What Is Roth?

Hello this is Willa Hardy with brand talk radio. We all about breaking down the walls of race and denomination your chosen Truth Network podcast is starting in just a few minutes. Enjoy it, share it, but most of all, thank you for listening to The Truth Podcast Network. This is good Truth Network welcome to finishing well brought to you by Cardinal guy, certified financial planner belonged to her child. Best-selling author and financial planner helping families finish well for over 40 years of finishing well will examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing Medicare IRA long-term care life insurance and investments and taxes. Now let's get started with finishing well, finishing well is a general discussion and education issues facing retirees.com partner advisors on trial CFP some insurance this show does not offer investment products or investment advice welcome to finishing well was certified financial planner homicidal. A very fun show today. I think it may sound Drive the beginning, but believe me, sit tight by collector seatbelts can be fun requested the day is in the show's title is what is a Roth and you may know that a Roth is a Roth IRA working to get into lots of that kind of thing. But as always you know we want to take a look at the Scriptures and and see what we can see here and actually Hans and I talked at length about this about how fun this topic is from the standpoint of thinking about from Matthew 25, the parable of the 10 virgins in those 10 virgins were waiting not on retirement but on the bridegroom is the case may be, there definitely waiting and 10 of them were smart right and then they had resources and they worked hard to get the resources together that emergency they put together this oil and then excuse me. Five of them were smart and they had plenty of oil and then there were five that weren't quite so smart and so you can't help but wonder what was the hang up for them that they misunderstood what their needs were going to be at the point in time than the bridegroom would show up.

And so with this in mind, you know, we need to be thinking about it I think it's it's it's it's a great thing to think about what was the oil that they had. I hope you familiar with the story that these 10 virgins were waiting on the bridegroom to come and and when he got there five of them had plenty oil. The other five was their glance, it got dark as they woke up resident was to be so long and and when they did, the bridegroom showed up and when they want to come into the wedding feast. Well, it was weeping and gnashing of teeth. So the idea is how do we number one get that oil and how do we not be foolish, and so it has to do with this idea of waiting and and not instant gratification necessarily, but considering what our needs are going to be as things approach and so with that in mind is very helpful in my opinion, this concept of a Roth IRA in my own personal life. When I learned about this. It just made all kinds a sense, especially at my age and on the knee still working so so I'll let you take it from there. Hans were talking today about the raw IRA. We talked about a lot of the show and I think we tipped over like what it is exactly when over it quickly and then we're talking about how we apply and I would benefit from it. I would convert to it been all around this issue.

The first thing I want to tell people is the Roth IRA started in 1997 was 25 years old this year and it was named after William Law, who was a senator that was a sponsor of the bill and there you go.

So why would he be doing this in 1997 and we can only guess but I the IRA itself started in the 70s so that things had been around 2025 years and people had accumulated money in there and back in those days you can only put like $2000 in back in the 70s in my name and started in 1500 so, but you could put 401(k)s and get you people build up some balances in this whole tax-deferred this whole business of it. You got to write off the contribution. You didn't pay taxes on the money going in and then it accumulates tax-free. I think 25 years later, after the thing started in the late 90s they were really looking at this thing and saying we got the retirees accumulate money and delegate have a big tax bill and furthermore were not collecting the taxes now on all these billions or trillions that are in this thing so they decided to come up with an alternative in the alternative being the raw passing this legislation named after the dude 1997.

They the contributions are after-tax though you know when you put $6000 or people over 50 can put in 7000 just into a Roth IRA of a direct contribution you doing that with after-tax money so you put in seven grand you had to make like 10 or 11 or 12 NAFTA seven that you put in the beginning so clearly can be looked upon negatively and that you might be better off with the seven grand in their in a traditional IRA and then you get to take that off taxes and people been all over that for years and many of you sitting here right now you got all your money or most of your money in a 401(k) or a traditional IRA me you haven't paid taxes on that money yet what I'm talking about in a raw is you already paid tax on the contributions and then on the road you're never going to pay taxes that make Centro is one of the fundamental things about it. That's really cool is that number one since you pay tax on it means you can get it back out without paying tax on it, but also the idea of that goes get those earnings.

The benefit that they're giving you by doing this is those earnings.

What you'll never pay tax on those, which is different than a traditional IRA and you know people on negatively to my communications with the other 20 people that don't agree with me a lot. But on this particular issue where I'm Catholic, pouting Ross. Today I'm showing the benefits of paying the taxes now and in the after-tax contribution that heavenly after-tax Road and then the distributions in retirement are totally tax-free and then what the counter to that essay will your tax rate is lower when he retires with higher what you're working so good traditional IRA because you can deduct it when you tax rates are high in your tax rates are going to be low when you retire and therefore you're wrong manages admitted it on and that last part of that many CPAs tell you my own CPA is paying taxes now and later later better now is worse than later is that the logic yet think I got to say that is not always true in the current environment you know that the top of the 24% tax bracket federal tax were married couples 340,000 in the top of the single tax bracket 24% hundred 70,000 income so federal tax and 24% is pretty low to me and I'll make more than 340,000 this year. Are you still a long time ago but so I'm just thinking 20 years now. When a three or even 15 years now I'm thinking I want to be paying more than 24% tax.

We don't want to get into that on the show too much today, a tax bracket.

That's another show that the first part of that argument always agree with the second part is people ignoring the earning so we most people that come into me� Sitting at $1 million 401(k) just make the math easier to get a million-dollar IRA and we have a lot of people to where the market gone out to the sitting there and they're looking at this another talk to me about a Roth conversion and you know when we break down that IRA is kinda hard to do this, but we can do it and how much of that was contributions that were tax-deductible and then how much of it was earnings inside the IRA and I meditated about 30 to 40% of it was contributions and the other 60% was earnings on those contributions over many many years that make sense exactly now and if that had been wrong all along, which wasn't an option back so I'm not doing Monday morning quarterback, but you doing this comparison that a Roth all along sure you will pay tax on the 34 300 appointment granted to put in their but all of that earnings within tax-free end because it's in a traditional IRA, you have to pay taxes on every dime, and other Yen.

What I found in my experience is people that have large IRAs.

They are really slow to take money on their pages you know this all they don't want to do it and they wait till 72 when they have to. And then they take out the minimum and then many years go by and keep growing, and then they pass away and go to their kids and their kids have this gigantic pack tax and so I just want to follow me on the one that moved a little bit in the salesperson mode rampage in these things, but I just left� Look at this thing objectively and say we got an account that we can open got in cursive pain to get it started meeting.

We got pay tax on the money and put the after-tax money in what is now a tax-free forever account is almost too hard to pass up.

So let's go through a few benefits of this thing coming it. There are no required minimum distributions and so on your rock portion of your account or your Roth IRA when you reach 672. You do not have to take any money ever let it sit there. If you wanted me next that the big advantage if you're over there. Don't take money out of Ryan's minutes. Earnings are bigger, which are also tax-free for whoever your heirs. All right. Right now your heirs start rolling out of the got 10 years to do it and when they do it over the 10 years there not pay any taxes on the money either. Mrs. like this account that a lot of people and really think about it. No, no, tell you that you can put $6000 every year and you will raw, even if you're in a retirement plan at work, you can put six grand and you as long as you have service income of that much yet to be working to do that 50 that number 77 you can do that. Like Brandon I can do that on both so it's really 14,000 we can put in 7000 in mind. 7000 in her break time on Florence legionnaire 14,006 but you know what a cool thing.

These Roth IRAs are. I think you really enjoy what we've got comments I we want to remind you that the show is brought you by cardinal guide.com and across Hans's YouTube channel where there's a video right along these lines.

Cardinal advisors YouTube so we come back we got a whole lot more to share along the eyes along the lines of the raw IRA will be right back. Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic room. There's a chance for you to advance the kingdom through financial resources by leveraging Hans expertise and qualified charitable contributions veterans aid and attendance IRA Social Security care and long-term care.

Just go to cardinal guide.com and contact Tom to schedule a live recording of finishing well, your church, Sunday school or civic contact time to cardinal guide.that's cardinal guide.com welcome back to finishing well, a certified financial planner Hans Schild today show what the world is a Roth and were get into some really cool details Hans.

When we left her here are you you you were talking about how much you could contribute each year especially want to go over 50 you can do $7000 apiece if you're married right 14,000, so long as your combine your individual income while singling hundred 44,000 a year or less. Warrior married couple are both working or combined income 214,000 or less others and limit the people make a lot of money can't make these offbeat contributions people under those amount you can put away seven grand a year each and you could do that right now I'm back right now if you filed your tax return, you which most people have within seven grand for 2021 and you can put seven grand 2022. He could put 14 Brandon and started tax-free account for about you and so just wait you want to get one started imitating something else he could do if you don't have a Roth IRA you could put 100 bucks and one or a thousand bucks and one and a mat�riel that would benefit you because there's this thing called the five-year clock.

All these things with the government and the IRS taxes that they all got all these little weird rules that I've spent my life studying and one of them is a five year rule with the raw so it goes by the very day you first opened your first Roth IRA. Even if you put 100 bucks in their and you did it, you know, March 1. Then during 2022.

That the year you opened your first raw IRA and then if you took any money there for 2027. You would have to pay taxes on the gain so what they're really doing this role is once you open a raw you got to leave the money in there for five years and understand it and if you put $100 and now and then you put $100,000 in three years from now your five-year clock started now know when you get 65 and over.

You guys deal with Medicare you got a deal with Social Security. Collect Social Security and you have to deal with taxes on both of those things.

If you have a higher income for Irma which is the Medicare tax then just final income taxes on your social security check and raw IRA income doesn't count toward go is really tax-free. And that's part of my plan, you will know now the earnings that are accumulating in their tax-free when your beneficiaries receive the money they have 10 years to distribute to themselves so they can't leave it in there indefinitely, but they can leave it in there for 10 years and they can leave it all in there till the 10th year and take it all out in the tent. You can cumulate more tax-free me most apartment waiting most of the cash check in the beginning but they can take part of it.

Point being is 10 years beyond your lifetime. This tax-free could just waiting. You can convert traditional IRA or traditional 401(k) we make it huge business.

Just about everybody that comes in here that hires us to do a financial plan, typically in their 60s from the 50s, some in their 70s about everybody get these raw how I convert this big huge IRA that I have or the smallest IRA get to a raw first before we tell you how to make sure it's the right thing for you to do that if it's the right thing for you to do. I can tell you it can be over several years to make it the best tax wise. But there is no maximum on the amount that you can convert a lot of people makes this up. They think that you know the $7000 Max or some sort of a rule they can only do so much like you had $1 million in an IRA you want to turn it into a raw, you could do the whole thing all in one year.

The only problem with that is you have a tax bill of about 3300 $50,000. I don't think you want to do that. I think it be smarter to do it.

100,000 a year for 10 years you will will will talk about that when you come in paying tax on the IRA or from other money. So if you're doing a conversion back to the million dollar million dollar lady that they want to look at a conversion they decide to do it all in one year. So the real issue is, are we can have $650,000 in this raw IRA because we paid the $350,000 of tax and out of the IRA money or we can have $1 million in this Roth IRA because we paid $350,000 out of other money. That's why we spread it out over a number of years you got at the state income tax to that if you're in a state that has an income tax. North Carolina does. South Carolina does.

Virginia does report it doesn't matter that Texas doesn't Susan number statement is no state income tax. Most of doing here.

North Carolina is little over 5%. So you have to pay that to your conversion like it says spread over a number of years. What a lot of you folks that have 401(k)s are still working in your making contributions. While folks are not even aware that there is such thing as a Roth 401(k) or Roth option within your 401(k) you can start making contributions on your paycheck.

You can set this up.

Maybe next week you could you could have them start taking that money.

Therefore, not your check in your 401(k) put it into the Roth portion and when they do that text little smaller because you're not getting the tax benefit. Now you can get later that goes back to Robbie's basis. Were talking about patience in waiting and waiting for the right room to come.

I think about that a lot Maoist to be 3540 years old realize this with your 401(k) at this point in her life, and as you save those yeah your panel more tax on it. No doubt that these tax rates and then those earnings as they grow like oh my goodness.

And that's all tax-free. If that is you talked about the substantial amount that Tom happens by the time that there and that stage of life and so you know that this is really helpful information for a lot of folks that are a lot younger is sleeping now. Now when you get into the issue.

Do I convert all the answer is probably no yen Christians you know we we we we like to know when were were were called to give money to to God and to time to give money to the church and we get this thing in acute CD so you want to keep the money in a traditional IRA so that you can do acute CD when you're 70 and you will get into that another show. You also want to take a little bit income every year and out of the traditional because we have a smallish income like 10,000 a year.

You don't pay much taxes when you're 72, 70 something on $10,000 a year to figure want to create a little income out of the traditional IRA just want the bulk of it to come out of the raw pay taxes on and then what we want talk about it when you got these two accounts. Let's put the stocks that are going to grow inside the raw lately. The conservative money inside the traditional account so that we have a balance of investment. That way we won't have to pay any taxes on those growth stocks go way up tax-free growth, we can talk more about that later.

And then you know the conservative stuff we want inside the traditional IRA. I recommend people learn all they can about this in just about every client comes in we talk about a raw strategy know the people that have smaller numbers like I think of a lady that I'm helping. She's got a little over 100 grand IRA money hundred and 30 and you know were working on her social security. She's got a little bit of other money and things are pretty tight with her and she got working part time and so no I'm not doing Roth conversions for her because she can pull out.

You know the 56789 $10,000 year there were gonna pull out of the out of the IRA. Pay almost no taxes on that no taxes under Social Security would be any benefit for people that have smallish balances to get into this Roth conversion so people get prepared rights for they want to have enough oil you know this. This is where where we actually begin to harvest this money is what really comes in handy. Whether were put together the money for ourselves, or putting it together for our errors and beginning with the end in mind, so to speak of going what are we preparing this for right yeah you know I think it would be great. Income almost tax-free or a little bit. Then have another income on top of Social Security that is tax-free is gonna be sweet in my 70s and 80s just just is going to provide a lot of security and then if we don't need to drain down the raw to be able to give tax-free money to my kids one time parents and IRA were they also said that I could be a lot large. IRA can be 40% of the state is usually run out of time before he ran out and show forth so grateful for your listening today want to remind you that you can find out all about this kind of thing with Hans's book the complete cardinal guide to planning for living in retirement. It's there@cardinalguide.com and of course more helpful videos and cardinal advisors. So just look for that on YouTube and you can find out more about it. Thank you so much Hans.

Thank you God bless you finishing well is a general discussion and education of the issues facing retirees cardinal guide.com cardinal advisors upon trial CFP some insurance this show does not offer investment products or investment advice.

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