Cynthia de Fazio 0:22
Welcome to Retire Smart Maryland. My name is Cynthia DeFazio. Joined today by Prashant Sabapathi and John DeFeo of Elite Income Advisors. And to our viewers at home, are you in the retirement years and you’re asking yourself, well, why doesn’t anyone talk to me about tax planning? Well, we’re going to talk a little bit about that more in depth today, because when you’re in the retirement years, you’ll find out that having a proper tax strategy is part of the most important component that you can put into that retirement plan. So thank you for being with us today, Prashant. How are you?
Speaker 1 0:53
I’m doing excellent, thank you.
Cynthia de Fazio 0:55
Good. It’s so good to see you.
Speaker 1 0:56
You too.
Cynthia de Fazio 0:56
And John, how are you?
Speaker 2 0:58
Doing fantastic. How about yourself?
Cynthia de Fazio 0:59
Fantastic. Thank you so much for asking, and I’m so glad that we’re spending some time really talking about this today because obviously people they have concerns about taxes, and I know when they’re coming into the office for the first time, and so often in seminars that you’re hosting, people are saying tax planning. No one’s talked to me about tax planning. Why has that not been brought up before?
Speaker 1 1:20
I think we’re conditioned to just stay in compliance with the tax laws by filing our taxes each and every year, and that’s exactly what we all hopefully are doing every single year. Is we’re looking back at the previous year, how much income did we have coming? Did we have come in? What kind of dividends, interest did I earn, and then I’m paying out my liabilities. I think not enough people are differentiating between tax preparation and tax planning. So preparation is exactly what I talked about, looking at previous year to determine how much we owe. Tax planning is trying to look into the future. Now, while we don’t have a crystal ball to know exactly what’s going to happen to tax rates, I think it’s a fair question to ask: How is my retirement income going to be taxed, both at the federal level as well as the state level? So that’s going to apply to things like your pension, your social security, and I think one of the bigger myths is that because I paid into Social Security through taxation, that maybe I don’t have to pay taxes on Social Security coming out. Very few people will get a tax-free Social Security in retirement. A lot of people will end up paying federal income tax on it, and so tax planning versus tax preparation, two different things that need to be treated differently, and I think not a lot of people are worrying about the tax planning, the forward-looking side of their financial plan.
Cynthia de Fazio 2:50
It makes sense, and John, don’t you find that often with tax preparation, you’re kind of looking into the rearview mirror versus the windshield going forward? I’d love to talk about some differences because people are probably wondering: Well, tax preparation versus tax planning-is that what I’m doing right now each year? But do a deep dive a little bit further. We’re talking about a comprehensive tax strategy, if you will.
Speaker 2 3:13
You’re right, and you know, tax preparation is, as Prashant mentioned, just ensuring that you’re compliant with the tax laws from the previous year and ensure that if you get audited, that you’re not going to be in trouble with the IRS. Right? Nobody wants to be in trouble with the IRS. And tax planning is trying to minimize future tax impact on yourself, on your potential beneficiaries, and trying to keep Uncle Sam out of your pocket to the best degree that we possibly can. At the end of the day, every extra dollar that you pay in tax is one less dollar that you get to keep in your pocket, and ultimately one less dollar that you can pass down to your heirs. So, if we can find a way to minimize that burden, that’s what we want to be able
Cynthia de Fazio 3:54
to do. Prashant, what exactly are you looking for when you’re talking about tax planning?
Speaker 1 3:58
I think two things come to mind. So, John mentioned how do we reduce our future tax bill, and two two strategies come to mind in addressing that primary concern. Number one is does it make sense to proactively draw down on my retirement assets, maybe even before I need them, so as to pay the taxes today at a at a rate that we know and understand. So this is something that we call proactive IRA drawdown. Okay, and that could just mean you’re transitioning your money from before tax to after tax, even though you don’t actually have a need for that money, and then investing it after taxes. And by doing so, you get to pay the rates that you’re in today, as opposed to some unknown rate in the future, which I think a lot of people think could be higher. So that’s strategy number one, and then strategy number two is to take advantage of a Roth conversion. A Roth conversion is simply when you take your before tax money, you convert it. To a Roth status, which means any subsequent and future growth that you get on that money is tax deferred, and then as long as you’re over the age of 59 and a half and that you’ve held that Roth for at least five years, any withdrawals you take are actually income tax free. Very powerful strategy to convert to a Roth, but of course the downside is you got to pay those taxes in the year that you make the conversion. And here’s one thing that I found is, and this is how you can get a sense of whether or not you’re tax planning or just tax preparing. You go to your CPA or your tax advisor, and you say, “Hey, my financial advisor recommended that I do a Roth conversion. What do you think? And instantly, CPA’s answer is, “Don’t do it.
Cynthia de Fazio 5:48
Don’t do it. Why do you
Speaker 1 5:48
think that is? CPA’s job is to do what? Save you the most amount of taxes in the current year. That’s right. Absolutely. So they might not be looking at this from a forward-looking perspective, which is why I think it’s really important that as you work with what I would call your financial dream team, whether it’s your estate planner, your financial professional, your tax professional, that they all work together. Yes, you don’t want the advice of one stepping on the advice of the other because then those two things are in conflict, right? So, how do we make sure that we have a comprehensive and coordinated plan, especially when you’re involving multiple professionals in that process?
Speaker 2 6:30
Yeah, I mean, one of the things that I think is really valuable about our office is that we have access to CPAs in house. We partner with CPAs that are in the client meetings with us. They subscribe to the same philosophy that we do in terms of future tax savings by taking income now, and then also by coordinating with an estate estate planning attorney. So, with our clients, we get together in these meetings. We ensure that the plan corresponds with the goals that they have, and that all of the professionals are working together in the same direction. Like you said, you don’t want one person pulling one direction and then someone the other. You want everything to be rotating in the same direction for the same goal.
Cynthia de Fazio 7:06
Okay, all right. And Prashant, I know that you have a very simple website that people can go to. I believe it’s called TestMyTaxes.com. Talk a little bit about that for people that want to see exactly what their current tax implication could be: What do they do once they click on that QR code that will come up shortly on the screen? Yes, if
Speaker 1 7:25
you’ve saved any money in traditional retirement accounts, so think about things like your pre-tax 401k Maybe you have an IRA through a rollover from a previous employer. Maybe you have a thrift savings plan if you’ve worked for the federal government. We’ve actually developed a free, easy-to-use tax calculator. All you’re going to do is visit testmytaxes.com. That’s testmytaxes.com. Totally free calculator. You can spend about five minutes just inputting different scenarios, how much money you have saved, assume tax liability in the future, and what’s going to happen is you’re going to get an emailed report to you that’s going to show you the value in potentially reallocating assets from a before tax status to a Roth status or a tax free status. Now it is not a substitute for professional tax advice, but it is a really neat tool that if you’ve never been through the process of evaluating what your future tax liability could look like, it’s a great resource. TestMyTaxes.com. I’d recommend that everybody go and check it out, play around with the calculator, and see what comes back. If you have questions after you run that report, just give us a call. The phone number it’s 833308 5200 That’s 833308 5200 When you dial that number, you’ll be able to schedule a confidential conversation with myself, with John, with the rest of our team of advisors, and we’ll sit down and talk specifically about that tax report that you’ve run. It’s a great opportunity to figure out where you stand today.
Cynthia de Fazio 9:00
I love it. Thank you, Prashant. Thank you, John, and the viewers at home. I absolutely love this website. Once again, let’s pull it up: testmytaxes.com. You visit that website, put in a little bit of information. You can play around with your income, different tax brackets. I think you’ll be really amazed by what comes back when you receive that email. You’re going to want to make some changes, and the most important thing is you’re going to have the guidance that you need to make those changes today. Once again, that number is 83330852008333085200 Or if you’re rushing out the door, you can just simply grab your smartphone and click on the QR code at the bottom corner of your screen. That’s the fast track to get on the schedule of elite income advisors. We’re going to take a very short commercial break. Don’t go anywhere. When we come back, we’re going to talk more about some of the myths that surround tax planning for retirees. Stay tuned.
Speaker 1 10:00
Everybody in my family is in medicine, so my parents were both doctors. My brother’s a doctor. Everyone in my extended family is in medicine, but science was never really my thing. I was always about numbers, and money was always really intriguing to me. I went to University of Maryland. I was economics and finance, and I was fortunate enough to work for one of the big box retailers in the insurance advisory world right out of college, and that’s where I met Ozzy, and that’s how I got started as as kind of a new guy in the business. I kind of learned the ropes there, but it became pretty clear in in 2014 that we wanted to go independent and have a little bit more control over how we deal with our clients and give them good advice. There’s no feeling quite like watching your clients get to do everything that they wanted to do. Work doesn’t feel like work to us. We get to help people plan for their next phase of life. Being able to to help people do what they want to do, and being able to make a pretty good living out of it makes it all worthwhile and truly fulfilling for us. It truly doesn’t feel like work.
Cynthia de Fazio 11:17
Welcome back to Retire Smart Maryland. My name is Cynthia DeFazio. Joined today by Prashant Sabapathi and John DeFeo of Elite Income Advisors, and we’re talking about the importance of tax planning in the retirement years. If you’re just joining us in this first segment, so thank you so very much. I love today’s show because tax planning is so important when we’re talking about the health of just overall the retirees’ financial picture, if you will, but so often there are some common beliefs that could or could not be true, and one of those, Prashant, people have the thought that taxes will be lower in retirement. Why is that?
Speaker 1 11:53
I think for years we have been conditioned to think that kicking the tax can down the curb is the best thing to do. If I don’t have to pay taxes today, it lets my money continue to grow tax deferred, and so the rate of interest that I might be able to compound my money at could be potentially higher if I don’t have to assume the tax liability.
Cynthia de Fazio 12:13
Okay.
Speaker 1 12:13
Okay. That being said, I think we have to look at this and say, what is the state of our national debt in America? What is the state of Social Security? What’s the state of Medicare? What about all these unfunded obligations that America has today? And the reason I bring that up is only to ask one question: 10 years from now, 15 years from now, 20 years from now, when you’re retired, do you think income tax rates in America are going to be higher or lower than what they are today. Now nobody’s got the crystal ball. I wish that I did, but unfortunately I don’t. But with all the writing on the wall, the question that needs to be asked is: What if? What if your tax rate in retirement ends up being higher than your current tax rate? Not necessarily because your income is higher, but because maybe the government hasn’t managed the balance sheet accordingly, and thus they have to raise taxes in the future. If that happened to you, what are you going to do? Okay, it may never happen, but I think that it would be foolish to go into retirement without, at the very least, addressing that what if?
Cynthia de Fazio 13:23
Absolutely, absolutely. And John, what about tax deferred means tax efficient? A lot of people think that as well. Tax deferred means tax efficient.
Speaker 2 13:33
And that kind of piggyback off of what Prashant mentioned. The idea is that you’re kicking that can down the road. That you’re going to take it out at maybe a lower bracket when you get into retirement. Your income isn’t as high. The growth is, you know, going to continue to compound at a higher degree because there’s more money in the account. But if you do get to retirement and tax rates do go higher and you end up spending the same amount of money, if not more, in retirement, and now you’re paying excess taxes, is that really efficient at the end of the day, right? So when we talk about tax efficiency, we want to be able to find ways to take advantage of the existing tax code that we know today. Again, we know that we’re historic lows compared to where we’ve been in history. I think it’s like the third most favorable marginal income tax bracket in history, somewhere in that range. So, what can we do today to make things more efficient? And I would say it’s probably not tax deferred. And don’t get us wrong; there are certain situations where the tax deferral does make a lot of sense. Yeah. But I think if you’re in the same you know train of thought that we’re in, where tax rates could go up in the future, how can we get in front of that today?
Cynthia de Fazio 14:40
Absolutely. I think
Speaker 1 14:41
this is why it’s so important to be aligned with your advisor. Yes. Okay. This is why we’re so forward about our philosophy on this show. Look, you might be sitting at home. You may agree. You may disagree with our philosophy. But when we look at planning, one of our philosophies is that tax rates are. Likely to go up in the future. We don’t know if it’s going to happen or not, but we plan as if tax rates are going to go up in the future. If you’re sitting at home thinking, “Yeah, I think taxes are going to stay the same, or I think that they’re going to be lower in the future, candidly, we’re probably not the right fit for you, and that’s okay, right? Because nobody knows for sure. But if you’re worried that your future tax rate could be higher than your current tax rate. I only think you should work with an advisor who believes in what you believe. And so, if you do believe that your tax rate is going to be higher in the future, I think it makes sense to just come in and have a conversation about it. Especially if you’ve never done that before, and if you haven’t done that, just pick up the phone. Give us a call. It’s 833308 5200
Cynthia de Fazio 15:43
It’s so important. Again, you mentioned this before in previous episodes, but the having a second opinion is critical, especially if you realize that you’re hearing this information for the very first time today. Tax planning is so important. And John, how often in your experience is it truly overlooked? I know that you’re seeing new people in the office every single day. Do you often have that deer in the headlight looks of oh my gosh taxes? I mean, is that common?
Speaker 2 16:09
It is, yeah, absolutely. And I think it’s you know they they understand the tax implications and the burden that could come with the assets that they put together, and they’re not getting the guidance from the advisors that they’re working with, and what we found is that a lot of times advisors are focusing on the investment piece, on you know the stocks, the bonds, the annuities, which to us is kind of the easy part, right? It’s it’s the tax situation, it’s how to make that more efficient, take advantage of what we know today to try and make things better for our clients. That does become a bit more complex, and I think a lot of advisors shy away from that because of the degree of work that potentially goes into it, or maybe the lack of resources of a CPA that they can work closely with to run the mock tax analysis and those types of things. So I think that has a big part to do it. That is just the hurdle to try and provide guidance on the tax clarifications.
Speaker 1 17:00
How about second opinion? You mentioned that Cynthia. We see it so often that people go and get a second opinion from the guy that gave them the first opinion, right? And like to me, that defeats the purpose. I invite different perspectives. I think that is just so valuable in this day and age. Look, because we’ve helped so many people plan for retirement, if nothing else, it gives us the power of perspective. We’ve seen people who have done it ultra successfully. I’ve encountered people who started saving too late in life, and thus they’re not set up the way that they want to. And that’s kind of the neat thing about getting to meet with hundreds, if not 1000s, of people each and every year. Is we get to see the good, the bad, and the ugly. And so when we sit down with any particular person, we’re drawing from all the experiences of our other clients to be able to say, “Here’s where I know some of the pitfalls may be that you haven’t yet thought about. And like you said, taxes are definitely at the top of that list, at least in our experience. So if you’ve never looked at the tax efficiency of your retirement income plan, if you’re not sure what kind of after-tax income you’re actually going to have when you get to those retirement years of your lifetime, it’s a great opportunity to pick up the phone and give us a call. It’s 833308 5200 Additionally, my book Fiscal Health Retirement Wealth. The last chapter of this book is called Rescue Your IRA: Create a Tax Efficient Retirement. That’s the last chapter in this book. I’m going to give you a free copy of this book. It’s going to be super easy for you to get. All you have to do is visit retiremaryland.com, claim your free copy of the book. You can also scan the QR code at the bottom of your screen, fill out a short questionnaire. My team is going to get this book out to you ASAP.
Cynthia de Fazio 18:56
Prashant, thank you so much. John, thank you so much to our viewers at home. That number to call once again: 833308520 83330852008333085200 You don’t want to miss grabbing a copy of Prashant’s book, and also you can click the QR code at the bottom corner of your screen. That’s going to be the fast track to get a copy, and you’ll also want to schedule your appointment. There’s no obligation; completely complimentary. If you’re concerned about taxes after watching today’s show, why not come in and sit with the team and let them get to know you one-on-one? You may have some other fears that you’ve been afraid to bring up with your current advisor. You’ll find that you’ll be listened to when you walk into the office of Elite Income Advisors. Don’t miss the opportunity. 833-308-5200 We’ll be right back momentarily.
Speaker 1 19:43
Just putting money away into a 401k every payday is rarely enough to retire comfortably. 401k savings are only one part of a comprehensive retirement plan. If retirement feels closer than you’re prepared for right now, it’s never too late to start saving and playing. Get started on your own personalized retirement roadmap by visiting retiremaryland.com, and you’ll also receive a complimentary copy of my book, Fiscal Health Retirement Wealth.
Speaker 3 20:13
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Cynthia de Fazio 20:40
Welcome back to Retire Smart Maryland. My name is Cynthia DeFazio. Joined today by Prashant Sabapathi and John DeFeo of Elite Income Advisors. And if you’re just joining us for the first time today, we are talking about how tax planning is often overlooked when it comes to retirement planning, but it’s a huge piece of your retirement puzzle, and it’s not one that you want to miss out on. So thank you for being with us today. One of the other common things that we hear, the common beliefs that a lot of retirees have, which may or may not be true, would be the fact that Congress will not touch retirement accounts. Congress will not touch them. Thoughts on that?
Speaker 1 21:17
You want to go first?
Speaker 2 21:21
So I think it’s difficult to say that Congress can or will or will not do anything.
Cynthia de Fazio 21:27
Yeah,
Speaker 2 21:28
they’ll do what they want at the end of the day, and to say that there’s no chance that they’ll touch retirement accounts, I think, is a is a disservice to to our clients. I mean, we don’t have the crystal ball to know exactly what’s going to happen, but what we do know is that they have passed legislation that’s changed the way that we distribute these retirement accounts to our beneficiaries already with the Secure Act, right? So they’ve already made adjustments to how these accounts are or formulated. I mean, the introduction of the Roth IRA-not it’s only been around for what you know, 1020 years, so they can create accounts. They certainly can change the way that they’re taxed. You know, I don’t think it’s fair for anybody to say there’s no chance that they would touch that. Let’s just
Speaker 1 22:09
look through this logically, right? What is our government projected to spend on an annual basis? The latest estimates that I saw were around $7 trillion I mean, who really knows? But let’s just say approximately 7 trillion. The issue is what they bring in through taxes, tariffs, and other sources of income are roughly about $5.2 trillion So that’s $1.8 trillion of deficit that flows back into the national debt eventually.
Cynthia de Fazio 22:42
Wow! If
Speaker 1 22:42
we’re going to say Congress will not touch retirement accounts, that effectively means they’re not going to tax retirement accounts on the back end. And to me, I look at that and say we’re already at nearly a $2 trillion deficit. If Congress isn’t going to touch it, where is the money going to come from?
Cynthia de Fazio 22:59
Exactly. I
Speaker 1 23:00
saw a fidelity study a couple years ago that said there was something like approximately I don’t know $20 trillion in retirement accounts. That
Cynthia de Fazio 23:09
is
Speaker 1 23:10
like a goldmine for Congress because it’s never been taxed.
Cynthia de Fazio 23:13
Yes.
Speaker 1 23:14
Do we really think that they’re going to just let us get away with not paying the taxes on that money? I mean, I can’t speak for what’s going to happen in Washington D.C. but something tells me they’re not going to let us off easy. And it kind of just highlights this idea that at the end of the day, we’re all in a partnership with the IRS. Yes, we’re in a partnership with Uncle Sam, and the thing that stinks is that we’re the minority partners. We don’t set the rules. The general partners set the rules. The managing partner sets the rules, and in this case, the IRS is the managing partner. And so, do we have belief that they’re going to always act in our best interest? I mean, I say, look at history. I don’t know that the government has always acted in our best interest. And if that is our belief for the future, we have to be proactive about how we plan, and I think one thing that’s relevant to bring up when it comes to being proactive is in 2025, in the summertime, they passed what was called the One Big Beautiful Bill Act. Yes, and this act, this new extension of the Tax Cuts and Jobs Act gives us tremendous opportunity. I think a lot of people will just say, “Yeah, they passed the tax bill. It is what it is, and to some degree, it is what it is. But John, how can people take advantage potentially of the big beautiful bill to reduce their future tax exposure?
Speaker 2 24:38
Well, as you mentioned, the big beautiful bill extended the Tax Cuts and Jobs Act tax codes that were introduced in 2017. So we know for at least the next three years that we have a favorable set of conditions. Hopefully, yeah, hopefully, yeah. And that’s the thing: is they say it’s indefinitely. When the federal government says something’s
Speaker 1 24:56
permanent,
Speaker 2 24:56
what is that actually? Until it’s not. Yeah. Until it’s not. Yeah. Until somebody.
Cynthia de Fazio 25:00
Changes it again, so
Speaker 2 25:00
I think we do have a great opportunity right now to take advantage of these tax laws and utilize things like Roth conversions, like tax loss harvesting of your non-retirement accounts, the strategic distributions that you were mentioning, even it just into an after-tax type of an account. And if you’re curious whether this is something that may make sense for you. Again, we have some great software out there. It’s testmytaxes.com that you can look into your situation, see if you know any of these strategic tax moves now could potentially save you money and maybe your family money in the future.
Cynthia de Fazio 25:35
Makes perfect sense because we all have that partner, Uncle Sam. Yeah, I like to throw her in there too. And by the way, Uncle
Speaker 1 25:41
Sam is always watching, and he’s always with you wherever you go. Uncle Sam will be right there. So, why not break up with Uncle Sam today? It’s almost like being a bad relationship. Like, why don’t we just break up with Uncle Sam today if we can by doing things like proactive IRA drawdown, Roth conversion, great potential strategy, but it doesn’t make sense for everybody, and that’s the thing we can’t stress enough. This is not cookie cutter advice. Please make sure that you are getting a personalized look at your situation. Everyone’s income is different. Everyone’s tax situation is going to be different. A lot of these strategies work great for several people watching the show, but some of this might not actually be applicable to you, the best thing you can do, my opinion: sit down, go through it with a fine-tooth comb, and make sure that it works for you. Most
Cynthia de Fazio 26:27
definitely, and again, I can’t reiterate that enough. The testmytaxes.com is amazing because it’s such a user-friendly website. It’s a great tool that you can put in a little information about yourself and see where you currently stand with your tax obligation. See what’ll happen if you make a few changes. I think it’s just the most amazing tool. And again, it’s so easy to use.
Speaker 1 26:49
It really is. It’s short. It’s like three to five minutes of your time. Okay, three to five minutes of your time. Free calculator. Just go on the website, fill it out. You don’t even have to do anything with the information. It’s just a great starting point. It doesn’t mean you have to come into the office. It’s really just a free calculator. But when you run that report, if you find that you do have questions, or you’re not sure how best to interpret it, or you’re not sure what combination of strategies could be the right fit for you, you’re just going to pick up the phone and give us a call. It’s 833308 5200 is the last opportunity for today’s program to get in the schedule. Have your calendar in front of you when you dial that number. Our team is standing by; they’re ready to book you in to a time slot for a free conversation. 833-308-5200
Cynthia de Fazio 27:38
Prashant, thank you so much. John, thank you so much to our viewers at home. Thank you for spending time with us today on Retire Smart Maryland. That number to call is 833-308-5200 or click the QR code at the bottom corner of your screen. Thank you for watching. Be safe, be happy, and be blessed. We’ll see you back one week from today.
