Editor’s note: While advisors watched the development of new tax law this year with high interest, they were also especially focused on client service and financial planning. Of the more than 500 articles published this year, our members found this one to be among the best.
Editor’s note: Today we bring you another episode in the Building a Better Advisory Business Series. Broadcast live last week, it is part of a series of interactive discussions about practice management. These discussions with experts by Horsesmouth Editor-in-Chief Sean Bailey are simultaneously streamed on YouTube, LinkedIn and Facebook.
Sean Bailey: Good morning, everyone. Welcome back to Build a Better Advisory Business. I’m Sean Bailey editor-in-chief, and I’m here today with the great Jeffrey Levine…the guy with the big brain. The guy with the vest and the beard. The guy who’s all over everything relating to IRAs and taxes and really just everything that’s even going on in this industry. Jeff, thanks for being here. It’s good to see you.
Jeffrey Levine: It’s great to be with you.
Sean: Your savvy IRA planning four-day virtual workshop [starts today].
Jeff: I’m looking forward to that. We’re going to have a good time, a lot of stuff to talk about.
Sean: So much, so much. And we’ll touch upon a little bit of that in a few minutes. So if you’re looking to beef up your IRA skills, which man, oh man, I think it’s a top skillset that advisors always need to be sharpening. And so this is a big up opportunity to do that. Just take a few hours out of your day, Monday through Thursday, and you also get some CFPC credits.
But Jeff, before we dive into what’s going on in the news, let’s step back and just kind of give the whole arc of this IRA rules and how they came into being. Can you help advisors maybe develop a little more of a historical perspective on the role of the IRA in the tax code? Why did IRAs exactly come into being in the first place?
Jeff: So it’s worth noting that IRAs were actually introduced in 1974. So they’ve been around for quite some time. Now they weren’t made popular really until the early 80s. A separate law, then the economic recovery act kind of made them a little bit more popular. But we are coming up on the 50-year anniversary of the IRA in just a few years.
So, they’ve been around and a staple of retirement savings for a long time. Obviously we’ve had 401ks since the 70s as well. Over the last 40, 50 years, we’ve seen more and more use of these accounts primarily because more and more of retirement security has been shifted from business to individual. People are more responsible today than ever before.
When you’re looking at an individual who has an IRA or a 401k as opposed to a pension plan, right? Traditional retirement years ago was great. I’m going to work my 50 years, I’ll get my gold watch. I’ll go home and I’ll go to the mailbox once a month and get my check and cash it and life is good.
Well, that’s no longer the case. More people than ever are responsible for their own retirement, which means using IRAs more, using 401ks, more, et cetera. And it’s a lot of decisions. It’s not just the investment decision. That is the one that so many people focus on, but it’s also, which accounts do I contribute to? Which accounts do I pull from first? Should I be using a traditional IRA or a Roth IRA? If I started with one, should I be switching to another, via a conversion?
These are all key factors that go into determining the longevity of one’s portfolio, not just the investments they have. So it’s a lot more difficult today, plus the estate planning factor. For pensions, when you are gone or when your spouse is gone, most of the time that pension is gone as well. There’s no robust planning that has to happen for the next generation. But when it’s your IRA or your 401k, that is precisely the type of work that we need to do to ensure that those hard-earned assets don’t get lost to unnecessary taxes or worse.
Sean: Right. Right. Well, what is the connection between IRAs and 401ks? They came into being separately, but I mean, I kind of think of them or at least how I became familiar with them was with the idea of you have a 401k, and if you’re going to get out of it, you’re going to roll it over. And you roll it over into this thing called an IRA.
Jeff: Yep.
Sean: So the IRA existed first or was the IRA created to solve the rollover problem? Or how did that work?
Jeff: Yeah. So you effectively, you’re coming out with both. You’re coming out of in the ERISA as being the primary source of this. They really kind of have a similar trajectory in that they’re both defined contribution plans. Now, obviously employers were able to drive the use of the 401k and that’s where the bigger dollars are. Traditionally, the view has been: I retire, then I move my money from the 401k to the IRA and I go on from there.
But the reality is it’s not always the best move. While, it is great as an advisor to bring in new assets, but at the end of the day, you have to do what’s right. And if that means giving up a sale or leaving a rollover on the table now, it’ll come back to you in spades later. But you have to do what’s right now, always. And sometimes that does mean leaving money in a plan. It could be for a 10% penalty exception that the plan has. It could be because the plan has a certain investment structure.
Sean, we were talking before and I recently moved out of New York. I know you’re still in the area there. New York City school teachers are a really great example of this, in that their New York City school plan, if they go into their fixed option, gives them guaranteed 7% per year. It’s like going to a bank and getting a CD for seven per—it’s that kind of secure. How could you beat that as an advisor, especially if you’re thinking fixed income?
Over the years, when I was in New York, I’d see so many times where someone would roll over money and then they’d go and buy a fixed income investment. What are you doing? You just took money out of a 7% guaranteed effective bond. That is just not good, but that’s the investment side. It’s the 10% penalty exception issues. It’s the creditor protection issues that differ between maybe a 401k and an IRA. You’re working with high-income individuals, like a doctor, a lawyer, a contractor, anyone who might be subject to lawsuits, there could be a difference.
It depends upon your state, but there could be a difference between the treatment the IRA gets and the 401k gets. And so understanding that and saying to someone, “I think you’d be better off here,” is the right thing to do from time to time. Could be that you’re able to delay RMDs by leaving money in a plan, even. So there’s a lot there that you have to balance. And that’s just part of being a good planner.
But I would say that beyond the IRAs, the limits are not nearly as high as the plans. But we also shouldn’t pooh-pooh $6,000 and $7,000 contributions per year. I mean, if you’re looking at this as starting at, let’s say 50 and you’re looking long-term. If you make 10 years of contributions at $7,000 per year, which you can do now as a 50-year-old individual—yes, by the end of the 10-year period, you haven’t seen all that much growth. But at the end of 30 years, that could be $300,000 just by leaving it alone. That could be your long-term care plan. That could be your legacy to your children. It is not an insignificant amount of money.
And again, that’s just someone taking 10 years and going from 50 to 60, stopping and then letting it sit for 20 years. If you are 40 and you start that or you are 45 or 50, or even younger, I should say. You’ve got even more time. The power of compounding still matters. So don’t pooh-pooh those $6,000 and $7,000 contributions.
Sean: Right. Right. So we had the IRAs and the 401ks and then this thing called the Roth came along. Roughly, when did that happen? But more importantly, I guess, why and how, what was the thinking behind that?
Jeff: Yeah, so that was the Taxpayer Relief Act of 1997. Effective for 1998. In fact, that first year was really neat because they offered individuals four years to spread your income over. So for some folks that’s a long time ago already. We’re talking about almost 25 years. But a lot of folks may remember 2010 being a very special year where if you converted in 2010, you were able to split the income over two years and people thought that was great. Because like, “Wow, I’m getting to effectively get some money into the Roth and have free use of my own capital while I build up a tax-free account.” It was a four-year spread back then. It was awesome.
But alas we don’t have those options anymore. But at least for today, we still have the ability for anyone to take money that is in a traditional IRA or a 401k and move it to the Roth via conversion. Doesn’t matter your income, doesn’t matter your age, doesn’t matter your asset level. If you’ve got existing money in a traditional style account, you can move that over to a Roth IRA. In addition, there are Roth IRA contributions where you can put the money in directly.
And early in the 2000s, we got Roth plan accounts. I think it was 2001, then made permanent by the Pension and Protection Act of 2006 where we had Roth 401k and Roth 403b accounts. And once again, looking at that as the Roth plan option, there are some benefits and some drawbacks there where it’s worth working through with clients. For instance, Roth plan accounts have no income limits on contributions. You could be a million dollar earner and put $19,500 right into your 401k Roth deferral. Whereas if you have that same income, you can’t put the money into a Roth IRA directly because of those income limits.
There are some downsides as well. Roth 401ks have RMDs, Roth IRAs don’t. And it’s often these subtle nuances where the rules are close to the same, but not the same, that trip people up.
Because when things are black and white, it’s easy to distinguish between the two. But when you’re looking at various shades of gray, just subtle differences… Look, Social Security has been a huge part of Horsesmouth over the years. And I’ve always said, what makes Social Security so difficult is the rules for survivor benefits and retirement income benefits and spousal benefits are all very similar, but they’re not exactly the same. And it’s just those subtleties that make it more challenging to remember and to plan with.
Sean: Right, right. By the way, though, what was the policy thinking regarding introduction of Roth IRAs?
Jeff: It was actually something championed by William Roth, a Senator out of Delaware for years. That’s where we get the name. So who knows? Maybe one year from now, or many years in the future we’ll have the Manchin IRA, or something like that. Someone will propose a new sort of account, and we’ll name it after them.
We have the spousal IRAs, which are Kay Bailey Hutchison IRAs, technically, no one calls them that, but the Roth IRA, the name did stick.
And really the idea there was twofold, right? There was the public-facing idea of, “Hey, pay your taxes now and never worry about this again, you’ll have a tax-free account forever.” And that kind of sounded great. From a budgetary perspective, the benefit of the Roth is, if you think about traditional retirement accounts, they hurt the federal government on the budget window.
And the logical answer here is, “It really doesn’t matter because in the end it all washes out. They’ll get the money it’ll just be later on. And boy, it’ll be a much bigger account. So surely they actually win in the long run.”
That’s looking at things like normal human beings do, not as Congress does. And I say that with a little bit of jest, but the reality is that Congress looks at things over a 10-year budget window. That’s all they really care about is the 10-year budget window. So something that happens 11, 12, 13 years in the future doesn’t matter.
It would be like as if planners, we knew our client had an 11-year balloon note, and they had an an interest-only loan for the first 10 years, then the 11th year, there was a balloon payment. And somehow in our planning, we didn’t care. All we had to do was figure out how to pay the interest for 10 years. And the fact that there was a balloon payment in the 11th year, we just didn’t care at all while we were planning because, “Hey, it’s not in the next 10 years.”
I mean, it’s very strange, but that’s the way Washington works. It’s why you always hear the CBO come out and say, “Over the next 10 years, the impact to the deficit is this.” It’s not because they love 10 years, it’s that’s the window that they’re locked into.
So many of our clients thought they were doing the right thing, putting all their money in the traditional IRA; it ballooned, they did so great! And now they’re stuck in much higher tax brackets than they have expected.
Yes. That sounds lousy for the client. But for the federal government, who you think would be the winner, they don’t really see it that way because that extra revenue doesn’t come in during that 10-year budget window.
So with the Roth, where you’re paying the taxes now, it looks like there’s no difference, right? The fact that [the government] may be giving the store away later on, because it’s all tax-free, who cares? Because that’s someone else’s problem more than 10 years from now.
So there’s kind of both ends of how that looks. There’s the pitch to the American public, and also from a budgetary perspective. And in fact, if we go back to that change I referenced earlier, for 2010, where you were able to spread income out over two years, the other big change that year was before 2010, high earners could not convert.
If you made more than $100,000 per year, you could not convert, period, bar none, end of story. It didn’t matter how much you had in a Roth, or a traditional IRA. If you had more than $100,000 you could not convert.
Well, that was changed under a Republican administration at the time, effective for 2010. And the reason they did that was they wanted to make their bill more revenue-neutral. They passed some tax cuts and they said, “Well, where are we going to come up with the money to offset these tax cuts? Hey I know, let’s have a bunch of rich people convert [retirement accounts]—that’ll bring in more dollars today in our 10-year budget window. And therefore we’re going to be able to make this a more revenue-neutral bill.”
It’s a game that’s played by both sides in Washington to an equal degree. And I promise that this is really something that truly is both sides. We could go through all sorts of examples. Democrats are doing it now, Republicans did it in 2017 with the Tax Cuts and Jobs Act; it’s just part of the game.
Right, right. Jeff, I see we have a question from somebody at Lifetime Paradigm. They say, “If the government wants revenue for Roth conversions, why are they proposing restrictions on that?”
Jeff: It’s a great question. So let’s dive in real quick then to some of the proposals that we are looking at for 2022.
So the proposals that would curtail conversions are twofold in the current version of the draft legislation. One would stop conversions of after-tax dollars to Roth IRAs beginning January 1, next year. So let me put that in simpler terms. No more backdoor Roth, no more mega backdoor Roth beginning January 1, 2022. That is proposed; it’s not law yet, but it is part of the current draft legislation. And it appears that it’s going to continue to stick in there. We’ll see, stay tuned. Obviously we’ll let you know.
But let’s just assume that happens. There is zero budgetary impact because of that, because they’re not saying you can’t convert, what they’re saying is you can’t convert the after-tax dollars. Well, the after-tax dollars are tax-free dollars when you convert them because the tax on them has already been paid. So there’s no budget impact.
Now the other restriction they’re looking at putting in place is stopping conversions, period—not just on after-tax dollars, but on pre-tax dollars too, for high earners beginning in 2032. That would be for those who are single with income of more than $400,000 or those who are married, filing joint returns, with income of more than $450,000.
So that is for 2032—10 years ahead, you will notice. And now let’s think about what we were just talking about here with a 10-year budget window. If I allow those conversions to stick around for the next 10 years, I show all that rich-people conversion income on my budget for that 10-year budget window.
The fact that I would get rid of it in 2032 might actually hurt someone in 2023 from a revenue perspective, but if you’re Congress today, who cares? Because you’re just looking at that myopic 10-year budget window, has no impact whatsoever.
And again, both parties when they want to pass bills and play games with things change these. For instance Republicans have talked about Democrats raising taxes in 2026 because they won’t renew the Tax Cuts and Jobs Act cuts.
The reality is when Republicans were in office just a few years ago, in 2017 when they had control, they passed the Tax Cuts and Jobs Act and they made corporate tax cuts permanent. And instead of making individual tax cuts permanent, they put a sunset on it. And the reason they sunset those provisions was that they said we won’t increase the deficit by more than $1.5 trillion. That was the cap that they set themselves on a CBO score at that time. And by making the individual and corporate cuts permanent, it was going to balloon way past the $1.5 trillion mark.
So by saying, “Hey, we’re only going to have a tax cut for individuals until 2025,” that was able to bring down the total cost of that bill. Of course they hope to extend those. Sean, we talked about extenders for years, right? Of things like QCDs, which used to be on two years, off, on, off, on, off, on. It was always like, “Are they going to extend it this year? Are we going to have them? Is it going to be next year?” The reason Congress did those things, and continue to do them to some degree is because if you put something in the budget for two years, if it’s an expense, all you have to do on that 10-year budget window is show the expense for two years.
Now you may know in reality, as Congress, you’re going to come in here and renew it in two years, because you always do, but it looks good on the budget at the time. And so that’s why the conversion, to the question that was asked, that’s why they’re talking about getting rid of them, is because neither of those provisions, getting rid of after-tax conversions effective next year, or stopping conversions for high-income individuals, but outside the 10-year budget window, doesn’t actually hurt them.
And I would say this Sean, I’d add one more point, and that’s even if they pass this bill and that 2032 restriction of future conversions is in there, I’ve gone on record already saying I think by the time we got there, I don’t think it would stick for two reasons.
One, someone in 2023 is going to want to balance a bill and they’re going to look and say, “Well, gee, if we just had Roth conversions for wealthy people, look at all this extra income we’d have. Sure we could do that thing that costs money, or hey we can lower taxes for this group that would benefit and we’ll offset it with this conversion income.” Someone’s going to want to do that.
The other thing is this, you have restrictions on people at certain income levels, but how do you know your income at the end of the year? Sean, what if you converted today, and I don’t know, look, I hope you make many millions of dollars a year, Sean. But let’s just say you’re planning on being at $300,000 of income this year, below your income limit. But tomorrow you go out and you win the lottery. Congratulations. How would you know that? How would you know you were going to win the lottery? But you converted yesterday. How do you undo that?
Well, back before 2010, when there were income restrictions, you had the recharacterization, there was a mechanism for undoing that; now it doesn’t exist thanks to the 2017 Tax Cuts and Jobs Act. So what are you going to do? Are you going to bring back re-characterization, but only for rich people? That’s not going to go over very well.
So while it’s there, it’s in the bill and I could actually see it getting enacted…I don’t think it would stick around in 2032. It’s far enough away that I’m not paying all that much attention to it, if that makes sense.
Sean: So our friend at Lifetime Paradigm now also asks, is there a conversion exemption for IRAs that are already funded by December 31 of this year with after-tax dollars?
Jeff: No. And again, I’m just going to emphasize one more time, we are talking about proposed legislation. The problem is, there is often not much time to plan once legilsation get enacted, like the Secure Act, probably the best example, passed December 20, began impacting people 11 days later. Not much time in which to plan.
I’m hoping that we get some movement here [this] week. That is the hope. But maybe we don’t get this thing passed until mid-December or later, and now you’re kind of in a quandary. I would say that you should pretend as though that it’s going to be enacted. If it’s not, and you take action today, no big deal. But I would assume that it’s going to happen.
So effectively, if you want to do a backdoor Roth IRA, you must contribute and convert those dollars this year. That’s the mindset that you should have. Not only contribute, but also convert. The question has come up repeatedly, Sean, from folks…well, does this mean I can’t make a non-deductible contribution in March of next year for this year? Right? Like, my client typically goes to the CPA. The CPA says, “Did you make your IRA contribution?” They say, no. Then they call me up. Then they make it. And then we convert.
Well, sure, you could still make the non-deductible contribution, but here’s the thing. What are you going to do with it once it’s in the traditional IRA? The rule doesn’t stop contributions that are non-deductible. It stops you from converting them. And most people who are making those contributions are looking to do so because of that second part, right? They’re looking to make the conversion. So if you want a last hurrah, if this goes through, you’ve got to do the contribution and the conversion in this year.
And I would add one more point, Sean. The question has also come up repeatedly, does this mean if I have an IRA with pre-tax and after-tax dollars, does that mean I can’t convert at all because I have like $1 of after-tax money in here? Or is it just I can’t convert the $1 of after-tax? And I would say the actual draft legislation does not do a great job addressing that. There’s no clear answer to that there. But I would be willing to place a large bet that it is just don’t convert the after-tax dollars. So if you have, let’s say, $80,000 of pre-tax money in an IRA and 20,000 of after-tax, I am fairly certain that you would be able to convert the 80,000, just not any more.
And that’s very similar to things today, like we have a rollover from an IRA into a plan. You cannot roll in after-tax dollars. Doesn’t mean you can’t roll in any money at all. But if you had that same situation, 20,000 of after-tax, 80,000 of pre-tax, you could only roll up to 80,000 into a plan. I think the IRS would implement just like that.
Sean: Right. So our friend at Lifetime Paradigm has one final question. Please confirm that there are no proposed restrictions for the conversion of pre-tax IRA conversions. Correct?
Jeff: So, there you go. So that’s been a common one as well. And again, the answer to that would be no until 2032, right? Then if you’re a high-income individual, as we defined, with more than 400 or $450,000 of income, then yes, there would be those restrictions at that time.
Sean: Right. So Jeff, we’ve been talking for 28 minutes now and you have kind of taken us from the beginnings of IRAs and 401ks, and all the changes and permutations, and I think that it sets up for us…It’s time to discuss your observations over the years about advisors’ knowledge levels and really their expertise on these topics. Because it’s just getting…It’s a history of it getting more and more complicated, it seems to me. So can you talk a little bit about what you’ve seen over the last 15, 20 years in terms of advisors who are all over this, who aren’t all over it, who are uncertain whether they need to be all over it? What are your thoughts on that?
Jeff: Sure. I think, like anything, there’s a wide spectrum, right? There are those who have devoted tremendous amount of time and resources into studying this area and believe it’s part of their duty, their mission to make sure that they’re on this for their clients. There are those that completely shun this right, and actively so, and look at it as, “Hey, I am my client’s investment professional, and if they want anything to do with taxes, they can go find someone else.” Then there’s a lot of folks in between.
What my challenge is, though, over the years, or the thing that has concerned me the most over the years, is that most people fall into that category of, “Yeah, I do see myself as more than just an investment person. I want to give my clients more holistic advice and to…” I hate that word, because it’s so overused, but, “I want to be there to support my client in more areas and to do better planning beyond just how much should be in stocks and bonds and mutual funds, et cetera, and helping them with their retirement planning, whether it be what accounts they’re contributing to, whether they should be converting, creating tax efficient distribution plans to maximize the length of their portfolio.” We could see examples where two portfolios invested exactly the same, but distributed differently can last for dramatically…you can distribute correctly and maybe extend the life of a portfolio another 5 or 10% just because you are doing it in a tax-efficient manner. That’s not an unusual scenario to see someone be able to extend a portfolio like that. And that’s incredibly valuable stuff.
The challenge or my biggest issue over the years has been this kind of gap between those who have the altruistic desire to do that sort of stuff, like, “I want to help my clients, I want to be involved in these things,” and then this kind of…If you think of like a four-box quadrant, a two-by-two grid, you either know you don’t know, right? Like, “All right. Not great, but at least I know I don’t know so I can avoid giving advice in those areas. It’s certainly better than the alternative. I know I don’t know.” Then there is, “I know I know.” That would be ideal, right? Then there is, “I don’t know I know,” which is odd, but maybe someone lacks confidence, they really do know more than they…And then there is that, “I don’t know that I don’t know box.” That fourth, unfortunately, is where a lot of financial professionals find themselves.
And I could do all sorts of anecdotal stories of, “Hey this happened with this person, and I got a call this time and thought that the best thing I could do is to share the data.” This is empirical hard, hard numbers. You know, Sean, when we first started the Savvy IRA program, a long time ago, actually already…It seems like it’s yesterday in some respects, and seems like it’s ages in others. But when we first started this program, that was one of the things that was a discussion between all of us, was what is the knowledge base? And we asked what should not be particularly difficult questions for advisors.
And Sean, you remember, the results were pretty bad, right? Like, most people got more than half the questions wrong. And on three of the seven questions we asked, advisors actually scored so statistically poorly that, had I given my two-year-old here at home of crayon and blindfolded him and said, “Hey buddy, circle an answer on the paper,” he would’ve scored statistically higher. Right? Like, it was not a great showing for our profession. And I’ve seen that borne out repeatedly over the years, and that is the most dangerous area. Because on the same test or survey before people actually answered the question, we asked them to rate their knowledge. We said, “How smart are you?” Or not how smart are you, “How knowledgeable are you in certain areas?” Not a smart thing. People can learn. It was just, “Have you taken the time to do it?”
And what was different about this program, maybe with respect to some of the others. I remember looking back at the Social Security stuff, when that program was first distributed. And the good news was, when you asked, people said, “I don’t know. I don’t know the answer to this, but I know I don’t know the answers. I have no idea what the answer to this question is.” When it came to the IRA stuff, like we asked on RMD, “How knowledgeable are you about RMDs,” and people across the board put four and five out of five. And what we found was when we asked the question, that wasn’t the case.
And since that time, I’ve probably done 500 presentations in some way or another and asked questions of, “Hey,” to the audience and polled and so forth. And we’ve continued to see the same results. Again, there are those who take the time and educate themselves and figure out what they really need to know in this area. But oftentimes, the biggest…My two most common items of feedback after a discussion are, one, “I had a lot more fun than I thought,” or like, “Hey, we laughed a lot more.” Which is always my favorite, right? Like, keeping CE and education interesting to me is like, that’s my passion. I can’t stand boring education.
But the other one is, “I did not realize how much I would learn or how much of a gap there was.” And those two comments really are what…I know you mentioned our upcoming course, but they drive me for that course and they drive me in general to illuminate the areas where light has not been shed on adequately before and to keep it interesting. Because if you are more interested, you’re going to be more engaged. And if you’re more engaged, you’re going to learn better. Look, as someone with a lot of designations and letters after their name, I have to do a lot of CE a year. And I know, and some of it in certain areas is better or worse than others, but from a CPA perspective, I could tell you, it always reminded me of the Ben Stein commercials, right? Like, “dry eyes, dry ...” and it was just boring, boring.
So that’s my mission in life, Sean, is to illuminate the areas where we need to illuminate and to keep it light and have fun. Because, I mean, it makes it more fun for me too. We have to laugh.
Sean: Right. Of course. Can you talk a little bit about what you’re hoping to cover, what you’re expecting to cover during the workshop [this] week?
Jeff: Yeah, sure. We’ll certainly touch on required minimum distributions and highlight some of the rules there, but also some of the planning that can be done around that and the ways you minimize taxes. We go into should you convert, should you not convert? And deep dives into all of those sorts of issues. So let’s go through the 10% penalty exceptions and understand why, and should we be doing a rollover or not, et cetera, because of the creditor issues? And how does that work with bankruptcy protection, et cetera? The last thing you want to do is do a rollover and then have someone come in and take all your client’s money. That’s not particularly good. That’s not good planning.
We talk about Roth conversions, that’s a big part of the program. How do we make these things as efficient as possible? What are the strategies that we can use? Who are the people that we should be targeting? There are some very obvious candidates and we always touch on those, of course. But then there is the less obvious candidates and I enjoy spending more time there because those are the ones that we don’t think of. That’s that shining the light and illuminating the area that may not have been seen before. Certainly spend a lot of time on estate planning with IRAs, whether that’ what we do after death with spouses and the exceptions that they have, or using a trust as a beneficiary.
And of course, it goes without saying that life for IRA owners and 401(k) owners dramatically change with respect to how they deal with beneficiaries after death, thanks to the SECURE Act. So we spend a good amount of time on how to deal with the 10-year rule and how to mitigate its impact for those who have saved in their IRAs over the years. So those are just some of the highlights. There’s certainly a lot more that we get into as well. But one thing that’s constant is change. So we’re always evolving and keeping up on the latest and greatest, and this year it looks like there’s going to be no exception. And next year may not be either, because earlier this year there was a lot of talk of the SECURE Act.
I think because of the delay in getting through this larger reconciliation bill, that may not happen this year anymore, but it’s worth noting. It came out of the House Ways and Means Committee with 100% unanimous bipartisan support. Now you heard me correctly. I know, some of you are like “Wait, bipartisan?” Did he say that? Yeah, bipartisan support and that might have further impacts to retirement accounts. Maybe push back the RMD age again to 75, a whole host of other things.
The one thing I will always say to advisors is this: whether change is going to impact you negatively or positively personally, like your personal tax return, it’s always good for business. Even when we were looking at, let’s say higher tax rates for a lot of folks earlier this year, that 37% becoming 39%, which now that looks like it’s off the table.
It’s not going to hurt your take-home because you’re going to be able to go out there, use that knowledge and use the changes to drive new business. The example I always talk about is some of the more gray-haired, I really envy them because they have the gray hair. I will never experience such a thrill, but some of our more gray-haired CPAs in the field that I spoke to when I was going through my tax training, they always talked to me about 1987 being a great year for them. And you say, “Why?” Well, because in 1986 they passed the great tax simplification. And so in 1987, they spent the entire year charging people to explain the simplification.
And so, it’s just one of those things where change is always good for you if you’re willing to invest the time and resources into knowing how to capitalize on that change. And anytime there’s change, it means you can be the leader in the clubhouse. Someone today has been looking at the current rules for a really long time, but when they change, you’re on a level footing. No one has that advantage over you. And so it gives you a great ability to get off running, get out information early, and attract people to you rather than push people to you. The great laws of attraction work well there.
Sean: Absolutely. And every time I’ve talked with people after one of your Savvy IRA workshops, they always tell me, “I’ve got several pages of bullet points here of things that I need to sit down and talk with my clients or talk with my team about in the weeks and months ahead.” And I think you’ll be teeing that sort of thing up for this Savvy IRA workshop group as well.
Jeff: Yeah. I’m looking forward to it. We always have a good time and they say timing is everything. There’s a good chance that at some point during, or at least a reasonable chance at some point during that, we may actually get some news here and see a House vote on this bill.
Sean: Right in the middle. Who knows? Who knows?
Jeff: Yeah. That’s it. We’ll have breaking news right in the middle.
Sean: It happens. So we have one final question and then we’ll sign off. Our friend from Lifetime Paradigm was just asking about the recently passed infrastructure bill. Is there anything off the top of your head, Jeff, on that?
Jeff: There’s not all that much from a personal financial planning perspective. I mean, there was a limitation in there for the employer retention credit for Q4, but it really was much more about spending. It was much more of a spending bill on roads and bridges and green energy and all that sort of stuff. There’s not a whole lot in there that planners really need to be aware of. What I’m finding though, is people are lumping together the two bills. There’s two pieces of legislation. The infrastructure bill is not the bill that we’ve talked about so far. That’s not the thing that has the Roth changes in it for backdoor Roth. It’s not the same that creates the surtaxes. It’s not the thing that changes the rules for S corporation taxation of profits.
None of those things are in that bill. That’s all in the Build Back Better Act, which is a separate bill, which is right now hanging out while it gets scored by the CBO. So effectively at a high level, the way they passed the infrastructure bill was they got the progressives on board. The progressives wanted to vote. And when I say the progressives, I don’t mean the Democrats. I mean the very progressive wing of the democratic party. So infighting within their own party, the progressive branch of Democrats said, “We don’t want to vote for this bill, this infrastructure bill, until we know that this human infrastructure bill, the investments into keeping the child tax credit for next year and so forth, until we know that’ll be passed.” They got enough assurances from moderate Democrats that they would vote for it, but they wanted to wait until the final CBO score to make sure it aligned with the administration’s projections.
So the CBO released some numbers yesterday. They’re working and they’ve come out and basically said, “We’re working as fast as we can. We’re sorry. We’re going as quickly as we can.” Should expect to see some more of that today. And if the CBO is able to get out the rest of their projections in the next few days and they’re in line with the previous estimates, then I think we’re green light go on that second bill. If not, those moderates have pledged to work with the administration to come up with some compromise. So it’s a separate bill infrastructure because Senate already did it. It’s basically done, whereas here, the House will vote on it.
Even if the House votes for it, we’re still going to have to get it through the Senate. Senator Manchin, Senator Sinema, in particular have not come out and said, “100%, yes, we will vote for this as is.” Nor has Bernie Sanders. He wanted some different provisions in there on the SALT Cap. And so it’s no guarantee, but it is still extremely likely that we will get something here done before the end of the year. As I said previously, Democrats will not go into an election year having done nothing on that front of this year. They will pass something. We just have to stay tuned to see what exactly that is.
Sean: All right. Well, Jeff, thanks so much. Everybody, you’re invited to spend a few hours every day in Jeff’s Savvy IRA Planning Workshop Monday through Thursday, noon, Eastern standard time to 3 p.m. It’s totally virtual. There’s a link out there for you to click on and get signed up. Jeff promises it’s going to be fun, it’s going to be informative and it’s going to be actionable. You’re going to come out of that and there’s going to be things for you to do, value to deliver to your clients, opportunities to meet prospects and educate them. And like Jeff says, it’s always a lot of fun. So we hope to see you there. And Jeff, thanks so much for being on and we’ll see you [Monday, November 15 at noon].