How Can I Reduce Tax On IRA Withdrawals? - YouTube

Save a quarter of a million dollars or more on IRA or 401K withdrawals. In this

episode, we are going to address the question "How can I save tax on my

withdrawals out of an IRA?" This is an actual example. I change the names and

we're going to call them the Smiths and the Jones. But put on your seat belt. This

will blow you away just like it does CPA's and tax attorneys when I show them

this example. My name is Doug Andrew and if you've watched some of my other

educational episodes, welcome back. But I'm going to share with you a very powerful

story and that is actually taught in my book The Laser Fund. Because I have 62

actual stories and examples of clients where we have saved them a quarter of a

million, a half a million. One couple, 1.2 million dollars of unnecessary tax on

their IRA's or 401 K's. Now, when i say unnecessary, it means they didn't have to

pay the tax if they learned how to do this strategic rollout. So, we're going to

call these 2 couples the Jones and the Smith. Now, as we talk about them, they're

both 60 years old. And at age 60, since you're over age 59 ½, you can

access money out of your tax-deferred IRA or 401K without a 10% penalty. If you

take money out of those accounts before age 59 ½ and they --the IRS will

penalize you 10% on top of the tax. So many times, people hit age 60 and they're

still working but they want to slow down. And so, they go to their accountant and

they say, "Well, we don't need the money out of our IRA's. What would you

suggest?" -"Oh, well. if you don't need it, leave it there. Keep deferring it until

you're age 70 when you plan on retiring. Why would you want to take it out and

pay tax when you don't need to?" it sounds good on the surface, right? Let's look at

the Jones who did that. The Jones, they're 60 years old. They have a

quarter of a million dollars in their IRA's or 401K's. So far, so good. They decide

to leave it in there. Let's say they're earning 7.2% rate of return. Now, I

like that number because I've actually averaged 7.23%

in the worst decade since the Great Depression using my favorite vehicle and

strategy. It's called affectionately The Laser

Fund. I wrote a book about it. And the Laser Fund is the only vehicle in the

Internal Revenue Code that allows you to accumulate access and transfer your

money tax-free. I have earned 7.23% in the worst time.

I've actually averaged way more than that because of other strategies I teach.

But this couple let's say that they are confident and that their money in their

IRAs will earn an average of 7.2. So, let's use apples to apples here.

At 7.2%, if you understand rule of 72, in 10 years from

age 60 to age 70, their quarter of a million will double to

500,000, okay? Now, at age 70 ½, it used to be you had to start

withdrawing money or there would be a 50% penalty on what you should have

withdrawn. That now was age 72. But let's say they're ready to start taking money out

but they only want to take out interest only which is under the limit to not

have a 50% penalty on a RMD. So, if they're earning 7.2% on

500,000, that's 36,000 a year. They pull out 36,000.

That's on the front of their tax return. That's portfolio income. You

pay tax on earned income portfolio and passive income. Let's say between federal

and state tax and they pay 33% in tax which is very typical for

many retirees. A third of 36,000 is going to have to go out the

window in tax. It's what Uncle Sam planned on. Uncle

Sam's been planning on this revenue. You pull out 36,000, you pay

12,000 in taxes and you net 24,000 thousand a year to buy gas,

groceries, prescriptions and golf green fees. The Jones follow the herd. This is

what most people do. You want to see what the Smith did

to end up with double? Watch. I have been a tax minimization specialist for 47

years. This is what CPA's go, "Oh, my heavens. I can't believe I have never been taught

this." The Smiths, they come to me at age 60 and they asked

for my advice and I go, "So, tell me your plans." -"Well, we would like to slow down a

little bit and sell our home. We can sell our home and not pay a capital gain tax

on it. Because we have a limit of a half a million to do that. And so, we want to

get a little retirement home that's taken care of in a retirement community.

It's going to cost 250,000. We want to get one down in southern Utah and you have

another little house. Now, it depending upon the area of the country, they may

now cost twice that. But this is a couple several years ago and all it relates no

matter what the cost of retirement housing is. So, stay with me. So, they have

the same quarter of a million bucks in their IRA's or 401K's as the Jones. In

fact, they work at the same company. But what do they do different? I tell them,

"You know what? Your house is paid off. You've killed your tax deductions. Sell

your house and make the new properties the little retirement home here and for

a quarter of a million and the other one. And just pay 20% down and finance the

rest." So, they finance $500,000. So, what's really happening is they sell their

house and they keep 500,000 of the equity and they only used the rest, they

sell their house for 6 or 7 hundred thousand. They only use what they

have do to but to pay down payments on their 2 retirement homes. So far, so good.

What? They have a mortgage? They didn't want a mortgage in retirement? Is this

good or bad? So, they have a 500,000-dollar mortgage. Now, at the time,

mortgage rates were 7.2%. So, at 7.2%

I told them to do an interest-only

mortgage because this will keep it simple. 7.2% interest

on a $500,000 mortgage balance between the 2 retirement homes is 36,000 a

year. That's 3,000 a month. They have to pay interest?

Where are they going to get the money to pay the mortgage payments? They withdraw

36,000 out of their 250,000. See? There 250,

would have grown to 500 like the Jones. But while as doing that, they're

pulling out 36,000 subjecting it to tax to pay the interest

on their mortgage. So, it's a wash. They pull out 36,000, they have

to report it on the top of their 1040. But then underneath that, they get to

deduct the interest. And so, it's a wash. What's happening here? They're

withdrawing $36,000 a year out of their IRA's

with no tax consequence. It's a wash. Let's go over the 10 years. They took

out 36,000 out of their IRAs over 10 years. They withdrew 360

thousand tax-free. What was the trade-off? What was that for? The half a million

that they did not put into those retirement homes has been in their Laser

Fund. And it's been earning just 7.2%. Actually, history has shown it

has done far better. But I'm wanting to use apples to apples. So, they're half a

million in the Laser Fund doubled to a million. They have a million. They have

twice as much money as the Jones. "But the Smiths have a mortgage." Yeah, a million in

the Laser Fund minus the $500,000 of mortgage balance. They have the same

half-million of the Jones but what's the diff? The Smith's million is tax-free.

They could take out half of that and pay off their mortgages. When they asked me, I

said, "I wouldn't do that." -"Why?" Hello, you want to be your own banker.

Watch. So, if you need to stop, pause, rewind to understand this, do it. But

here's where I'm going to connect the dots. What's the difference? The Smiths have a

million bucks accumulating tax-free and they're Laser Fund. The Jones have

500,000 their IRAs they have to pay tax on the

rest of their life. Yeah, The Smiths have a mortgage of 500. A million -

500, is the same 500 they have. But this one's tax-free. Why is

it tax-free? It's because it is grandfathered in the Internal Revenue

Code to be that way. And that's why I call it the Laser Fund. Liquid Assets

Safely Earning tax-free Rates of return. So, the Smiths have a million and they

want to start living off of their money. At 7.2%, that's 72,000

a year. They take out 72,000 bucks a year. It doesn't deplete

the principle there of a million. That's tax-free is not deemed earn passive or

portfolio income. The IRS knows that receiving it but they know it's tax-free.

It's not even worth auditing because it's always been tax-free. Out of the

72,000, I told them to keep their mortgage. Now, the $36,000 a

mortgage interest is still deductible. So, in a 33-percent bracket, they

write-off that interest the rest of their life.

36,000 is really only costing them a net of 24,000

a year. Because they're saving 12,000 in tax. So, the dollars

to dollars, apples to apples comparison shows this is their net mortgage payment.

They take out 72,000. They have to pay 24,000. Their

portion of the mortgage payment. The IRS covers the rest. *Gasps* Watch! They have

48,000 leftover of annual income. How much better is

48,000 than 24,000? It's double. We do this all the time. I have

helped thousands of people double their net spendable retirement income and get

their money out of their IRA's or 401 K's with no tax consequence by resurrecting

deductions. They paid off their house. We didn't pay cash for the 2 new houses.

We became our own banker resurrected deductions and we got our money out of

the IRA or 401K tax-free. If this is making sense to you, I want you to watch

these episodes and see other examples of how we've been able to do this for all

kinds of people no matter how much money they had

trapped in there yet to be taxed IRAs or 401 K's.