“Learn from the mistakes of others. You can’t live long enough to make them all yourself.” – Eleanor Roosevelt… Ever wish you could foresee financial missteps before they happen? In today’s episode, explore some real-life stories of regret and arm yourself with the essential dos and don'ts to ensure your money works for you, not against you.
Important Links: Website: http://www.yourplanningpros.com
Call: 844-707-7381
“Learn from the mistakes of others. You can’t live long enough to make them all yourself.” – Eleanor Roosevelt… Ever wish you could foresee financial missteps before they happen? In today’s episode, explore some real-life stories of regret and arm yourself with the essential dos and don'ts to ensure your money works for you, not against you.
Important Links: Website: http://www.yourplanningpros.com
Call: 844-707-7381
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Transcript:
Marc Killian 00:00
Learn from the mistakes of others because you can't live long enough to make them all yourself a quote from Eleanor Roosevelt. And certainly we've all been in that place before where we wish we could see something coming down the road before we make that mistake and step into it. And that's what we're going to talk about this week here on plan with a tax man, we're going to share some conversation around real life stories or regrets of folks and when it comes to money, mistakes, and hopefully how to avoid them with Tony Morrow here on playing with the tax man.
00:28
Look up in the sky. It's a bird.
Announcer 2 00:30
It's a plane. No, it's the tax man. He may not be a superhero. But Tony Morrow has saved many retirement plans with his extreme knowledge of tax planning strategies. It's time for a plan with the tax man.
Marc Killian 00:45
Hey, everybody, welcome into the podcast. It is planned with the tax man with Tony Morrow and myself to talk money mistakes that you might regret and hopefully how to avoid them. So if you've got some questions, need some help reach out to Tony, he's been helping families for 27 plus years working his way towards 30 here. So been doing this a long time great resource for you to tap into. And if you've got those questions, find them online at your planning proz.com. That is your planning proz.com and get yourself a complimentary review and consultation underway with Tony and his team at tax doctoring. What's going on my friend? How are you?
Tony Mauro 01:18
I'm good. I'm enjoying the fall. And it's November. Yeah, be the holidays here before we know, I know. That's always fun time.
Marc Killian 01:26
I think October was like on. I don't know, okay. It's like us on speed dial or something that was like pure. October. Right, by right. And, and here we are into into November already. So yeah, you before you know it, the year will be over. And it's winding down fast. So yeah, it's that time of the year, right. What is one thing after the next, you know, next thing, it was Halloween, and it's gonna be Thanksgiving, man, it's gonna be Christmas, and New Year's, and boom, it's all done. So let's talk about some money mistakes. Because hey, I mean, this time of year, people also spend a little bit more too. So that can be one as well can be like a bonus one. But I'm gonna get a few I wanted to go through Tony, just share some of your experiences with some of these things and things that folks might be able to pick up some useful nuggets from here. So let's start with the IRA IRA withdrawals Say that three times fast is kind of hard, and maybe taking out money like early right. So I talked to many advisors, Tony, and a lot of them will say this, they almost all say the same thing. If you have to access some money for like an emergency, or something's going on the last place most of them recommend you do this is taking premature IRA withdrawals. Do you agree with that, and why?
Tony Mauro 02:37
I do agree with that I see it all the time, this is a big one. So I'm excited to talk about it, it's, it's definitely not a good idea to take money out of the IRA for most things, basically, you know, the easy ones are, well, you're gonna have to pay tax, and you're gonna have to pay the penalty in depending on your tax bracket that that could be big. But the bigger thing is, is what people don't think about is the last earnings. And I like to run right to the numbers, extrapolate out what they're going to take out over the next, you know, I don't know, 1015 20 years, however, however long they've got left. And say, besides all that, here's what you're going to, you know, you're going to miss out on and you're going to have to try to make this up. I have an example of a an accounting client, she makes a lot of money. She emailed me about a week ago and asked if my husband and they're in the 32% tax bracket. If my husband takes out 500,000 Out of our IRA, what kind of tax would we have? Okay, I talked to her right out of it. I said, Well, besides the big penalty, and taxes that you guys as income level, here's your 500,000. If we extrapolate that out to your 65 Here's what it would have been? How are you going to make that up? And what's this money for? And you know, what you said was, well, we're thinking about buying some rental properties. I
Marc Killian 03:54
said, but just you've got the means borrow the money, you know, and pay them off early. So because I mean, you're you're pulling it out of there, you're paying the tax, right? You're paying the penalty if you're not the right age, and you're taking it taking away the ability for that to continue to grow, right?
Tony Mauro 04:09
To tend to grow, you got to start over, right. And it's like, you know, Boy, that's a big hole to get into. Yeah, and I think people don't realize it, and I like to do that with them and try to I really strongly try to talk them out of it at the end of the day. Some of them do it. But I think part of it the penalty. You know, that's the big slap in the face right now, but the one they don't realize is now I don't have any you got to start over for retirement. I don't I don't like that at all. Yeah,
Marc Killian 04:35
yeah, it's a tough, you know, especially even when you think about the idea of, and I know there's different accounts for different rules for different accounts, but like even borrowing taking a loan against one of your retirement accounts, right? Yeah, take a loan against it. pay it back. But it's like, how often do we truly pay ourselves back on time, right, we'll find an excuse or there's a way easily for us to go well, this didn't happen. So I won't do that right now. Or and then what happens if you change jobs? While you've got that pullback, right, they treat it as a, they now treat it as a distribution, correct?
Tony Mauro 05:04
Yeah, they treat it as a distribution. I would say, you know, if I always tell people, let's stay away from the 401 K bar at
Marc Killian 05:11
all. Yeah, right, let's you have no other options. Right, exactly.
Tony Mauro 05:16
And then and then if take a loan out against the 401k, if you have that ability, rather than a withdrawal, because I just think there's too many negatives to that to make that worthwhile. Okay,
Marc Killian 05:27
fair enough. And again, so that's a money mistake that you might wind up regretting. So let's just try to avoid it. And there's a lot of options that we sometimes don't think of. And that's where a qualified Pro, like Tony can help you look at different avenues, like he just described, in ways to maybe, you know, take care of whatever the problem is that you need to access these funds for, alright, it's the number two, something called Lifestyle creep. And anybody who's ever worked on a project to home project or renovation, they're familiar with probably the term scope creep, which is the scope of the project, right? Got out of hand, like you said, Okay, we're gonna remodel this bathroom, it's gonna, we're gonna spend $5,000 on it. And the next thing, you know, you're like, Man, this is getting out of control, right? Especially if you do it yourself. And so the lifestyle creep Tony is and I know, you're familiar, this, but for our listeners, it's, you get into your, let's say, late 40s, early 50s, the kids are coming off the payroll, you're probably making the most money you've ever made. And you're starting to treat yourself a little bit, right, like, maybe you got the sports car, after all, or started to get me, you know, not necessarily waiting for full retirement, you're actually just kind of doing more things because you've got some extra income now that the kids are off the payroll. And that can be great. But just be careful that it doesn't creep out of control, right? Because there's the future you again, don't forget about future you stand and 20 years down the road waving at you going, Hey, don't spend all my money, right?
Tony Mauro 06:44
That's right. And everybody's guilty of it. And I think the biggest piece of advice I can offer it, and we've all been there. So you can't you can't change what happened yesterday, but you certainly can plan and the key word is plan, have a plan. And make sure if your lifestyle is getting out of control that you talk to an advisor about, you know, making sure that okay, I've got all my bases covered for the future you like talking about and make it as long as that's being addressed, whether it's retirement, emergency funds, some other things, and you still have some money. There's nothing wrong with you know, going out and enjoying yourselves by any means or exactly. I think the biggest thing that catches people is their lack of planning and thinking out toward the future. And that's, that's where they started getting rich
Marc Killian 07:30
indeed. And you know, you might even justify and say, hey, it's my money, I've earned it. You know, the kids are out of the house, everything said, I'm going to enjoy it while I can. Because I'm not going to necessarily wait until I'm old and feeble. Right? I've heard that said a ton of times by some friends. Yeah, that's like, okay, but old and feeble. You if you're convinced that that's happening, it's still coming and old and feeble, you is going to need money. Just to live, right? Yeah, just the same as you do right now. So just I'm not saying don't do it. I'm just simply saying, find the balance, and a good strategy and a good spending plan, whatever you want to call it, even in you're still working yours is a good idea, just so that you know that hey, I'm still paying future me a percentage, but then I'm still gonna have a little bit for this, you know, for fun now, too. That's all that's all we're asking is just to have a strategy. Yeah, yeah, have a strategy and a plan, because that is a money mistake that might bite you in the you know what, all right, number three, this one might bite a lot of people too. And we saw this get really bad for a while Tony, and it's probably still going on. And that's paying too much for the kids, you know, college education, and it comes back to bite us. We've gotten a ton of emails here on the program, where it's been, like, you know, through your website, where it's been, like, hey, I want to help my kids with college, but I don't want to sacrifice my retirement. And that's the right mindset to have. Don't sacrifice your time, but find that balance again.
Tony Mauro 08:47
It is, I think, too many 20 parents, I have some of my own family, and we all know him about and even, you know, I with my own son's education, you know, you spend a lot of money, if you're gonna pay for it for them on the education. And sometimes I get parents saying, Boy, I spent, you know, say $100,000 on my son's education. And he's not even using this degree. And, boy, I really made a mistake. I don't think it's your mistake, per se. Number one, maybe yeah, maybe you might have chose a different school or whatnot. But again, it's done. So you got to move forward. I think I hear a lot of parents to doing this. And, of course, this is all personal preference. But you know, you've got your son or daughter to 30 years old, and you're still paying for their rent or their car and their cell phone and it's all personal. So it's a tough conversation to have people because I'd like to just say, why are you doing that? You shouldn't do that. You know, because that to me, they're not gonna learn anything. They gotta learn what life's about and everything else but everybody has a really touchy opinion on this
Marc Killian 09:50
short so skin in the game. Yeah, skin in the game is not a bad idea. I think a lot of us can agree and even if you don't, even if you are your type of parents cuz I want to do everything for my kid that I can because I didn't get it or whatever. Hey, that's commendable. But do you really think I tried to frame it like this? I mean, with our daughter the same thing. It's like, you know, she got to a certain point, she was still here at home. And I was like, You have got to get off the couch and do something. Right. And she did. She's She joined the military. And she's doing great and couldn't be more proud of her. But I was like, because do you want us couch surfing on your couch when we're 65? Right? Because if we sacrifice too much for you, guess what's going to happen when you're now in your 40s. And you've got your family and you're trying to take care of the things you need. And here comes mom and dad that live on your couch or in your basement because they gave you everything they had when you were younger, right? Yeah, that's good point. It's a good point, it's a cyclical thing you got you got to find the balance. Otherwise, you're couchsurfing on their couch when you're old. And they're not going to want that any more than you are. So just be careful. Find the balance. Number four, oops, I did it again. That's Britney Spears. But I retired a bit too early, Tony. And it's costing me so longevity risk is something we've talked about many times on the program here, the longer we're on the earth, the more we're subject to different kinds of financial risk, right? tax risk, inflation risk, and so on and so forth. market risk, right? Well, if you retire early, that's even it's kind of like longevity risk on steroids. Because now we're retired even longer doesn't mean you can't retire early. But man, you really need to have a plan. If you're gonna,
Tony Mauro 11:23
you do. And it's another issue. And of course, I sound like a broken record and was saying you need to work on advisor because this is one area that if you retire early and you don't have a plan, then it could really come back and buy it. And then if you wait too long to catch it, you don't have the ability to maybe even work but I wouldn't say, you know, if you retire too early, and it's caution you work with your advisor again, you always have options, I'm sure, yeah, you're you're gonna have less soul security. And, you know, you're you might be living off savings. But if you have the ability to work or whatnot, you certainly can go back and, and work a little bit and change some things. So it's not the end of the world, if you don't let it get too far along, you know, and then yeah, you're unable to work.
Marc Killian 12:09
And that's totally fair, if you've got a strategy for it. But if you retire early, and just say, I'm living off, you know, the, you know, just gonna be living off the things that we've done. And so security, and then you realize it's not enough, yeah, your options do get a little dwindled. Yes, you can go back to work, but you're probably not getting the same exact job back and the same exact pay, right. So you know, maybe kick that one out of your head there a little bit. But just bear in mind that there's, there's a plan and an option if you have one. But if you just wing it, be careful, because you're going to have that lower level of accumulated savings, you're going to be starting to draw down those savings earlier, which means you got to live on them longer. And of course, to your point a second ago, you're taking the haircut on Social Security by taking it early, right, I just saw something somebody ran the math and was doing something the other day and said, just delaying retirement three years, like did like a huge number of difference to the retirement income was like some staggering like 40%, like, increase their chances like like 40% of reaching longevity and reaching the things that they were trying to accomplish with their plan. It was pretty staggering was pretty interesting, just three years.
Tony Mauro 13:13
So but and today with with advisors, you know, we have it as well as if we can gather a client's information about here's where they're at now, even if they're say they're in their, I don't know, late 50s, early 60s, and you know, use the software with what they have now. And basing that on, you know, if you delay it, say they want to retire 65 versus 68, or 69. And how much more money they would have. Yeah, how long that would last? And yeah, you can get that information extremely quickly. Yeah, you could
Marc Killian 13:43
run scenarios, right? You can, you can plug in a number of scenarios and go, Okay, I want to retire at 62. What happens? versus 67? Well, let's plug that stuff in and find out right, exactly, yeah. And then. Yeah, then you're armed with the information. And you can go all right, do we because what happens in many folks know this, right? Obviously, it's pretty common sense. As we go, we justify in our head, Tony, we go well, if we cut a little here and we cut a little there, we could still make this retirement early thing work. We just have to sacrifice a little bit for you know, it's like, Okay, fine. But really check in ask yourself and think about that. You want to do that before you actually put it to put pen to paper, right? You can't change it. I mean, advisors say, Hey, you want to try it live that way for a few months while you still got the job? And see how exactly, you see how it goes. Yeah, exactly. And that way you get a trial run. And you can go nude. That was a bad idea. Yeah, that's right. And you haven't made anything permanent. Alright, one more. We'll wrap it up here this week on some money, mistakes you might regret and how to avoid them. Many folks obviously frustrated with the fact that that we didn't take advantage of different kinds of tax buckets along the way. We talked on our last podcast in many times. Tony, one of the biggest things is we've been taught for years and years now to pump money in the 401k you and defer, defer defer. And that's fine. But at some point, people start to realize, oh, maybe some tax free options or some different taxable options may have been a good idea as well, right. So not just one or two income streams, but also one or two, or three, you know, kind of taxable buckets.
Tony Mauro 15:16
Yeah. And I think a lot of times people overlook, and they don't understand is the here's some terms, because it's starting to become a little bit better known. But depending on somebody's age, we talk a lot about, well, if you're not, you know, too close to retirement, you know, there are some options where we still can go back and capture some of this, we can, we can convert to Roth IRAs. And of course, they're going to pay some taxes now, but then you don't have that IOU later, you can start just contributing to a Roth IRA if you'd like. So, it's important to understand some of the ins and outs of those, especially if you've got large 401k balances, you can really do a lot with the backdoor Roth IRAs and filling up tax brackets and getting that stuff from a tax deferred bucket over to tax free bucket and makes a lot of sense. And a lot of cases. Yeah, for sure.
Marc Killian 16:08
And you know, if you're one of the things that doesn't get talked a lot about Tony, and then we'll wrap it up with this, but a lot of folks have been hearing about the conversion conversation, let's do some conversions. Let's get you know, pay the taxes now and grow it and fine. Just make sure you're doing it with money you don't need immediately, right? Because one of the things that doesn't get mentioned as often is that when you do that there is a five year hold correct. There is
Tony Mauro 16:29
a five year hold. So yeah, you got to make sure again, to not try to navigate this on your own and make a mistake, and you don't even know you made it till it's too late.
Marc Killian 16:37
So just to clarify that for folks to break it down. Let's say they converted $100,000 from a from a 401 k or a traditional IRA to a Roth. And they paid the taxes now, right? They did the conversion, they can't withdraw that 100,000 from the new Roth account for five years. That's correct. If they do they're gonna they're gonna have some issues. Okay. All right. So it's gotta be later money. So again, tax strategy, right? Just like your stock market stuff. It shouldn't you shouldn't have, you know, maybe too much in there. Depending on your age. You need now money's and later monies. And you also need that same kind of strategy with taxes, you need some maybe maybe some now taxes and some later taxes, right. So it's all a matter of having a good plan to get you to and through retirement. That's what Tony does day in, day out. For many, many years. Now a great resource to tap into. He is a CPA, a CFP, and an EA with tax, Dr. Inc. And if you need some help reach out to him. You're planning proz.com You're planning proz.com. He's got clients all over the country. But he co hosts he works out of the Iowa area and services folks right here in Iowa. But he's got clients all around. So if you need some help, and you checking out the podcast, don't forget to subscribe to us. And also reach out to him and ask him questions before you take any action on anything you hear on our show or any others see how it relates to your unique situation. So give him a call if you'd like 844-707-7381 or just stop by the website. You're planning proz.com And subscribe to plan with a tax man on Apple, Google and Spotify. Tony, thanks for hanging out, buddy. All right. We'll
Tony Mauro 18:03
see you later and have a great holiday.
Marc Killian 18:04
I always appreciate you my friend. We'll talk to you soon. I think I'll see you before right before Thanksgiving. So we'll probably do one more of these before the month ends. But you folks Yeah, have a great month and we'll see you here soon on plan with the tax man with Tony Morrow.
18:23
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