Tax Risks That Could Blow Up Your Retirement Plan - Ed Slott | Afford Anything Podcast (Audio-Only)

Taxes are the single biggest factor that separates people from their retirement dreams.”
That’s a quote from today’s guest, Ed Slott, a nationally recognized IRA distribution expert, CPA, and bestselling author.
If you’re like most members of the Financial Independence Retire Early (FIRE) community, you understand the massive tax challenges inherent in retirement planning. Strategies such as the mega-backdoor Roth are popular because the FIRE community loves to optimize for taxes.
Ed does, too.
His book, The New Retirement Savings Time Bomb, is about how we can diversify and manage our tax risk so that we can achieve our financial independence and early retirement dreams.
So … what should we do? Listen to the episode to find out why Ed is a huge proponent of Roth IRAs.
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[@CodaBroda]

Easily the best interview with Ed Slott I've seen; agree with the guy on Roth, but all the interviewers I saw had no opposing views. This one's refreshing.

[@royasonghorian5035]

I lost my principles on traditional IRA, if I convert to Ruth should I pay taxes even I loss?

[@donmountford797]

A good withdrawal strategy can mitigate much of this problem. For a married couple, (approximately) the first 25k is tax free, the next 60k is taxed at 10 or 12%.. For most people that will cover their annual withdrawals: 85,000 would be 5% of 1.7 million.

[@bryan__m]

This is what always gets me about these people who preach Roth Roth Roth. He talks about a 10,000 growth being 6k for you and 4k for the government, but that's the marginal rate (actually it's higher than the highest marginal rate of 37%, but let's say he used round numbers), when in reality you should use the effective rate which is much less. When you use Roths you are paying 37% today and unless you have HUGE incomes in retirement (or effective tax rates double) you shouldn't get anywhere near that rate on your withdrawals.

[@dmoon9037]

@@bryan__m you have to put the discussion in the context of his audience, perhaps much broader than someone in your tax situation - if one’s income is low enough, tax deferral is simply unintelligent, because most of one’s income will be offset by deductions and any residual tax liability will be in part offset by credits - the other takeaway from this talk (and his book) is that tax planning is a decades long program and that things get notably less simple (tax-wise) once Medicare, Social Security, and RMD age approaches - I haven’t read the book in depth yet, but much of the material that I have skimmed resonates both with my situation and my income tax plan - tax deferral is a superb tool, but it must be used tactically, not strategically, in other words: have an explicit plan of withdrawal for every single tax deferred dollar you contribute, and review this tactical tax plan annually - my tax planning weapon of choice remains the Roth accounts, and I invest in this corner of my tax risk management arsenal at every opportunity

[@bryan__m]

@@dmoon9037 which is interesting, because he seems to be talking more about high earners than low earners. For people paying no taxes now I agree it absolutely makes sense to go full Roth, but he's quoting 40-50% tax rates -- and seems to forget (multiple times) that marginal tax rates aren't the same as effective tax rates. I obviously haven't read his book, and perhaps it goes into better, more nuanced detail, but the way he talks in this interview a lot of times it just sounds like he doesn't really know what he's talking about.

[@dmoon9037]

@@bryan__m I think we should assume that he has many clients (and his network of tax advisors have clients) who have incomes that are high - of course, it’s all relative: if one’s income is high enough, one has earned oneself out of eligibility to contribute to a deductible IRA (qualified 401(k) plan contributions still eligible), short of the back door angles via non-deductible IRA contributions - another point to consider is that podcasts/episodes (especially) and also books tend to make overly binary cases for Traditional or Roth, but when one’s income is “middle”, a practical tax plan can entail splitting one’s max annual contribution between both Traditional and Roth - e.g. if one’s 401k etc plan provider offers deductible contribution matching, it is unintelligent to prefer Roth over Traditional until that match is fully consumed - so in a given year making both Roth and Traditional contributions makes sense to me, as long as those Traditional dollars have explicit withdrawal assignments downrange

[@dmoon9037]

@@bryan__m regarding the marginal vs effective rate, he’s (I believe) an accountant, and accountants understand the distinction - accountants are in the position of giving tax advice to their clients, and any recommendation to the client to make a change will bear at the margins of that client’s tax situation, and therefore will be taxed (or not) at that client’s marginal tax rate - I’m not an accountant, and have done all of my accounting myself, so I’m holding forth on what I hear from tax-focused financial planners and tax accountants giving talks such as this (another “celebrity accountant” is Tom Wheelwright, I read most of his book)

[@Speedospearo]

A major benefit that Ed did not mention was tax "diversity".. If when retired you need a bunch of money for a wedding, boat or roof (for one year), you can take a bunch out of the roth for that particular year without bouncing you marginal rate up. This allows you flexibility in adjusting your marginal tax rate in any particular year.

[@travelinggirl8257]

Fantastic video. And free! How lucky are we? It had occurred to me that converting to Roth would be a smart thing to do, especially if you think the gov will end up trying to raise taxes when they finally realize what all the money printing is doing to our economy. I start to move it and then Fidelity suggested doing 25% a year instead, which I was really grateful to them for that advice. Ed has really made me feel that I made the right choice.

[@JimMurray2]

There is an earnings limit to be eligible to contribute to a Roth IRA. So people earning over a certain salary are not eligible for a roth so i dont ubderstand why they are saying for high earning young people to do roth. Am I missing something? Love the podcast, keep up the good interviewing Paula!

[@knittingknut]

I agree, I could never start a Roth during my working years because our combined income was too high. I now know the solution is to set up a Roth IRA and do a back door rollover of the traditional IRA but there’s a limit to how much you can rollover because you must pay taxes at the time if the rollover. Sadly I never heard about that rollover opportunity in 2010 so I missed that boat.

[@JFreeUNC]

I think he’s talking about doing the Roth 401k option at work if offered by your employer. Roth 401k has no earnings limits.

[@genxx2724]

@@knittingknut If you contribute more to your 401(k), you may be able to reduce your taxable income enough to qualify for a Roth IRA.

[@genxx2724]

I’m referring to pre-tax 401(k).

[@efnuti]

Anyone can do a back door ROTH, regardless of income. If you are above the income limit to contribute directly to a ROTH IRA, make a non-deductible traditional IRA contribution - then you then do a conversion to a ROTH. To do this however, you must not have any other traditional IRA funds.

[@ultramegasuper11]

Wow she is pissed off. No playful banter today. Hard to hear her like this.

[@amandascharf3870]

A large savings account could push you into a higher tax bracket?? Only if you are making a poop ton of interest on it...

[@apga1998]

Amanda......a large IRA account may result in a large tax bill because the government requires an amount to be withdrawn each year, beginning at age 72. This amount is taxed as ordinary income. It also adds to any income you may have received from other sources. So all this income may push you into a higher tax bracket.

[@amandascharf3870]

@@apga1998at current rates, a large SAVINGS account is likely to put you in a lower tax bracket than investing that money in equities or properties in ANY type of vehicle would.

[@IndianOutlaw1870]

@@amandascharf3870 Yes, but it offers you zero growth and is eaten alive by inflation.

[@amandascharf3870]

@@IndianOutlaw1870 for sure. I was just questioning the statement made in the video.

[@takatsu5]

I disagree that young people should only do roth ira. When you don't make much the pre-tax 401k helps by the lowering of taxable income.

[@Erginartesia]

So ... are congress crazy enough to start taxing Roth, even if taxes have already been paid on it? Just how crazy are they?

[@MsCardio1]

Plenty , especially if in 2040 the National Debt outstrips the GDP .In other words, interest that must be paid on the debt outstrips every penny taken in by the US govt

[@a.charlie2161]

This is already happening in Sweden were I live.

[@commonsense6967]

Love this interview with Ed Slott, the King of Retirement advice. Thanks, Paula!

[@davidfoust9767]

If you've got 100 million in your IRA like Mitt Romney then I'd be worried about this. If you have 1 million then not so much.

[@waynpark]

Why does paula sound annoyed in this interview?

[@jordanwilliams9300]

Because Ed Slott is clearly a bit of a... personality, to put it euphemistically. He reminds me of Suze Orman lol.

[@jordanwilliams9300]

@kopper I totally agree, you make a good point that Paula's audience is not his usual audience.

[@CueBeanKa]

I think she disagreed with him a lot, but it's against her style to argue with guests.

[@tracyfowler1970]

Yeah, it felt like he was talking down to her a bit and not really knowing who she is and her level of knowledge. He is clearly used to having to educate the uneducated. Her audience is not the same as his.

[@49pdiep]

Thank you for providing the transcripts to this interview

[@johnl4235]

love your podcast, Paula

[@broadwellr9667]

Just a little tension in the air on this interview.

[@knittingknut]

There’s something huckster-like about the way he speaks. He comes across like a fast talking car salesman. He sounds condescending too. All in all not a very pleasant person to listen to. I could feel myself breaking out in a prickly rash during their podcast 😒

[@MsCardio1]

@@knittingknut he is not trying to sell you anything. He is simply an expert on IRAs and really knows what he is talking about. I would certainly advise you to look at all his You Tube videos, especially the one on who SHOULD NOT get a Roth

[@joviedeguzman7836]

Can I start converting from my traditional IRA to Roth eventhough I just opened my Roth last year 2020, I'm age 55,and newly widowed.?

[@gbb82]

Glad I have a Roth 401k and Roth IRA.

[@eddierobles2137]

Such valuable information . Thanks for this video .👍👍

[@thehoopscoop]

Oh good, he does address life insurance. 🤗 Hearing rumors the long term care riders might be going away soon though. Just rumors for now.

[@angieharris8015]

I don’t like this dry woman, at all. It’s almost like she’s rude, in a sense. She doesn’t chuckle, giggle or anything. I ALWAYS like Ed.

[@MsCardio1]

She and Ed just haven't seen the same movies or read the same books

[@annetteolson2428]

So you don't like smart educated women....

[@angieharris8015]

@@annetteolson2428 what? Your comment makes no sense.

[@annetteolson2428]

@@angieharris8015 Smart educated women don't need to chuckle or giggle. They need to stick to the topic like she has done. They don't need to charm the crowd to be listened to or be taken seriously. This is a serious topic being discussed.

[@IndianOutlaw1870]

@@annetteolson2428 Yes, and that is why "smart educated women" do not make good wives, in my experience. Men want women who can be feminine *and* smart.

[@thehoopscoop]

Overfunding a Whole Life policy with a participating mutual company will grow tax free (effectively mimic a Roth) without the contribution limits. Good alternative place to store savings (not an investment).

[@idontwantachannelimjustcom7745]

How would the proposed wealth tax affect your roth and your 401k?

[@bp227x]

I'm not so sure about this guy's math skills...

[@cybercab]

I remember seeing Ed trying to pitch Whole Life Insurance a few years ago. I have no respect for him. He’s just not to be trusted. You can build a career in decades and end it n one KZbin video. Shame on you Ed. I wouldn’t trust you to walk my dog.

[@bryan__m]

Wait, if a husband dies why would the wife have the same income as when they were married? Surely an amount of money meant to sustain 2 people in retirement is PLENTY enough to sustain only 1 person, even if taxes are a little higher. And does he really think people will have a 40% effective tax rate in retirement? And that savings account balances affect your tax rate? If everyone did Roth conversions there would be no more revenue for the government? This guy might be the "expert" but a lot of the things he's saying don't pass the sniff test. Even the term "retirement bomb" doesn't make any sense. Sure a large portion of your traditional 401k/IRA assets might be taxable, but it's not like you have to pay all that tax at once once you retire. Tax smolder, maybe. The host tried to point out several times the difference between effective and marginal rates, but this guy just seems fixated on the top rate. I don't think in my life time I'll *ever* see the top marginal rate, unless I happen to win the lottery -- and even then, I'll only hit that rate once.