Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

You Don't Need A Tax Preparer. You Need A Tax Planner.

• Ari Taublieb, CFP®, MBA • Episode 225

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This episode emphasizes the critical difference between tax planning and tax preparation, illustrating how strategic planning can lead to significant tax savings over a lifetime. Throughout the conversation, we explore essential insights on why relying solely on CPAs may not be enough, the importance of proactive financial coordination, and when to utilize tax strategies for optimal retirement planning.

• Defining tax planning versus tax preparation 
• Real-life story illustrating CPA limitations 
• Importance of holistic financial planning 
• The cauliflower analogy for tax strategy 
• Benefits of Roth conversions and tax gain harvesting 
• Encouraging early retirement for tax flexibility 
• Proactive vs. reactive financial advisory approaches

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Ari Taublieb, CFP ®, MBA is the Vice President of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

Speaker 1:

You guys are in for a fun episode. Do you remember story time when you were a kid? That's what today's gonna be all about. Now I am going to be going over what the heck is tax planning versus having a tax preparer and I'm gonna explain to you a story that hopefully, is going to resonate with you, and I'm gonna tell it to you right now. So I had a client come to me this was months ago and he said Ari, my CPA sucks. I said look, that's kind of a weird word and it sounds kind of mean Like why do they suck? They said well, they didn't tell me tax brackets are going to change soon and that should impact my retirement. I said that's fair. What else? They said well, they didn't tell me that when I withdraw income in retirement, if they're from inherited funds, there's a schedule that I can withdraw from to optimize the tax that I pay. I said another good point, what else they went on and on about? They didn't tell them about Roth contributions versus Roth conversions, versus this, versus that. I said oh, I see what's going on. I think you're beating up a waiter. And they said I have no idea what you just said. I said I think you're being up a waiter. And they said I have no idea what you just said. I said I think you're being really mean to a waiter who is your tax preparer, who's trying to bring food to your table and 500 other tables. And I paused and they said, huh. I said you're mad because your CPA is not doing everything that you see on my screen here, and just for those of you listening on the podcast app, I'm going to explain this as well. But, once again, I do all these episodes both on the podcast app and on YouTube. So if you want to watch this on YouTube, you can see it here.

Speaker 1:

The difference here with tax planning is we are the ones doing the Roth conversion analysis, the tax loss, harvesting the tax gain, harvesting the charitable, the healthcare, the real estate, equity compensation, and so they said okay, so like, have I been like incorrect as to what my CPA is supposed to do? And I said kind of, because your CPA it's not a competency thing. They don't have the capacity to be able to file your return and be proactive with your planning because they have so many clients. They're just trying to file your return and if they do a good job, they're hoping that you pay them again next year, and so the difference between what a CPA does and what we do is very different. We do what's called tax planning and our goal is to ensure that your tax strategy is minimizing your lifetime tax bill, not just a single year. So all of these strategies, this checklist of what do I do with the business, what about Social Security? What about charitable giving or saving strategies this is generally what a tax planner does.

Speaker 1:

So I imagine most of you out there, if you have a financial advisor, if you were to go ask them this and I encourage you to do so and say, hey, I have a tax question, can you help me? They would probably say you should go talk to your CPA. And then, if you go to your CPA and you ask them any question about investing, they're going to say, yeah, you should go talk to your financial advisor and you are going to be playing middleman with a new job as a coordinator. So the second story before I go through some real examples for you guys because you know I always want to hit both of those during these episodes is someone came to me and they said I'm retired, and I said I don't believe you. And they said, well, you're nuts, Like you don't sleep next to me, so how the heck would you know? I go, yeah, I just don't think so. And they're like well, you're crazy. I said I am a little nuts, but that's beside the point. I said I bet you're going to coordinate your retirement between a financial advisor, a CPA, health insurance agent and a state, and on and on and on. And they said, yeah, isn't that like how this works? Isn't that how I do this? I go no, that's what an advisor should do. They should be your quarterback to do all the holistic planning.

Speaker 1:

So we are the ones that identify hey, should we be doing conversions? Should we be doing this tax strategy? We don't file your return. We work with a CPA of your choice, or you, if you're your own CPA, which, yes, sometimes I recommend people firing their CPA because it's a simple situation and they can do it themselves. Other times they'll go look, it's like, just, I don't have to do it, it's nice, you guys are going to coordinate it for me. My life's even better. We have people that do both of those.

Speaker 1:

The idea here is, with tax strategy, there's a reason that I talk about this like crazy, so you can see it on my screen, but I'm going to be able to explain it for you guys equally as helpful today. So the whole concept behind the strategies I talk about when someone retires early is this idea of cauliflower. Now, many of you have heard this before Cauliflower like literally the vegetable. Now I kind of regret it because cauliflower is pretty good and some people are like you should have chose a different vegetable. But you know, whatever, what vegetable is worse than that? Put it in the comments or send me an email and let me know. So here's the idea.

Speaker 1:

The idea is a lot of you make a really healthy income and then when you retire, you go. This is amazing. I paid so many taxes while I was working. Now I'm retiring early and I have this opportunity to, like, pay no taxes. How great is that? I mean, I just paid so much for so many years and some of you will do that. And then later you're hit which what is called required minimum distributions, where eventually your 401k or IRA forces you to take out more money than you'll probably need. At the same time, you have Social Security. At the same time, you're probably spending less because you're in your mid-70s, so your health and energy isn't the same. So you kind of have this big tax bomb coming.

Speaker 1:

So some of my clients go. I get your story. What the heck is the point? Right, and I'll say the point is, when you retire and have the opportunity to pay no taxes, I want you to pay taxes. And they're like okay. So all you confirmed was you're the worst financial advisor ever. I go, I hope not, because I hope what you just see here is if you're willing to eat a little cauliflower or pay a little bit of taxes during your tax window, the time from when you retire until Social Security gets turned back on or other income sources like a pension, come back on. Generally, if you retire at 60 and you're going to turn on Social Security at 67, that gives us seven years to do really good tax strategy. It can make a big difference. So if you look on my screen here and I'll explain it equally for those podcast listeners this is showing 400,000 more tax dollars, and the reason it's showing that is because here's someone that's currently 54, and then they retire and at 56, there's no more income. So the green is them doing Roth conversions and they're retiring really early. So their required distributions are not going to start until 75. They've got a long time to do these conversions.

Speaker 1:

Others of you not real English right there, I don't think others of you is a real thing, but many of you should, I say will go oh, that's so cool. Why don't I do more of this fancy tax strategy? And if you look at my screen again, you're going to see it's going to show and I'm going to explain it's going to show and I'm going to explain it once again. I'm a podcast listener myself and when I listen to podcasts who say what I just said, I'm like hey, can you make sure to explain it good for the listeners over here that are not watching on YouTube with all those ads. So there's $1.8 million fewer dollars from the strategy on the screen here because some people come and they go.

Speaker 1:

I'm so excited to do this tax strategy stuff you talk about. Ari, I did it all right when I retired and I'm like don't do it all because you paid so much more in taxes than you needed to. But the reason tax strategy is such a big thing is it can be the difference of literally 1 million plus tax free dollars versus someone who's going. Actually, I'm going to try to be more intentional with my strategy. And so, because of that, maybe, if I'm, you know, doing the right conversions over time, maybe there's, you know, 200,000 more tax free dollars versus some people all say I wish you did nothing at all and they go what do you mean? That's not tax strategy. And I go. I'm going to tell you the best tax strategy ever Ready. And they go okay, I go.

Speaker 1:

The best tax strategy ever for your plan is to stop working, and I want you to stop tomorrow because if you keep working, you're just going to be adding more income to your tax deferred accounts, your 401k, which is already very healthy. So by you continuing to work, you're not giving me, your advisor, the opportunity to do this tax strategy. So I have a client that has $6 million in their 401k and they're in their 60s and they don't like what they do. And I'm like look, you don't need to keep working and in fact, if you were to stop working and your income became zero next year, we could do Roth conversions, which could make you way more money than when you were working. And then they're like wait a second. So, like I make a hundred thousand a year right now, you're saying maybe I should stop working, do this conversion thing, because it might make me even more than that. I go, that's exactly right. But then I'll go even deeper and go. The next step is to go. Wait a second, maybe we also spend more money.

Speaker 1:

And the mistake that I'll see people make in an unethical practice that I'll see advisors do is they'll say hey John, hey Jane, why don't you guys? Just, I think you could get by on 4,000 a month in retirement. So that big travel? Yeah, don't do that. Oh, help kids? No, don't do any of that. Trust me, you should just live off 4,000 a month, you'll be fine. Well, what that advisor might be doing now, this is malicious thinking, but I've just seen it. So I'm being honest with you guys.

Speaker 1:

That advisor is basically saying why don't you enjoy your retirement less? I don't know if you just heard the honking outside my door, but they're equally upset right now, so just messing around. But by you spending less money, your 401k will grow more, because I'm not pulling as much from it, so it's going to keep growing, which means your tax burden will be even bigger, which means the Roth conversion value it will look more important, meaning if you have $5 million or $500,000 and you want to do Roth conversions on your screen, if you run a projection like what I'm showing you which, yes, you can do that inside of this Academy tool Well, it's going to show that you're going to have way more money. If you have $5 million and do Roth conversions because it's basically saying $5 million and I'm just taking my basic calculator here If you take 3.8% of that, what's happening is that's $190,000 that you have to start taking immediately the first year and you probably have social security and other income sources. So you might have like $250,000 that you have to take out when you're 75, and then 280, and then 300, and then 330, and then 370. And so now you're going to be 80 years old, having to take up $400,000. And so it'll look like Roth conversions are super valuable. But you know what the better hack is before doing these fancy tax things? Maybe we retire way earlier, maybe we spend more money, because that's the easiest hack to all of this and that's why this analysis needs to go deep. So, yes, tax strategy is huge. Yes, you should stop beating up your CPA if you're worried they're not doing the best tax strategy for you in the world Some of you, by the way, are CPAs listening to the show and you're like Ari, you're speaking my language.

Speaker 1:

Why don't people recognize that, like I don't have the capacity to do this, I'm filing returns all the time. Others of you are like, look, I would love to do this. I just want to make sure. Meaning CPAs, I'd love to do this. I don't have the capacity because, once again, I'm so busy.

Speaker 1:

So, hopefully that you can see this tax planning, this tax strategy. This is one of the big reasons people reach out to Root, because this is what we specialize in. It's coordinating the taxes with the overall holistic strategy. And you can see on my screen. If you want to go, run your own projections, which I encourage you to do, and I'm explaining it for you podcast listeners if you click here and here doesn't help you podcast listeners, but if you're on my screen, you can basically choose to look at a tax return of yours in the future. So you could look at a 2030 return or a 2035 return, or you could basically create scenarios to understand your income better. So in the future you can see, maybe I should eat some cauliflower, maybe that doesn't make sense for me.

Speaker 1:

So hopefully, this was helpful, just thinking deeper on this tax strategy, this tax planning versus tax preparation. What's the difference? What do I need? Some of you guys are reaching out to me going. I really want to work with your team and get this tax strategy and I'll say you don't need to pay us. Yet. You're 45 years old with a million dollars in your 401k. You should start saving to your superhero account. You should start investing, being more intentional, but you don't need to start this tax strategy to this degree.

Speaker 1:

This cool concept I'm talking about Roth conversions, or paying 0% in taxes, which I didn't go over today called tax gain harvesting, where you intentionally sell something to not pay any taxes, which is what a lot of the very wealthy people do. That is something that you should do when your income is dropping, when you determine I'm in a good spot to retire early. I now want to even put some more gas on that fire to make me more tax-free income which, by the way, that is my background. I worked at a company called Nuveen specializing in creating tax-free income, and I said why isn't anyone talking about this stuff when someone retires early and you can massage their income? And they told me don't worry, ari, that's old, boring people and I said don't worry, I quit. So, with that being said, I'm a very transparent guy. Many of you know this. I joke that I'm the meanest financial advisor. I try not to be mean In fact I don't think I'm mean, but I'm very transparent and I just that's how I live my life.

Speaker 1:

So hopefully this was a helpful episode. If it was, let me know, send me an email, drop it in the comments, literally any way you guys want to. Let me know. I love getting to make videos for you and keeping them different and keeping them special and trying to keep it fun and entertaining at the same time. So doing my best for you guys. Love you. I'll see you next week.

Speaker 1:

Thank you for listening to another episode of the early retirement show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom, and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. I certainly appreciate it and I will see you all each week. Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again, please. Someone who you think will benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom, and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, please be smart about this and I will see you all each week. Thank you for listening to another episode of the Early Retirement Show.

Speaker 1:

If you have a question that you this podcast should be construed as financial, tax or legal advice, consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please do rate it, review it and share it with someone who you think would benefit from this information. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for information only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, tax or legal advice each week. Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom. Consult with your tax preparer or financial advisor before taking any action. Thank you all for listening. Please do rate it, review it and share it with someone who you think will benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. I certainly appreciate it and I will see you all each week. Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom, and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think would benefit from this information. If there's anyone out there that you know, I certainly appreciate it and I will see you all each week. Thank you for listening to another episode of the Early Retirement Show. If you have a question that you want answered in a future episode, you can always go to my website, earlyretirementpodcastcom. That's earlyretirement should be construed as financial, tax or legal advice. Consult with your tax preparer or finance advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. I certainly appreciate it and I will see you all each week. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only. That you want answered in a future episode. You can always go to my website, earlyretirementpodcastcom. That's earlyretirementpodcastcom, and you can go ahead and submit a question that I'll look to answer in a future episode. Thank you all for listening. Please do rate it, review it and share it with someone who you think will benefit from this information. If there's anyone out there. That you know. I certainly appreciate it and I will see you all each. Hey guys, it's me again. Please be smart about this. Nothing in this podcast should be construed as financial, tax or legal advice. Consult with your tax preparer or financial advisor before taking any action. This podcast is for informational purposes only.