STOP Paying RMD Taxes: 3 Advanced Strategies (QCDs, Roth Conversions, QLACs)

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Welcome to the One of a Kind Financial Show Daily with your host, Mike Milligan. It is Friday, October 24th, and I'm gonna let you inside something on today's podcast that is rare for this. On episode 25 of the One of a Kind Financial Show Daily, you're gonna hear how I answer questions on the One of a Kind Financial Show. Gary normally ping-pongs questions over to me from our listeners, and I give answers. So enjoy these— this question and answer session from the recent episode of the One of a Kind Financial Show.

Welcome back. This is the One of a Kind Financial Show. I'm your consumer advocate, Gary Nolan. Back with us to help you take charge of your money is Mike Milligan. Mike has helped hundreds of clients achieve their financial retirement goals, been doing it for a long time, for over 25 years experience in retirement planning business. Mike is also a fiduciary. It's a very important distinction when you're looking for a financial advisor. Let's get into the questions that came in from the phone line at 800-748-1838 or the text line IDEAS to 600-700. They turned 73 this year. They're first facing their first required minimum distributions, which will bump them into a higher tax bracket. They don't need the income right now, but Want to avoid unnecessary taxes. What are some tax-efficient ways to handle RMDs when someone actually doesn't need the money, Mike?

Well, okay. So tax-efficient ways to handle it is if you make gifts to charity, give your RMD away as a qualified charitable distribution. So up to a certain amount of money every year. So if you're, if you're taking money out of your checking account, you're giving it to your church or to the Salvation Army or some other nonprofit, So, if you're taking it out of your checking account, if you would instead just take it out of your IRA as a qualified charitable distribution, it'll satisfy your RMD, but it doesn't show up on your tax return, meaning it keeps your taxes low. Plus, you get the added bonus of keeping the money in your checking account that you otherwise wouldn't have. Okay? So, that's one of the primary ways. The other one is— a couple of other ways that you could do is we can look at doing things like Roth conversions to reduce RMDs. RMDs the next year. So, go ahead and pay a little bit more tax this year so you don't have to pay them in the future. Another tool out there is called a QLAC, Qualified Longevity Annuity Contract. It allows you to defer money you don't need to now, up to $210,000 per— $210,000 of your IRA of money you don't need now that you can push out and not have to take the RMD on until you're 85 years old. So, yes, folks, if you're in the RMD world and you don't need the money, there are strategies. It's just, it just takes a phone call in where we set up a time, talk about you. And when we discover like what your situation is, what your beneficiaries look like, does your spouse need, you know, your money in case you pass away first? We talk through all the details and get to know who you are. We can come up with tax-efficient ways to handle RMDs.

Yeah, the fact of the matter is that this needs to be done in advance because once those RMDs hit, there's not much you can do. So this This definitely takes some planning in advance, Mike. Am I right?

It does. So, like, if you're in the 60 to 72 age bracket right now, it's something we need to talk about, right? Because RMDs are, you know, the truth is that RMDs are the government's way to drive revenue into their pockets. So, they designed it, right? So, if you look at like a client who over time contributed $200,000 into a 401 plan, and maybe their company matched $100,000. So, the total all-in contribution is maybe $300,000. But if it's had 40 years of S&P 500 growth, that IRA or that 401 is really not $300,000 right now. It's about $4 million.

Wow.

Right? So S&P growth. And so what the government really did is they gave you a little tax benefit by deferring $200,000. They gave your employer a little benefit of deferring taxes or reducing taxes by $100,000. But what they did is they got participation in the upside of the market the whole time you were there. And now they want their share. That's what required minimum distributions are. The government is saying it's time to cash in. And they don't care, by the way, if the market goes down in a year. So, like, for instance, if you have a, you know, like, you know, if you took out your distribution in March when the market was down over 20% from its highs, well, the government doesn't care that you had to, that you sell when the market's down. They just want the share that was owed to them on December 31st of the previous year. And so, if you want to take control of what the government gets and strategies that help you better, that's why we build the one-of-a-kind financial plan, folks. It's about you and about you having more control versus just standing pat and letting the government take what they have in their laws designed for them to take.

Yeah. Don't do that. They're living off Social Security, a mix of taxable and tax-deferred accounts, but aren't sure which accounts they should be drawing from first. What's the best order to pull from retirement income to help reduce taxes over time, Mike?

Oh, you know, this is like a— this is kind of a— it's a pretty generic question that I get often, like whether I'm speaking at seminars in front of people or on webinars, is people always want like generic advice here. It's like, this is the— they give me like 3 pieces of information, they say, Give me advice just for me. This is one of those that it involves a little bit more details. So think about it this way, Gary, you can make a casserole with 4 ingredients, whatever the casserole's called, mayonnaise, cheese, and Ritz crackers.

You can.

So if you want a broccoli casserole, you can take broccoli, Ritz crackers, cheese, and mayonnaise and create it. You want chicken casserole, you could do the same thing. But if you want like a Michelin star restaurant experience, it's going to be more than 4 ingredients. So like, as opposed to just having these 4, uh, these 4 information points and telling you how you should distribute money, it's worth a call in, right? So if you want me to create a casserole for you, here would be my answer. Um, You know, do what reduces your taxes the most, because that's the biggest expense out there. Take your required minimum distribution, keep taxes low, and by doing so, it's going to make— it's going to potentially make your Social Security less taxable, maybe even 0% taxable. But, uh, like, if you want, like, uh, if you want, like, a Michelin star financial plan or a Michelin star answer to that, you got to call in.

Yeah, yeah. Let's give the phone number. That's a good idea. 800-748-1838. 800-748-1838 or text the word ideas to 600-700. Once again, 800-748-1838, text the word ideas to 600-700. Mike and the team at One Oak Financial standing by ready for your phone call. If you're just joining us, this is the One of a Kind Financial Show with Mike Milligan. I'm Gary Nolan. Thank you for joining us, spending time with us this weekend. We got time for at least one more question.

Gary, before you go to that question, did you know that I knew what the ingredients were to a casserole or not?

I was surprised.

Yeah.

I mean, I'm a, I'm a North Carolina boy, right? I've had all types of casserole. Broccoli, chicken, pineapple, ham. I've had them all, buddy.

I'll bet you have. All right. They got a large IRA and no long-term care insurance. They're worried about future healthcare costs. They're considering setting aside a portion of their health savings account. to using qualified charitable distributions or to reduce their tax bill. How can retirees use tax strategies to prepare for big healthcare expenses later in life, Mike?

Well, the tax strategy most retirees forget about is the itemized deductions on their, on their tax return. Is they're always thinking about how can I use my assets or how can I use the tax code, right? Qualified charitable distributions, health savings account to fund my long-term care. But remember, a long-term care expense is a healthcare expense. And so, later in life, if your healthcare expenses are more than 7.5% of your income, then those healthcare expenses become deductible as itemized deductions on your tax return. So, for instance, if your total income normally is $100,000 in retirement, but all of a sudden you start spending $10,000 a month on healthcare, and you take $120,000 out of your IRA for healthcare expenses, Well, now your income's going to go up to $220,000. But so, what's 7.5% of $220,000? Well, it's about, uh, it's $18,000. Well, you spent $120,000. Well, that means that $120,000 now is taxable as an— I mean, it's tax-free because it's an itemized deduction. It's going to reduce your taxes back. So, a lot of people forget that the itemized deduction limit for long-term care is out there and it exists. And so, ideally, what you want to do is you want to pass the risk on, especially if your assets are something you want to leave as a legacy or something for a spouse to live on. You want to pass the risk on for long-term care, at least in small part or in large part, onto an insurance company or an investment house. And the way you do that is you use just riders on accounts. And they're not even that expensive now, Gary. I mean, it's not like the cost of long-term care insurance in 2000 and 2010 or even 2020.

Sure.

They've become much more sophisticated in the product offerings and solutions, where it's just like a small little add-on to what you're already doing to get covered for long-term care so your assets don't go to nursing home and healthcare providers. Instead, you can have some of the rider go to them, and then you can have most of your money stay in your family for legacy. And, you know, doing the things that you, that you want them to do after you pass away.

All right. Time for one more. You got about a minute left. Let's squeeze in one more question. They have a blended family, want to leave a legacy to all their children, but their IRA has grown substantially. One of theirs has. They're confused about tax rules now that SECURE Act limits stretch IRAs. What estate planning options are available to make sure their IRA legacy isn't eaten up by taxes Or family disputes, Mike. We probably could spend a half hour on this.

Oh yeah. One of the things— it depends on age and health, but if you're young enough, one of the things you could do to solve this is you could get like a guaranteed universal second-to-die life insurance policy that has a big death benefit that can be evenly split tax-free to your kids when you pass away, and then use some of the income off of your IRA to pay for that policy. Because then it becomes tax-free to the next generation. But if your health is not there, you're too old to do that, then that involves some really good planning. And that's around Roth conversions. And it's around using your tax bracket to ultimately get some things tax-free to the kids. Because whether or not you have the money in a traditional IRA or Roth IRA, when you die, it's got to be down to a zero balance. 10 years after you pass away.

Mm-hmm.

And so, really, that involves some planning. It'll probably involve some qualified terminal interest property trust planning also, where the surviving spouse gets use of the assets during their life, but it ensures that the money gets on to the next generation. Just so, although it sounds like a very harmonious home now, you don't want one spouse to go and then the other one just change. Write your kids out of the whole situation.

Right.

Absolutely. All right. We're up against the clock, Mike. Final thoughts. Tell us about the one-of-a-kind financial plan.

One Oak Financial. Man, what a great company we have. And one that many of our listeners have come in and either met with me or met with our team. Man, we are here and we're available to you in Norfolk, Virginia, and Midland, Texas, and Hawaii, Michigan. Wisconsin, Ohio, San Juan, Puerto Rico, and really throughout the whole country because we have innovated the one-of-a-kind financial plan. The one-of-a-kind financial plan is about you, your story, your resources with our ideas. We're going to create tax planning that is— that helps reduce taxes over your life, definitely reduce what you're paying now. We're going to look at retirement income. That is guaranteed to reduce fear and anxiety. We're going to put an investment plan in place that reduces fees and allows you to sleep at night. So, you're not worried about what's happening in the market all the time. We're going to create a long-term care plan that's designed for the older version of you that protects your family from the devastating impacts of nursing home care or prolonged illness. And then we're going to create a legacy plan that says to everyone, I love you. And so that you can leave what's meaningful to the next generation. That's the One of a Kind Financial Plan, Gary. We build it, uh, for each and every one uniquely because we think, uh, everybody is unique and they deserve— they deserve to have one so they can live a one-of-a-kind life.

All right, and here's the beauty of this whole thing, folks. There's no cost, there's no obligation to get a better handle on your financial situation. One more time, the number Before we wrap up today's show, 800-748-1838, 800-748-1838, or text the word ideas to 600-700.

One last message from our compliance team. As a reminder, Mike Milligan, Certified Financial Planner, is an investment advisor representative of Advisory Alpha, LLC, an SEC-registered investment advisor. All opinions expressed by me, Mike, or any podcast guest are solely our opinions. And do not reflect the opinions of Advisory Alpha. This recording is for informational purposes only, should not be relied on solely for investment, tax, or legal decisions, and it's in no way intended to communicate or guarantee specific performance or suitability of any security instrument or product as we may have discussed. Investment advisory and financial planning services offered through Advisory Alpha LLC, a registered investment advisor. Insurance products are provided by Ideas by Mike, a licensed agency located in Norfolk, Virginia, and licensed to do business in all 50 states. While tax and legal issues may be discussed in the course of financial and investment planning. Advisory Alpha does not provide tax or legal services. Please consult with your tax or legal professional prior to making decisions related to these issues. If you want us an appointment with Ideas by Mike or One Oak Financial, please reach out via our website. This podcast is produced in conjunction with Mike Milligan LLC.

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