The Power Of Zero Show

The story David tells at the beginning of the book is a tale about David Walker, the former Comptroller General for the federal government. Back in 2008 he appeared on a radio show and told them that tax rates have to double. The math says that the country is going to go bankrupt unless tax rates go up dramatically in the next ten years. Most of us are putting money into tax-deferred plans hoping that taxes will be lower in the future than they are now. Back in the 70's and 80's the tax-deferred strategy actually made sense, but the Trump era tax cuts have changed the math. We are now at a point where taxes haven't been this low in a long time yet we continue to pile money into 401(k)'s and IRA's. A good analogy would be an American family that makes $50,000 a year but their expenses are over $100,000 and they just keep piling debt onto the credit card. At the same time all their neighbours are getting their financial houses in order. We're in a game with the IRS where they're our opponent, but they can change the rules on us at any time. When you put money into an IRA it's a little bit like going into a business partnership with the IRS, and every year the IRS gets to vote on the percentage of profits they get to keep. It makes it really hard to plan for retirement when you don't know how much money you actually have. The first bucket is the taxable bucket which is typically used for emergency funds, roughly six months of living expenses. The taxable bucket is the least efficient bucket. The second bucket is the tax deferred bucket, where you pay tax on the back end. The first problem with this bucket is you don't know what the tax rates are going to be when you take the money out. The second problem is when you do take money out, it counts as provisional income which the IRS keeps track of to determine whether they are going to tax your Social Security. If as a married couple you have more than $44,000 of provisional income, up to 85% of your Social Security becomes taxable at your highest marginal tax bracket. For a lot of David's clients, this can cause them to run out of money 5 to 7 years faster than people who don't have their Social Security taxed. It's not bad to have money in the tax deferred bucket, you should just have the prescribed amounts. Annuities within your tax deferred bucket can trigger the same issues of Social Security taxation. The tax-free bucket is everybody's favorite bucket. In this bucket you pay the tax on the front end and never pay those taxes again. When you take money out of a true tax-free investment it does not count as provisional income. The government may change the rules around Roth IRA's but you have to look at whole picture. There is $21 trillion in the cumulative IRA's and 401(k)'s in America and only about $800 billion in Roth IRA's. They could change the rules and break their promises but that would end with people getting voted out of office. It's easier to get the math done but raising taxes on the tax-deferred bucket. The Roth IRA is David's favorite tax-free investment, but it's not just the Roth IRA it's also the Roth Conversion. Not enough Americans are paying attention to those investments. January 1, 2018 is the date that tax rates went on sale. Every year that goes by where we fail to take advantage of these historically low tax rates is potentially a year beyond January 1, 2026 where we may be forced to pay the highest tax rates we'll see in our lifetime. We now know the year and the day when tax rates will go up. If we let this tax sale go by without taking advantage of it we will have really missed an opportunity. If David Walker is right, we will look back at today and ask ourselves why we didn't take advantage of these historically low tax rates. You don't have to like life insurance or life insurance companies. You just have to like them a little more than the IRS, because in the end someone is getting your money. The tax benefit for life insurance is the single biggest benefit in the entire tax code but many people don't take advantage of it because life insurance has a stigma of being expensive. When structured properly, life insurance will cost you about the same as your 401(k) per year over the life of the program, and comes with a few other benefits as well. There is a documentary coming out also called the Power of Zero. David found that the number one thing that prevents people from making the switch from tax-deferred to tax-free is that tax that they have to pay. They are not convinced that taxes will be higher in the future. All the experts David interviewed said the same thing, taxes will have to go up in the next ten years. The official debt-to-GDP ratio is 100% but our actual debt-to-GDP ratio is 1000%. We are the only country in the world where our debt-to-GDP ratio is getting worse and worse.

The best financial decision that David has ever made was to acknowledge that taxes are going to be dramatically higher in the future than they are today. David is a husband and father of seven and has been in the financial services industry since day one. He was selling insurance policies at the beginning of his career and became an independent financial advisor in 2001. David mainly deals with clients who are retiring or in retirement and focuses in particular on the tax outlook. He aims to maximize the amount of money his clients can take out in retirement. David's organization has about 160 advisors across the country. He self published The Power of Zero four years ago and sold around 150,000 copies, since then this lead to this movement around the concepts in the book. There are now quite a few advisors teaching courses to retirees all over the US. David describes the current environment as a tax sale. You're going to have to pay taxes sooner or later, so why not pay them before they go up. It takes an act of Congress to prevent a sunset clause from happening. In order for that to happen, the same party has to control the Senate, the House, and the Presidency. $0.76 of every tax dollar that the government brings in is spent on four things: Social Security, Medicare, Medicaid, and the national debt. We are going to have to keep borrowing money to pay for Medicare. The cost for servicing all that debt will squeeze out all the other items in the budget. George Schultz says we are already at the crisis point. We haven't had taxes this low in the last 80 years. You can't pay attention to just the number, you have to look at the income parameters that go with it. The real question for 75 million Baby Boomers is "will they take advantage of this tax sale?" Every year that goes by where they don't consider shifting money to a tax free investment, they are missing an opportunity that will never come back. The IRS says that if you make too much money, you can put after tax dollars into an IRA and in the same breath convert it into a Roth IRA. Since you have to pay the tax on the conversion relative to your other investments it can feel like a double tax. If you have money in other IRA's it may not be a great idea to do the Back Door IRA. The rich man's Roth is also known as the Life Insurance Retirement Plan. You buy as little insurance as the IRS requires of you and stuff as much money in it as the IRS allows to mimic the tax free benefits of the Roth IRA. Most Baby Boomers are dealing with a parent that is having a long term care event. There are a lot of long term care benefits that can make the Life Insurance Retirement Plan attractive to the right person. You can make your 401(k) tax free if you only take out your standard deduction. The best investment you can make is making the balance low enough so that your Required Minimum Distributions are low enough so that your they are equal to or lower than your standard deduction. The holy grail of financial planning is to find an investment that gives you a deduction on the front end, grows your money tax deferred, and you take it out tax free. If you have an IRA that's so big that your required minimum distributions are dramatically higher than $24,000, you're going to be in a tax bracket and it's not going to be 0%. According to David Walker tax rates are going to have to double in order to keep our country solid. If that's true, the best tax bracket to be in is the 0% tax bracket. If tax rates double, two times zero is still zero. Everyone recognizes that tax rates are going up in the future, the question is "why are we still putting money hand over fist into 401(k)'s and IRA's?" The reason is we are addicted to the tax deduction. The true purpose of a retirement account is not to get a tax deduction. It's to maximize cash flow at a period in your life when you can least afford to pay the taxes. That's the real value of a retirement account. If you feel like your tax rate is going to be higher than it is now, you should stretch your tax liability out over 8 years. You want to shift the money quickly enough to do all the heavy lifting before the tax freight train hits but slowly enough that you don't rise into a tax bracket that makes you uncomfortable. If you are in a position to manipulate revenue and be okay with your living standard, at the very least you should be maxing out your 10% and 12% tax bracket. You may not think that tax rates will double, but if your spouse dies your tax bracket doubles anyway. David's clients will take advantage of these tax rates but ultimately, the tax breaks were irresponsible to make. Every other country in the world is getting their fiscal house in order other than the US. David's worst financial decision was to buy a nice car, move to Puerto Rico, and then selling it only one year later. Cars typically make lousy investments.

The 4% rule says there is a percentage that you can withdraw from your assets once you hit retirement, and still have a reasonable expectation that your money will not run out before you die. The industry runs Monte Carlo scenarios where they look at your stock allocations and run simulations, to see the likelihood of your money outlasting you. They have determined that if you have a 60% stock allocation, you have an 85% chance that your money will last through your retirement, as long as you stay around the 4% withdrawal number. If you are constrained by the 4% rule, you have to save a lot more money than someone constrained by a 5% or 6% rule. Let's say you want to live on $100,000 a year in retirement, and you don't want the money to run out before you die. You need to have $2.5 million accumulated before you hit retirement. If you're not on track to hit your number, you basically have five options: save more, spend less, work longer, die sooner or take more risk in the stock market. The biggest factor in the 4% rule is something called "sequence of return risk." In the first ten years of your retirement, you will experience 2-4 down years. If you are relying on your stock market portfolio to fund your lifestyle, taking money out in the down years is brutal for your portfolio. You are removing the worker dollars that are funding your retirement from your portfolio completely. Studies show that if you take out too much money during those down years, you can run out of money 15 to 20 years faster than someone who didn't experience those down years. Without the 4% rule, you can send your portfolio into a death spiral from which it will never recover. If you can only take out 4%, you can weather those down years during the first ten years and still have a high chance of your money outlasting you. The basic premise behind the volatility buffer is you take money during your working years that would have gone into the stock market, and you set it aside and earmark it for those down years in early retirement. If you can get three or four years accumulated, you can dramatically raise the withdrawal rate that you can take out of your stock market portfolio. The Volatility Buffer has to have a couple of attributes. You can't just take four years of lifestyle money out your stock market portfolio and stick it into a savings account. Your Volatility buffer has to be safe. If it's correlated to the stock market, you haven't really fixed the problem. It also has to be productive because there will be a massive opportunity cost of not allowing that money to grow in your stock market portfolio. It also has to be tax-free. You won't be able to fund two to four years of lifestyle if you have to give 50% of the money to the IRS. The Volatility Buffer has to be in place before you hit retirement. You have to pack your bags before you go on vacation! In a perfect world you have unlimited contributions you can make and no income limitations. Avoid things like the Roth IRA because they could be constrained by how much you can put in. The Life Insurance Retirement Plan is a good fit.

About half of the people that David sees have pensions. The younger you are the less likely you are to have a pension. The burning question these people always have once they believe that tax rates are going to be higher in the future is "what can I do if I have a pension?" Have you elected the income option on the pension? Once you set that in motion, there is no way to unwind it. If you haven't made your payment option yet, your company may offer a Lump Sum Distribution Alternative where you can roll the lump sum into an IRA. This makes it easy to get that money into the tax free bucket and the 0% tax bracket. There is a dark underbelly of the pension world. When you receive a pension, it's going to be on the IRS's radar forever. It will come out of your taxable bucket and you will be exposed to the ebb and flow of tax rates over time. Pensions also count as provisional income. If your pension is big enough, when coupled with your social security, it will almost certainly push you over the threshold where your social security will be taxed. The only thing you can do is worry about the things you can control. The upside is at least you will have a consistent stream of income until you die. The reality of pensions is you may never be in the 0% tax bracket. The most you will ever own of your IRA or 401(k) is 78% because the IRS is a 22% stakeholder, and it will only get worse from here on out. You have to take a strong look at what your tax bracket is today during your working years. If you're in a 22% tax bracket today and will be in your retirement, don't let a year go by without maximizing your tax bracket through Roth Conversions. [ Why would you not, at the very least, convert your IRA's during your working years? The 24% tax bracket is only 2% worse but it lets you protect an additional $150,000 by shifting it to the tax free bucket by way of the Roth Conversion. We will look back 10 years from now at the 22% and 24% tax brackets and say "that was the deal of the century." Even if you don't think that tax rates will be dramatically higher than they are today, we know that come Jan 1, 2026 the 22% tax bracket becomes the 25% tax bracket and the 24% tax bracket becomes the 28% tax bracket. The huge upside of having a pension is having way more certainty in terms of what your tax bracket is today versus what it will be in the future and you have more certainty that you won't have buyer's remorse. Don't let a year go by where you aren't maxing out the 22% tax bracket. If you have already begun taking your pension, it makes a ton of sense to be shifting as much money as you can and maxing out your current tax bracket

There is no retirement planning class based on the Power of Zero book, but there is one that David created. He's taught it to hundreds of advisors across the country. The Power of Zero is not the basis of the class, but it may be a homework assignment. The workshop conveys the idea that even in a rising tax rate environment, there is still a mathematically perfect amount of money you need in your taxable and tax-deferred buckets LIRP's are the same greatness as Roth IRA's. As with all tools, they can be used inappropriately. A LIRP is not a silver bullet, it's just another tool you can use alongside all the other tools. A LIRP is a bucket of money that gets treated differently from the other buckets we've already talked about. You can't talk about the LIRP without talking about one of the primary reasons for having a LIRP: it provides a death benefit. You have to have a need for life insurance to be able to get the LIRP. The companies that sponsor LIRP's make it a little more attractive by allowing you to access your death benefits in the event that you require long-term care. As a result, many people are dropping their life insurance. The fees over the life of the LIRP are, on average, about the same as your 401(k), they just tend to be front loaded. They are higher in the early years and lower in your later years. Whatever road you take in life, somebody is making 1.5%. The question is "what are you getting in exchange for that 1.5%?" $350,000 doesn't correspond to any tax bracket and does make sense as a threshold of comparison. Financial gurus tend to paint everything with a very broad brush. They are in the business of dispensing general financial advice and target people who make less than $75,000 a year. You can't get custom-tailored financial plans from financial gurus because that is not what they get paid to do. You don't get the LIRP unless you die. If you quit after the first year, it will likely be the worst investment you've ever made. The longer you keep it the better your rate of return will be. If it is structured properly, the LIRP will almost never run out of money. Just because a salesperson makes a commission off the sale, doesn't mean the product is bad. No one would have a car or many other things we highly value if this were the case. There is always a mathematical basis for what David recommends. It's almost like the author fell asleep in 1985 with his ideas about Universal Life firmly decided. There is nothing magic about a life insurance policy. When used as a compliment to your other tools, they can be an excellent contributor to getting you into the 0% tax bracket. Guarantees cost money. They will also drag you cash value down. If you have money in your bucket to sustain the drips that are coming out of your spigot, that's what keeps the policy enforced. The program is not a miracle worker, it simply performs a function that other investments can't accomplish. Everyone should have level-term life insurance, but you have to remember that the cost of admission to the LIRP is you have to be willing to pay for some life insurance. If you're paying for term insurance, you are already paying for the bucket. You're just not putting anything in it. Retirement classes are often held and sponsored by universities. They are purely educational experiences. Failing to adopt some of these strategies could be the most expensive thing you do in your life. You could run out of money seven to ten years faster without them. Most people make emotion-based investment decisions. When you are feeling an emotional impulse to buy low and sell high, will your robo-advisor give you a call? Most of David's clients are between the ages of 50 and 65 so robo-advisors would not be ideal for them. There are no LIRP's that are only fee-based. It's hard to work with a LIRP when you are working with a fee-only financial planner. Being optimistic doesn't necessarily translate into being realistic. Let's look at the financial landscape of our country, and figure out how things are trending. You can be optimistic in nature and still believe that tax rates are going up so you should prepare accordingly. If tax rates in the future are going to be even 1% higher than they are today, there is one right strategy which is to position your money to tax free. The LIRP is one of many streams of tax free income and when used appropriately it can accomplish things that your other investments can't. Financial gurus will only get you so far, especially in a rising tax rate environment. Consulting with a qualified Power of Zero advisor can help lay out your roadmap and mathematically show you the best strategy for you.

Some people don't read books. Creating a documentary is a way to reach those people. Plenty of people read the book but are still unconvinced that tax rates are going to be higher in the future than they are today. The documentary was a way of bringing together the most compelling experts in the country with something meaningful to say about debt and putting them on record. The tax train is coming. If you were sitting on a train track with a huge freight train bearing down on you what you do. For those of us who have accumulated the lion's share of our retirement in 401(k)'s and IRA's, we have a huge freight train bearing down on us and it's coming in the form of higher taxes. You have a couple of choices of what to do: you can pretend like the problem doesn't really exist and the math doesn't add up, or you can face it head-on. David Walker made an Oscar-nominated movie back in 2009 called IOUSA about the debt at the time where it sat at around $10 trillion. Nearly ten years later we're sitting on over $21 trillion in debt. The stated national debt is $21 trillion but if you count the unfunded liabilities that have been promised it totals up to over $200 trillion. Allen Arbuck makes a very compelling case that printing our way out of our problems is not a solution. Printing money isn't going to do the trick. The real issue that we're facing here that's going to squeeze everything out of the budget is Medicare. It's not five years from now or eight years from now, we're in a crisis right now. -George Schult. Tom McClintock is a congressman and on the Republican Budget Committee and he doesn't pull any punches. According to Tom, in eight years we will be where Venezuela is now. According to Gary Herbert, the Governor of Utah, we have the Democrats and Republicans sitting in the front seat of the car and we're heading towards a fiscal cliff. If no one relinquishes the steering wheel and compromises, the car goes over the cliff and we all go with it. There are lots of nations in the history of the world that have taken the same course, it's not like we are forging into new territory. 401(k)'s and IRA's are like the government saying "Hey look, I want to loan you some money. I don't need the money to be paid back right now. I'm not going to tell you what the interest rate is on the loan I'm going to give you but I will come back to you when I do need the money." Would you ever cash that check? Van Miller speaks about the demographic issues facing the country that is only just beginning. Most of the Baby Boomers have yet to retire. The real heavy birth rates didn't happen until well into the fifties. Getting all these experts into the movie was very tricky. There were certainly some very harrowing weeks were no one had committed to be in the movie at all! But once we got David Walker to agree, we were able to use his name to convince others. One of the people we really liked in the movie was Armstrong Williams. He spoke very passionately and eloquently about the issues and says that now is the time to speak to your representatives. We are really getting to the point where, as Tom McClintock says, we could approach what is called a sovereign debt crisis. If you're a financial advisor, go to thetaxtrain.com to watch the movie and get DVD's to distribute to your clients. If you're a Baby Boomer that wants to know more, the movie will be available in April or you can ask your financial advisor.

One of the things we tell 75 million Baby Boomers preparing to retire is that tax rates are going to be higher in the future. Some people will point to the latest tax cuts and think that the urgency of David's message is diminished. David Walker has famously said we have to double taxes, reduce spending by a half, or some combination of the two. The question is what did we do with this latest tax cut? We lowered taxes but also increased spending by $1.5 trillion over the next ten years. All that means is that the fix on the back end is going to be even more draconian and aggressive than it already was going to be. We did the exact opposite of what we should have done. The cost of admission to the tax free bucket is you have to pay a tax. Either you pay now or you pay later. With this new tax cut, we now know the year and the day when tax rates will go up. It's no longer a guessing game, all the uncertainty and doubt has been removed from the equation. We now have the ability to understand where tax rates are today and where they are going to be in 2026, but who knows what will happen beyond then. With the latest tax cut, a lot of the media focused on Joe Mainstreet America and what he will be saving. While that's important to know, it's also important to understand what the opportunity is for people looking to get off the train tracks. The reason people postpone the decision is because of uncertainty and doubt. They don't want to pay a tax today only to regret it if tax rates get lower in the future. The general rule is you want to stay in your current tax bracket when you are doing things like Roth conversions. Don't let a year go by where you are not maxing out what you can do within your tax bracket. There is one exception, which David calls the sweet spot in the 2018 tax code, which is the 24% tax bracket. For 2% more you can shift an additional $150,000 dollars to the tax free bucket. Come 2030, we will look back at the 24% tax rate and think of it as the deal of the century. Tax rates will likely never be as low again. Every year that goes by where you fail to take advantage of historically low tax rates, there will potentially be a year beyond 2026 where you are forced to pay the highest tax rates you are likely to ever see. If you wait until 2027 to do the same Roth conversions, that will push you into the 33% tax bracket and you will pay an additional $15,000 each year. We know when the tax sale is going to be over. Every year between now and 2026 is a tax cylinder that you can take advantage of. When it comes to shifting money to be tax free, it all comes down to whether you believe tax rates will be higher or lower in the future than they are today. The only way for this new tax law to change before 2026 is for Democrats to seize the House, the Senate, and the Presidency which is pretty unlikely. You have an eight year period to stretch that tax liability out over time and get the heavy lifting done before 2026 when tax rates are going to go up and will likely be the highest you will ever experience in your lifetime.

The tax free paradigm essentially says there is an ideal amount of money you should have in your taxable and tax deferred buckets. Everything above and beyond that should be systematically repositioned in the tax free bucket. The ideal amount of money in your taxable bucket is around 6 months of your basic living expenses. The ideal amount of money in your tax deferred bucket should be low enough that Required Minimum Distributions in retirement are equal to or less than whatever your standard deductions are within that year. You want to be slow and steady when moving money into your tax free bucket. If you move too much in one year, you could bump up into a tax bracket that gives you heartburn. The Power of Zero roadmap gives you the plan to shift your money over 5 to 8 years. Sometimes despite all our efforts to get all that shifting done through traditional means, we have to use a different type of tax free tool called a Life Insurance Retirement Plan. An LIRP is a bucket of money that gets treated differently by the IRS tax code. You are not constrained by the typical rules of accessibility. There are no blackout periods with an LIRP. You do not pay taxes on this money as it grows. When you take out the money in the right way it does not count as taxable income. It also doesn't count as provisional income so it won't cause social security taxation. There are also no contribution limits or income limitations. Roth IRA's are really designed for mainstream America, they are not designed for the rich. If you make a lot of money and need to put a lot of money away, you're not going to make a lot of headway with a Roth IRA. If history serves as an example, there is no legislative risk to an LIRP. If you have the plan in place before a legislative change, your plan is grandfathered in. The more you want to put into this bucket, the higher your death benefit has to be. As we slowly go broke as a country, they will be looking at all quarters for more revenue. One of the places they may look is the tax exemption for life insurance, so get in while you can. You have to pay some expenses out of this bucket month in and month out in order to retain the benefits of the bucket. Annual renewable term life insurance is term life insurance that gets a little bit more expensive every year, and that's one of the major expenses that can come out of this bucket. In the event you suffer from a chronic illness, you can access your death benefit which deals with some of the most common issues people have with long term care insurance. You don't have to love life insurance, you just have to like it a little more than the IRS. If you're between the ages of 50 and 65, you likely have at least one parent that is experiencing a long term care event. People aren't opposed to having long term care insurance, they are just opposed to paying for it. If you don't die and need long term care instead, you may end up leaving your spouse or family the bare bones in terms of inheritance. One of the biggest threats to retirement can be long term care. There is a 70% chance that you will have long term care event that lasts at least three years during your retirement. You have to protect yourself or you could burn right through your life savings. There are three main ways to grow your money within your LIRP: the stock market (this one comes with a fair bit of risk), the general portfolio within the insurance company (mitigating risk is something that insurance companies are really good at), and the indexed approach. The indexed approach is a way to grow your money in an indexed type of account that mirrors the stock market, with some conditions. Historical rates of return on this approach can be anywhere from 5% to 7% after expenses. A recurring theme from LIRP critics is that the expenses are high, but you have to ask the question "high compared to what?" The average expense in a 401(k) is approximately 1.5% of your balance. As your money grows, you pay more for people to manage your money. The reverse is true about LIRP. The expenses are front loaded and it works about to be about the same 1.5% but the longer you keep it, the less the expenses are. The goal of this bucket is safe and productive growth, and you can't get safe and productive without paying for it. The longer you keep it, the better it gets. A LIRP is a compliment to everything we've already talked about, not something to put all your assets into.

Do you believe tax rates will be higher in the future than they are today? There is about $21 trillion in the 401(k)'s and IRA's across the country. If you were to look at the cumulative amount of money in Roth IRA's and Roth conversions, there is only about a trillion dollars. Most people believe taxes will be higher down the road and aren't doing anything about it. You are either going to pay the IRS now, or you are going to pay them later. It's as simple as that. If you put money into a tax deferred bucket, you are saying it makes more sense to pay taxes in the future when they will be higher rather than they are now. People just can't seem to be able to bring themselves to pay a tax preemptively, even if it will save them money. We love to procrastinate painful things. Paying taxes at historically low tax rates is going to be much less painful than if you wait until later. Leading economists believe that taxes may be dramatically higher as soon as in the next 8 to 10 years. There are a lot of investments that masquerade as tax free but in order to be tax free an investment has to be free from both state and municipal taxes. When you take a distribution from a tax free investment it shouldn't count as provisional income. Up to 85% of your social security can become taxable to you at your highest marginal tax rate. The Roth IRA is truly tax free as long as you are 59 and a half when you take the money out. There are other versions of the Roth that are also tax free. Taking up to standard deductions from your IRA or 401(k) can also be considered a tax free stream of income. The life insurance retirement plan works very similarly as a tax free investment that comes with a few other perks you can take advantage of. By prepaying taxes, you are shielding yourself from the ebb and flow of tax rates over time. The only way to truly insulate yourself from the impact of higher taxes is to get to the zero percent tax bracket. It's almost impossible to get to the zero percent tax bracket with a single stream of tax free income. Make sure you shift your money to your tax free bucket slowly enough to avoid dramatically increasing your tax rate in the meantime. On the other hand, you do want to shift it quickly enough that you get all the heavy lifting down before tax rates go up. The amount you should shift each year is your Magic Number and it depends on your investment horizon. There is another deadline that you have to consider, if congress does nothing 2028 to 2030 may be a big problem in terms of taxes. Small increases in the marginal tax rate are not the issue, what you should be prepared for is tax rates doubling some time in the future. Don't put all your eggs in one basket, the IRS or congress could legislate that one basket out of existence.

The number one piece of information you should consider when thinking about your tax deferred bucket is what you think the tax rate will be when you take out your money. Will it be higher or lower? You may hear the argument that If you take money out of your Roth IRA, you will have less money working for you and less money for your retirement. However, that's not true. People think the money in their Roth IRA account is theirs, but really you have entered into a business partnership with the IRS and they are joint owners of that account with you. It's not all your growth, a portion of it is owned by the IRS. When your money grows over time, the portion for the IRS is going to grow and compound over time just like your portion. The IRS loves it. If tax rates are always going to be at 30%, it doesn't matter if you use a Roth IRA, or a Roth conversion or a traditional IRA. It all ends up the same. If tax rates were to go up by just 1%, your portion of the account will go down, which is where a conversion makes more sense. It's very important to understand the fiscal landscape of our country. You have to try to anticipate where tax rates are going to be because at the end of the day, that should inform all of your decisions as it relates to these types of accounts. The true purpose of a retirement account is to maximize cash flow at a period of your life where you can least afford to pay the taxes. Any distributions you take out of your IRA count as provisional income and could cause your social security to be taxed. All tax deferred investments have two things in common: when you put money in you get a tax deduction, and your deductions will disappear when you need them most. A lot of financial gurus say that you will always be in a lower tax bracket when you retire, but that idea has largely been debunked. In retirement, every day is a Saturday. Most of your largest deductions are gone once you retire. Your house is mostly paid off. You probably aren't receiving a child tax credit anymore. You're not contributing to your 401(k). People tend to contribute time instead of money to charity. The IRS thinks nothing of your time because it is not tax deductible. After 2026, tax rates are likely to be dramatically higher than they are today as the national debt balloons up to $30 trillion. In a rising tax rate environment, there is a perfect amount of money to have in your tax deferred bucket. If you don't have a pension, the magic number is between $250,000 and $350,000. You want the balance in your tax deferred bucket to be low enough that the RMD's coming out are less than your standard deduction, and don't cause your social security to be taxed. You want your distributions to be tax free, while also maintaining your tax free social security. If you have a big enough pension, it will probably take up all of your standard deductions so make sure you get as much that money into tax free accounts. Quick quiz. Can you guess David's favorite tax free investment? The holy grail of financial planning is to get a deduction on the front end, it grows tax deferred, and you take it out tax free. Take advantage of your 401(k). Contribute up to your match, and not a penny more. Get that tax deduction on the front end. Mathematically, nothing beats this strategy for tax free income in retirement. When you put the puzzle pieces together, then the zero percent tax bracket emerges.