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Jim Lange CPA Responds to Two Major Tax Changes
James Lange, CPA/Attorney
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- Elimination of Income Cap for Roth IRA Conversions in 2010
- Implication of Lifting Bush-era Tax Cuts
- Surtax from Healthcare Reform Bill
- Running the Numbers – Benefits of Making an IRA Conversion
- More Analysis – Benefits of Roth IRA Conversion For Your Grandchildren
- Workshops Have Been Updated With New Tax Law Information
Nicole: Hello, and welcome to the Lange Money Hour, Where Smart Money Talks. We are definitely going to be talking smart money today. I am Nicole DeMartino, your host, and I’m with James Lange, CPA/Attorney and best-selling author of not one, but two editions of “Retire Secure! Pay Taxes Later”. Today, we have some great information. I really do think you’re going to find it valuable. As a matter of fact, this stuff is so good, you might want to hear it again, so I’m going to tell you right up front that this show will actually be rebroadcast on Sunday morning at 9:00 am, and you can always get it again on www.retiresecure.com, our website. So, if you go on our website, just click on “Listen Now,” and there you’ll find all of our radio shows. The archives are both in audio files, and we also have transcripts for those of you who prefer to read. Now, today we’re going to be talking about some new tax laws, some really shocking news affecting all taxpayers. So, let’s get into it since time is ticking. Jim, you have been a leading commentator on Roth IRA conversions ever since you published the very first peer-reviewed article on Roth IRA conversions, and that came out in 1998. That’s right, right?
Jim: That’s right, 1998.
Nicole: So, 1998, that’s twelve years ago. Since then, in the past twelve years, you’ve written hundreds of articles on the topic. You’ve published two best-selling books. You’ve answered thousands of questions from advisors, both the advisors and the individuals who come in on our website, and you’ve made hundreds and hundreds of individual Roth IRA conversion recommendations. I mean, some people probably think, “Boy, is he getting tired of talking about this, or what?” But the truth is, you’re talking about this more than ever, so let me ask you, do you ever get tired of talking about this, and if not, why are you talking about it more than ever?
Jim: Well, I do love this stuff. I really do, and I like to tell people, it’s not that I’m not necessarily a Roth IRA conversion fan. I am a fan of, I call it running the numbers, and then doing what the best course indicates, which is usually Roth IRA conversions. There are three things that make 2010 really a unique year for Roth IRA conversions, and frankly, this is something that we have been looking for for years. The big thing about 2010 is that all taxpayers, regardless of their income, are now eligible for a Roth IRA conversion. So for years, I had so many clients whose income was more than $100,000, and they wanted to do a Roth IRA conversion, but they didn’t qualify. So, we have been waiting, literally, for years for these people to be eligible for Roth IRA conversions. Now everybody, regardless of income, is eligible for a Roth IRA conversion. And that just opens up the floodgates for a lot of people that were not able to make Roth IRA conversions before. And then, if that isn’t enough, not only is this the first year that many people will be eligible, but now, we have two tax increases on the horizon. First, we have the Bush era tax cuts that are coming effective in 2011, so for people in the 25% bracket and higher, you’re going to be in a higher tax bracket next year, and when you work out the numbers, you are much better off converting the lower tax rates of this year than you are of waiting until next year. Then, in addition to that, we have the surtax, which is going to be an extra 3.8% on high income tax payers, and that’s going to really be brutal. And this isn’t just something proposed or something that might happen, this is current law effective 2013. So, when you put all three of those things together, it becomes compelling to look at doing Roth IRA conversions in 2010.
Nicole: Okay. Those are three really, really big items, so let’s break it down. Let’s talk about the first one you mentioned, lifting the $100,000 income cap. Tell me about the significance. Why is that so important that they eliminated that income cap in order to qualify for the conversion?
Jim: Well, to picture your income is more than $100,000. You have read, or you understand the benefits of Roth IRA conversions, and that’s obviously something that we go into in our books and workshops and articles, etc. But let’s just take it as a given, that doing a Roth IRA conversion makes a lot of sense for most IRA and retirement plan owners, particularly in the higher tax bracket. But, up until now, you haven’t been allowed to do it, so it might be like one of those things, “Well, yeah, it might be nice if my income was less than $100,000,” or it might have been one of those things, “Well, I’ll worry about it later,” well, now is later, which means that it really makes sense during 2010, which for many people is going to be the first year that they’re eligible to make a Roth IRA conversion, to really take a look at it, because this is the first year. So that would be, I would say, the first really big thing, and it’s kind of interesting because I have a bunch of buddies in the financial industry, and, as you know, I run all over the country giving talks on Roth IRAs and Roth IRA conversions, and so many people who are in the high-income tax bracket, it’s just not even on their radar, because up until now, they haven’t qualified for a Roth IRA conversion, but now, with the income tax lifted, since it hasn’t been on their radar, they might not be thinking about it, or they might not really understand it. So, this is huge if your income is over $100,000, that you’re now allowed to make a Roth IRA conversion.
Nicole: Okay. Alright, secondly then, let’s take a look at the lifting of the Bush-era tax cuts. Let’s talk a little bit about that. What’s the implication of this?
Jim: Well, if you are in the 10% or 15% bracket, the implications for Roth IRA conversions are not all that important. And the reason for that is, because those taxpayers are not going to suffer a tax increase in 2011, with some exceptions for the 10% bracket taxpayers, but let’s talk about the more general rule, which is, people in the 25% rate bracket are going to go up to 28%. People in the 28% are going to go up to 31%. People in the 33% are going to go up to 36%. People in the 35% are going to go up to 39.6%. Alright? Those, in effect, are the old rates, but the sunset, meaning that the Bush-era tax cuts were designed to end in 2010, and so, basically, nobody has to do anything, and these taxed increases are automatic. So, this is going to happen. Now, when you run the Roth IRA conversion numbers which we’ve been doing for years and years and years, usually we have assumed even tax rates, meaning that we don’t assume there’s going to be a tax increase or a tax decrease. If there’s going to be a tax increase, then locking in the growth of the tax-free IRA conversion is going to be even more favorable than an environment where the taxes are steady. Since we know we’re going to have higher income taxes in 2011 because of the sunset of the Bush tax cuts, it’s going to make even more sense, particularly for taxpayers in 25% and higher, to make Roth IRA conversions in 2010.
Nicole: Okay. You know what, Jim, I’m actually curious. I want to take a step back for a second and go into the first item we talked about, the income cap. If your income is now over $100,000, you now can make a Roth IRA conversion. What’s the first thing you should do now that this is lifted? If you’re that person, what’s the first thing you should do?
Jim: Well, I would want to see if that is the appropriate strategy.
Jim: I am a great believer in educating clients, listeners, readers, about Roth IRAs and Roth IRA conversions, and I think that that is incumbent upon you. The other thing is, this isn’t an opportunity that’s going to last forever. This isn’t something like, “Oh, I can do it next year, in two years, in four years,” which you could, but it’s not going to be nearly as favorable as it is in 2010, so one, I would learn about this, and two, if appropriate, consult the appropriate financial professional that might help you make a decision.
Nicole: Okay, thanks. Okay, the third thing we were talking about is the new surtax. 3.8% surtax from the healthcare reform bill. So, let’s talk about that.
Jim: Right, and whether you like it or not, it’s a done deal. It’s going to happen. People in the higher income brackets are going to experience, just by itself, an extra 3.8% in taxes. So, we have to say, okay, we know that’s going to happen. What is the implication today in 2010 of knowing we’re going to have a higher tax rate? I think, up to now, we have been, we’ve kind of had this feeling, like oh yeah, we think taxes are going up, and I think most people still have that feeling even over and above the existing tax increases. But now we know we have these tax increases. How does that play out for the issue of should I make a Roth IRA conversion in 2010, and, if so, how much? Well, if we know we have higher tax rates coming up, and the whole point of doing a Roth IRA conversion is to establish tax-free growth, that means the benefits of making a Roth IRA conversion are even more, and under many scenarios, it makes sense to make a bigger Roth IRA conversion than you might have otherwise. So, I think we’re just being smart about knowing, of taking advantage of what we know is going to happen, and proactively taking action and planning for those tax increases.
Nicole: Alright, I think this is a good place to take a short break, and we’ll come back with more of the Lange Money Hour, Where Smart Money Talks, and when we come back, we’re going to take a look at some of the analysis Jim has done pertaining to these two new laws and the income cap being lifted. We’ll be right back with more of the Lange Money Hour, Where Smart Money Talks.
Nicole: We’re back, and we’re certainly talking smart money today, and if you’re just joining us, we’re talking about three new tax laws affecting all taxpayers. When we left off, we were finishing talking about the 3.8% surtax from the healthcare reform. Now, I know, Jim, that you and Steve Kohman, you did all the Roth IRA analysis under the old laws, but now that we have the new ones, do you have more updated information? Did you analyze this again?
Jim: Yeah, we had to do it again, and we have done that. In fact, we just finished that, because Steve, as you know, is a real live tax preparer.
Jim: And you couldn’t go near him before April 15th for any non absolute critical, time critical work, but after April 15th, he finished the updates, and we have that. We actually first talked about that in front of a group of financial advisors in central Pennsylvania, and now, we have incorporated that into our regular workshops, and all the analysis that we do for actual clients.
Nicole: Okay, well, tell me about that analysis. What did you use? What’s the basis of this analysis?
Jim: Well, a little history of this analysis, and the reason why I want to spend a minute on the history is because, if I’m a listener, I am going to be very leery about listening to anything that any attorney is going to tell me. I’m going to be very leery about anything that a financial advisor is going to tell me. And then, if you have a combination of a financial advisor, an attorney and a CPA, I’m going to be very skeptical. Well, in 1997, when they first proposed the Roth IRA conversion laws, I knew that this was going to be big stuff. I really did. It was just from a gut instinct. I could tell that if you paid taxes on the seed and you reaped the harvest tax-free, which is, to some extent, the essence of a Roth IRA conversion, that you and your family were going to be hundreds of thousands, maybe millions, of dollars better off. But I knew that I was going to have a credibility problem, because, again, nobody believes anybody these days. So what I decided to do is, I said, okay, who is the most believable source of information there is in the IRA retirement plan and tax world? Well, the American Institute of Certified Public Accountants has a tax journal called “The Tax Advisor.” It is a tremendous publication, and it is peer-reviewed, meaning that in order to get published in “The Tax Advisor,” you have to send in your article months ahead of publication date, and they have these nitpicking CPAs that go through every single calculation that you make, and they go through all the spreadsheets and everything else, and you have to pass muster with all those guys and women before you get anything published. Anyway, I thought, well, I know if I have these guys say “Yes, Jim’s material is accurate and this is the best way to go,” I knew that I would have a lot more credibility. So, I reserved the topic, I submitted the article, and the reviewer was just nitpicking me to death, but he was right, and the article ended up actually being stronger and better than my original submission, and that was the basis of the Roth IRA conversion analysis. Now, again, this was way back in 1998, and I really did the work for it in 1997. So, what has happened in the meantime is tax rates have gone, well, both down and then back up again, and the tax laws have changed. So, what I have done is I have maintained that same peer-reviewed methodology of the original calculations that I made back in 1997, but I have adapted them to new tax rates and new tax laws. So, that way, people can have a lot more confidence when I say, “Well, we’ve run the numbers,” and it’s not just a bunch of random people running random numbers, this is all, basically, peer-reviewed methodology, so everything that we’re about to talk about, let’s say, over the next portion of the hour, is actually using the same methodology as was done back in 1997 that was peer-reviewed by the AICPA.
Nicole: Okay. I know they’re a tough crowd and it’s not easy to do. Well, now that it has passed the muster of the tough crowd, let’s talk about the results. What did you come up with?
Jim: Well, again, I’m going to save everybody all the assumptions, because otherwise, we’ll spend all day in a mass of details. But here’s the bottom line: if you make a Roth IRA conversion of $100,000, you yourself, forget your kids, forget your grandkids, you yourself can be better off by $50,000 twenty years after you make the conversion. Now think about this. You yourself can be better off by $50,000 if you make a Roth IRA conversion measured in purchasing power, and that is really a pretty astounding thing, and I really would encourage people who are now eligible for the first time, and even for people who were eligible before, but didn’t make Roth IRA conversions, or if you have made a Roth IRA conversion, or you have a Roth IRA, and you’re interested in getting even more money that will grow tax-free, to really consider this, because again, a straightforward running of the numbers, you make a $100,000 Roth IRA conversion, you yourself are better off by $50,000 using, what I would consider, fairly reasonable assumptions.
Jim: Then, let’s assume, for discussion’s sake, that you say, “Okay. I’m going to make this $100,000 Roth IRA conversion,” and let’s say, for discussion’s sake, that you live twenty years after you’ve made the conversion. I hope you live a lot longer. I’m just using that because that’s consistent with a peer-reviewed analysis. As you know, Nicole, in a more basic talk, I sometimes talk about which assets to spend first, and what I usually recommend is, let’s say, for discussion’s sake, that people have three sources of money that they can spend. One is what I’ll call after-tax dollars, money that people have already paid income taxes on. This might be in a savings account, or investments, or stocks, or mutual funds, or whatever, but I call that after-tax as opposed to IRA and retirement funds. If you have, let’s say, a 401(k) or a 403(b) or an IRA, what that type of money has in common is that you got a tax deduction when you contributed, or, looked at another way, you don’t have to pay taxes on the money that you earned. The money grows tax-deferred, but when you finally take the money out, you are going to have to pay taxes on it. I call that IRA money, or pre-tax money. Then the last type of money that you might have is Roth IRA money, which grows income tax-free. So, let’s say, for discussion’s sake, you have some after-tax dollars, you have some IRA dollars and you have some Roth dollars. I work out mathematically that it’s almost always better to spend your after-tax dollars first, then your IRA dollars and spend your Roth dollars last. So, if you’re going to spend your after-tax dollars first, your IRA dollars next and your Roth dollars last, what are you most likely to die with? Roth dollars. So, the next part of the analysis is, let’s assume that you follow this advice. You make some kind of a Roth IRA conversion, and what are you almost inevitably going to die with, is some Roth dollars. So then, the analysis continues. Let’s assume you make a Roth IRA conversion of $100,000. You live twenty years. And by the way, this is without all the tax increases I talked about before. Alright, there’s a whole other set of analysis that has the tax rates that I’m going to get to later, but this is even just assuming, in effect, more or less, the old tax rates were 25% or less. So, let’s say, for discussion’s sake, you live twenty years and now you die with a Roth IRA, and that inherited Roth IRA goes to the benefit of your heirs. I’m going to assume, if you’re married, that your spouse is also gone by this point. So now, your non-spousal heirs, which are usually your kids, could be nieces or nephews or cousins or friends or partners or other people, but let’s assume, for discussion’s sake, let’s call it the next generation, which is usually children, what is the difference between the children of Mr. Status Quo who didn’t want to make a Roth IRA conversion, and the children of Mr. Roth IRA conversion who does make that $100,000 and he lives twenty years, or she lives twenty years? The kids of Mr. Roth IRA conversion are going to be better off by $608,173 dollars. Again, I’m skipping all the assumptions. We go into that in more detail in the workshops, etc. But really, I mean, this is an amazing amount of money that your kids will be better off.
Nicole: Absolutely. It’s a ton of money.
Jim: It is, and I personally think that the next generation is going to have a harder time accumulating sufficient money for a comfortable retirement, and part of the reason for that is, I know a lot of my clients, you know, they start out with not much, maybe got married relatively young, and they took jobs, maybe as a professor, maybe as an engineer, maybe as a mid-level manager, or whatever they did, and they never made a ton of money. But they made a reasonable salary, and they made the house payments and they made the car payments and they paid for their kid’s braces and they paid for their kid’s college, and it was really hard to save money. But, they were prudent and they were able to put money in their retirement plan, and they worked for a company that either had a match or put money in themselves, and now, maybe they’re sixty or seventy years old or even older, and they have very significant retirement plan accumulations. I think it’s going to be a lot harder for the next generation to have that because I don’t think, today, the jobs are going to last for twenty, thirty or forty years. So, if you can do something that is great for you, this isn’t like life insurance, where you’re paying out premiums and it’s really good for your kids, not that there’s anything wrong with life insurance in the right circumstances, but this is something that is good for you. Now, what will happen, and particularly the clients and readers and listeners that have a little bit of that depression-era mentality, that they’re a little bit leery about spending all their money, is they will end up dying with some money if that money is in a Roth IRA, because they were smart enough to make Roth IRA conversions during their lifetimes, and if that money eventually goes to their kids, again, the kids being better off by $600,000 can be an enormous change in the children’s lifestyle and the children’s security later in life.
Nicole: Alright. Jim, I’m going to stop you there. We need to take a short break, and I’m anxious to get back, because I’m in the generation you’re speaking of, and I’m quite concerned about my own retirement. We will be right back. You’re listening to the Lange Money Hour, Where Smart Money Talks.
Nicole: Welcome back to the Lange Money Hour, Where Smart Money Talks. Now, if you are just joining us, Jim was talking about the benefits of making a Roth IRA conversion for yourself, and then he talked about for your children and the number got larger. Now, here’s my question: How about grandchildren? What’s going to happen there?
Jim: Alright, well again, let’s assume, for discussion’s sake, that you make a $100,000 Roth IRA conversion in 2010, and let’s also assume that you and your spouse live twenty years, and that the end beneficiary, instead of being your kids, are your grandkids, or, I would actually prefer a well-drafted trust for the benefit of grandchildren. We don’t want any Ferraris and spendthrift ways of twenty-one, so we’re going to protect that money in a well-drafted trust for the benefit of your grandchildren. But, anyway, the benefit to your grandchildren of you making a $100,000 Roth IRA conversion, living for twenty years, and then the money eventually going to your grandchildren, over your grandchildren’s lives, they will be better off by $8.9 million. So, we’re really talking about an enormous difference, and most people don’t want to cut out their kids. Most people want to leave money to their kids before their grandkids, but what this does is this creates a very interesting option for a couple of reasons. One, you might just do relatively small amounts and have the grandchildren, or, better yet, trust for grandchildren, be beneficiary designations of your Roth IRA, and the other thing you might do, and this is what we do in our practice very frequently, is we give the children a choice. Well, okay you’ve just inherited ‘X’ amount in an inherited Roth IRA, and if you want to keep that, Mr. and Mrs. Child-of-the-Roth-IRA-Conversion, you can do so, and you can have tax-free growth for the rest of your life. Or, the way we draft these documents is, you can have that money, the legal word for it is disclaim, you can disclaim that money into a trust that was already created for the benefit of your children, that is the grandchildren of Mr. Roth-IRA-Conversion. So, we could have the choice of the money going to children or grandchildren, and we can have the children decide. And then, the other option that I like is it’s not an all-or-nothing deal, so in other words, we can have some money going to children and some money going to grandchildren, and we can even, if we wanted, not decide that today, but you can have your children decide that after you and your spouse are gone, and by the way, I like all those same choices for the spouse if the spouse is still alive. So, typically, in my estate planning, I like very, very flexible plans. But anyway, the point is if the family chooses that the grandchildren end up inheriting the Roth IRA conversions, that the benefit to the grandchildren can be $8.9 million.
Nicole: $8.9 million? That’s amazing. Now, you started out with the person could be $50,000 better, and their children could be $600,000 better, now we’re talking almost $9,000,000 for grandchildren. Now, let me ask you this. Are these numbers, does this include inflation?
Jim: These numbers are actual numbers measured in purchasing power.
Jim: They do not take into account inflation. So, in other words, let’s take these numbers, and I will admit that they might sound a little bit pie-in-the-sky, but let’s reduce that and let’s talk about the measured value if we measure the value in 2010 dollars. Alright, so the $50,908, which was the benefit to the IRA owner, measured in 2010 dollars is $28,186.
Jim: Alright, so, to round off, $50,000 becomes $28,000.
Nicole: Sure, okay.
Jim: The $608,173, which is the benefit to the children of the Mr. Roth-IRA-Conversion, that ends up, if you measure in 2010 dollars, being $160,825. And the $8.9 million, which was the benefit to the grandchildren, ends up being measured in 2010 dollars, $838,000. So, we’re still talking about enormous benefits and, again, I didn’t go through all the assumptions, all of which I consider fairly reasonable, but we’re talking about tremendous benefits for the person making the Roth IRA conversion, and the likely beneficiaries of the Roth IRA conversion, normally children and grandchildren, and then, I threw in, well, a well-drafted trust for the benefit of the grandchildren, then often leaving a child by child choice, so for example, one child might need the money and the other child might not, and then a third child might say, “Well, I want some for me and some for the well-drafted trust for the benefit of my children.”
Nicole: Well, I don’t think anybody would disagree, they’re still big numbers.
Jim: Yeah, and these are bigger numbers than we have ever had before, and now that high income tax payers are eligible, it’s just a great opportunity and a great year to make a conversion.
Nicole: Absolutely. These examples you just gave were based on a $100,000 conversion. Do you ever recommend any more than that?
Jim: Well, I should say that normally, for most taxpayers, I am typically recommending a series of Roth IRA conversions, not converting the entire amount in one year, and often, the combination of a number of years, conversions might end up totaling $100,000. So, when I use the $100,000 number, that might end up being over a series of years of, say, four years of $25,000. On the other hand, let’s assume for discussion’s sake, that you are in the highest income tax bracket, or close to it. But, let’s take the highest income bracket, which, right now, is 35%. Let’s assume that you have a lot of money both in your IRA and money outside your IRA, and let’s also further assume that you’re always going to be a high tax bracket payer, either because of your income or because of your investments or for whatever reason, that you expect to be in the highest rates, or, at least, very high rates for a long time. In that case, doing a $100,000 conversion, well, that might be nice, but it might not be anywhere near what you can get in terms of value to you and your family. And right now, and we’re actually getting this from all over the country, because my book and some of the word is getting out, so we have a lot of wealthy people from all over the country, New York, California, other people who are hiring us to calculate Roth IRA conversions, and we are, for some of these people, recommending not a $100,000 but perhaps a $1,000,000 conversion. And we have quantified some of the benefits of doing a $1,000,000 Roth IRA conversion for a high tax payer. And if you are interested, I can give you, again, I’ll skip all the assumptions, but I can give you some idea of what the benefits to a family could be if they made a $1,000,000 Roth IRA conversion if they’re in the highest tax brackets.
Jim: Alright, now, understand that this is assuming that you’re making the conversion in the year 2010, because that way, you’re making the conversion at the 35% bracket, not 39.6% which it’s going to be next year, and not 43.4% which is what it’s going to be in 2013 after the health reform surtax kicks in. But anyway, if you make that Roth IRA conversion of $1,000,000, let’s say, in 2010, you’re in the top bracket, the savings to you, again, not your kids, but to you, could be $933,000.
Jim: So, this is like a “rich getting richer” idea, but that’s not a bad thing, particularly if you’re a high income individual. Then, we did the analysis before, we said we’re not likely to spend it all, and it’s likely that a lot of the money will end up going to our children, if again, your family’s in the highest tax bracket, you make a $1,000,000 Roth IRA conversion, your children can be better off by $8.9 million. These numbers are out of sight.
Nicole: They’re enormous.
Jim: And then, are you ready for this?
Nicole: Yes, what about the grandchildren? Drum roll, please!
Jim: If we skip the kids, the benefit to the grandchildren of you making a $1,000,000 Roth IRA conversion, assuming the family’s going to be in the highest tax bracket, could be $122,000,000.
Nicole: Oh, I was going to guess, but I wasn’t going to guess that high!
Jim: So, we’re just talking about some out-of-the-ballpark numbers. And by the way, all these numbers are conservative if tax rates go up again. So, they might sound a little bit pie-in-the-sky, but again, this is based on existing tax law, and if tax rates go up even more and you lock in the benefits of a Roth IRA conversion at the lower tax rates of 2010, the benefits will be even greater.
Nicole: Now, when we did the $100,000 conversion example, I asked you the question about does it include inflation. Do you have those numbers for the $1,000,000 conversion?
Jim: Yeah, I do.
Nicole: What are those?
Jim: Alright, so let’s say you do the $1,000,000 conversion and the IRA owner themselves is better off by $933,000. Alright, again measured in 2010 dollars, it ends up being $516,000. The child that had the benefit of $8.9 million ends up at $2.3 million if measured in 2010 dollars. And the grandchild that we said had a benefit of $122,000, that is, the grandchildren of Mr. Roth-IRA-Conversion, are better off than the grandchildren of Mr. Status Quo by $122,000,000, if you measure that in today’s dollars, it ends up being $11,400,000. So, of course, they’re not nearly as much, but they are still extremely beneficial, given all the assumptions that we didn’t go through, because otherwise, people would just be bored to tears. But, I think that the point is that there can be enormous benefits, and probably even bigger benefits for wealthy, high income tax payers.
Nicole: Alright, this is another good spot to stop. We’re going to take a quick break. We’ll be back in 90 seconds. Thank you for listening. You’re listening to the Lange Money Hour, Where Smart Money Talks.
Nicole: Alright, we’re back. This is Nicole DeMartino, and I’m here with James Lange, CPA/Attorney and best-selling author of “Retire Secure!” Thank you for joining us. Jim was just finishing the benefits, the incredible benefits, that IRA owners, their children and their grandchildren can receive doing the conversion. Now, with all of this new analysis, Jim, I mean, this, to me, is so beneficial to anyone who owns a retirement plan, right?
Jim: Yeah, it is, and sometimes, some of these fantastic numbers that I’ve been talking about, also, the numbers aren’t as big, but even for people who are in the middle income tax brackets, they will certainly benefit from Roth IRA conversions, typically, a series of conversions over a number of years.
Nicole: Okay. So, again, this is such a value. Have you implemented this new information in your public workshops we do every month?
Jim: Yeah, I’ve been changing the workshops almost continually in some form or another. All the new analysis that takes into account the repeal, or the sunset, of the Bush-era tax cuts, as well as the health care reform surtax, is included in that analysis of the workshops that I do, both for financial advisors throughout the country, as well as the local workshops that we are doing for our office, and also for the workshops where I am invited to speak.
Nicole: Okay. Now, it’s my understanding, I haven’t been with you this long, but I understand you’ve been doing these workshops for years?
Jim: Yeah. I have, for a long time, been a big believer in maximizing what an IRA or retirement plan owner gets by doing the right and smart thing with their IRA and retirement plan. Roth IRA conversions are one strategy, and we’re talking a lot about that these days, but there are certainly a lot of other very relevant strategies for Roth IRA conversions, including estate planning, and I’ve been doing these workshops for years.
Nicole: That’s what I hear. So, if you look back over the years, has your audience changed? Have you noticed any difference of who came then and who’s coming now?
Jim: Well, it’s kind of interesting, because I’m doing them in somewhat the same areas, and you would think that I would, in effect, exhaust an area.
Jim: But that actually hasn’t happened. Right now, we’re probably getting the best attendance that we’ve ever had…
Nicole: Oh, yeah, absolutely.
Jim: …in terms of numbers and percentages, etc. The other thing that is different is we are getting a higher income, higher net worth type attendee, because I think, in the past, a lot of people, particularly people who have been doing pretty well, you know, that hear somebody say, “Oh, come to my financial seminar.” And they go there, and they get a meal, and maybe they don’t walk away with a lot of great information, so they weren’t as disposed to going to these types of things. Well, now, I think, the word has gotten out that we give a, it’s really a very substantive workshop. I would say it’s maybe 95% or 98% content, and then there’s a couple minute pitch at the end, but it’s very solid material that actually speaks to people of middle and high net worth. So, we’re getting higher net worth, higher income taxpayers. We’re also getting people with multi-million dollar investments, because they’re starting to say, “Hey, I can make these strategies happen for me! This isn’t just something theoretical. I can go to this workshop and if I qualify, and under the right circumstances go see Jim, get his advice and make this a reality.” We’re actually doing very well, both in terms of the number of people attending these workshops, and the caliber of attendee that we are getting, both in terms of income and in terms of net worth.
Nicole: Well, if I may add, I think that people really appreciate the objectivity of this information coming from you, and, like you said earlier, it is peer-reviewed.
Jim: Well, it is peer-reviewed, and I get a lot of people who like to challenge it, and that’s fine.
Jim: Like I say, I’m not here to sell Roth IRA conversions. I don’t make a nickel if somebody does or doesn’t make a Roth IRA conversion. What I’m basically saying is, I’m a number-cruncher. I, with the help of Steve Kohman in my office, have crunched these numbers, and based on our analysis, we can come up with what we think is the ideal Roth IRA conversion plan. Now, the workshop is more or less, let’s say, a more general, that is, it’s not specific to one particular person, which is what we do when we see people in person, but we present concepts and analysis that people relate to. So, I think it’s a good thing to become educated, and then, if appropriate, then to work with the appropriate advisor to get this kind of advice, and I actually think that everybody, even if you end up going through the process and maybe you’re not a great conversion candidate. For example, somebody towards the end of their career, who is in a high income tax bracket now, but will be in a low income tax bracket very soon after they retire, well, that would be a good candidate for somebody to do a conversion later and not now. But, it’s really important, I think, for everybody with a significant IRA or retirement plan to have some type of long-term Roth IRA conversion strategy even if the strategy is to do it later, or for some people, it just doesn’t make sense, but it should be on just about everybody’s radar to come up with a strategy, even if the strategy is to do it later or not at all.
Nicole: Sure, and I’ve sat through the workshop. It is objective information, and when you leave, you are empowered. You know, you’ve learned something that can help you in the long run, and that’s what’s important. It really is.
Nicole: Alright, in addition to the workshops that we do for the public, I’m well aware that you’re traveling around the country talking to financial advisors, because, obviously, they need this information too. They should actually have it first. And I understand that your price tag, drum roll, is $10,000 a day. But, you’re absolutely worth every penny, and what can you tell me about the difference between the presentation you do for the advisors as opposed to what you’re giving the public for free?
Jim: Well, I hate to say this, but the public usually gets a better shake than the advisors who pay me $10,000, and the reason is because I have more time, typically, with the presentations that I’m doing for the public. It’s a two-hour workshop. We do give people a break in the middle. And the two hours flies, you know, I was told to never give more than a one-hour talk, nobody will ever come, but the problem with a one-hour talk is I can’t get as much information as I want. Now, usually, when the professionals hire me, they’re typically hiring me to do more than one talk in a day, but only for an hour. So, it’s the same information, but not as much of it. And what I have found is that many of the financial advisors do not have great sophistication with Roth IRAs and Roth IRA conversions, so I’m explaining some of the basic concepts. I didn’t go through, for example, the concept of measuring and purchasing power on this radio show that I do in the workshop, and I didn’t go through certain, let’s call it, fundamentals about IRAs and retirement plans, but I would say that it is not greater in scope. Some companies, now, this is the exception, not the rule, some companies are really interested in educating their workforce or their sales force, and some companies, and I think they’re smart, instead of hiring me for a one-hour gig, or perhaps two or three one-hour gigs in the same day, they are actually hiring me to give detailed eight-hour talks to their advisors. And I actually, interestingly enough, the way I look at it, I love doing the workshops. I really do. I like the public ones, I like the private ones, I would prefer to do an eight-hour one, even if I was paid the same money, than to do a one-hour one because I can really do my stuff.
Nicole: Right, you genuinely want to give out the information.
Jim: And I like that. Other ones, I just did a four-hour one not too long ago, and that was satisfying. But right now, these workshops are in great demand. I’m able to command that money, and I enjoy doing it. The only thing that I don’t like doing is the travel part, because the aggravation of travel and then plus, I’m away from my wife and my daughter.
Nicole: Sure. Well, as most of you know, I’m Jim’s marketing director, so I’m witnessing the boom of all the interest that’s coming though the door. I mean, we are getting very busy, and a lot of organizations are calling us to book Jim as a speaker. Like I said, Jim loves doing the workshops. Well, I think we’re at the end of our hour already. You’re surprised, aren’t you?
Jim: I had so much more information!
Nicole: We’re at the end of the hour, and I do thank everyone out there for listening to us today. We’ll see you back here in two weeks, and this is Nicole and Jim saying goodbye. Bye-bye.
James Lange, CPA
Jim is a nationally-recognized tax, retirement and estate planning CPA with a thriving registered investment advisory practice in Pittsburgh, Pennsylvania. He is the President and Founder of The Roth IRA Institute™ and the bestselling author of Retire Secure! Pay Taxes Later (first and second editions) and The Roth Revolution: Pay Taxes Once and Never Again. He offers well-researched, time-tested recommendations focusing on the unique needs of individuals with appreciable assets in their IRAs and 401(k) plans. His plans include tax-savvy advice, and intricate beneficiary designations for IRAs and other retirement plans. Jim’s advice and recommendations have received national attention from syndicated columnist Jane Bryant Quinn, his recommendations frequently appear in The Wall Street Journal, and his articles have been published in Financial Planning, Kiplinger’s Retirement Reports and The Tax Adviser (AICPA). Both of Jim’s books have been acclaimed by over 60 industry experts including Charles Schwab, Roger Ibbotson, Natalie Choate, Ed Slott, and Bob Keebler.