Episode Transcript

# FA Episode 4 - The Retirement Tax Bomb Hiding in Plain Sight with Erik Brenner

Speakers: Craig Andrews, Erik Brenner, Bluesman Grendel and the Compliance Choir

[00:00:00 - 00:01:37] Craig Andrews:
You never know how much time you have. For me, that stopped being an idea and became reality on August 22nd, 2021. The doctors put me on a ventilator and told my wife to call hospice so she could prepare for the day they planned to pull the plug. Six weeks later, I woke up to an entirely different reality. I could not walk, I could not talk, I could not even lift my own arm, and I woke up realizing something else, I had not made the right preparations for my family. The plans I thought were pretty good fell through when it mattered most. That is why fiduciary alchemy welcomes voices that would have warned me about the holes in my plans. My hope is that you live a long and prosperous life, but I also hope you make better plans than I did. So tune in, take notes, and stay with us through the end when bluesman grindle and the compliance choir. Giving a word of caution. Today I want to welcome Eric Brenner. He is the president and CEO of Hilltop Wealth and Tax Solutions. That's okay, it's not just wealth, it's also managing the tax. They are a fiduciary firm that integrates advanced financial planning with in-house tax strategy. Eric brings over 30 years of experience and specializes in helping high net worth individuals, including pre-retirees, business owners, and medical professionals, transition from saving and building to preserving and distributing wealth with confidence. Eric, welcome.

[00:01:37 - 00:01:41] Erik Brenner:
Hey, thanks for having me, Craig, glad to be here.

[00:01:41 - 00:01:47] Craig Andrews:
It's good to have you back again, and it just so happens, we've been chatting a couple of days in a row here.

[00:01:47 - 00:01:48] Erik Brenner:
Yeah, exactly.

[00:01:48 - 00:02:06] Craig Andrews:
I remember the first time we talked, so you've obviously been on leader some legacies, and that was a great interview. But when we were talking, you had a low issue in Florida, you had iguanas falling from the sky.

[00:02:06 - 00:02:41] Erik Brenner:
Yeah, we did, yeah, when we talked last, I spent some time in Florida, we have an office there as well as North, and the cold spell came in, and that makes the iguanas pretty sedentary, and they were coming out of the trees, and they had iguana warming centers, for those of you that are in that neck of the woods. Very interesting, but the good part is, I don't think they die much. They can warm them up and get them moving on again, and they're not used to the cold, that's for sure.

[00:02:41 - 00:02:55] Craig Andrews:
Yeah, yeah, well, Rob was there, they're considered an invasive species, I guess somebody brought them in, thought they were cute, once they weren't cute, they turned them loose.

[00:02:55 - 00:03:04] Erik Brenner:
Yeah, yeah, there's definitely, you know, there's a few of them around, for sure.

[00:03:04 - 00:03:08] Craig Andrews:
And so, but today you're not in Florida, you're in Indiana.

[00:03:08 - 00:03:10] Erik Brenner:
That's correct, yeah.

[00:03:10 - 00:03:16] Craig Andrews:
So you have a big office in Indiana, you have another office in Florida, you have any other offices?

[00:03:16 - 00:03:30] Erik Brenner:
We have an office up in the Detroit area, Royal Oak, and then we have an office in Northwest Indiana called its Chesterton, Indiana, as well as really we work with people from all over the country.

[00:03:30 - 00:03:41] Craig Andrews:
Wow. Let's talk about that, I mean, that's a big deal, opening multiple offices. How did that roll out?

[00:03:41 - 00:04:26] Erik Brenner:
I mean, it started by a couple of different scenarios. One is Florida office really started by me going there, clients going there, you know, maybe in the winter, seeing clients and thought, you know, it's kind of nice being there in the winter. More and more clients are retiring, a lot of them do go down to Florida, and so we started with an office, a small office, and we've kind of grown from that perspective just because of the need for really, really good comprehensive advice that we give. And so we're really pleased that we're continuing to grow that area.

[00:04:26 - 00:04:46] Craig Andrews:
Wow. Well, I mean, that's, when I think about it in terms of complexity of businesses, it's, you know, it's challenging for most folks, it's challenging for me to run one office. And then to start opening up multiple offices, what sort of challenges did you run into as you opened up new offices?

[00:04:46 - 00:05:53] Erik Brenner:
Well, you know, there's multiple, one is, you know, not having everybody kind of under one roof, and of course, COVID changed that a lot, changed my want it, you know, that, okay, need to be under roof versus, you know, we can not necessarily. So technology's helped. And then you get into find a location, you get into, do you hire people from there? Do you hire people from other areas in the work they do? Well, overall, you know, it's been a fun challenge. And, you know, we're, we're, we're pleased and happy that we have that, you know, opportunity to work with folks and, and, you know, there's, there's 10,000 plus baby boomers retire in every day. So for a while here, so people, not all of them, but a lot of them go to warmer weather in the winter. And so, so we want to help, you know, make sure that, you know, they're making the right financial decisions.

[00:05:53 - 00:06:18] Craig Andrews:
Yeah. Well, and one of the things that we talked about before were RMDs, required minimum distributions. And I think you were the one that taught me these are fairly new creature. If you were getting advice, what, 10 years ago, 12 years ago, RMDs were not an issue. When did they show up on the scene?

[00:06:18 - 00:08:12] Erik Brenner:
Well, they've, they've, they've been around since the, the, really the IRA laws, the qualified plan laws, as far as when you had to draw out the differences, you know, our parents, grandparents, their retirement, many of them had pensions, a lot of them didn't have retirement plans. They didn't know what a 401k was. So when they retired, they had a choice. Do I leave something to my spouse if I die on a monthly basis? They didn't manage assets, right? They didn't see an account statement. The check showed up in the mail. And what happened is there was that change of pensions have gone away, less and less of them, and savings in those plans, like 401ks, 403b's for those plans that you get to deduct today, but our tax deferred now are the way people are saving money. So what happens is people can wake up from savings and growth in the investments, company matches, and all of a sudden they have a pot of money. They got to do something with, and they have to draw from it every single year. And oftentimes people think it goes down and it doesn't. It can, it'll actually go up every year. So we call it kind of a tax bomb, you know, that's just waiting to happen, that you continue to defer, defer, defer, and then all of a sudden you've got these withdrawals that you have to do. And fortunately you don't need the money necessarily because you have enough, but you've put yourself in a position that maybe higher taxes, higher cost on your Medicare cost more. That's called Irma, and you might be locked in. So the old saying, you'll be in a lower tax bracket and you'll be retired. You know, a lot of times we don't see that to be the case.

[00:08:12 - 00:08:45] Craig Andrews:
Oh, you know, and I think that's a, I think, I think that's a surprise for a lot of people. They, they, I would say, except for the fact that I talked to a lot of folks like you, I would have assumed that, hey, my tax rates going down, I'm just kind of plucking out these funds as I need it and being, you know, a comfortable life, but you're what you're talking about is I could be in the highest tax bracket of my lifetime.

[00:08:45 - 00:09:58] Erik Brenner:
You could. And a lot of times what we see is someone retires and actually their taxes do go down for a period of time just based on where the money's coming from, how it's, you know, because now in our tax system, your, your streams of income could be taxed three or four different ways. Could be tax free, could be lower taxes than ordinary income rates. You know, there's, there's different ways that it's taxed in the tax code. So that, that could drop down for a period of years. And then all of a sudden requirement distribution age kicks in and then there it is. And then it starts going up from there. And yeah, you could, you could be. The other thing is that we don't know where the taxes are going to go. I don't know where they're going to go. When I ask people, very few say it's going down, right, or stay in the same. Most people think it's going up. So you got a plan for what they were in a 40 year tax flow. And they changed the laws in 2020 called the secure act. And a lot of it was due around these plans, IRA plans, retirement plans, having so much money, because that's the way people are saving.

[00:09:58 - 00:10:00] Craig Andrews:
Yeah. So what, and what did the change in the well do?

[00:10:00 - 00:12:08] Erik Brenner:
Well, any of the changes, one of them was a, when do you have to take out? So it used to be 70 and a half. Now it's 73 or 75, depending on your age of birth. So they've pushed it back a little bit, might not be the best. It sounds like, okay, I don't have to draw until 73 or 75, but they did that. The other big thing is passing it on. So in prior to the law, if I passed a retirement plan onto my beneficiary, let's say my kid, they actually wouldn't have to take it out all in one year. In fact, they could have taken it out as a pension over lifetime, taken out in an amount every year as long as they live, they pass away, they could pass it on to their next generation. So it was multi-generational creation. That law changed for most people now, when they receive an inherited IRA, they have to take it out in 10 years by the end of the 10th year. It's got to all be distributed every bit of it. And the reason why they did that is because they never intended for these to go on in perpetuity when they set the law up, because they didn't think they were going to be that large. And so that passing and the other piece is IRA money, 401(k) and so forth, yes, there probably is some company match there, but that's people's hard earned money. The pension was hard earned, but you never really saw a statement. You knew the company would owe you a certain amount when you retired, whereas there's now a balance. So if somebody has a huge tax law, one third, 35%, 40% or more can go to the government and hard earned money that you worked for and earned and saved and grew.

[00:12:08 - 00:12:23] Craig Andrews:
I mean, it almost has a feeling like they were sitting there looking at the budget, trying to figure out how to spend more money. And they say, "Oh, hey, there's this big chunk of money out there, we can let's find a way to tax that."

[00:12:23 - 00:14:15] Erik Brenner:
Absolutely, there's more than $40 trillion in deferred retirement plans yet to be taxed. So, you know, Capitol Hill is not caring about 25 years from now. They want a balance today. And that's why they encourage Roth conversions, because you take the money out of an IRA and convert it to a Roth. You pay the tax in the year you do that. That they get their tax money. So that $40 trillion is going to be $100 trillion, because it's the way people are saving money. Also, depending on what the research you do, that's about one third of the wealth in our country. So people, that's where their wealth is. So we often see somebody that's worked all the years for company or a husband/wife's debt, 90% of their wealth, investable wealth, can be in those accounts that have yet to be taxed. So I say that, join account with the IRS. That's what it is. And when you add in other income streams, Social Security is much higher for people. It's not grandma's Social Security anymore. Craig, I was just meeting with a client recently. Their Social Security combined is $109,000 a year. So it's not $800 a month anymore. So you add all those and it becomes a number going, "Oh my gosh, this is a good problem. But if I'm not careful, a lot of it's going to go to tax."

[00:14:15 - 00:14:31] Craig Andrews:
Now I heard that, and I don't have the details, but I heard that when you're at a certain income level, perhaps via RMDs, your Social Security gets taxed more aggressively.

[00:14:31 - 00:15:42] Erik Brenner:
So the way it works is that's correct. So depending on your, it's called provisional income, so nothing straightforward with IRS laws, but we come up with this calculation of what is the provisional income. Once a provisional income gets over $44,000, then 85% of the Social Security benefit is taxed. It's not an 85% tax, but 85% of the benefits taxed. And that 44 is not very high. So a lot of people, they're paying taxes on 85% of their Social Security. Now the good part is they still have a tax-free benefit, okay? So this example I used of the clients that have $109,000 a year in Social Security, 15% of that benefit is tax-free. So they've got $1,200 a month or so income tax-free, not paying a dime of tax on it. But for most people, you are paying tax on Social Security's sum, and it is, there is a cap on, you know, as a percentage of your Social Security and how much is taxed.

[00:15:42 - 00:15:54] Craig Andrews:
Interesting. So when we talked before, you talked, you didn't set out to do tax strategy. It was something you kind of eventually relented to or decided to do. How'd that go about?

[00:15:54 - 00:18:49] Erik Brenner:
Yeah, so we didn't set out to do it. What we did is we saw this about a decade ago, where it was continuing, you know, people are saving in these strategies and we're doing planning and so forth and helping people make decisions on their assets and making sure that they're going to have enough money. And these required distributions just continue to, if we did a projection, it just looked larger and larger. And so, you know, I would work with CPAs and try to let's go to your CPA and, you know, do some planning, you know, just live with it and I had a client situation where they were going to have rather large projected requirement distributions. So I sent the information to their CPA and I said, I think we should need to do a strategy prior to when they need to take and the CPA is like, no, it doesn't make sense. And I asked them and I said, no, what their projected required distributions are going to be and they said, no. And I told them how much they had in qualified money that was going to be within the calculation and they just were taken back like, oh, I see now why you're talking about that. And we decided I decided right then and there that we needed to bring this in house that people just were not getting the good advice. And so, you know, we started the tax business, not really to do taxes, but to integrate the planning piece. So when I talk about tax planning, I talk about tax deferral and tax planning and then I talks about tax mitigation, Craig, that's a whole nother show. The tax mitigation is, you know, not paying tax on it and not kicking the can down the road. There's a lot of strategies that a lot of people quite frankly haven't heard of that you can help mitigate your tax nut and really swing your tax bracket. The ultra wealthy are doing it, so those that have the resources and have the people on their team that are smart and know the tax codes, they're doing that. They're mitigating tax. So that's how we integrated it. It's like we need this comprehensive and it's been a huge positive because clients say, look, you're doing all this anyway, can't you do this and let's integrate this. So the client I was just sharing with you. Quite frankly, investments are important, but it's not a priority. They got enough money. We're dealing with RMDs because their Social Security starts at 109,000 plus other income. So that is their priority. So if I had an integrated the tax work in talk about that in an educated, experienced way and helping guide them along their financial journey.

[00:18:49 - 00:19:33] Craig Andrews:
Yeah. And the thing that gets me, one of the things I realized years ago was I was the one that was coming to my CPA with questions about tax strategies. He wasn't coming to me saying, Craig, we need to implement these. And there's like a bunch of nuances. I just somewhat recently learned about the whole idea of making sure that you declare home office so that when if I drive to another location, that's traveling between offices as opposed to traveling to work, which is a deductible expense. If I got that right, you're the expert, I'm not the expert.

[00:19:33 - 00:20:26] Erik Brenner:
So yeah, and I'm not a CPA, but yes, the home office is an example. So planning wise, so there's preparation, and then there's planning. And so what's happened is with the tax codes as well to look beyond the obvious, that takes work and time. And so oftentimes there's just so much going on in the tax business, certainly during tax time, there's no time to do any planning. And it's not that they wouldn't know it if they didn't study it and know it and so forth, but you can't be all things to all people. So the planning part is really, really important.

[00:20:26 - 00:20:50] Craig Andrews:
Yeah. Well, I mean, it's a huge deal for me. I recently moved a little bit outside of Austin a little bit further out, and I have an office in Austin, and all of a sudden that drive back and forth, that's all deductible mileage. I reimbursed myself for that mileage and have it as a deductible expense and it adds up quickly.

[00:20:50 - 00:20:53] Erik Brenner:
Yeah, it does, absolutely.

[00:20:53 - 00:21:18] Craig Andrews:
You know, I think that's the, you know, one of the things that is not immediately apparent when people are looking at different firms is they probably come in thinking, well, I just need a wealth manager and when they show up at your place, they realize that they're getting that plus a tax strategist, you know, they're getting a more comprehensive offering.

[00:21:18 - 00:24:03] Erik Brenner:
Yeah, we really have, you know, what we call a boutique, right? We were specialists in this area of what we call coming down the financial amount, you know, right before retirement and then coming down that and making the decisions just because it's gotten way more complex. And so, you know, we've done that and we've seen that. The tax being, the offering there as well, and it's just gotten so much more difficult. We've had three major law changes since 2020, Secure Act, Secure Act 2.0 and the One Big Beautiful Bill, three of them in five years. And so just the One Big Beautiful Bill was 800 pages. So we've got thousands of tax law changes, a lot of pages. So we're a specialist and so what we tell people is, you know, there's good wealth managers, you know, they can manage wealth, they can sell you a product, but not all wealth managers, financial advisors are created equal. So it's what they do they offer to you and we often find people say and realize whatever got me to this point was great, but I need someone to take me to the finish line. Right. Yeah. And so I think about it in my own health, right? Here's a family doctor, it was cool. I got it done. Right? All I needed is a checkup. I'm good. Go away. Then all of a sudden my knees start hurting and my family doctor helped me a little bit. And I went to the North of PDL and then before you get a couple of years out, I need knee replacements. Right? And the guy I used, right, does nothing but knees, right? And maybe a shoulder or two, a specialist. So that's what we do. So we narrow down and really work with those folks on a basis. You know, it's amazing to me, Craig. I ask people all the time and I said, you know, when you're working, if you're working with someone and we do a lot of seminars and I ask them and say, how many, how many times is your financial advisor asked for your tax return? And you wouldn't believe the response. Most of it is never or it's been a long time. And what I say is they're not a comprehensive advisor. It's impossible to give you really comprehensive advice without knowing your tax situation, period. That'd be like going into the doctor and not doing anything, right? No blood check, you know, nothing. What are you allergic to? You just go in and you start cutting. So not all advisors are created equal.

[00:24:03 - 00:24:23] Craig Andrews:
Yeah, that makes sense. Let's pivot a little bit and talk about, you know, the buzz of the day as AI. I've already had two or three discussions with that about that and today alone. How do you see AI impacting your world?

[00:24:23 - 00:25:52] Erik Brenner:
Yeah. So I mean, I see it a couple of ways. One is we can utilize it, right, in some of the tools we use. So an example, you know, we now have the ability to take some of the, some documents, right? And kind of do, you know, load them up in AI and it can do a summary. So, you know, a document reading, analysis, documents, things like that. Really time saver to kind of summarize for us, note taking. So that's a big one. It can take notes, you know, so that helps. We find though it's not always perfect. Numbers sometimes are off. So what we see it as is a way to enhance what we're doing. It doesn't, you know, AI doesn't replace the one on one interaction and the specific situations that someone has and the nuances. And it also doesn't read the client. So certain situations that not just about the data and the numbers. It's about the client, right. And how they feel and so forth, you know, we're using it in certain, you know, in areas in leveraging it for sure. But we're also, you know, cautious, if you will, knowing that it's going, you know, obviously grow very rapidly, you know, just not totally rely on it.

[00:25:52 - 00:26:20] Craig Andrews:
You know, there's, there's something I've been, I've become intrigued by, it's called a claw bot. And they actually have it. It's like a super agent and people are actually talking about replacing employees with it. But the number one thing they say is don't lay it loaded on your main computer because it will have access to your files. And that just kind of tells me where, where AI is. It still needs a lot of human supervision.

[00:26:20 - 00:26:30] Erik Brenner:
Yeah. I mean, there's definitely the many, many of those use cases, right? That potentially, you know, could cause a lot of harm to for sure.

[00:26:30 - 00:26:48] Craig Andrews:
Yeah. Well, and there's some economists I follow that have been hopeful that AI will help address the labor shortage that we have. What are you seeing in terms of trends and staffing in your field and how are you tackling those?

[00:26:48 - 00:28:33] Erik Brenner:
Yeah. No, I think what it'll do is, first off, is someone's not adaptive to it, right? They, depending on their field, they could get replaced. So they got to be adaptive to it. I think it's going to, in question, obviously, I've heard that a lot. I think people adapting, you know, they need to adapt to it. Most, you know, most folks, at least in what we do, otherwise, right, they're going to get left behind. So they need to adapt to it in some fashion. I think the efficiency is going to help on the efficiency. So what I see is that, yeah, maybe you needed two people. Now, maybe it's just one because of the efficiency of AI. And then it depends on what you're doing. So, you know, document reading, things like that we talked about, right? Big there, note-taking. So note-taking is a massive thing in our industry and many industries, you know, from a scrollpad or having someone take notes, that's massive. I don't know if it's going to be the topsy-turvy, meaning it's going to fully turn everything on its heels. But I definitely, it's amazing at what I've seen it do in our industry, yet to really see it replace people because we are in a people business. And the situations, each of them are certainly different. But I think some of those tasks, it's definitely going to help people get more efficient.

[00:28:33 - 00:28:45] Craig Andrews:
Yeah. So, and let's wrap up with this. How are you guys approaching growth, especially like organic growth? That seems to always be a challenge for that, for your industry.

[00:28:45 - 00:30:00] Erik Brenner:
Yeah, I mean, you know, we approach it in a couple of ways. One is, you know, we go out and educate folks. So we want to educate folks on their overall financial situation all the way through from, you know, we call it soup to nuts. Just basic financial information, investments, insurance, tax, estate, you know, if those people are in need of advice or need, you know, that's how we meet people that way. So we want to continue to grow. And for a couple of reasons, one is that we believe that it's the right thing because we're able to bring services and advice to clients. We're able to leverage that, right, with having growth, you know, staff support those kinds of things. We're about the tax service, you know, we're able to leverage that. So we look at that way, also digitally online, continue to get, you know, some growth there. Certainly people referring us, we continue to grow. So we want to grow strategically. We want to grow, but we want to grow strategically in the right people that we can help. Right.

[00:30:00 - 00:30:03] Craig Andrews:
It's awesome. Well, how, Eric, how can those right people reach you?

[00:30:03 - 00:30:44] Erik Brenner:
Yeah, well, I'd love to give away a book. So I wrote a book called the Personal CFO Revolution. Talks about really thinking about your financial situation comprehensively, truly comprehensively, and your journey down the financial mountain. And so they can go to hilltopwealthtax.com, that's hilltopwealthtax.com. They can get a free copy, download a free copy of the book. I think it'll be a good read. You can read it in a couple of hours, two, three hours, and hopefully some good insight for folks.

[00:30:44 - 00:30:50] Craig Andrews:
That's awesome. Well, thank you for sharing your insights on fiduciary alchemy.

[00:30:50 - 00:30:52] Erik Brenner:
Hey, thanks for having me, Craig.

[00:30:52 - 00:32:03] Craig Andrews:
Thank you for tuning in to fiduciary alchemy, the coolest financial podcast you're likely to find. We go looking for voices like the one you just heard, because I want you to dodge the mistakes that I made and learn it without the coma, without the drama, without nearly paying the man. I don't know why I lived, when so many others die, that part's still a mystery. Now, some folks ask, Craig, what is it you do? Well, I'm telling you now, that's no mystery at all. We solve hard marketing problems and crowded markets, so good folks like our guests can rise above the noise, become visible, memorable, irresistible, and grow like never before. If organic growth is your problem, reach out, call me, let's make a plan, and bring your next steps into the light. But don't leave yet, stick around a minute more, and listen to bluesman grendel, and the compliance choir deliver a word of caution, just for you.

[00:32:03 - 00:35:48] Bluesman Grendel and the Compliance Choir:
This podcast is for information, education, that is all. It is not financial tax or legal advice to guide your call. Nothing here is an offer, nothing here is a buy or sell, no recommendation, no solicitation. I'm saying it plain and well, plain and well, plain and well, mmm, mmm, mmm, mmm, mmm, mmm, past performance ain't no promise of what tomorrow brings. It's turning people loose on all kinds of hopeful things, every investment carries risk. Prince of pork and fade away, what works for one won't fit us all. That truth is here to stay, fade away, fade away, yeah, that's the conflict. The compliance blues, get your own financial tax and legal help before you make your move. Mmm, that's the compliance blues, mmm, mmm, mmm, mmm, yeah, your situation's yours alone. You're knees are not the same, mmm, different facts and different goals can change the whole damn game. So talk to somebody qualified before you choose your own, because the weight of every money move is your own load of hope, your own load, your own load, your own load, that's the compliance blues, Lord, the compliance blues, get your own financial tax and legal help before you make your move. The compliance blues, mmm, mmm, mmm, mmm, mmm, yeah, your situation's yours. Mmm, mmm, mmm, mmm, mmm, mmm, get qualified financial tax and legal advice. That is right for you. Thank you.