Financial Fortress Radio with Richard Jordan on Roth IRA’s

Financial Fortress Radio with Richard Jordan on Roth IRA’s

Patrick: And welcome to this Sunday’s edition of Financial Fortress Radio. This is Pat Dougher. My co-host in the show, of course, is Richard Jordan.
He’s an investment strategist in the DFW area and he’s here to answer your questions and help you understand how the really smart money invests. Not just invest, but invest with better than average rates of return and even more profitable ways of doing things in the market arena. Richard, it’s always good to have you on the show.
Richard: Thank you, Pat.
Patrick: I know that one of the things we want to talk about is the fact that you do help people get higher rates of return with lower investment fees and better rates of return solutions, so go ahead.
Richard: Absolutely. Pat, the reason I got into this business is I spent a lot of years in the estate planning business. The biggest complain I heard, both from the heirs of the people that inherited the estates and the people that were getting close to doing their final wills and final trust, is that they put money into an investment vehicle like a 401 or a brokerage account and they put it in for 25 years or 30 years.
They look back and they added it all up and they had just about penny for penny exactly what they put in there. All the so called gains, that 11% gain the broker promised every year in the market, somehow had gone to fees and commissions. It just wasn’t fair. Where did the money go and why didn’t they get the returns they were promised?
Patrick: Well, it’s even hard to fathom, but I understand what you’re saying because there’s just a huge difference in what they publish because I thought the brokerage firms were telling the truth.
Richard: Well, they tell the truth according to the SEC, but the SEC lets them run a little fast and loose with the numbers which is why the White House is looking at some financial regulatory reform right now.
Patrick: What do you mean by that?
Richard: Well, for instance, on mutual funds they are allowed to advertise the gross return. The gross return. Not the bottom line. Not what you get after all the fees, expenses and commissions. All the fees, expenses and commissions they’re allowed to hide in the thing called “the prospectus” and very few people will read a prospectus cover to cover because it takes hours and it’s written in legalese.
Unless you’re an attorney, it’s really hard to figure out what it is saying, but it’s usually saying that your money is at risk and you could lose 100% of it and the fees and commissions are going to reduce your returns. That’s common sense. But, figuring out which fees and commissions apply to your account is a nightmare.
Patrick: I wouldn’t doubt. I know at lot of you may have dealt with brokers in the past and they’ve given you prospectuses and you’ve tried to analyze it with your investment strategy and you might be just confused. So, you might have a question for Richard.
If you do, just call in to 972-299-5759 or if you’re outside the area it’s 866-660-5759 (KSKY) if you’re dialing it. But Richard, I know that a lot of your clients are really looking for safe returns, aren’t they?
Richard: They are, especially after the two bear markets we’ve had in the last 10 years. After all, the market is still 10% or more depending upon the index you’re looking at below where it was 10 years ago. So, where is that so-called guaranteed return if you’d just stay in the market long enough? Well, buy and hold just doesn’t work anymore.
Patrick: And doesn’t buy and hold, even over the last 100 years, it’s been a painful process where you’ll have almost a generation, or in 25 years sometimes, of nothing.
Richard: Well, I’m a numbers guy and I like to look at statistics and when you look at the statistics since about 1925 – that’s a pretty good time period. You look back at all the bear markets and bull markets. If you take out the off falls, the numbers at the extremes; in other words, the numbers that were tremendously bad and tremendously good and you take out the long period of time, the one long period of time that we had a long consistent bull market, what you’ll find is that we are only in bear market and bull markets pretty much exactly 50% of the time.
Patrick: Well, and this will sound dumb, but a lot of people might be thinking bear market, bull market, I get confused. Just to clarify, bear’s the one that rips things apart and it goes down. Bulls charge up. So, the bull is a market that’s ascending. A bear is one descending.
Richard: Absolutely.
Patrick: And I know that when the market does start to fall it typically will fall three times faster. Is that about right? Is that the right number?
Richard: Two to three times faster because fear is a much stronger emotion than greed.
Patrick: Well, sure I mean people – they think of Will Rogers – I’d like to have a return of my investment rather than just on it.
Richard: Exactly, but what happens is people invest in the market based on their emotions. People are emotional about their money, so by the time they think it’s safe to get in the market and be a little greedy, the market’s already experienced, like it has in the last year, half of the run up that it’s going to experience in a bull market. And the next 50% is going to trail out over the next two or three years.
So, the rate of return isn’t going to be near what it was in the last year but you’re sitting there with your little calculator thinking, “Maybe I’ll get a 50% return in the next year because that’s what it was in the last year.” No, you won’t. You’re going to get that same return in the last year over about a two or three year period if we do not have a double dip recession.
Patrick: What’s the double dip recession?
Richard: Well, like we had in the early 80’s when we had a lot of expenses from the Vietnam War hit as a tax burden and it caused major budget deficits and as a result, the tax rates had to be bumped up temporarily. We had high energy cost. We had high unemployment.
Does any of this sound like what we’re experiencing right now? And as a result to that, people didn’t have the additional income, the discretionary income to go out and spend on it like they usually do. And since this is a consumer-driven stock market, 2/3 of the results are from consumers. When consumers pull back, the market pulls back.
Patrick: Sounds like things are fairly predictably irrational.
Richard: And that’s the problem. Not only are the investors irrational, but the people that manage the funds, the pension funds, the mutual funds, because they have such high commissions at stake. These mutual fund managers can make tens of millions of dollars managing these funds based on the size of the fund primarily instead of the performance of the fund.
So, they are motivated to act just like a salesman and unfortunately, according to a professor at Duke that spent 30 years studying it and his recent book indicates, when there’s that much money at stake, even the most trusted people will tend to see things through rose glasses.
Patrick: Well, isn’t that pretty much even in any industry that when you get into the bigger dollar incomes that sometimes your ways of thinking can be a little bit foggier or corrupted.
Richard: Absolutely. So, the way out of this is you steer clear of the people that are driven by commissions only. So, the two categories of people that call themselves financial services people that you get involved with that are driven primarily or 100% by commissions are the brokers and the insurance guys.
The brokers are going to try and sell you the highest commission products whether it’s a mutual fund or a highly compensated stock that they’ve got too much in their own inventory that they’re trying to unload.
An insurance guy, since he only has insurance products to sell you, is just going to focus on selling only insurance products and they’re basically limiting you. There’s a much wider world of potential investments out there that you could be making.
Patrick: Very good. Well, I know a lot of you may want to join the call and join in on the show and just call in at 972-299-5759 or 866-660-5759 and I know that you, Richard, are a part of a fairly elite team of advisors.
Richard: That’s correct.
Patrick: That was setup what in the 30’s, right?
Richard: Actually, the law was passed in 1940. It’s the Registered Investment Advisor Act and it created a separate category of investment advisors for the wealthy. And the big difference is a broker’s primary duty is to the brokerage house and to earn commissions and the registered investment advisor has a fiduciary duty to the client first and foremost period, end of story.
And of all the registered investment advisors out there, only the top 5% are only advisors. The other 95% carry brokers’ licenses and they wear two hats at the same time causing this conflict of interest and the SEC allows it.
So, most people think that the SEC should not allow it when they hear about it, but the SEC thinks, that since this law was passed so long ago, that your parents or grandparents told you about this risk and you should know.
Patrick: Oh, just a kind of intrinsically I should know.
Richard: Because it was passed in 1940.
Patrick: Well, that’s a long time ago. That was a little before I was born.
Richard: It is.
Patrick: But, one of the things that I do want to make sure is that people know that you have a workshop coming up.
Richard: Absolutely.
Patrick: Can you tell us about that, Richard?
Richard: We’ve got a workshop coming up this next Tuesday and the following Tuesday at Brookhaven Country Club. It’ll be at 6:30 PM and we’ll talk about the ways the wealthy invest their money differently.
Patrick: Very good. Well, what will somebody walk away with, with that?
Richard: Well, they’ll walk away with several key strategies that the wealthy used to get high returns while paying low fees. We’re all about low fees and lost cost.
Patrick: Very good. Well, we got a caller on the line. Let me go ahead and try to go to…Kelly you’re on the air?
Kelly: Yes, I am.
Patrick: Very good. What’s your question, Kelly?
Kelly: Well, I recently was laid off from my job and I have 401K there that I need to rollover and I don’t know if I should put it into a Roth or leave it in a traditional IRA?
Richard: Well, that’s a tough question without doing a budget, Kelly, but assuming that you’ve got enough money set aside to take care of the potential downtime between your layoff and your next job you should consider converting some or all that into a Roth IRA. Right now, the benefit of converting to a Roth is awesome and we’re going to get into that more in the next segment.
We’re going to have to go to a break here in about 30 seconds, so the key thing is that you’ve got two years to pay the taxes if you convert to a Roth now. A lot of people are scared to convert because they thought that they’d be in a lower tax bracket later and maybe this traditional IRA would be better for them, but Congress is running up record deficits, tax rates have to go up to cover that and you’re going to be in a higher tax bracket later.
So, you need to convert now and that’s the most important message I can give you in the short amount of time I’ve got and then we’ll get back to you here after the break.
Patrick: Hey thanks, Kelly. We’ll let you listen offline.
Very good. Well, thanks for joining us this section of Financial Fortress Radio and if you’ll call in at 972-299-5759 to join the show. We’ll be right back.
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Patrick: And welcome back to Financial Fortress Radio, this is Pat Dougher. Rich Jordan, investment strategist for the DFW area and we were just talking to Kelly and she was telling us about her 401K that she converted to an IRA. You said, “Convert that to a Roth assuming certain parameters are in place.” Now, I’ve heard a bunch of mythology when it comes to Roth’s. I mean, there is a lot of noise out there.
Richard: There is.
Patrick: Can you set us straight?
Richard: Sure. Well, first to get back to Kelly. She needs to have enough set aside in an emergency fund, so she can take care of herself for the typical six months it’s going to take to find another job in this economy. But, beyond that, she can convert the rest into a Roth and she should do it because she’s going to be in a higher tax bracket later, I can almost guarantee you.
Now, the typical myth that you’re going to get from a lot of the financial planners, and the magazine articles, and the newspapers is that you have to run the numbers and it’s really complicated. There are all these potential scenarios and you’re going to end up with dozens and hundreds of spreadsheets. You’re going to get so confused by the data you’ll be paralyzed that you won’t be able to make a decision. Look, there are only three things that can happen.
You’re account value is going to go up, it’s going to stay the same or it’s going to go down. If it goes up then you can make the decision to go ahead with the Roth IRA and keep it a Roth IRA. If it stays the same and you can’t afford to pay the tax, then you’ve got till October of next year to un-convert it back to a traditional IRA and a lot of people don’t know that. Same thing if it goes down.
Patrick: Now, wait a minute. So, if it goes sideways or down, they actually could convert it back into a regular IRA.
Richard: Absolutely. Exactly and then 30 days later, they can, for the following tax year, re-convert it back to a Roth and run that time period again to see if it’s going to go up.
Patrick: Okay, but here’s one of the things that I would be curious about. Why would I even want to convert a regular IRA that I’ve been paying in for the last several years or a 401K that now it’s in an IRA? It’s still tax deferred. Isn’t a Roth IRA tax deferred? Why would I even want to go there?
Richard: Well, a Roth IRA basically continues to accumulate in value without any further taxation. So, the difference is you never paid a dime in taxes on your standard traditional IRA or 401K. It all went in tax exempt and all the gains were tax exempt. So, Uncle Sam wants his money on that.
Well, this is the first time in history you can convert whatever you want out of that to a Roth and take two years to pay them back with no interest. Where else can you get no interest loan?
Patrick: Well, but my fear if that was me, if I had an IRA that I was converting and you’re saying take it out of the container that’s called IRA and we’re going to put it into another container called Roth IRA.
Richard: Correct.
Patrick: When I pull it out of that regular IRA, the IRS or KGB or whatever they call those people, they will tend to – I’m thinking penalties and ordinary income. I mean, that’s 35%, 38%, 48% of an IRA being taken by the IRS.
Richard: Yeah. Well, the top category right now is about 33%, but if you look at the tax foundation reports with all the run ups with the current administration in budget deficits just to pay off the budget deficits that they’ve accumulated in the last year. We’re going to end up with a tax rate that’s nearly double that within 10 years. In fact, to pay off all of our current deficits, we would have to nearly double the tax rates for 10 years. Now, sooner or later we’re going to have to pay the bill on this folks. It’s just common sense.
Patrick: Okay, but the penalty issue. Are they going to experience the 10% penalty?
Richard: The 10% penalty is for people that take money out before 59 ½.
Patrick: Right.
Richard: That’s a separate issue entirely.
Patrick: But, if you’re taking it out of an IRA and putting it into a Roth IRA it’s leaving the doors of an IRA.
Richard: It’s still an IRA.
Patrick: So, there’s no problem with the penalty? You’re just paying ordinary income tax on what you take out.
Richard: Exactly. And you’re paying it over two years with no interest.
Patrick: Okay, so let’s say that it is worst case 33%.
Richard: Right.
Patrick: You’re paying 15, a little over 15% a year with zero percent interest on that distribution, is that what I’m hearing?
Richard: I guess you could look at that way, but basically, you’re in a certain tax bracket. You’re incremental bracket, what they call a marginal bracket, and chances are if you’re making any money at all, you’re in the 25% bracket. Well, that bracket in order to pay off our budget deficit is going to have to go to between 48 and 60% in the next 10 years.
Patrick: So, that’s what you’re really saying is if you have the opportunity to take your money, pay 25% income tax or so.
Richard: Even 33.
Patrick: Even 33 over a two year period or you could leave it in that IRA and within 10 years, you’re going to be hit with a 50-60% instead of a 25 or 33%. Is that what you’re saying?
Richard: That’s what I’m saying. You’re way better off. Since we’re in a bull market, since we’ve already experienced a solid year of a bull market and they typically run for about three years, chances are the market’s going to go up at least another 30% in the next two years and your gain is going to end up paying off the taxes on this thing.
Patrick: So, on the Roth IRA, what happens there is once the money is in there, it never gets taxed again.
Richard: It never gets taxed again, exactly. You can continue to grow tax-free and the money comes out tax-free. You can give it to your heirs and they can continue to use it for multiple generations tax-free. It’s just an unbelievable benefit to people that really look at it. It’s a gift from the federal government, but it’s only for people that are smart enough to understand the basics.
Now, there’s a lot myths around this. For instance, I have had people tell me, “Oh, but you can’t touch it for five years after you convert it.” That’s not true. That’s just a bunch of gobbledygook that some magazine writer or newspaper writer thought he read somewhere and it’s been a propagated myth for months.
Patrick: Or they put it into a B shares type of mutual fund that had a backend charge.
Richard: Well, that’s an entirely different issue. That’s getting back to the way brokers collect excess fees and commissions from you on your investments and that, again, gets back to the argument of should you be using a broker at all? You should be using an investment advisor that takes a fiduciary interest in your interest. In other words, he’s interested in your goals first and his goals second.
Patrick: Very good. Well, I know that you’ll be talking about a lot of this information at your workshop.
Richard: Absolutely.
Patrick: And when’s your workshop again?
Richard: We’ve got them coming up the next two Tuesdays the 27th of April and May 4th at Brookhaven Country Club at 6:30 PM and you can register at 972-325-1700.
Patrick: What was that number again?
Richard: 972-325-1700 and by the way, our privacy policy is that we never share information with anybody for any commercial purposes. So, simply leave your name, address and phone number. We’ll send you a letter of confirmation. We won’t share your information with anybody. You won’t be getting calls from oil and gas salesman at 8:30 at night. That’s our policy. We follow it to a tee.
Patrick: And I know that during this workshop – I’ve been to one – and I really highly recommend you attend because, Richard, you really pour a lot of information on the folks. It’s not a sales pitch. It’s really an information dump from you in a sense. Just an outpour. Here’s the information you make good better decisions.
Richard: Absolutely and what I’d recommend is if you’re a senior and you’re just expecting to hear the same old stuff that you hear going to these seminars which is that annuities solve all your problems, or life settlements solve all your problems, or no load funds solve all your problems. No one thing solves everybody’s problems.
So, I cover a lot of topics fast. I suggest if you’re a senior, take a nap, and get ready. There’s a big download coming. We give a lot of information out in an hour. Be prepared to take some notes and I know that not everything is going to be for everybody, but there are always one or two good ideas in there for every single person that comes.
Patrick: Real quickly, Richard. Who should attend?
Richard: Anybody that has an investment account that’s over 250 or more typically gets benefit out of my workshop because they’re a middle class person that wants to understand how to grow that account into a million dollars or more. So, they need to start investing like the wealthy people, the people that already have a million.
Patrick: That’s good. Well, like Richard said register for his event 972-325-1700 and join the call. To join this show today, just call in at 972-299-5759 or 866-660-5759 (KSKY). I’m so thankful for this half of the show, Richard. I know we’ve got a lot more coming on converting the IRA to the Roth IRA and beyond.
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Patrick: Welcome back to Financial Fortress Radio. This is Pat Dougher. Richard Jordan and we are talking about the Roth IRA conversion. Should you? Shouldn’t you? What’s the mythology on the whole thing because there’s a bunch of disinformation out there or just too much information?
I know that Richard’s going to go over exactly what are some of the myths, but then even what are some of the steps and why would anybody want to do this because of the confusion that’s out there you wonder is it really a good deal?
So, with that, Richard, why don’t you talk to us a little bit further about the myth, the mythology of the Roth IRA conversion? You said a little bit. You mentioned that there’s a five year holding. No, there’s not. There’s a real value in going from an IRA to a Roth IRA because taxes have to go up and you can get those taxes paid for and the Roth IRA allows you to have tax – essentially a real tax-free investment because the tax that I’ve paid on the dollars that are in there and the growth is tax-free as well.
Richard: Absolutely.
Patrick: So, what are some of the other myths that you have there?
Richard: Well, another myth I hear a lot about is it’s a trick. Congress is going to change the law and somehow find a way to tax Roth IRA’s later.
Patrick: It’s not like the governments ever changed its mind on something.
Richard: No, I understand, but they’ve never, ever done that on retirement accounts and they can’t afford to because guess who ends up paying the bill when they do things like that with retirement accounts. Uncle Sam ends up paying the bill. They end up right an IOU back to themselves and right now what you’ve got is your 401K or your IRA is an IOU to the IRS.
In other words, if you’re the kind of person that likes to listen to Dave Ramsey and you believe in being debt free, if you have an IRA or a 401K, you have a future debt to the IRS and you just don’t know how high the bill can get.
Patrick: Oh, I mean tax rates in the past have been significantly higher than we are seeing right now, haven’t they?
Richard: Absolutely. We saw a tax rates as high as 70% back in the 60’s and we could get back to that. In fact, Great Britain just raised their top tax rate from 40% to 50% last week and that’s going to give some stimulus to the White House to think about following and doing the same thing.
So, how long is it going to be before he decides, “Well, we don’t want as much budget deficit. We need to be fiscally responsible. The dollar is sliding too much.” Greece is going belly up and we’re having trouble getting our bonds sold. The Chinese and the Japanese have both said, “They’re not going to buy our treasury bonds anymore unless the rates go up”. So, what they’re saying is that our balance sheet looks terrible as a company.
Patrick: Well, I mean who would take their money and invest in a company – I don’t care how you cut it. The American government is a form of a company. It’s like just any other company out there. It’s an entity.
Richard: Financial organization.
Patrick: Financial organization.
Richard: That’s right.
Patrick: Okay and who would say, “Oh, yes. Please just print your way into oblivion.”
Richard: Print some more money.
Patrick: I still remember – I’m a big student of history. I love history and I studied things like this in the past and one of the things that you always see is that people will give up their rights for provision. I mean, the Israelites gave up their rights for provision and ended up in slavery.
Richard: Absolutely.
Patrick: And we’ve seen it in Europe and the early part of last century. We’ve seen it over and over again where people will give up – well, the Russians they gave up their rights for provision and I just see this trend. I’m going, “Does anybody else notice we’re diving headlong into socialism?”
Richard: It’s just unbelievable what’s going on, but you can’t control that. You and I can’t control these things that are going on at the level of Congress. What we can control is our IRA and our 401K.
Here’s another myth. A lot of people think you can’t take your 401K that’s in a company and convert that to a Roth IRA. Well, you can and you should.
There was the pension protection act that was passed in 2006 and it became law in January 2007 and the reason it did is because of the ENRON problem. In fact it’s colloquially, in the law business, called the ENRON law.
All those poor people that lost all their retirement funds because the 401K you’ve got is actually an asset that belongs to your company. Until you get it out of their holding account and into your personal holding account called an IRA, you’re stuck with their financials. If they go belly up, the creditors can have access to your account. I know that’s not fair, but that’s how it works.
So, the law says you can convert this to an IRA and you should because most 401K’s only have 20 or 30 funds as options that you can invest in. There are 11,000 funds out there and there are a lot of funds that we have access to that have much higher rates or returns and cost factors that are below 1%.
So, you need to take a look at those kinds of approaches to investing and not be stuck in 20 or 30 Fidelity funds or 20 or 30 Dreyfus Funds because that’s just way too limited of an investment option.
Patrick: Well, let me make sure that I understand you correctly. Somebody’s working for GM and GM’s got a big retirement fund.
Richard: Yep and it’s at risk.
Patrick: Yeah. It’s evidently less than it used to be at risk. I understand they recently paid off their debt to the government and I couldn’t be more thrilled. It sounds like a Chrysler rerun which is fine, but here’s the thing though. They have a – I don’t know if they call it 401K…
Richard: It’s the 401K you’re concerned about. The pension fund you can’t control, but your 401K, you can do something about it. You have the right to convert that into an IRA and any money that’s vested you should pull it out of there and put it in a separate IRA.
If you’re still vesting, you’re working there five years or less, and they’re matching, you want to wait till they’re done matching and get your vested amount, that matching amount vested. But, if you’re past that period of vesting on any of that money, you should pull out the money that’s vested and put it on IRA because you’ve got way more options.
You’ve got a much higher potential that you can invest in and you could convert it to a Roth and pay the taxes over the next two years. Excuse me, but when was the last time the IRS gave you two years to pay a bill with no interest?
Patrick: Never.
[laughter]
Richard: Exactly.
Patrick: I’m thinking, the last time I heard their interest rate were somewhere around 36% a year or some unbelievable. I know it’s like a percent per month plus. Anyway it is way up there.
Richard: It’s the penalties.
Patrick: The penalties really sting you.
Richard: The penalties run it up. The effect interest rates just make it crazy.
Patrick: So, if you do not have to do that, that’s amazing.
Richard: So, you’ve got two years now to pay this bill and chances are if you’re with a good advisor like me, you’re going to do much better than the market, but even the market I think is going to go up in the 20-30% range in the next two years.
That means that all your tax that’s due is basically going to be paid for by these gains and then you’re going to have an account that’s really tax-free. You won’t have an IOU to the IRS. You won’t be pulling this money out in 10 or 20 years going, “Oh, I can’t believe I’m paying 52% on this money. I should have converted to a Roth 10 years ago like Rich said.” Don’t do that.
You can convert now and if the numbers don’t make sense by October of next year you can convert it back to a traditional IRA, wait 30 days and then try the same thing the following year. You can keep going back, converting it, and un-converting it until you get a year where the numbers have enough gain in them to pay the tax bill.
Take advantage of this. Don’t let this opportunity slip by. A lot of advisors don’t really understand how this law works, but I’ve studied it closely.
Patrick: Very good. I know that a lot of people might be going, “Can I talk to somebody about this?” Can they call you, Richard?
Richard: Absolutely.
Patrick: They’ll call you at your direct line.
Richard: You can call me direct if you want to have a personal analysis of your holdings or if you want to determine whether or not this law makes sense for you converting to a Roth IRA 972-758-4484.
Patrick: It’s 972-758-4484. And that goes straight to your desk, is that correct?
Richard: Yeah, if I’m not in a meeting, I’ll pick it up.
Patrick: Very good. I know that a lot of you may be really kind of questioning this whole IRA, Roth IRA, and 401K. There’s just so many “Ks” out there that you really need to analyze what’s the right way to do. So, I encourage you to talk to Richard about that. Like he said, you can call him at 972-758-4484 to setup…
Richard: Or you can come to the workshop.
Patrick: I was going to say, you might want them to come to the workshop. So, to register for the workshop is 972-325-1700. What’s one big benefit they’re going to get from you, Richard, before we go to break?
Richard: Well, the biggest benefit they’re going to get is they’re really going to understand that there really are high return low-fee investment solutions out there.
Patrick: Very good. And where’s that going to be again?
Richard: Brookhaven Country Club, Tuesday, April 27th or May 4th, 6:30 PM.
Patrick: And there’s no cost, is that correct?
Richard: No cost whatsoever.
Patrick: Call and register. 972-325-1700. We’ll be right back.
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Patrick: Welcome back to Financial Fortress Radio. Pat Dougher. Rich Jordan. You have the answers. You’re the man. You’re the guy with the investment strategies to help people begin to invest smart, like the wealthy, in every area of their life. Right now we’ve been talking about the IRA to Roth IRA conversion. There’s still some mythology we haven’t covered.
Richard: That’s true.
Patrick: What are we missing?
Richard: Well, one of the things that I hear a lot is that it’ll take years for me to make up the taxes I’ll have to pay on that conversion. It’s just not true. We’re in a bull market.
Now, there’s a small risk that we’re going to have a double dip and you’re not going to make as much in the next two years as you think, but if you convert today you’ve got till next October to un-convert this thing and not have to pay the taxes.
Think about that. You’ve got a year and a half to roll the dice like you do in Las Vegas. That’s what you do in the market. You’re taking some risk. You’re gambling a little bit. You’ve got a chance to wait to make the decision till then. You don’t have to make it and it’s not cut in stone. You can make it and uncut the stone.
Patrick: So, it’s October 2011?
Richard: Yes.
Patrick: So, it’s like almost 18 months that you can do your thing – invest, make money or not…
Richard: Right.
Patrick: If you don’t, you – in a sense – sweep it back into the IRA.
Richard: Sweep it back into a traditional.
Patrick: And all is good. If you do make money, in a sense use enough to pay the penalties and then go on from there.
Richard: Not the penalties, just the taxes.
Patrick: That’s what I meant, the taxes.
Richard: Right. And here’s an even smarter strategy. You can subdivide your accounts and make each one of those a separate IRA. So, you can decide, “Okay, I’ve got an asset allocation strategy where I’m divided into 10 different market sectors. I can make each of those 10 market sectors a separate Roth IRA.
The ones that go up, I’m going to go ahead and pay the tax on them and have that money tax free in the future. The ones that go down, I’m obviously going to convert back to a traditional IRA. The ones that stay the same – if I’ve got enough money left over from the other ones I’ve converted that made money, then I’m going to go ahead and allow those to fall over on the tax-free side, so that basically I walk away with a real tax-free account for the rest of my life and for multiple generations.”
If you’ve got about a half a million dollars and you are already going to have social security and a pension coming in, you’re never going to spend your IRA in your lifetime. Most people just aren’t going to have enough bills once they retire to spend all that. It’s going to go to the heirs.
Now, how would you like that half a million to grow into one, two, three, maybe $5 million over the next 50 years and be available for your heirs tax-free?
Patrick: That’s really amazing. I know that a lot of people are concerned about the tax issue and when we look forward – I think all of us realize we’re going to be paying a lot more taxes. There’s a tax tsunami that’s heading in our direction.
Richard: It’s inevitable. Anybody that’s interested, I’ve got a special report that shows exactly what the tax rates are going to have to be to cover the budget deficits. That’s just based on the numbers through January 1st of this year. Do you think we’re going to run another budget deficit in 2010? You bet we are.
Patrick: How would they get a hold of that by the way?
Richard: They can just call 972-758-4484 and I’ll be happy to send them a copy of this Tax Foundations Report that basically tells them in excruciatingly, nauseating detail how high these tax rates would have to get.
In fact, if we want to pay it all off in one year we can, but the top tax rate would end up being about 85%. I think that’s probably too much for the voting public to stomach, don’t you, Pat?
[laughter]
Patrick: You think?
Richard: But, what if it goes to 58% for 10 years? That’s another scenario they’ve got in this report. What is going to happen to America then?
Patrick: I am just dumbfounded because if they go to that kind of tax rate, you’re going to grind the economy to almost a complete halt. Then you’ve got all kinds of fallout with essentially bankruptcies or declarations of, “I can’t pay you.”
Richard: Absolutely.
Patrick: And that’s going to be a bit of a problem.
Richard: But, we can’t control the government. What we can control is our investment account. We can do a smart thing with it and right now converting and just waiting to see which of those accounts are worth leaving in that mode, in their Roth IRA designation, paying the bill on it, and being tax-free forever. Man, think about the freedom in that.
Patrick: And you can help folks with this whole conversion process because the thing you just outlined, that strategy of 10 different Roth IRA’s, that takes a little bit of help for a lot of people.
Richard: Yep. That’s right.
Patrick: So, they could call you at the 972-758-4484, connect with you and get some information on that correct?
Richard: That goes direct to the desk. Exactly.
Patrick: Very good.
Richard: Now, if you call the number that ends in 00, you’re going to talk to the secretaries. They’re going to send you to voice mail. That’s okay, but if I’m at my desk, I’ll answer that number.
Patrick: That’s good. That’s good. I know that you try to maximize your time. A lot of times after three is a better time to call than most.
Richard: Well, because I’m trying to maximize the returns for my current clients while the market’s still open. It’s nothing personal. If you’re a client, you’re going to appreciate that.
Patrick: I understand. I’ve called you and had that experience of, “Can I call you back? I’m in a middle of a trade.”
So, now to register for your workshop where you’ll be covering some of this information and beyond.
Richard: Yes.
Patrick: 972-325-1700.
Richard: Absolutely. We’re going to get into some huge estate and income tax savings ideas at the seminar that even go beyond this. These are ideas that the wealthy have used for years. They’re used by the Buffest, and the Gates, and the Kennedy Foundations. These people understand how to manage money, so you can put it way out there in terms of taxation or Uncle Sam’s ability to collect on an estate.
The biggest sin, I think, that we have on our tax code is the idea that you pay taxes your whole life and then after you pass away, you’re not there to object to Uncle Sam ripping into your estate and pulling a huge chunk out.
Now, the estate tax rate was 57% a few years ago and they’ve knocked it down to 46%. Woo-woo, right? Thank you so much, Washington.
Patrick: It still feels like half.
Richard: It still feels like half to me and it was as high as over 70%; 72% at one time. So, in order to pay these deficits they’re going to have to raise taxes every way they can and print more money than you can believe which is going to cause a huge amount of pain in terms of inflation.
So, if you’re not prepared to grow your money tax-free in a Roth IRA, you’re going to be left holding the bag.
Patrick: I understand. So, have we missed any of the mythology that you wanted to cover today?
Richard: Well, I think a lot of people also tell me, “Well, my IRA distributions – I don’t have to take that much out. My minimum required distribution the first year – I looked at it, it’s not much. It’s only about 3%.”
Yeah, it’s only 3% but by the time you’re 80, it’s 11%. In the first 14 years, you’re going to have to take half the money out of your IRA between 70 and 84.
So, how about if you had to take none of the money out just as you do on a Roth IRA. Take it out when you need it, grow it tax-free, and take it out tax-free. What a beautiful life that’s going to be for the people who are smart enough to do it now.
Patrick: I agree. I want to make sure that folks can get registered for your event. It’s 972-325-1700. The event is going to be what days and times again?
Richard: This coming Tuesday, April 27th and the following Tuesday, May 4th, Brookhaven Country Club, 6:30 PM. If you don’t have time to get over there without eating dinner, don’t worry about it, we’ll feed you right after the seminar.
Patrick: Very good. And who should really be attending?
Richard: Anybody that has a sizable investment account and wants to invest like the wealthy. Our typical client has anywhere from $2.5 million up to $7, 8, 10 million, so it’s a pretty wide range. But, if you’ve done well in your life building up some accounts, you need the best advice. You don’t need to be taking the standard advice you get from the brokers and the insurance sales guys.
Patrick: That is awesome. Well, like you said 972-325-1700. Get yourself registered. If you want to talk to Richard directly, 972-758-4484. This has been Financial Fortress Radio. This is Pat Dougher. Rich Jordan. Rich, is there anything that you wanted to say on the way out today?
Richard: You need to deal with somebody that doesn’t have a conflict of interest. Stay away from the guys that are commission-driven and you’re going to end up much better with your investment accounts.
Patrick: Well, that’s been Financial Fortress Radio. We’ll talk to you all next week.

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