Kevin Geddings  06:57

If mom is trying to use any 401k money, she really can’t buy you any love right now, right Kevin?

Kevin Lao    07:02

A little bit.

Kevin Geddings  07:05

Just kidding, it’s funny. People get all spooked out about the stock market, whether it goes up or, down. I always try to remind folks not that I’m some expert, but I am somebody who invest in the market that— it is a market. If it only went up, that you might just buy a CD.

Kevin Lao    07:24

It wouldn’t be any reward.

Kevin Geddings  07:25

Well, there wouldn’t be a market, right.

Kevin Lao    07:27

Exactly.

Kevin Geddings  07:28

So anyway, I’m always the eternal optimist, when it comes to that thing. It feels like, we’re heading in— eventually, we will get into a better place than we are today. But yes, it’s a little scary this morning with futures for the S&P looking like. They may be in bear market territory. Like we talked about earlier this morning, we said Kevin Lao would stop by and of course, he’s a big part of our family here at WSOS, and he is with Imagine Financial Security.

Imagine Financial Security is located right here in our part of the world. You can learn more by going to imaginefinancialsecurity.com. So, over the years, we’ve heard about this thing called a Roth IRA. So, maybe you can give us a simplified definition of just, what that is, because that’s what we’re going to talk about this morning.

Kevin Lao    08:13

Yes, thanks for having me on. Yes, the concept of a Roth IRA is essentially pay the tax now and everything. If you do it the right way, everything that grows and compounds, and the withdrawals and that Roth IRA should be tax-free in retirement, and compare that to a traditional IRA or, traditional 401K, you get a tax deduction up front, and then all that compounding interest, and those distributions on the back end, will be taxed as ordinary income in retirement.

Kevin Geddings  08:39

Yes, it makes a lot of sense and people typically, make a choice, right. At some point, they decide whether or, not, they’re going to use that aversion of an IRA or, something else, right. What are some of the determinant factors that will make them go to a Roth IRA?

Kevin Lao    08:54

Yes, so Roth’s didn’t really come around until 1998, and that was for the IRA, the 401K version several years later. So many of the clients that I work with are over 55 and they’ve accumulated the majority of their assets for retirement and tax-deferred vehicles inside of these 401Ks and IRAs. They might be concerned with where taxes are headed in the future? You look at where Medicare, Social Security levels are funded, the tax cuts and jobs act that is going to be sun-setting at the end of 2025.

So tax brackets for the majority of Americans are going to go up unless, something changes. So, I think the general concept is, does it make sense to pay taxes now at a potentially lower rate, and enjoy tax-free compounding as opposed to tax-deferred compounding going forward?

Kevin Geddings  09:43

Hey, if you’re just hopping into your vehicle or, you’re tuning in, that’s the voice of Kevin Lau and of course, he is president of Imagine Financial Security located right here in our part of the world. Go to imaginefinancialsecurity.com and I guess, if you make the choice to convert your 401K to a Roth IRA or, you would have to sell all your stock immediately to do it, right.

Kevin Lao    10:06

Actually, you could do a direct transfer. The logistics have improved drastically over the years. So, you can do a direct transfer from one account to the other. You have to have an IRA set up, and you have to have a Roth IRA set up. Typically, those transfers can happen pretty quickly. But a good time to do is, when the markets down. A lot of people thinking, ok, what are some strategies to do when the markets are volatile?

We’re in a bear market with the NASDAQ. The S&P like you said is, likely going to be in a bear market, the end of the trading day today. So, the idea of converting shares in a bear market or, a downturn, as you can convert a higher number of shares with the same dollar amount, and then those shares will have tax-free compounding as opposed to tax-deferred.

So, if you’re looking to make this strategy work, again, everyone’s situation is different. So, don’t take this as tax or, legal advice. Please consult your own professionals but if the strategy makes sense for you, doing it when the markets down, is a huge lift.

Kevin Geddings  11:00

Kevin Lao and his team, of course, can help you navigate through all this important and I guess, this is a casual outside observer. It seems to me that you need someone like, on your team if you have a couple 100 grand or, half a million or, whatever, in retirement savings, just because these rules change all the time. We just had a rule change, right, as it relates to, what you need to be, to start utilizing some of your retirement funds?

Kevin Lao    11:23

Correct, yes, we’ll talk about the secure act all day. I mean, frankly, but there’re two major changes. Number one, is the required minimum distribution age went from 70 and a half to 72 and it’s going to be going up a little bit over the next several years as well, and also, the way assets in retirement accounts are transferred over to the next generation to kids or, grandkids, significant changes there and minimizing, who can inherit an IRA, with the old rules pre 2019? Those are two big changes that really have made the Roth conversion a huge home run for my clients, over the last several years and into the next decade, frankly.

Kevin Geddings  12:00

Yes, I think so. Often, there’re so many people, and that’s one of the reasons Kevin is on with us this morning. Somebody who will just fly along blindly, we’d like to think that, ok, well, the government’s going to tell me when I need to invest the right way or, what I need to do? The reality is, they really don’t— it’s almost like selecting the right Medicare coverage. You got to, need to go out there and find the expert guidance that you need in order to maximize your financial position.

Kevin Lao    12:27

Yes, burying your head in the sand. I mean it’s common. People are busy, they have families, they have careers that are extremely demanding with their time. Oftentimes, the biggest value add my clients tell me that they, me taking them off the treadmill life, and just planning, is a huge value add, but to your point, many of these folks that are contributing to these 401Ks and IRAs throughout their retirement years, all of a sudden they get to retirement.

They asked, they come to me, and they say, hey, how does this work from a tax standpoint, taking income out? That’s why I tried to get ahead of the curve. Starting with these strategies in the early 50s, mid 50s, it puts you at a huge advantage by the time you start drawing that income in retirement. Specifically, as it relates to these required minimum distributions where the IRS makes you, take out of a qualified plan by the time you turn 72. Otherwise, you get slapped with a 50% penalty because you don’t want to get hit.

Kevin Geddings  13:17

Hey, it’s six minutes after nine o’clock already 82 degrees in St. Augustine on our way up to a high today in the low 90s they say, they being the National Weather Service and 93 degrees 20 to 30% chance of a scattered afternoon shower. So, it’s definitely summertime, right. And we’re spending time with Kevin Lao. We’ll get back to the music here in just a moment.

But he is of course, in charge of financial security with Imagine Financial Security. He can help you if you’re somebody that perhaps, has had all your money in public stock or, you’re just working with a retirement fund that became part of your time with [phonetic] or, something like that. He can really help you get to the next level and achieve a more secure retirement, right.

Kevin Lao    13:58

Yes, the planning is huge, when all the relationships we start with our clients, starts with planning, and just an example recently, I was working with someone who, in their mid-60s, has worked most of the his career at the same company, but switched one or, two times. So, he had a few different 401K’s, but running the projection of what those required minimum distributions are? And his 401K plans and his IRAs, by the time he turned 72, was a huge eye opener, because a lot of that income he didn’t need.

He has a Social Security. He has a Military Pension, and so that RMD it’s essentially, gravy on top. So, if he had the choice, he wouldn’t take it out of his qualified plan. He’d let it continue to grow tax-deferred, but with those 401K’s, those IRAs, you have to take those distributions whether or, not you need it, unless that money is in a Roth IRA. That is the only account that has no required minimum distributions during your lifetime.

So, the strategy before he turned 72 over the next six years is we’re going to do some small conversions each year. Pay the tax now at potentially lower rates, and then reduce that required minimum distribution by the time he turned 72. So, not only will that reduce his tax bracket in retirement, but it also is going to reduce the amount he’s paying for Medicare costs, which most people definitely don’t think about before they turn 65, and before they actually retires. What are your premiums going to be in Medicare, its income related, income based.

Kevin Geddings  15:24

Yes, arguably, as you head into your late 50s, 60s, 70s, that is when you really, do need some good financial guidance, right. I mean, for the most part, when you’re in your normal working years, in your 40s, 30s, what have you, you know, you’re just chugging along.

You’re trying to make sure you meet all of your current and family expenses, your costs, and maybe setting aside some money for retirement. Now, we’re getting to the point when you get into your 60s, utilization of those funds, right, and that’s where you can help.

Kevin Lao    15:49

Yes, I call it the retirement red zone, the 10 years prior to you retiring, and then the 10 years after you retired. Its decisions are magnified and mistakes are magnified if you make the wrong move. So obviously, from an investment perspective, that’s important especially, during volatile times, but certainly from a tax perspective, which also adds rate of return on your portfolio over the long haul is, what I try to help my clients with, as they prepare.

Kevin Geddings  16:15

That’s the voice of Kevin Lao with Imagined Financial Security. He’s been doing this work a long time and he has seen all these different markets, including the ugly one that’s been going on over the last couple of weeks. He’s also been around for the good times too. But his goal is to help, guide you through it all, so that it’s still to your maximum advantage, right.

Kevin Lao    16:35

Yes obviously, the market right now is painful. So, we’re in it now, this is the regency effect of like, this market is bad but like, relatively speaking, we’ve been through this many times, 2008 2009 that was a bad market. The markets dropped over 50%. Right, so far year to date, we’re going to be roughly or, from peak till drop about 20%. So, that’s a normal correction and normal bear market.

So, what you do during those bear markets? That’s what matters. So, making sure you’re making strategic moves of buying what’s undervalued, with potential growth over the next 10 years, is super important and also make sure you weren’t overexposed or, you currently are not overexposed, to potentially some of the more riskier assets that are going to be sold off more heavily, during a rising interest rate environment. That’s what’s important.

Kevin Geddings  17:21

Kevin can guide you through all that, regardless, of where you are in that retirement red zone that he spoke of. We have a lot of our listeners who are in your 40s and 50s, you have other listeners, I know who are in their 70s, and it’s important at every stage of the process to really have good guidance.

It’s amazing to, that we have somebody like him that’s here locally, with his experience. He worked in other parts of the country, obviously, but he can help you here, and help you get to where you can have some financial peace, where you’re not worried about it every day, right?

Kevin Lao    17:50

Yes and the planning don’t stop. After that first years or, 10 years of retirement, it just changes, from the clients that I work with, that are in their 70s even 80s. A lot of times they’ve had a taste of like, hey, but the plan is working and now they’re thinking of like, how do I leave this to the next generation? How do I maximize what goes to my kids and what minimize, what goes to the government? They want to maximize what stays in the family.

So, a tax is a part of that conversation. I mentioned the secure act, when that went into law at the end of 2019, that changed the way those assets are passed on to the next generation, and essentially, is an acceleration of the tax on those retirement accounts, 401K’s, IRAs and forcing you to spend those down, your beneficiary suspend those down within 10 years.

Whereas, before your child, your grandchild could stretch out that retirement account for their life expectancy, that is no longer. So the acceleration of taxes, in my opinion, has really driven clients to really look at this Roth conversion strategy seriously. So, they can maximize the tax efficiency of what goes to the heirs.

Kevin Geddings  18:52

Kevin Lao once again is with us live Imagine Financial Security. Go to imaginefinancialsecurity.com. We’re going to put all this information up on our Facebook page, on Instagram as well, so that you can capture it there when you get it in front of a screen. You can also go old school. That’s right. He has a phone. Yes, and he answers it. 904-323-2069 right here in Northeast Florida. We’ll be back [music 19:22]

Billy Joel  19:39

Who live to die,

Kevin Geddings  19:39

That’s Billy Joel has only the good die young so, that means, most of our listeners are going to be living quite a long time. Not just kidding. With that in mind, you really need Kevin Lao services, right. I mean, that’s the big uncertainty. How long am I going to live after I retire? That’s a light hearted thing you might consider that but the more serious side of it is, will I run out of money Kevin?

Kevin Lao    20:03

My wife’s grandmother, who passed away a few years ago, she lived until 98 and I used to joke with her, I said, now like, what’s your secret? And her answer’s, she was this country woman. She was like, Jack Daniels. So, I don’t know if that’s true or, not but yes, I think more and more people are living longer into their well, into their 90s. You look at the life expectancy of someone that’s a female, that 62 have a 30% chance to live until 96.

So, I mean, when I’m planning with clients that are over the age of 55, over the age of 60, we can potentially looking at a 30 year plus retirement even longer, potentially, than they were working. So, you got to take that into consideration with inflation, as high as it has been this past year. The cost of goods going up over that retirement period on a potentially, a fixed income, it’s definitely, worry some for a lot of my clients, and that’s what we try to plan for and make sure that we can mitigate that inflation risk, coupled with that longevity risk.

Kevin Geddings  20:59

Yes, and I think, that’s why they need to work with someone like you. It’s not that you’re going to be investing in, crazy high risk stocks or, whatever. But you have to have a strategy, right, to keep pace with inflation. I mean, we hope that it’s certainly not going to stay at 8% plus but there’s always inflation. I mean, even if it’s one or, 2%, right,

Kevin Lao    21:18

I mean, every investment has risk. I think, that’s why it’s so important to have a personalized investment policy statement for each family that I work with. So, it’s a desired goal for what they’re investing for because I might have a client that they want to die with zero. They don’t want to leave anything behind. Maybe, they don’t have children or, maybe they’ve done all, they’ve sent their kids to private school and funded their grandkids education.

So, they want to enjoy retirement to the maximum. Then I have other clients, they do want to preserve some assets to the next generation or, maybe a charitable interest that they have. So, those investment objectives are going to be a little bit different. Therefore, those investment strategies will be different as well.

Kevin Geddings  21:54

Yes, if you have any questions about that, of course, Kevin Lao is right here, lives here in St. Johns County. He’s available and works with folks here and from around the country. But he’s available right here. He chose to live here in paradise, right. Can live anywhere, as well live here.

Speaker 2    22:09

I work remotely a good chunk of the time these days. So, going into my office, it’s almost like, just getting away from the kids. Sometimes, getting away from the noise but yes, majority of our clients are here, mostly in St. Johns County a little bit in Duvall. We have clients in four other states at this point in time. So, we can work with clients remotely as well but we’d like to serve our community here locally, in St. Augustine, St. Johns County,

Kevin Lao  22:35

Imaginefinancialsecurity.com is the website. We’d like you to check out or, share that with some folks that you may know who were struggling a bit. A lot of you out there may just have a Charles Schwab account or, a Vanguard account or, something like that and you are a little troubled these days, because you feel like, you’re running over your head, especially, with the market going south over the last couple of weeks.

Talk to Kevin, there’s no high pressure sales and he can help guide you a little bit, and tell you how people end up working with him and how that’s structured? That’s imaginefinancialsecurity.com. We always have a topic when Kevin stops by and this week, we were talking about Roth conversions and Roth IRAs. Remind our listeners again, for folks who just hopped in the car, what are basic messages on this?

Kevin Lao    23:20

Yes, so essentially, a Roth conversion is transferring some money from a tax deferred account that you currently have, whether it’s a traditional IRA o, traditional 401K, and moving that into a Roth. So, you’d pay the taxes now, but the benefit is that you would have tax-free growth on those assets that you would convert into the Roth IRA forever, as long as you do it the right way. And there are several benefits to it. I just wrote about this on my most recent blog posts at Imaginefinancialsecurity.com. But you know,

Reducing your required minimum distributions, which ultimately, will reduce your taxable income in retirement, which could reduce your tax brackets in retirement? Potentially, saving you money on Medicare premiums in retirement, maximizing the efficiency of, how your assets are passed on to the next generation? Just overall making your tax, your financial plan more tax diversified. There are some of the general concepts that my clients are interested in.

Kevin Geddings  24:11

Once again, that’s Kevin Lao. That’s Imagine Financial Security, if you have questions about Roth IRAs, and also other ways that you can protect your money from the tax man, if you will all of course, legal. But it’s interesting, there’s the government allows you to make some really bad financial choices, right. When it comes to retirement, they do.

Kevin Lao    24:36

Yes.

Kevin Geddings  24:37

It’s not that they’re malicious about it, I think, it’s all in the name of giving you options and making sure that you have a system in place that meets the needs of different people, right. It’s with Medicare for all. So, when you have Medicare, there’re all these tons of options for, what you can do and how you can get yourself covered? And people go why does the government do this to me? Well, it’s because they want to try to give you as many options as humanly possible.

Kevin Lao    25:02

If they make it extremely complicated and sometimes, that information overload and all of the various options causes an action. I think, frankly, that’s one of the primary reasons why clients really enjoy working with our firm is that, there’s so much information out there. You can just go online and search on Google, like, should I convert my assets to a Roth?

But I think people appreciate an expert’s opinion on how that applies to them specifically, right? They can go online and read a bunch of information, but how does that pertain to their specific, unique situation, and their unique objectives? And that’s really, where I think we shine and we can add the most value to our clients.

Kevin Geddings  25:35

Why that’s funny, that you had mentioned, that whole notion of going online and saying, what should I do or, how should I invest right now? That’s like, to me being diagnosed with a brain tumor and going on Google and just relying on Dr. Google. You need some professional guidance, folks.

Speaker 2    25:52

Yes, my mother-in-law likes to say, Google know all, that’s never a joke. But it’s interesting. If you search on Google, specifically around tax advice, there’s a lot of misinformation on Google, because the tax code to your point changes so much. So, these articles that were published in 2009 [phonetic] they’re still online and they’re still one of potentially, the top search options that you can go into Google.

Google’s not going in and saying, this is right or, this is wrong. It’s what is getting the most traction, what’s getting the most clicks and hits? So, I think, that’s a big issue that I see when it comes to tax planning is, what information is correct? Number one and then what information applies to their specific situation and their financial plan?

Kevin Lao  26:32

Yes, specifically, a lot of our listeners would probably, go online and search well, what age do I have to start dispersing funds from my IRA accounts? And a lot of that data on Google will be totally wrong, because that age number has changed.

Kevin Geddings    26:47

Yes, that’s the 72 is— and I actually wrote another article specifically about this, that I call it the tax trap of traditional 401Ks and IRAs. It is the single biggest tax drag in my clients retirement plan is, because they were good savers during their working years and they accumulate a lot of these dollars into these 401Ks and IRAs, and all of a sudden, they turn 72.

They’re forced to take out a certain percentage of those retirement accounts each year because your life expectancy shortens. The amount you’re required to take out goes up. So, you start out a little under 4% and by the time you get to 90, you’re going to be taken out north of 8% of your retirement account, whether or, not, you need it or, not.

So, think about what that can do in terms of your taxable income? Again, Medicare premiums and ultimately, how those assets are passed on to the next generation? So, that tax trap is what we’re trying to solve before they turn 72.

Kevin Geddings 27:41

Yes, an important point to, we’re going to get back to the music here in just a second. A lot of you hear this conversation or, hear, I was talking with Kevin as well. That’s great for all the multimillionaires out there. That’s not who we’re talking to? Those of you that have any significant retirement that you worked on for many years, you would be in this category where you need to be considering what he’s saying, right?

Kevin Lao    28:03

I mean, a high net worth individual has net worth right around a million and that would include your home, and those are the clients that we serve. The ultra-high net worth maybe 10 million plus, also can be served well with these solutions. But you also have to think about, what your tax bracket is now versus retirement?

So, it’s not necessarily about your net worth or, the amount of assets that you have. It’s all about what your tax rate is today versus what your tax rate could be in the future based on the information we know, and based on what you’re saving right now for retirement, and for even, for those clients that maybe don’t have a big traditional 401k or, IRA balance, and they’re looking at new contributions, going into the retirement savings.

Maybe you’re younger saver. This is where you can actually really, get ahead of the game and actually, contribute directly into those Roth 401Ks and Roth IRA programs. So, you don’t have to worry about those tax traps by the time you get to your 50s or, 60s. So, there’s an opportunities all along the way for younger savers and the later accumulators as what I like to call them.

Kevin Geddings  28:59

Kevin Lao is with us from Imagine Financial Security that’s based in headquartered right here in our part of Northeast Florida. You can reach him here, locally in St. Augustine and St. Johns County at 904-323-2069. And the website again, imaginefinancialsecurity.com and we would encourage you to maybe, you have adult children and others who are getting started in the process thinking about hey, how do I save for retirement?

I think a lot of folks that get into their 30s and start having kids. They start thinking about retirement. A lot of folks, a lot of millennial and others think hey, I’d like to retire at age 50. They should sit down and spend some time with Kevin and figure out if that’s durable?

Kevin Lao    29:37

Yes, we call it the fire movement, financial independence to retire early F-I-R-E [crosstalk 29:41] yes, it’s a thing. I do work with a lot of younger clients, frankly, around my age that when I think, retirement to these individuals, I’ll say my generation means, a little bit different things that other generations. I believe retirement is not necessarily stopping work. It’s doing something different.

A lot of the peer group that I work, that are in their 30s or, early 40s. Maybe, they have a really high demanding job. Maybe they work in the tech industry or, maybe they’re a business owner. At some point, they want to do something different, maybe some passion project that they might have. They want to have the financial independence to do those things.

Kevin Geddings 30:18

Very good, yes, interesting, well, if you are one of those individuals or, you have an adult child who has said, they are interested in trying to accomplish that, Kevin obviously, can help them get there. Kevin Lao, that’s imaginedfinancialsecurity.com, the website and we’re going to play song, we’ll be right back [music 30:38]

Kevin Lao    30:45

The average client has about 500,000 of investable assets at my firm. But I also have a different service model for younger professionals that have higher incomes, that maybe don’t have the assets yet or, maybe their assets are tied up into their business or, a company stock option plan that they have. And they have the income to want advice and want guidance, and we can serve those clients still, without having the 500,000 of assets.

Kevin Geddings  31:08

Yes, it’s something we’re not going to resolve on the radio in a quick minute. But I’ll tell you where you can resolve it, which is to get in touch with Kevin. There’s no high pressure sales, just give him a call or, reach out to him via his email address, I’m sorry, as wells website, which is going to connect you to email. Just go to imaginefinancialsecurity.com they can reach you through the website, right.

Kevin Lao   31:26

Yes, there’s actually, a bunch of links where you can book a book. I call it a mutual fit meeting. You can see my process and how we work and how we think? You can read some of my blog posts, even listen to some of my Podcasts. Just to hear some of my philosophies and some of the way we approach financial planning.

If it makes sense, you can book that mutual fit meaning. There’s no obligation. It’s a 30 minute Zoom call or, we just get to know one another, before we’re making any commitments of actually, going through the financial planning process. If we’d like one another, and we want to take the next step, we can do that from there.

Kevin Geddings  31:54

Yes, go to imaginefinancialsecurity.com or, you can call Kevin are a member of his team here locally 904-323-2069 and as I indicated earlier, we’re going to put all of Kevin’s contact information on the WSOS Facebook page and on Instagram as well. So you can access it that way or, share it with somebody. Kevin thanks for your time today. We appreciate you.

Kevin Lao    32:23

I appreciate you, Kevin. Thanks for having me.