Episode 011:
Roth IRAs May be the Greatest Tax Benefit to Retirees


Episode 011 Summary:

You’ve heard it before: Timing is everything. On this episode of The Retirement = Freedom Podcast we’re learning about the ins and outs of the Roth IRA and why it’s such a fantastic savings tool, so long as its executed correctly. Host Josh Bretl gets into the finer points of tax-deferred versus tax-free distributions, what conditions must be met to make Roth contributions and the peace of mind that can come from leveraging the option. It’s one of the few vehicles that we can count on to maximize savings while minimizing future tax burden.

Like all things financial planning, the timing of when to contribute is highly individualized and has to be part of a broader strategic approach. With help from his fearless sidekick, Dave Schmidt, Josh teases out some of the specific benefits Roth IRAs confer, even after death, and also how they work as a potential investment opportunity in down markets like the one we’re in today.

Finally, you’ll learn why the Roth IRA offers a tremendous hedge against future taxes and why income earners who plan now can enjoy peace of mind (and generous post-tax distributions) later on in retirement. (And, no, Dave. It’s not the same thing as hoarding TGI Fridays rewards points that actually belonged to the friends who paid for your high school burgers and fries!)

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Quotable Quotes

“Here at The Retirement = Freedom Podcast we’re all about the mindset change that it takes to thrive in retirement. It’s fun to talk about!” ~Josh

“We refer to the Roth IRA as the single biggest gift granted to taxpayers by the tax code.” ~Josh

“Inside a traditional IRA, all that money is growing tax-deferred, but when you take it out you’re going to pay taxes on it ... Those distributions being tax-free is the true key to all of this.” ~Josh

“When Josh calls me financially illiterate, he’s legitimate. That’s what I am.” ~Dave

“I've closed down banks. I've closed down TGI Fridays. I've closed down Bruegger’s Bagels…Oh, my goodness!” ~ Dave

“Everyone wants to have a safe and secure retirement. Everyone worries about the stock market. But taxes are another thing to worry about.” ~Josh

“The Roth is one of the very few ways we have available to us to take that tax worry off the table ... but we want to be sure we’re optimizing for your particular situation.” ~Josh

Episode Extras

"The Psychology of Money," by Morgan Housel. Good for anyone in the savings journey.

R=F's new private Facebook group. Come hang out!

Don’t miss out on our staff java pick: Cometeer Coffee!

About your Co-Hosts

A certified public accountant, Josh Bretl has spent the past two decades growing FSR Wealth Strategies into a firm that specializes in tax-focused retirement planning. Because taxes have the single biggest impact on how much you can spend in retirement, Josh is dedicated to developing individualized financial plans that extend and grow his clients’ retirement savings. Based in Elmhurst, Illinois, FSR Wealth strategically preserves and maximizes resources through tax-efficient strategies designed to fulfill retirement dreams.

Apart from producing and co-hosting The Retirement = Freedom Podcast, Josh's longtime friend Dave Schmidt is a content production and marketing adviser to local businesses and nonprofits. He’s also an advocate for t-shirts, all things 90s (especially the music), short walks and long naps. A serial “wallet forgetter,” Dave nonetheless swears that he has picked up the check on at least one or two meals with Josh over the years. Evidence pending.

Standard Disclaimer:
FSR Wealth Management is a registered investment advisor located in Elmhurst, Illinois. Information and opinions contained in this audio have been arrived at by FSR Wealth advisors. All information herein is for informational purposes and should not be construed as investment advice. It does not constitute an offer, a solicitation or recommendation to purchase any security. FSR is not providing legal, tax, accounting, or financial planning advice in this audio. These views are as of the date of this publication and are subject to change.

Key Takeaways

  • About late nights, Josh’s presentation on Morgan Housel’s "The Psychology of Money" and torturing Dave’s dad with tail wagging.
  • Fun Fact: The episodes during which the co-hosts actually consume Cometeer Coffee generally triple in number of listeners! #NotNecessarilyTrue.
  • At the Six-Minute Mark: We’re dialed into the topic at hand. Roth IRAs (arguably the most misunderstood of financial instruments) and the gift they keep on giving!
  • Defining the Roth IRA:
    • Named for a senator, it was first introduced in 1997.
    • Virtually identical to a traditional IRA, but with a significant shift in taxation.
    • Money that goes into a Roth IRA has already been taxed, thus grows completely tax-free.
    • Nothing to pay on the proceeds you eventually withdraw.
  • Three ways to put money into a Roth IRA (only one of which most people are aware):
    • Contributions directly from earned income, which are capped at:
      • Married couples must earn no more than $200,000.
      • Singles $100,000.
    • Conversions of funds from a 401K or traditional IRA into a Roth IRA (at which point the money is taxable).
    • Backdoor Roth: Taking money into a traditional IRA account, not taking a deduction and then moving it over into a Roth IRA.
  • Side Note: When it came to basketball, was Josh really as agile as a mongoose? Discuss amongst yourselves.
  • The best part of banking money inside a Roth IRA? It grows tax-free and future distributions come out with no taxes owed.
  • No required distributions and, under current law, if you die the money can continue to grow tax-free on behalf of heirs for up to 10 years.
  • Laws change, but once the money is safely tucked into a tax-protected Roth IRA there are no more worries about being taxed retroactively if your household income exceeds a certain cap.
  • Right now, with markets down and assets depressed, the spring is compressed going into a Roth IRA. But as the market comes back up the spring will expand and all that future growth will occur tax-free.
  • Whether you have a traditional or Roth IRA, you can invest in exactly the same things. The only difference is taxes.
  • Why a mix of both types of IRA can be advantageous from a tax perspective, depending on state tax laws and other factors.
  • Cue the Jingle: Dave Relates to Retirees by recalling a TGI Fridays rewards program in the ‘90s through which he racked up a huge number of points on everyone else’s tab – subsequently cashing them in while courting the woman who would become his wife. Roth IRA-style strategic planning brilliance, no? Uh, not exactly, as Josh explains.
  • A vast number of people who come into Josh’s office are not taking advantage of the Roth IRA tax advantage anywhere near as efficiently as Dave exploited the TGI Fridays rewards program option!