This week on The Money Puzzle Podcast today’s we share a story of a client who if they would have sought advice from a professional, could have ended up better off in the long run. You can have peace of mind knowing that your money/retirement is in the safe hands of a professional that has your goals in mind. Enjoying life without that added stress of financial planning is priceless.
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Speaker 1 [00:00:05] All right. Welcome to the Money Puzzle. I am Brian Ramsey, and that is not Chris Bowen. That’s no Harry McAndrew and that’s still Eric Douglas. And we’re still the money puzzle and we’re still in our new digs. So you’ll be seeing this quite a bit as we move forward. It’s pretty cool. It’s actually nice and fluffy, although when we first put it all together, we we put it all up on the wall. It came in the next day and it all fallen off the wall.
Speaker 2 [00:00:28] Didn’t didn’t look quite this good now.
Speaker 1 [00:00:30] So now we submitted it to the wall and. Well, no, we didn’t, we didn’t know we promised Viking, we didn’t do that. But no, we got to stick up there this time. So anyway, last week we talked about the old 6040. So the 6040 kind of terminology risk in a portfolio. If you want to check that out, make sure you go to our website or go to actually better yet go to YouTube and Google or search the money puzzle. And then when you find it hit subscribe. And that would be awesome because we are trying to reach our goal. I’m not going to tell you what that is. We’re a long way away from it, but be way to subscribe. We’d appreciate that this week we’re kind of talking around some ideas and we said, okay, what is it that is relevant or what’s been happening in our office? That is a good example of something to talk about, right? So Aaron and I happened to meet a prospect. They came in, called us and said, you know, I had been watching your show and we want to come in and we want to chat.
Speaker 3 [00:01:28] Actually got referred to us.
Speaker 1 [00:01:29] Yeah. Got referred to us. Yeah. Yeah. And so, so we came in and what we thought we’d do is just sort of walk you through and this has a lot of dynamics to it. And so we thought we’d walk you through it and we’ll just kind of pick out a couple of the components that we walked through that were really interesting, and we’ll talk about how we sort of addressed it and how we handle it on a regular, regular basis with clients. And then, yeah, so that’s how we’re going to do it. All right. So why don’t you set the stage on without giving too much detail over once you once you set the stage on exactly what the conversation was or what her pain point was, her pain.
Speaker 3 [00:02:13] Point was that she received a letter from the IRS basically saying that she owed a significant amount of money. And what had happened was somebody had close to her, had passed away, not a family member, and she had inherited a portion of his IRA at the time. So where she was, they set up a which they should have done. They set up a beneficiary, IRA, which we were kind of concerned about that at the beginning. And so we confirmed that it was set up as an inherited IRA. She did. They did set that up. So they put the money into that beneficiary account. But at some point there was some kind of disconnect because it showed that amount being put into an inherited IRA, but it also showing the entire amount is being taxable. So we’re trying to help figure that situation out there. So she didn’t have a massive tax bill at the time. What was ironic at the time, which you and I really thought this was really strange too, was because she had been taking her required minimum distributions for the last couple of years out of that account, or at least a year and a half of that count since this is this had happened. And like normal, she would have to pay taxes on that money, too. So she gets the IRS tax bill saying she owes taxes on the total amount that was rolled over into a inherited account. And now she’s turned around and paying taxes on the distributions like she should have to pay taxes on the distributions. That’s that part’s correct. But the mistake was the major tax bill here. But it’s not necessarily it’s not the IRS fault because the IRS looks at the form at least, and it shows it as taxable income. But there was there had to be some other thing that was missing. There was a loophole there anyway. That’s why she came to us initially. That was one of the pain points. The other pain point was that she’s come into an amount of money, that she’s really admitted that I’ve never really had this type of money before, so I don’t know exactly what to do with it. Most of that money was invested. Just not even invested. Just sitting in cash.
Speaker 1 [00:04:27] Mm hmm. Yeah. So the other the other point that is is really interesting about about the case was when and this is not too uncommon. Okay. And we all know this, but which came in she was trying to do all this herself. She received this letter, didn’t understand what it all meant. And when we talk about a tax bill that to do it was not an insignificant amount. It was a significant amount of money.
Speaker 3 [00:04:54] It’s enough money to because an any any regular person would call regular any person really a lot of stress. Any person.
Speaker 2 [00:05:01] Is a six figure tax.
Speaker 1 [00:05:02] Payer. Yes. Yes. So your tax bill. Correct. That she didn’t know, by the way. Yeah. So what’s interesting is, is when she came in, she presented this to us and now we’re like, this doesn’t make sense. Is this is this not computing? So we literally while she’s in the room, we picked up the phone and we called we called the tax.
Speaker 3 [00:05:19] Preparer.
Speaker 1 [00:05:20] The tax preparer. And we were getting we were being told by the tax preparer information that Aaron and I both knew was incorrect. Fair enough to say.
Speaker 3 [00:05:32] And was the tax preparer was very adamant. Yes. That they were correct.
Speaker 1 [00:05:38] Correct. And we knew we knew this person was incorrect.
Speaker 3 [00:05:41] Absolutely right.
Speaker 1 [00:05:42] And so and so. So we basically we said we can we told her we could fix it. We said we can fix this. We know. We know we can fix it. There’s a disconnect somewhere. And we know now, after doing a little bit of research that the disconnect was where the money was moved to. There was a tax document that was not prepared properly to then send to the IRS, decode it as a rollover so she would never have owed the money. So we sort of know how it all put together. Hmm. Now that’s the story. Okay. There’s some other details in there, but that that’s kind of a story. All right. So let’s go back to what we have experienced. Let’s say over the last six months. We have run into a handful of folks that have come here and met with us that what we call Dwyer’s. Mm hmm. Right. So. Walk us through when somebody comes in and we say, Dwyer, what are we. I mean, I think most people know, but walk us through.
Speaker 2 [00:06:42] What will do it yourself. Investors, you know, they you know, we talked about this a little bit, but there’s several different phases of your investing lifetime, if you will. The accumulation phases, your first phase, you make money, yet put it away in an investment account, you save it. You try to save as much money as you possibly can and you leave it alone and you don’t touch it. And I think that there is a disconnect for most people that they think, okay, well, I’ve made it through the accumulation phase without any problems. Hey, I did actually pretty well. You know, I had some really good years in the stock market. I just put it in a few different funds and I made money and hey, this is not that hard. Why would I pay someone to do it for you or for me? There is a distinct difference between moving from the accumulation phase to the income phase you’re paying yourself. You have to think of yourself almost like an employee. You are a company and you are paying an employee. And this is not just an employee that you can fire at any time. This is an employee that you have to pay for the rest of their life. You have to ensure that there is an income stream for that employee, for, you know, and most let’s say most people retire on average with, you know, 60, 65. Right. So we have to design an income plan for 25, 30 years at least just to ensure that, you know, most people aren’t going to run out of their money. It is a different skill set than accumulation. Accumulation is. So for most people, you work for a company, you put ten, 15, 20% into your 401. K and call it a day that that doesn’t require much skill. And I think there’s a lot of people, given what the market has given us over the last decade, and we’ve had the best decade, you know, really in market history over the last well, prior to 2022, I should say. You know, but I think there’s a false sense of security that a lot of investors or DIY ers have in their ability to manage money over a long period of time. And so that’s where they come in. You know, the people think that they can do it. There’s all kinds of blogs and things you can read about online, and there’s almost too much information online. And so it’s trying to figure out, reading through the information and what applies to me, what doesn’t, what’s good information. I can rely on what’s not. And and so they they want to in order to save a few dollars, you know, they are potentially costing themselves quite a bit more.
Speaker 1 [00:09:00] Well, look, it’s no different than then this person that came in, I mean, she she decided and it was probably a good decision on both sides. Right. Right. She decided to continue to pursue this herself. And she was going to she’s going to take care of it, which will lead to another topic. We will talk about the advice of a professional, which we harp on a lot. But but I think she’s a good example. I’m just going to do it myself. And she thinks that she got the proper advice from this tax preparer. However, we know that one, it’s not correct because we want it. I’ll give it some I’ll give a little bit of context here. The person that that prepared her, I’m trying to be careful here, the person that.
Speaker 2 [00:09:46] I can say, you know, there’s a reason you’re calling this person a tax preparer.
Speaker 1 [00:09:50] Yeah, there was a tax preparer that preparers tax returns. You know, they this group of people that you could take your tax return to and have a prepared. Literally has to take an eight hour class every year and they can prepare your tax return. No accounting background, no CPA, no what they call an authorized agent. Right. They know whatever whatever enrolled agents are an enrolled agent.
Speaker 2 [00:10:20] Certainly no fiduciary responsibility as well.
Speaker 1 [00:10:23] Yeah, but nothing like that. And yet they’re preparing tax returns and this person gave her incorrect advice. But she took she took that advice. And she’s going to wind up costs herself, you know, 147,000 plus in fees. Right.
Speaker 3 [00:10:38] And it could even let’s not even talk about let’s even add this other layer to it. It could even be the fact that the institution that she is already using for that inherited IRA made a mistake on their end of it by not sending the correct form for the rollover to the IRS, which could have sparked the problem. Right. And then on top of that, the taxpayer. So continuing down the path of just doing the same thing that I’ve been doing after finding this new information out probably doesn’t usually lead to successful results in the future.
Speaker 1 [00:11:14] Yet I think one of the things that one thing that we run into. So there’s 2 to 4 things we will talk about, you know, for the time that we’ve got left. And that’s number one, which we talk about this all the time and that is really seek the advice of a professional. Now, I understand someone may say, well, that’s what she did. She went to this tax preparer and there, you know, there are national brand and blah, blah, blah. But at the end of the day, you have to know if you’re going in just to do a simple tax return. That’s one thing. But when you get hit with a major tax bill, you need to seek the advice of a certified public accountant or an enrolled agent. Okay. Those are two that have that background, that prepare tax returns for years, can go sit in front of the IRS and defend you. They’re the only two people that can do it a CPA, an enrolled agent. And you need to ask, are you a CPA? No. Are you enrolled agent? No. Then. Then I’ve got to go to somebody else that. That can fix this problem. And in fact, we referred her to a CPA, and she decided not to take that advice either. So I don’t know. I don’t know about that. But the point being that the and it’s important to note that we did refer her to a CPA. We told her we think we’re right, but we need the advice of counsel. We need the advice of a professional. We need advice in this case of a CPA, someone that can deal with the IRS directly and could defend your position knowing that we’re right and the other person was wrong. Otherwise, you’re going to get hit with, you know, whatever your tax bill is, plus penalties and late fees and everything else. And we could take care of all that. So anyway, that is something we harp on all the time is when you’re in a tough situation, don’t try to do it yourself, seek the advice of a professional. And that’s exactly what we did, which is one of the things that we do on a regular basis with our clients, is if there is a need to have a tax conversation, we do that at the end of every year. Right now it is middle of November in 2022. We are in that cycle right now after October 15th, when CPAs now become I don’t want to say less busy, but they’re not as busy as they typically are. And so they got this kind of a little bit of a lull, if you will, and they’re in their year. And so we’ve scheduled at the end of every year to have a conversation with our client and their tax preparer or their CPA or their enrolled agent is one. But we want to sit down with them and have that tax conversation because while we may know what’s going on, we need to seek the advice of a professional. So that is something that we do every single year with a client. So if you’re with an advisor that does not have that conversation and is not willing to sit down with your CPA and say, let’s have a conversation, then you pick up the phone calls and say, I want to be I want to come work with you guys because you guys will work my tax preparer and make sure that I’m paying the least amount of taxes that I possibly can. In fact, have two of those meetings this week. This is actually Thanksgiving. We I still have two of those meetings where we are sitting down with CPAs and agents, whatever it is, but having those tax conversations. So so there’s that piece.
Speaker 2 [00:14:18] Well, it just did. In her quest to save a few dollars, she’s going to cost herself far more than that. You know, you get what you pay for at the end of the day, you get what you pay for. It always doesn’t matter. The industry doesn’t matter if you’re our industry or you’re building houses, going to the grocery, wherever, wherever you do, wherever you’re going, whatever you’re doing, you get what you pay for. And that’s usually the common trait with most DIY ers is they don’t want to pay a fee to seek the counsel of a qualified professional. And that’s going to cost her a lot of money.
Speaker 1 [00:14:51] Yeah. So so just real quick, someone explain how you want to be. Take this. So in our in our puzzle. So we, we created the money puzzle. We like the analogy of having puzzle pieces and, and really one of the kind of. The corner pieces, if you will, is probably tax. We have officially said that it’s probably taxation notice because it affects you from the day you start working until the day you’re no longer here. And if you have a big enough estate, it affects you then. But sort of talk about why you think it’s that important to refer or actually get a CPA or their tax payer involved. When you’re talking about how taxes affect you, not only today, which is what which is what CPAs do. Right. They’re more historians versus looking at the future, sort of talk about how we have those conversations, how we work with CPAs to not only look for today, but to look at five, ten, 15, 20 years down the road.
Speaker 2 [00:15:47] Well, when you when you talk to most retirees, this is a question I ask most retirees. What do you think your number one expense is going to be in retirement nine times out of ten? Oh, probably health care, probably medical expenses, not. You’re wrong. It’s taxes. You will pay more money in taxes in the course of your retirement barring, you know, something traumatic, obviously. Right. But generally speaking, you’re going to be paying far more money in taxes than you will be in medical expenses during the course of your retirement. That’s when people think, oh, I’m not making as much money. I’m not going to have to pay as much in taxes. Well, it’s false. And we’ve talked about the myths of retirement. You’re still going to need the same amount of money that you lived on throughout your lifetime. So you need to have a plan to, you know, account for the taxation of your retirement income. You have to be able to mitigate that to the greatest degree possible. To your point, CPAs are historians. They look backwards and they’re usually only focused on the year ahead of them or the most recent year that has just passed. The reason why we need to be working with your I don’t want to say a tax preparer, I want to say CPA. Yeah. You know, I want to say accountant or CPA because we need to make sure that. Okay, because the decisions that we make today are going to affect next year’s taxes and the tax years beyond that, eventually the CPAs will be, you know, having to account for. So we need to make sure that they understand what’s coming and if there’s anything that we need to that maybe we don’t know about that they know is coming in the future or, you know, it just helps to have us all on the same page when we’re making decisions because you don’t want to be getting different advice from the different professionals in your network.
Speaker 3 [00:17:22] And on top of that, you know, just going back to the example we had earlier, we talked about earlier with the lady that came in to see us. If you’re using a qualified professional, whether it be a financial planner, whether it be a financial planner and a CPA, the likelihood of you getting one of those surprise tax bills in in the mail is goes down tremendously. And if you do, you already have somebody that you’re working with. Like you mentioned the CPA. They will send the letter to the IRS that will have that documentation as to why this is not true and be able to find that. So so those are those are all good reasons, I think.
Speaker 2 [00:18:00] And anything I get in the mail from the IRS, I don’t even need to look at it. I just scan it, send an email. Hey, you take a look at this, please, because I’m not going to be the one worried about that.
Speaker 3 [00:18:10] Yeah, that’s a that’s a good point, because one of her biggest things was in the entire meeting was how stressed out, how stressful this is, how stressful this is. And really, I mean, we knew looking at it that this is wrong, that this is incorrect. We just need to get the proper documentation to prove it. And she wasn’t going to owe this, but it shouldn’t even be her doing that. It’s the CPA that would communicate directly with with the IRS and take care all this for you. So it takes all that stress off of you. So now good. Another reason why to help help eliminate some of the stress that she did you have.
Speaker 2 [00:18:40] But she’s going to save a few bucks, so.
Speaker 3 [00:18:41] Right. Well, stress comes along with it, trying to do more stuff yourself. You’re put more stuff on your plate. That’s coming a lot along with that stress. Yeah.
Speaker 1 [00:18:49] All right. So hopefully today was pretty interesting. A real case, real person walked in here with an awful situation because someone didn’t do something. We think we kind of figured it out, but she decided to kind of do it herself. And we think it’s going to wind up costing her a lot of money. And it she didn’t have to didn’t have to work like that. But that’s a decision she made. So moral of the story is, number one, always seek the advice of a professional if you try to do it yourself. I would still seek the advice of a professional. And if you are trying to do it yourself, I would tell you to still seek the advice of a professional, but know it’s it sometimes, especially when it comes to money and taxes. It’s very, very difficult to know how to do all that on your own, working with a professional, even though you might spend a little bit of money doing it, especially going to like a CPA, getting a second opinion, it’s worth it. I can tell you sort of like that’s it for another week of the money puzzle. Make sure you tune in each and every week where we talk about different things that are going on in our in our office and topics that when folks come in, they’re talking about we’re going to have those as topics for our show. That’s where this came from. And so make sure you tune in each and. Every week. We also do another podcast that’s called Friday at the Firm, I think is really what we’ve referred to it now as. Anyway, it’s a bourbon review. Pretty cool. Make sure you go check that out and you can check us out on YouTube or go into our website. I think most producers got our phone number website up. You can check us out there or just go to YouTube and search the money puzzle and you’ll find us. Make sure you subscribe and send us to your friends and ask them to subscribe. That would help us out quite a bit and let Eric sound us off for another week.
Speaker 2 [00:20:36] Oh, well, you just did a wonderful job, but.
Speaker 1 [00:20:39] I just always refer to, you.
Speaker 2 [00:20:42] Know, I mean, this is what we do. We’re retirement income specialist. So if you want to have a call with us to discuss your retirement income needs or put together a plan, give us a call. 502 205 210 or visit our website. Should be listed on the screen right now but FWB partners dot com you can schedule a call directly from there as well. And if you’re listed on YouTube, make sure you hit the subscribe button to enjoy our content and be the first to get notified when we put out something new. Thanks for listening.