The Mark Perlberg CPA Podcast

EP027 - Long Term Financial Planning w/ Joe Clark

June 05, 2023 Mark Episode 27
The Mark Perlberg CPA Podcast
EP027 - Long Term Financial Planning w/ Joe Clark
Show Notes Transcript

Long Term Financial Planning with Joseph Clark

Long term financial planning is essential for helping individuals and families reach their financial goals, and can help one plan for retirement, save for college tuition, or have a safety net in case of an emergency. But how many of you actually do it? This is one of the many life skills they left out of the school curriculum! Join me and Joseph Clark, CFP as we discuss key strategies to plan for your future. Joseph has advised thousands on topics including family financial planning, legacy planning, trusts, retirement planning, tax planning and charitable giving.

Some key topics discussed are:

  • Collaboration Between Client, Accountant & Financial Planner to Optimize Savings
  • Roth IRA Rollovers & Conversions
  • Inheritance of IRA’s
  • Capital Gains Planning
  • Passing Retirement Accounts to Heirs
  • 401K’s vs IRA’s



About Joe:

Joseph A. Clark, CFP, is a Certified Financial Planner and has been in the financial services industry for more than 35 years. He is the Managing Partner of The Financial Enhancement Group, LLC, an asset management and financial planning firm based in central Indiana. The firm currently manages more than $650 million serving families in 31 states. Joe is also a former Adjunct Assistant Professor at Purdue University, having taught the Capstone course for the Financial Counseling and Planning program for 7 years. He is a Charter Member of Ed Slott’s Master Elite IRA Advisor Group and has appeared on various national and local media outlets. For the past 20 years, Joe has been the host of a weekly radio program “Consider This Program” and writes a weekly column for The Herald Bulletin. Learn more at https://yourlifeafterwork.com/

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welcome everybody. We are joined here by Joe Clark. He is a certified financial player, and we're going to answer your questions and we're going to Riff and talk about

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Mark Perlberg: planning financial planning tax strategies of session, planning, and all that great, so that he helps his clients out. Joe, can you introduce yourself in 60 s or less?

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Joe Clark: Sure, My name is Joe Clark. You'll find me if you go online under Big Joe more than you will, Joe Clark. I've spent a lot of my life in hosting a a radio show for 25 years, being a columnist best-selling U.S.A. Author.

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Joe Clark: I really don't care any about that. Then on Cnbc. And Fox business over a 100 times, and I don't care about that.

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Joe Clark: What I care about is taking care of families that don't want to worry about their money, so I get a lead. A team of 38 people we collaborate, and that's that's kind of our forte primarily with Cpas marks a friend of mine. That's why I agreed to do this conference

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Joe Clark: and and and be out there. But we help people understand their money, and one of the biggest parts of that is understanding how their tax return works. I call it a stowaway

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Joe Clark: on your financial journey, except the Irs is unknown. Stowaway people just choose to ignore them until they are too late. I want to bring that stowaway or the Irs to the front and center. Help you figure out ways to deal with it as a real estate investor, or wherever you may happen to be in your financial journey.

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Mark Perlberg: Great.

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Mark Perlberg: and to to those of you guys listening. Live. Put your questions into the chat.

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Mark Perlberg: And what I want you. What I want to know now to get started is.

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Mark Perlberg: can you tell? Let's start with a basic question here. What do you think is the biggest mistake

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Mark Perlberg: people make when it comes to planning for their futures and understanding their taxes and their finances?

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Joe Clark: Well, I I don't think most of us understand how to read or return.

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Joe Clark: There's a you know, for for those of us that are not excel lovers and spreadsheet levers you. You have a lot of anxiety when you see that return with a lot of different lines, and what you have to remember

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Joe Clark: is it? It's like a symphony, each one of those lines

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Joe Clark: that tells a story that then winds up being a important for various lines. On your return you have 2 2 lines that are very critical that you need to. You need to be aware of. One is your adjusted gross income.

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Joe Clark: It tells the rules. and this is really technical. Anything that happens above your agi is called above line. Anything that happens below that is called below one. I know very technical.

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Joe Clark: Just as a general rule, things that happen above line are more important than things that happen below line. But you really need to understand the difference in planning

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Joe Clark: from what's called an effective return, which mark's gonna put on your tax stuff for you and tell you your effective return, which is your average rate, that you pay for every dollar that you are.

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Joe Clark: From a planning perspective. You need to understand your marginal rate. The marginal rate is the rate you pay on the last dollar that you earn.

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Joe Clark: So when you look at your tax return you really want to understand the bottom of page one right now. The Irs changes it all the time, but on the 2,022 return

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Joe Clark: it's your taxable income. and that's going to tell you what actually makes it to the marginal rate. So you want to think about your tax return as a series of stare steps.

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Joe Clark: So it starts at 10 currently it goes to 12, and then 22, and then higher from there is based on your income going high. The key thing, mark that people seem to miss

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Joe Clark: is that we all get taxed at that 10% bracket

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you pay on the Federal tax. Return

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Joe Clark: your first dollar after your deductions will be taxed at that 10% level. Whether You're more about the bill, Gates, or or Mark, or Joe. and then you take those steps up.

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Joe Clark: And so what we we help people understand

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Joe Clark: entering into retirement or entrepreneurs is to search for variability of income.

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Joe Clark: and that's where most of those opportunities can come from that you have to understand the difference between tax planning

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Joe Clark: and tax preparation. You need a great Cpa, a good firm that prepares your taxes, that virtually tells the Irs your story.

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Joe Clark: The tax planning is what your Cfp. Or your Cpa, if they're in that line of work, helps you do before the end of the year. How do we prepare the story? So that when Mark does your return

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Joe Clark: we tell the Irs the the most efficient story, the truth. But the most efficient story is possible, so that you can report and pay your taxes accordingly.

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Mark Perlberg: Yeah. So. And

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Mark Perlberg: what we have here is in our profession there. The majority of Cpas.

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Mark Perlberg: our focus on compliance, related tasks and reporting what happened, and that can be fine

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Mark Perlberg: for if that's all the If there are no tax planning opportunities, perhaps

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Mark Perlberg: in certain circumstances, right? So let's say you're maybe you're you're locked into a W 2, or maybe you have a certified financial plan or managing your finances, and you need someone to plug in your W 2. There may be instances

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Mark Perlberg: where you know, and you can't afford to invest or do financial planning. There might be some circumstances where

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Mark Perlberg: go into H. Andr. Block to plug in your W. Twos in April might be what you need, but as you

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Mark Perlberg: you know what, in order to really plan for your future. You're going to need someone to to advise you on your taxes, and

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Mark Perlberg: when when you know we specialize in tax planning, and we always serve clients if we can reduce our taxes. But we're very different from a lot of Cpa. Practices. A lot of Cpa. Practices are more focused on telling you what you owe in taxes, answering your questions and getting the returns out on time is an entire entirely different bottom business model in our profession. The professional organizations that that we are part of most of them that that certify us the current credential us.

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Mark Perlberg: Don't, teach us how to tax plan. so you have to be extraordinary and go above and beyond credentials. If you are a Cpa, or you need someone like a certified financial plan or a Cfa, someone else on in your quarry. If you're going to think about taxes and your long term tax savings.

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Joe Clark: Yeah, I I think it's it's interesting. I tell people that I got my Mba.

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Joe Clark: which I don't have.

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Joe Clark: But I tell people I got it, being a partner of a Cpa firm for 12 years. and what happened is as a Cfp. I learned to mark what I thought. Cpas knew that they clearly didn't.

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Joe Clark: and I learned as a Cfp. What I thought to be true that clearly wasn't. And I think that's where that collaboration really becomes critical.

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Joe Clark: You You have to collaborate in my mind with professionals that have their expertise in certain areas. but you also have to collaborate with strategy, and there is a definite tax planning strategy

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Joe Clark: and a definite tax reporting strategy. And those strategies need the meal they need to work in concert.

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Joe Clark: So our our cup of T, our our specialty, if you will.

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Joe Clark: is that the industry is full of very unique

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Joe Clark: characters with special skills. They do certain things. and when when Mark retires or Joe retires, you know years from now

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Joe Clark: we don't want you to have to start your financial journey over.

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Joe Clark: And so at the Financial Enhancement group. We're very dedicated to a process. So whether it's Joe or Grant or Aaron, or one of my other advisors.

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Joe Clark: You're getting the same story in the same process. We're going to call you the first of November every year to see what your income has been this year. And again, we're looking for income variability.

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Joe Clark: and that's what Mark does in his practice. It's really unique.

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Joe Clark: you know for those of you that are there most Cpas, just because they have those credentials. Don't necessarily engage in tax planning

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Joe Clark: the challenge that I have as a certified financial planner.

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Joe Clark: Is there a lot of people in my industry, the majority of them that ignore the tax return. And that's because they focus on that what I call a one hip. Wonder

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Joe Clark: that they they let Mark tell the story. You get a deal with the consequence, and I want to help you with your financial journey to make sure that you're paying the least amount of tax over your financial journey. Not necessarily in one individual year. That means you have to create strategies and be very diligent

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Joe Clark: in your planning. That's done each year. Mark can help you with that. You're not going to get that at at quick books, or into it, or H. Andr Block. That's not what they do.

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Joe Clark: But this is more than just plugging in numbers, in my opinion. And what the 1,100 plus families we take care of would tell you is essential, and made their financial journeys better.

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Mark Perlberg: Yes, and so you know you. It. It's amazing. There's a lot of opportunities if you collaborate and you can put everyone together if you have a bit, you know, because the Cpa.

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Mark Perlberg: Oftentimes, especially if you're offering additional services like Cfo and bookkeeping. And if you're meeting with your Cpa regularly, the Cpa is going to help to understand and connect you with other subject matter experts when it comes to asset protection and asset protection, attorneys.

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Mark Perlberg: or when, if you have a portfolio, and this is something that we're encouraging people to do. In fact, I'm sending a newsletter out to our clients in the next, probably this or next week. If you have capital gains in your portfolio we want to know in advance.

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Mark Perlberg: so we can look at the implications of that and other actions we can do with your real estate and all the other things.

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Mark Perlberg: In response to that, we can take advantage of of losses, and we can also mitigate the games. So there's we, when you can have

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Mark Perlberg: people align together when we're looking at our planning situation and opportunities. That's where you're going to really have. See a lot of benefit in building. Well, and I would just encourage you to understand what collaboration really meets. Collaboration

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Joe Clark: does not necessarily mean that we agree on everything.

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Mark Perlberg: but it means. We discuss everything and create that cohesive strategy.

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Joe Clark: Right? So I will. I will commonly watch people at the local rotary group or one of the other organizations I'm. Involved in. Say that? Well, my adviser works with this Cpa or that Cpa. Well, what that means is, they have lunch with them every Tuesday at Rotary.

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Joe Clark: right there. There is a difference between me sitting down with Mark looking at your tax return prior to the end of the year. Remember December 30 first. It ends right, sitting down in a very proactive fashion.

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Joe Clark: where we collaborate in a way to tell that best story. That's where that tax planning can really occur. And when Mark's talking about those capital gains or capital losses

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Joe Clark: Again, you really need to understand how that above line issue works to affect your taxable income.

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Joe Clark: There are things in terms of income variability

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Joe Clark: that you need to be very well aware of, and one of those things that I will tell you about are inherited, Ira.

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Joe Clark: Many of you are going to be receiving that. I you know many of your parent, many, many entrepreneurs, do not have large or large, Ira.

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Joe Clark: but your parents likely do. and when they pass you're going to receive that.

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Joe Clark: And what I have found is most people don't understand how inherited Ias work First of all, the 10% penalty, taking money out before 59 and a half does not apply.

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Joe Clark: You can take any amount of money that you want out

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Joe Clark: over a 10 year period of time, and then the account has to be emptied unless your parents were over 73 at the time of their passing.

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Joe Clark: and then you have to actually take it out over their life expectancy. You have to take out some each year.

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Joe Clark: But let's say you're doing tax planning with Mark, and you've sold a property. And suddenly you've got a big capital gain this year.

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Joe Clark: right? You wouldn't want to take any money out of that inherited Ira that you didn't have to take.

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Joe Clark: But now, perhaps you have another year, where, for some reason, because of of a depreciation, or some reason or another something that's changed in the market. You have a loss.

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Joe Clark: Well, Mark needs to know that before the end of the year, and you would accelerate the amount of money that you got out of the Ira, because you would be in a lower marginal bracket that year.

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Joe Clark: And mark, if there's anything that I have seen that is jeopardized people's financial future over the years. It's not maximizing those lower marginal rates when they have income variability.

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Joe Clark: And this is an important thing for you to be able to explain to your parents. It is nothing in common. I live in Central Indiana. We take care of people, in 31 states and licensed, and all 50.

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Joe Clark: But in Central Indiana it is nothing in common for somebody who's got their house paid for

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Joe Clark: to live on 25 to $40,000 a year of income.

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Joe Clark: right? But they may have a 1 million dollar, 401 or ira

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Joe Clark: that you are going to inherit.

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Joe Clark: Right. You need to help your parents understand how these tax returns work because it's going to be in your best interest for them to actually recognize.

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Joe Clark: Get that money out from the Ira what I call this still away inside of your your, your, your financial journey. Get your parents to recognize that at 10 and 12% tax brackets.

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Joe Clark: because you're not going to be at that bracket every year. If you're doing things right.

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Joe Clark: they're likely they at a lower bracket. Get them to take out money, recognize it at that rate, even if you have to give them the money to pay the taxes. It is in your best interest Long term.

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Mark Perlberg: That's really interesting, and you know I've never had the opportunity to talk to our clients about this. and and there, you know, we do have a large population of obviously baby boomers

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Mark Perlberg: that there's a lot of plan to do here, and you know the great thing about the Iras is you can time the recognition of.

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Mark Perlberg: and you can roll them into Roth irres. And then they maintain that Roth Ira status when they inherited right so. And then a lot of senior citizens. They don't need a lot of money, because you know that your biggest overhead, which is your housing. A lot of them have already paid off the mortgage on their house.

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Joe Clark: Let's let's hit that real quick, because a lot of people don't know that rule.

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Joe Clark: So this is one of the reasons where I and and I take care of a lot of engineers. They're very, very bright people, over 250 of them in my practice.

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Joe Clark: and

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Joe Clark: what happens is you don't necessarily need a Cfa, or Cfp or Cpa. I know those are a lot of credentials and acronym. So you you don't necessarily need them every day of your life.

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Joe Clark: But the 2,007 Tax Manual came out.

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Joe Clark: It's about 2,000 pages. It's like this, and yes, that's 15 years ago.

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Joe Clark: and in that 2,007 manual the mark would have gotten if he was already in practice, and and I got in my collaborating Cpa partners got none of us read at all.

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Joe Clark: We're all assigned a portion of it. We know our parts, but if we're not collaborating mark may know one part, and I may know another. You've got to have that that cohesion where you're working together. But in there it's specifically said the same rule that was stated in 1,997,

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Joe Clark: and that was that you could not do a roth conversion in excess of a 100 $1,000 of your adjusted gross income, and that included

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Joe Clark: the amount of money that you did for the conversion. Now, what happened in the middle of the year in an email that I got Mark got you had access to, but probably didn't read

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Joe Clark: the I. The Irs raised their hand

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Joe Clark: and said, starting in 2,010. So that's 3 years further starting in 2,010, you're going to be able to do Roth conversions, regardless of age and regardless of agi

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Joe Clark: right? So the oldest person that I've done a Roth conversion for has been 92

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Joe Clark: right there is the and it makes all the sense in the world, all 3 of her beneficiaries.

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Joe Clark: We're in a much higher tax bracket.

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Joe Clark: She had money in a 403 B. She been a a professor at Purdue University. We took money out of her 403 be put in it. An Ira did a conversion to the Rock Ira up to the maximum at that time of the 15% bracket.

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Joe Clark: It worked out beautifully for her and for her heirs, and it will work for you as well.

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Mark Perlberg: So here's something that we didn't realize. People didn't know. We assume they knew this.

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Mark Perlberg: and it is that the difference between the timing for putting money into doing a roll over and contributing to a tax-ferred account. So you can put your money into the higher iras and 400 one's after the years, and then apply it to the prior year.

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Mark Perlberg: Right before you file. You can put money into that set by all right. even if the year has ended. I can put money in after December 30 first.

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Mark Perlberg: But if you want to do a Roth Ira roll over

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Mark Perlberg: not as much flexibility. So

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Mark Perlberg: you know what you know. And we did 2 for tax planning with all our clients this year, and we for some of our clients. It's been amazing with 100%, both appreciation, 10% owner finding that means 10% second home mortgages on short term rentals, a lot of clients. We were able to bring them down to $0 Agis.

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Joe Clark: Yeah. And so that's and when you have 0 taxable dollars that's fine. This is where you have to put it in the wrong you. You have to be wise right? So some of you or your spouse may have an Ira or 401,

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Joe Clark: and perhaps you're not 59 and a half.

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Joe Clark: and somebody tells you. Well, if you take money out of the ira there's a 10% Federal penalty that's true.

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Joe Clark: But if your tax rate is 0, because Mark's got your income to 0,

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Joe Clark: that 10% penalty is effectively a 10% tax bracket signed me up for that.

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Joe Clark: If I can pay the irs today and be done at the 10% bracket or the 12% bracket.

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Joe Clark: I would I would get the money and write them a check for all of the taxes, and convert everything I had to a Roth at that rate any day of the week.

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Joe Clark: But that is something that has to happen by the end of the year. So Mark used a term called Roll over. There's 3 things that you need to be aware of.

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Joe Clark: When you talk about Roths or Iras, or even sets one is a contribution that's what you're eligible to put in this year

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Joe Clark: that actually goes beyond the first of the year in a step account. The account hadn't been open before the end of the year, actually even a little bit before that.

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Joe Clark: but the contribution can be after January

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Joe Clark: with an Ira or a Roth Ira. The contribution can be all the way up to the date of the filing requirement of April fifteenth. So you can still put money in today for a Roth or an Ira for last year.

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Joe Clark: That's the contribution. But the conversion has to have occurred before December. 30 first strikes midnight

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Joe Clark: of the year before, so that has to be done. Now, how do you do a conversion? Well, Mark mentioned the word roll over. Rollovers are not something that I would ever encourage your rollovers where you take the money out. You have what we call constructive receipt.

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Joe Clark: and you've got 60 days to replace that into an account. Just be very, very careful. The Irs rules, and this is Google be where, If you go online you're going to read publication 590. It will tell you you could do that once every calendar year. The Irs not a chance. It's once every 365 days.

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Joe Clark: and don't miss the 60 day deadline if you do bad things will happen, ie. Full taxation and a 10% penalty

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Joe Clark: like transfer. You can do anytime you want. That's where you take money from one custodian to another. We move money from Td Ameritrade to Charlie Swap. We move it from fidelity to to another financial institution. Transfer happens without you getting a check in your name or with you touching the money.

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Joe Clark: but you need to remember the 2 C's. That's how I teach it, and I apologize if i'm educating. But i'm a I'm. A former professor from Purdue University. I teach this stuff. It's what I do right. There's conversion and contribution. The 2 are different. 2 different dates, 2 different amounts.

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Mark Perlberg: So i'm so glad you clarified this, because in our vocabulary and most people, most people will not distinguish between roll over and conversion. And as I've made this area right now, because, you know I

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Mark Perlberg: we would, you know we would have said role over. But men's conversion. And so so this is the thing. When we when we talk about tax planning and and having a game plan here, and then when we meet with our clients in queue, for you know, I, you hear the you're going to hear all the foundational things in the in in the bigger pockets.

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Mark Perlberg: Blogs that you know cost segregation bonus depreciation. You get all your tax savings, and that's great, but that's where most advisors stop.

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Mark Perlberg: They say great. We brought you to a 0 to our tax. Right You get this great refund

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Mark Perlberg: time to celebrate end of story. But you're missing out on so much additional opportunities. You don't want to let a low tax bragging

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Mark Perlberg: go to waste. You don't want to miss out on all these other opportunities. If you have capital gains that the 0 to our long term cap gains rate

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Mark Perlberg: you, why not liquidate some some stock you can, even if you want to hold on to this, that so just buy it back up at a higher basis. What? What what Mark just did was said something.

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Joe Clark: And so this is what's called the double curse of knowledge. This is why you need to hire. Mark right, the double curse of knowledge is Joe Doesn't know what Joe Doesn't know. but I also don't know what you don't know.

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Joe Clark: Now, what Mark just told you was that if you were in the 10 or 12% bracket. your capital gains rate is 0. He has to put it on the return, but it nets out to 0

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Joe Clark: when they add all of that money on. So capital gains are deemed to be what's called preferential income. They already have a lower tax rate than your normal marginal rate. But if you're if you have 0% income.

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Joe Clark: you can have capital gains up to about $80,000.

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Joe Clark: They 0 in tax 0. I like that number 0. So you've got to go. Look at your portfolio and see what stocks are in there that have long term capital gains doesn't work for short term

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Joe Clark: has long-term capital gains. You go into stock for more than 12 months in a day. Right? You people get confused mark on the 30 day rule. If you have something that's at a loss.

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Joe Clark: and you sell it, you technically have to wait 30 days to repurchase it.

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Joe Clark: or you Don't, recognize the loss gains. That's not true. No, what we do for people that happen to be at that lower bracket is step up their basis.

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Joe Clark: So my team is trained to look when they talk to you in November. If if your tax rate is, if the 10% bracket

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Joe Clark: they will we will go in and sell stocks, and buy stocks the same stock simultaneously.

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Joe Clark: if it's a long-term capital gain and just re-establish basis all on the back of what the Irs will not charge you a dime for, and most if you're working with a registered investment advisor or a fiduciary like we are the cost of trading is 0,

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Mark Perlberg: right? You just need somebody who's willing to do the work. Yeah. And so, you know, because we've got 100%, both appreciation. Under certain circumstances, certain clients who went big into real estate and put their savings into it.

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Mark Perlberg: We've been there have been instances where, year after year

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Mark Perlberg: they can take advantage of the $0 long term cap bracket, and no, under perfect circumstances, here with $0 taxes. Imagine you do this 4 years in a row. 5, you know, 5 years in a row. Yeah, I mean hundreds of thousands of dollars of long term capital gains tax that you're avoiding here.

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Mark Perlberg: So I mean, if you do it, 5 years a row, 80 times $500,000 of long-term capital gains tax in the future. That long term, long term capital gains income that you could avoid.

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W. Cause you know what's gonna happen is, you know, we're gonna lose this 100%, both appreciation. Your properties get more profitable. You you're you're it's gonna get hard and hard to operate at a loss, or towards that $0 long term capital gains bracket.

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Mark Perlberg: and it may not be as easy when we don't have a President who is a real estate investor, so save money on our taxes. So

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Mark Perlberg: you know lot of love cool things here, and you know I get asked this question so often, and I you touched on it a little bit. We get asked this question by almost all of our clients who have retirement accounts.

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Mark Perlberg: they say. Well, you know, I want to invest in real estate.

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Mark Perlberg: I'm thinking about liquidating some of my retirement account to put into real estate. What are your thoughts? And I typically say, you want to evaluate

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Mark Perlberg: the tax savings you get from your real estate, and how that's gonna offset the the distribution, the taxes on the distribution from your retirement accounts. But then, there, you know, there is a trade off here.

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Joe Clark: but I want to get your thoughts. If someone's ever come to you and say, hey, i'm starting a new business, I want to invest in real estate. I got these Iras. What what are your thoughts on? On? On liquidating them in the in the early withdrawal penalties? So I so, as I used to tell them at Purdue. I'll talk out of 3 sides of my mouth right. I'm the Rodney danger field of the industry.

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Joe Clark: I did it before I got educated

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Joe Clark: right? So I call Bs when I hear Vs: so when I taught a Purdue I taught as somebody who is a practicing planner, somebody who is a Cfp. And somebody who has to comply with the rules that are out there that are of academia, and the 3 don't always coincide. Let's just put it that way.

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Joe Clark: So, first of all, I would discourage you just because you legally can. I would discourage you from using Ira money as a real estate investment.

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Joe Clark: I would always discourage you from using Ira money to start your own business right now. Can you legally do it? The answer is, Yes. but here's what you need to be aware of in Indiana. We call it poking the bear right? You do not want to intentionally tick me off.

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Joe Clark: and there are things that I don't like, and the Irs clearly says they don't like that right. It it creates all sorts of opportunities for taxpayer error.

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Joe Clark: or you know, a non-compliance. It'd be the word that they would use, and the big leads and and so you can do it.

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Joe Clark: Keep in mind that. An Ira, when I ask people what they stand for. And, mark, i'm not going to put you on the spot. 99.9% of people will tell you that an Ira stands for an individual retirement account.

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Joe Clark: It does not. It stands for very, very specifically an individual retirement arrangement. and you can have as many of them as you want. So let's say you've got a 1 million dollar ira.

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Joe Clark: and for some reason you want to put a 100,000 into real estate. The first thing that I want you to do is to separate that $100,000 into a separate Ira

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Joe Clark: right that way. If you're poking the bear and the Irs challenges it.

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Joe Clark: and they will if they can.

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Joe Clark: And if the Irs challenges it, you only have that $100,000 at risk.

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Joe Clark: because the bottom line is, if you used a 100,000 of the 1 million, and you kept it in one account. you could find yourself in one year with penalties and taxes on the 4 million.

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Joe Clark: because a sliver of it was used for something that they didn't like.

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Joe Clark: So you can have literally a a 1,000 Iras, if you wanted to have it so that'd be the first thing I would separate it.

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Joe Clark: I'm second. I understand that there can be no leverage that's used

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Joe Clark: with that Ira investment. Right you. You cannot go to the bank and borrow money against an Ira. You cannot use an Ira as leverage. That's right in publication 590.

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Joe Clark: And so when you're buying real estate, you know, if you're doing that, it's essentially all of the cash is there, and it's per it's purchased. There are no bank phones. Well, that's not the way Mark would teach you to leverage real estate, anyhow.

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Joe Clark: Right? I mean. That's not it. It's just not the best asset. What I would encourage you to do from a planning perspective is, look at the Ira Mark's got your taxes down to 0 because of depreciation. The the bonus depreciation, whatever

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Joe Clark: takes the $100,000 out of your Ira, Say, go ahead, penalize me. tax me and penalize me.

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Joe Clark: pay it at the 10% bracket which you're probably never going to be in again. Get it out of the Ira confines, and then you can go use it to B real estate to leverage it that way.

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Joe Clark: But if if you're gonna do it, mark, make sure that they have a separate Ira.

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Joe Clark: Just so that the bear gets unhappy. You have a limited amount of exposure.

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Mark Perlberg: right? Yeah. So I mean so. Only a small handful of clients of ours have actually invested in real estate with their Ira. The most often they'll take. They'll try to take the cash out and use the cash to invest in real estate in their own name. Because

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Mark Perlberg: when you have the you know, for obvious reasons, that if you have the money in the Ira. Those losses and all the beautiful things with costs eggs won't offset their tax liabilities at the 1040 level.

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Mark Perlberg: and we so

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Mark Perlberg: what's been good for us lately is that most of our clients, whether they have real, say, professional tax status, or they have short term rentals, even though they're paying that 10% early withdrawal PE penalty.

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Mark Perlberg: We're able to use that cash to offset the taxation on the distribution and keep it at around a 0 a many times at a $0 tax bracket, which is great. Now it's going to get harder and hard to do it. We they're creeping into the 10%

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Mark Perlberg: tax brackets and and beyond there as well. But

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Mark Perlberg: you know these these are. I think I've been asked this question. That question. Hmm.

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Mark Perlberg: Close to a 100 times in the past 3 years. On they asked me, should I take money out of my retirement accounts to invest into real estate, and sometimes I feel like it's not me to make that decision, and they want me to make that decision for them.

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Joe Clark: Yeah, and that's and that's because they have faith and trust in you character, trust and competency, trust. And so so one part of the challenge that we have in the financial industry

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Joe Clark: is, we have an inherent conflict of interest, right? I'm. I'm responsible for about 650 milliondollars of other People's money.

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Joe Clark: and I get paid, based on the amount of money that we manage.

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Joe Clark: So if you pull money out to buy real estate, by definition, my income just went down.

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Joe Clark: If you pull money out to go to Tahiti. By definition, my income just went down.

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Joe Clark: And so Wall Street has a vested interest, and always telling people. No, no, no, no, you know. What do you really need to spend that? What if you run out of money, those kind of things I I, my deal with God, was not to teach people how to work

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Joe Clark: right, so we try to teach people how to effectively use and to spend their money. So when you ask me if you should pull money out of your Ira to invest in real estate.

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Joe Clark: My answer Isn't. Dependent upon whether money is leaving the account or not.

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Joe Clark: It's what's in your best interest from your financial journey. and for some people there is an abundance of money that is, tax deferred

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Joe Clark: that that they've they've got, or they've inherited a large inherited Ira, and it may simply make sense to get it out of the Ira to invest in real estate as a diversification.

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Joe Clark: You just have to be aware of greed.

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Joe Clark: and you know you say you. You only have a few people that have done this. I don't know the number of people in 2,006 and 7 that tried to take money out of Iras to buy by their second, third, fourth home, you know, down in Florida, or places like that, because they watch the appreciation.

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Joe Clark: They're typically not families that I deal with. But i'm a radio host, right? So I would have people call in and say, here's a great idea. What do you think? Well, no, it's not a great idea. But people did it any?

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Mark Perlberg: Yeah.

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Mark Perlberg: yeah, and that's why I say a lot of this is dependent on what's right for you. There's no there's there's no one right uniform, black and white. Answer, and a lot of these things, and you know sometimes there's additional value. If you're hard to set on investing in real estate or doing whatever it is that's gonna lead you to your dreams.

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Mark Perlberg: and also you get to use leverage when you have that cash, and and with mortgages and everything else, you may find that it's worth it, not only for the opportunities it creates. We, we, in the forms of other other types of tax savings and cash flow, but also the education you get from being able to buy more real estate and do more landlording.

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Mark Perlberg: and maybe getting out of your your 10 for your W to job. But it doesn't always make sense. There is. There's no uniform answer here, and it's a very personal answer that the client has to make, and all we can do is tell them the facts right. When you want to ask us, you good, our websites, your life after workcom.

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Joe Clark: you can go there, ask a question. Somebody on my team is happy to answer. Help you collaborate with Mark, or whoever else it's out there. But it but it's very careful it is, you know. I know we've got to wind down a little bit that the key thing that I would tell you

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Joe Clark: it, the the 2 things going forward, one

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Joe Clark: try not to make so silo decisions. Now, if you're not from Indiana, you may not know what a silo is, but you've seen the big silver containers. They either have corn or they have beans. They don't have both.

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Joe Clark: Most people tend to make financial decisions in a silo, whether they take social security.

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Joe Clark: whether they buy a real estate property and use their Ira. They tend to look at one singular thing, Mark, and what you really have to do is, look at your whole farm operation.

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Joe Clark: and sometimes many times that requires the work of a collaborative group

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Joe Clark: of a Cpa and a competent advisor that knows how to look at all of the operations to help you come up with the best solution for what it is you're trying to accomplish. The second thing is, I have 2 grown daughters, and I have a mom. Father's passed away.

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Joe Clark: I look at 3 tax returns every year to optimize my situation

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Joe Clark: right, and I I think most people focus on their 1040, and they forget about everybody else. Well, i'm not going to spend all of the money that I've accumulate. I'm. It's just. I don't know when God's calling me home. I don't know when it's going to happen.

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Joe Clark: I know my daughters are going to be recipients. I know when something happens to my mom, what little she has will go to me and my brother.

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Joe Clark: I want to make sure that her return is optimized. so that when she has the income that she needs. and that when my brother and I received the benefit, the what's left

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Joe Clark: that we receive in the best possible manner. I want to look at my kids. knowing that they're going to be the largest recipient when my wife and I are passed.

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Joe Clark: and make sure that i'm looking at their returns, and they're set up to be millionaires upon us. Die right, you know. Do not fail to look at that. The Irs is the largest

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Joe Clark: deterrent to a successful financial journey, and it's one you know about just gets ignored and kicked down the road for no good reason.

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Mark Perlberg: Yeah. So I want to get into a. Q. And a. With the audience. I want to encourage you guys to put your questions in the chat or in the Q. And a. Section. But 1 one thing I'm curious

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Mark Perlberg: Here, you know, we talked about some some of the foundational concepts that a lot of people overlook. Here and now we have the we have, and then we have the very well known financial vehicles for retirement accounts and savings accounts. The Iras

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Mark Perlberg: 4, one K's and Roth I.

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Mark Perlberg: There are other things that we can do in the in the realm of putting our cash places right in in there. You know. What what do you see as far as the mix of where

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Mark Perlberg: your your your clients are are putting their cash, or or some? Maybe you really often missed opportunities here that you, you would say around among the general public who don't have access to someone with your level of expertise. They say we have someone who the who who may not even be a real estate investor

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Mark Perlberg: high, you know, or medium-income w 2 job doesn't really know a whole lot about what to do with their cash.

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Joe Clark: Well, I I would.

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Joe Clark: I mean in all fairness I I would always encourage you to hire a fiduciary

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Joe Clark: right. My job is to care for your money as if I would care for my own. If i'm in the same situation. That's my team's job. It's our mission. It's our purpose. and we do it all day long every day. I've done it for 35 years, and I got 38 people on my team, and in all fairness, and I don't mean this root in any way, shape or form. But

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Joe Clark: you know, if if I thought one of us could do this on their own, I would think it would be me, not you.

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Mark Perlberg: I done it for 35 years. I started 2 weeks before the crash in 87.

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Joe Clark: It's it's been my life

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Joe Clark: right. I can't do it on my own, because there's too many bloody moving parts

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Joe Clark: that matter how bright I am, no matter how much I study. You cannot keep up with changing tax codes, changing economies, a global world with new additions all of the time.

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Joe Clark: And so I need help to be able to filter out that noise right? So I would tell you that there's a lot of things that

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Joe Clark: people are becoming having accessibility to

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Joe Clark: without the wisdom to understand the implication. Right? So you've You've got people that are winding up in the crypto world, because it sounds cool and the ntf world because it sounds cool. Mark and I have a friend that lost a couple of 1 million dollars.

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Joe Clark: That's it. That's like 7, you know, 6 0 with the number in front of that's a lot of money. Had access to some of the brightest people on the planet. and it still happened

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Joe Clark: right because there's things there that still need to be worked out there. There are things in structured notes

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Joe Clark: that really sound cool, but people don't necessarily understand what they're giving up. We use structured notes. We don't use crypto at this point in time, but we do use structured notes. We do use package deals

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Joe Clark: that are in real estate, instead of buying a a a place, we buy multiple places. Then some people call those re to keep in mind most of the reach that you're going to invest in real estate Investment Trust have high commissions.

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Joe Clark: and our, in my opinion, very expensive to manage. Internally, I think that the underwriters get a lot of money, and I don't think the families that that buy them do.

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Joe Clark: There are R. I. A products that are out there that you have to be a fiduciary, to be able to go get. you know. So there there is access to other things, you know. But I I I take people back to 1,985. That was a year. I graduated from high school.

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Joe Clark: and I made it one match away from getting to state finals and wrestle.

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Joe Clark: and I 10 to 18 people.

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Joe Clark: With one move

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Joe Clark: I had. I threw a headlock.

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Joe Clark: They knew I was going to throw a headlock. The ref new. I was going to throw a headlock. I knew I was going to throw a headlock.

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Joe Clark: and I made it one match away from getting to the state.

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Joe Clark: Now, my point of this is you don't have to have a toolbox with 75 different things, just because you can. What you have to have is a strategy that you understand very, very clearly, and make it work very, very effectively.

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Joe Clark: And the best way for you to start is to understand your tax return.

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Mark Perlberg: Wonderful, you know, and I have a lot of posts about people who diy their own tax plans before they come to us. and we have seen some things.

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Mark Perlberg: We saw one where a client or a cost segregation study absolutely 0 value, because the client couldn't use the losses to offset his W. 2 liabilities, and, in fact, the client ever did get to in the future. He missed out on the opportunity. In future years

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we saw a one of the most unique things I've seen in a diy tax plan gone wrong was a client to the 1031 exchange.

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Mark Perlberg: but he didn't realize the property was selling for a loss.

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Mark Perlberg: So instead of now, here's the thing. One way. You can use real estate losses to offset your W 2. If you don't have rep status or search from rentals

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Mark Perlberg: if you just sell a property, and there's no cap gains, and you have suspended losses that were unused. You get to free up those losses to offset your active income. But if you 1031, it just like you would defer cap gains. Now you're deferring your cap losses and you lose your losses, and you gotta pay us more money to report a 1031 exchange, because it takes a lot of time and documentation.

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Mark Perlberg: So you know, I think it's it's just like you wouldn't want to do your own root canals for you, I say, and and just like you, you know you probably wouldn't waste your time changing your oil.

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Mark Perlberg: and you might mess some things up. You can diy some things right, I mean. But when it comes to tax planning, this is so complex, and it takes us thousands. And now of hours, and I came and do all the tax playing. Sometimes I need a team to help me with the research.

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I have a team right now helping me evaluate State level, pass through entity tax elections for s corps and partnership, because there's too much

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Mark Perlberg: So you and and for for anyone to think that they can do is all on their own at the same level, or that the you know. When you look at this as an investment, and it's not going to be able to be justified. Then you're missing out a lot of opportunities.

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Joe Clark: I think you just have to ask it, you know, is is the juice worth the squeeze?

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Joe Clark: Yeah, okay, I guess if you want to spend your entire life doing the work to manage your account.

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Joe Clark: Maybe you can. Maybe you can't.

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Joe Clark: but you know I I would much rather see you enjoy around a golf.

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Joe Clark: and you know

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Joe Clark: we get efficiencies in Mass.

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Mark Perlberg: So I have a question here. The question here is, I have a retirement account. I have a My! I'm sorry I have all my retirement money in a target retirement account with vanguard

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Mark Perlberg: 2,040.

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Mark Perlberg: I have 2 rollovers coming to me now from fidelity and empower from prior company 400 oneks that are also going to be vanguard accounts.

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Mark Perlberg: What do you think about having all my eggs in one basket. I am

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Joe Clark: self-employed, and looking into opening a solo K. Where your thoughts on the solo K. And you can see this in the Q. A. In case that was that was a pretty heavy question, and you need to read it. That's a case study, you know, for the record. So let's

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Joe Clark: Let's take this down. So first of all, on the solo 4, one K. Let's start there. I'm all in favor of solo. K. Means you and your wife, not you and your kids, and no other employees.

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Joe Clark: So people mistake that your spouse can indeed be part of a solo. 400, and one keeps you from file on the 55 hundreds with the with the Irs. If it's a solo for one K. You can open that up. It is a great plan you have. You're limited to the amount of money

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Joe Clark: that you can put in before you have to report the 500, so you may very well want to roll money out before it gets too big.

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Joe Clark: you know, and and make contributions. There is a rule inside of the tax code. You've probably been told. If you're over 50, you can put $2720,000 or so into a 4 one k

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Joe Clark: You can really get close to 59,000, and if it's structured correctly, Mark can help you with that to get it up and done. So you could put more money in that plan. then what you may be aware of if it is properly structured by using what I call a mega Roth concept.

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Joe Clark: So you're taking money that you wouldn't be able to defer, anyhow, and making it a rough, rough money. A much larger contribution than you would normally make.

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Joe Clark: Empower means you were probably with a 403 B, a hospital or a school system. 4 or 3 B's and 400 one's are identical. There is no problem with having it all at vanguard. I don't use vanguard. I was writing a letter to John Bogle the day that they announced that he passed away back in 2,019,

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Joe Clark: because he refused, refuted many of the things that he said from his Princeton survey that actually created Vancouver.

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Joe Clark: So when when you look at life as a fiduciary. It sounds to me like you're doing this on your own. I call it the fiduciary focus. There's 4 things, not one. There's 4 things you have to manage risk and volatility, fees and expenses, taxes today and tomorrow, and real return meaning You're always paying attention to inflation.

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Joe Clark: Most of my engineers came from vanguard before they arrived here with me.

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Joe Clark: and it's because at vanguard you could quantify and control fees and expenses. That was their baby, their their sweet spot in the market.

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Joe Clark: But by focusing on that one thing you ignore the ability to contain risk and volatility, especially taxes today and tomorrow and real return. Now you've tried to address the the notion of volatility and risk with a target dated fund, and for those of you that don't know a target dated fund is a way

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Joe Clark: so great concept. You'll find it in a lot of 4. One K plans today where I have the the name of a fund, and then a date behind it. And the theory is as you age.

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Joe Clark: You need to have less and less exposure to equities, and more and more exposure to fixed income.

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Joe Clark: That's the theory right. So if you had a 2,025 target dated fund it would have more bonds than it did stocks.

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Joe Clark: and if you have a 2040, it's gonna have more stocks than it does box. Now, the problem with that is the last 2 years have proved that the bond market has a ample amount of volatility.

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Joe Clark: They are not negatively correlated to stocks. That's one issue that's there, and 2. I I don't think it is the the best way to be able to manage money, though it is a solution for people to be able to use. You pay vanguard a little bit of extra money just a little bit.

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Joe Clark: and it automatically takes money from one fund and puts it in another to do what we call rebalancing.

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Joe Clark: I I think you would find a more efficient way contacting me or another somebody else who manages money effectively

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Joe Clark: and find out how that that model works for You're building your own target dated fund, if you will.

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Joe Clark: except it's designed specifically for for you. But good luck with the 401 but the somebody who's helping you set up the if you're not doing it on your own, is likely to tell you that you could roll those transfers into your 401 if it's properly set up. That is accurate.

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Joe Clark: Just be aware of that threshold of the amount of money you can have in it.

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Mark Perlberg: Wow! That is an awesome answer. Very detailed. Really appreciate it. And you know we were talking about

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Mark Perlberg: how we can align. We talk about aligning these strategies, and in in not roll over, but transfers. We had a client who inherited a ton of a real estate from her from her mother.

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Mark Perlberg: and had to take it over and got rep status, and she was interested in cryptocurrency. So one idea here was. She had some 4 one case from her old job, and we could transfer them into a Roth.

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Mark Perlberg: and she now has all this real estate depreciating, and she's at a $0 tax bracket, and maybe even

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Mark Perlberg: he has some additional losses from that new depreciation of some real estate added that step up basis now so definitely going to get some losses, so we could transfer the 401 into Ross, and then invest in, grow the that cryptocurrency tax free.

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Mark Perlberg: So so lots of cool stuff there when we're looking at every all the moving pieces here.

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Joe Clark: Just keep in mind, Mark what what? What? You just said right there. So I used to have people tell me Roths were risky.

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Joe Clark: Right? Remember, there is a tax code, and there is an investment. The crypto is an investment that they put into a tax code called a Roth Ira.

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Joe Clark: Right? You can have Cds and raw Ira's. You can have blue chip stocks and raw I areas. You have whatever you want. The Roth is a tax code cryptosy. It is a pseudo investment.

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Joe Clark: you know. So Don't, confuse those 2 as as you hear them, but do take advantage of stepping up basis where you can, using 0% tax returns right, doing those rough conversions. And remember they have to be done by year end.

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Mark Perlberg: Yeah.

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Mark Perlberg: So we have a question from one of your former students. Ashley Morris. Great to see you.

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Mark Perlberg: Oh, okay.

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Mark Perlberg: yeah. So Ashley's on. She's got a great question. First off, she says. You know he Big Joe is the man, and she wants to. She would love to your strategies about early retirement.

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Mark Perlberg: the early retirement movement, and how this is taken into account with a mix of qualified plans and cash flowing real estate.

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Joe Clark: they so Ashley, it's great to hear from you and keep in mind. She's got her degree from Purdue University and financial planning.

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Joe Clark: you know, but it's so. This is this is one of those questions. It's really kind of an opinion.

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Joe Clark: you know more than it is a a guide, and the wool answer that you could use on a test.

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Joe Clark: There, there is a there is a large group of people who are leaving the workforce earlier than they anticipated, that, I think, was accelerated by the pandemic. and the thing that I would remind people that you talk to. And the people listening to this program

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Joe Clark: is that retirement is never based on age, any more than money is. Retirement is based on maintaining a standard of living when you walk away from the workforce

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Joe Clark: right? And so the the idea of having a real estate or any other investment that provides passive income is a beautiful deal

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Joe Clark: right? I've got families that have a 100 rentals

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Joe Clark: that is not passive income because they get calls 2 in the morning

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Joe Clark: to go unfreeze a garage door with a hair dryer, or to worry about a roof when the snowstorms just came through Indiana here recently. Those those kind of things to me that is not passive income. That is a different form of a job.

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Joe Clark: right? And so you, you. You kind of have to work that into the into the deal. But if somebody is retiring early and you can go back to that first question. Mark that the the gentleman had about the solo 401.

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Joe Clark: One of the ways that we help people get money out of. The Ira is quicker that are thinking about what actually is talking about is setting up a solo for one K.

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Joe Clark: Rolling existing Ira money into the K. Into their solo 401 K. Now, why would you ever want to do that?

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Joe Clark: Well, for when K. Land offers an opportunity for people to get money out at 55,

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Joe Clark: as opposed to waiting to 59 and a half. So if somebody is going to take money out of an ira before 59 and a half. They have 2 choices. They're either going to pay a 10% Federal penalty.

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Joe Clark: or they have to do with what's called a 70 twot, which is a substantially equal periodic payment unchanged for the greater of 5 years or 59 and a half every word in that sentence matters don't miss it actually didn't on the final exam.

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Joe Clark: So with by setting up the solo 401, and moving money into it. and then, lo and behold, i'm 55, and retire. You can actually take the money out of the 401 where you couldn't out of an ira, and as long as your earned income was low enough.

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Joe Clark: There's no tax penalty at all, and you have the ability to do that and create that income stream to be able to retire early. Actually, I hope that, answered the question. It's you know it's as I, As I told you 10 years ago or 12 years ago. Now, whenever it was.

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Joe Clark: I've seen a lot of people get wealthy doing a lot of different things.

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Joe Clark: whether it's investing in stock, or whether it's investing in real estate. You just have to be very, very focused, and I think you have a better life if you're diversified than if you're in one area where you maintain and endure a lot of risk.

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Mark Perlberg: Yup. And and so the way I look at some of these things now, some people glamorize real estate investing, and because, you know. Obviously, in the tax code they call it passive income. A lot of our clients are first year early sees investors, and they're always surprised to find how hard and how much work and how stressful real estate investing can be.

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Joe Clark: Yeah, the Irs calls it passive, but it doesn't sound passive to me at 2 in the morning, I on my building. I own my house. That's it.

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Mark Perlberg: Yeah, and so and then a lot of people want to dip out. They said, Well, this is not for me. It is not where I thought it would be. I am not living this like luxury life I was hoping for.

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Mark Perlberg: And so then one of the for the people who exit one of the one of the things they they didn't learn. They learned about all the tax advantages. They never, No one really

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Mark Perlberg: learned, no one got a chance to educate them about depreciation, recapture in all the glamorous stories about real estate investing. So, even if they so

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Mark Perlberg: yeah, lots of planning and conversations. And then but here's an an an opportunity here as if you do want to become more passive, and if you can hire a property manager and you're in retirement, you may be in a load of tax bracket that

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Mark Perlberg: you don't need to materially participate for rep status, and if you're living just off the cash flow, it's offset with depreciation. Or maybe you even put the funds into syndications down the road, or tell you you you can roll them into a Delaware statutory trust.

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Mark Perlberg: There are ways that you can defer capital gains and some depreciation, recapture and live a passive life have passive cash, flowing income where you're doing minimal work

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Joe Clark: absolutely. There there are a lot of options. But again you get into that, proceed with caution

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Joe Clark: and and make sure you're working with a collaborative cohesive group of people who understand that you can look at it from different sides. Yeah, I I love the he, he! He's Brothers Chip and Dan, or offers. One of their books is called decisive.

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Joe Clark: and it's the it's kind of the art of decision making.

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Joe Clark: and I would, before you make a major decision like that, I would read the book. And just think about your metrics for making a decision, so that you've thought about it as clearly as you can both the good and the bad. But but use mark or somebody who's qualified to help you walk through those

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Joe Clark: technical loopholes.

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Mark Perlberg: Awesome. Well, Joe, we're at about time. Can you tell everybody

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Joe Clark: how they can learn more about from you and and where they can access some of your material and content and user services.

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Sure you go. You can go to your life after work.com.

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Joe Clark: People ask why it doesn't say financial enhancement group. I started the company in 97, and if you didn't if you misspelled something, Google didn't take you anywhere

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Joe Clark: your life after work that's hard to mess up. It's a little long, but your life after work.com you can get signed up for our weekly since 2,007. We send out a video commentary

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Joe Clark: about what's going on in the market that comes from my Cfa and our Charter Market technician

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Joe Clark: and elements and focus comes from my director of financial planning and manager of advisor operations. Those are free things that we send to the public to try to help.

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Joe Clark: You can get signed up for a next steps meeting where somebody on my team will call you. and and actually asked

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Joe Clark: We ask questions like I said, we take care of people in 31 States, and I likely they are a family just like you.

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Joe Clark: But it's your life after work.com 809-28-4000ne.

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Mark Perlberg: Okay, one more. One more question. What do you do for fun? Tell us something interesting about you. I golf. I just took the ice pack off my knee.

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Joe Clark: I am an avid golfer. It's the hardest thing I've ever done in my entire life. I've been married to my wife for 35 years.

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Joe Clark: and I common I I frequently share with her. If If golf, if dating was as hard, i'd still be single, I get, I I I injure myself, and I will do it anytime that I possibly can. But it's I. I love a game that simply can't be licked.

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Joe Clark: Okay, maybe I should probably start golfing. I would not encourage that. It's it. You're You're too young. I took 10 years off to raise the kids and build the company, you know. Now I get to do it, and I have a little bit of fun. But no, it's a it is a wonderful, wonderful day, mark

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Mark Perlberg: Nice? Well, I like cooking because it is I I have to cook anyways. Might as well enjoy it has to fun with it. So all right. Well, hey, you guys can watch. The recording is going to be published on my Youtube and in the podcast.

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Mark Perlberg: Joe, I might actually reach out to you guys to see if you help my dad and Joe. I really appreciate your time. He definitely provided our our guests and me with a lot of really great ideas and and wisdom and insight here. So really really enjoy this conversation, and thanks a lot for your time.

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Joe Clark: Thanks for having me. Mark you all have a great night, Ashley. It was good to hear from you. Bye, guys, take care.