"From Forever Taxed to Never Taxed": My Interview with Ed Slott (Part 1)
Play • 28 min

Ed Slott has a new book coming out called The New Retirement Savings Time Bomb. It’s the updated version of the original book written 20 years ago where the time bomb was the tax building up in your IRA account. If you didn’t know how to plan, you could be hit twice and lose up to 80% and 90%.

Some of the Estate taxes have gone away since then, but there are other new threats to your retirement savings than ever before. Congress always needs money, and they will always go for the lowest hanging fruit, which is your retirement savings.

It’s like a deal with the devil, getting those deductions on the front end with the hope that you will be in a lower tax bracket. This assumption is where the danger lies.

The Secure Act has ironically made your retirement savings less secure. The biggest threat is the elimination of the stretch IRA and the estate implications. Every plan needs to be reviewed and revised, maybe scrapped altogether for different thinking entirely.

Congress needs money, which means tax rates are going to go up and that people will have less money in retirement.

What is driving the need for these huge infusions of cash? Deficits and debts are the issue. The government has been recklessly spending for decades, and now it’s only increased with the effects of Covid-19.

When most people think of compound interest, they think of how Albert Einstein is the 8th wonder of the world. It’s great when it’s working for you, but awful when compounding is working against you. Compounding debt is the real issue.

The math doesn’t discriminate. The math bears it out that we will never see tax rates as low as they are today.

We need a more stable and secure plan for the future. The history of tax rates shows that we could return to where rates were as high as 90% for the top tax brackets. You may only have one more year to take advantage of these historically low tax rates.

People have to realize that they are in control of their tax rates. Taking advantage of the current low tax rates is the best tax planning you can do. Always pay taxes when the rates are the lowest. That may mean paying some taxes now, but you have to remember that taxes are a bill that won’t go away.

The concern about losing out on compounding interest when converting to a Roth IRA is a myth. If you are truly comparing apples to apples, there is no loss when using the same rates of return and taxes, but if rates go up, then everything changes. When rates go up, everything tax-free becomes more valuable.

When you have money in your IRA, it is accruing to the benefit of the IRS. When you convert now, you are claiming your portion of the money, as well as the future interest.

Taxes have to be paid for. It’s not if, it’s when. Why not pay them while they are on sale?

Even in the worst case scenario, by converting now you lock in a zero percent tax rate for the rest of your life, which is not a bad consolation prize.

After the Secure Act, using a trust to protect your money after death is no longer viable. Regardless of what happens with tax rates, this is going to become a huge burden for a number of people, and this makes a permanent life insurance policy even more attractive.

People don’t care about the vehicle. They want the results. They want low taxes, larger inheritance, and post death control, and a permanent life insurance plan that fits the bill.

 

Mentioned in this Episode: The New Retirement Savings Time Bomb by Ed Slott can be pre-ordered on Amazon here: https://www.amazon.com/gp/product/B07TSZSSY5/ref=dbs_a_def_rwt_bibl_vppi_i0

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