Financial advisor Hank Parrott of Estate and Financial Strategies is this week’s guest for the Dr. Friday Show. If you have questions about Social Security or if you want to have a sound financial strategy for your life, Hank is the man. Together, the two experts answer questions from callers and talk about the following topics:
- Should You Be Selling Stock This Time of the Year?
- Land Sales Contract
- What Hank Parrott Can Offer to His Clients
- Preparing Pension for Retirement
- Social Security and Pension Talks Between Spouses
- Claiming a Dependent as a Foster Parent
- Can You Put Your Spouse on Your HSA When You Change Jobs?
- How HSA Works and How to Get the Most of It
- What You Need to Know About NUA
- Facts About the Qualified Charitable Distribution
- What to Do When Having Difficulties Due to CPA Neglect
- What Is Capital Gains?
No, no, no! She’s not a medical doctor, but she can share cure your tax problems or your financial woes. She’s the how-to girl. It’s the Dr. Friday Show! If you have a question for Dr. Friday, call her now. 737 WWTN, that’s 737-9986. So here’s your host, financial counselor, and tax consultant. Dr. Friday.
Dr. Friday 0:29
Good day! I’m Dr. Friday and the doctor is in the house! That’s right. We are ready to rock. Well, I mean, it’s taxes. Come on. There’s no more exciting than that, you know. And today, we’ve got one of my best friends here in the studio. Hank Parrott. You guys know who Hank is.
Hank Parrott 0:46
There we go. Just to make it really exciting today. We can talk about taxes. We can talk about finances, we can talk about investing…
Dr. Friday 0:54
Numbers! We can talk about numbers people. Yes! Alright, well, and probably Hank and I are totally two people really totally enjoying this, but that’s one of the reasons I think we’ve been friends for over 20 years. Because we both the… So if you’ve got a question, let’s say you’re looking at the end of the year, this is the time you really need to do that evaluation. You need to say, should I be selling stock? If I sell it now, is there really just because you’re saving tax dollars this year, is that really a smart move? Should you be doing conversion? Should you… And remember, there’s been some new tax laws. So if you decide to do the conversion, then you’re like, oops, I shouldn’t have done that, oops, is no longer an answer. It’s done. You gotta live with it. We got the required minimum distributions we need to talk about. There are some advantages to doing things with charitable contributions through that. Also, if you don’t take… if you know, and I’m saying the words required minimum distribution, you have absolutely no idea and you are in your late 60s, or 70s, or 80s. And you have no idea then either you do not have a retirement account or you’ve missed the boat, and there’s some serious penalties that we could be getting hit with. So we’re gonna talk all of that. Be prepared!
Hank Parrott 2:02
Yeah, this is the end of the year. So if you, if you turned 70 and a half this year, you’ve got until December 31st to get that required minimum distribution out of that retirement account. Of course, we’re talking traditional, not Roth, unless it’s an inherited Roth. And then you may even have…
Dr. Friday 2:19
Well, if it’s inherited for individual other than a spouse, you’ve got the requirement of distributions, no matter if it’s a Roth…
Hank Parrott 2:25
No matter what your age, exactly.
Dr. Friday 2:26
It may or may not be taxable. But the fact is, you still have to start taking distributions on all those. So if you’ve got a retirement plan, and you’re like, spot-on life is perfect. But you know, you’ve never had a second opinion. And maybe there’s been some questions, because there are always questions, right? I mean, when people come to me, I love this radio show. And Hank also does a radio show as well as a TV show on News Channel Five Plus. And what’s great about our shows is not I know a lot of people think yes, it is for you to know who I am. It’s brand new. It’s like wow, I’m looking for a tax person who am I gonna call? Dr. Friday. Yay. But it’s also to help you think to if you’ve got a tax person or an advisor or an attorney or whatever, and you want to know what should I really be asking? What do I need to know about this? Because so often, people just assume that the person they’re speaking to knows all the questions as well as all the answers. So really, I want you to, you know, have a pen and paper during this next hour and really learn some of the questions maybe you should be asking some of the things to look out for. And this is the show. So if you want to join us, 615-367… I’m sorry. That’s my own phone number. (laughs) I went brain dead. Hey, what is the phone number for the studio? I’ve already been here for 10 years. I can’t hear you, try again?
Dr. Friday 3:48
737-9986. There you go. That is the studio number. We are live so you can tell that because obviously I didn’t remember the number 615 737-9986 is the number. You want to call questions about financial planning. Maybe you like, maybe you’re thinking, should I do a Roth conversion? should I pay off my house before I retire? Because Oh, that’s always a great idea. And now I’m being sarcastic a little bit because sometimes I think people may be rushed to do that because they just don’t want the cash flow worry. Not smart necessarily, always with running the money. Just saying that’s a personal opinion. I am not a financial planner. That is why Hank Parrott from estate and financial strategy is Chartered Financial Consultant, a Registered Investment Advisor. He’s got a bunch of other ones that just keep going on and on, you know? But the important part of this conversation is he’s the guy is going to talk about the financial planning and then if you’ve got tax questions. We just made it on October 15th. Finally got 2018 filed for everybody. Now we’ve got this little window for 2019. And you know, we do know more about what to expect in the tax law. We had a big change at the end of 17, 18 was truly a wing it year. 19 we have a little better idea. We’re a little bit more in control of what the questions, how to answer some of those, how it’s going to truly affect individuals. And yes, there have been some changes on all that. So we just want to make sure we have a situation. Let’s go ahead. Do you want me to take that call? Okay. Let’s go for that call. Hey, this is Dr. Friday.
Dr. Friday, how are you today?
Dr. Friday 5:21
I am awesome.
Fantastic. I’ve enjoyed your show so much. Didn’t know if you’d ever taken a use the land sales contract, and how that affected taking capital gains.
Dr. Friday 5:37
I honestly can’t say I have. I’ve heard of a land sales contract. I have never had any hands on it. Was it an installment land sale or was it just straight up?
Installment, and then obviously, how the installments are structured by affect how you take the gain because you’re not getting all the gain at one time.
Dr. Friday 5:57
Absolutely. So I am a fan. of installment agreements for certain people. Sometimes there’s more risk, right? I mean, depending on how that works, but if it’s the right deal for the right people, we have several people. And the nice thing about these situations usually are, is that you only have to pay tax on the money received. A portion of it may be and you do have to charge interest if it’s a long term land sale contract. So just as if it’s a mortgage, if it’s a short one, I have had at least I have seen, I’m not going to tell you my attorney, but I have seen it with no interest charged totally a principal payment. So…
And what would be the short term?
Dr. Friday 6:39
I believe it has to be 12 months or less. So the reason a lot of people like the land sale, let’s say we do it in July of this year, so you get a balloon payment now and a payment next year. Obviously, we’ve just split potentially not having to pay the additional 3.9% or put you even in the 20% capital gains, possibly, you know what I mean? So you might be able to come some of the long term capital gains situation. If it’s short term, it makes little to no difference besides the tax brackets, right? We really are usually, my experience, I should say, is usually land sales on long term capital gains for my clients. So but so just I would suggest, again, I’m not an attorney on those kinds of things. I’m more in the tax standpoint, but I would if you’re writing your own, I would just make sure that you’re protected well because you do in some cases might want to have a lien against the property just like a mortgage company.
Hank Parrott 7:31
Is this an investment property or rental property?
Dr. Friday 7:33
Was a family farm rental? What was on the contract you’re looking at? What type of property?
Yeah, well, actually, we’re looking at buying a small commercial building. And the owner has, I mean, like all gain. He’s got like, a million-dollar sale and $800,000 of it is gain.
Dr. Friday 7:51
So he’s looking to do away of differing it on his side. Not so much for your advantage, but for the buyers or the sellers’ advantage.
Dr. Friday 8:00
Yeah. And how long is he wanting the land contract to go?
Oh, he was wanting five years. I was wanting seven. So we’re still working that.
Dr. Friday 8:09
Okay. Again, you know, I don’t know and I’m sure this is not so much from your standpoint. Since it’s him selling it, he’d be the one responsible for making sure that is written properly, I mean, in my opinion. So I mean, I would look for the interest potentially, is he going to charge interest or was it going to be a straight out sale split five years or seven?
Straight out. I mean, he’s, he’s getting a little premium because letting it go for five to seven years. But if we needed a structure that as an interest, we could do that.
Dr. Friday 8:40
Okay. I mean, from your standpoint, there is nothing wrong with it. If he’s told in the note, I’m giving you time to either build up equity or to possibly do improvements so that the building you know has more value so you can get a better mortgage, whatever. There’s nothing wrong with it from your standpoint.
Well, the real reason we were doing it so he didn’t take it $800,000 capital gain, right out of the shoe.
Dr. Friday 9:06
Is this someone you know?
Dr. Friday 9:08
Okay, cause I’m saying from the buyer standpoint, they don’t really care usually about what I have to pay in taxes when I sell something. And hopefully, he’s going to give you a break by letting you extend the contract out so he doesn’t have to put it all in one year.
Exactly. That’s what we’re working towards. You got it.
Dr. Friday 9:25
Yeah, there’s nothing wrong with that. I mean, again, it’s really more the way it’s properly structured on his side to make sure it’s done correctly.
Dr. Friday 9:32
Fantastic. Thank you so much.
Dr. Friday 9:37
All right. I think I just put him on hold instead of hung. Oh, there we go. What are these things? Like I forgot how to work in the studio. Oh my gosh
Hank Parrott 9:45
Are you gonna get retrained here?
Dr. Friday 9:47
Exactly. I think I did have a call last week possibly. Anyway, John, gotta stop sticking up for me there. Alright, so we are here in the studio. And let’s talk a little bit about first we’re getting ready to go into a break. So let’s talk a little bit about what you can offer my clients because it’s really all about me and my clients, okay? Today it’s all about Dr. Friday and her people. What are you going to offer us? You know, someone gives you a call at your office, what can we expect?
Hank Parrott 10:12
You know, one of the things I just met with a gentleman today one of my clients and where he’s getting close to retirement now we’re talking. It’s interesting because he’s been preparing there’s so many different decisions to be made. He’s got a pension which you know, which the best way do I take, you know, the individual payout? Do I do 100% survivor benefits or the wife would get, you know, a hundred percent of the benefit? Of course, you get a lower amount of 75% so all these different choices on his pension. So we’re going to work out a comprehensive plan as we do so we’re doing a review with him. We’re reviewing all his numbers, updating everything, and we’re going to be able to basically project for him based on the decision how this would work out. In other words, of course, you both of them if he if she were to predecease him, they’ve given up maybe a couple of to $300, where the monthly benefit and his pension to provide a benefit that now won’t be used. So one of the things we’ll look at as well, is it necessary? Are there other resources? Do they have enough assets? Do we need some insurance maybe? And possibly, that’s a way that we can get some short term, maybe life insurance that says, okay, for the next five or maybe 10 years, there’s a risk if you pass before her that she would be at risk and far as running out of money. So we put in some insurance to take care of that. And insurance a lot of times is less expensive than what you would give up on the pension. And you can drop it once you no longer need it.
Dr. Friday 11:39
That’s what I love about when you do these kindss of things. Because I think most people just think do I or do I not. That’s it. Not what other options do I have to maybe make up that same money just because you want to make sure your loved ones are protected, right? I mean, that is. But the biggest thing is, you know, no one knows who’s going first and there’s no way you’re ever going to know that. So what is the best way of using your own money? To to make that plan, it’s just like I had a person come to my office and ask for Social Security and I’m like, actually gave me your number because I’m like, I don’t know when the right time. My expertise this; the longer you keep it in there it’s going to grow by 8% that is the end of my expertise on Social Security.
Hank Parrott 12:17
It actually doesn’t grow as much. But you’re right, even in from 62 to, in his situation, 67 full retirement age, that was another question. Well, when’s the best time to take Social Security? And, you know, there’s a five year age difference between him and his wife. So how does that play into it, we can run the different scenarios and show you the future outcome of each decision and make it easier than to choose today.
Dr. Friday 12:38
Right, because if you’re not using your Social Security money, now you’re using your own pension or 401k money to make up for that. Now, even though it’s growing at 8% you’re not getting it. It’s not like they’re going to give you a big check with the interest at that point where you’re supposed to live another 20 years to get the difference
Hank Parrott 12:52
Understanding exactly how the rules work and whether or not am I better… If you’ve got an age difference like a five-year difference and let’s look at family history and look at all these different things, but it’s the likelihood women typically outlive men, they have longer, more time to get something right? So therefore sometimes it’s better for if they’re in this situation today he was the major breadwinner, he has the bigger check, he’s gonna have the bigger Social Security check. So it may be better, we haven’t finished her numbers…
Dr. Friday 12:58
Better to take it earlier, take it and reinvest that money…
Hank Parrott 13:09
Take it at actually age 70…
Dr. Friday 13:26
Oh, you’re thinking 70? Okay
Hank Parrott 13:27
Because then he predeceases her she gets that age 70 check.
Dr. Friday 13:31
Oh, cause she’ll get his check and benefits. I got you.
Hank Parrott 13:35
That’s going to help again.
Dr. Friday 13:36
But there’s that risk because what if he was the hit now and then investing that money they don’t need it. Because that’s what a lot of my clients say, I don’t need this Social Security anyway, right?
Hank Parrott 13:36
And that’s what we do. We show them that difference. We can show you a break even point in if you take it, say, 62 versus 67, typically right around age 80. And it does differ by as much as five years in either direction individually. Which is why we do the planning. So for your listeners today, if you want to call my office at 615-376-5325 these are just some of the many many many questions that we can answer for you. We can show you your financial future based on the things you’re doing today and then share strategies with you, show you how to improve it, so you’re able to attain a maintain your standard living your quality of life, no matter how long you live, to be able to thrive and retirement. Have fun, not just survive.
Dr. Friday 14:28
How much is going to cost?
Hank Parrott 14:29
For you today? Yes, no cost. Again, this is an opportunity for me also, to get to know some of your listeners and to show the kind of expertise we have, share with them what we can do for them the value we can bring and see if it’s a good match. Not always but sometimes it is.
Dr. Friday 14:46
Alright, we’re gonna take a break when we get back you can join us live here in the studio at 615-737-9986. Maybe you got a question about Social Security or where your financials at or taxes. You know, I love my taxes 615-737-9986. We’ll be right back.
Dr. Friday 15:06
Alright! We’re back live in the studio! We’ve got Mike and Becky on the line ready to party. All right, Mike, you were the first so let’s go with you. Hello, Mike!
Hello, Dr. Friday! Thank you for taking my call. This one here, I’m probably throwing you a little bit of a curve. Hopefully you hit it out of the park for me. I am a foster parent, it’s my fiance’s grandson. We get a monthly check from him, but he is still in the custody of the State of Virginia. I was just curious as to when he came to our home in May. Are we able to claim him as a dependent?
Dr. Friday 15:54
Yes, because you have him more than six months and one day.
I wasn’t sure because he is still technically in the custody of the State of Virginia,
Dr. Friday 16:06
But he’s lived in your house since May. And foster parenting the income from that is not tax deductible, I mean not taxed. So, yes, he will be your dependent.
Cool beans. All right. Thank you very much!
Dr. Friday 16:18
Thanks, Mike. Hello, Becky!
Hello, how are you?
Dr. Friday 16:25
I am awesome. How about yourself? What’s happening?
I am doing fine. I have changed job. Before my, well, I’m talking about an HSA, my husband had an HSA and I had a flex account. Okay. So I’m going to be able to put him on my insurance and save us some money. Can he keep his HSA? They told me that whereas he could but we’re worried about that because he’s not gonna be paying insurance.
Dr. Friday 16:57
Right. I mean, my understanding, and I’m not insurance absolute expert, but my understanding is the money in the HSA, he can still use up until it’s run out. But he cannot contribute to that HSA while he’s on your flex spending plan.
Okay. But now, I’m not gonna have a flexi because I’ve changed job, so this job is gonna open me an HSA. So I’m going to contribute to it and they’re going to contribute.
Dr. Friday 17:26
Okay, but it’s going to be a family plan, meaning you and your husband on that plan.
That is correct.
Dr. Friday 17:32
So you will actually have the maximum but you’ll have to put the maximum into your HSA, he still cannot contribute to his own unless he has his own individual policy. Like I have mine, I’m going to say an outside of his job, he can have an individual policy, but I believe, theoretically, it probably wouldn’t make a big difference if he puts you know, the 3500 or whatever we’re allowed and then you put it in yours, but I think because the HSA high deductible plan is running through your business, through the office you’re working from like company, that you have to put all of the money through your HSA would be my understanding.
Hank Parrott 18:08
Yeah, you do. And this is the other thing, when it comes from the HSA, his HSA, not only can he keep it throughout, and he may come back, you know, if something changes down the road, and he ends up again, with a high deductible insurance plan, he can go back to contributing, you can I think it’s $3500. If you’re over 55, I think they allow you another thousand, that’d be $4500, $7,000 for the family. So the two of you together, it means you could put up to, if you’re over 55 both of you, you can put up to $9,000 a year into your HSA. If you use it, it grows tax deferred. When you take it out, it’s tax-free. If it’s used for medical expenses, but also if you down the road if you can contribute every year and just build it up beyond just the deductible and I do as you know, this is what I… This is the others that down the road it would it could potentially will also work like an IRA. If you no longer were going to use it for medical or if you needed it once you’re past 59 and a half, you could take money out. It would be subject to tax just like an IRA would but no penalty.
Okay. Alright, that’s what I wanted to check.
Dr. Friday 19:16
But if you have Medicare though, you can use your HSA to pay all the way through. So if you’ve got $50,000 in an HSA, when you hit retirement, you can use that for medical even though you can’t contribute.
Hank Parrott 19:27
But that’s another thing. Once your Medicare eligible you can no longer contribute as well.
Okay. Alright, thank you very very much.
Dr. Friday 19:35
Thanks, sweetheart, bye. Great question, because I know, I mean, I’m a big advocate for HSA. So and we’re talking we say HSA, for anyone that might not know that’s a health savings account, is what it stands for. And you have to have… heck it, I ran into a situation not too long ago where somebody was contributing money into a health savings account, but they did not have any health insurance. You can’t do that. You have to have high deductible health insurance that does work with a Qualified Health Savings Account. So just make sure that you’re not just contributing in one and the other because that is not a true qualified health insurance.
Hank Parrott 20:14
If you’ve got insurance, you get to shop these health savings accounts and you definitely want to do that. Because the HSAs, they have different investment options and you want and different other expense rates. Yes, it costs..
Dr. Friday 20:27
I’m not being sarcastic, I’ve never shopped mine. I have it or years, I just figured it’s there.
Hank Parrott 20:30
No. In fact, I did. Here’s an easy one. You just Google. Best HSA plans are the top five HSA plans. You start researching within those, and you find you the trade offs as far as everything you can imagine. But one of them. One of the big ones for me was I was looking for one that had index funds because index funds are going to give me a better result and actively managed funds and the less expenses.
Dr. Friday 20:56
Now you want me to know how it invests it. I was using it for health insurance but you’re right! Because every year I’m able to put $3500 in and I’ve been blessed not having to use that every year. It is building up to be, well, you’re the one told me years ago. He’s like, well just max it out because it will eventually become an IRA or retirement or use for later medical, whatever, it doesn’t hurt and it’s and I can still contribute to my retirement, the maximum as well as the maximum to the HSA. So it doesn’t, it’s just another way of tax deduction.
Hank Parrott 21:27
Yeah. So depending on the individual, if all you can put into his IRA right is an example. Yeah, here’s a great way to be able to put aside a lot more money for retirement and medical expenses. Don’t go away by the way, even with Medicare.
Dr. Friday 21:40
Are you ever not going to have it?
Hank Parrott 21:42
You definitely could.
Dr. Friday 21:43
Just buying glasses was a, I mean, I do it every few years. But I was just like, Oh my gosh, I spent several thousand dollars on glasses because…
Hank Parrott 21:49
When you look at the costs in health care costs and retirement I think there was a recent study that was somewhere around $270,000. for individual aid, 65 for the remainder of their lifetime, out of pocket costs, they calculate to be somewhere around $270,000. And that’s it. If you start adding up with Medicare premiums are, you got, you know, without getting into too much but your part be premium cost your part D premium cost, if you’ve got traditional Original Medicare, you’re going to have Medicare supplement to cover the deductibles and copays and not covered by Medicare. Even with a Medicare Advantage plan, you’re still going to have these out of pocket premium costs, or at least some of them, you don’t have to have the supplement. But then there are still things not covered even then as far as your deductibles and copays that you’re going to have out of pocket. And certain types of coverage like vision in that can add up.
Dr. Friday 22:42
Okay, so let’s talk a little bit because I know I had a client come in last week and one of her questions for me was simply they make about $50,000. They have quite a bit in capital gains thatthey can take. They’re at the age where he’s 67. She’s 68, whatever. They haven’t started Social Security yet, long story just simple math. But so she’s wanting to consider most of this is all in one stock, it’s not diversified to use Reiki, maybe it’s time before the market goes down, I take all that capital gains out so we can reinvest a little more safely at our age. And of course, it will be zero capital gains, long term capital gains so. And they’re going to think about getting into the Social Security is the one I actually referred your direction because I you know, again, I don’t know when the best time or isn’t, but in these scenarios, this is the kind of thing we need to talk about. If you don’t know the answer to this or if you’ve already made certain choices and you’re not sure. I really think because there are ways.
Dr. Friday 23:36
Like I could say to her right now yeah, let’s cash it out. Let’s keep it at zero percent capital gains. Let’s wait a few more years on the thing let’s clean out all this. That may sound like a great plan for taxes because I’ve now about zero tax and then when she gets her Social Security because their actual incomes rather low. They may have almost zero tax there too, or minimal taxes. So tax wise, I mean, I have wiped this thing perfectly right? But the question is, should you be selling that stock? Is it really the kind of stock that we should be clear now? Where should she diversify into? You know, you’re at an age where you’re not going to grow money any longer. I mean, it’s not like they’re working any longer at this point. So, you know, they have to be very careful about that. Is it smart to wait till they’re in their 70s for Social Security? I mean, we talk about all these different things, and every single person walking in your office is going to be different, right? I mean.
Hank Parrott 24:25
Exactly. And this is, when we’re doing the kind of planning we do we answer all these kinds of questions with Yeah, show them the outcome of their decisions before. Wen you’re faced with a choice, imagine you could do this with every choice, right? With all the decisions we have to make.
Dr. Friday 24:37
It will be so much easier.
Hank Parrott 24:38
If you knew the outcome, if 10, 15, 20 years down the road, like, if I go down this road…
Dr. Friday 24:43
I know this is what’s going to happen when I’m done. I love that. But then again, I…
Hank Parrott 24:48
When it comes to these decisions that we have to make, and one of those being… it’s like you’re saying I the gentleman I mentioned I met with earlier, one of the things we got earlier this week, one of the things we got into was also about capital gains taxes. Because he’s got, you know, about $150,000 in some stock. And we’re going to, we need to determine what the cost basis is we haven’t got that far yet into it $150,000. He’s going to be retiring, he’s going to need income. We’re balancing out a 401k and IRA – Roth IRA, his brokerage account, the pension… There are all these different moving parts, and there are so many decisions to be made. And one of them is tax. What we talk about a lot is about tax efficient income in retirement. So in his situation, as an example, we would postpone taking money out of a retirement account, that’s going to be taxable, that’s going to bump up his taxable income, we can instead sell some of these securities he’s got…
Dr. Friday 25:44
And keep it at a lower or zero in his gain
Hank Parrott 25:45
Aero tax on the capital gains in his situation and use that money then. Some of that money will supplement his income and the rest of it he can just save and we’re now clearing out future potential tax issues. We get through that then we move to the IRAs we say okay, is required minimum distributions at age 70 are they going to bump him into a higher tax bracket?
Dr. Friday 26:10
Hank Parrott 26:10
If so, let’s start working on that as well through combination. Now we got to capital gains done. Let’s move on to that. And we’re doing this in conjunction with Social Security, pension, all the different income streams that are going to happen at different times. Moving parts.
Dr. Friday 26:23
So if you want to know more about this kind of moving parts, how you can live in retirement the same way you live now, you know, mean basically have that security, it’s okay to have fun when you hit retirement, it’s okay to go do those things that we always promise because we’ve worked our whole life that was a what, how does someone contact you? What’s the whole concept?
Hank Parrott 26:42
With this one case, in fact, just to give you an idea of how valuable this convenient it is, do this kind of planning and to get this done? 615-376-5325 is my office number. Give a call. We’ve got people standing by, they’ll get your information. Monday, we’ll send you a checklist of things to bring to your appointment with me. But just like with this gentleman, just in is this console, we found that $30,000 I can save him in capital gains taxes by how we’re going to structure his plan, and then found another really cool way to help him when it comes to taxes. And this is what’s called net unrealized appreciation. So he’s got a couple hundred thousand sitting in his 401k and company stock. If you’ve not familiar with this, and this applies to you, if you’ve got companies…
Dr. Friday 27:28
And he’s going to come back after this break and talk about this and a couple other ways that you might be able to put more money in your pocket. If you just listen. We’re going to be right back if you want to join us 615-737-9986, 615-737-9986 And we’ll be right back with Hank Parrott and ways to save money.
Dr. Friday 27:56
Allrighty! We’re back live in the studio. I’m here with Hank Parrott, Estate and Financial Strategies. He’s a Chartered Financial consultant and a registered investment agent, advisor and many, many other things, and a good friend. And if you want to reach us here in the studio 615-737-9986 As promised, I want him to go back into talking about the NUA. Because I think this is something and again, this isn’t a do yourself kind of thing. This is definitely something you need to have an advisor that if you go to your advisor and you say, hey, I’ve got a 401k and maybe the NUA thing will work out wonderful, let’s talk about it and they look at you like your eyes are crossed or they have no idea. You need to just stop right there and give Hank a call. Just telling you because this is something that in certain circumstances could be very especially people have worked the same job for like a really like 30 years or something. Company stocks been added all that time to their 401k. These are the kinds of people that may have and again, not for every one person but explain to the basic.
Hank Parrott 28:56
Let’s say for instance you got $700,000 – I’ll use the example of was given earlier – $700,000 sitting in a 401k, $200,000 of it is in company stock that you’ve accumulated over your working years. And half a million, it’s in mutual funds, and whatever kind of that. What we do in the year, it all has to be done in the same year. So this is one of the rules. And so I have to be really careful with it, and in how it’s done, because if you mess this up, understand that you could all of a sudden end up with 200,000 of fully taxable income at ordinary income tax rates, the highest rates paid that you would have to pay in that year, if not done correctly. But when done correctly, what we’re doing is we’re moving that half a million into an IRA, the $200,000 into a brokerage account, the cost basis. So let’s say you get this 200. Again, you’ve been accumulating over these all these years, and you’ve only got maybe $40,000, let’s say that’s in cost basis, $160,000 of its capital gains. So we move that over that $40,000 cost basis is going to be taxable to you that year. Okay, in ordinary income tax rates. However, now we’ve got capital gains rates on the balance. So you’ve got basically $160,000. Now if we do it correctly, and I say correctly, and that’s now going to be part of his income plan. So now, we’re going to be able to take $40,000 or $50,000, wel about $40,000 a year, and we’re going to sell off enough stock that represents $40,000 and gain, pay zero tax because it’ll be in that lower 12% bracket. And we do that for four or five years. We’ve now avoided tax bait when I avoided we’ve not had to paywith zero to $160,000 tax. In an ordinary income tax rates could have been $40,000 in taxes.
Dr. Friday 30:41
This is the kind of stuff that he’s actually earned his keep for. Come on people. I mean, you know, it’s just wonderful when you actually have those kinds of, because, you know, I mean, there are sometimes you sit there and you go like, why do I need a financial guy, I get this all figured. This is why you need someone that really never stops researching and understanding his niche in the market, okay? I’m just saying. I mean, all I really do is deal taxes, you guys know that I’m pretty shallow. But I do have friends that know a lot more than I do. So, you know, that’s serious. I mean, I like a joke, but you know, really is I mean, one of those things that it’s a niche, it’s not something it’s gonna be for everyone. It’s just like Roth conversion. So let’s talk a little bit about that. Same kind of thing, right?
Hank Parrott 31:19
Understanding the rules exactly. When you know the rules, and you’re looking longer term than just, you know what am I doing this year, right?
Dr. Friday 31:26
Instant gratification, which is my life.
Hank Parrott 31:28
You know, that we need our tax people to help us do this, these kinds of things. But we also need that longer view. You and I, of course, work quite hand in hand for our clients helping them in this very way. So Roth conversions are a way that we can look at. I mean, if you think about it this way, let’s say you’re in a 12% bracket today, and we can do Roth conversions and you only pay 12% tax on it. And when you came to age 70 and a half and you start doing required minimum distributions that those distributions were going to be big enough that they would push you up into, say, the next bracket 22%. Now you just paid on that distribution and doubled basically the amount of tax you would have otherwise paid. Where if we see that coming and that’s what we do in my office, we’re always we’re doing you’re planning to look at your future, to see you know, the things you’re doing today, what effect that’s going to have for you, in the future. Make sure you don’t run out of money is one of those things, make sure you have some fun money to enjoy life. All of this if you’re not if you’re paying less than tax, then this is a way that’s right. That’s more money you get to keep. It breaks my heart sometimes to see people paying it frustrates me to see people paying more than they’re legally required to pay.
Dr. Friday 32:42
Right, that’s both of our jobs.
Hank Parrott 32:43
And it just happens all the time because people don’t understand the rules. And when it comes to finances, things like a Roth conversion, that strategy can be very helpful in reducing lifetime taxes by qualified charitable deduction.
Dr. Friday 32:55
Yes, talk a little bit about what that is. I know what it is.
Hank Parrott 32:58
Or distribution, I should say, Qualified Charitable Distribution. This is a way, again, that if you’re at 70 and a half and above and you’re doing… I just, in fact, I met with a doctor earlier this week and this is one of the things I know him I know him well enough to know that he tithes to his church. And so I was like, you know, when you’re tithing to your church, are you doing these you know. And this is the first time he just reached in the agent and just talking about these things. I said there’s a thing called a Qualified Charitable Distribution that allows the money to go directly from your custodian to your church.
Dr. Friday 33:32
Now you have to be 70 and a half or older and you have to be taking required minimum distributions and the amount of the requirement on distribution is the maximum you can use for the qualified charitable distribution. Exactly just a little qualifier there. But in his case…
Hank Parrott 33:49
It’s important, which goes again to knowing the rules right. This is why, you know as you said earlier, this is not a do it yourself works now. You need not understands the rule and you just go oh, I can do this. Okay.
Dr. Friday 33:59
Yeah, because I was doing a speaking thing a couple weeks ago. And I said, I was talking about this and this one lady put her hand up, she goes, Well, I’m taking distributions from my IRA or 401k, or IRA guess it was. And so I can do this. And I asked her how old she was. She was 65. And so she was just taking distributions, right? I mean, it’s just part. And I’m like, No, those aren’t required minimum distributions. That is a choice you’re taking right now to live, you know. Nut then she wasn’t really happy, because she really wanted to do it that way. But my point being, it’s not just because you’re taking money from an IRA or 401k. This has to be the amount of your requirement on distribution.
Hank Parrott 34:33
So let’s say as an example…
Dr. Friday 34:34
We have people who have 20, 30, $40,000 a year in required minimum distributions. You know you got several million in an IRA, that would be something and you’re giving $20,000 or $15,000 to your charity every year. You’re not going to itemize still, you’re still not going to meet itemizing because you’re at the 24, even $27,000, depending on how your age is. So well guess you don’t meet your older age at that point if you’re $27,000. So now you would get $15,000 straight out, reduce your income not even going to show is taxable income and you still get the $27,000 of itemizing, unlike other individuals. All right, we’re going to have to take one more quick break here. When you get back I am going to see if Joy needs to talk to Hank. If not, we’ll have him tell you one more time about his offer. We’ll be right back with the Dr. Friday Show.
Dr. Friday 35:27
I like when you’re on my show. This music’s good, my friend. Alright, we are live here in the studio. I’m Dr. Friday, an enrolled agent license with the Internal Revenue Service to do your taxes and licensing. I’m like Superwoman, I get to stand between you and the IRS. I am a shield to protect you. Hopefully. Anyway, so if you need help, you know my number and earlier on the show, and then I’ve got Hank Parrott, a Chartered Financial Consultant, a registered investment advisor, and many, many things. Let’s see what Joy has to say. Hello, Joy!
Good afternoon. This is more for you, Dr. Friday. I want to inquire about what I might call CPA neglect. My late mother until her death a couple of years ago had lived with my sister out of state. So my sister is the executor of her estate. My mom had used for many years an accountant here in Tennessee in the area where she lived. And were having difficulty getting her final tax return prepared. This has been going on since this past May. So my sister asked me if I could intervene since I’m here in Tennessee and maybe file a complaint with the Board of Accountancy. So I’ve tried doing a little research myself, just to maybe call him first before I actually file a complaint. And I don’t know what rules govern them. Is it the AICPA I think? Am I getting those initials right?
Dr. Friday 36:58
Right, AICPA. They have the standard licensing in fact right there in Brentwood right next to my office right next door is the main association that helps govern them. They have to so you have that you of course. They have, what’s it called? You know basically where the state you have a law office at the state where you all have to be licensed by the state the professional licensing center. But there’s also a state professional fee they have to pay all. You paid Hank as well. You know, everyone is licensed in insurance and all of them. So I know if there’s a complaint they can go to them and a Better Business Bureau. Of course, you can always you know, go to them. But I wouldn’t mean first thing first. First, contact it, because I will tell you, if this is a final tax return, I don’t know your mother’s estate, but sometimes it can take six to nine months to obtain all the paperwork because sometimes things have to be closed out. Things have to be sold. Final valuations have to be put together and we can’t just do the taxes like I do my individuals that have every year, you know? Here’s your W2 here, should they… You know, if there was a house and the house was sold, there may have be appraisals, or at least some sort of evaluation. If there are retirement accounts, based on distribution, stock accounts, all of those have to factor in. And it really does depend to be quite honest on the sides of the estate. If this is an estate less than $250,000, then no, it shouldn’t. It shouldn’t take that long if it’s over 250,000, and it’s a multi state situation. She lived here, but she was also living in another state, right?
Dr. Friday 37:30
Well, she hadn’t lived here for a couple of years before her death because our health was declining. And my sister’s a nurse that was able to better see after her for her last couple of years. But the house is being sold about a year and a half ago. And the reform that she my sister sent in was the one that allows the CPA to file electronically. That was done in May.
Dr. Friday 38:35
Okay. Well, that means the tax return was finished in May. If there was electronic, she may have just signed off giving him permission to prepare the return. Law CPAs have a CPA letter just saying you’ve hired them to do it. Was your mother on Medicare? Did she receive, I mean not on, but did she receive like was she in a nursing home or something where maybe Medicare was paying? No? Okay. So because there’s a Medicare waiver we have to get or release showing that the money in the estate can be released. I would first call the CPA. Get an answer. If you’re not getting if they won’t answer your calls won’t return your calls…
Well, that is the case. That’s why she asked me to intervene. In fact, I found out during this first little investigation I’ve done over the past couple of weeks, my sister’s always been dealing with a woman there and it turns out that the CPA is her dad, he’s the only CPA in the office. And I wonder how much he knows as opposed to you know with it, and what he responsible for his employees. Mistakes or negligence or whatever it might be.
Dr. Friday 40:01
Possibly. And the only thing we come down to is if there is a fee or fines being accumulated and there are extensions that can be filed. So depending on when your mother’s estate was due, and if there’s any money theoretically there might not be any cost, you know?
Well, there’s a refund due actually. We just can’t seem to get it and supposedly…
Dr. Friday 40:19
Now the IRS will pay interest on that if they’re still sitting on it. So, you know, again, so first you need to make sure there wasn’t nothing filed. I mean, if you know that, you know, she said she signed a release for him to E file, that’s been the case then the tax return could have been E filed, I doubt that they could have E filed it because your mom passed away, right?
Yes, a couple two and a half years ago.
Dr. Friday 40:42
Two and a half years ago so, okay. Wait, two and a half years ago, but you’re filing just this year or this was…
This is the final return.
Dr. Friday 40:51
Okay. So she must have a trust or something, an estate of some sort.
Well, she had a little bit of money, but not any huge amount.
Hank Parrott 41:00
Normally your final return is going to be the year in which you pass. Yeah, you know that at the end of that year when you file for that year, that’s going to be your final return. Unless there’s an estate or a trust that is carried that is still open…
Dr. Friday 41:14
Like there’s a mutual fund or annuities
Hank Parrott 41:16
Typically put, if it’s a trust, we’re usually applying for a separate tax ID number, it’s going to have its own filing, she’s still going to, that person you have to retire that Social Security number. So unless there’s somehow some income coming in the year after the year, which they passed, and you would have to account for. It usually close out…
Dr. Friday 41:34
And that would usually pass through to the beneficiaries in most cases. I mean, that would be something you and your sister would have had. So I would first get a call, I would even see if you can just set up an appointment since your local see if you can’t get a sit-down. Find an explanation and get some information if you cannot go to them and they do have what’s called ENO insurance. All CPAs have to have it which is Arizona mission, which means that if there is some sort of fee fine or neglect going on here, their insurance would cover the cost potentially, of mistakes that they have made for you. So you do have some recourse, I would definitely first go to them and get something if you cannot get ahold of them, I would contact the office in Brentwood or wherever your nearest one is, I know the one in Brentwood, and just give him the his, uh, you know, his name is office number, and then they will do they will help you. I mean, they’re basically trying to get contact, get a sit down with you because obviously they don’t want the reputation of the initial CPA or certified public accountant to be at risk for bad behavior in a sense.
Right. Well, I didn’t know that group, so thanks for letting me know.
Dr. Friday 42:37
No problem. Thank you. Good luck. Okay. All right! Well, Hank, really quickly. Tell me your number.
Hank Parrott 42:46
First 10 callers, here’s the way it works. The first 10 callers to my office 615-376-5325, and yes, it’s the weekend and you can call on the weekend. We have people to answer your phones 24/7. So 615-376-5325. If you’re one of the first 10 callers, I will do a comprehensive financial plan for you. This may take two or three visits, but we will do because I want you to get the most out of this. That’s going to be an investment analysis. We’ll look at estate planning, we’ll talk to you about Social Security questions, Medicare questions. Of course, tax planning is an important part of it. A lot of things we talked about there and so much more. When you come in to see me I’ll give you they’re going to send out a checklist by the way of things to bring to your appointment when you come in to see me I’ll also give you a free copy of my book, Seven Steps to Financial Freedom in Retirement. There you go, 615-376-5325.
Dr. Friday 43:42
All right, don’t forget it. If you can’t, just call me I’ll give you his number. All right and yes and if you do if you need you know the combination of both Hank services and mine, more than once we have met at our offices and helped our clients together. Because sometimes, especially in my world or his I mean there are times when both of us are needed to really get the answers. It’s easier to have two people to explain. So if you need help, yes, you can also give my office a call.
Hank Parrott 44:07
Team approach. Teamwork. Important.
Dr. Friday 44:10
He’s gone. He’s leaving the studio as we speak, people. He’s gone now. Just joking. Alright, so if you do need, maybe you haven’t filed taxes for a number of years, maybe you have a friend or someone that’s got a love letter from the IRS saying I need this or they’re going to audit or you don’t even understand why the IRS is trying to collect from you. I am the person you want to call in. It’s really easy. call my office on Monday morning. 615-367-0819. Again, 615-367-0819. I’m an enrolled agent. All that means is I do not work for the IRS. It means I am licensed by the Internal Revenue Service to do representation and taxes. All I’ve ever been tested and known all my knowledge basically represents those two things. So when it comes to tax preparation, maybe you have a small business, your LLC, you have an estate and you have a CPA that may doesn’t know what they’re doing, I can help you with that kind of situation. On the other side, if you need help dealing with the IRS or the estate or you have a small business and you need some help with payroll or bookkeeping, we can help you. Dr. Friday Tax and Financial Firm. I’m right here in Brentwood, Tennessee. So if you need help with doing those kind of things, or just a little research then we are in good shape, making sure everything is going your direction again. If you’ve received love letters, and you’re not sure why the IRS has any idea why you’re alive and you’re or maybe you know what you’re like, I would like to get married, I want to buy a house. I have kids that are getting ready to go to college and I have to do FASFA. You know, they require taxes on all those kind of things. So you may come down to where you have to get yourself all registered and you get caught up. There are payment plans. There are non-collectible situations they’re offering compromises.
Dr. Friday 45:54
Easiest way you need to check out my new website, too. It is brand spanking new. We got Chip out there and, you know, Skippy is handling everything. But anyways it is drfriday.com My website is drfriday.com You can, as of December 1st, if you’re a current client you will be getting emails very soon, setting up your tax appointments. Then as of December 1st, we’ll open our calendar up for everybody, but you will be. And if you haven’t heard, or you haven’t gotten anything please contact our office we are now setting up appointments for the 2019 tax season. As well as we have a live blog all these shows will be going on blogs and all those good things so check it out if you need help. Call me 615-367-0819. Call you later.