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so in today's video I'm going to explain
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to you how you can take a million
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dollars tax-free out during retirement
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and it's not using a Roth IRA or some
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fancy Insurance product in fact it's
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using an account that all of you have
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access to so I'm going to explain the
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different types of retirement accounts
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how they're related to your tax bracket
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and then I'm going to also explain how
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this magical mysterious account could
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potentially allow your errors to receive
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millions of dollars tax-free but first
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my name is Kevin Lum I'm a certified
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financial planner based in Los Angeles
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and this channel is dedicated to helping
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a million people retire without worry
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what is this magical account that allows
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you to take a million dollars in
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tax-free income out during retirement
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It's actually an account that almost all
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of you have access to and probably
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already have opened it's simply a
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taxable brokerage account here's what's
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amazing a taxable brokerage account can
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be one of the most tax efficient
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accounts you can use there's no limits
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you can invest as much money as you want
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there's incredible tax advantages and
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you can access the money anytime you
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want you don't have to wait until you're
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59 and a half so I want to start by
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explaining how the various retirement
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accounts work and then I'm going to
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explain to you the benefits of a taxable
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brokerage account and how you can pull
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such a massive amount of money out of
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this account completely tax-free so most
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of you have access to a variety of
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different retirement accounts the first
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is a traditional IRA as you know when
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you put money into it as long as you
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earn under a certain threshold you
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receive a tax deduction so if you put
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five thousand in you're able to deduct
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five thousand dollars to your taxes and
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you keep doing that year after year and
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that money grows let's say to a hundred
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thousand dollars and then someday when
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you pull that money out you're going to
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pay tax on it in retirement the second
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type of account that people often use is
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a Roth IRA a Roth IRA has no tax
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deferment so if you put five thousand
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dollars in the account you don't receive
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any tax deduction but as that money
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grows over the next 30 Years and you
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know that grows to a hundred thousand
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dollars you're able to pull out all that
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money completely tax-free which is why
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people love Roth IRAs particularly as it
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looks like we may be facing higher taxes
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in the coming years the other type of
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account that everyone has or most people
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have access to is an employee sponsored
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account think 401k or 403 b
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traditionally these have function very
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similar to a traditional IRA so that
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means a little bit gets deducted from
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your paycheck you get a tax deduction if
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your employer contributes they get a tax
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deduction and then someday in the future
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this account Rose to a half million
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dollars or a million dollars if you're
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really lucky but when that money comes
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out you have to pay tax when you
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withdraw it but for many people one of
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the best places to put your money is
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into a taxable brokerage account now
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immediately you're saying all these
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other accounts of tax advantages of some
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sort either tax deferment or comes out
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tax-free how is it an account that
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literally has taxable in its name how is
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it the best and most tax efficient
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account but your money into here's why
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there are basically two different tax
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structures there's ordinary income and
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depending on how much you earn you'll be
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in a different tax bracket so you know
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22 percent 24 32 percent all the way up
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to 37 percent and the things are going
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to be taxed as ordinary income are going
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to be your W-2 the money you make from
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your job distributions you take from
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your 401K pension payments all that
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money is going to be taxed as ordinary
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income the more money you earn the
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higher your marginal tax rate is the
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higher amount you're going to pay on
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each additional dollar that you earn the
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other structure is capital gains tax and
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it's typically taxed at a much lower
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rate than your ordinary end cup now if
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it's short-term capital gains you're
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taxed at your ordinary tax rate but on
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long-term capital gains so assets that
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you've held for over a year so this
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could be a whole variety of assets but
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for most people in this situation we're
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going to be talking about stocks so if
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you've held it for over a year you now
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qualify for long-term capital gains and
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there's a whole different tax bracket
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for long-term capital gains but here's
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what most people don't know you can take
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out over a hundred thousand dollars in
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long-term capital gains income
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completely tax-free and if you're a
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single filer you can take out a little
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over fifty thousand dollars completely
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tax-free so that means let's say you
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have an account where you have a million
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dollars in profit I don't know how you
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acquired that but let's say you invested
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really well and you have a million
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dollars in profit and you want to retire
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early and you have no other income
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coming in so you don't have your you
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have to start your Social Security yet
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your pension payments not coming in you
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stop your job so you have no income
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coming in and you retired age 60 over
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the next 10 years you could sell a
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hundred thousand dollars in profit not
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just in stock but in profit you could
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take a hundred thousand dollars in
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profit over the next 10 years and pull a
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million dollars out of your taxable
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account completely tax free let's look
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at these long-term capital gains tax
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brackets if you are a single person and
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you earn up to 4 forty four thousand
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dollars a year everything you take out
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in long-term capital gains is completely
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tax-free now it's important to know that
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whenever you take out long-term capital
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gains gets added to what other any other
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income so you can't earn forty four
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thousand dollars a year and take forty
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four thousand dollars a year in
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long-term capital gains it gets added
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together but if you earn twenty five
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thousand dollars you could essentially
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pull out another twenty thousand in
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long-term capital gains and pay no tax
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on it and this isn't just related to
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retirement just retirement is the best
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time to pull this money out because
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often it's a period in your life where
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you're earning the least amount of money
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so as a single filer you can earn up to
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forty four thousand six two fifty but
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here's what's key to remember you also
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get a standard deduction as a single
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filer over thirteen thousand dollars a
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year so you take the forty four thousand
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I'm gonna do easy numbers here you take
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the forty four thousand you add the
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Thirteen thousand dollar standard
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deduction as a single filer you can take
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fifty seven thousand out as a married
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filing join the couple you get eighty
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nine thousand two hundred fifty plus you
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get a 27 000 standard deduction if you
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put those two numbers together and I'm
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not going to do the math here really
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quickly but it's almost 120 000 a year
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in long-term capital gains that you can
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pull out completely tax-free here's
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where it gets really interesting and I
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need you to stick with me because what
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I'm going to talk about in just a minute
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is going to blow your mind but you also
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have dividend income so dividend income
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gets taxed in two separate ways some
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Dividends are taxed to ordinary income
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tax rate they're called Ordinary
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dividends Real Estate Investment Trust
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there's a variety of different uh types
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of Investments that when they pay out a
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dividend it's taxed at ordinary income
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so whatever your ordinary income tax
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rate is that's how you be taxed but
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there's another type of dividend which
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is a qualified dividends for example if
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you are invested in at T and you're
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receiving a dividend payment and let's
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say you invested heavy in at T which
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probably was a bad idea but you've
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invested heavy in ATT you have all this
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dividend income coming in those
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qualified dividends are taxed at your
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long-term capital gains rate and so you
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if you have no other income coming in
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you could earn up to almost a hundred
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and twenty thousand dollars a year
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without paying any tax on those
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dividends does that make sense hopefully
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you're beginning to understand the power
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of using the tax brackets to your
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advantage so here's where it gets really
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amazing though when you pass someday if
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you have money in your traditional IRA
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or your 401k and that money goes to your
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errors they're going to have to pay tax
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on it and they're going to have to deal
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with rmds and the rules just changed on
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it it's a whole it's a ordeal but money
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that's inside your taxable brokerage
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account when it passes to your heirs
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passes to them completely tax free so
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let's say you have five million dollars
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in profit in your retire in your
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brokerage account you bought Apple stock
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years ago you bought it for you know
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Pennies on the dollar what it's worth
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today and you you paid let's say your
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cost basis is a million dollars and
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today the value of your portfolio is six
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million dollars so there is a five
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million dollar profit in that account
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when your heirs receive that stock they
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get what's called a stepped up basis the
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same thing applies to your house they
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get a stepped up basis so now their cost
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basis the amount that they're going to
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have to pay tax on starts at six million
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dollars so if it goes from six to seven
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million dollars they'll have to pay tax
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but if they sell it immediately at the
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Six Million Dollar mark
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no tax will be paid by you and no tax
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will be paid by them now here's where we
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move into the estate tax Arena you are
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only allowed to have in a state of 12.9
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million thereabouts before an estate tax
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kick set if you have a ton of money this
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is going to be an issue for you and
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you're going to want to make sure that
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you have someone help you strategize
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with how you can reduce that but for
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most people you can pass millions of
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dollars using a taxable brokerage
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account to your heirs and they will pay
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absolutely no tax as you can see it's an
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incredibly tax efficient account to help
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you pay less in taxes but also to help
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your errors Pay Less in taxes as well
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now one thing you want to know because
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depending on your state your state may
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have a much lower threshold for an
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estate tax if you live in one of those
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States it's going to be a little bit
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more difficult to navigate around on the
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estate tax hopefully this is helpful and
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this works particularly well for those
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people who are going to delay taking
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their social security to age 70. in fact
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I have a video here you should watch and
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how social security is taxed as always
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if you enjoyed this content if you do me
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a favor and ding that Bell click the
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Subscribe button click the like button
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