Josh Scandlen Podcast

Latest episode of The Josh Scandlen Podcast --- Support this podcast: https://anchor.fm/josh-scandlen-podcast/support

Latest episode of The Josh Scandlen Podcast --- Support this podcast: https://anchor.fm/josh-scandlen-podcast/support

Sales of Fixed Indexed Annuities (FIAs) are in the billions.  So, obviously these products are resonating with some folks.  For them to resonate with you please understand these things. 1. Fixed Index Annuities will most likely give you BOND-like performance, not stock-like performance.    If a sales guy is selling you on the concept of stock-like performance with no risk, please run, don't walk but RUN, away.  In this video I show you research by Roger Ibbotson, who is in favor of these products, what he says FIAs will most likely do.  Again, BOND-like, not stock like performance.  2.  If a naysayer on annuities is saying he doesnt' like them because the fees are so high, ask him how much he gets paid...in dollars, not percentages.  Weird how some compare 1 product against another by only showing the fees on the one but NOT the other.  3.  FIAs can provide you with guaranteed income with NO market loss.  This is a fact for many of the produ

Bonus 1 - Roth’s Are Included in Estate Tax Calculations Roth IRAs are included in your estate for estate tax purposes.  Yes, the vast majority of Americans will die without owing any federal estate tax.  But if you are one of the couple thousand Americans who have an estate over $20 million at the time of this writing (2018), your Roth will be included.   Now, with that said, everything you own will be included; Your Traditional IRA, life insurance, home, etc.  A Roth is not unique. But it’s important to know that while a Roth is income tax free it’s not estate tax free.  “Ahhh, that’s no big deal Josh, we don’t have anywhere near $20 million.”  I get it.  You may not be that wealthy. But do you live in MA? NY? MN? PA? OR? All of these states, and a host more, have state estate tax and/or inheritance tax.   Roth IRAs will be part of the calculation to determine how much your estate owes in taxes to your state when you pass on.  Massachusetts, for instance, taxes y

15 - How Your Teen Can Take Advantage of the Tax Code I cannot tell you how many times I’ve been asked this question: “Josh, my 16 year old son has a part time job this summer. Can he open a Roth?” Yes, he can start a Roth and certainly should. A great strategy is to give him the money to open the account based on the income he made.  Incentivize your children to work by opening a Roth for them For instance, say he made $5,000 washing dishes over the summer but he wants to spend some of that money. Can’t blame him.  That’s why he worked, to get some spending money.  A way to reward him without just handing him over cash is to say, “I’m proud of you getting this job, son. Look at all your peers just lounging around. For your efforts, I’m going to put the amount you made as income into a Roth IRA in your name.” And you then send a check for $5,000 to his Roth IRA provider. Maybe that’s too much of a gift for him and doesn’t incentivize him to save any of his own money?  Then simply match the

Even Jeff Bezos Should Have a Roth 401k Another benefit of the Roth is one many overlook.  This is the ability to fund a Roth 401k regardless of your income. High income earners, even millionaires, can fund a Roth 401k if their plan offers it.  I know many of you are reading this and saying “Josh, you’ve really lost it now. Why on earth would a high-income earner want to fund a Roth with after-tax money when she is in a high tax bracket?” To which I say “Even after reading this far in this book you still doubt the power of the Roth?” First, let me explain the basics of a 401k plan. There are three parts: Elective deferrals Employer contributions Profit sharing   Elective deferrals are the money you choose to forgo from your paycheck in order for it to go into your retirement account.  You have one of two choices for where to put this money, the tax-deferred, i.e., the Traditional 401k or the tax free, the Roth 401k.  The money you contribute to the Traditional side reduces your

If you live in one of the nine states in the US with no income tax you are free to skip this section.  However, you may want to read on for a couple reasons: If they incorporate an income tax at some point in your state.  (I’m looking at you Washington state!) You move to a state that has an income tax. For instance you move 50 miles south from Chattanooga to Georgia.   The rest of us will be faced with potentially paying income taxes on our IRA distributions.  Now, be advised, many states have income deductions and exemptions for retirees that working stiffs don’t get. So, even if the state has an income tax, you still may not pay any. Take Georgia for instance.  If you’re over 64 years old, you pay NO tax on your Social Security income and you pay no tax on the first $65k of retirement income distributions, per person.  Essentially, even though there is a rather high state income tax, Georgia retirees can have a lot of income before they pay any state tax.  However, no

When President Obama signed the “Affordable Care Act”, aka Obamacare, it came with a pretty significant tax bite called the Net Investment Income Tax (NIIT).   From the IRS:  “The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.” Now, you may be thinking, “I don’t have anywhere near that $250,000 in MAGI to worry about this tax.  So, what’s the big deal?” See where it says: “Taxpayers should be aware that these threshold amounts are not indexed for inflation”? (Emphasis mine). Not indexed for inflation...  Hmmmm..where have we heard that before? Oh yeah, the provisional income rules for the taxation of Social Security benefits as well as the Alternative Minimum Tax.  When the legislation to tax Social Security and then the Alternative Minimum Tax were first enacted very few people were affected, thus no outrage, as only “the rich” paid.  Now almost everyone pays some tax on t

After John died, Judy lived rather frugally, as do most retirees. So, when she died she still had $200,000 in her IRA. She left 50% each to her two children, Jimmy and Jenny.    Jimmy is a married Radiologist making $500k a year. Jenny is a divorced gas station attendant making $35k a year and heavily in debt. Jimmy has no cash flow needs so he rolls the $100,000 Judy left him into an inherited IRA. He still needs to take annual required minimum distributions. But while those distributions won’t be much initially because he is only 50 years old they will grow each year. Unfortunately for him, as long as he’s making the same income he’s going to lose 35%, or more, to federal income taxes.  Unlike Jimmy, Jenny is in desperate need of cash. Creditors are calling and she is late on rent.  She takes a lump sum distribution of the entire $100,000 which put her gross income for the year at $135,000. Her total tax will be around $23,800 once she takes the distribution, which means she is going to

It is my opinion that the Roth IRA is the most effective and underutilized method of transferring wealth to future generations.   Now, I can hear all the life insurance agents screaming, “Roth is NOT preferable to life insurance!”  To my life insurance friends, in some ways I agree.  There is no other method where one could create an instant estate as quickly as life insurance.  Only life insurance can create an instant estate For instance, say you’re 45 years old, making good money and in good health. Your net worth consists of the equity in your home and $250k in retirement savings.   One day you get hit by a bus and die. Your spouse will inherit your equity in the home plus your $250k in retirement savings (assuming the house was jointly owned and he/she was beneficiary on the retirement account).   While that’s a decent amount of wealth, it isn’t generational wealth by any stretch. And, of course, at some point your spouse will be forced to pay taxes on the retirement acco

Traditional IRA growth is stunted by tax The Roth has no RMDs which means it can grow for as long as you and your spouse live. You cannot get the same growth potential in a Traditional IRA where you are mandated to take distributions each year.  Think about it like this. You and your spouse are both 68 years old. What is better to have, a $100,000 tax-deferred account or a $75,000 tax-free account? The answer is the tax-free account. Seems counterintuitive doesn’t it? $75,000 is significantly less money than $100,000 after all. But the entirety of that $75,000 account is yours. And you never have to touch it unless you want.  That $100,000 has a huge lien on it called the IRS. Slowly at first, but in a few short years RMDs will increase until the account is nearly depleted.  One could argue that you could take the RMDs from the tax-deferred account and invest them in a side account. But you still paid tax on the RMDs as ordinary income. Secondly, if your side account has its own distributio

If you are married filing jointly with taxable income of $77,400 or less, you are in the 12% tax bracket. However, add $1 more and you are in the 22% bracket. See how that works? $77,400 = 12% bracket. $77,401 = 22% bracket.  This is how marginal rates work: the more income you receive the higher the tax rate on that additional income will be. The tax you paid on your previous income doesn’t change though. You only pay higher taxes on the amount that puts you into the next bracket.  How Qualified Dividends and Long-Term Gains Are Taxed Now, let’s say you have total income of $70,000 which consists of $60,000 of work income and $10,000 in the form of Qualified Dividend Income (QDI) and Long Term Capital Gains (LTCG). But you need $80,000 to maintain your lifestyle.  So you take a $10,000 distribution from your IRA.  That puts you in the 22% tax bracket. The following April you go visit your tax guy to file your taxes.  Your tax guy gives you what you initially thought to be a pleas

With a Roth you determine when you want to pay the taxes for what you put into the account. This is a benefit of the Roth that way too often gets overlooked.  Remember, anything contributed to a Roth is with after-tax money. If you choose the Roth, you pay tax now. If you choose the Traditional you pay tax later.  It’s up to you when you want to pay the tax. You can also convert all or a portion of your Traditional IRA/401k/403B/TSP to a Roth. A conversion is simply moving money from a tax-deferred account to a Roth.  For instance, if you were to convert $50,000 from your Traditional IRA to a Roth, that $50,000 will be taxable as ordinary income (OI) in the year in which you did it.  There is no escaping that. You will pay tax on that converted amount.  But again, you choose when.  Let’s play out a scenario to see how this may work for you. Sarah and Dan just retired.  As a marketing executive Sarah was making good money, $150,000 a year with a $50,000 annual bonus.  

Let’s say you are the breadwinner and your spouse is a stay home mom or dad.   Due to all the contributions to your retirement plan at work your side of the balance sheet is growing significantly more than your spouse’s.  You are concerned about “equalization of estates”. (Equalization of estates is an old estate planning term when there was more concern with estate tax.  The estate tax issue is a non-starter for most nowadays but there is something to be said for both spouses having ownership in something.) What you should do is plop down $5,500 in January in your Spouse's Roth IRA.  Doesn’t matter if he or she isn’t “working” for an income. Only matters that you are.  Do this every year and you’ll be surprised at how quickly the account can grow.  Have I mentioned that Roth’s grow TAX-FREE too??? --- Support this podcast: https://anchor.fm/josh-scandlen-podcast/support

With a Roth there are NO required minimum distributions (RMDs). This means you can allow your Roth to grow for as long as you are breathing without ever having to take any money out.  A traditional IRA, 401k, 403B or TSP all require at age 70½ you begin taking a percentage out of the account in order to pay tax on it.  What if you don’t need the money? Doesn’t matter. The IRS needs it more and they will get it starting when you turn 70 ½.   Let’s say you are 70 years old and have $100,000 in your traditional IRA.  Your RMD will be $3,649.63.  How did I get that? Just take your account balance from the end of the previous year, find your age at the end of this year on the IRS table below and divide that corresponding number into your account balance.  Now, I can hear some saying “Josh, paying tax on $3,649.63 is no big deal. I’m in the 12% bracket so it will only cost me around $400 in taxes.” I agree. The first few years of RMDs are so small you probably won’t even notice the tax

As we discussed in the previous chapter, if a married couple’s provisional income is less than $32k they pay no tax on their Social Security benefits.  However, for a single taxpayer, if provisional income is greater than $34k then up to 85% of his/her Social Security benefit will be subject to tax.  Let’s say you are a single taxpayer and have a $30,000 distribution from a Traditional IRA in addition to your $30,000 of Social Security benefits. In this case your provisional income is $45,000. You will pay tax on your Social Security Benefits.  Remember: Provisional Income is half your Social Security benefit plus any other income you receive (Roth distributions excluded). Now say that $30,000 IRA distribution came from a Roth. In this case your provisional income is only $15,000 because Roth IRAs are not included in the calculations.  So, you pay NO TAX! They each have $60,000 of income, $30,000 from Social Security and $30,000 from IRAs. Judy’s IRA income is from a Traditional but Jane’

In 1983, and again in 1993, provisions were made to the tax code to allow for the taxation of Social Security benefits.  If your income was above a certain provision some of your benefits were taxed. Thus the term “provisional income” came to describe how much of your Social Security benefits are taxed.  Oddly, go to SSA.gov and type “provisional income” into the search button and see what you come up with; Nothing.  Go to IRS.gov and type in “provisional income”. Again, nothing.  Now, don’t get me wrong, both of these sites have tons of information on how benefits are taxed.  Here’s the IRS for example:  a quick way to find out if a taxpayer must pay taxes on their Social Security benefits: Add one-half of the Social Security income to all other income, including tax-exempt interest. Then compare that amount to the base amount for their filing status. If the total is more than the base amount, some of their benefits may be taxable. Base Amounts. The three base amounts are:

If you are a married filing jointly (MFJ) taxpayer you will not be one indefinitely.  At some point, you or your spouse will be a single taxpayer and your tax situation will change dramatically.    Let’s go back to John and Judy. Their income is $100,000 which consists of John’s military pension and IRA distributions.   Now, let’s say John dies. Thankfully, he filed for a 55% Survivor Benefit Pension (SBP) when he separated from the military which allows Judy to receive a pension benefit of $30,250.  However, that’s not enough for Judy to live on.  She feels she needs a gross income of $75,000 to maintain her lifestyle.  So, the rest of her income will come from IRA distributions.  (In case you are wondering about Social Security, we’ll get into that later.  That’s where it really gets fun!) Anything jump out at you?   Judy has 33% less income yet pays 13% more in federal tax! How can this be?   On the next page you will see the tax tables for a single t

The single most important thing to understand about the U.S. tax code is the difference between gross income and taxable income.  Let’s introduce John and Judy.  They have $100,000 in gross income. What do you think their tax bracket is? Most people will see a married couple with $100,000 income and think they are in the 22% tax bracket.  But that is incorrect.  Taxable Income vs. Gross Income Your federal tax bracket is actually based on your taxable income not your gross income. Taxable income is the net amount you have after you take the various deductions and/or exemptions that are available.  So, let’s assume John and Judy do not itemize their taxes. The only deduction they have is the standard deduction.  Under the new tax bill, (TCJA 2017), tax payers under 65 years old can take $12,000 in standard deductions. Taxpayers 65 and older have a standard deduction of $13,300. Assuming John and Judy are both over 65, they would subtract $26,600 from their $100,000 of gross income

Do you know how Social Security benefits are taxed? State income taxes? How Medicare premiums are calculated? Ever heard of NIIT? What your RMDs (Required Minimum Distributions) will do to your tax bracket? How about other lump sum distributions? What kind of taxes will your surviving spouse pay? How about the taxes you pass on to your kids?   All of the above will be affected by distributions from your tax-deferred retirement accounts. In this book I’ll share with you example after example of how your tax-deferred accounts can greatly increase your overall taxes and even Medicare premiums.  The numbers, once they’re laid out for you to see, simply cannot be refuted.   In this book, you will see how the Roth is the most powerful financial planning tool ever created to increase your family’s wealth. Unfortunately, most people do not understand the significant benefits of the Roth. They see it only as a pay-tax-now vs. pay-tax-later option.  The typical analysis as to whether or not one shou