1
00:00:00,000 --> 00:00:02,340
INTRO: Hi, I'm Ed Slott
and I'm Jeff Levine.

2
00:00:02,460 --> 00:00:06,090
And we're two guys who just love
to talk about retirement and taxes.

3
00:00:06,120 --> 00:00:10,050
Look, our mission is simple to educate
you the saver so that you can make

4
00:00:10,050 --> 00:00:14,160
better decisions because better decisions
on the whole lead to better outcomes.

5
00:00:14,190 --> 00:00:16,500
And here's how we're going
to do that each week.

6
00:00:16,590 --> 00:00:21,270
Jeff and I will debate the pros and the
cons of a particular retirement strategy

7
00:00:21,270 --> 00:00:25,890
or topic with the goal of helping you
keep more of your hard earned money.

8
00:00:26,040 --> 00:00:29,680
Yeah, but we won't know which side of
the debate we're taking until we flip a.

9
00:00:30,180 --> 00:00:33,630
Winner of the coin flip gets to pick which
side of the debate they want to argue.

10
00:00:33,660 --> 00:00:37,950
And both of us will have to argue in
favor of our respective positions,

11
00:00:38,190 --> 00:00:40,500
whether we agree with them or not.

12
00:00:40,500 --> 00:00:43,770
At the end of each debate, there's
going to be one clear winner.

13
00:00:43,980 --> 00:00:47,640
You a more informed saver who
can hopefully apply the merits of

14
00:00:47,640 --> 00:00:50,790
each side of the debate to your
own personal situation, to decide

15
00:00:50,790 --> 00:00:52,740
what's best for you and your family.

16
00:00:52,800 --> 00:00:53,700
So here we go.

17
00:00:53,700 --> 00:00:55,860
Welcome to the great retirement debate.

18
00:01:02,160 --> 00:01:04,920
Ed Slott: Well, welcome back
to the great retirement debate.

19
00:01:05,160 --> 00:01:06,030
How you doing Jeff?

20
00:01:06,240 --> 00:01:06,899
Jeff Levine: I'm good.

21
00:01:06,899 --> 00:01:07,410
I'm good.

22
00:01:07,410 --> 00:01:08,340
How are you today, Ed?

23
00:01:08,460 --> 00:01:10,830
Ed Slott: Okay, what do we
got on the schedule today?

24
00:01:11,220 --> 00:01:14,490
Jeff Levine: Well, today
we're gonna debate whether an

25
00:01:14,490 --> 00:01:19,255
individual should intentionally
shoot for tax diversification.

26
00:01:19,255 --> 00:01:24,085
In other words, should someone try
to always make sure that they have

27
00:01:24,085 --> 00:01:28,795
some money in a taxable account, like
a individual account or a brokerage

28
00:01:28,795 --> 00:01:31,435
account or a revocable trust account.

29
00:01:31,675 --> 00:01:34,825
Should someone make sure that they
always have money in some sort of

30
00:01:34,825 --> 00:01:36,735
tax divert that deferred account?

31
00:01:37,045 --> 00:01:44,275
Like a traditional IRA or a 401k, a 4 0 3
B and should someone also make sure that

32
00:01:44,275 --> 00:01:50,825
they have some money in tax free accounts,
such as a Roth IRA or a Roth 401k.

33
00:01:50,830 --> 00:01:57,265
So do we intentionally shoot for having
some of those in each basket, so to speak?

34
00:01:57,925 --> 00:01:58,285
Ed Slott: Right.

35
00:01:58,345 --> 00:02:01,524
Well, that's a tough debate
because, I don't know why, because

36
00:02:02,064 --> 00:02:03,895
Jeff Levine: Well, no one knows
what the future holds, right?

37
00:02:03,895 --> 00:02:03,954
Yeah.

38
00:02:03,954 --> 00:02:06,324
That, that could be one of the
most challenging elements, but

39
00:02:06,324 --> 00:02:08,125
we've gotta pick sides here, Ed.

40
00:02:08,214 --> 00:02:08,545
All right.

41
00:02:08,545 --> 00:02:09,985
So, uh, you wanna flip a coin today?

42
00:02:10,464 --> 00:02:11,005
Ed Slott: All right.

43
00:02:11,325 --> 00:02:14,005
Uh, uh, what do I do with
my, uh, here's my coin.

44
00:02:14,010 --> 00:02:14,394
All right.

45
00:02:14,844 --> 00:02:16,284
Uh, what do you, what do you have?

46
00:02:16,495 --> 00:02:17,334
Jeff Levine: I'll take tails.

47
00:02:19,195 --> 00:02:20,065
Ed Slott: It's tails.

48
00:02:20,065 --> 00:02:20,575
You win.

49
00:02:20,584 --> 00:02:22,504
What side of the argument?

50
00:02:22,534 --> 00:02:23,344
Uh, the debate.

51
00:02:23,374 --> 00:02:27,484
Not an argument because it could either
one could be good for the right person.

52
00:02:27,694 --> 00:02:28,114
Jeff Levine: That's right.

53
00:02:28,234 --> 00:02:34,684
Well, I'll, I'll argue today in favor
of no intentional tax diversification.

54
00:02:34,684 --> 00:02:37,564
You could take the argument that
people should make sure that

55
00:02:37,564 --> 00:02:38,945
they have tax diversification.

56
00:02:38,975 --> 00:02:39,154
Ed Slott: Oh, good.

57
00:02:39,154 --> 00:02:40,714
You always give me the easy argument.

58
00:02:40,714 --> 00:02:42,214
Jeff Levine: I actually think
I have the easier one here.

59
00:02:42,219 --> 00:02:44,674
So may, maybe we actually
have a true disagreement Ed

60
00:02:44,945 --> 00:02:45,695
Ed Slott: oh, okay.

61
00:02:45,934 --> 00:02:46,325
Jeff Levine: All right.

62
00:02:46,325 --> 00:02:47,674
This is, this is good.

63
00:02:48,154 --> 00:02:48,515
All right.

64
00:02:48,519 --> 00:02:51,214
Well, if, if you really feel
that passionately about tax

65
00:02:51,214 --> 00:02:52,984
diversification, take it away.

66
00:02:52,984 --> 00:02:54,174
You, you, you can tell me.

67
00:02:54,174 --> 00:02:56,989
Ed Slott: Well, in investments,
people always say, don't put

68
00:02:56,989 --> 00:03:01,519
all your eggs in one basket, you
know, or watch that basket it's.

69
00:03:01,519 --> 00:03:04,459
But people don't think about that
when they put their money away

70
00:03:04,459 --> 00:03:05,929
in their retirement accounts.

71
00:03:05,929 --> 00:03:11,539
Yet many people have most of their
money in an IRA, a 401k tax deferred

72
00:03:11,545 --> 00:03:13,099
account, and they keep loading it up.

73
00:03:13,339 --> 00:03:17,209
So if you're just looking at your
retirement accounts, they're loaded

74
00:03:17,209 --> 00:03:21,109
up all in one big giant bag of tax.

75
00:03:21,424 --> 00:03:25,084
It's tax deferred, but that means
that money will have to come out.

76
00:03:25,084 --> 00:03:27,784
It's a sitting duck for
future higher tax rates.

77
00:03:28,114 --> 00:03:33,664
And I think you need some diversification
either outside of the IRA completely,

78
00:03:33,664 --> 00:03:38,254
for example, in a taxable brokerage
account or in a tax free Roth account.

79
00:03:38,259 --> 00:03:42,934
But I wouldn't have everybody load
up everything in a taxable account.

80
00:03:43,864 --> 00:03:46,714
Jeff Levine: Well, I, I think those
are all really good points and I

81
00:03:46,714 --> 00:03:50,194
don't disagree with you that there's
a lot of risk in having everything

82
00:03:50,194 --> 00:03:53,015
in a taxable account, not knowing
what the future will be, not knowing

83
00:03:53,015 --> 00:03:54,784
what future tax rates will look like.

84
00:03:55,054 --> 00:03:58,114
Especially for those who have
been diligent savers, and great

85
00:03:58,114 --> 00:03:59,314
investors their whole lives.

86
00:03:59,314 --> 00:04:02,674
Oftentimes they end up with more income
in retirement than they did while they

87
00:04:02,674 --> 00:04:07,114
were working, which is a, a wonderful
quote on quote problem to be dealing with.

88
00:04:07,414 --> 00:04:12,194
But where I really have a
knit to pick, Ed, is with the

89
00:04:12,224 --> 00:04:14,204
analogy you started off with.

90
00:04:14,204 --> 00:04:18,404
And it's the same analogy I always
hear from financial advisors.

91
00:04:18,554 --> 00:04:21,914
And even from consumers, who've
done some research into, uh, this,

92
00:04:21,914 --> 00:04:23,505
this notion of tax diversification.

93
00:04:23,505 --> 00:04:28,575
They say, well, everyone's familiar with
the benefits of investment diversification

94
00:04:28,755 --> 00:04:33,164
and just like investment diversification,
you should have tax diversification.

95
00:04:33,405 --> 00:04:36,344
Well, to me, that argument
doesn't hold water.

96
00:04:36,344 --> 00:04:42,150
And the reason why, is because on
the investment side, the reason we

97
00:04:42,150 --> 00:04:46,830
diversify is to create a better outcome.

98
00:04:46,830 --> 00:04:53,520
Having a more diversified portfolio
is the means, but the ends is a

99
00:04:53,549 --> 00:04:55,439
better risk adjusted return, right?

100
00:04:55,439 --> 00:05:00,090
To get more return for the same level
of risk, or to get the same return

101
00:05:00,090 --> 00:05:03,960
as you would with another portfolio,
but with lower risk and introducing

102
00:05:03,965 --> 00:05:09,254
different things, the diversification
of a portfolio, provides that benefit

103
00:05:09,554 --> 00:05:15,164
by contrast, when we're talking about,
you know, taxes, what's, Ed, what's

104
00:05:15,169 --> 00:05:16,894
the number one rule for tax planning?

105
00:05:17,794 --> 00:05:20,149
Ed Slott: Always pay
taxes at the lowest rates.

106
00:05:20,149 --> 00:05:22,869
Jeff Levine: That's it always
pay taxes at the lowest...

107
00:05:22,899 --> 00:05:23,709
Ed Slott: That's my always rule.

108
00:05:23,779 --> 00:05:26,049
It's always been my always rule.

109
00:05:26,129 --> 00:05:29,209
Buy low and sell high buying the tax rate.

110
00:05:29,209 --> 00:05:29,329
Yeah.

111
00:05:29,334 --> 00:05:32,659
I look at the tax rate, like
a stock buy low and sell high.

112
00:05:32,719 --> 00:05:34,519
Jeff Levine: I completely agree with that.

113
00:05:34,519 --> 00:05:36,769
I know I'm supposed to disagree,
but that's not our topic for today.

114
00:05:36,769 --> 00:05:36,919
Yeah.

115
00:05:36,979 --> 00:05:37,069
Okay.

116
00:05:37,069 --> 00:05:38,389
So I can agree with that.

117
00:05:38,629 --> 00:05:44,510
So I agree on hundred, 100% with
you that when it comes to taxes,

118
00:05:44,510 --> 00:05:47,989
the number one rule is to pay
taxes when your rate's the lowest.

119
00:05:47,989 --> 00:05:51,919
Now let's imagine ed that you are a
high income executive at a company.

120
00:05:51,919 --> 00:05:56,150
You're fortunate enough to be making,
you know, five, six, $700,000 a year.

121
00:05:56,630 --> 00:06:00,469
And you are in the 37% bracket right now.

122
00:06:00,590 --> 00:06:04,159
And when you retire, you're
looking at a good amount of income.

123
00:06:04,159 --> 00:06:06,409
You're looking at having $200,000.

124
00:06:06,409 --> 00:06:07,460
Let's say of income a year.

125
00:06:07,760 --> 00:06:08,869
Right now you're married.

126
00:06:08,989 --> 00:06:11,840
Maybe that puts you in the 24% bracket.

127
00:06:12,190 --> 00:06:17,050
And while we don't know exactly
what rates will be in the future.

128
00:06:17,780 --> 00:06:22,430
I would say it's highly unlikely
that we're gonna go from 24% for

129
00:06:22,430 --> 00:06:26,570
someone making $200,000 to 37%.

130
00:06:26,575 --> 00:06:26,719
Right.

131
00:06:26,719 --> 00:06:30,050
That's a dramatic shift for
someone who is kind of in this.

132
00:06:30,650 --> 00:06:34,490
I don't wanna call it middle income cause
$200,000 a lot of money, but effectively

133
00:06:34,490 --> 00:06:35,360
Ed Slott: Especially in retirement!

134
00:06:35,570 --> 00:06:36,080
Jeff Levine: Right?

135
00:06:36,080 --> 00:06:36,620
Exactly.

136
00:06:36,620 --> 00:06:39,110
But, but we don't distinguish
that in our tax code.

137
00:06:39,110 --> 00:06:39,289
Right.

138
00:06:39,289 --> 00:06:41,659
We don't penalize people
for being in retirement.

139
00:06:42,050 --> 00:06:44,270
And, and so with that,
with that thought process,

140
00:06:44,270 --> 00:06:46,580
Ed Slott: Actually we
do, they're called RMDs.

141
00:06:46,894 --> 00:06:47,614
Jeff Levine: All right.

142
00:06:47,614 --> 00:06:50,134
All right, you got me there,
but we don't have different tax

143
00:06:50,134 --> 00:06:51,574
brackets for those in retirement.

144
00:06:51,574 --> 00:06:56,614
And so if you've got $200,000 a
year of income, the chances of you

145
00:06:56,619 --> 00:07:00,754
paying a 37% rate down the road
on that income is really small.

146
00:07:01,024 --> 00:07:06,899
And so if we both agree that the
number one rule for tax planning

147
00:07:06,899 --> 00:07:08,699
is paid taxes at the lowest rates.

148
00:07:08,939 --> 00:07:13,709
The entire time that individual is
working, they should be deferring into

149
00:07:13,709 --> 00:07:20,729
a traditional 401k or 4 0 3 B and then,
and only then when they retire, maybe

150
00:07:20,729 --> 00:07:24,169
we look at Roth conversions, but that
means maybe if this person comes into

151
00:07:24,169 --> 00:07:28,009
the office, my office, when they're
35 and they're planning to retire at

152
00:07:28,009 --> 00:07:33,589
65 for the next 30 years, I'm planning
on zero tax diversification for them.

153
00:07:33,769 --> 00:07:38,089
I'm going to have them plow everything
possible into a tax deferred account

154
00:07:38,089 --> 00:07:42,949
because following our number one
rule of tax planning, the lowest

155
00:07:42,949 --> 00:07:44,479
rate will be in the future.

156
00:07:45,179 --> 00:07:47,809
Ed Slott: Well, that could
be, but probably not.

157
00:07:47,900 --> 00:07:51,229
That's that ties in to the
big myth that I call it.

158
00:07:51,229 --> 00:07:55,879
People always tell me, especially retirees
or people contemplating, uh, where to

159
00:07:56,119 --> 00:07:58,280
keep their money tax deferred or tax free.

160
00:07:58,280 --> 00:08:01,069
Should I keep plowing into an IRA or 401k?

161
00:08:01,504 --> 00:08:05,734
And they said, well, I'll always, I'll
be in a lower bracket in retirement

162
00:08:06,334 --> 00:08:08,494
and that just doesn't hold up.

163
00:08:08,494 --> 00:08:12,574
As you actually said, I I've had
clients come to me over the years

164
00:08:12,664 --> 00:08:14,434
in retirement doing their taxes.

165
00:08:14,439 --> 00:08:15,544
They said, Ed, how could it be?

166
00:08:15,544 --> 00:08:19,084
I mean, I mean, I have more
income than my best years working.

167
00:08:19,294 --> 00:08:22,774
Well, that's because you load
it up in IRAs, like you just

168
00:08:22,774 --> 00:08:24,964
said, or 401ks and tax deferred.

169
00:08:25,174 --> 00:08:30,859
And now all of those funds have
accumulated and grown and compounded.

170
00:08:31,099 --> 00:08:34,909
And now your RMDs, your required
minimum distributions have turned out

171
00:08:34,909 --> 00:08:39,140
because you were such a good saver
over a long period of time that your,

172
00:08:39,489 --> 00:08:43,939
your forced distributions, your RMDs
are higher than your income was.

173
00:08:43,969 --> 00:08:48,560
Plus you likely don't have the deductions
you did while you were earning that money.

174
00:08:48,560 --> 00:08:51,800
You probably don't have a mortgage,
but a lot of the deductions

175
00:08:51,800 --> 00:08:54,650
are gone, no deductions for
children and things like that.

176
00:08:55,224 --> 00:08:59,844
So you may be in a much higher bracket
when you'll need the money the most, in

177
00:08:59,844 --> 00:09:03,984
retirement, when the paycheck stopped,
there's generally not no money coming in.

178
00:09:03,984 --> 00:09:05,754
So that money has to last longer.

179
00:09:06,055 --> 00:09:09,714
I'd rather have more of that money
funneled say into a Roth IRA.

180
00:09:09,714 --> 00:09:16,229
In fact, I would even take your argument
where, to have no diversification, but

181
00:09:16,229 --> 00:09:20,430
the other way, have everything in a
Roth growing tax free for the rest of

182
00:09:20,430 --> 00:09:24,719
your life and beyond, you never have
to worry about what the uncertainty

183
00:09:24,719 --> 00:09:28,889
of future higher taxes could do to
your standard of living in retirement.

184
00:09:28,889 --> 00:09:34,719
If you believe like me, that even when
you say rates might not go up, but I don't

185
00:09:34,719 --> 00:09:38,500
think they're gonna go down, especially
for somebody who's been a high earner.

186
00:09:38,500 --> 00:09:40,209
That's a question I get a lot too.

187
00:09:40,510 --> 00:09:43,449
Uh, people say, well, if I'm a
high earner, shouldn't I be taking

188
00:09:43,449 --> 00:09:47,410
the deductions now, like in the
401k and putting it in the IRA.

189
00:09:47,640 --> 00:09:52,439
Because I'm at my, you know, high bracket
and that's another rule of tax planning.

190
00:09:52,439 --> 00:09:56,910
Obviously you want deductions when
rates are high and you want the

191
00:09:56,910 --> 00:09:59,130
income when when rates are lower.

192
00:09:59,490 --> 00:10:02,699
Uh, but, uh, it may not come out that way.

193
00:10:02,705 --> 00:10:06,390
It may come out that your
personal rates, who knows what

194
00:10:06,390 --> 00:10:07,920
the rates will be in the future.

195
00:10:07,920 --> 00:10:09,270
And that's that uncertainty.

196
00:10:09,270 --> 00:10:13,709
But I find people who do well throughout
their lives and earnings, like the

197
00:10:13,709 --> 00:10:18,119
person you talked about in your example,
are, are generally always gonna be at

198
00:10:18,125 --> 00:10:20,040
the top bracket, even in retirement.

199
00:10:20,160 --> 00:10:22,949
Jeff Levine: Yeah, I've heard, I've
heard it said before that our tax

200
00:10:22,949 --> 00:10:24,574
system is a penalty on savings.

201
00:10:24,574 --> 00:10:24,964
Ed Slott: Oh yeah.

202
00:10:24,964 --> 00:10:25,144
Yeah.

203
00:10:25,149 --> 00:10:25,894
I've said that.

204
00:10:26,294 --> 00:10:28,808
Jeff Levine: I don't remember where
I heard that, but some, some guy

205
00:10:28,808 --> 00:10:31,688
once, uh, some guy once said that.

206
00:10:31,768 --> 00:10:33,128
Ed Slott: It's a penalty on savers.

207
00:10:33,128 --> 00:10:33,968
So that's my point.

208
00:10:33,968 --> 00:10:39,368
The more you put away, uh, the
more likely any future higher rates

209
00:10:39,518 --> 00:10:41,288
are going to hit you the hardest.

210
00:10:41,978 --> 00:10:45,038
Jeff Levine: Well, I, I think there,
there are two things I'd unpack there.

211
00:10:45,038 --> 00:10:47,508
First off with reasonable projections.

212
00:10:48,913 --> 00:10:52,343
We can say roughly what someone's
income will be later in life

213
00:10:52,343 --> 00:10:53,873
and, and, and what it is today.

214
00:10:54,113 --> 00:10:58,793
And so if we had someone who we were
projecting might be in the, you know,

215
00:10:58,793 --> 00:11:01,133
let's, let's imagine that higher
earner I was talking about before.

216
00:11:01,138 --> 00:11:06,053
Let's say they were looking at 37% today
and all things being equal we thought

217
00:11:06,058 --> 00:11:12,253
they might be at 35% in the future
there, the difference of 2%, I could

218
00:11:12,253 --> 00:11:15,673
kind of buy your argument of saying,
well, we don't really know, like 35%.

219
00:11:15,673 --> 00:11:18,253
Like you could see that
increasing three, four, 5%.

220
00:11:18,493 --> 00:11:20,473
Maybe rates will be higher in the future.

221
00:11:20,713 --> 00:11:25,158
But oftentimes I see individuals where
their retirement income or their,

222
00:11:25,158 --> 00:11:28,968
their future years income will be so
much substantially lower than what

223
00:11:28,968 --> 00:11:33,438
they're making today, that it would
take wild swings and tax rates to, to

224
00:11:33,438 --> 00:11:35,598
make those, uh, conversions profitable.

225
00:11:35,598 --> 00:11:37,218
And I also see it the other way sometimes.

226
00:11:37,218 --> 00:11:40,728
So you mentioned potentially all
in a Roth, you know, another area

227
00:11:40,733 --> 00:11:43,638
where tax diversification, I don't
think makes a lot of sense is.

228
00:11:43,908 --> 00:11:47,563
You know Ed, I know you're a super big
believer in the Roth IRA for young people,

229
00:11:47,563 --> 00:11:52,513
especially, uh, because you've got the
longest time to compound, you have, uh,

230
00:11:52,543 --> 00:11:56,773
tax, you know, you have, uh, you have
low income relative to your future years.

231
00:11:56,773 --> 00:11:58,903
At least one would hope so,
you know that you're gonna

232
00:11:58,908 --> 00:12:00,433
continue to grow in your career.

233
00:12:00,493 --> 00:12:01,723
You have a small balance.

234
00:12:01,723 --> 00:12:05,413
If you've got money in a pre-tax
account, uh, you know, it's inexpensive

235
00:12:05,413 --> 00:12:10,074
if you wanted to convert it to a Roth
IRA, cause it's just smaller balance

236
00:12:10,074 --> 00:12:12,803
than you hopefully will have when
you're, you know, closer to retirement.

237
00:12:13,043 --> 00:12:16,343
So for all those reasons, I know you're a
big believer in the Roth for young people.

238
00:12:16,584 --> 00:12:21,268
Imagine someone who makes let's
give a, a great example, Ed.

239
00:12:21,268 --> 00:12:25,163
Let's say a young person who's working
as a, a 16 year old has a great summer

240
00:12:25,163 --> 00:12:27,983
job, and they make $6,000 for the year.

241
00:12:28,403 --> 00:12:33,878
They pay $0 of income tax on that
$6,000 because they're below the

242
00:12:33,878 --> 00:12:36,518
standard deduction and that's
their only income for the year.

243
00:12:37,028 --> 00:12:39,908
Well, you could take some of that
money and put it in a traditional

244
00:12:39,908 --> 00:12:43,478
IRA, but the deduction is not worth
anything if they don't get a deduct...

245
00:12:43,748 --> 00:12:46,089
Ed Slott: You wanna take
deductions when rates are high.

246
00:12:46,298 --> 00:12:46,808
Jeff Levine: That's it.

247
00:12:46,928 --> 00:12:52,148
So once again, that's another example
where I would say the goal of tax

248
00:12:52,148 --> 00:12:56,199
diversification is not the goal,
like the goal of tax diversification.

249
00:12:56,199 --> 00:13:00,518
When someone says, Hey, you should have
some Roth or, you know, you should really

250
00:13:00,518 --> 00:13:05,623
have some traditional IRA or whatever
that may be because you don't have any

251
00:13:05,623 --> 00:13:11,293
yet, that is not like that is to me,
the myth that too many people fall into,

252
00:13:11,563 --> 00:13:16,333
because what we're both really agreeing
with here at, at the heart of this is try

253
00:13:16,338 --> 00:13:18,343
to pay tax when your rate says lowest.

254
00:13:18,348 --> 00:13:21,583
And if you're that young person,
you don't want tax diversification,

255
00:13:21,583 --> 00:13:24,973
you want it all in the Roth because
clearly your rate is the lowest then

256
00:13:24,973 --> 00:13:27,808
because it's zero and just like that..

257
00:13:27,813 --> 00:13:30,089
Ed Slott: Let me go, let me
go to your other argument.

258
00:13:30,118 --> 00:13:30,388
Jeff Levine: Okay.

259
00:13:30,388 --> 00:13:31,298
Go to my other argument

260
00:13:31,298 --> 00:13:33,688
Ed Slott: The arguement
about you want outcomes.

261
00:13:34,079 --> 00:13:38,548
And the reason I like the Roth,
even for people who are older is

262
00:13:38,548 --> 00:13:42,209
because the last thing, and this
is just maybe a personality thing.

263
00:13:42,238 --> 00:13:45,834
Nobody wants to pay more tax when
they're in retirement, because

264
00:13:45,834 --> 00:13:47,663
there's not new money coming in.

265
00:13:47,668 --> 00:13:51,353
So everything coming out, I know people
who are have the Roth, they love it.

266
00:13:51,353 --> 00:13:53,693
There's no RMDs for
the rest of their life.

267
00:13:53,699 --> 00:13:55,493
They're not forced to take distributions.

268
00:13:55,493 --> 00:13:56,843
They never have to worry.

269
00:13:57,143 --> 00:14:00,563
And the money's just growing
tax free and it's off the table.

270
00:14:00,714 --> 00:14:05,334
So that may be a behavioral thing,
but people love the idea of being

271
00:14:05,334 --> 00:14:07,403
free from taxes once they're in.

272
00:14:08,858 --> 00:14:10,418
Jeff Levine: Well, there is
something to be said for that.

273
00:14:10,418 --> 00:14:14,528
And ultimately if it's your
money and you feel good about

274
00:14:14,528 --> 00:14:16,028
it, it's truly all that matters.

275
00:14:16,028 --> 00:14:16,209
Right?

276
00:14:16,209 --> 00:14:19,808
I mean you, if, if you are more
concerned about overpaying taxes

277
00:14:19,808 --> 00:14:23,258
than you are about quote unquote,
feeling good, then pay lower taxes.

278
00:14:23,258 --> 00:14:27,158
Ed Slott: Well, I'm using the the
outcome argument you have, you know, it

279
00:14:27,158 --> 00:14:29,138
depends what you want is your outcome.

280
00:14:29,348 --> 00:14:32,948
If you are in retirement and you
can have zero taxes, you're not

281
00:14:32,948 --> 00:14:34,418
that worried that's your outcome.

282
00:14:34,658 --> 00:14:37,928
As you said, you're not that worried
that well, you paid for that all those

283
00:14:37,928 --> 00:14:41,588
years, you're working, but now you're
here and everything's tax free forever.

284
00:14:41,813 --> 00:14:45,503
Jeff Levine: The math nerded me just
says, if you've overpaid to get there,

285
00:14:45,923 --> 00:14:49,883
then that probably wasn't the most
effective way that maybe you could have

286
00:14:49,883 --> 00:14:52,343
gotten there over time in a slower way.

287
00:14:52,493 --> 00:14:54,213
You know, one  you know,
if you go to the extreme,

288
00:14:54,213 --> 00:14:56,613
Ed Slott: oh, so that's an
argument for more diversification.

289
00:14:58,053 --> 00:15:01,263
Jeff Levine: Well, it's simply a matter
of, I don't know, but always try to

290
00:15:01,263 --> 00:15:05,483
pay tax when you think your rate is
the lowest, if that results  in tax

291
00:15:05,483 --> 00:15:08,063
diversification, I'm okay with it, right?

292
00:15:08,063 --> 00:15:10,883
It, the I'm not anti-tax diversification.

293
00:15:10,913 --> 00:15:15,293
I'm anti you should go, like that
should be your, your, your aim.

294
00:15:15,293 --> 00:15:19,163
When you create a portfolio, going
back to that analogy, you aim to

295
00:15:19,163 --> 00:15:24,858
create a portfolio that is diversified
or diversified rather with taxes I

296
00:15:24,858 --> 00:15:26,868
aim to pay tax at the lowest rate.

297
00:15:27,288 --> 00:15:30,078
And if that results in tax
diversification for me.

298
00:15:30,138 --> 00:15:30,678
Awesome.

299
00:15:30,918 --> 00:15:35,358
If that results in me having all money in
a traditional IRA or all money in a Roth.

300
00:15:36,048 --> 00:15:36,558
Awesome.

301
00:15:36,618 --> 00:15:39,198
If I think I've paid tax at the
lowest rate, I'll throw one more

302
00:15:39,203 --> 00:15:40,368
out where I think agree at it.

303
00:15:40,788 --> 00:15:43,998
Ed Slott: You put in the word, think
the problem is the uncertainty of

304
00:15:43,998 --> 00:15:46,008
what future higher tax rates will be.

305
00:15:47,448 --> 00:15:49,878
Jeff Levine: That we, that we once
again agree on I'll and I'll throw

306
00:15:49,878 --> 00:15:53,298
one other that we, that we agree on,
uh, or at least I think we agree on

307
00:15:53,298 --> 00:15:57,378
is that if you have the opportunity to
put money into a retirement account,

308
00:15:57,738 --> 00:16:02,088
either a traditional or a Roth style,
it would generally, and, and again,

309
00:16:02,088 --> 00:16:06,198
always, maybe some edge cases, but it
would rarely make sense to put money

310
00:16:06,198 --> 00:16:10,763
in, let's say a taxable account, before
you would put money into a retirement

311
00:16:10,763 --> 00:16:14,423
account, because either you like the
deduction and you go to the traditional

312
00:16:14,633 --> 00:16:18,233
or you think you don't need the
deduction, but you go to a Roth instead.

313
00:16:18,413 --> 00:16:21,533
The only time I'm just thinking out
loud here, Ed, the only time I could

314
00:16:21,533 --> 00:16:26,003
see avoiding a let's say a Roth 401k
where you had that option is if you

315
00:16:26,008 --> 00:16:29,753
knew you needed the money relatively
soon, but you'd still be working, so

316
00:16:29,753 --> 00:16:33,943
you wouldn't have access to the money
in the 4 0 1, the Roth style 401k.

317
00:16:34,193 --> 00:16:38,263
But otherwise, when the money goes
in, there's no tax difference the

318
00:16:38,263 --> 00:16:40,633
Roth 401k and a taxable account.

319
00:16:40,993 --> 00:16:45,523
So why would you not put your money in a
tax free growth account, if the cost of

320
00:16:45,523 --> 00:16:49,173
getting there is the same as an account
where everything in the future is taxable.

321
00:16:49,923 --> 00:16:50,253
Ed Slott: Right.

322
00:16:50,253 --> 00:16:54,423
Well, the Roth to me I'm, as you said,
I'm a big Roth fan because I like that

323
00:16:54,423 --> 00:16:58,953
outcome never having a worry about future
higher tax rates, but I still think the

324
00:16:58,953 --> 00:17:04,353
taxable brokerage account, you know,
outside of an IRA has its own advantages.

325
00:17:04,353 --> 00:17:06,213
You know, it has to step up in basis.

326
00:17:06,218 --> 00:17:08,703
If you hold it to a death,
you have capital gain rates.

327
00:17:08,943 --> 00:17:14,523
So it's kind of in the middle between Roth
and a taxable I and a tax deferred IRA.

328
00:17:14,943 --> 00:17:15,333
Jeff Levine: All right.

329
00:17:15,338 --> 00:17:15,633
Fair.

330
00:17:16,233 --> 00:17:22,293
You know, and I think we'll leave it there
for today, but two really good sides here.

331
00:17:22,293 --> 00:17:27,903
I think, uh, amongst the strongest
arguments on the tax diversification

332
00:17:27,908 --> 00:17:31,713
side, I think is the argument, we just
don't know what future tax rates will be.

333
00:17:31,713 --> 00:17:31,923
Ed Slott: That's it.

334
00:17:32,103 --> 00:17:36,003
Jeff Levine: So even if you say, Hey,
it's unlikely that tax rates will go up.

335
00:17:36,003 --> 00:17:36,153
This.

336
00:17:36,493 --> 00:17:40,363
How do you know, maybe we will really,
maybe somebody making $200,000 a

337
00:17:40,363 --> 00:17:45,253
year in 10 years, will be paying a 35
or 40% tax rate because we're gonna

338
00:17:45,253 --> 00:17:49,483
need it to support things like social
security and to finance everything

339
00:17:49,483 --> 00:17:51,803
else we've agreed to and whatnot.

340
00:17:51,983 --> 00:17:57,908
I think the stronger argument on the
don't aim for tax diversification side is

341
00:17:58,178 --> 00:18:02,798
that tax diversification and investment
diversification don't equal one another.

342
00:18:03,008 --> 00:18:04,868
They are dramatically different things.

343
00:18:05,108 --> 00:18:09,578
One is a benefit that like having
diversification of an investment

344
00:18:09,583 --> 00:18:15,908
portfolio creates inherently a benefit,
whereas tax diversification to me of

345
00:18:15,938 --> 00:18:21,818
a, uh, tax diversification, that is, is
the outcome of doing the good planning

346
00:18:21,818 --> 00:18:26,653
beforehand, which is always trying to
pay tax when your rate is the lowest.

347
00:18:26,653 --> 00:18:28,483
And even though you may
not know that for sure.

348
00:18:28,873 --> 00:18:30,913
Maybe you could take some pretty
good educations over time,

349
00:18:30,943 --> 00:18:32,233
educated guesses over time.

350
00:18:32,383 --> 00:18:32,893
You agree?

351
00:18:32,983 --> 00:18:36,973
Ed Slott: Well, I think we're,  partly,
I think they both come out, uh, the

352
00:18:36,973 --> 00:18:39,043
outcomes, but the outcomes are different.

353
00:18:40,138 --> 00:18:40,588
Jeff Levine: All right.

354
00:18:40,738 --> 00:18:41,188
Fair enough.

355
00:18:41,188 --> 00:18:44,188
Well, ed, there are two
sides to every coin, right?

356
00:18:44,428 --> 00:18:49,678
Uh, but of course, when you're listening
today, your life and your retirement is

357
00:18:49,738 --> 00:18:51,508
too important to leave up to a coin flip.

358
00:18:51,508 --> 00:18:55,228
And that's why one thing I know
Ed and I always agree on is making

359
00:18:55,228 --> 00:18:59,998
sure you're talking through any big
decision with a knowledgeable financial

360
00:19:00,108 --> 00:19:03,793
advisor or tax professionals so that
you can weigh the pros and the cons

361
00:19:03,793 --> 00:19:07,723
of different options against your
specific set of goals and objectives.

362
00:19:07,933 --> 00:19:10,693
If you'd like to continue the
discussion with ed and I we'd

363
00:19:10,693 --> 00:19:13,813
love to hear from you, uh, tell us
what points you think were great.

364
00:19:13,813 --> 00:19:15,343
Tell us what points you didn't like.

365
00:19:15,613 --> 00:19:18,763
Tell us if we missed something,
tell us if you've got an idea for

366
00:19:18,763 --> 00:19:22,373
a future topic, you can reach out
to Ed on Twitter @TheSlottReport.

367
00:19:22,393 --> 00:19:23,683
That's @TheSlottReport T's report.

368
00:19:23,863 --> 00:19:26,393
You can reach out to me at @CPAPlanner.

369
00:19:26,413 --> 00:19:28,763
Again, that's @CPAPlanner.

370
00:19:29,418 --> 00:19:34,278
We look forward to hearing from you real
soon, Ed, this one in particular was fun.

371
00:19:34,818 --> 00:19:35,478
Ed Slott: Good outcome.

372
00:19:36,138 --> 00:19:36,528
Jeff Levine: All right.

373
00:19:37,488 --> 00:19:38,028
I like it.

374
00:19:38,208 --> 00:19:39,048
We'll leave it there.

375
00:19:39,198 --> 00:19:41,268
We'll see you next time on
the great retirement debate.

376
00:19:42,103 --> 00:19:45,343
OUTRO: Jeffrey Levine is chief planning
officer for Buckingham wealth partners.

377
00:19:45,403 --> 00:19:48,583
This podcast is for informational and
educational purposes only, and should

378
00:19:48,583 --> 00:19:51,853
not be construed as specific investment
accounting, legal or tax advice.

379
00:19:51,913 --> 00:19:54,793
Certain information mentioned may
be based on third party information,

380
00:19:54,793 --> 00:19:57,673
which may become outdated or
otherwise superseded without notice.

381
00:19:57,733 --> 00:20:00,913
Third party information is deemed to
be reliable, but it's accuracy and

382
00:20:00,913 --> 00:20:02,383
completeness cannot be guaranteed.

383
00:20:02,503 --> 00:20:05,533
The topic discussed in corresponding
arguments are those of the speakers

384
00:20:05,683 --> 00:20:08,473
and may not accurately reflect
those of Buckingham wealth partners.