square foot, maybe it's $70. Okay? And I know we've talked about the complete opposite for a long time on the show about inflation and the way that affects us. And remember, of the three economic scenarios, the three basic ones, of course there are modifiers to this, but the three basics are inflation, deflation and stagnation. Not to be confused with stagflation, which is the Carter era misery index. Stagflation is when you have inflation, but you have a very stagnant economy. And that's really no fun at all. Okay? And that, of course, we had under Jimmy Carter. And so when you have these, of course, the inflation, we're going to hit the ball out of the park with inflation. Following my philosophy, and that's my. Philosophically, I don't like it. But as a, you know, selfishly, I love it because it's great. It makes my strategy just rock. But the other strategies we do pretty well into because in a deflationary or stagnation area, stagnationary, maybe I just invented a word, a stagnationary environment.

We are probably one of the few investment groups, investor groups, that are getting any real yield on our investments. Now, look, you know, the stock market was down the tubes just recently and now it's back up. And, you know, who the heck knows? I mean, overall Wall street, it does not Work. I mean, how many people do you know that have started with very little money, Take your pick for very little and created real wealth. And take your pick for what that means too. In the stock market, you know, you don't know anybody probably, okay? But you know lots of people who did that in real estate, in income property, the most historically proven asset class in America. So there's this. When I lived across town here in Phoenix, there was this hair salon and, you know, they had massages and stuff there too. And this salon, and I thought it always had a good name. It was called Mood Swings. Mood Swings, Okay. And so Mood Swings, that must be a malady that stock market investors really, really suffer from because, I mean, that just must be nuts to live that way to think that you're actually an investor when you know, your mood is swinging back and forth constantly because the market's up one day and you're happy and the market's down the next and you're depressed. I mean, this is. That's absurdity. That's no way to live. That's no way to invest. Okay, getting back to the article here. Interest rates, you know, I have said many times that I've been surprised by interest rates. I think they should be higher. Well, in the article it says here, Fed Chair Janet Yellen lays the groundwork for the Fed's first interest rate hike in nearly a decade. The Fed changed interest rate guidance last month at its policy setting meeting, adding language in its statements that the central bank is moving closer to raising rates. So, you know, I think we should see higher rates. It's just crazy that we haven't. But that's the way it is. It's a shocker. Okay? And maybe some of you disagree that it's a shocker, but overall, I think it is. Okay. Now another really interesting article, and this one is a Business Insider article from a few days ago, and it says the title is, it's like we're in a panic phase of financial crisis. And what's fascinating here is it starts out by saying over the past few days, we've seen stocks plummet and oil prices crash. But the most interesting moves have been occurring in the global bond markets where bond yields have been plunging to historic lows. Okay. By the way, I've never been a fan of bonds. You've heard me say that many, many times. I do not like bond investments. 2015 starts off with the average of the G3 10 year government yields below 1%, says Stephen Englander, Citigroup's global head of G10 FX strategy. The G3 currency group is made up of the US dollar, the euro and the yen. Okay, now check this. This is mind blowing. Okay, if you think about this, on Tuesday the US 10 year yield got as low as 1.959% below 2%. And Japan's 10 year yield fell as low as, get this point, or I should say 0.288. In the eurozone, the German tenure got as low as 0.443% and the French yield low as well. Okay, I don't need to read you the number, you get the idea. So it says this is the first time ever that rates are this low as Even during the 1930s, rates were well above current levels in both the United States and abroad. Englander said. Okay, it's also striking, he goes on to say that this is not happening during the panic phase of a crisis. But after the panic is over and we had significant recoveries in asset prices globally, he adds more sign that investors think we are going nowhere for a long time. Okay, so this is a crazy time. It goes on to say the global economy is arguably fragile, but it's hard to argue that we're in the middle of any sort of panic. Okay, so we're not. This could be secular stagnation, but it could also be a policy impasse. Okay, so you know the helicopter Ben kind of concept, and that's Ben Bernanke, our former Fed chair who famously said, absurdly, you know, that he would drop money from a helicopter if he needed to to stimulate the economy. So these are, as the old Chinese saying goes, interesting times. They are very interesting times. But one of the things I love about income property is that rents are very, very slow, very slow to adjust and so are prices. So, you know, you can lock those yields in with leases. I mean, I look at the apartment complex in which I live and yes, for those of you who haven't been listening to the show regularly, I own lots of income property, but I'm personally a renter because I think being a renter is a pretty darn good deal for me. Especially if you're renting a higher end property. Then it's a phenomenal deal. You know, I'll give you an example of one, by the way. I will. I made an offer recently on a 5,000 square foot gorgeous penthouse condo here in, in Arizona. And you know, it's right on the water. Yes, there's water in Arizona. Believe it or not. What they call a lake and a river here is kind of a misnomer if you're from anywhere else. But anyway, it was on the water. And this gorgeous place, I mean, just stunning 5,000 square feet, okay? It's been listed for sale for a long time. It's not listed for lease. It's currently listed at $2.5 million. And I told them I'd pay them $5,000 a month rent, and they said no. And then I told them, well, I'll pay them $6,000 a month, and they said no. I can't believe, you know, they got a vacant place and they're walking away from $72,000 a year from me, okay? But then they said, well, you know, we think the market value is 8 to $10,000 per month. And I'm thinking, well, look it, I've just checked the RV ratio, right? And the rent to value ratio or RV ratio that I've, you know, my little trademark way of analyzing these deals as a, as a quick rule of thumb way to look at it, the RV ratio. If I invested two and a half million dollars in some real estate, I want to get $25,000 per month out of that. So even though I haven't done the deal yet, at 8 or even $10,000, it would be a pretty good deal because I would be much better off using that $2.5 million elsewhere. And by the way, you know, I like living in penthouses. You know, I mean, the penthouse idea is pretty cool for a bachelor like myself, but man, I don't want to own that stuff. High rise condos are just not good on the investment scheme. Maybe there will be a time when I make an exception and think they're good, but I haven't really thought they're good so far. Okay, so again, rents are slow to adjust. High end owners are completely clueless about what their property is worth or where they should be allocating their money or investing. So good for us. Okay, back to what I was saying. My building is like 97% occupied. When I moved here about a year, a year and one month ago, this place was only about 60, 65% occupied. So the rental market is booming. I mean, I see it firsthand in my own place. I see it in the properties our clients own. Look, the population is increasing and even though rates are incredibly low, it is still, relatively speaking, hard for people to qualify for properties. Okay, that's something that you should all be aware of and you should all invest for the next 10 years. The demographics coming at rental property are nothing short of phenomenal. And although we've Talked about it before. I will remind you, okay? We've got Generation Y, the largest demographic cohort In American history, 80 million people, larger than the baby boomers by 4 million people. They are coming right into their prime rental years, okay? If they're not in them already, some are in them already. They're a huge group, a huge demographic cohort. And then we've got the situation where we've got those same people, poor them, saddled with ridiculous amounts of student loan debt, okay? Keeping them likely to be renters rather than owners, because that'll make it even harder to afford, much less qualify for buying your own house. They have this anemic job market, and they saw their parents in their formative years, in their teen years, for many of them, get crushed in the housing market. And they also, because the employment market isn't that great, and because they're tech savvy, they can realize that, you know, mobility is great. It's the best thing you can have on a resume. And they also realize that they don't really have to live in any particular place. You know, a lot of them are going to be working out of home, even if they're working for another company. So this is all good. And then add one more factor to that, at least there may be some others that I'm not thinking of offhand that I may have mentioned on, on prior episodes. But add, add one more factor now is that the marriage rates are dropping like crazy. I mean, people, you know, finally, finally, for once, I'm in the trend, right? You know, I, I always thought, you know, I got to get married. I got to get married. And I'm still into the idea of getting married, even though what I told you about Elon Musk on the last episode, blah, blah, blah, I don't have to worry because he's way richer than I am. So, you know, I definitely still like the idea of getting married, for sure. But, you know, overall societal marriage rates are plummeting, okay? And so with that, there's less of an incentive to go buy a house. And you've got this tremendous opportunity to serve these people, to rent to these people for another good decade. The population is increasing. So, you know, as the old saying goes, don't wait to buy real estate. Buy real estate and then wait. It's a pretty good opportunity, for sure. Our guest today is Ashley Ebling. Ebling, I think I can't remember how to pronounce that name because I interviewed her a little while back. She's from Forbes magazine. I read A really interesting article that she wrote about the estate tax in New York. And this is just shows you how completely misguided government is in so many ways. I mean, it's just absurd, right? Totally misguided in that it can be 164%. Yeah, you heard that right. 164%. That is not a misprint. It's not a misread. So she's going to talk about that and talk about some different tax scenarios in different states. And the bottom line of all of this though, that you want to position your portfolio largely as much as possible. Okay. You may make somewhat of an exception here and there in business friendly, landlord friendly and tax friendly states. And you know what, by and large, those are the markets we recommend. So go to jasonhartman.com, click on Properties, check out those markets. By the way, I wanted to let you know we are having a little problem with our website. It's kind of minor. Well, it's sort of minor and major at the same time and we're trying to troubleshoot it right now. We got some good people on it. But if you look at properties on our site and you fill out a request to be contacted about one of those properties, that little feature stopped working recently. We just realized it recently because thankfully one of you told us do not use that until further notice. Just use the contact us or you know, you can just call our office to our phone numbers on the website. Just use the contact us form@jasonhartman.com rather than the drill down area in the property performance section. Okay. But you can look at some awesome properties there. And look, you know these properties, the projections show them performing at overall return on investment of well above 20% in most cases, even above 30 and 40% in many cases. Life is not perfect. Real estate investing is far from perfect. It's just better than everything else that I know of. Even if it only goes half as well, you're still going to be in much better shape than probably anything else you can do out there. So check it out at our website. Let's get to our guest today. By the way, one more thing I want to mention I have been thinking about. We've been doing this heavy pace of production lately every Monday and Wednesday, Friday for several months now. And it's, it's pretty hard to produce that much content and to get the time to do it for you. I love doing it. But you know, I do have a business to actually run, believe it or not. You know, we are in the real estate business and you know, it requires some attention for sure. So we may go to the two episode a week schedule, down from three. We're thinking about that. So if you have any feedback for us, let us know if you love three episodes a week and say, Jason, gosh, you got it. You should have, you know, seven episodes a week, one every day. Tell me that. And, you know, maybe we'll just keep it up at three episodes per week. But we are thinking of scaling back to two episodes per week at the Meet the Masters event this weekend. I plan to get some feedback from our wonderful audience on that because every person in that room pretty much is listening to the podcast. So thanks for joining me for the monologue portion today. Let's get to our guest. Ashley from Forbes magazine is here with us.

It's my pleasure to welcome Ashley Ebeling to the show. She is a associate editor with Forbes magazine and Forbes.com and she wrote an interesting piece recently about the New York estate tax and how we should be aware of a 164%. Yes, you heard that right. Marginal tax rate and profiles different states around the country and their tax situation and a whole bunch of interesting things. So it's a pleasure to have her on today. Ashley, welcome. How are you?

I'm just fine. Thanks for having me on the show.

Well, it's good to have you. So first, let's dive into this article and just, I mean, this is insane.

I cannot believe it. How do we get to more than 100% tax? As if 100% weren't bad enough.

So New York estate tax has this provision called a cliff, and people are trying to change it. It's obviously a problem. But.

One thing is New York made sweeping changes to its estate tax law just this year, and they doubled the amount that's exempt. So if you had over $1 million before, you would owe estate tax on that amount. And they've doubled it now to two.

But the cliff problem, if you die with just 5% more than that new $2 million number.

You face this cliff. And that's where that crazy marginal tax rate would come in. And I can give an example. So Sharon Klein did up with Wilmington Trust. She kind of gave me an exact example because the New York State Department of Taxation, they did a summary memorandum on the new law, but they neglected to spell out the effect of this cliff. So her example was a taxable estate of 2,062,500 would pay no tax. But if you had $2.1 million, you would have a tax liability of $49,000. So that's more than the 37,000 increase in the value of the state. So just your state's gone up by 37,000, but your taxes would go up by 49,000. So that's the effect of the cliff.

Boy, this is crazy. Yeah, that's really crazy.

So what the lesson is, people need to know about state estate taxes. The federal estate tax law, that's been changed. So there's a big, big exemption. The Federal exemption of 5 million per person Indexed for inflation is now permanent, and that's indexed for inflation. So next year the exemption will be 5.43 million. So obviously, most people don't really have to worry about federal estate taxes at all. In the meantime, the state estate taxes can be as low on inheritance taxes. It starts at the first dollar. In states with estate taxes, New Jersey is the lowest exemption with $675,000. So people with a nice house, they're in estate tax territory, right?

Right, they certainly are. So what do you think that, what change do you think will come to this law?

Well, the New York. There are people trying to change that cliff. So it would be more of a, it would be more gradual. So that's a possibility that, that could get tweaked in the next legislative session. And the good news in New York is that the law that's been put in place is eventually it's going to match the federal exemption. So BY, in just two years, by 2017, the New York state exemption will match the federal exemption. So for most people, it's not going to be an issue.

Very interesting. So when one looks at a state to consider a move, they need to consider what life stage they're in. If they're in their career stage and they're earning a lot of money, you obviously want to stay with no or very low income tax if you're retired, as my mom retired many years ago and she, you know, I told her she should move to Texas and she said, no way. The property taxes are too high. And she didn't care as much about income tax. You know, Texas has no state income tax. So, you know, it really depends. It's like where to live during your career years, where to retire and then where to die. And where to retire and die may be two different things. Right?

They're very different. It really, you know, it's going to depend, depend on each family's specific situation. But you're right that you have to look at all the whole tax picture. So you look at income taxes, sales taxes, Property taxes, estate taxes, gift taxes. And it's a little crazy that there's that much to look at, but it makes a huge difference. And then for retirees, there are state pension tax breaks that come into play. So that's another that goes under the category of income taxes. But you have to see whether your state taxes Social Security or whether it doesn't. My mom just moved from Virginia to Connecticut, so now her Social Security is being taxed where it wasn't in Virginia.

Wow. Okay. So you're in Connecticut, I believe.

Right, right.

And that's the only state with a gift tax.

That's right. Minnesota had one. Tennessee got rid of theirs. I think it was 2012, and then Minnesota put one in in 2013. And then last year they. Then earlier this year, they got rid of it again. So gift taxes are a bit controversial, but the idea with gift taxes is they don't. The states don't want people giving big amounts to their heirs in a way to avoid the state estate tax. So Connecticut, for example, has a $2 million.

Limit that you can't give more than that without having to pay a tax that would go up to 12%.

So do we see a lot of people in these states where you have the high estate tax, you know, especially New York, what do they do to get around it? Do they use a charitable remainder trust or what? What is the vehicle they're using? Or do they just try and spend all their money before they do it?

That's obviously a simple way to do it.

I'm spending my children be too thrilled with it.

There are probably four big ways that people.

Avoid or get around the state of state taxes. The one would be moving. So you could be in New York and then also have a home in Florida, and you would make Florida your residence. But you have to really do it. You have to be there more than 183 days a year. You have to change bank accounts, driver's licenses. There are all kinds of residency rules to make sure New York doesn't pull the state back into their territory. So moving is a big one. And I say everyone says Florida all the time, but there are seven of these no income tax states. And the second big move that people do is setting up a traditional credit shelter or bypass trust when the first spouse dies. And that puts the money that goes into that trust would then be exempt from estate tax. But the tricky thing is, at the federal level, you don't have to worry about that because there's something called portability. And if you have all this so someone who has $5 million at the federal level, they can send the money over to their spouse and then it, it's protected even without a trust. But at the state level, there's still more of a need for trusts for estate planning.

Very interesting. Anything more you want to say about different taxes in different jurisdictions? Because I want to just touch on some of the other stuff that you're following and writing about.

Well, I guess if we look at the, at the, at the, it's for the state estate taxes. It's actually 19 states plus the District of Columbia that, that have these taxes and why you need to keep track of it. I have an interactive map that we keep on forbes.com called where not to Die. And every year it's updated. There were eight states that are ushering in changes for 2015.

So that's one place to look. The Tax foundation has great maps on tax climate, on income tax taxes in all the different states. So that's another place I send people to look.

And I've seen some very complex charts as you were talking about the comparisons a few minutes ago. I've seen some very complex charts in terms of all 50 states or maybe 51 with District of Columbia, 52 with Puerto Rico, which has got some very desirable income tax and capital gains tax opportunities right now. It's just a really complicated matrix of all of these different issues that one needs to consider.

Well, when you're speaking of capital gains tax, that's another thing that people completely don't think about and that can be taxed. Like in California, it's the same.

I think it's up to 10.3 is the top rate there for the income tax. So if you're selling real estate, it's really important that you look that you know that when you're going into it with the capital gains rates are going to be not just the federal rate, which has been increased now, but to 20% for high income earners. Plus there's another net investment income tax and then there's the state capital gains tax. So you have to add all of those together to really know what your tax rate is going to be.

So I'm looking at the where not to Die map now. I found that while you were speaking just a moment ago and it looks like, I guess the red states are.

Those the undesirable ones, those are the estate tax states. The blue states are also undesirable in their inheritance tax states. And again, that's something a lot of people don't know. The Difference. In New Jersey and Maryland, they have both estate and inheritance taxes. The inheritance taxes are a little different because it's who gets the money, who pays the tax, whether or not you pay the tax. So Pennsylvania is a good example. It used to be that spouses paid Pennsylvania inheritance tax at a 6% rate. And then people complained about that because generally for estate taxes, spouses don't pay estate taxes at all. You can give anything when you die to your spouse, and it's estate tax free. So this inheritance tax, so they were paying 6% in Pennsylvania, they cut it to 3% in 1994, and then the next year they cut it to zero to make it similar to other states. But there's still, in Pennsylvania, if you have an estate going to children, grandchildren or parents, it's a 4.5% tax. And if it goes to a brother or Sister, it's a 12% tax. If it goes to a nephew or niece, it's a 15% tax. So new Jersey has a similar lot of that too. And there's, there are people trying to change it there too, where they think it's not fair that it's, if you're single and you're giving your state to your sister, you're taxed. But if you're, you know, if you're, you have children and you're giving it to them, you're not taxed.

Yeah, very interesting. And we should mention that the red and blue on this map are not political red and blues. So.

No, but, but to some extent you'll see, like the north, the north, even east has this big chunk of estate tax dates. Washington has the highest rate. Washington state has the Highest rate at 20%.

Wow. Wow. Yeah, that's something else.

And then the interesting thing is there is precedent for repeal. If you looked at this map a few years ago, it had a lot more estate tax states. North Carolina and Indiana repealed their taxes in 2013, and Kansas, Ohio and Oklahoma all repealed theirs in 2010.

Very interesting. And it is interesting that it follows the political map to some extent, and that doesn't surprise me. But tell us about some of the other stories you're working on. I know you cover some real estate stuff, and I'm kind of looking at your portfolio here on Forbes.com?

Yeah, I love. One of my favorite topics is philanthropy. And you mentioned charitable remainder trust. So that's something. That's another great move, tax move for people who are charitably inclined. And I had a nice example of a son who inherited a vacation house from his family and then they put it in a charitable remainder trust and then it's a way to give real estate to charity that works.

What do you think about the Roth IRA versus the traditional?

Well, we're at Forbes, huge fans of the Roth ira.

But again, it's a tax play. So if you're going to be in a higher tax bracket in retirement, it's a total no brainer. You definitely should do it. But some people who should be doing it who aren't thinking about it, they're actually in a low tax bracket now and they're young. So they should be putting money in a Roth because they don't get any advantage of the pre tax.

Deduction that you would for a regular traditional ira.

So just to explain for the listeners who don't know, a Roth basically says pay the tax now but let it grow tax free and so you can take it out. And ostensibly the idea is the tax rate will be much higher later in the future as the country is more and more fiscally insolvent.

And looking for money. And then you'll just have that money that's compounded for you over the years tax free because you paid the tax early. My fear and why I maybe I'm just being too paranoid, but the reason I am not a big Roth proponent is that I just think the government is going to become more and more hungry in years to come and they might just change the law. I mean, what's to stop them from doing that?

Some people do have that fear and I can't say that it's implausible that it could never happen. But I think there would be like such an outcry that it wouldn't happen.

And then another point, you've got these two buckets. You automatically, if you're at a workplace plan, any like employer money that goes into a plan and earnings that's all pre tax. So some people like doing some Roth, some pre tax to hedge their bets. And whether you actually take money and pay taxes on it to do a Roth conversion, which you can do to try to get more money into a Roth, that I would be more hesitant about the way for what you're saying.

Yeah, I think that these retirement plans are going to become the low hanging fruit in a. Hopefully not, but very likely. Unfortunately, I think desperate future where the government will say, you know, they want to nationalize them or you know, it's just so easy to attack the retirement plans.

Well, there are, there are already proposals out there in the administration to say that you can Only put a certain amount in your retirement plans and after that point then once it's, I think it was about $2 million, once it's at a certain balance, there are different numbers depending on the different proposals that then you wouldn't be able to add any more. So.

When you see the proposals out there, there's a reason to be somewhat scared.

It seems like the guard against that might be to have a retirement plan, whether it be a Roth or traditional. That's one issue that we already discussed. But have it be self directed. Because if it's self directed and the assets aren't just with big brokerage firms and really simple electronic transactions, that is not going to be the low hanging fruit for the government. The self directed plans, if you've got, you own some notes or mortgages, you own some real estate, self directed plans.

Are great for people. You have to really research what you're putting in with them and make sure you're not worried about the self dealing rules. But there definitely is a place for those for folks. I think if the government puts in limits though, they're going to apply across the board whether it's self directed or through a regular brokerage. And then theoretically, if you have the Roth money in there, you have more money in. If they're just putting limits on and they're not making a difference between Roth and pre tax, then you can, you can basically have a bigger retirement pot. That's Roth money.

Very interesting. Okay. Any other stories you're working on or have recently covered that you want to talk about? Just thought I'd open it up for you.

Well, I guess the kind of biggest one I just finished that got a lot of attention was about the upcoming 2015 tax filing season.

I don't want to think about that yet because it's the fourth quarter, but the IRS commissioner is warning that it's going to be like the worst season ever. And Congress is now back in lame duck session and they have 50 plus tax extenders that expired tax laws that expired at the end of last year. They still haven't decided what they're doing with. So there's a lot of tax news that's going to be happening by year end that people should pay attention to because what happens on those bills is going to affect your taxes that you're paying when you write your check in April or if you're getting a refund, you'll get less of a refund.

Ashley. So when you say it's going to be a really difficult season, what do they Mean by that law changes, audit risk. What?

So law changes because with these tax extenders, whether some of them, and that's everything from taking the, the deduction for sales taxes to teachers buying $250 worth of supplies, to a $4,000 college tax break, commuter tax benefits. I mean, it's just, it's a big list. So chances are one of the things on that list will affect you. And if they don't, if Congress doesn't get around to figuring out what they're going to do with those laws by early December, then the IRS commissioner said that'll delay the whole processing of returns. They might have to delay the start of the tax season, and then that would potentially delay refunds.

Wow. Yeah. What a mess. You know, I remember I was talking to Steve Forbes and then he gave a speech to our group and he just, you know, as a proponent of flat tax, he is so right. You know, he just said, let's just drive a stake through this old system and start fresh. Because.

This is so overly complex. I mean, I can't believe it, Ashley. You know, I am scared to death to sign my tax returns every year. There is no possible way I can understand the hundreds and hundreds of pages that I'm putting my name on every year. I mean, I don't even think one highly qualified CPA can understand all of that.

Well, there are always people say three people get three different answers if they file your taxes for you, which unfortunately is right. And if you call the IRS hotline, you might get two different answers if you call two times. And then good luck calling because they're predicting 34 minute wait times for the 53% of the people that actually hang on until they get a live person there. So I wish I had better news on that front, but that's kind of the way it is and.

Do the right thing and try and understand the tax laws and get the right kind of advice. Another one of the reasons they also said about the delay is because they're putting, they're going to have on the website, on the IRS website, a list of tax preparers. And obviously if you go to a CPA or enrolled agent.

They'Re high standards, fiduciary standards, they have to hold to. But there's been the problem with unregulated tax preparers. So we always have to warn people about that. And they are going to put up. The IRS is going to start putting up on their website a database of qualified tax preparers.

Yeah, Very, very interesting. We will see how it all Turns out, Ashley, give out whatever website you'd to like. Like, is it just Forbes.com or something specific?

Oh, so Forbes.com, the where not to die you can type in if you're interested to learn more about state taxes. And my name is Ashley A S H L E A. So that's an easy way to find my articles too. And I'd love you to follow me on Forbes or Twitter.

Fantastic. What is your Twitter?

Just AshleyEvilling.

Okay, fantastic. Well, thank you so much for joining us, Ashley. Very informative.

Thank you. Thanks for. Thanks for having me. Take care.

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