Estate Planning

The SECURE Act & Your Retirement: An Expert Roundtable

By Barber Financial Group

May 19, 2020

The SECURE Act & Your Retirement: Expert Roundtable

Here’s the truth: The SECURE Act has changed everything. You basically have three choices on where you can send your money when you pass on. It can be to a charity, the ones you love, or to the government. And the SECURE Act has basically ensured that if you do nothing, the third option will be your choice.

So if you don’t mind sending all of your money to the government, then go ahead and skip this video now. There’s no need to continue. But if you care about the hard-earned wealth that you’ve accumulated over your lifetime and where it goes and sending as little to Uncle Sam as possible, stick around for a roundtable discussion.

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Dean is joined by subject matter experts in this roundtable discussion about the SECURE Act. Along with CPA and CFP® JoAnn Huber, Estate Planning Attorney Garrett Griffin, and Insurance Expert Andrew Stafford, Dean will dig into the SECURE Act to bring to light some of the lesser-known issues in the bill. It’s never been more necessary to have a team of professionals on your side when building your lasting legacy.

If you’re ready to get started on a plan, we’re ready with you. Give us a call at 913-393-1000 or schedule a complimentary consultation below to get started today. Our team of professionals is here to help you navigate the complexities of the SECURE Act and your retirement.

Items Mentioned in this Webinar

Podcast: IRAs vs Roth IRAs Pt. 1   Podcast: IRAs vs Roth IRAs Pt. 2 

Ed Slott

Video Transcript

Dean Barber: Hi, I’m Dean Barber, founder and CEO of Barber Financial Group. Thanks for taking a minute, actually several minutes, to join us here for a roundtable discussion on the SECURE Act. Secure stands for Setting Every Community Up for Retirement Enhancement. I disagree with that statement. 

It actually means setting every Congressperson up for retirement enhancement. Here’s the truth, this is my 33rd year as a financial planner. What happened in the SECURE Act has changed everything. You basically have three choices on where you can send your money when you pass on:

  1. It could be to a charity 
  2. The ones you love
  3. Or the government

The SECURE Act has basically ensured that if you do nothing, the third option will be your choice. So if you don’t mind sending all of your money to the government, then go ahead and stop the video now; there’s no need to continue. 

But if you care about the hard-earned wealth you’ve accumulated over your lifetime and where it goes and send as little to Uncle Sam as possible, stick around for a roundtable discussion.

Meet Today’s Experts

Dean Barber: Okay, so I have assembled a team of what I’m going to call experts. We have an estate planning attorney, we’ve got a CPA, and we’ve got an Insurance Expert. 

To my left, Garrett Griffin, Estate Planning Attorney. To my right, JoAnn Huber, CPA, and Andrew Stafford of Prevail, Innovative Wealth Strategies. Welcome, all of you, to the roundtable discussion about the SECURE Act.

Andrew Stafford: Thanks.

Garrett Griffin: Thanks, Dean.

Estate Planning Attorney’s Take on the SECURE Act

Dean Barber: So Garrett, let’s start with you as an attorney. It used to be that it was simple, right? Somebody wants to get an estate plan done. They come to see you, and you write up a trust or a will or something like that. The SECURE Act changed everything. 

I don’t think it’s possible now for someone to do an effective estate plan without coordination between a financial planner, CPA. For the first time in about a decade and a half, we now have to bring that insurance expert back into play for estate planning. Tell us about it.

Best Practices Before the SECURE Act

Garrett Griffin: Yeah, Dean. I think you’re exactly right. So the biggest issue, I think, is that best practices up until January one of 2020, when the SECURE Act went into place, was that you could name your trust as the beneficiary under your IRA or any other type of qualified plan. 

The idea was that you could do that and effectively, if you’ve got the right designation on that beneficiary, get the beneficiary to use their life expectancy over a period of time, and get small RMDs. And if you did it appropriately, you could also then get asset protection. 

If the IRA was flowing through the trust, you could get asset protection on the principal. You might have to distribute the RMD to the individual beneficiary, but it was such a small amount, it wasn’t that much of an impact.

So you had asset protection. You also were able to, in that stretch, minimize the tax impact because the RMDs were so small, you had minimal tax impact. So you were looking at this situation saying, well, gee, we’re getting the best of both worlds. 

As long as the trust had the appropriate language and we did the right thing on the beneficiary designation, we could get that. We could get the best asset protection; we could get the minimization on the tax planning piece.

And effectively what we are looking at now is everything that we did from the estate planning world that was the best practices, now has been turned on its head. 

Now it’s Different

Now, without going to the CPA and your insurance professional or start to coordinate this plan, you are looking at an either-or. Can I get asset protection, or can I do the tax minimization? And so if you don’t involve these other people, you’re only going to get one or the other.

A CPA’s Perspective on the SECURE Act

Dean Barber: All right, thank you. JoAnn, as a CPA, this has changed your world altogether and was thrown at you overnight in late December 2019. This was tucked into a spending bill.

JoAnn Huber: Right. And we had heard since probably May or June of 2019 something was going to happen, and then nothing happened. 

Everybody kept thinking, “Well, is this going to pass? Is it not?” And what way for our clients, we had said, “If it doesn’t pass now, there’s a high probability it is going to pass.” 

So, we acted as if it was in place beforehand, trying to get things done, because Congress has a nasty way of putting these surprises through, usually at the end of December, beginning of January with retroactive clauses.

So, we said, “Okay, this is our new normal, let’s go forward. And what do we need to do?” And you’re right. It has changed so much because, as Garrett just said, it used to be that there wasn’t much need for the estate attorney, CPA, and insurance specialist to work together. 

Tax Planning is Multi-Generational Now

Now, instead of only looking at tax planning for the individual or the couple, we have to look multi-generationally. We have to decide what we need to be doing and how we do it to pay the least amount of tax possible over the lifetime of the plan, including all the generations.

Dean Barber: Yeah, exactly. Right. And I think that’s the key; it’s not just a legacy play anymore. As I said, it’s a tax play. 

No More Stretch IRA for Many

We have Andrew here because essentially, the SECURE Act stripped away the ability for people to stretch. Like, Garrett’s saying, right? 

So what it does is says, all right, you have three different types of beneficiaries for an IRA:

  1. A non-designated beneficiary
  2. A non-eligible designated beneficiary
  3. And an eligible, designated beneficiary

All three of those beneficiary types on IRAs are treated differently.

The one that we’re most concerned about is the non-eligible designated beneficiary, which is typically going to be your non-spouse beneficiaries or your children and grandchildren. 

The SECURE Act eliminated those beneficiaries’ ability to inherit the IRA and continue to keep the money in the IRA, and stretch out the distributions over their lifetime. 

It’s going to force all the money out of the IRA within ten years, and if it doesn’t come out, guess what? The same 50% excise tax is applied to that.

That’s why I said I don’t think it stands for setting every community up for retirement enhancement. It stands for setting every Congressperson up for retirement enhancement because it would be a flood of money to the treasury, and they didn’t even have to raise taxes to do it. 

What About an Insurance Expert’s View on the SECURE Act?

So, Andrew, it’s been a long time since insurance played an integral role in the estate planning process back when our unified credit or what we could pass to the next generation was $675,000 before everything started being taxed. 

Insurance was used a lot to pay those estate taxes. I think insurance comes back in today and has to be looked at as a separate asset class and has to be looked at as a way to pay the tax on the IRA or a different way to transfer wealth to that second generation. 

So from an insurance perspective, how do you see it?

Andrew Stafford: Well, Dean, I think you opened up with this being one of the largest money grabs that Congress has ever gone after, and you just hit on a really important topic; they’re doing a new form of taxation.

Taxing People Who Can’t Say No

They’re taxing the individuals, but they’re already gone. So if you think about their ability to get reelected, they’ve been able to pass a tax on someone who will never vote for them again. 

Insurance as an Asset Class

As it relates specifically to the insurance piece, I think you’re right. In the past, insurance was utilized primarily for the death benefit, and they would use the death benefit to pay whatever the state taxation might’ve been.

As we look at the utilization of insurance today, it’s exactly right to look at it as an asset class versus doing pure death benefit because you can accomplish both objectives by passing on high-value cash value inside the policy to your beneficiaries’ tax rate and have multi-generational death benefits that might be available to a child or grandchild.

Insurance is a Long-Term Planning Tool

So previously, where it was almost transactional to solve a problem. Now it’s truly about long-term planning. It does go into what you try to do; Garrett, from an estate standpoint, you can set up multi-generational wealth with one financial instrument, again, utilizing it as an asset class. 

Moreover, whereas insurance was previously primarily used upon death if structured properly by putting this asset class in play. Ultimately, this person will be passing that IRA on at some point in time could have access to cash value today while they’re still living. 

They could then even pass on whatever’s remaining or whatever is left onto their beneficiaries in a tax-free environment and not have the 10-year spin down. Ultimately, whoever would get that if you don’t do the proper planning will be bumped into a much higher tax record.

Dean Barber: So what you’re talking about, Andrew, is not traditional insurance.

Andrew Stafford: Correct.

Dean Barber: This is totally different. And I think the SECURE Act has brought this on.

Andrew Stafford: Correct.

IRA Assets into a Trust After Death

Dean Barber: There’s no question about it. What spawned that is eliminating the stretch and the complications of putting IRA assets after death into a trust. So many people would name their trust as the beneficiary of their IRA. And they wanted to do it for asset protection and several other reasons. 

But most trusts set up to accomplish that were conduit trusts or see-through trusts. They had to be to avoid the entire IRA being taxed immediately upon death, but people who have done that, have to make changes now.

Garrett Griffin: You’re exactly right. Having done this for almost 20 years, certainly over the last ten, we were looking at how we get the stretch and do that through the trust we did. We have those conduit provisions in there that were best practices. 

Revisiting Best Estate Planning Practices

The problem now is, having done several hundred and maybe even a thousand or more trusts now, we’re going to have to look at whether that makes sense in your particular situation. 

Because now it’s not necessarily best practices that actually could be something more harmful to you, especially when the provisions of the SECURE Act may go in direct contradiction to what it was that you wanted to do in your plan. So you may have provisions in your plan of when somebody will get money or what that criterion might look like.

Conduit Provisions

The SECURE Act is going to override all of that. So you’d mentioned the conduit provisions, and essentially to make sure that the trust was a designated beneficiary, one of these qualifying trusts, you typically would have conduit provisions in the trust. 

Basically, what the conduit provision says is, “When the RMD gets paid out of the IRA and into the trust, the trustee does not have discretion over what they do with the RMD. They have to pay it out to the beneficiary.”

That’s just kind of; you have this overriding rule on the conduit provision. Well, when you’re talking about small RMDs, because it’s stretched over somebody’s life expectancy, the impact is not that significant, but now we’ve got a ten-year period in which all of these RMDs are going to have to be paid out.

So now, if you have conduit provisions in there, again, the trustee has no discretion. If it takes a distribution from the IRA or any other qualified plan, it’s going to be forced, under the terms of the SECURE Act, to pay that out. And those conduit provisions are going to require that payout to the beneficiary.

Complications with this Practice Now

Dean Barber: So what complications does that cause then?

Garrett Griffin: So, if you’re looking at a situation and the biggest piece is I lose asset protection, or the heirs, the beneficiaries lose that asset protection. 

Today’s Litigious Society

We live in a very litigious society. One in three people gets sued in their lifetime. I think the divorce rate somewhere between 50 and 60%. There’s a lot of risk on the table for a beneficiary when they inherit money between those two things. 

So if you look at those situations or even bankruptcy, scam artists, and those types of things, there’re a lot of factors that clients, when we sit down they say, “Hey, you know what? I would really like to prevent those risks. So how do we do that?”

Preventing this Type of Litigation

Well, the trust is a great vehicle. So most trusts, if you’re talking about non-IRA assets, can accumulate the assets inside of the trust. 

We were using best practices with the conduit provision because we could stretch that, have that small RMD. So, the impact was minimal over that period. And that was the tax play, too, because then we were taking small RMDs effectively. There’s not a whole lot of tax impact to the beneficiary at that point in time. 

The 10-Year Rule’s Impact

So now, with this compression on the ten years, there is a little bit of flexibility because there’s no rule on how you have to take it over the ten years.

As long as by 12/31 at the end of the 10th year, it’s all out, we’re okay. So you could have, you know, there are several different scenarios as you can take it all out at the beginning, you could take it over a level period, and then you could take it all at the back end or some combination in between. 

So there is a little bit of the ability to maybe do some tax planning regarding when that beneficiary is going to meet, when can they take it where it’s the least amount of impact? The trustee does have some ability to help with that. Again, by the end of the 10th year, we’re going to hit all the tax and lose all the asset protection.

It’s important because for many of the clients we work with, this is a significant portion of their net worth.

Dean Barber: For most people, the IRA is the largest. 

Garrett Griffin: Absolutely. All of a sudden, if you said, “Well, the vast majority of the wealth we’re transferring, we’ve now paid the most tax on it, and we’ve lost all the protective components that we’ve been looking for by using this trust. Now, what do we do?”

What Do You Do To Mitigate These Issues?

Dean Barber: All right. So from a legal perspective, do people need to change those conduit trust to the accumulation trust? And if so, how do they do that? 

Garrett Griffin: Yeah, so most of the time clients that I’ve worked with, it could be simple as an amendment to the trust, basically, take out the conduit provisions, the alternative in terms of what goes in is an accumulation provision. 

Accumulation Provisions

We can still get them the trust to qualify as one of these designated beneficiaries. So we still have that ten-year period that we’re dealing with, but the accumulation basically means the trustee now has discretion. 

So we don’t have this requirement that the RMD be paid out to the beneficiary. The trustee has the discretion, so now, if you’ve set up terms in your trust that say, “Hey, I don’t want the beneficiary to get the money until this date.” Or, “We want to leave the assets in a trust, give the beneficiary some control. 

We get those protective components.” Now with that accumulation vehicle, the funds and the RMDs sit, and they accumulate inside. So I get all my asset protection, or I get the terms of the trust set the way I want. Again, most of the time, that can be done simply as an amendment.

Occasionally you may have to do a restatement. But what happens then, and where is the downside now? If I’m accumulating the RMD inside the trust, and I’ve not passed it out to the beneficiary now, I think it’s about $13,000 is the round number. $13,000 of an RMD puts you at the highest marginal tax rate.

Considering the Tax Rate

Dean Barber: All right. So let’s turn to JoAnn for that one, because I think that’s the scary part here, JoAnn, right? If people want the asset protection that the accumulation trust can provide, but all that money has to come out of the IRA over ten years, what’s the tax rate? And is it going to be-?

JoAnn Huber: It’s going to be at that highest tax rate, as Garrett said, as soon as you’re about $13,000 in taxable income, and that’s not a whole lot of income because you look at the individual rates, the graduated scale is a lot slower to get up to that top rate.

So, you have to make the decisions. So when I look at the SECURE Act, in my mind, if you’re waiting to do tax planning until you’re at the estate level, you’ve missed years of opportunity that we have to be doing tax planning now. 

The tax planning is for the individual, the spouse, and the children. But if you’re waiting, you’ve missed so many opportunities, and you’ve just really put handcuffs on you and what the opportunities are. 

Considering Life Insurance

You’d better be looking at the life insurance. So you have to be looking and say, “Okay, you mentioned earlier, you can give to charity, you can give to your family, you can give to the government.” 

And so you have to look at that and say, “Okay, where do I want the money to go?” And then we look at the different vehicles if it’s charity. We might be looking at the charitable remainder trust where you just give that right to charity over time. You want to do it. 

Do we look at Roth conversions? Do we look at setting up an irrevocable life insurance trust or doing something? 

Don’t Wait Until it’s Too Late

There are so many options out there that we can’t wait until we hit the estate and have somebody die to start doing the planning.

Dean Barber: No, it needs to be done well in advance. And I think that there are several components to the SECURE Act. I believe that a person in their 40s or 50s will look at the SECURE Act in a different light than somebody in their 60s or 70s right because of how it will impact them.

JoAnn Huber: Right. They’re in a different stage in life. 

Dean Barber: But I think it’s also going to change how people save for retirement. If they’re paying attention to what the SECURE Act will do, which will confiscate a lot of their IRA assets and a lot of wealth, they have to change how they are saving for retirement and how they plan to get the income in retirement. Then third, how it passes on and we’ve addressed so far, how does it pass on? 

Making IRA Contributions After Age 70 1/2

So one of the things that I think that Congress used to sell this to the public that they said, “This is a great deal for everybody.” Right? Is that if you’re still working past the age of 70 and a half down, you could still make contributions to your IRA, but, JoAnn, your first words out of your mouth were what?

JoAnn Huber: Why would you want to do that?

Dean Barber: Right. Because they’re pouring more money into an asset, and you know they’re going to.

JoAnn Huber: Because most people at that point have already accumulated so much in their tax-deferred vehicles. When the 401(k)s came out, everybody was told to put as much as he can into the 401(k) because when you retire, you will be in a lower tax bracket. And what did we find out? 

Dean Barber: It’s not true

Andrew Stafford: Not true. 

JoAnn Huber: For most people, that’s not the case. And so if they can continue to add to that bucket, once they’re over age 70 and a half, does it benefit them? And so it goes back to that question- 

Dean Barber: Benefits the government or benefits the individual?

JoAnn Huber: The individual, maybe the government, wants them to help. And the thing that you have to look at is how many people does that benefit? How many people are still working after 70 and a half?

Who Does it Really Benefit? 

Dean Barber: So what’s going to happen right there is that it’s going to allow other people in your profession, JoAnn, in the CPA profession to be the Knight in shining armor, right? Riding in on the white horse, oh, guess what? You can still contribute. I just saved you $1,500 on your tax return this year.

Everybody has this thing that’s so ingrained in them that my CPA should be looking at something to save me money on taxes this year, this tax return. What can we do? 

You and I disagree with that, right? Because we know that as long as you live in the United States, and as long as you have wealth or earn income, taxes are a fact of life. 

So what you’re talking about is tax planning, and that is, let’s create a strategy that will allow you to pay us a little tax as possible over your entire lifetime, not just in a given year.

Asset Location

JoAnn Huber: Right? And it’s so important to have that planning where you’re looking at, as you mentioned, you’ve got to look where you save and make sure you have the money in the different areas, the tax-deferred, the tax-free, and the taxable. So once you do retire, you have flexibility in developing that retirement distribution strategy.

Tax Diversification

Dean Barber: We call it tax diversification, a foreign language to most people, Andrew, in the insurance world. And I know that you weren’t involved with this, but there were many lobbyists in the insurance industry that were in favor of the SECURE Act. 

Quite honestly, I think that the government relies heavily on insurance companies and what they do to help transfer risk away from the individual, transfer risk away from the government, and put it at the insurance companies’ hands.

How Insurance is Involved

Andrew Stafford: Yeah, I think to revert back to some of those discussions and how insurance plays a key point in this. Now you first mentioned the 401(k), and when it came into light in the early ’80s, it was meant to be a supplement for people’s retirement. 

At that point, pension plans were still very important. They were a significant portion of how people save for retirement. And as pension plans have gone away, the 401(k) has been the main source of retirement savings, and it hasn’t evolved at all. 

Look Out for Taxes

I think to your point when people are looking at how to save for retirement properly, they’re told by all of their professional CPAs, and many financial advisors put more and more money. And all they’re doing is kicking the can down the road to a point in time when they need that money they have no idea what the number one variable is going to be, which is taxes.

So, all their different doing is deferring the problem. As far as the government and the insurance companies, the insurance lobbyists are critical to the overall way the government forms its laws. But I do think it’s really important to remember not all insurance and not all insurance companies are alike. 

When we say insurance can play a proper part in this planning, I do think it’s essential, Dean, with your clients, that you pick not only the right type of organization to work with but the right products that are out there because there’s a lot of confusion about it. 

There have been many tools in the past that haven’t been used well, as far as the planning. And so I think it’s critical to utilize your professionals to get yourself in the right spot to utilize this product to solve a lot of these problems.

You Have to Start with the Financial Plan

Dean Barber: Well. And I think to do that, Andrew, what you have to have, in my opinion, you have to start with the financial plan, right? So you need a financial planner to design the financial plan. 

That financial planner needs to bring in the estate planning attorney, the CPA, and the insurance expert. And you might have brothers that are both in their 60s, both married. 

They both have five kids, but their estate plan’s design and what role insurance may or may not play in their estate plan will probably be different because they’re different people and have different long-term objectives, right? 

Insurance is Part of the Overall Picture

And so it’s important to point out that when insurance does come in and become a discussion, don’t think of it as an insurance product, think of it as another tool to help you pass the money to the people that you love, or the charities that you love, and not to Uncle Sam.

Andrew Stafford: And I think Dean, it’s also critical to think of it, not purely in the form of the death benefit. So many times, when the terminology “life insurance” gets brought up, the first thing somebody goes to is an expense and death benefit. And they think of it like car insurance; I want the most benefit for the least amount of cost. 

Dean Barber: Right. And that’s why I said we have to reframe our thought process around insurance and think of it now as an asset class.

Andrew Stafford: That’s right. Because with the proper design, it’s one of the most underutilized financial tools. And I commend what you’re talking about here because it’s the only way you can do it. 

You need all parties in the room because you and I were having a conversation on a previous call; they may meet with the insurance guide that tells them something, and then they meet with their CPA, and they say something different. 

Their financial advisors will say, “What are you doing that for?” And then the estate plan was like, “Well, I’m not sure. I’m just trying to protect you from the death tax.” Right? And getting everybody around the client and building that team’s what’s critical.

I think it’s essential that everybody’s working towards the client’s best interest, and it’s never a one-size-fits-all.

Watch Out for The Insurance Salesperson

Dean Barber: So here’s my fear, and I think anybody watching this video must understand this; there are many insurance salespeople out there who don’t have any clue about financial planning. They have no clue about estate planning, and they don’t know anything about taxes. They’re just a salesperson, right?

Andrew Stafford: That’s right. 

Dean Barber: And I fear that people who don’t understand the complex scenario that the government has put before us will get sold something that’s not going to be the right thing.

Andrew Stafford: Correct.

Dean Barber: Right? They’re going to get sold something that’s not going to be the right thing. And that’s why I think it’s critical. I don’t think you can’t do an estate plan anymore without the entire team.

Andrew Stafford: That’s right. And I think one of the other key points to that Dean is, going back to that confusion is you might have people who are in the late stages of their life and their mind right now, if they’re watching this as like, “I couldn’t qualify for insurance today, even if I want it to.”

Dean Barber: But it may not be insurance on you.

Andrew Stafford: That’s exactly right. People don’t understand that the person who’s being insured and the policy owner can be two different people.

Dean Barber: Right.

Andrew Stafford: So when you get away from this surrounded death benefit, and you truly start looking at it as how to accumulate cash and transfer wealth, it doesn’t have to be in the form of the death benefit. If you have the proper planning, that’s when this thing truly becomes powerful.

Ed Slott on the SECURE Act, Insurance, and Taxes

Dean Barber: So I’ll get your guys’ take on this. I think everybody’s read this article, but I have a good friend, Ed Slott. And if you haven’t heard Ed Slott’s name, he is considered America’s IRA expert. I have sat on Ed Slott’s advisory board for close to 15 years now. 

Terrific conversations with Ed, I have an excellent relationship with Ed and his whole crew. He writes this article back on February 6th. The title is “Why life insurance is the new stretch IRA.” And he’s swift to plan and says, “Look, I’m not an insurance guy, I’m a tax guy. And all I’m saying is that if you don’t look at life insurance differently, I think you’re just missing an opportunity.” 

It’s not going to be suitable for everybody. But I think it does need consideration. Some of the leading CPAs in America saying, “Hey, this life insurance could be the new stretch, IRA, pay attention.”

There Isn’t a One-Size-Fits-All Solution 

Andrew Stafford: I think the problem with it is that people need to be exposed whether or not they choose to say, “Hey, that’s right for me.” Because you’re right, it’s not a one-size-fits-all. 

There is no broad brush, but the proper team should be talking to their client about this as an option, and whatever the client ultimately decides to do, or if it’s right for them, at least they have been exposed to it. Still, we’re not doing clients a service if we’re not allowing them to say, “Hey, this is an option that’s out there, and you should looking.”

Don’t Be Sold Insurance 

JoAnn Huber: Well. I think when it comes to life insurance, so many people are selling life insurance, and we have to get away from that and say, “We’re not trying to sell you a policy.” You need education on how it fits into the plan and what need it is filling? And it makes your plan more effective to do all the things that you want to have done.”

Garrett Griffin: You’ve got to look at this and say, “Well, what is your goal.” And you can’t plan everything, but what are you anticipating in terms of your wealth transfer? 

Wealth Transfer

If you’re not expecting any wealth transfer, maybe this point on the SECURE Act is moot, but I don’t think that’s the case for most of our clients. They have these large IRAs, and I don’t think they’re going to spend it all. 

And there is going to be a considerable amount of it transferred. So if we know that’s going to happen, and we know that now with the SECURE Act, we’re going to get hit on the tax side, and we’re going to lose asset protection. 

And we’re saying to the clients, and we’re sitting down, we’re saying, “Okay, this is tax planning, but it’s also how can we enhance your wealth transfer and that tax diversification. Tax planning covers that multi-generational piece that JoAnn was talking about.”

What Options are There? 

That’s when you look at the various vehicles then that we can use? And from the estate planner side, we’re looking at what is flowing through the trust? Is it an IRA? If yes, then we’ve got issues then because it will be subject to the SECURE Act. 

If it’s other assets, I’ll call them the non-taxable assets; we’ve got a lot more room to play with. We can do the accumulation and not worry about the tax impact. We can get that asset protection and do some pretty cool things from that wealth enhancements.

Dean Barber: That’s true. But the reality, Garrett, is that most people’s wealth is in deferred tax accounts, IRAs, 403(b)s, 457s, all the different accounts out there. 

How to Save for Retirement After the SECURE Act

Let’s try to bring maybe a little bit of detail into this. And talk about how to save money for retirement now and where should you be putting that money? 

So, this whole idea of max out that 401(k), put money into the IRA, get as much money in tax-deferred as you possibly can. I think it’s time to rethink that. I think from a tax perspective, JoAnn, I want your input here.

JoAnn Huber: I agree wholeheartedly with that. We actually did a couple of podcast episodes, number one and number two, on where you should save.

So, I would encourage people to listen to those because they will give you a lot more detail than what we can get into here. 

People should know where they need to save. It’s the foundation of the rest of the plan because if you’re putting it in the wrong bucket, you’re just creating a headache for yourself down the road. 

So, when you’re in your 40s, where should you be saving? And really, you need that financial planner to help you know what your plan looks like and what you need.

Because your brother might be doing something different from what you need to do. Going back to your example, it’s crucial to make sure you’re saving in the correct location.

It’s Wrong More Often Than It’s Right

Dean Barber: Yeah. And we see it wrong most of the time, right?

And it’s because that our government has made this so complicated that the average person can’t possibly understand it. I can’t imagine a financial planner trying to put together a good, solid financial plan without a CPA sitting right next to them so that they understand the tax consequences. 

Or without an estate planning attorney sitting right next to them saying, “This is what these people are trying to accomplish. How does all of this fit together?” And then bringing the insurance person in as well. Because that’s the only way, you can get it done.

Tax Diversification is Key 

Andrew Stafford: Dean, you know most advisors are trying to sell their client on some form of diversification. And they’re talking about the wrong diversification because you hit it earlier in this conversation; you should be thinking about different taxable income buckets. 

And whether it’s in a pre-tax environment, taxable, or is it tax-free? Give the client the ability to pull from different buckets as they retire. That’s the most important diversification.

Dean Barber: Right.

Andrew Stafford: Because right now, if you think about it, all you have to do is ask yourself. I think the last time I looked at the national debt clock; we’re $24 trillion in debt-

Dean Barber: I think it’s grown by about a trillion dollars a day.

Andrew Stafford: That doesn’t include the most recent stimulus. And on my way over here today, they’re talking about another three trillion in the stimulus. So you have to ask yourself one single question, “are tax rates going to be higher or lower when you go to retire?” 

And if you either say higher or you don’t know, then why would you put all of your assets for retirement into a savings program? We have no idea what the number one variable is going to be in taxes.

Tax Brackets, RMDs, and the SECURE Act

Dean Barber: Well, JoAnn, you and I run into that pretty much every week where people have saved, and they were never in the top tax bracket. Now, because of where they’re at in life, they have required minimum distributions coming out and paying more tax on required minimum distributions than they ever saved by deferring it in the first place.

JoAnn Huber: That’s right. And sometimes, the requirement of distribution is more significant than what they were making when they were working.

Andrew Stafford: It’s like, “great job-saving. Now you have to pay more in taxes for doing a good job-saving.”

JoAnn Huber: And then they were upset. And I don’t blame them because nobody likes to pay taxes. I haven’t met with anyone yet that has come in and said, “What can I do to pay more?”

The Three Crucial Beneficiaries

Dean Barber: All right. I want to give some definitions here. Remember, I said you had the non-eligible designated beneficiary, the non-designated beneficiary, and the eligible designated beneficiary. 

So these are three crucial beneficiaries. You get out your IRA beneficiary documents, look at what they say. So the non-eligible designated beneficiary is typically going to be a non-spouse beneficiary, right? 

A relative of some sort you care about that you’re going to leave that money to, they’re not eligible to stretch the money has to come out over ten years.

Who Can Stretch?

Well, who’s eligible who can stretch spouses, right? Spouses can stretch, minor children up to the age of majority can stretch, but not grandchildren, right? Disabled individuals under stringent IRA rules, chronically ill individuals. Okay.

If they’re not going to live ten years and are chronic, why are you going to put them as eligible beneficiaries to stretch? Because as soon as they die, the next beneficiary has the 10-year provision, right?

Andrew Stafford: Right.

Dean Barber: And then you’ve got individuals that are not more than ten years younger than the IRA owner. So it could be a sibling, right? So the eligible beneficiaries, the minor children, I think is going to cause the most confusion. JoAnn, you want to weigh in on what that rule says.

The Rules Are Ambiguous

JoAnn Huber: Well, I think it’s a confusing role because of how it’s written, and there’s some ambiguity about it. Is that the state age of majority, which could be 18 or 21? Or does it go until the time they finish their college education? 

That’s where most people are leaning. So you’re going to have different kids in different situations that they might be able to stretch it out up until age 26. And you have some of that soon as they turn 18, now they go to those ten years. 

I think it’s important to understand that if they’re an eligible designated beneficiary, it ends once they’re no longer a minor.

Dean Barber: Right.

JoAnn Huber: And then they go to that ten-year period.

An Example of the 10-Year Rule

Dean Barber: Right. Let’s say that a 15-year-old inherits money. They get to 18. Now they got the ten-year provision, and they get married at 21. They have a baby, and now 25, they pass away. They don’t have a ten-year, what happens? So there’s that new beneficiary to get ten years, or does all the money come out immediately?

JoAnn Huber: It continues that ten-year stretch, I believe, or not stretch, but that ten-year payout.

Dean Barber: But it all has to be paid out in that ten years. And there’s a lot of things in the SECURE Act that the IRAs still has not given opinions on. So there’s still a lot of unknown, right?

JoAnn Huber: There sure are. And I think we’ve been so busy with everything that’s happening with the COVID that they haven’t been able to go through and give us some of the further guidance we were hoping we would get.

18-Year-Old Beneficiaries

Garrett Griffin: You talk about most of the clients that I sit down with. The last thing they want to do is give an 18-year-old all the money.

We’ve done a lot of presentations here, Dean. And one of the things that we talk about is the found money syndrome. And we’re talking specifically about the IRAs. 

All of a sudden, if you’ve got an 18-year-old, who is all of a sudden going to get this big payout, especially if, if no trust is involved at all, nothing is preventing them from them saying, “Well, I just want to call right now.”

The worst-case scenario is that they go and spend it all and didn’t save anything for the tax liability that comes with it.

Dean Barber: We’ve seen that happen, right?

Garrett Griffin: You’ve seen it happen. Even if you do have the trust in place, there’s nothing that will keep it from getting anything beyond the ten-year period. 

Back to the Conduit Provisions

So that’s where if you have the conduit provisions again. You have to look at it and say, “Okay, well, we may be better off in that particular situation like that with minors of let’s pay a little bit higher tax so that we can at least accomplish the asset protection component of what we’re looking for.”

You Likely Need to Take a Look at Your Situation

Dean Barber: Here’s what I think is critical. And everybody that’s watching this video should take out of this. That is that if you’ve accumulated money and you care about where that money goes, and you don’t want it all to go to the government, you’re going to have to do some work. 

This is not a, do it yourself project. It is something that will require, in a best-case scenario, multiple hours of work from your team of professionals, your attorney, financial planner, CPA, and insurance experts. All of them, working together to craft your new plan, so your money gets a chance to go where it wants to go. 

What’s that mean? It means we’re going to be busy, right? And I don’t think people can put this off. They need to get on it, and they need to start these conversations today, right?

As soon as you’re done reading this, you need to get that conversation going. 

If you’re working with somebody that is just an investment advisor, they’re calling themselves a planner, and they’re not addressing this with a team of professionals, there is a good chance you’re working with the wrong individual.

Garrett Griffin: I agree.

Quality Tax Planning Requires a Comprehensive Financial Plan First

Dean Barber: So JoAnn, I want to bring you in here because I’ve long believed that it’s impossible for you as a CPA to do any quality tax planning without a financial planner first, doing a very comprehensive financial plan.

JoAnn Huber: I agree with that because you have to have that plan, so often people come in and ask questions, and they expect it to be a straightforward answer. Should I pay off my mortgage? 

Even with something like that, without first having the financial plan, we don’t know. Because whenever you answer one question, it’s a ripple effect. 

It’s kind of like the old game of Dominoes where it just poses at the next question and the next, and if you don’t have that financial plan, you might give an okay answer, but it might not be the best answer. 

Once you have that financial plan, then you can make sure that you’re getting the best answer to do everything they want to do.

The Financial Plan, the Tax Plan, and the Insurance Plan

Dean Barber: Right. And the same thing. Andrew, when it comes to insurance, you can’t drive in your car for more than 30 minutes without hearing about how you can go here or there and buy cheap life insurance.

Andrew Stafford: Right.

Dean Barber: Right? And so, in my opinion, incorporating insurance into your estate plan can’t be done unless you’ve got the financial plan done unless you’ve got the tax perspective along with it.

Andrew Stafford: Right. It’s in harmony with everything else you’re doing, and if you try to do any one of them in a silo, they’re probably not going to work together as well as they potentially could.

Dean Barber: Or you could do more harm than good.

Andrew Stafford: You could do more harm than good, that’s right. When you think of, as we started this whole thing out of insurance, as an asset class versus pure income replacement, it’s an entirely different tool, and it’s very leverageable.

Now, Estate Planning to Tie it All Together

Dean Barber: And, Garrett, same token. I can’t do a financial plan completely without any estate planning, too, right? Because once I understand what somebody is trying to accomplish, I’m going to say, you know what? 

We have to bring the estate planning attorney in because you have some things that you want to have happen when you pass on. And unless we have the right estate plan in place, everything else is going to blow up.

Garrett Griffin: That’s right. And Andrew, I think, set up perfectly. You have to have that harmony amongst your advisors. And I think if you’re trying to do it in a siloed approach, you’re going to get different answers for every single thing that you want to do, unless the advisors are talking amongst themselves, kind of collectively coming up with a plan. 

If you’re trying to operate in a situation where you say, “Okay, well, I’m going to meet with my CPA and do this, I’m going to meet with my financial advisor and do this, with my insurance professional here, and then my estate planning attorney here.” 

They’re all going to give you different answers, and they’re going to cut each other down too. They’re going to say, “Well, I don’t know why they would recommend that. That doesn’t make any sense in your situation.” So if you don’t have that coordination, you’re just going to be all over the board.

You Need Coordination with Your Financial Professionals

Dean Barber: Well, plus, if you’re the individual stuck in the middle, right? Then they’re trying to decipher the attorney language, the financial planner language, the CPA language, and the estate planning, the insurance language. 

You’re going to get all kinds of signals crossed, right? Stuff is going to get messed up, and it’s not going to be what you want.

Andrew Stafford: The worst part being I’ve found with clients is when they do get to that point, you just talked about more times than not they do nothing, which is the worst thing that they could do because they’re only making their problems worse versus trying to solve the problem and say, “Okay, I do need this team around me.” They go into paralysis by analysis.

It Will Require Coordination and Meaningful Conversations

Dean Barber: It will take some meaningful discussions. And it’s going to have to bring both spouses together in a room where you got everybody paying attention to what they want so that a team like us can collectively come up with the right plan for each individual. 

So we’ve done this, and we didn’t dive into all the super details of the SECURE Act. You can read about that. It’s all over the internet. 

The important thing I want to do is say, “Hey, look, work with a team who understands financial planning understands that it involves CPAs, involves estate planning attorneys, and involves insurance experts. It’s not just about the investments.” Right?

Thank you all for taking the time to be here today on this roundtable discussion for the SECURE Act. We’ll do this again sometime and have some more fun with it.

Andrew Stafford: Thanks, Dean.

Garrett Griffin: Yeah. Thanks, Dean. Appreciate it.

Review Your Situation

Dean Barber: Thank you very much for joining us, who had this very informative video. I know we’ve covered a lot of information today. We’re ready to set meetings, whether virtual or in-person. To get started on your new plan, click here to schedule a complimentary consultation

We encourage you to share the video with your friends and your family. Just remember all of the rules for 33 years that I’ve followed. And the other decades that this team has followed are gone. Everything’s changed. Unless you change what you’re doing, you’re opting to send your money to the government instead of the people you love and the charities you love. Thanks for joining us.

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