Retirement and Legacy Blueprint Webinar – Episode #8

Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm to register or give our office a call at 844-885-4200.

Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.



On this week’s webinar, attorney and advisor Chris Berry of answers questions regarding the pros and cons of ROTH Conversion, the importance of tax planning, and many more.

In this episode, you’ll learn…

  • Chris’ positive focus for the week
  • Pros and Cons of ROTH Conversion
  • The importance of the Secure Act
  • Tax Cuts and Jobs Act as a window of opportunity
  • Cashflow standpoint with deferred tax payment
  • How to pay less tax
  • How Social Security is already getting taxed 
  • Why you may be paying a higher Medicare premium
  • Diversification of tax buckets
  • Roth alternatives
  • What happens when you defer paying taxes
  • Asset-based long-term strategy


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Episode Transcript:

We do this Wisdom Webinar each week, same time every Wednesday, one o’clock. And then if you ever can’t make it, we do post these on our YouTube channel. And the way it works is that I’ll send out an email and people will submit questions that they want us to answer in this type of format. So, if you ever have questions, feel free to email them over ahead of time. This week, there’s really only one question that was submitted ahead of time. It’s a juicy one, so it will take up some time, but if you do have any other questions in terms of legal and financial and tax and income planning and healthcare planning and long-term care planning, or really any questions, I’ll take a shot at answering it live.

Sometimes you might ask a question, I might not know the answer right off the top of my head, but I’ll always follow up to get that answer for you. So, if you do have questions, feel free to put that into the question and answer section. And each week I like to, and we do this with the radio show that we do, I do this with my own family as we sit down for dinner, start with a positive focus. We were doing this prior to the pandemic and prior to 2020, we’ve done it in our team meetings, but I think it’s even more important with all the craziness going on in the world. It’s very easy to get depressed and down with … Our 2020 might not be going the way you want. So, we start with a positive focus, just something positive that happened over the last week.

And for me, it’s pretty easy. Having Thanksgiving, spending it with family, seeing my parents, having kids, and just felt like a good Thanksgiving. We had a lot of the classics, smoked a turkey on the trigger grill for about eight hours, came out perfectly. Probably, the best turkey I ever smoked. We even turned those leftovers into the next morning, we used the stuffing and made an omelet with the stuffing out of this cookbook that we had about leftovers. And then we had [inaudible 00:02:06] turkey, lettuce wraps because you have all these leftovers. So, it’s trying to think of kind of creative ways to make those leftovers last as long as possible. 

That’s my positive focus, just enjoying Thanksgiving. All right. And we have someone submitting a question already. And so I do appreciate that. And if you do have questions, again, put them into the question and answer and I’ll take a shot at answering those questions. With that, I’m going to go ahead and share my screen, and we’ll get into it assuming technology cooperates with us. And I’m going to hit the share button, and now we’re sharing in just a moment. 

All right, now we should be seeing my white screen. We should be, but it doesn’t look like we are. Give me one more second. Now we are, there we go. All right. Technology is great when it works. All right. Just again, general disclaimer, don’t rush out and apply these strategies. This is general information. If you want to see how it applies to your situation, feel free to reach out. And always, you can schedule some time on my calendar to talk about anything that we’re talking about, by just going into this website, and magically through the powers of the technology, book some free time on my calendar which is filling up especially with the holidays. With that, our first and only questions submitted ahead of time, and I do see the question that was just submitted. Roth conversions, pros and cons?

And this is something that we’re spending a lot of time talking to people about because we’re near the end of the year, and it’s almost getting near the deadline of when we can even consider doing this at the end of the year, just because financial institutions are slowing down, we’re having a lot of holidays, that type of thing. But the idea is, and I’ve covered this before, but I think this is really one of the big areas of concern for families or it should be moving forward is this idea of taxes and tax risk. And we’ve talked about the different types of buckets we have in terms of taxable accounts. We have taxable accounts, which are things like your checking, savings, money markets, CDs, brokerage accounts. We have our tax deferred. So, your tax deferred bucket of money, this is your traditional IRAs, 401(k)s, 403(b)s.

And then we have our tax free bucket. And in our tax free bucket, we have the classic Roth IRA, the Roth 401(k), cash value life insurance, index universal life insurance, 529s, they have to be used for education and health savings accounts. So, there’s a couple things going on on why a lot of people are considering moving money from the tax deferred bucket to the tax-free bucket, or from the tax deferred bucket to the taxable bucket, or from the taxable bucket over to the tax-free bucket. And the first thing in this, we’ve been talking about this probably since about 2015, and the first reason why I would say one of the pros of looking at a strategy and not just Roth conversions, there’s other strategies out there. But I think of this as just getting more tax efficient, diversifying between these different buckets.

And there’s more strategies than just a Roth conversion. That’s the simplest and easiest to understand. You take money from the Roth or from the traditional IRA, you move it over to the Roth. You can either withhold or pay taxes out of another bucket. But why have we been talking about this? So really, what started me on this path of looking at taxes is the amount of debt that country has. So, prior to this year, coming into 2020, we had $23 trillion worth of debt. And so this was something in our in-person workshops. We were talking about the taxes are going to have to go up somehow because we can’t keep growing the stead bubble. At some point, the interest is just going to eat away at everything. Well, now after 2020, with the whole pandemic, the CARES Act, add another $2.2 trillion, all the additional spending we’ve had, we’re going to come out of 2020, maybe $30 trillion in that.

And the government is looking at ways to raise funds to address this, and they’re doing it on its face by potentially raising marginal tax rates in the future, and I’ll talk about that. And then also they’re doing stealth taxes, taxes that don’t appear necessarily to raise your taxes, but in the end they do. And we had a big one with that, with the SECURE Act. And the SECURE Act says that when you inherit an IRA, you can only stretch out the tax deferral now up to 10 years. And so what that tells me is they’re coming after these beneficiaries who are inheriting pre-tax IRAs or 401(k)s, or 403(b)s. Now, the beneficiaries are going to have to pay the tax on an accelerated basis, which is another reason why to consider a Roth conversion to pay the tax now, so that your beneficiaries don’t get clobbered in income tax based on the SECURE Act.

That’s another reason why to consider the Roth or looking at getting tax efficient. So, kind of think of it as the pros and cons of getting tax efficient, not necessarily just a Roth conversion, but just getting more tax efficient. So, obvious pro is with a SECURE Act, beneficiaries will pay less than tax, looking at it from a legacy standpoint. We’ve been talking about this as we saw this debt bubble continue to grow, and then really the government gave us this window of opportunity. And a window of opportunity is the Tax Cuts and Jobs Act. And the Tax Cuts and Jobs Act was passed in 2018. And what it did is lower marginal tax rates across the board. So, prior to 2018, if you were earning $100,000, you were in the 25% tax bracket. Well, when the Tax Cuts and Jobs Act passed, now, if you’re at that same $100,000 income level, you’re at a 22% tax rate.

And that’s set to expire, originally, when the bill was passed in 2025, but now all signs pointing to a Biden presidency, he’s ran on the fact that he wants to repeal the Tax Cuts and Jobs Act. This could happen as soon as 2021 or 2022. So, this window of opportunity that we had, where you’re at a 22% tax rate right now, guess what? That’s going to go up to 25%, whenever this is repealed. If you’re at 24, then that’s going to go up to 28%. So, with the Tax Cuts and Jobs Act, if the SECURE Act benefits your beneficiaries, the Tax Cuts and Jobs Act benefits you and you would pay just less tax in retirement if you move money from the tax deferred accounts to the tax free by paying the tax. Because I would rather pay a 22% tax now than a 25% tax in the future, because that’s what’s going to happen when the Tax Cuts and Jobs Act ends.

Plus on top of that, we still have to deal with this debt. So, the taxes might go even higher than just being raised 3 to 4% across the board, because the government will have to address it somehow. And we’re there to cut spending, print money, which is just going to raise inflation. That’s not going to help anyone, or raise taxes. And I don’t see the government cutting spending anytime soon. So, I foresee a lot of stealth taxes and we’ve already had one in the SECURE Act. And Biden has one where he talks about getting rid of step-up in basis, as well as just across the board tax raises. And that’s what repealing the Tax Cuts and Jobs Act does. Now, not to get political, Biden ran on this promise that he’s not raising taxes on anyone less than $400,000. 

Well, guess what? The Tax Cuts and Jobs Acts is going to affect people who earn … I was talking to a family today. They have $53,000 of taxable income. They have about 80,000, you back out the standard deduction. So, right now they’re in the 12% tax bracket. Well, even for them, it makes sense to do the Roth conversion or move money from the tax deferred account, pay the tax and move it somewhere else, because if they do it now, they fill up that tax bracket where now they’re going to pay 12% tax on the $30,000 of space they have in their bracket. Versus if they wait until the Tax Cuts and Jobs Act expires, they’re going to pay 15%. And guess what? They earn less than 400,000. So, taxes are going up across the board as soon as the Tax Cuts and Jobs Act ends. So, we have the debt, we have the SECURE Act, we have the Tax Cuts and Jobs Act. So, what’s the big benefit of paying the tax or doing a Roth conversion or getting tax efficient? 

We can run the numbers, and we have some reports that we run for our clients to demonstrate this, but at the end of the day, it’s just flat out paying less tax. Now, you need to consider that it’s kind of ripping off a band-aid so to speak. It hurts when you do it, but after that you’re free. So, I guess, what would be a con of doing this? Is you pay the tax upfront. I’m not sure if that’s necessarily a con, but people always look at taxes through this micro lens of minimizing taxes on a specific year. Well, guess what? We’re going to raise your taxes in a specific year to minimize taxes for the rest of your retirement. So, one downside is you have to rip off the bandaid and you have to pay tax now. Well, that tax you pay now might be $20,000 versus if you continue to defer the tax you pay over the lifetime of that account could easily be 50,000 or $100,000 on that same account.

And I can run the numbers to show you this, to prove this to you. And very simply, and I’ve done this before, here’s a very simple example. Let’s say we have $100,000 pre-Tax, $80,000 post-tax and let’s assume a 20% tax rate. If we have this $100,000 IRA and we have a 20% tax, let’s just keep the math even and this is over something tax-free like a Roth. To get it over there, all we have to do is pay the tax. And what will the tax be? $20,000. And then I hear this misconception that’s, well, if I leave it pre-tax, it’s a bigger number, so it’s going to benefit me more getting the growth. Well, that’s a misconception. So, let’s assume both of these accounts go up 10%. Now, the $100,000 is at 110,000, the $80,000, it goes up 10%. Is at $88,000.

So, the question is this the same amount. Well, we got to still pay our tax, which is 20%, and 20% of 110 is going to equal 88,000. At the end of the day, from a cashflow standpoint for your pocket, assuming taxes remain exactly the same, it doesn’t benefit you to defer paying taxes. Who does it benefit? Well, if you pay the tax upfront, you’re paying $20,000. If you defer the tax, you’re paying 22,000. So, if you to pay less tax, then chances are you want to move money out of these tax preferred accounts sooner, rather than later. Now, another con of doing a Roth conversion or moving money out of the tax deferred accounts to somewhere tax-free or taxable, is that it can affect your social security. But if you’re already making more than $44,000 your social securities are already getting taxed. 

If you already have more than $44,000 worth of income, it doesn’t affect your social security any differently because your social security is already giving tax. 85% of your social security is added onto your income. It does not affect your social security if you’re already making over 44,000. What it does affect, in the year that you move the money, it does affect your Medicare premiums. And actually, it’s a two year lag. If you were to have done conversions or move money out of the tax deferred accounts in 2018, you’re going to see that your Medicare premiums might be an extra couple of $100 higher depending on how much you converted just for this year. And then if we move forward, it’s going to drop back down to whatever it was pre-conversion. In the year you do the moving the money out of the IRA like a Roth conversion, you’re going to see, two years in the future, your Medicare premiums will be higher for that year.

But I’ll argue, and we can run the math for you depending on your situation, but the tax savings and the peace of mind and knowing that if taxes go up, that you’ve already removed this money from the tax train that’s coming down the tracks, that’s going to far outweigh potentially the additional Medicare premiums you might be paying. For a lot of our clients, what we’re doing is we’re just looking at their taxes, figuring out where the tax brackets are at, figuring out how much space we have to move and then moving that money. And just from a tax planning standpoint, a lot of times it’s a no-brainer. And if you want to see how this applies to your situation, just schedule some time with me,

I need to see your tax return, your last tax return. And then we can run the numbers and play around with this. This is something that I was doing with a client even earlier today, they set up an asset protection trust. We’re pulling the money out of the IRAs, and it looks like we could pull about $40,000 out of the IRA, still keeping them at their same tax bracket before going up into another tax bracket. It made sense because now we got more money into the asset protection trust. And it made sense because it was just good tax planning because instead of paying a 15% tax rate in the future when the Tax Cuts and Jobs Act ends, they’re just going to pay 12. And I was viewed as if we can put more money in your pocket, less in Uncle Sam’s, we’re going to be in a better position.

Really appreciate your conversation with education, pros and cons. Thanks. Yeah, I appreciate it. And so the comment was, he appreciates looking at the pros and cons and that’s really everything that we do for our clients is we’re looking at it from a educational and best interest standpoint. We just want to do what’s in the best interest of the client. And we need to look to see how these different things fit together. Because if I were to just say, “Hey, everyone, go out and do a Roth conversion.” And then two years later, you’re seeing your Medicare premiums going skyrocketing for the year you’re doing the conversion, you would be upset. But we walk into this from an educational standpoint of knowing the effect of our decisions. And understand, not taking action is a decision in itself. If you don’t think about these things, if you’re not considering the tax planning, again, you’re just putting yourself to the whim, especially in those pre-tax accounts of wherever taxes go, because if taxes go up 3, 4, 10%, the value of your pre-tax IRAs drops that much.

And so we’re all concerned about volatility in terms of our investments. And we have diversification. We wouldn’t have all of our investments hopefully in one stock. Similarly, with taxes, we needed to diversify our tax buckets. And I sit down with a lot of clients and they’ve accumulated all this wealth pre-tax, and now they’re at retirement and they’re at the same, if not higher tax bracket, moving into retirement. And it’s, again, not necessarily their fault. First of all, some of these things weren’t around, ROS weren’t around a number of years ago, or there’s income limitations on Roth. And that’s where we get into some of the Roth alternatives like index universal life or cash value life. But it’s in the government’s best interest for you to defer paying taxes just how I described. 

If you defer to pay the tax now, it might be a $20,000 tax bill. If you defer, it might be a $22,000 tax bill. Now, imagine, instead of doing that on $100,000, we’re doing that on a million dollars, or I was meeting with someone the other day with five and a half million, and a majority of it was pre-tax. And so this isn’t something where we liquidate necessarily everything in one year, but on an annual basis, looking at these tax brackets. And again, there’s a window of opportunity with this based on that Tax Cuts and Jobs Act. And then the fact that we’re $30 trillion in debt is pretty darn scary as well. All right, so that is the pros and cons of the Roth conversion. I guess another con, and I apologize, I’m trying to kind of think of as many as I can. But to be honest, I think for a majority of people considering the Roth conversion or moving money to the more tax efficient bucket makes a lot of sense.

The other con that I hear sometimes is that, well, if you move the money to the Roth, you’re supposed to leave it there for five years, which is true. So, to get the tax growth, to get that tax-free because, again, that’s the benefit, is now this money is tax-free. Tax-free for your retirement, tax-free for what you leave to your kids. But for the growth to be tax-free, you’re supposed to leave it there for five years, which a lot of people bring this up as a downside of the Roth. But in reality, the Roth, because you want to take advantage of this tax-free growth, you want it accumulating growth in a tax-free manner. Typically, the Roth is going to be the last of the money that you’re going to touch because we want it to continue to grow tax-free.

So, I don’t see the five-year rule of taking money out of the Roth as really being an issue. A downside of a Roth conversion and this isn’t referring to moving money tax-free, is that you have to be the owner of a Roth. So, a downside of a Roth is that it’s not asset protected. So, if you’re to need nursing home care or long-term care, the money inside of a Roth would not be protected. That’s where if we set up an asset protection trust, we can’t put a Roth into an asset protection trust. If he wants something that is tax-free, that can grow tax free and you want it inside of that asset protection trust, then we would look at things like index universal life or cash value life insurance, where the value of this rose tax-free, you can pull the money out. That income that you pull out comes out tax-free and then there’s also potentially a death benefit, as well as long-term care benefit, but that could be owned by the trust.

So, one downside of the Roth is that a trust or asset protection trust cannot own it, nor can it own the IRA. So, it’s not like a pro and con of whether do the conversion. It’s just something specific with a Roth where sometimes we don’t use the Roth as a conversion, but we still look for something in that tax-free bucket. And again, every family situation is a little bit different and that’s something that makes us, for me, fun. Intellectually, stimulating. All right. What is the five-year rule for Roth? Is the Roth account must be open five years or the investment in the Roth must be five years. Wondering about the momentum of growth in the IRA pre-tax being diminished in establishment [inaudible 00:22:54] growth for a post-tax. You have to open up the Roth and then once that Roth has opened, then you have five years. It’s best to leave it there five years. 

The second question is the momentum, and this is kind of what I was talking about in that … Let me share my screen again real quick. So, the question is, with regards to the momentum of growth pre-tax, but now if you were to put it into a Roth or IUL it’s on a smaller amount. Now you should be seeing my screen again. That’s exactly what I’m trying to illustrate, right down here. So, this is what I’m talking about is we have $100,000 pre-Tax, $80,000 post-Tax, let’s call it in a Roth. That’s the easiest way to understand it. And let’s say both of these are in the same mutual fund. Let’s say it’s an X, Y, Z mutual fund. 

So, we have X, Y, Z mutual fund inside of an IRA. X, Y, Z mutual fund, and then we have X, Y, Z mutual fund inside of the Roth. A misconception I see a lot of times is that, well, the $100,000 is going to grow and you’re going to get more bang for your buck because you’re growing a bigger amount. But if we haven’t invested in the same exact thing, both of these accounts go up 10%. That $100,000 goes to 110, that $80,000 goes to 88,000. Are you getting more value? The answer is no, because all you’re doing is you’re growing a bigger tax bill. 

At the end of the day, you’re not getting any additional growth or value or acceleration on this bigger pre-tax number, because all you’re doing is really growing a tax bill. Because again, we’re assuming that both of these accounts go up 10%, 10% of 100,000 is 110. 10% of 80,000 is 88,000. Now, the 88,000 is already post-tax. The 110,000, we still have to pay the tax. And it’s still at 20%. And 20% of 110 equals 22,000. And so we pay the tax 22,000 and now we’re left with the same exact number. 

All we’ve done is we’ve grown a bigger tax bill. In the Roth, if you were to pay the tax right away, you pay 20,000. If you leave a pre tax and you pay the tax later, after you’ve experienced more growth, you’re paying 22,000. And that’s just on 100,000. Again, by leaving a pre-tax, it’s not like you’re growing your nest egg anymore, you’re growing the tax bill for the government. And that’s why the passage of the SECURE Act is so scary to me because it’s in the government’s best interest to have you defer paying the tax. But the SECURE Act is saying, “Hey, as a government, we’re broke, we need to pull that money in sooner rather than later, because this debt bubble is just growing and growing and growing.” Again, leaving a pre-tax, growing it inside of this pre-tax bucket doesn’t necessarily benefit you, even though you would think it would because it’s a bigger number. What it does is it benefits the government because they’re getting a bigger tax bill at the end of the day.

And then if you factor, if taxes go up in the future, let’s say it’s a 20% tax now, but if they raise the tax to say 30% in the future, well, guess what? Not only has the tax bill went up, but the value of this has went down. I can’t do the math off the top of my head, but now this might be only like 75,000 that you can pull out of here, because of the additional tax in the future. So, I hate to say, beating a dead horse, but there’s a lot of advantages of getting tax efficient. I think this is the biggest risk and the biggest opportunity, a window of opportunity that we have right now. All right, so now let’s get into this next question. And I’ve been talking so much on Zooms and phone calls. My headset’s dying, so I’m going to have to do a little headset switch. So, feel free to type in any questions while I do the switch. Give me just a moment.


All right. You should be able to hear me still. So, if someone could just type in the chat if you can hear me, that’d be great. Yeah, perfect. All right, now let’s get back to the other question that was submitted just as a logging on has to do with long-term care. All right. So, the question, let me write it out so everyone can see. Regarding long-term care, how do you decide if you should self-fund or continue with a policy? So, do we self-fund or sounds like we have a pure traditional long-term care. All right. There’s different approaches for long-term care. How do we address the long-term care issue? I think there’s three big risks right now. One of them is market risk with all the volatility we’ve been seeing in the 12 year bull run.

We had a little bit of a gut punch in March with the pandemic, where you see the unemployment. I had a call with a client who’s a commercial realtor, who sees some things in the commercial real estate market. So, I think market volatility moving forward will be something to watch. But the two big risks after that, or in addition to that are tax risk and long-term care risk. So, how do we address long-term care? There’s a couple options. First, we could self-fund. We just pay out of our own money. Second, we can look at traditional long-term care insurance.

Third, we can look at what’s called asset-based long-term care strategies. Fourth, we can look at legal entities. And I guess fifth, we can look at income strategies where we structure the income to be able to cover long-term care costs. So, self-funding, you have to have the funds to do it. In the past, they said, back when there was really only two options, traditional long-term care insurance, and this has a lot of disadvantages now. One is the increasing premiums. The premiums can go up on you at any time. I’ve had clients that bought a policy before working with us, pay on it for 20 years at $4,000 a year, and then they increased the premium to $10,000. And you have to decide whether you keep the policy, let it lapse, go in a different direction. Also, there’s no benefit at death.

So, kind of the old paradigm where these were the only two options, a lot of times there was kind of a rule of thumb where traditional long-term care insurance would be really for individuals who had between 500,000 to 1.5 million worth of assets. Anything less than that, then you kind of need those funds for retirement. Anything more than that you wouldn’t necessarily need to cover this in terms of an insurance. Because with this old traditional, there’s no death benefit. So, you could pay on this your whole life and there’d be nothing left at the end of the day. Now, I’m not a big fan in most cases of this type of policy anymore. If you have an existing policy, you may want to continue it, depending on where you are. But what we do is we figure out, “Hey, do we stick with this current policy? Or do we look at one of these other options?”

And so self-funding is an option. You just use your assets and pay for care. But now we have some other options. Asset based long-term care, this is a strategy I am a big fan of. And this isn’t always just about covering the longterm care need. A lot of times it’s about just leveraging your assets, where even if you have say $5 million, you might want to consider an asset asset-based long-term care strategy. If you only have $100,000, you might want to consider an asset-based long-term care strategy. There’s different ways that it could be structured. But let’s say, and I’m just making up numbers right now. Let’s say we have $750,000 of investments, maybe we carve out a portion of that. Let’s call it 250,000. So, we’re just moving it from one pocket to the other pocket.

We could always move it back. But now that 250,000 based on your age and health is turned into a bucket of funds, and I’m just making up numbers right now. Let’s call it $600,000. And this needs to be used for either long-term care or a death benefit. So, we’ve turned 250,000 into 600,000 worth of either long-term care benefits or death benefits. If you need long-term care, then you can spend down that $600,000. If let’s say you use 500,000 and there’s $100,000 left over, now that would go to the beneficiaries tax-free. So, this is about leveraging your current assets. This could also be something that you pay on over time as well to fill it up, but really it’s just leveraging your current assets to address two things. One, that may happen and the other that for sure will. One is you may need long-term care.

Three out of four of us will need long-term care at some point. And the average cost of nursing home right now is 8 to $12,000 a month. And that also you’re going to pass away at some point, we haven’t figured out a way around that. What we’re doing is we’re turning basically based on your age and health, there is some underwriting for this, $250,000 into 600,000 of long-term care or a death benefit, leaving the remaining, I can’t do math in my head, $500,000 that could be used for the rest of your retirement. Plus this money would be tax-free to whoever inherits it as well as the long-term care benefit is tax-free. So, a lot of times what we’re doing with people that have traditional long-term care policies is looking to see does transitioning to an asset based long-term care offer you more of a benefit?

Maybe it will, maybe it won’t, depending on when you got that policy. It’s a little bit hit or miss. Sometimes we will stay in that traditional policy because maybe we got it 20 years ago when we were younger and healthier. And now if we’re going to try to go through underwriting, it won’t work. And then number four would be legal entities. This is something that our law practices spent a lot of time perfecting. We have an asset protection trust, that we move assets into the trust. And once we make it five years, everything is protected from that nursing home or Medicaid spend down. And we could put things like your home and investments inside of here. And because Medicaid has a five-year lookback period, everything inside of the trust would be protected. That’s a strategy as well.

Maybe we look at, let’s stop paying $4,000 a year, $5,000 a year on a traditional long-term care insurance when we can just move over to a legal entity, pay for it once. And now once we make it five years, 100% of what we put in is protected from that devastating nursing home cost. That might be an option as well. And I’ve had people that do that as well, or even combinations of both of these as well, where the asset based long-term care covers things like home care, assisted living. But we don’t want to overfund it. And then we have the legal entity protect against the nursing home care. And then fifth strategy is more of an income strategy where we look at your income sources, social security, pensions. And then if we can draw on your assets, maybe something like a fixed index annuity that normally would pay out, let’s say, $2,000 per month, but now if you were to need long-term care after two years then the payout could double to $4,000 per month if you were to need home care, assisted living or nursing home care.

The nice thing about this is there’s no underwriting. We just have to wait two years. So, even if you had a diagnosis of Alzheimer’s or Parkinson’s or something like that, this would be a strategy to leverage those assets without having to go through underwriting to create more income to cover home care or assisted living or nursing home care. Those are really the planning strategies as it relates to long-term care. And I’m not saying everyone should rush out and drop their traditional long-term care insurance. I’m just saying that typically it’s not something we’re looking at moving forward for families. And if you already have one, I’m not saying drop it. I’m saying let’s look at the other options. And one of them might be to keep that traditional long-term care insurance policy. But now there’s new strategies, new options that are available.

See if any of them make more sense. And then if they do then only at that point will be considered dropping that long-term care, because I always want to make sure you’re in a better spot. That’s kinda how we take a look at the long-term care question. Any other questions? [inaudible 00:38:04] I opened a Roth five years ago, in 2015. An add in 2020. How does a five-year rule apply? To be honest, I’m drawing a blank. I’ll email you the answer to that. The question is when you open up the Roth, is the five-year rule from the time that you open the Roth and then you can add money later, or is it from the time that the money moves into the account on the growth? My inkling, and I just have to double check it and I don’t know off the top of my head.

I only have so much space in my head. My inkling is that it’s from when you opened the account and then you could put more money in later and it’s just from when you open the account, but I have to double check that. I’m just blanking on that right now. We’ll call it a senior moment on my part. So, I’ll email you an answer to that plus I’ll make sure to answer that on the next meeting. Any other questions? Because I’ve exhausted the ones that had been submitted. If you do have a question, feel free to put it in the question and answer. It looks like nothing else is coming in. With that, I wanted to thank everyone. Oh, here we go. Here’s a question. Someone said, “Thank you.” You are very welcome. I appreciate it. 

All right. With that, I want to thank everyone. Look forward to our next one. We will be doing one … Let’s see, I’m checking the calendar right now. So, we will be doing one next week and the following week, but we’ll probably be skipping the 23rd and the 30th, the last two weeks of the month. But I look forward to considering this moving into next year, especially given the social distancing and everything, we don’t have the opportunity to do our normal live workshops where I get to see everyone’s face. But I do appreciate everyone logging in, again, really. Good number of people, over 20 plus people on the Zoom today. So, I appreciate you spending time with me and I appreciate you finding value in what we’re providing here. With that, I want to thank everyone, make it a great week as I’m dodging the sun that’s coming in. Thank you so much. Take care.

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