Why It’s UNECESSARY for Retirees to Relocate Because of State Income Tax

Why It’s UNECESSARY for Retirees to Relocate Because of State Income Tax

Allow me to clarify: I’m not trying to suggest to retirees where they should retire. Rather, I’m doing the exact opposite – empowering them with the freedom to choose to retire wherever they’d like, instead of feeling they MUST relocate for the mere reason of avoiding outrageous state income taxes. 

In my humble opinion, traditional financial advice has been dead wrong for decades — and this very subject proves my point. People spend all their lives working, planning, and saving for retirement. And then, just when they should have the freedom to enjoy the fruits of their lives’ work, they are faced with deciding whether to move to a different state for the sole reason of avoiding income taxes so that they can have more spendable income. In fact, certain members of the financial press proudly direct “endangered” retirees toward tax-friendlier states (and away from the tax hawks) so that they can keep more of their money.

Here’s the shocking thing, though. It is completely unnecessary to move just so you can enjoy your retirement income tax free, both on the federal and state levels. Unbelievable, isn’t it?

It’s no secret that Title 26 — which is a fancy name for the U.S. Tax Code — allows every American taxpayer who so wishes to fund specific nonqualified vehicles. These funds can then be accessed later (in this case, for retirement) without creating what the IRS considers a “taxable event,” meaning every penny at the federal level will be income-tax free. What’s more, since funds accessed in that manner are not counted as “earned,” “passive,” or “portfolio” income under the 1986 Tax Reform Act, they are not factored into calculation of one’s “provisional income” — meaning, they will not affect taxation of social security checks in any manner. Pardon those technical terms, but the bottom line here is that by properly setting up and using the right funding vehicle, you could have completely income tax-free money under federal tax laws.

But this whole discussion is really about state income taxes. That’s even simpler and more amazing. You see, 35 out of the 41 states that levy income taxes use your Federal Adjusted Gross Income (AGI) from line 37 on Form 1040,  line 21 on Form 1040A, or line 4 if you use Form 1040EZ, as the starting point for determining your state tax. I know you are smart, so can already see that since those funds assessed from the nonqualified options described above are not included in your federal AGI, neither will they be included in your state numbers. Therefore, by simply following and exercising your legal duty under our tax laws, you can avoid federal and state income taxes. Boy, oh boy, aren’t simplicity and common sense just elegant?

I’m pretty certain that you have some sort of savings program set aside for your golden years. But have you discussed — in detail — exactly how those funds might be taxed or otherwise affected later on? Of course, we can never predict the future with 100 percent accuracy, but wouldn’t you agree that anything short of a detailed simulation would be irresponsible and potentially catastrophic? It’s time to start discussing it so that you know exactly where you’re headed!

Of course, it’s your decision and your decision alone as to where you ultimately live in your retirement. But wouldn’t you agree with me that that sort of decision shouldn’t be driven by income tax considerations? Especially after a lifetime of hard work? In my opinion, enjoying a comfortable retirement must include absolute control over wherever YOU decide to live. 
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Contact a professional at Laser Financial Group today to set your risk-free, complimentary appointment to discuss ways to preserve your retirement income so that you can live comfortably wherever YOU want to, when the time comes. 301.949.4449 or LaserFG.com.

Dear So-Called Experts, It’s Time to Quit Being Ridiculous

Dear So-Called Experts, It’s Time to Quit Being Ridiculous


On his February 5th radio show, financial expert and guru, Ric Edelman, responded to a query from a man named Robert who called the show to confirm the validity of a claim by Vanguard (which happens to be a direct competitor of Mr. Edelman) that one of their mutual funds has a total annual expense of 0.06 percent. Mr. Edelman’s response was that the claim by Vanguard was “a little disingenuous.”

Mr. Edelman then went on to explain to the listening public that all mutual funds have other hidden costs, averaging about 1.4 percent annually. The guru added, in conclusion, “So in addition to the 0.06 percent, add another 1.4.” Essentially, Mr. Edelman accused Vanguard of lying – after all, who else is more qualified to do so than the star of a radio show called The Truth about Money?

Critical Take-Aways

Of course fees matter – a lot – as I recently indicated. In fact, Ric Edelman brings up an important point regarding the hidden costs associated with most (I didn’t say all) mutual funds.

Now, having said that, Ric Edelman’s characterization was completely bogus, ridiculous, and misleading! Why would I say such a thing? Because the specific mutual fund which he basically discredited does indeed have a total annual expense of 0.06 percent – with no other hidden fees. Mr. Edelman completely dropped the ball (as do several other so-called industry experts) by playing, quite frankly, the irresponsible-generalization game.

As I noted couple Mondays ago, one area where this generalization nonsense must be avoided at all costs is in the arena of personal finance/investing. Shouldn’t financial professionals of any caliber know that two mutual funds, or insurance policies, or annuity contracts, or mortgages, or any other financial products for that matter, are NOT the same – even if they are in the same category or sold by the very same provider – unless they have specific data to back up such a claim?

One can only wonder if Mr. Edelman’s response to Robert’s question has something more sinister to do with the fact that the mutual funds he actively markets to his clients charge much higher fees than the one he discredited without any basis whatsoever? The answer: of course it does.

Personally, I wonder why the first thing on Mr. Edelman’s website (in the largest font size) are the words: The Nation’s #1 Independent Financial Advisor, while the equally critical piece of information about the criterion for that status is – in my opinion – hidden in the footnote section (in the smallest font size)? Is it because that #1 status is based on factors like “contribution to the firm’s profitability,” and “the volume of assets overseen by the advisors and their teams” without any mention of actually having customers who are successfully achieving their financial goals? You’d think it would be all about the client, wouldn’t you? The site also references the radio show on which this incident occurred: “…answers your questions, giving you comprehensive, educational advice that is both entertaining and useful…” You are smart, so you make that call.

The Bottom Line

Whichever financial product(s) you decide to own is/are guaranteed always to come in three forms: terrible, so-so, and great.

Stay as far away as you possibly can from anyone who makes unintelligent statements such as: “Mutual funds are bad/good,” or “So-and-so product is terrible/awesome.” Savvy investors (and true professionals) know that until you have a specific case in front of you, with a side-by-side comparison, you are simply blowing smoke. A truly serious professional would take your specific scenario, analyze it, give you specific, factual, and realistic evidence, supporting or otherwise, about a specific product – not a class of products. Once they do so, you as the investor can make your own decision. You see, the reason some investors are as confused as heck is because of these baseless, emotionally charged, and quite often, untrue and self-serving opinions.

Don’t fall for the hype. Empty barrels usually make the most noise. And the most vocal people are not necessarily right, are they? I must point out, though, that after taking some pounding, Mr. Edelman’s show has since removed his statement that Vanguard was basically lying from its podcast of the show. Looking back at the radio show’s description which I referenced earlier, it doesn’t claim to be unbiased or objective. So maybe we shouldn’t assume that it is.
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Contact us today for a complimentary, unbiased information session about your personal investments and retirement plan. Laser Financial Group or 301.949.4449.

More IRA, Less Tax – Act Now (If You Desire to Be Potentially Clobbered in the Future)

More IRA, Less Tax – Act Now (If You Desire to Be Potentially Clobbered in the Future)


With Tax Day quickly approaching, it’s not out of the ordinary to hear all sorts of “expert” advice on how taxpayers can outsmart the IRS. A great number of tax preparers, CPAs, and other advisors are busy convincing retirement investors that it’s a savvy move to contribute to an IRA, because by so doing they’ll “save” on taxes. In fact, today’s column is motivated by an ongoing major advertising campaign by a national financial institution/bank. Their tag line states: “More IRA, Less Tax, Act Now...”

That might sound pretty catchy, and we know it is an emotional hot button. Or is it, really? As someone who works with real-life retirement investors, half-baked theories like this turn my stomach because all they do is create ticking tax time bombs for unsuspecting investors. Yes, it’s true that by funding an IRA you’ll pay less tax today. But is that the end of the story? Of course, not! It’s just the beginning of potential tax nightmares later on.

You see, these IRAs simply defer (or postpone or delay) the due date for those taxes until you begin withdrawing the funds for your retirement, either out of your own accord or by IRS mandate, once you reach age 70½ . At that point, you must pay taxes on every single dollar you pull out of that IRA. Here’s the kicker, though: At what tax rate? The simple answer: Whatever tax rate is in effect at the time those funds come out.

Proponents of this short-sighted IRA theory might argue that since you’ll be retired – with no mortgage to pay and no children to support – you’ll need only a little income (i.e., very little income) compared to what you need today. It’s therefore only logical that your tax rate also will be much less, thereby beating the IRS at its own game. This is seriously their claim! I think it’s ridiculous, at best – and I really don’t want to digress. But on the issue of “How much retirement income will I need?” let me say this (again, from real-life experience): That line of thinking might hold true, but only for folks who intend to retire with front-row seats to their TV sets. If you intend to have any kind of life, “very little income” just isn’t going to cut it.

Have you ever wondered why the vast majority of retirees who own these IRAs keep complaining, year after year, about being butchered by the IRS? With no mortgage interest deductions (because it’s paid off), no dependent exemptions (because the kids are now responsible adults claiming their own exemptions), and no more IRA contributions (because harvest time has arrived), your three major income-reducing items completely evaporate overnight. As a result, even with a much lower total income, these retirees’ taxable incomes skyrocket. And the really bad news here (or great news, if you’re Uncle Sam) is that taxes are based on taxable income. Pretty interesting how things work, isn’t it?

And, oh, did I mention that every dollar that comes out of these IRAs (whether voluntarily or mandated by IRS rules), directly impacts how much your Social Security checks will be taxed also? Talk about a double whammy!

I know, you thought you were doing the right thing with your IRA, and I don’t blame you, given the advice you likely received – but here’s one more very important variable to consider before jumping on the IRA bandwagon. Remember that the actual amount of tax you end up paying is a function of your taxable income AND your tax rate. It’s no secret that today’s tax rates are a “temporary extension” of “historically low” rates. So, where do you believe rates are headed after the “temporary” period ends (in the face of our humongous national debt, not to mention the astronomical issues facing Medicare, Medicaid, and Social Security)? One way, of course: UP! Is it really a great idea to delay paying taxes today on your seed money, only to pay them in the future on your entire harvest? Think about that!

What's the Alternative?

Wouldn’t it make more sense to go ahead and pay the tax on your seed money at today’s historically low rates? Then tuck it away in accounts that, going forward, you’ll never, ever have to worry about paying any income taxes on again (including all your gains)? And you’ll be in absolute control (without the IRS telling you when you may or may not touch those funds)? And regardless of how much you withdraw, it will not impact taxation of your Social Security checks in any manner? And when, at death, you pass the remainder on to your beneficiaries, they will receive the inheritance completely income-tax free, also? Wouldn’t most Americans consider that a smarter, better approach?

At this point, you may be starting to understand why I said this IRA theory makes my stomach turn. If you don’t quite get it yet, that’s okay – but please print and keep a copy of this column somewhere, because sooner or later, you’ll understand. The thing is, the alternatives I just generally described are available in the exact same tax code that others have read, only to come up with the not-so-smart idea of IRAs.
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Please contact a representative at Laser Financial Group today to schedule your complimentary consultation about how to realistically preserve the most funds for your retirement, without having to pay a higher tax rate “later on.” 310.949.4449 or LaserFG.com.

Why G.E. Made Billions, Yet Paid NOTHING to the IRS (and How You Can, Too)

Why G.E. Made Billions, Yet Paid NOTHING to the IRS (and How You Can, Too)


One of the huge stories of late has to do with the fact that General Electric (G.E.), America’s largest corporation, paid nothing – as in zip, nada, nil – in taxes to the IRS, in spite of raking in $14.2 billion (with a “B”) in profits last year. What’s more, according to The New York Times, G.E. claimed $3.2 billion (again with a “B”) in tax benefits. 

Bet you’re wondering, “What in the world is going on here?” This news story sounds great as a sound bite because of the emotional twists associated with it.

First and foremost G.E.’s CEO, Jeffrey R. Immelt, is the Chairman of President Obama’s Council on Jobs and Competiveness. And as if that were not enough, from the look of things, they seem to be very close buddies.

Secondly, companies and individuals who made much, much, much less money last year mailed tax checks up the wazoo to the IRS.

Inasmuch as this may seem unfair (or whatever other adjective you choose to apply), the reality is that, as far as we know, G.E. hasn’t done anything illegal! The completely-legal-nothing-wrong situation here is that G.E.’s profits/income/revenue are NOT taxable under American tax laws. I think this statement by John Krenicki, one of G.E.’s Vice Presidents, sums it up pretty well: “We pay what we owe.” The thing is, they owe nothing by law, and I’m not aware of anyone or any corporation who’d pay taxes they didn’t have to.

All that aside, what everyone needs to fully understand – and I mean fully – is that when it comes to taxes in America, “total income” (or the amount of money one makes), is irrelevant, so to speak. Instead, the magic number is “taxable income” (or the portion of that total income that is considered taxable). If you haven’t already done so, you’ve got to read Mistake #1 in my book, 5 Mistakes Your Financial Advisor Is Making – which, by the way, is available to you as a free resource. 

I’ve said this several times in the past, but it’s worth noting again: just because someone makes more money than you do doesn’t imply that they’ll pay more taxes than you. Over the years, I’ve witnessed so many folks – including some so-called financial experts – make the rather sad and completely avoidable mistake of thinking that paying taxes is and/or has to be logical. News flash: it’s not! And GET THIS, once and for all: tax obligation depends on which portion of one’s income is considered taxable (or non-taxable) under IRS rules, period!

Here’s a Suggestion for YOU!

Why don’t you structure your affairs so that your retirement income is deemed non-taxable by the IRS to the largest extent possible, instead of simply employing the traditional 401(k)s, 403(b)s, and IRAs which just defer/delay/postpone your taxes? That way, regardless of how large or small your income may be, your tax bill would legally be zero – just like G.E., in this instance.

Then, you can decide to donate whatever YOU wish to the IRS – they’ll never turn that down, I guarantee it! Or you might decide not to do that, and there will be nothing illegal, unethical, or even unpatriotic about it. That’s what we help our clients achieve (minus the donation part). We let them decide that on their own.

A Judge named Learned Hand (1872-1961) served more than 50 years on the federal bench, many of those years as the Chief Judge of the U.S. Court of Appeals, Second Circuit. He wrote something I would like you to consider very carefully:

“There are two systems of taxation in our country: one for the informed and one for the uninformed.”

Are you informed – or dealing with financial professionals who are informed? If not, isn’t it time you start?
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For your complimentary session to explore your options regarding a tax-free life and/or retirement income, please contact Laser Financial Group today at 301.949.4449 or visit us on the Web at laserfg.com.