Joe Anderson
ABOUT Joseph

As President of Pure Financial Advisors, Joe Anderson has led the company to achieve over $2 billion in assets under management and has grown their client base to over 2,160 in just ten years of the firm opening. When Joe began working with Pure Financial in 2008, they had almost no clients, negative revenue and no [...]

Alan Clopine

Alan Clopine is the CEO & CFO of Pure Financial Advisors. He currently leads Pure Financial Advisors along with Michael Fenison and Joe Anderson. Alan joined the firm about one year after it was established. At that time the company had less than 100 clients and approximately $50 million of assets under management. As of [...]

Published On
November 20, 2017
tax reform
Actual news you can really use the ever-changing landscape of tax reform, why Trump’s promised biggest tax cuts ever are actually a tax increase for many of us, and how it will affect you. Those sneaky, sneaky Congresspeople. And Joe and Big Al have a yarn with Joe’s fair dinkum, true blue, Aussie fine arts painter mate, Pete Tillack, on finding your passions in life, couches at the bottom of swimming pools, and getting thrown out of Christmas parties.

Show Notes

  • (1:08) Tax Reform: The House Bill
  • (12:58) AMT Repeal
  • (20:50) More on Tax Reform: House & Senate Plan Differences
  • (28:59) Pre-Tax Reform Strategy
  • (38:08) Pete Tillack, Artist, on Finding Your Passions
  • (52:36) Find Your Passion


Some of these things in the House bill, are not that popular with a number of senators, and I would say this. At least from what I’ve read, there’s not a single Democratic House of Representative or Senator that is in agreement with this, in its entirety. And there are several Republicans that are not so sure either, particularly Republicans that are in California, New York, New Jersey. Basically, it means this tax cut, for a number of taxpayers, is actually – it’s false it’s actually a tax increase. – Big Al Clopine, Your Money, Your Wealth

This will be the most engrossing, fascinating and hilarious episode of Your Money, Your Wealth you’ll ever hear. Well, maybe not, but it will be some actual news you can really use about the ever-changing landscape of tax reform, and why the promised biggest tax cuts ever are actually a tax increase for many of us, and how it will affect you. Those sneaky, sneaky Congresspeople. And Joe and Big Al have a yarn with Joe’s fair dinkum, true blue, Aussie fine arts painter mate, Pete Tillack, on finding your passions in life, couches at the bottom of swimming pools, and getting thrown out of Christmas parties. Now, here are Joe Anderson, CFP and Big Al Clopine, CPA.

1:08 – Tax Reform: The House Bill

JA: I guess it’s all up in arms right now, Big Al.

AC: Well it is, and I tell you if you if you follow income taxes at all, and many people do.

JA: Many? What is your definition of many? (laughs)

AC: (laughs) More than two? Well, let me say it differently.

JA: I think they care about the taxes that they pay. They follow their own tax bill.

AC: Yes. And this week, there was so much news on taxes. That’s why we want to kind of devote our show to taxes. But, in case you haven’t noticed or haven’t been paying attention: So the House of Representatives came up with their own plan. They actually announced that on November 2nd, Joe. This is the Ways and Means Committee that came up with all kinds of stuff. Now, this is a proposal – I got to say that right off the bat, this is a proposal, this is not law. So they come up with this proposal, and we’ll kind of dive into that a little bit more. And then the Senate decided, “well we’re going to come up with our own proposal,” which they announced on Thursday of this week, and the two plans, they have similar changes, but there are several differences. And so, what could happen, potentially, is the House could prove one, and the Senate could approve another. Then they’d have to be reconciled to where both House and Senate would approve. Now of course, if you follow politics at all, you know that the Senate – there are only 51 or 52 Republicans right now, and they need 50 to be able to pass this. And so you basically need all Republicans on board, and the Republican Party, as you probably know, is not very unified right now. And there are certain things in both tax acts that are are not going to appeal to certain Republican senators and House of Representatives. And then you got the Democrats can filibuster because you don’t have a supermajority in the Senate. So there are all kinds of hurdles, I guess, for this actually happen. But, pretty interesting. If anything like this goes through, this will be the biggest change, Joe, I would say, since 1986. The Tax Simplification Act, this was under Ronald Reagan.

JA: Which wasn’t that simple.

AC: It wasn’t very simple. It was a whole lot more work, and accountants kind of rejoiced in a way, because they knew they’d be employed for another several decades.

JA: Well let’s kinda dive in. Let’s start with the House because what’s that, The Tax Cuts and Jobs Act. They promise to file your return on a postcard.

AC: Right. And so, I’ll just try to kind of highlight some of the things. So they would change the brackets. Right now we have seven brackets that start at 10% and go to 39.6%. The house’s first bracket would start at 12% and go to 39.6, but there are only four brackets. And in general, it takes longer to get to the higher brackets. So the whole idea is the tax rates are coming down for most people. For example, the 12% bracket would be for single taxpayers up to $45,000 of taxable income, married, up to $90,000 of income, and the 25% bracket for single would go up to a couple hundred thousand of taxable income, and $260,000 for married. Now 39.6, that highest bracket, that wouldn’t kick in until a million bucks for married couples, and $500,000 for single.

JA: What’s sneaky about this, is that the top bracket is not 39.6. It’s 45.6.

AC: Yeah. Well, for $200,000 of income, and let me explain.

JA: Because it phases out the lower brackets.

AC: That’s right. Exactly. So when you make a million dollars 001, that extra dollar is going to be taxed at 45.6%. And the reason for that is, they said that once you’re in the highest bracket, you don’t get the benefit of the 12% bracket, and you’ve got to pay that back over the next $200,000 of income. So it’s this kind of weird thing, you get to 39.6 and then it’s 45.6, and it goes back down to 39.6 once you pay back that benefit. So here again, we talk about tax simplification. It couldn’t be more complicated to have these brackets, these marginal brackets, move all over the place.

JA: You and I have been doing this long enough where it’s all political rhetoric. They’re saying, “All right well let’s simplify this, let’s get it down to a certain amount of brackets, the top bracket will stick at 39.6, which changed, because, from the campaign trail, it was 35. Even as low as 33 at one point. And then it went to 35. “Oh, OK wait we’ll go to 39.6.” But now the highest rate is not 39.6. Some taxpayers are going to pay that 45.6%, almost 50% tax rate if you live in the state of California if you’re at that level of income? Add another 13% on top of that, you’re at 60%.

AC: Exactly, Joe. And because of the fact that one of the big things here, you probably heard about this, is state and local income taxes would not be deductible in the House plan. By the way, the Senate plan, that’s true as well. So taxpayers in California, New York, New Jersey, high tax paying States, would basically have their taxes go up a fair amount. And I’ll tell you this, if you’re in the highest bracket right now in California, 39.6, that’s the federal bracket, but you live in California? If you lose the state tax deduction, it’s as if your taxes went up over 5%. So now instead of paying 39.6, you’re paying close to 45% with the loss of the state tax deduction.

JA: Right. And then you phase out the 12% bracket. Where does that bring you?

AC: There’s another 6% you’ve got on top of that. So anyway, a couple more things. The standard deduction would almost double, Joe, the single standard deduction is $6,350 right now. It would go up to $12,000. And the married is currently $12,700. It would go up to $24,000. Now that standard deduction, it’s just like a free deduction, you get to take either that or that or itemized deductions if they’re higher. If you don’t have enough to itemize, you take the standard deduction. So the idea is that this will make taxes simpler for some because they won’t have to itemize because it’s a higher standard deduction.

JA: Right, but they’re not going to itemize anyway because you can’t write off your state tax. You can only write off $500,000 of your mortgage, miscellaneous medical expenses…

AC: That’s true. There’s a lot of itemized deductions going away. And the second part of this is the exemptions, personal exemptions would go away. So they’re increasing the standard deduction, which may or may not be helpful for you, but your exemptions, you’ve got five kids. That’s $4,050 per person in your family. That would be, basically, $20,000 of deductions for the kids that you wouldn’t have anymore.

JA: Right. Well I mean look at it like this, just say your husband and wife with a child. Exemption $4,000 per person. That’s $12,000 that is gone.

AC: Right, let’s say you’re going to itemize because you live in California, you got a mortgage. And so you’re going to itemize. So you basically just lost $12,000 of deductions, plus more, because talking about the itemized deductions, Joe, let’s start with the mortgage. What the House wants to do, currently, you can borrow up to a million dollars on your home and deduct that interest. So the House wants to reduce that to $500,000, meaning that if you borrow, let’s say $700,000 to buy a home in Southern California, which is not that uncommon really, then you can only deduct the interest up to the first $500,000 of the mortgage. And the other interest on the other $200,000 that you borrowed is nondeductible. So you’re losing a tax deduction. They’re also getting rid of, as we already mentioned, state and local taxes. And that’s a big deal for California residents and New York residents, New Jersey residents. It doesn’t matter at all if you live in Nevada because there is no tax. It doesn’t matter. But when it comes to a high state paying taxes, then you’ve lost a big deduction. And by the way, the reason why they have that deduction is so that you’re not paying taxes twice. Well, you do have to pay taxes twice, you have to pay federal and state taxes. But at least you get a deduction, you get a break for paying taxes to two different agencies, so that would go away. They’re saying the property taxes, yeah you can still to deduct those. But if your property taxes are above $10,000, that’s the limit. So if you got property taxes of 20 grand, you can only deduct $10,000 of that. Charitable contributions would basically stay the same. So not much change there, but all the miscellaneous itemized deductions are gone. So no employee unreimbursed expenses. No tax preparation fee, no adviser fees would be deductible.

JA: That’s the only thing that was kept. You could still deduct adviser fees, but you have to break the threshold of 2.5% of AGI. And if you can’t write anything else off on your miscellaneous, the likelihood of you being able to write that off is probably nil as well.

AC: Yeah, another big one Joe is no medical. So right now it’s a big threshold. You’ve got to be over 10% of your adjusted gross income. So if you make $100,000 10% of $10,000 so you have to have medical more than $10,000 to claim anything.

JA: What, 7 and a half percent if you’re over 60?

AC: Well, used to be. That changed actually this year. So now it’s 10% for everybody. But I will say this. Think about those that are older, they’re in a long-term care facility, they’re paying maybe 70, 80, 90, $100,000 a year. That previously was considered a medical deduction. In my example, then if you’re making $100,000 of income. $10,000, so you are allowed to deduct $90,000 of medical if you if you have that much. Now that’s gone. So what that means, is that people that probably need the help the most, that have high medical deductions, don’t get that deduction anymore. Now they’re paying taxes. At the same time, when they can’t really afford it. So as a consequence, some of these things in the House bill, are not that popular with a number of senators, and I would say this. From what I’ve read, there’s not a single Democratic House of Representative or Senator that is in agreement with this in its entirety. And there are several Republicans that are not so sure either, particularly Republicans that are in, like I say, California, New York, New Jersey. To lose that deduction, basically, it means this tax cut, for a number of taxpayers, is actually – it’s false it’s actually a tax increase.

As I record this, the House has passed their Bill. We’ll see what the Senate has up their sleeve, maybe we’ll already know by the time you hear this. Whatever happens, as you just heard, this is complicated stuff and it is going to affect you. It’s time to start taking a look at some end of year tax planning right away to help you not just this year but for the rest of your life. How is this going to affect you? Are you going to change your affairs? What type of tax planning is going to make sense for you, now that some of this might be coming down into law? Find out exactly how: call us at 888-994-6257 and make an appointment for a personalized tax reduction analysis. That number is 888-994-6257. Don’t wait until the last minute, the countdown to 2018 is on! Get a forward-looking, personalized tax reduction analysis at no cost or obligation to you. Call Pure Financial at 888-994-6257. 888-994-6257.

12:58 – AMT Repeal

JA: Talking tax reform, went through and we just rapid fired about a thousand different things in that first segment.

AC: We did, Joe, and there are a few more very important things I want to at least touch on, and that is alternative minimum taxes would be repealed. So there would be no AMT, which actually if there’s no state and local tax deduction, it’s almost irrelevant.

JA: It doesn’t matter.

AC: Because that’s why people get into Alt-Min. There’s a separate tax system, in case you don’t know, it’s called Alternative Minimum Tax. You have to compute your tax in a regular way, and on the alternative way. And whichever tax is higher, that’s the one you pay. Well, in California, for single taxpayers, married taxpayers, somewhere around a couple hundred thousand of income. It varies for everybody, but roughly, let’s say $200,000 of income is where you start having to pay this higher alternative minimum tax. And the reason you have to pay it is that state and local taxes are not deductible for alternative minimum tax purposes, so the fact if they get rid of those in the first place, no one would be in Alt-Min anyway.

JA: Right, because it came about when people started creating large deductions. Back in the 50s or 60s or something like that, billionaires weren’t paying taxes. They did good tax planning I guess.

AC: They did what they were told to do.

JA: Right. They created deductions and tried to zero out their income, and the IRS was like no, we’ve got to come up with an alternative way to tax you. So they came up with the two different tax systems. So the larger deductions that people have, the faster they fell into the alternative minimum tax. So with this new jobs… what is it?

AC: It’s the Tax Cuts and Jobs Act. H.R.1.

JA: Yes H.R. 1. OK. So with that, well they’re trying to get rid of a lot of the deductions anyway, to create a larger standard deduction, where you don’t itemize, because some of the larger itemized deductions that people have are the state taxes that you pay, depending on what state you live in. Your mortgage expense. And so, well if those are no longer available, or they’re not as high because you just take the standard deduction, well, you wouldn’t fall into alternative minimum tax anyway. It’s the same effect.

AC: Yeah. Right. So anyway. But that’s repealed. One thing that does do though, Joe, is it makes tax planning a lot more simple because now we don’t have two systems that consider, it’s only one. So check one for simplification, I would say. Also, the estate tax goes away. The estate tax is when you’re an individual and you have an estate worth roughly over $5.5 million, or married couple roughly over $11 million, you have to pay an estate tax, 40% in excess of those numbers. Now interestingly enough, when it comes to that estate tax, what the House is saying is, “we’re not going to get rid of it right away, we’re going to get rid of it in 2023.” They’re saying, “let’s increase the five and a half million exemption to $10 million per person, indexed for inflation, from 2018 to 2023. And then at that point, it goes away completely in 2023, and interestingly enough, you still get the full step up in basis of assets for the estate. Which is, that’s what we’ve always been concerned about because if estate taxes go away, there’s no reason for a step up in basis. And a step up in basis simply means that let’s say your parent passes away, and they bought a house for $100,000, and now it’s worth $500,000. Well, when you receive that house as an inheritance, the tax cost is stepped up to the value at the date of their death. $500,000. And so when you sell it, let’s say you sell it for $501,000. So you only have to pay tax on a $1,000 gain. And the reason they did that was that people were having to pay estate taxes, and it didn’t seem fair to pay estate taxes and capital gains taxes on the same asset. Now they’re saying estate taxes go away, and you still get the step up. That is kind of interesting. And who knows if that will stick or not, but that’s what’s in the bill.

JA: Yeah. So I have here $5.6 million would go to $11.2 million, which would be $22.4 for a married couple. And you still have the portability. So if one person dies, then the surviving spouse would still get the $22.4 million. And then it would be totally repealed, I guess 2024 would be gone, through the end of 2023. Michael Kitces right here.

AC: Yeah. And it’s interesting because this is the summary. And so even the information we’re getting over the last week is inconsistent.

JA: Exactly.

AC: (laughs) I had not seen the thing about adviser fees going away. But at any rate.

JA: And then with the charitable deduction too, is that there’s a little – instead of 50% it goes to 60% with cash gifts when it comes to being able to deduct that.

AC: For charity, there’s a couple of positive changes. So right now, you can only deduct up to 50% of your income when you write a check to charity. So make $100,000 of income. You can only write checks or totaling checks, of $50,000, which most people don’t do 50% of their income, but anyway, they’re increasing that to 60%. Reason being is sometimes there might be a reason to write a check that big, let’s say your church is going through a building campaign, and you want to donate a whole bunch of money in one year. So anyway, that’s 60% instead of 50. By the way, that’s if you write a check. A better way to do it is to donate appreciated stock, that’s still, as far as I know, limited to 30% of your adjusted gross income. But that’s a better way to go, because whatever the stock or mutual fund is worth on the day of the donation is your deduction, and you don’t have to pay that capital gains tax. So that’s really a smarter way to do it. Or, if you want to give more than the 30%, do the first 30% with appreciated stock, and then the rest in cash, and then you get that donation. Another quick thing is, they’re eliminating the charity’s requirement to acknowledge all donations over $250. I guess just making it easier for charities.

JA: Sure. And another quick note too on the mortgage expense is that all the new proposals were going to go into effect 2018, except for the mortgage expense. So if you still have a million dollar mortgage, you’re grandfathered in, you’ll still be able to deduct it, but anything after November 2nd. So if you purchased a home November 3rd, for a million bucks, or you have a million dollar note on it, you’re only going to be able to write off $500,000 if this goes through. So that was the only thing that’s retroactive. So anything that’s good doesn’t get retro.

AC: Yeah and they picked that day because that’s the day they announced it to the public. So they basically said, “if you incurred the loan before November 2nd, you get to keep a million bucks, if it’s after it’s $500,000. By the way, home equity loans, where right now under the current law, you can borrow up to $100,000 and use it for any purpose, and write it off on your taxes? Well, that would stay until November 2nd, and be grandfathered in after November 2nd, if you take out new money from your home on a home equity loan. It’s nondeductible.

JA: So there’s a lot here. We’ll see what happens.

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20:50 – More on Tax Reform: House & Senate Plan Differences

JA: We’re talking tax reform once again today. A lot of different information that’s coming out and this will continue to probably change as the weeks go by. We want to keep you abreast of what they’re thinking, anyway. Some of the House and Senate agree on some things some of them they disagree on. So the Senate came out with their plan. So what are some of the differences there, what are some of the similarities?

AC: Yes, you are correct, and so I will kind of go through some of these right now, soon as I find my paper, here it is. I guess one of the first things, Joe, is the Senate bill would have, instead of four brackets, tax brackets, it would have seven tax brackets, which is basically the same as what we have right now. It would start at 12%, just like the House version, but it would go up to, I think 38 and a half percent, so that would be a slight change there. But if you look at some of the other main differences, the mortgage interest deduction, right now where you get the interest on a million dollar loan, well that would be retained in the Senate. The House wants to take that down to $500,000. So that’s a big change. The repealing estate tax, no on the Senate bill. They still want to have the estate tax, although they do agree with higher limits. But some other interesting, there’s a lot of similarities. Both plans want to cut the corporate tax rates, which we haven’t really talked about yet. So the highest corporate rate is 35% unless you’re a large company. I think it’s 36%. Anyway, that rate would come down to a flat 20%. So from 35% to 20%, so that’s a 15% savings. And before you get all up in arms, there is some logic there. In my opinion, even over above trying to increase jobs and spur the economy is, right now, if the corporate rate’s 35%, and by the time the corporation issues dividends to the shareholders, that’s taxed at 15 or 20%. Which makes it a 50 or 55% tax right now, which is higher than the highest individual rate of 39.6. So to me, there was some adjustment needed there, so there’s a certain logic there. Also, the pass-through rates, if you have an S corporation, or LLC, or even a sole proprietorship, what the House plan wants to do is cap that tax rate at 25%. But before you get too excited, it’s only for a part of the income if you’re actively involved in the business. Roughly 30% of your profits, in your S-Corporation, your LLC, would be subject to that 25% rate. The other 70% would still be subject to the ordinary income tax rate, which in the House plan, would be still 39.6.

JA: All right. A lot of things going on. And I was just throwing out numbers left and right. If your head is spinning, it should because this is complicated. If you want more information you can always go to our website at YourMoneyYourWealth.com, you can go to PureFinancial.com, if you need some help or if you have a question. Anything that you need, you can always go to PureFinancial.com. What else?

AC: Joe a few other things. I think this will kind of help. We’ll talk about some of the winners and losers in the Senate GOP tax plan. And remember, we have a House plan going. We have a Senate plan going, that was just announced on Thursday. But in terms of some of the winners, I guess, for this Senate plan, is big corporations. As I mentioned the tax goes down from 35% to 20%. This is something that Trump had been talking about for quite some time. Many small businesses are organized as what we call pass-through entities, as I mentioned, partnerships, sole proprietorships, S-Corps, LLC. Under the Senate plan, most pass-throughs would be able to take 17.4% of their income tax-free. So it’s a little different system. The rest would be taxed at their regular rate. And what that effectively does, is that it allows businesses to have a lower tax rate than perhaps their individual rate. However, if you’re a service business, no luck. You don’t get this 17.4% of your income tax-free. And so service, we think of accountants, attorneys, financial planners, architects, anyone that’s in the service business doesn’t get any benefit from that. As I mentioned, people with homes, the Senate bill keeps the interest deduction on a million bucks, versus the House wants to bring it down to $500,000. The Senate plan keeps the medical deduction. Which, I’ll just give my opinion in one second, I think that’s a good idea, because people that have very high medical bills, do you really want them to have high taxes as well? Particularly if your grandma or your mom or dad are in long-term care facility, and those long-term care payments are generally fully tax deductible. And so it allows someone like that, that’s spending a lot of money – 6, 7, $8,000 a month to avoid taxation. I think that’s probably a good idea. Also, the Senate plan wants to keep the one time credit worth $13,570 for every child that families adopt. Where The House wants to get rid of that. And then finally, another winner in the Senate plan, is college and graduate students would get to continue to deduct their student loan interest, which, gosh, in the days of high student loan interest, and you graduate from college, and you’re paying off these big loans to keep that deduction, I think, is a rather important thing. That’s taken away in the House plan, by the way.

So here are the losers of the Senate plan. The Senate proposal. Are people living in high tax states, such as New York and California? Those state and local tax deductions are gone in the Senate plan.

JA: So both Houses want to get rid of the state tax deduction.

AC: They’re both consistent on that.

JA: So that’s probably going away.

AC: Yeah exactly. As I mentioned, S-corporations, LLCs, they don’t get the tax break on their business. The super wealthy heirs an heiress. Well, let’s see what that has to say.

JA: The Rockefellers? The Clopines? (laughs)

AC: (laughs) Not the Clopines, the Rockefellers. The Senate has opted to keep in place estate taxes. At the moment they only tax, as we mentioned, about $5.5 million per person, $11 million per couple. They basically would roughly double that $11 million to $22 million which is different than the House. The House wants to do $10 million to $20 million. But if your estate is above that, you still have to pay estate taxes, so that’s a pretty big difference. The Senate wants to keep the estate taxes, and the House doesn’t, they want to get rid of it. And again, that only applies if you have more than $11 million of assets if you’re single and $22 million if you’re married, under the Senate plan. And then I guess, one more thing that they’re saying is, the loser is the poor. More than 70 million Americans don’t make enough money to pay federal taxes. Many of these people currently receive money back from the government, because they qualify for refundable credits. In the Senate plan, the credits aren’t going away, but they’re also not growing. They get capped. And under current taxation, they grow with inflation each year. So as time goes on, the poor will get less and less tax credits.

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28:59 – Pre-Tax Reform Strategy

JA: Thank you very much for tuning in today. We’re just indating – is that a right word, indating you? inundating? Inundating.

AC: Yeah, that’s the word. I don’t know what the other one is.

JA Indating? I’m not dating? (laughs)

AC: Does that mean you’re indating with your fat cousins? (laughs) Yeah, you’re right, we’re talking the last segment. I mean, we spent three segments talking about taxes and throwin’ out all of these numbers, and we know that that’s not the most interesting thing for folks, so we’re going to switch gears a little bit right now. So what else are you talking about?

JA: One last thing I want to get into with tax reform, is that I think there is a technique that we have used that our firm, for the last since 2010, last eight years? In regards to getting you more tax efficient and diversified within your overall retirement income planning strategy. And what I mean by that, is that there are different pools of money that you can invest in. And they’re all taxed a little bit differently. You have tax-deferred monies. And I think most of you are familiar with those. That’s your 401(k)s and IRAs. So you put dollars in pretax, it grows tax-deferred, and then when you pull the money on it’s taxed at ordinary income rates. There are capital assets, are taxable. So that’s a mutual fund that you’ve purchased in a brokerage account, in your own personal name, and it grows in value, and you sell it, and you pay a capital gains rate, which is lower than the ordinary income rate. Then there are tax-free assets, such as a Roth IRA, or municipal bonds, or Roth 401(k) and 403(b) and the like. And we are big proponents of tax diversification to make sure that you’re not only diversified within your investments, stocks, bonds, domestic, international, but also on the tax side of things. And we look at that first before we give advice on how the overall allocation should be invested via securities. And Roth IRA conversions is a key strategy for a lot of you, and what that means is that you’re taking dollars from, let’s say a standard retirement account, you’re moving those dollars into a Roth IRA account. The reason why you would want to do that is that all future growth of those dollars would never be taxed again. You’d not be subject to required minimum distributions, and then the heirs would not be subject to taxation when you pass. Also, it creates a little bit more diversification when you start creating income, because if everything comes out of a retirement account, you have pension income, maybe real estate income, Social Security income, and then all of the other additional income you’re pulling from a 401(k) plan. You’re all taxed basically at the highest rate. Ordinary income. So how we try to educate you over the years, is to take a look to say, well how much money you have in tax-free accounts, versus tax-deferred accounts, versus taxable accounts, and make sure that you have the right mix there first. So when it comes time to take withdrawals from the account, you can control your taxes long term. So a Roth conversion is that you’re taking money from your retirement account and moving into the Roth, you’re paying taxes at your current rate today to have future growth tax free and potentially put yourself in a lower bracket, or keep yourself from jumping brackets later. So one of the benefits of doing that is that you can recharacterize. And what that means is that you can say, “all right, I want to change my mind. I move the money into the Roth account,” and next thing you know, you’ve got a bonus at the end of the year, you have too much income, and it’s like, I don’t know, I don’t want to pay the tax in this bracket, or maybe don’t have the cash even pay the tax. So you are allowed to take the money that you converted into the Roth and move it back into the retirement account, and you have until October 15th, the tax filing deadline of the following year. The conversion needs to be done in this calendar year, so you have until 12/31 of this year to do a Roth IRA conversion. You have until October 15th of the following year to recharacterize it. One of the things that they want to potentially get rid of is recharacterization. That means that once you convert, it’s irrevocable. It’s a done deal. which isn’t a bad thing. If you understand the strategy. That’s the reason why you want to do it in the first place. You want to keep it. You don’t want to recharacterize. 90% of the time, that’s probably true. But sometimes, something happens, you don’t have the cash. Something happens in your life where you make more money, less money, whatever.

So, there’s another strategy that we piggybacked on top of this. And we opened up a few different Roth IRA conversions. So let’s say, you wanted to convert $10,000. So you’re going to move $10,000 from your retirement account into a Roth. That’s the number, that’s the right number, you’re willing to pay tax on $10,000. But we would suggest, hey why don’t you open up two of those. In two separate Roth accounts, $10,000 each. So you have different account numbers in two different Roths. So you have $20,000 total converted, but you have two separate Roth IRA conversions at the same time. Then we would layer another level of complexity, by saying, well let’s invest these a little bit differently. One, let’s make sure that you’re very safe. Because the number one goal is to get money into the Roth. If you don’t want money into the Roth, then don’t do this. The number one goal was to get money to the Roth. So let’s just stay conservative. I don’t know what the market’s going to do. So let’s put Treasury bills in it. It might grow half a percent. It doesn’t matter, you got the money into the Roth. That was the main purpose. But in the second Roth, well, why don’t we put that into an asset class that will give you a higher expected rate of return such as stocks, like stock mutual funds. Or you could even do another level, maybe it’s small company stocks, or maybe it’s small value stocks or emerging market stocks. Some other asset class that will give you a little bit higher variability of returns, of expected returns, just because they’re a little bit riskier. So you’d open up two, and then you do that in the beginning of the year, then you would wait until the following year, and then you would look to see which of those accounts is higher in balance. Did emerging markets do well? Well this year, emerging markets are up high, what, about 25% already. So your Roth, if it was in emerging markets are up 25%. Your Treasury bill Roth is up .5%, 1%. So in that scenario, you would say, “All right, well let’s recharacterize the Roth that I put in treasuries, and keep the one that I put in emerging markets.” And then you just diversify out. So that was just, in a sense of using the tax code to your advantage, to get the highest account balance possible, with the least amount of tax inside the Roth. But if they get rid of recharacterization rules, well then that strategy no longer will come into play.

AC: It is, and by the way, that’s in the House bill, to get rid of characterizations. We don’t know if it’s going to pass or not. But stay tuned on that. By the way, that does not change your Roth conversion strategy. It just means you implemented a little bit differently. Probably, instead of doing a Roth conversion in January under current law, because you want as much tax free growth as possible, you might wait towards the end of the year, since you can’t undo it, to make sure you know what your income is, and know what tax bracket you’re going to be in. But you’ll still want to do these Roth conversions. But at least we know this for sure. In 2017 you have the ability to do this strategy that Joe just outlined, which is do one Roth and fixed income, one Roth maybe in stocks, you see which one is it a higher balance next year by October 15th. You keep that one, you put the other one back. What a great strategy, because if it’s ten thousand bucks you’re only going to pay tax on $10,000, even though the balance next year is $15,000 or whatever it is. $12,000.

One more time – as you just heard, this is complicated stuff and it is going to affect you. It’s time to start taking a look at some end of year tax planning right away to help you not just this year but for the rest of your life. How is this going to affect you? Are you going to change your affairs? What type of tax planning is going to make sense for you, now that some of this might be coming down into law? Find out exactly how: call us at 888-994-6257 and make an appointment for a personalized tax reduction analysis. That number is 888-994-6257. Don’t wait until the last minute, the countdown to 2018 is on! Get a forward-looking, personalized tax reduction analysis at no cost or obligation to you. Call Pure Financial at 888-994-6257. 888-994-6257.

38:08 – Pete Tillack, Artist, on Finding Your Passions

peter tillack

JA: Switching gears here a little bit today, Al.

AC: Yeah, a little bit. We’ve got Pete, who’s an artist, on the line.

JA: You know, I’m a big fan of art.

AC: And you’re a collector. I just found that out. I didn’t know that. (laughs) You’ve got some culture!

JA: Well you know, I do! A little bit.

AC: I thought your whole house was decorated with Star Wars stuff.

JA: Star Wars figures and Coors Light empty beer bottles. But no, there’s a great gallery downtown, and walking by one day, and saw some great art. And then there was a gentleman outside, he was actually painting some art. And I was with a good friend of mine, Mikey Martin. Happy Veterans Day. And so we’re looking at this, and all of a sudden Pete comes up to me, Pete Tillack, and he starts talking this story about his vision of the art, and it just drew me in even more. So if you come to my house, I actually have a few pieces of Pete’s work, and I’m pretty good with money. I’ve been a Certified Financial Planner, been on the air for 10 years. And so when you look at investing, I think a lot of our clients invest in art. Because if it’s good art, instead of the art that I see that you have…

AC: (laughs) In my office?

JA: Yes, I got to introduce you to Pete. Let’s not wait any further. Pete, welcome to the show, my friend.

PT: Well I appreciate coming on there with you guys, but I tell you what, I didn’t mind just sitting here listening to you gloat about me. (laughs) I was sort of enjoying that. I didn’t realize how good I was until you spoke about me. (laughs)

AC: I think you should invite all of our listeners to come to your house, Joe, to see Pete’s art.

JA: Yes. I’m telling you. You would have to go to my bedroom…

PT: He’d have to roll up a lot of the Star Wars posters. There are still some there.

AC: You got to hide the stuff in the living room.

JA: Pete we have this new segment, the worst purchase I’ve ever made. So yeah, I have a collectible Star Wars collection. I have a giant golf bag. But this is not the worst. This is one of the best investments I think I’ve ever made, is a couple of pieces of Pete’s work. So Pete, tell our listeners a little bit about yourself.

PT: Well mate, I recently, obviously with the accent, come from Australia, and I was actually starting off as the electrician and left Australia looking for a little bit of surf and never came home. So I ended up traveling the world for about 10 years, just surfing, but little did I know I was really just getting an experience in life. And I further down the line, ended up realizing I had a talent for painting and picked up a brush.  It didn’t come overnight, but because I wasn’t bound by anything, like a lot of people are bound by their jobs and their family and everything, at that period of time I had nothing except time and love of life. And so I put all my effort into it. And little did I realize, here I am down the road, in galleries and so forth. In fact, one of the galleries I used to look at back in the day when I was traveling through the Gaslamp area was the Michael J Wolf gallery. And I used to look inside and just be amazed at the fine art in there. And now, I’m that guy in the window. As you said you walk by and here I was painting out the front, with all my work in the front. And so I’ve sort of collaborated with all my travels and my experiences, from everything – from people who had nothing, to people who had everything and still looking for things. And I put those into my stories of my pieces. And that’s exactly what I tell, I tell stories. And so when you were discussing one of your best purchases of my work, there was something financial about it, but there was something very personal because what I told you that story, you understood and you connected with it. And that’s one of the most amazing things that I found in my work, that I finally have connected with people. There are so many people who buy art for the purchase of just fine art or so forth. But when there’s something personal about it, it just makes a big difference.

JA: You’re absolutely right because you know I had KISS posters up as a child. That was my fine art.

AC: I thought you had the Kramer. Remember that from Seinfeld?

PT: Hey there’s nothing wrong with that Kramer poster, I can tell you that right now – there’s nothing wrong with the Kramer poster. (laughs)

JA: (laughs) Then I had Madonna. And we went to Prince. That was my art. And then I thought people that would buy fine art, it was like oh my god, whatever.

AC: What a waste of money.

JA: Then you would hear, “oh, it speaks to me,” And I was like, “oh you are… whatever.”

AC: And now it speaks to you?

JA: Right. So I’m walking down the street, downtown, Gaslamp and then I run into Pete, he’s painting outside. I thought he was homeless and looking for a couple of bucks. (laughs)

AC: Did he have shoes on? (laughs)

JA: No! He had no shirt on, hat on backward. (laughs)

PT: That’s a different job that I’ve done in my past, but anyway. (laughs)

JA: He was just starting this piece. And then I looked in the window, and I was like, “wow, these are really cool.” I walk in and you’re right, Pete. It actually spoke to me. So now I’m one of those guys, that I have art that speaks to me.

PT: Yeah. Well you know a lot of artists leave it up to interpretation. But as you say, I have a specific story in the piece that connected with you was a thing called Perspective. And immediately, you thought it was an interesting piece, but when I told you the story, what happens is that connection. And because it is so personal… the piece, let me reference, why it was so unusual is because I put a lot of furniture in pieces. In places that are very… what would I say… not realistic, yet it sort of fits in. So the one that you have is Perspective. It’s actually the couch at the bottom of a pool, with people jumping in. And why I referenced that was because the couch represents you: the difference between the house and the home is you. You create the home, and the center of the home is the couch. You come home, you sit back, you feel comfortable and secure. It’s got nothing to do with the furniture because you can always get a new piece and still feel comfort and security. So I use it there as your security, your comfort and so forth, and I think of the pool as life – because we’re all it. Some people choose to sit in dangle their feet in it, while others jump all in. And we only have one go at this thing. This whole life thing they talk about. And if you don’t go for it, then you’re going to miss out on so much. But understanding that when you do go for things, any time you want to go for something, there’s a greater you’re going to fail. And we’ve been told so many times that failure is something we need to avoid. But failing is a learning curve. And anybody who succeeded understands the true value of failure. So if you’ve hit the bottom of the pool and you’re looking up and you’re ambitious, you’re like, “well, if this is that bad it’s going to get, I might as well go for everything all at once. It’s like when we were young, we learned to fail by throwing the rings into the pool. In fact, it’s my daughter that’s jumping in. Joe, you’ve danced with her quite a few times at your place – where she’s jumping in and missing the ring and failing constantly, but she’s having fun doing it. When she finally grabs it at the bottom and she succeeded, she’s all excited, but she never realized that during that process she’s learned to swim. And that’s what life really is. Learning to swim. And that’s why it’s called Perspective. Because it’s how you look at things.

JA: Yeah, I think if you just look at life, sometimes you just get so caught up in the daily grind, and Big Al always kind of goes, “you know what, the ride is going to be the best part of this, not necessarily the destination.” So you’ve got to slow down and get some perspective on the ride or the journey that you’re on. And so that’s why it was like, “wow, that kind of makes sense.” You got to slow down a little bit to enjoy the ride, even though there’s a lot of things that get thrown in your way. I’ve gotta put my kids through college, I got to save for retirement, I got to pay off my debt if you look at the financial perspective of things. But you have to just take a step back and kind of say, “hey, I need to take challenges in my life, and if I do fail, that’s a learning for me not to necessarily fail that way again.”

PT: Yeah. As in your job talking about investing, if you can take away those financial challenges, you can find the challenges that you love in other things – you can make that an easier point. That’s one of the biggest things that I think you guys teach.

JA: Yeah. All you got to do is buy a couple of Pete Tillack’s pieces, and then in about 150 years, BOOM! Got it!

PT: I hope it’s a little faster than that ’cause I’ve been working my butt off. (laughs)

AC: That’s good stuff, Pete. I’m going to have to see this picture with the couch in the pool.

JA: It’s called a piece.

PT: Well you actually can. The original has been sold, and I do do the limited editions. There is one down at the gallery.

JA: It’s really pretty amazing how many pieces that Pete has when you go through the gallery and you can hear him. He’s got a huge crowd around him because you just listen to the stories of what the inspiration was and everything. It’s not like a black spot. You know what I mean. Like, “yeah, this really speaks to me because I was like dreaming and I saw this spot, and the spot told me to paint.” No. I mean it’s life.

There’s real stuff. What’s interesting to me listening to both you, Pete, It sounds like your approach to life is the same approach that I try to take. And sometimes you don’t always get there. because life does get in the way. But I think that it’s such a good lesson that we only get one chance at this, and go for what you want to go for. Failure is part of the journey and it’s what makes you stronger, it’s what makes you better. I completely believe all that.

PT: Yeah. And you know something, it’s like there is nobody who has everything. That’s the funniest thing. People look at me and go, “oh, you’ve got it all together.” No. I sit there when I question everything I do. And I’m worried about everything, and I stress. And everyone thinks this job of being an artist is, “oh, you must have so much fun standing on the canvas.” I’m like, “no, I’m so stressed, this is a job.” But it’s a job that I fricking love, my friend. I love what I do, because of the challenges.

JA: Yeah. I’m constantly paranoid. (laughs)

AC: I will vouch for that.

JA: It’s like when is everything going to come crash and burn.

PT: Wouldn’t that just be the black dot, the black hole? (laughs)

JA: Yeah! Pete, I got some inspiration for ya! 40 grand! Black dot! (laughs)

AC: You know you could paint that one yourself. (laughs)

PT: Hey hey! Don’t take my job away from me! (laughs)

JA: Pete, any last words of wisdom for our audience?

PT: Last words, mate? I got too many words of wisdom. But you know something, I’m constantly learning. And that’s what I love about life. We’re constantly learning. Go check out the Michael J Wolf fine art gallery online. I think it’s MJWFineArt.com, or my site, PeteTillack.com. I think you’re gonna link it to your site as we if I’m right. I’ve got videos on there talking about the stories. You know, the art is one thing. It’s the story behind the art that I absolutely love. That’s the connection I’ve been looking for life. We always try to find what defines us in life, and this has been mine. Finally, the gift of the gab has worked for me. (laughs)

JA: The holidays are right around the corner. So I want to invite you again to get kicked out of my Christmas party. (laughs)

PT: (laughs) I try my hardest to do that, too.

JA: So last year, we have a company Christmas party, we’re downtown San Diego. I was like, Pete was downtown, I was like, well stop by. We were at Eddie V’s or something like that. I go it’s casual, you know, the company, some friends, some family, whatever. It’s nice food, have a cocktail, whatever you want. And so his beautiful wife and daughter, they’re dressed to the nines. Pete’s usually like in a tank top with paint all over him. He actually took a shower, combed his hair.

PT: Hey, you’re going too far. I didn’t say I showered. (laughs)

JA: (laughs) And he comes to the Christmas party and I didn’t see him. And then Paul Miller, our Chief Operating Officer, was going to bounce him out. Like, “hey, who the hell are you? Get the hell out of here.” He’s like, “No, I’m Pete Tillack.”

PT: You’ve got to put it into perspective, that everybody was dressed in nice black attire, their suits and all that. I had a red cap on, and it was a dressy shirt, a red dress shirt, so I stood out like a sore thumb my friend, and I didn’t expect that when I went in but I was definitely loud, but I tell you this. Once everybody was there, you guys have such an awesome thing, mate.

JA: You were thinking it was going to be like one of my backyard parties. (laughs)

AC: That’s a little different scene.

PT: No that’s when I wear the tank top. (laughs)

JA: (laughs) That’s Pete Tillack folks. Hey, thanks a lot for doing this I appreciate your time.

PT: Nah, thank you, guys. I really appreciate you having me on there, and also what you guys do. Informing. That’s what I’m trying to do too, mate, inform.

JA: (laughs) All right we’ve got to take a short break. Show’s called Your Money, Your Wealth. We’ll be back in just a second.

Now being half Australian myself, I can tell you that Pete wouldn’t have said “couches” if he was in Australia, he would’ve said “lounge chairs” – he just translated for us Yanks. But in the pool of life, the message would still be the same: find your passion. For even more useful information on personal finance, check out Your Money, Your Wealth and Pure Financial Advisors on YouTube. We’ve got a brand new webcast on Investing 101, we’ve got the basics of estate planning to help you avoid the most common mistakes, and we’ve got Planned Giving: Strategies for  Creating Charitable Tax Deductions on the latest episode of the Your Money Your Wealth TV show. There are literally hundreds of videos to get you up to speed on just about every money topic that affects you. Just search YouTube for Pure Financial Advisors and Your Money, Your Wealth and start binge-watching with purpose! And check back regularly, we’re always adding new videos.

52:36 – Find Your Passion

JA: Pete Tillack. Interesting cat, huh bud?

AC: Great cat. It’s funny because I certainly I heard the Australia accent…

JA: We just said cat. We called Pete Tillack a cat. (laughs)

AC: Well, you did it. I didn’t.

JA: You were like, “great cat.”

AC: Yeah, I guess I did.

JA: We call him mate.

AC: I tell you what I really appreciate, Joe, is the fact that here’s a guy that’s lives in his life on his own terms. How he wants to live it. And certainly, when you do that, it’s not the safe route. As Robert Frost said, it’s the road less traveled, but it’s a great road. You probably have more highs and more lows, but you’re living life how you want to live it, and what a great way to go. And of course, for many out there that are artists, whether you’re a painter, sculptor, musician, it’s difficult to make a living, but boy can it be very, very satisfying. And if you can figure out how to make it work financially, wow that’s awesome.

JA: I think even more important is just the passion that someone has around what they’re doing in life. And when it comes to retirement when people retire, sometimes they lose that purpose, they lose that passion. The depression potentially sets in.

AC: Yeah, because their job is kind of what gave them purpose.

JA: Right, even though when they were working there, they hated it. Oh man, I can’t do this anymore. But then all of a sudden, you miss the action. So finding that passion. If you ever see Pete paint or explaining his painting…

AC: He’s passionate.

JA: Very. Yes. Pete spent a lot of time in New York because he’s got a lot of cool pieces from the skylines and the taxis. That’s the last piece I bought.

AC: How many do you have?

JA: Two.

AC: Get another one? Get the black dot one?

JA: Waiting for the black dot. But no, finding, keeping that passion, no matter what you do, or finding new passions. Once you do no longer have like the nine to five. Once you retire, it’s OK, what are you still passionate about? And then picking up new passions. If you want to start playing an instrument or speak a different language or do whatever. Your favorite show we ever did was taking a break year.

AC: Right? And you didn’t understand. I said I had this article that said you can take a break. You would think of taking a break when you’re in a career. Right? You quit one job, you take a year-long break or six-month break, and you do some things that you’re passionate about. Maybe it’s in other countries and you come back refreshed and get back to the job. But this was an article that said you can take your break year when you retire, which sounds kind of weird, aren’t you already retired? But not really, because when you retire, you probably have some kind of set routine in mind, but this would be something totally different. Before you even start that. And I guess the examples that were in this article was this doctor that went to Alaska to become a stonemason, then he went to Tibet to learn their kind of medicine. And this other lady went to Scotland, I guess for knitting quilts and things like that. And she went to an elephant preserve and in an African country. And it’s like yeah, this is stuff that’s kind of out of the norm. And I think what happens, Joe, when you open yourself up to those kinds of experiences, it actually changes you for life. And it gives you new things, new directions to go. And even if you don’t really end up really enjoying that thing that you did, It does show you that anything’s possible. And as John Wooden said, in a book that I read, he was 96 years of age when he said this. He said, “You should always be learning in life,” He said, “I have so much to learn at age 96, and that’s what keeps you vibrant that’s what keeps you young.”

JA: Right. How old was he when he died?

AC: 98, so it was two years later. (laughs) Anyway, wonderful guy, wonderful lessons. If you ever get to read a book by John Wooden, I’d highly recommend it.

JA: Thanks so much for joining us, we’ll be back again next week, same time, same channel.


So, to recap today’s show: How we pay our taxes looks to be changing in a big way, and we’re right in the thick of it. Call 888-994-6257 to get help on making tax reform work for you.

Special thanks to our guest, Pete Tillack. Learn more about finding your passions in life and about Pete’s art at PeteTillack.com.

Subscribe to the podcast at YourMoneyYourWealth.com, through your favorite podcatcher or on iTunes, where you can also check out our ratings and reviews. And remember, if you have a burning money question for Joe and Big Al to answer on Your Money, Your Wealth, just email info@purefinancial.com, or call 888-994-6257! Listen next week for more Your Money, Your Wealth, presented by Pure Financial Advisors. For your free financial assessment, visit PureFinancial.com

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.

Your Money, Your Wealth Opening song, Motown Gold by Karl James Pestka, is licensed under a  Creative Commons Attribution 3.0 Unported License.