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Current Trends in the Million-Dollar IRA World
by James Lange, CPA/Attorney
Dan Kennedy likes to say look at what others are doing and do the opposite because most people are broke. That may apply in many areas, but most of the people I have been meeting with lately usually have at least a million dollars in their IRAs and retirement plans.
Of course, million-dollar IRA owners are just one segment of the population and the ones who are attracted to doing business with me are a teensy-weensy subset. In addition, this isn’t even close to a scientific study. But I am now working with IRA owners from all over the country so at least I have a geographically diverse group to comment on.
Hardly Anyone Spends What They Can Afford to Spend
One thing that I am seeing that is old news as far as I am concerned: people refuse to spend enough money—on themselves, on their families, or on charities they care about. We go through the numbers, tell them how much they can safely afford to spend, and they never spend anywhere near that much.
Loosen the purse strings. Spend more money on yourselves. Help your kids when they are younger, and they need it. Give more money to your favorite charities. Don’t let it just sit there waiting to be taxed to the maximum at your death!
One of the most significant advantages of paying for services—as I do for a personal chef, personal trainer, valet, etc.—is buying time. I get to do the things I like to do instead of the things I don’t like to do. For some reason, this seems to be a very hard sell. So, that is one trend that I have identified. Where are you on that scale?
Here is another one. While some people are really charitable, most people are not overly generous or at least don’t report generous contributions on their tax returns.
It is easier to be charitable when you are planning for your estate. I never know if I should push people to be more charitable when they do their estate plan. Usually, I think my role is to help clients realize their dreams, not my dreams for them. I like to point out possibilities to expand their dreams. I will admit to “interfering” if I think a spouse or kids are being underprovided for.
If you consider yourself a charitable soul but are afraid to be charitable because you fear running out of money yourself, consider being charitable when you plan your estate. I did a talk for Pittsburgh Planned Giving Council. Their vision is a community where every individual leaves a legacy through philanthropic estate gifts.
For people who are afraid of running out of money for themselves or their spouse, consider leaving a charitable bequest from your IRA (remember “Who Gets What?”) at the second death.
Whether the kids inherit $2.1 million or $2 million, probably isn’t going to change the trajectory of their lives, but that $100,000 to the appropriate charity could be very meaningful.
On the other hand, I am also meeting people who are very concerned with charity. When I first starting writing about charitable remainder trusts as beneficiaries of the IRA after the SECURE Act, it wasn’t necessarily my objective to drive more money to a charity. In many cases, it was good for the family even without charitable intentions. As we ran more numbers for clients, we found for many, if not most families, charitable remainder trusts as the beneficiary of the IRA were not a great strategy if there was no charitable intent. But many IRA owners have showed significant interest. Also, many are actually stipulating smaller payouts to their children than is allowed by law and larger portions to charity.
Scared to Death of Taxes on IRAs
Granted my sample is somewhat skewed because reducing taxes on IRA withdrawals, both while alive and after death is the reason many IRA owners are attracted to doing business with our firm. IRA owners overall, however, are extremely concerned about taxes. Practically everyone thinks taxes are going up. And I agree. My recommendations for Roth IRA conversions, and 529 plans and gifts that will be invested tax-free are on a lot of people’s radar these days.
The Covid Freeze
People have been holed up and not spending money. My crowd has not been doing much traveling, though supposedly airlines are doing well, and the summer travel season is picking up. But many people have put bigger plans on hold. Even though we have a seller’s real estate market, at least my clients seem to be staying put, even if they had plans to downsize or move into a retirement community.
There was also an interesting article in the New York Times on Monday, April 19, 2021. It was called A Fable For Our Times. It offers a good lesson on how irrational most of us are when we are assess risk. “We often underestimate large, chronic dangers, like car crashes or chemical pollution, and fixate on tiny but salient risks, like plane crashes or shark attacks” and we also treat new risks and enduring risks differently. The point is made that many vaccinated people “continue to obsess over the risks from Covid — because they are so new and salient.” But the article also suggests that slowly overcoming our irrational fears will help us return to normal. It might be a bit psychologically difficult at first but reaching out to friends and family who have also been vaccinated is a step in the right direction.
Changes in the Way People Do Business
I don’t think we will ever return to the way it was. People have become much more open to doing business over Zoom. As I mentioned earlier, most of our new business is from all over the country. Most of our new clients have been following me for years, but never seriously considered doing business with me. They wanted to go into an office, whether it was a CPA firm, an investment firm, or a law firm, and personally meet the people they are trusting for such critical roles in their lives.
Now, even if someone lived next door to our office, we would most likely see them on Zoom. So, if you aren’t going to see your advisor, attorney, etc. in person, what is the difference where they are? People appreciate the convenience. They like not having to travel to see me. They like not having to even go downtown in the city they live in.
For employees, including many of my employees, it’s much more convenient to walk 10 steps to a home office, turn on the computer on and start working, than it is to drive to our office. Even post-pandemic it will continue to be seen as a time and money saver. I prefer in-person meetings, workshops, etc. to Zoom meetings, but not at the risk of infection.
The Success of Our Webinars During Covid
For much of my career, up until maybe a year ago, probably 80% of my clients came from or at least originated in Western Pennsylvania. I do have a national reputation, but business primarily came from people who were referred to me in Western Pennsylvania or who attended one of my in-person workshops. That worked amazingly well for over 20 years—hold a workshop, meet people, and if we’re a good fit, we do business together.
Then the pandemic hit. In-person workshops stopped. So, we diversified to webinars. I built on my standard format and then added to it. We ended up with a format that has been hugely successful. Over two days, we offer two hours of estate planning, two hours of retirement planning, two hours of Q&A with me, and then two hours of Q&A with me, Larry Swedroe, a top investment guru, and Adam Yofan who manages the money for many of our new clients.
Anyway, we’re getting a lot of business. New asset under management business is booming. In addition, many people from all over the country are choosing our firm to develop financial masterplans. A service we offer our assets-under-management clients for free, but which we charge $10,000 for if it is a stand-alone request. Though we added one CPA to the staff to help with these financial masterplans, we are about to hire another one and will likely need another one or two more.
Who Gets What?
People are loving “Who Gets What?,” the details of which I have featured in a previous newsletter, click here.
The gist of it is to leave IRAs to charities and after-tax and Roth IRAs to individuals. For non-charitable purposes, consider your heir’s tax brackets—in some cases, it pays to have heirs get different assets.
Maybe I shouldn’t even admit this, but back when I was single and I was doing a will for myself, I thought, well, I’d like to make a $100,000 bequest to Sierra Club. Every time I updated the will, that bequest just stayed there as written, even after I was married, and we had Erica. And then I thought, “I’m advising people to consider the tax ramifications of who gets what and how was I leaving a $100,000 to charity? I left it with through my will meaning I was leaving after-tax dollars to the charity. It should have come from my IRA all along.
Our Next Book—Expressly for Professors—Is in the Works, and Nearing the End
I’m working on the book that I think will be the best retirement and estate planning book for university faculty. It’s a book I probably should have written 10 years ago, but at least I’m getting around to it now. It will have the best of Beating The New Death Tax, our most recent book, some of my most recent recommendations, and a lot of material that is unique to faculty. I have also framed the concepts and strategies for professors. I am excited. We just need to figure out the best way to reach our target audience—faculty who are close to retirement or in early retirement. But we are working on it. Obviously, you will be the first to know as soon as it is done!
Personal News from Jim Lange
A Stolen Season
In the movie Shakespeare in Love (which I highly recommend), Viola (Gwyneth Paltrow) says to William Shakespeare, (Joseph Fiennes) this is a “stolen season.” Her parents were away. She is sleeping with Shakespeare every night. Then she gets up to rehearse Romeo and Juliet during the day. She knows this great period won’t last and just wants to enjoy it to the max now … living in the moment as we are frequently encouraged to do.
That is partly how I feel about life right now. As we are coming out of the pandemic, I feel like my immediate family and I are in a stolen season. First, my whole family is finally together, which is wonderful. We are all fully vaccinated. Cindy and Erica are with me, and we have been happy together. Erica has had two very happy 10-day stints in Boston with her boyfriend which gave Cindy and me, in effect, two 10-day honeymoons and that was great. Now we’re all together again. By the time you read this newsletter, we will be in California together until the end of June and then return to Pittsburgh.
An Update on E-bikes
I am updating my recommendation for e-bikes. I’ve been saying for a while that the serious cyclists who want to go out and bike 60 or 70 miles and cover 5,000 feet of elevation, should get a kit bike—that is modify their road bike with a specialty kit or buy a bike with the idea of assembling an e-bike from a kit.
But now I prefer a dedicated e-bike with the large battery. What I was slow to realize is that you can get as many auxiliary batteries as you want and just carry them with you. When one of the batteries is out of juice, just swap it out with another one. You must carry them, but with the e-bike, the additional weight is not an issue. You can double or triple your capacity and it can significantly expand the length of the ride.
So, for example, I used to do a loop of about 40 miles with 3,000 feet of climbing and that was a tough day for me. With the e-bike, you can double the mileage, elevation, and see more! It’s one of the win-win-wins I love to talk about.
Learn more at: https://PayTaxesLater.com/lagcpa
One of the best things about having a great business with happy clients is that we continue to grow. We know from our past experiences that recommendations for potential employees from our clients are extremely valuable. If you know of someone who you feel would be a qualified candidate, please share. Thank you for your help!
Exciting Job Opportunity for an Ambitious CPA
Ambitious and experienced full-time CPA is needed for a thriving Squirrel Hill CPA/Law/RIA firm. Candidates need strong 1040 preparation skills and must be willing to learn how we “run the numbers” to provide our clients with optimal financial/retirement master plans. See https://PayTaxesLater.com/lagcpa for details.
Mustard Greens with Grilled Salmon
Prep. Time: 25 minutes
Cook Time: 10 minutes
- Juice of 1 lemon, plus grated zest of ½ lemon
- Juice of 2 limes, plus grated zest of 1 lime
- 2 ½ tablespoons extra-virgin olive oil
- Sea salt and freshly ground pepper
- 1 to 2 large bunches of mustard greens, roughly torn― kale or turnip greens may be substituted for mustard greens
- ½ cup parsley leaves
- ¼ small red onion, thinly sliced
- Coconut oil, for coating grill
- 1 tablespoon Dijon mustard
- 4 (4 to 6 ounce) boneless, skin-on wild salmon fillets
In a small bowl, whisk together the citrus juices and zests.
In a separate small bowl, prepare the dressing by whisking together 2 tablespoons of the citrus mixture, olive oil, ¼ teaspoon salt, and a pinch of black pepper.
Please the greens in a large bowl, add the dressing, and gently massage the greens with your hands until the salad has wilted to almost half its original size, 2 to 3 minutes. Stir in the parsley and onion and set aside.
Prepare the grill for medium to medium-high heat, or heat on a well-seasoned stovetop grill pan over medium-high heat. Lightly coat the grill or grill pan with coconut oil to prevent sticking.
In a small bowl, whisk together the mustard, remaining citrus mixture, and ¼ teaspoon each salt and black pepper. Using a spoon or a brush, spread the mustard mixture over the flesh side of the salmon fillets. Place the salmon fillets, skin side up, on the grill or grill pan. Cook to the desired doneness, 4 to 5 minutes per side.
Divide the salad among 4 serving plates, place a fillet on each plate and serve.
Lange Employee Spotlight: John Montoya, Esq.
A Very Special Addition to our Lange Family
We’re excited to report that at 7:50 p.m. on March 31, 2021, John and Lindsay Montoya welcomed Edmund Thomas to the world.
At 7 lbs., 15 oz. and 19.5 inches, Edmund is a healthy and happy baby boy. Mom and Dad could not be happier.
John Montoya, Esq., has been practicing law with the Lange Legal Group since 2017, focusing his practice on estate planning and estate administration with a strong emphasis on retirement benefits. Our clients especially value John’s flexible approach, helping families to proactively plan for the benefit of future generations.