John, so good to see you. We start with a really important question: When should you start taking money out of your 401? A 401, one of the most powerful retirement savings tools available, but if you take the money out too early, you could face penalties. Wait too long, and RMDs could push you into a higher tax bracket. So let's start with the basics. For the most part, employees tend to save in a tax-deferred 401. Why is that important? Yeah, well, I think the first thing is, you know, we've been programmed, right? The 401is the largest retirement vehicle, you know, for the- the general population of this country. So that's what we're told to do, right? Save for retirement. You know, a lot of people don't have pensions anymore- Right ... so sock away that money. Number two, they get that instant gratification of the tax deduction, right? If you're making $100,000 a year and you put $10,000 into your 401, well, now you're only gonna pay tax on the $90,000 of income, and the $10,000 is deferred. That's a key thing, because now you've entered the IRS into a business partnership on your investment. So, you know, that's why the 401has gotten so big because essentially that's, you know, for the better half of the last 30 years, that's where we've been told to stockpile our money for- Mm-hmm ... our future retirement. Mm-hmm. All right, now let's talk about taking the money out before you're actually allowed, so before age 59 and a half. What do you give up if you take a distribution from your 401before you're eligible? Y- you know what? You said a, an interesting comment. If you're, uh, that you're allowed. I- isn't that crazy? This is your money. I know, true. Right. But the government has put some, uh, you know, very, very tight constraints. Ooh. Why? Again, because you're their business partner now in this investment. So let me get to this answer. If you take the money out before you're 59 and a half out of your 401, you are subject to a 10% penalty plus the income tax. So as you see there, you know, you're taking out a dollar, you're getting 60%. Now, uh, or 60 cents of that dollar. Now, this really becomes an issue for early retirees, and there's, there's two things that become problematic. Number one is for most people, they wanna roll their money out from a 401to an IRA. Now that 59 and a half is, is etched in stone, unless you do some very complex things like the, a 72. I'm not even gonna get into that, and I try to avoid that for my clients. But here's another thing where you can actually access the money before 59 and a half from your 401, and that is if you retire at age 55, you cannot retire before age 55. If you retire at age 55 and you access the money after you're age 55 and a half, you are not subject to that 10% penalty. That's very important to understand, because I have a lot of clients who, you know, are first responders, and they may retire at 55, 56 years old, and they wanna roll that money into an IRA, but we need to keep some of that money in their 401or their 457s so they have access to it. The last thing you wanna do is retire and have access to it- Or tip the government 10% on a penalty because you know I hate- Exactly ... tipping the IRS Me too. All right, on the other hand, when you reach 59 and a half, how are those withdrawals taxed and how can those distributions affect your tax bracket? Yeah, so no matter where this money is, 401, IRA, 457, 401, 401, the money's taxed as ordinary income. So think of it this way: It's taxed at the same marginal tax brackets that you had when you're working. So for a lot of people, if you don't have a pension, it- your tax brackets really come down to how much you're spending in retirement. And Erin, we talked about this in a lot of videos. As an advisor, I don't want my clients living a lesser life, and I don't think anyone watching this video goes, "I just worked 30, 40 years for this day, and now I'm going to have a lesser lifestyle- Right ... because I'm no longer working," right? This is now the time to enjoy life. You know, you might be able to do the things, travel, do the things you've never been able to do because you were too busy working. So what you need to be cognizant of is that, you know, if you need $100,000 in expenses a year to live off of, you may very well have to take out 130,000. That's a very hypothetical number. It's not an exact tax number. But you may have to take out 130 or- thousand or more to cover the taxes because your tax bracket, you know, on the expenses, if you need $100,000, that's gonna put you in a general bracket, state, federal. And so you have to be well aware of how that's gonna play into your, your withdrawal or distribution strategy along with the taxes. Mm-hmm. And then on top of that, once you're 63, you now have to start considering Medicare taxes or Medicare premiums. And, and John, well, you're wrong. It's not 63. You don't claim s- Medicare till 65. Your Medicare premiums or Medicare taxes are on a two-year look back. Right. So, you know, you, you wanna be cognizant of your- Yes modified adjusted gross income starting at 63 and going forward because that will, could impact your Medicare. And remember, if you go over Medicare by $1 into the next category- Right ... you could be adding thousands of dollars of premiums onto you and your spouse's, um, Medicare. Right. Known as the cliff. Yes. At some point, though, the government requires you to take those withdrawals. Those are known as RMDs. What are they, and when do we pay them? Man, you're making these 401s and these tax-deferred accounts sound so good. Allowed, required. Yeah, so the required minimum distribution, now the government says, "Hey, listen, uh, we want our money." And this, a- and let me just clear the air, Erin. This only becomes an issue if you don't take out a certain amount of money. So the RMD, real quick, is calculated on all your tax-deferred accounts, the balances as of December 31st, and then you have a certain amount of money you have to take out. So i- if you can put that chart that you just had back up, it's dependent on your age. So for a lot of people, if you're watching this, you may have had to take out at 70 and a half. Now most people are taking out at 72, and now 73, with 75 being the future. So let's just use 73 as the example. At 73, um, you have, uh, a million dollars and you roughly have about a 4%, uh, RMD. That's a rough estimate. That's not... Don't etch that in stone, but you're gonna be required to take out $40,000 in distributions. Now, if you ha- are already taking out these distributions, that's not an issue. The issue therein lies when people have pensions, or they really don't have a lot of expenses, or they're trying to control their taxes and they're taking out of their capital gains friendlier, uh, taxable accounts. Well, if you don't need to take out all that $40,000, the government says, "Well, hold on here. You are required to take out 40,000, and if you don't take out this entire $40,000, we are gonna hit you with a 25% excise penalty, which you are now-" Yep ... going to pay tax on also. So the goal of everybody is to do proper tax management to try to reduce those RMDs. Yep. I'm glad you brought that up, 'cause that does bring us to our last question. For retirees who wanna make their savings last, what strategies can help them decide how much to withdraw from their 401each year, how to mitigate those taxes? Because this really is a delicate balance. You know, when you have a tax-deferred account, you let it grow, you have a larger nest egg, but also a bigger tax burden. Yeah, and you know, it really kind of starts, if you're still working, a lot of companies now are offering the Roth option, so- Right. Right ... you know, nothing, nothing is all or nothing, right? Mm-hmm. You don't have to go, "Oh, I'm gonna put 100% of my money now into a Roth 401or a Roth 457." You can put a portion of it, right? Play around with the taxes, because you have to realize if you put money in a Roth 401that, and, and let's say, in the example I used earlier, you have $100,000 worth of income. You put $10,000 in that Roth 401, you have a tax bill for that year of $100,000. Uh, the big, big thing here is we're at some of the lowest tax rates in history. So if you're generally speaking in a 24% tax bracket and you put that money in a Roth- You just bought the tax man out at a rate that you understand. And if you ask any of my advisor buddies in the Midwest, you know, you ask them this question of what their farmer clients would want, would they wanna pay tax on the seed or the harvest? Those farmers are always gonna say pay tax on the seed. Mm-hmm. Right. The other thing, now you're retired. Now, well, I can't do Roth 401contributions. Well, that's when you start to look at Roth conversions. And again, this is a sa- similar concept, except you're gonna take, let's say you have a million dollar 40- 401that's now an IRA, and you're gonna start saying, "Hey, listen- Uh, we're gonna develop a long-term plan, and we're gonna- every year we're gonna, we're gonna really get this down to the minute details, and I wanna convert, you know, 50 to $100,000 a year, whatever that number is. And you're going to pay the tax on that conversion that year. So it's very important that, I, I mean, honestly, you get professional help on this because there's a lot of things that you can trigger. You can trigger Social Security taxation, you can trigger Medicare taxation, and, you know, or you can just, you know, bump yourself up into higher marginal tax brackets. So it's good to have a 30,000-foot view, but then really hone down with specialized software to say, "Hey, listen, we can only go this far because we are going to affect your Social Security, we're gonna affect your Medicare, or we're just gonna shoot you from a 12% tax bracket to a 24% marginal tax bracket." So, you know, you wanna consider Roth conversions because, again, Roth IRAs are not subject to RMDs. Mm-hmm. So not only have you bought the government out at a rate that you determined, I'm not saying you like paying the taxes on it, but you have some control over that rate. Right. That Roth 401money n- or Roth IRA money now grows tax-free. It's not subject to RMDs. You've lowered your other RMDs, and all that money, all that growth inside that Roth IRA is your money. Mm-hmm. Now, one last tax management plan. You don't wanna do Roth conversions. You don't wanna pay the taxes now. Another strategy that involves Social Security claiming is you could delay your Social Security and bridge... You know, and let's say, "Hey, I needed that $50,000 of Social Security, uh, a year, and now you're telling me to delay." Well, guess what? You're going to spend from your IRA. You're gonna build a bridge. You're gonna reduce your account balances while you're maximizing your Social Security. Again, that's an idea. You always wanna take the data and use the software to give you the best analysis. But the big thing is, is do not let your 401turn into a ticking tax time bomb. And think back to this- 'Cause Erin, I'll be, you know, 50 this year. I, you know, uh, the last thing I knew I was 21, and now you're 50. And, you know, f- I think a lot of people can resonate with that. Like, "Wow, I can't believe my whole career is, is over." Mm-hmm. And now I'm in this different chapter of your life. Well, do you think life is gonna slow down? It, it seems that the older you get, the quicker it goes. So before you know it, RMDs are gonna be here. Mm-hmm. And, you know, for a lot of people, this becomes a big tax problem. And also, as I said earlier, a big, you know, market issue because- Mm ... you may, you know, be taking money out in a down market. You may be forced to take that money out. Yeah. So many moving parts with this question. I think that what's most important, what I've learned from you, John, is having this conversation with a professional early is really important so we can start putting a plan in place. Because while it may feel out of our control, there's a lot of strategies that are within our grasp. So if somebody would like to sit down with you, talk through some of these strategies to lower their taxes in retirement, what's the best way to reach you? Yeah. Well, uh, as we mentioned, we had several different topics that we covered in this video. If you go to our website, www.gosecurus.com, you can see all the videos. As a matter of fact, they're all on YouTube also. So I, I really strongly suggest that you- Yeah ... like and subscribe. And if you have a comment, put that in here. We wanna hear from you. While you're on the website and you're watching all those other videos and you have questions or you wanna come in and see us, visit the Contact Us tab, where you can schedule a 20-minute phone call and I will answer any general planning questions or answer questions about myself or the firm. Or if you wanna elicit our services, you can go ahead and sign up for a complimentary vision and clarity consultation. Great. John, thank you so much for your time today. I appreciate it. Thank you, Erin.