The 4 Phases of Retirement with John Paul Ruiz

John Paul Ruiz brings over 27 years of experience in the retirement and financial services industries. Before joining Entrust, he served as Vice President of Professional Development for Integrated Retirement Initiatives, LLC.

John Paul has valuable retirement plan insight from his roles at Ascensus, the IRA Institute, and American Bankers Association, among others.

In addition to his extensive career in the industries of retirement and finance, he holds QKA and CISP certifications. John Paul ensures the Entrust team remains compliant with ERISA regulations and uses his impressive retirement industry knowledge to help us better serve our clients.

Episode Highlights Here:

John:

Getting this money out means it produces taxation because they know that there’s $38 trillion in there.

Pierce:

When you have self-directed like, in you want to grow your wealth, yep, basically tax-deferred, but then you’re taxed like when it comes out like, it almost seems more advantageous for the government to do that because you’re growing more. And then, as you’ve grown right, you’re gonna, get taxed more on the back end because you’ve increased your brackets and all that kind of, stuff. It’s almost like getting taxed on the harvest, not the seeds. So can you speak to that a little bit?

John:

Yes. Well, that’s why it’s okay to speak on your point first, right? There are over $38 trillion in retirement plans today are over $14 trillion in IRAs, and steadily increasing. Why is that because a lot of people bank their money away in employer-sponsored plans, like your 401 K plans, your Sep plan Simplified Employee Pension plans? Sorry, I’m sorry, simplified, I’m sorry, simple plans, 403. B plans, governmental 457. B plans. And anytime you have a workspace environment that has an employer-sponsored plan, it allows you due to postpone or defer the taxation that you have. That’s why the government likes it. Why because number one, Social Security is pretty strange right now; eventually, they were trying to mitigate risk or mitigate the amount of damage that’s going to happen with seven 8 million, what we call baby boomers born between 1946 and 64, a little bit of history, and that that’s why they passed a law called ERISA that snowballed a lot of these retirement plans that we’re experiencing today. But it’s. Eventually, they knew that they were going to be taxed in these dollars. Right now, last year, Richard Neal, the head of the Health Committee, Health, Education, Labor, and Pensions, was just trying to introduce some laws that could speed up the process of getting this money out. It’s like what you’re saying, getting this money out means it produces taxation because they know there’s $30 trillion in there. But we do have a magic pill on that because Senator Ron, in 1997, when he passed the tax, when when the law called the Taxpayer Relief Act of 1997 was passed, it created a brand new account called the Roth IRA, which was, a matter of fact, the HELP Committee doesn’t like a lot because there’s still taxation, right. And I mentioned when we were conversing before we started a podcast that distribution of those assets will eventually be tax-free, you know, it’s a little bit there. It’s exciting, man. Imagine if you had a piece of real estate under your retirement plan; some of your listeners might not know that you can hold a piece of real estate. In your retirement plan, not only is the rental income not being taxed but it’s received by a tax-deferred account. Eventually, once they’ve had that particular account for five years, they reach age 59 and a half-dead. We don’t want that to happen. But it could happen, right? I mean, your beneficiaries wouldn’t be enjoying that. That’s why I volunteer to be a beneficiary of Iraq. And last but not least, that was a joke. And last but not least, if they become disabled, you know, some people as they get older, their health starts to dwindle. Imagine if you become disabled before reaching age 59 and a half.

John:

When you like, Wouldn’t you like all your retirement finances to be strictly distributed tax-free? Yeah, absolutely. For Roth. In other words, so those are the types of conversations and kinds of questions, you know, like brave conversations, people need to ask themselves, is this thing called a tax-deferred account still working for me? Because it reduces taxation. But eventually, you’re going to get taxed on it, prolonging your agony. But there’s another solution to that. And that’s what we call a race. With the help of their tax advisors and their legal advisors, they can determine how much to contribute to those as well as they can even do what we call conversion; a conversion is not a spiritual experience. But it could be because they can take those assets that have never been touched before, talk get taxed on it in the year that they put it to the Roth. In other words, they can move that to the Roth now, just speaking to speak to what you just said about, well, they’re going to be in a higher bracket. So we don’t know what bracket system we’re going to be in. As a matter of fact, in December of this year, oh, November of this year, we’re going to have another election, you know what that means? New ideas are coming in, and everything again could change. How would you like it if you had the magic pill that even if they changed the tax law, distributions that are going to be tax-free would never be affected again by any changes they do? Yeah, that’s why that Roth is very important. are the four different levels of taxation an individual could be subject to when they take money out of an IRA an example? And what are those? The federal tax? If you live in a state that has state income tax which I do, you know, I used to live in Minnesota as well. I mean, that Don’t get taxed up with the, you know, they have two seasons to fund winter and road construction. So you have a federal tax state tax, and also this other thing called the federal estate tax people that are high net worth, and you know, they’re starting to dump assets. If we take money out of an account, it’s never been taxed before. Well, can you truthfully say that you’re gifting that amount of money to somebody else? The answer is no. Because every time we take money out, you know, it increases the level of your taxation. But imagine if that was in a Roth IRA, that the growth has been growing under the Roth. And eventually, when you say, You know what, I’ve accumulated so much wealth, which is not a bad problem, I’d like to give some of that money to my children today, imagine distributing it tax-free. And it’s not going to affect any of your taxation for that year, as well as individuals who are reaching that age where they’re in collecting what we call social security. I don’t know if you know this, but social security is generally not taxable if your taxable income does not exceed certain thresholds. It’s around $36,000 for married couples filing a joint tax return. And it’s around 25,000 to 26,000 for a single filer; if your taxable income does not exceed those particular financials, well, your social security income is that tax. Imagine taking $100,000 out of a Roth IRA tax-free; what is that going to do to your Social Security? He’s not going to do anything. In retirement plans as well, when somebody reaches a magical age of 72, they have to start taking what we call minimum