SECURE Act Workshop Audio and Transcript
Learn strategies and legal tips from experienced estate planning attorney, Doug Koenig and guest speaker Joel Levy, CPA! This presentation was offered as a free, no-obligation, workshop designed to educate individuals and families about how the SECURE Act has impacted individual retirement accounts.
This workshop covered important information about changes to 401(k) contributions, new tax credits for certain small businesses, and new increases to mandatory age distributions from IRAs. A short Question and Answer session has been included to cover some advanced topics.
Workshop Transcription
Disclaimer – The following transcript has been electronically created and is unedited and unverified. This transcript should be treated as a useful tool in reviewing recorded content quickly, but by no means should these transcripts be read as the official verified transcript.
Attorney Doug Koenig: All right. So the reason I’m recording it is because we’re actually gonna try and pull some excerpts out, put it on our blog or something or other so, and maybe we’ll even transcribe it and try to remember what we actually said. Just yeah, I’m going to try to listen to what Joel says anyway. All right, so I will use, sure. So, so I am an estate planning attorney and I’ve been working with trusts and that sort of thing. And then it’s clear from the new act that some of the trusts that I wrote for clients probably ought to be revised. And so as we started thinking about what’s that could happen to all of all of us, right All of our clients maybe in that situation where they have a trust and we’ll talk more about some of where that comes into play, that that what we used to think about changes every year whenever a new legislation comes up with this act is kind of important.
So we want to make sure we had a chance to go through it. I do different kinds of trusts. My, my focus is on families with dementia or Alzheimer’s. And the reason for that is because that’s in my family too. And so I’ve grown accustomed to working with people with Alzheimer’s and and I am really patient so they can ask me the same question a thousand times. We’re gonna have to talk about that. I’d be happy to. I mean that’s like a kind of like a passion to work with that group. I also do VA benefits even though I wasn’t a Vet myself. My dad was in the Navy and so it’s another way to get back to that world. I grew up during Vietnam, so there was no way I was volunteering even though Dad said how you must, it’s your civic duty. I said, does this nice place in Canada that’s called my name. And my dad was ready to send me yeah, to protect you. Yeah, no, I was throwing me into the front, I don’t know, was 247 that solved the problem. So I also graduated thinking I was going to be an engineer or something else. I ended up being a lawyer. There’s more to that story, which we can talk about a different time. I like to point out, but also grandfather, do you want to see pictures?
All right, Joel. You’re turn.
Joel Levy, CPA: I, well, I started in, in New York. If you couldn’t tell by what they tell me as an accent. Worked for a couple of major firms in Manhattan for a while, but quickly realize that, you know, we left to the audit and I left for work and the kids would be asleep. When I came home they’d be asleep. And so we moved to to Florida. And when I moved to Florida in 79, it was empty. There was no one there and was wonderful.
And, I, you know, I built a few practices up there. I did a stint as a CFO for a large manufacturer, which really gave me some great experience instead of the typical accountant looking from the outside in. I was actually on the inside and I was managing 120 people and salesman all over the world. And, and it was pretty cool to pick up the phone and transfer $10 million on my word. But I couldn’t take the backstabbing in a private company. I’m a straight shooter and they would beat the crap out of me and it was not comfortable. So I went back to what I know and I started to practice in Boca Raton, which I worked from 94 until I moved here when I was six and I sold practice in Florida. I moved to, you’re started from scratch and and here I am in Chapel Hill and yeah, I got, I got my masters in tax and have a PFS designation, which is personal financial specialist and chartered financial global accountant.
My wife just loves all the initials and I have two kids and four grandkids and one of them is graduating high school this year. And so I’m looking at college, which is pretty interesting for the grandkids, for the grandkids. You kidding? I got, I took my kids and I says, I want to stay here. I want to go back to college. Knowing what I know now. but I mostly work with small businesses and individuals. I have a consultative practice. I do not do any financial statements. I do a whole lot of business and tax planning and tax preparation, you know, and I focus on trying to give the client’s personal service and be responsive to their needs. And you know, it always gets me when I pick up a new client, I’ll always ask them, why did you leave your current profession
Nine times out of 10, it’s because it takes three phone calls and two emails to get a response. I feel like I’m in a service business if I can’t provide service when I need and a few other CPAs out. So anyway, that’s my story. And the Chapel Hill has been fun. I enjoy it. I love this area. It’s what both of us have clients as well as vendors that we want to work with. That’s a great mix of people today. Yup. Okay. So your turn, you’re going to continue to hold the stage. Well, I can get, this will take a long time. I mean, what significant, I mean to me, looking at this, you know, about a 417-3 , and, it just came in as usual and passed at the, at the ninth hour, 11th hour, whatever you call it.
And, and it’s effective January one. And, and on the surface, you know, it doesn’t seem to do too much, but when you look underneath, there’s a whole lot of stuff that, that it is affecting. And, as Doug alluded to, I mean, a lot of planning that was done in the past really needs to be revisited, under this law and that, you know, and it might it won’t effect everybody, but there was some people that will effect you know, it’s kinda like I do a whole seminar and people that I do too, they laugh like it’s called. It depends.
The answer to every tax questions. It depends, because what could be good for someone could be disastrous for someone else. So I, so a couple of the things that it does, it raises about time and raises the age for the required minimum distributions from 70 and a half to 72. As you advisors know, the life expectancy tables, increased tremendously over the past few years. So this is long overdue. Whether it’s enough, I who knows, but at least it’s something and you know, if you are already taking your RMDs, you need to continue doing so. But if you’re a, I forget exactly what the cutoff is, but as of 2020, you will have, you will go to the 72 and you’ll get a little reprieve from that. Second thing, it allows lifelong contributions to IRAs. And what that means is it used to be when you got to 70, you couldn’t make any additional contributions. As long as you’re working now what you have earned income, you can still make contributions to IRAs, which, you know, makes sense. So I mean , why not And this one is pretty cool. You know, if you have an IRA and you just had a baby, you can take a $5,000 out of the IRA penalty free or 401k penalty free. You still pay tax on it, but you don’t pay the penalty.
Timing is everything.
Five, eight, 16. So one of the biggest change is, and I’m sure you advisors are very aware of this, you know, the stretch IRA has been a wonderful technique to you know, kind of defer tax on an IRA, cut out of disbursements. Well now they come up and they say you have to liquidate the IRA within 10 years. Okay if you are not, you know, if your non spouse, now you’re going to ask, well how do you have to take it out? You don’t have to take one dime out until the year 10 but by the 10th year you have to take it all out. So that kind of brings in a couple of other planning strategies as we were talking about the other day, you know, convert conversion of Roth into a regular, into Roth. You know, maybe you control these disbursements or you keep your bracket down so it pays to do a rollover, you know, so as with everything, you know, any of the laws always bring opportunity.
You just have to read between the lines and kind of figure out what strategies work for you and your clients in your case for you and you. And there are some, there are some exceptions, for these beneficiaries. And you can see right there, the minor child, a disabled, chronically ill when an individual who’s not what now 10 years younger than the account owner. So there are some exceptions for the 10 years, but, but again, I think that, you know, while while it’s a, you know, they’re going to collect the tax within 10 years instead of maybe 30 or 40, it still provides some opportunities to send them some plans. GM computed how much they were going to gain. It wasn’t an enormous amount of money. Oh, it’s got to be, I mean, think about it. I have clients, I have clients in their twenties and thirties collecting IRAs that were getting $200 a year or $400 a year, you know so yeah, that’s going to be significant now instead of 400 a year and we get 4,000 a year or more, 10,000 and the IRS gets extra tax on all their income. That’s right. That’s right. Well that’s how they’re going to pay for them.
All right. All right. So of to you Doug.
Attorney Doug Koenig: All right, So a lot of the trusts that we would write for people are basically family revocable trust living trusts. The goal was to manage the, the, you know, the assets for family members for either very often for families with second marriages or for children who needed extra little extra special care. Like I also use trusts a lot for a property that’s out of state because it’s different and probate avoidance in general. But there’s this other whole area of trusts which is allowing the money to flow through the trust from an IRA because IRA’s aren’t necessarily as directable as the trust can be. And so we can push the money through the IRA and to the hands of the beneficiaries through the trust rules. And so that was the conduit trust approach we have, there are a couple of rules.
One of the things is you have to be able to actually see all the people’s names. So you couldn’t, we couldn’t write a trust to the grandchildren because we don’t know who the grandchildren are, but we can write into a list of grandchildren and then we could amend the trust later if there were new grandchildren. But still the point was that we can find a way to direct it and, and so that’s, that’s often how it was used. The problem now, because of the fact that we have this new SECURE act is that we can’t allow that trust to hold the money for 25 years because it falls under these new rules and has to go out in 10 years, even if it comes through a trust. So that’s where we all get into the tax questions. And while probably not all of our trusts are conduit style trusts, most of them are.
So sort of going back through and figuring out who has IRA as a mild client that is going to be affected by this. So this is one of the early seminars that we’re trying to reach out and see, you know, who was, who was going to come into play, but I wanted to make sure that we reached out to you guys also, cause I think we’re going to need to have help, right? When I bring somebody in and I say, “you’re going to be affected”, right Where am I going to send them? I need to point them out to a financial advisor or a CPA.
Guest: But the most benefit to having a conduit trust be the beneficiary of an IRA within the rules versus just direct is it like a special needs trust or are there other scenarios where it would make sense to maintain that conduit trust under the new rules?
There are some scenarios where we actually have a couple of them. Yeah, no, that’s okay. I mean, so it’s we’ll get, we’ll get there I think. And if we don’t ask again, no, I’ll try to answer it better. You know “wait til the next slide” isn’t really a very good answer.
Yeah. So the, the answer to your question is it depends
Guest: So apropos.
Attorney Doug Koenig: So anyway, that’s, that’s one of the biggest problems with, with, with the new provisions and, and that, that means that not only are the taxes but also that control. Now it comes into the hands of its beneficiary that we can’t, we don’t want them to control because they’re not capable of work, they need protection. And that’s a special needs trust certainly fits into that category. So this becomes that trade off that, are we worried about more about protection or were you worried more about, taxes? And unfortunately it may turn out to be a one or the other type of question, but that’s where we have to work with advisors and others. So this is some of the, we’re going to talk about these a little bit more. These are some of the alternatives to conduit. So I think a lot of cases can still use the conduit approach because if you’re not worried about the 10 years, then it doesn’t matter.
But, instead of doing conduit trust, maybe some sort of accumulation trust works and we accept the fact that there’s going to be taxes paid, but we can let the trust accumulate. Whereas the conduit has to pay all of the income out. But accumulation trust can collect that income applied to principle, continue making investments, but there’s going to be the tax consequences. And as you know, trust, you probably know, you guys may or may not know, trusts are ridiculously high tax rate under the new tax law from two years ago. So the first, I don’t have a chart for that. I don’t think that the first 26,000 or something or I don’t think that, I think it’s only 13,000 you hit 40 37%. So I will rank it. Basically any income in the trust is horribly taxed. So, so wanna keep the in collateral trust.
So there are some ways that you could do that and one of them is, another way is, and we’ll talk about each of these a little more detail. Another one is that life insurance trusts. And the third way that Joel is going to talk about as the chair of the trust and there’s, so there’s various versions of all these things and we can get into more detail. This accumulation trust really is aimed at those retirement accounts and it makes sure that what we have in a retirement account is, is for that account. So we can write specific rules for specific kinds of income. Right so, so if you have an IRA is paying into the trust, the accumulation trust recognize that it’s IRA income distributions that can be handled differently from other investments the trust might have. That makes sense? I see you processing.
Guest: Yeah, my wheels turning. So accumulation trust is
okay.
Lack of a better term, a conduit for RMDs. So what I was seeing required district.
Yes. Yup, yup. But not the conduit because the conduit implies So I’m going to go back to this picture. The conduit here is just flows in from the IRA on right up through the trust though the trustee can’t hold the money. Whereas the accumulation option he can hold, he or she can hold the money.
Guest: Would a trustee IRA be an alternative? Tell me more about trustee IRA. If I’m not mistaken, I, I I want, I’m trying to remember if they had it when I was at Jones. I know we have it. We had it that Merrill, it was essentially just a, an IRA that was, I didn’t do any of them, but I had a, you know, you had to fill out a form and essentially had a trustee at Merrill act as kind of a custodian on the trust for a, for a fee.
Attorney Doug Koenig: I think that’s a great strategy if you want to make a fee. But I don’t think it helps here. Okay. Because they are now not really sure what that’ll look it up. I’m not sure what that does and maybe some provisions in there that I don’t understand. The key component was just control of the money you have that taxes. Right. And so that’s where that trade off comes into play. You have to decide if you’re trying to protect the beneficiary involvement or if you’re trying to avoid taxes. I’ll check on that.
Yeah, so accumulation, trust, probably more oriented on protecting the beneficiary. I’ve got a little chart that shows the different kinds of trusts and what the best fit is. Great. Yeah, so I figured should’ve make that a handout. Right. I think this is, this whole conversation is really oriented around people who are close to that 70 age and are thinking about how am I going to structure sure my investments or my life insurance or whatever in order to accommodate the next few years. And I realized this, that’s the last time you’re going to hear anything about my kids
recording this. I may have to say off the record. Yeah, you’re listening to this later and there’s certain bits and pieces and things missing from the tape.
with little overwrites.
and you don’t know, but that was Nixon, by the way. Rosemary, Rosemary
Oh yeah.
All right. So the next approach that generally they were taught, they were beginning to think through now is whether a life insurance trust makes more sense to do any one of the things. So
this is a little hard to articulate because the idea of a life insurance trust suggest that you’re deceased, right So does that mean, so when does this come into play Because you’re obviously not deceased if you’re worried about this IRA coming in, for the kids. But it’s really this the parent, right So we’re going to put life insurance on me to pay into the trust because when I die, that’s when the RMD begins to be an issue for the kids cause they can’t stretch it any more. So by buying the life insurance policy to cover the taxes, we can kind of offset that problem. And there are specific kinds of trusts that handle life insurance. Life insurance can be paid into a trust, a regular accumulation trust to cover that. We can also create a specific life insurance trust there. Not that much difference. but I think the key is going to be whether it’s a grant or a trust or, or non-grantor trust and whether or not the, whether the taxes or the assets are includable in your estate. Does that, so you guys know all this probably better than I do, but I am that these trusts exists and these are our options for what needs to be the cognitive trust. And I’m going to switch over to Joel because he is going to talk about charitable remainder trusts and he’s got one real life example, which he’s not going to use names with.
Joel Levy, CPA: Well, Jessica knows the name.
I was sitting with a client the other day and a charitable remainder
trust, is a great way to put appreciated assets. They have to use appreciated assets to not only, avoid tax on the gain, but also allow significant tax deductions and income to the donor during the life, the beneficiaries. So, Jessica, it was Jessica’s client that has, a nice position in a very popular stock. And if she sells it, there’d be gigantic tax ramifications. But if she gives it to a charitable remainder trust, the trust can sell it. There’s no tax set up in the annuity to pay her client a nice income the rest of her life. And the, and she can also take a nice tax deduction.
There’s the key rest of her life. That’s right. Because instead of 10 years now you’re allowing CRT or flow through the whole life and, and one of the aspects of it that has to be part of a trust and, and her clients said it to me first is they’re philanthropically minded because if you’re not, you are donating. This does go to the charity when you pass it, you may not get as many dollars out of it as you would if you kept it and even pay the tax right on that. Right. Because you might die sooner then. That’s right. That’s right. But I actually had, I, you know, I’ve done it a few times. I’ve done it on a clients that have used that a number of times and it really works out well.
Guest: Can I rewind that because I want to make sure I understood you or heard you right. So if Client A passes, let’s say in a couple of years after making this large donation to the CRT and they didn’t really get a chance to retake the full tax benefit, their heirs can carry that forward. Or is it gone
I believe it’s gone. I believe it goes to the charity of that.
Guest: No, I know that but I meant the
tax carry over. The tax carry over should continue into the estate shouldn’t it?
Joel Levy, CPA: No, it ends at the 1040.
Yeah, believe me, I’ve had people that have lost a lot. I mean after the crash in 2000 I was, I had my practice in Florida, had many senior citizens, you know, and I had some half a million, seven, $800,000 carryover losses that I’m never going to pull that ass.
Attorney Doug Koenig: Great solution for that. I will be happy to sell a series of smaller and smaller term policies.
that will cover that whole time period or they could get all your, all your,
advantage back that way and the term policies.
Well, depending on the person’s age and health, all that stuff of course, but probably wouldn’t apply die when you want them to
An annuity is the opposite of life insurance, right I mean the longer you live, the better, the more benefits you get.
Yeah.
All right, did I forget to say that I’m also licensed to sell insurance. I am also. Actually. I never will. So, so you could easily see, you know how
structure all that. Yeah. Does that make sense?
Okay.
Okay. Well ask if you have questions. I want to make sure we address it. I guess not really applicable so it wasn’t going to ask.
All right. But then I’ll move on to the next charitable slide. So this is really about, well, I’ll let you go. Okay. Well,
the annuity basically, I mean, what it does is it mimics the stretch as, as Doug said before, by allowing the money to be paid out over a lifetime rather than limited to the 10 years. And and the, you know, you could have, you know, distributions of tax, some portion of it, of principals. So not all of it would even be taxed. and you know, so again, this is a way to kind of use a stretch without using a stretch which you can’t use anymore. Okay. you know, once again, when new laws are passed, people figure out ways. So, we, we want to do this, how do we doing well, this is how you can always have this as an option, but now it just comes into place more
attractive because of the text. Correct Correct. So we also alluded, to see converting your assets into Roth IRA. So that’s what he’s going to talk about next. I’m gonna backup this slide. This is the one that just the Dan made copies of. But basically it’s trying to say these are the situations in which we might use these different kinds of trusts. And it’s partly because the,
Oh, okay.
I lost my train of thought. Sorry.
I don’t remember. It’s hopeless. Welcome to the club. You know, it’s, the problem is that, in this slide is I was putting it together. It’s too similar. I don’t think it really does enough to really differentiate this situation. So this is coming back to you. You said, give me a real life example. And I think what I’m going to do is make this a better set of examples because right. How do I tell they both, they all say conduit trust and illustrate the stories that everybody understands. You know, where it is. Yup. Yup, yup. For sure. So this is a learning process. Absolutely. For everybody on the same journey. All right, so these are the, the strategies that we are beginning to suggest to our clients now is to go back and fix the trust. If, if you have a conduit trust, if I’ve got a one or someone else, some other attorney has done for you, then we need to look at their goals and see if it’s tax, if it’s planning, if it’s some other reason or if it doesn’t matter because people may or may not have fires that they’re worried about.
Right. Although I do find that, and I’m sure you all do too, is in most of my clients’ assets are wrapped up in IRAs or small businesses. Right. We have a whole nother world of small business to talk about some day. Yeah. You do small business work. So that’s a point that you yes. Was that for the tape recorder Yeah, the records show that. All right. And then, so did you know, update the trust but potentially consider another solution at the tax problem is to convert to Roth and take the tax penalty now, but making a control, different kind of asset. Right. And of course we’re recommending people visit CPAs, financial advisors, because we don’t know what I’m doing this stuff. And, and don’t forget to come back to your state planning attorney or fix your trust, make sure the documents are right. Right. All right.
Joel Levy, CPA: We’ve been alluding to the, the Roth conversions. Those have always been something that I have planned around and, now I think it becomes even more important because, because of this 10 year rule. So you know, the fact that you don’t have to take it out to 10 years, well maybe during those nine first nine years you convert, you know, and, and again, it does depend on the numbers. And with the tax bracket, it’s, you know, I mean, I did one for a client the other day and you know, to go from the 12% to 22% bracket, he had like $25,000 that he could still remain in the 12% bracket and jumping from 12 to 22, that’s a big jump. So if we can keep as much as possible in the 12, it’s worth it to take out that 25,000 and rolling it over, you know
So, I found it very useful before a client, had to take their, started getting this social security like between 59 and a half and 65 their income may have been down and it’s a good time to take those conversions. Well now this is an added, aspect of that that comes into play. And then of course there’s you got folks, I’m sure you’re familiar with the back door. I already in the back door were off. I mean, so you may have some nontaxable conversions that come into play also. I’ll tell you about it.
Okay. Do you want to know
all backdoor Roth is is I have, if you have a high income individual that can’t make a deductible IRA contribution and is incomes out of a Roth IRA, you can make a non-taxable, a non-deductible regular IRA contribution and roll it to a Roth. Since you never took a tax, it’s all basis. So
that was parked on that for years.
Yeah.
So I think this, the wealth conversions has been, we have come more
are important either this anymore. Yes.
My strategy all along has been spend all the IRA and Roth money. Right. The good thing about the Roth, I mean,
you know, no tax ever. And there’s, there’s no RMDs, there’s no 10 year rule and there never was, you know, so I mean, as soon as my son started working, I told him anything you can put in your Roth, put it in, paying the tax now and don’t worry about it when you get to 59 and a half. Right
Attorney Doug Koenig: Yes. And for some odd reason, I just want to point out that that little Bitcoin logo showed up. That wasn’t out there with the first draft. But it gives me an opportunity to say that this firm has sort of a niche Bitcoin management. So if you, if you still don’t understand it, well it’s not, it’s not
mentioned it to me. If you’re listening to this, everybody’s heard from you Jared.
Anyway, I haven’t, it was, the reason I think it’s showing up is because I had, you know, I look at Bitcoin information and so when PowerPoints said, Oh, here’s some great slide ideas with complete with little images and so on and stuff like that. Anyway. All right. I think either one of us is going to, you can take this Doug. Okay. Probably not so anyway, the point of week during adapt about all this is that using the reviews as a life insurance as a way to pay, pays the taxes. If you’re not, that you don’t want to pay because the only reason it’s going to come off as if you’re deceased so life insurance is really a good, good solution. Some of my clients don’t want to talk about estate planning and they want to talk about life insurance even less. Right. But, right.
You know, but I think it’s, it’s a useful thing to cover. So I can’t tell you how many clients I, any new client that comes in, I ask them if they have their estate planning documents in order. Well, yeah, it’s on my list. You know, it’s, yeah. Yeah. Well, and I require everybody that comes in to tell me who their financial advisor is and they, they, some of them try to make something up, but their uncle, I do it myself. I’m really sure. Well, actually I’ve been for some, I’m considering how to do this, so let me know if there’s a way to do it. Cause I’d like to sort of have people go do like a one hour meeting with a financial advisor, no cost. Right. I mean, it is anyway, right. For you guys to advise for a new client. I try to take advantage of you guys. Right. But, but right. Doesn’t that make sense And they keep trying to tell them it’s no cost. In fact, I’ll get the money for it because it just, yeah. They don’t want to go, but they’ve got that, I don’t know what they’re worried about exactly, but. I think they’re not comfortable sharing information. Oh yeah, yeah, yeah. But if they’re, if I were recommending you, I mean, you don’t get any less strange Bryant
Guest: I think if you pose it in a way that it’s a bilateral, interview because they should be interviewing us as much as we’re interviewing them because we don’t try to be everything to everybody. And we have ideal clients that we feel like w we do better with, the client needs to like us and trust us. But that first meeting is, it’s a first date
it’s, it doesn’t need to be more complicated than that. And I think that people feel a little bit more comfortable if you go in with them and tell her that
good way to put it.
Attorney Doug Koenig: Yes. Yeah. All right. That’s cool. And then this was also talked about, so yeah, so pretty much trying to restate things the same way multiple times. So I figured that out. And the Bitcoin maybe. All right, how are we doing We’re at the question slides. We must be just look at that. Perfect timing. So any more questions you guys have cause we miss or anything, these folks has been knowledgeable about everything and that isn’t always fair to skip over you guys. So is there anything that I can help you with that first day
Right.
Guest: My situation is, parents will have a decent estate and sister is mentally retarded. So it’s set up trusts and I need to go back and make sure that now mom’s trust is set up properly to, make sure that my sister’s provided for, and that she doesn’t get bit, I’m not sure at this point what’s funding the trust. I don’t remember. So I need to figure that out. Make sure that she won’t get bit by, it sounded real good at the time. Right.
There’s all kinds of, pitfalls to those. You know, there’s social security disability requirements or, or, and then there’s also, Medicaid was the trust really helping in protecting the assets, coming to somebody who’s special needs that will not disqualify them from
Right. No, that’s critical. Yeah.
But you think you’re giving this great gift.
They’re all when their disability and they’re like, yeah, thanks so much, all down. Spent it all to get, eventually get back on
public benefit. But meanwhile all the money’s going.
Attorney Doug Koenig: We do a lot of special needs trust for for that reason. And there’s also, there’s separate trusts, special needs trusts, and there’s also the ones contained in the trust or will documents, which are, usually refered to as Testamentary special needs trust for a person who’s over the age of 65. The only way, and especially these trusts can be created is through a will. So it’s a, sometimes you see these really weird wills where the, where the trust exists, the will pours everything in the probate estate of the trust, then the trust says “Oh the persons over 65” pours it back to the will, creates special needs. And it’s bizarre, but it’s the way, like you said, the law gets passed. We find a way to work with it. So, so, that question is very important for elderly people who are facing Medicaid. And I do a lot of Medicaid asset protection. It’s equally important for young people or even grown adults.
Just think of myself as young.
That’s right. Thank you.
Guest: So, Joel, if, if, decided to take the rest of the year off and, and go flip houses or maybe buy houses and fix them up and then rent them. Okay. Is that the income that I would re realize from the rentals or the profit I would make up my homes Is that concern and consider your current income and therefore I can deposit or make a IRA
No. Rental activities are, are labeled passive. Yeah.
Okay.
Well if I work a certain amount of hours, you can take the losses against other income. However, if you created a LLC and paid yourself a salary from the LLC as a, no you can’t pay, can’t pay a salary from the LLC S Corp, you can, you can ask be an S Corp. Yeah. So LLC treat it as S Corp, pay yourself a salary That’s a lot of rig a mo rock
Attorney Doug Koenig: But I can solve this problem. And that’s one of those talking to clients is you know, look, you can be an S Corp. That’d be great. You’ll be paying me fees to do the tax return
What he’s thinking of doing is doing a one two punch. And that is you were just talking about this for the day, of like taking this year off working on these houses at the same time because he’s going to have in his mind no earned income. Who wants to do a complete Roth conversion on his IRA now that he has no income. Right Yeah. Well
see now if this, there’s, there’s a little, gray area here because if he’s taking time off and he’s building houses, then that could be a business and then the income could be subject to, IRAs and except so make it a C Corp instead and then declare a dividend, but a small one. It’s C Corp.
I’m telling you I could solve this problem. All these pipes have wires in them built this big Rube Goldberg. That’s going to require a few signatures.
Joel Levy, CPA: yeah, it’s, I got gotta tell you, this is a very fascinating industry because, I don’t know, I get clients come in with the most bizarre, you know, questions like, Hey, what if I, you know,
Oh, and I’ve been doing this for a lot of years and still people hitting me with questions that my God I’ve never heard that before.
Guest: So I’m sorry I didn’t catch, do you mind sharing what you guys do?
I teach at Wake tech.
What do you teach? Medical Laboratory technology. Well see, I go over to Wake Med some too.
I’m a medical technologist. I teach lab work 32 years. That’s a lot of people trying to stick a lot of people.
Yeah, I do that a little bit of the year.
I guess it depends on what and Corona virus.
Yeah. Except for
I saw something on Facebook for someone. I’m handling the Corona virus problem and he showed him pouring Corona beer down the drain.
And how about you, sir? I have a video production company, over in Cary I used to be a CPA. Were you really? Cool. And then you just saw the light and realized? Just, I’d been in financial stuff, 20 something years. You know. Even anyone, any like even my, my grandson going to college, I would advise him to take some accounting course because no matter what you do in your life, at some point you’re going to need to understand financial information. And that’s one thing I’m pretty, strong about. I mean, the Chapel Hill chamber, which I had been on the board for like 10 years. We just came up with these three bold ideas. We, and we asked the community, we got 500 ideas, we had 200 community members get together and call those ideas down to three. Wow. And it’s like I’m in this room and I’m like, how am I going to do this? They did it. And one of them is that no child left behind and every third grader knows, knows how to read and, and, and shrink the gap. And you know, cause there’s no financial literacy taught to kids in school. Right, well now it’s required in North Carolina schools. Started that requires like kids skated on that. Yeah. I got, I got a six year old, well he gets an education at home.
Definitely.
It’s something that is good to be reinforced at school. And for a lot of people, like kids, it’s the only education they get on finances. You know. It’s like we, somebody said before, I mean my dad never talked to me about finances cause you don’t tell your kids money. Right. Cause then they’ll blab and tell everybody neighbors teachers and stuff.
That’s true, tell them it’s important and they’ll just completely forget. That’s funny because my parents to let us sit
in their financial advisor meetings and they’re like now you just listen and you don’t share a word but just listen and
but this is good for me to hear too.
Attorney Doug Koenig: Well they need to teach us in law school. Because no lawyer, knows anything about finance, unless they learned it some other way but not because they went to law school. Or doctors. No one knows how to run a practice they teach you how to do whatever that thing is but they don’t teach you about business.
Joel Levy CPA: Well that’s kind of like, I had a chef in Florida who was an amazing chef. He didn’t know how to order food. He didn’t know how to to manage people. They didn’t, know how to buy insurance. I mean there’s a difference.
Guest: My father was a CPA and my mother was a bookkeeper so. I manage an irrevocable catastrophic illness trust that my father set up the day before he died. Just trying to figure out how to sell the property so I can get out of that. I’ll be trustee forever. I mean I don’t know how to get out of it. So until we sell the property. So, but I’m just trying to learn something. My only question about the secure act is that so they give you two more years and then probably they jack the prices up like so you’re still paying the tax rates
on the RMD’s will probably be higher. You see what I mean Like you’re not going to really, because you’re in, because you’re having to take more into your so your income is higher and so your tax rates higher. Exactly
right. So they’re going to get it back. They’re just letting you have two years. You think you’re going to coast like start accumulating more than they’re going to tax it at a higher rate than you filed. So it doesn’t sound like it’s all that big of a benefit.
Are they changing the tables are the magic numbers that happen with the RMD calculations at all Like time tables as well. Are they like the name, that timeframe Do you know I don’t know. I wouldn’t, I didn’t think so. I haven’t heard anything about that. And I’ve been doing a lot of research so I’m wondering too, is it G
Yes. To your point, they give us two more years to save.
Our pool is larger and therefore theoretically speaking would RMDs be larger. Theoretically, yeah because you cause you’ve got a bigger pool that you got to take is all for the IRS. Of course.
I mean it sounded like, Oh I’ve got two years. I don’t have worry about, I can accumulate more money before I have to start taking it out. So it sounded like a really good thing. But then I’m thinking it sounds more like it’s going to be a wash. I think it’s going to be a wash. It’s
just to pay for the taxes. We’re able to then re contribute to those. Look I’ve been doing this long enough that, you know, they giveth and, they taketh away. Nothing is free, you know, and unfortunately the IRS needs money. I mean, government needs, they are so far understaffed and overworked under that way though, you’re right to a certain extent, except it bothers me. People tell me things they do that they shouldn’t be doing, you know, cause I try to keep them.
Well, that’s funny.
Guest: I, I’m a CPA. Many years ago he was reviewing returns and he had his own practice in the forties and he said he had an IRS agent come to his client once and says, listen, I have three weeks left to retirement. Let me sit here for three weeks. I’ll give you a reasonable audit. And then I’m done. Okay. It looks like that’s how things were done back then. I had some employees like that, like totally understood. Yeah.
I just showed up because eventbrite said this will be interesting for you. It’s free. Yeah. That’s interesting. I always learn a little bit, I’ll talk about finances. Something probably rubbed off.
