On Friday, November 5, the House of Representatives passed its version of the Infrastructure Bill. It now moves on to the Senate where Senate Majority Leader Chuck Schumer aims to pass the bill by Thanksgiving.

While the $1.2 trillion bill is only about one-third of the original proposal, if it passes and the reconciliation budget become law, it will mark the biggest federal infrastructure investment in 50 years, begging the question, “How will the U.S. pay for this investment?”

Everything comes down to the proposed new tax provisions.

The key to succeeding under the new tax provisions – once they are determined and enacted – is an understanding of the provisions of the tax proposal as well as developing a financial plan to safeguard your finances against increased taxes and continue to grow your financial legacy.

Ted Zamerski leads this live discussion between Drew Miles, Tom Gibson, and Brian Shey during which they will discuss:

  • Contending with the proposed tax law changes as a business owner and strategic planner
  • Key components of the proposed tax law changes
  • The best strategy to take until the proposed tax laws are enacted


Transcript (edited for clarity)

Ted Zamerski: Good morning. Welcome to this month’s webinar, “How the Ever-Changing Tax Law Changes Could Affect You.” I’m Ted Zamerski, Director of Family Office Services at TSP Family Office. I know we’ve got a lot to cover today, so we’ll dive right in with introductions of today’s panel. Most of you know Senior Tax and Financial Strategist Tom Gibson. As always Tom, thanks for joining us today.

Tom Gibson: Good morning, Ted, and good morning to everybody joining the webinar.

Zamerski: And we’re also joined by Drew Miles, CEO and founder of TSP Family Office. Welcome, Drew.

Drew Miles: Thanks, Ted. It’s great to be with you and Tom and Brian and the rest of the folks that have joined us. I don’t get to do this very often, so it’s a treat for me. It’s good to be here.

Zamerski: Great. And many of you know Brian Shey, Family Office Strategist.

Let’s go ahead and start with you, Drew. As a business owner and strategic planner, how do you deal with seeing these proposed tax law changes and all the back and forth of the, constantly changing proposals? What impact does this have on you as a business owner?

Miles: Honestly, it’s been really tough. Being in business has enough challenges to begin with, and with the added uncertainty of this whole process, it really makes planning almost impossible, puts things on hold.

Keep in mind, we’ve come through about a year and a half – well, actually quickly approaching two years – of COVID and its effects. And the effect that it has had on the employee pool is tough. This is one of the first things they’ll tell you if you ask, “What is your biggest challenge of business?” It’s finding really good people, finding great people. And it has added such a level of complexity. I don’t know what to call it. It’s really made things tough.

We, like many of our clients, have a thriving business, a business that is growing and will continue to grow. But you have to have really great people in order for that to happen.

Then you layer on top of that all the back and forth on the tax changes, including the most recent one from about 20 minutes ago. It’s just ongoing. The uncertainty has been a really big challenge; the lack of clarity can have a paralyzing effect. But you can’t let it. You can’t let it paralyze you. But you can only plan for so many contingencies.

I guess the short answer to your question is it’s been tough. It’s been really tough. And the uncertainty and lack of clarity has been right at the center of things.

Zamerski: And Tom, how do you deal with it in your job?

Gibson: Well, typically a lot of Jim Beam tends to help a little bit, but no, I’m just teasing.

The tax code is always going to change. A lot of you who I’ve worked with for a number of years have heard me say the tax code is not exactly the Ten Commandments. It’s subject to constant revision, constant changes.

This year has been a crazy year. One of my favorite movies is Groundhog Day. I feel like I’ve lived this. We’re having the 497th webinar on what we think might be in the final tax bill, but one of the things that we’ve said consistently, since even before the election last year, is this is a time to plan. It’s not a time to panic. It’s not a time to overreact. And that’s just generally good advice for life. But in the last year, if you had made moves based on what you thought was going to be in the bill, what we were thinking last October, what we were thinking in the spring, what we were thinking in the summer, was completely incorrect in terms of what actually ended up being in this bill. And it’s still not over.

I had folks calling and asking me, “Should I sell my stock before the end of the year?” And I’m still getting questions about, “Should I buy equipment this year? Should I wait till next year? Should we do the cost segregation study this year? Should we wait till next year?” We’re going to talk about all that, but it’s really a matter of getting all your information together and making the best business decision that you can make. And I’ve told a lot of you, taxes can’t become the tail that wags the dog. Whether it’s investments or purchasing an asset for your business or all kinds of different things, those things have to be business decisions, not emotional decisions based on what you think might or might not be in the final version of the bill.

Zamerski: It’s hard to believe we’ve been talking about all this for more than a year. But then again, it’s not surprising at all. And finally, after all these years, I have figured out why they’ve taken seesaws and merry-go-rounds off of playgrounds. It’s just too dangerous.

Brian, can you jump in and tell us about what you’re advising clients to do, especially in this state of constantly changing provisions?

Shey: Contact your relationship manager, get with Tom, and run in the opposite direction of everything that the government is trying to do. And obviously, I say all of that tongue in cheek, but we talk long and hard about the conventional wisdom of planning in this country is completely wrong. If you think that deferring taxes today so you can pay them later on in life is in your best interest, I think you need to have a meeting with us.

I just jumped off an airplane but had the luxury of reading all of the news that’s coming down and they just keep spending. Marginal income tax rates can only go in one direction in this country. And unfortunately, it’s not in our best interest.

Zamerski: Thanks, Brian.

Tom, not to steal your thunder and get too far ahead, but it’s certainly worth repeating what you said earlier. You can’t let the tax tail wag the dog. And while I say it a little bit differently, it means the same thing. You touched on this a little bit with those questions coming about, “Should I sell my stocks?”

The capital gains rate was one of the areas where we’ve seen change over and over and over again. First, they were going to go all the way up to ordinary rates and people wanted to get ahead of it. Then they were coming back down, they were 25%, then not at all.

That’s still what might happen with the Bill and the Senate, but what I’ve been telling people all along is, first and foremost, whether you sell something now or not has to be a business decision or an investment decision, not a tax decision. I’m not even sure taxes are secondary in that. They might be the third or fourth option in there. What are your thoughts about people who, no matter what they do, they’re going to second guess, “Should I have done this earlier or not?” And would there have even been any benefit of selling something, even if they were to get lucky and it’s a good investment decision?

Gibson: Well, with the way the Bill was written, it had the capital gains right down to 39.6% or 25%. Of course, now we’re back to a 20% top rate. But they wrote the Bill so that those rates would be effective the day that the bill was introduced, as opposed to the day that the Bill was passed. But had that not been in the Bill, we would have seen an epic meltdown in the stock market because everybody would have been trying to harvest gains so they could pay 20% on it as opposed to holding them over till next year and paying 39.6% or 25% or whatever the rate was. Again, it comes down to a question of, “Do I want to take the gains of this stock? Does it make sense?”

I’ve been telling people we have lots of clients who have large capital gains. My initial piece of advice is always, do you have any dogs in your portfolio that you want to get rid of? Because the first thing you do is sell those and take some losses that will offset your gains. But this requires you to have some self-discipline. This requires you not to panic. One of the best things that you probably can do when tax legislation is looming is turn off Fox Business and turn off the financial news because they don’t know any more about what’s going to happen than you do. Again, good information is great. Too much information, I’m going to use the word, causes paralysis. That’s exactly what it does.

Zamerski: Drew, I wanted to ask you since you have been so involved with the GPP process, can you touch on some of the proposed legislation surrounding conservation, give us some insight into where you see that going, and tell us about some of the conversations you’ve had with other folks that are involved deeply in that process?

Miles: We are in regular touch with a number of people in the industry and one of our big allies, as many of our clients know, is the Partnership for Conservation. The head of that organization is a fellow by the name of Robert Ramsey and he and I speak from time to time.

We spoke about a week or so ago, and it was just at the time when the language had been dropped from the current proposal. Prior to it being dropped, there was this severe, this draconian, language in it that featured retroactivity. Let me just give folks a little bit of a history with this.

Conservation easements have been around for decades, 40 years, and easements themselves for longer than that. Let me back up and say that what I’m referring to is the real estate investment with a conservation option. That’s what has been around for 40 or so years. Initially it was used primarily by what we would just call rich folks that had a lot of land and had a big personal tax bill, and they would conserve the land and get the benefit of the tax deductions that flow through.

Sometime later, a group of attorneys said, “Well, if one rich person can do this, why can’t we get a bunch of people who aren’t quite so rich together as a group?” And they call those syndicated conservation easement deals. We’ve been involved in them for about 12 years now, maybe even longer than that. They were put on a broker dealer platform, we all got our licenses to do this, and everything was going pretty smoothly. Very good results in terms of very few audits. The ones that were audited, we had really good results because they were being done properly.

Then, in 2016, somewhere between Christmas and New Year, the folks at the IRS decided to make these programs a listed transaction. So I should probably spend a minute or two on just talking people through what that is. A listed transaction does not mean – and I want to specifically contradict what you see in the media sometimes – it does not mean that it’s illegal. It does not mean that this strategy is wrong or bad or anything. What it means is it’s getting an extra level of scrutiny. There’s complexity to it. And like anything out there in the world that becomes an industry, there are some people that are doing it really well, and there are some people that are doing it not so well. They’re cutting corners and not following the rules so to speak. So when something’s made a listed transaction, it means that there’s going to be this extra level of scrutiny and there’s going to be a bunch of extra paperwork for people to file.

When these became a listed transaction, some people did not follow their own procedures. It was literally done in the dark of night. And subsequently the two people that were responsible for passing it – one I think, was dismissed altogether and one was put in into a different department – allowed it to stand.

So, we’ve got extra scrutiny, that’s fine. We know how our projects are put together and we have extra paperwork to do that. That’s always fun. But every year since then, the powers-that-be have tried to pass legislation that would either severely limit the usefulness of these programs or get rid of them altogether. This is the fifth year in a row that the folks in Washington have tried to do that, and every year it has been shot down. But you get the headlines, you get all this flash about it, and it’s concerning for people. It’s confusing. But once again, the draconian language, in fact, all language has been removed.

What I’ve heard from Robert Ramsey is they are working on a new Bill. No guess as to when it might be ready. That new Bill would not have the retroactive language in it. It would not have the 2.5-to-1 limitation that’s part of the listed transaction. And the other thing is it’s likely to have a look back period.

It’s a double-edged sword, right? On the one hand, the IRS hates them. On the other hand, Congress loves them because they do these projects themselves. So go figure. But one of the things, one of the limitations, is a 2.5-to-1 ratio. At 2.5-to-1, the projects do nothing to save taxpayers money. They don’t incentivize. And by the way, as Tom will tell you in more detail, the tax code is used to incentivize certain behavior.

So here we have a plan. I think the current president calls it the 30-30 plan, which is to preserve or conserve 30% of the land in the country by 2030. These projects are by far the most effective way of doing that through incentivizing taxpayers to do something and get a benefit for doing it. Compare this with the other method, which is typically a land trust will be formed. A group will target a piece of land that they want to conserve, and they’ll spend two, three, four years raising enough money to purchase the land and put it in the trust. And that’s great. They do that and then they start the process again. They target another piece of land. They spend another three, four, five years raising the money. So it’s a slow process. It’s drawn out. While it does preserve land, if you look at this as a competition, it just can’t hold a candle to these other programs that we do. And for them to do anything to thwart those programs, it would just shoot them in the foot in terms of their own goals.

Last point on this, the look back period, the holding period. One thing that they frown upon, or they’re concerned about, is that a client of ours could make an investment in the fourth quarter of the year and get the benefit immediately. That is distasteful for some people. So they’re looking instead at putting in place a two or more, likely a three-year, holding period. Now here’s the funny, practical effect of that. Instead of being able to get the deduction immediately, you have to wait three years. But once you’ve waited three years and if you continue to participate in one of these programs every year, once you’re in cycle, you still get the benefit every single year. So once again, we’ve got discussions about a guideline, a law, whatever it’s going to be, that in the end doesn’t accomplish what they want to accomplish.

Zamerski: Speaking of statutory language, Tom, why don’t you tell us a little bit about what you’ve been doing with P4C on the forecast calls.

Gibson: As Drew mentioned, all of the language regarding conservation easements is out of the Build Back Better Act at this point. But there are two pieces of legislation. We have seen similar proposals every year since 2017, and the piece that’s now in the House and the Senate is basically to adopt the IRS’s 2.5-to-1 ratio. If you’ve been on a forecast call with me, a planning meeting, anything along these lines, we’ve been pulling up this link and giving you the opportunity to let your congressman and your two Senators know what you think about this particular provision.

As Drew mentioned, it’s been in the code since 1976. Millions and millions and millions of acres of land have gone into conservation because of this. And the only job that most representatives and Senators are really interested in is getting re-elected. Everything else is kind of secondary to that. So when they actually hear from constituents on issues, it helps. It really does help. This is a pretty simple way to let your representatives and Senators know what you think about this issue. We strongly encourage you to click on this link and let them know what you think about this issue.

Zamerski: Tom, can you go over some of the key components of the proposed legislation that have changed since our last webinar which ones haven’t? I know there are a lot of them, and we probably could be here for the next two and a half hours going through them, but let’s hit the highlights. We can also try to weave in some of the business and strategic planning perspective surrounding them.

Gibson: Things have changed radically with this bill since our last webinar. There are a number of provisions that we talked about previously that are no longer even a part of this Bill. You might be thinking, “Well, gee, what happened?”

I’ll tell you what happened. The Virginia governor’s election is what happened. The week before the elections, Secretary Yellen and Ron Wyden, who is a Democratic Senator, they were actually talking about a tax on unrealized capital gains. You don’t hear about that anymore. You don’t hear about the list of provisions I’m about to go through. And what changed was the totally unexpected, I think, laws in Virginia, which at best is a purple state. I would have actually thought it was more a blue state based on the last few election cycles. But, because of that, a lot of things have come out of the proposal.

First, the marginal tax rates, the tax tables for individuals, will not change. All of that language is out of the bill. The corporate tax rates rates are going to remain just as they are, a flat 21% corporate tax rate.

Long term capital gains. We went from 39.6% to 25%, and now we’re back to 20% where it has been. So that kind of covers things on the rates. No changes going forward. So, does anybody else want to chime in on that?

Zamerski: Yeah, Tom, I actually had a thought, and this might just lead into what you were going to talk about. There was an article on CNBC a couple of weeks ago, and while this came out while they were going through the process in the negotiations, it said that Biden reiterated that households earning less than $400,000 a year wouldn’t pay a penny more in federal taxes. They would likely get a tax cut from the proposal via elements like the enhanced child tax credit, reduced cost on childcare and healthcare. Would you like to opine on that statement based on what you’ve been reading?

Gibson: This is going to add to the deficit. That bill is eventually going to have to be paid. With any Congressional spending initiative, there’s always a lot of smoke and mirrors thrown in to try to make it look like this Bill isn’t going to cost a penny. Well, no, it’s not going to cost a penny. It’s going to cost $1.75 trillion. But people will pay higher taxes. And right now, we have 6.2% annualized inflation.

Thomas Sole, an economist, says that because inflation is still tax and that really is what it is. And it is a regressive type of tax because it hits those on the lower end of the socioeconomic spectrum even harder than it does folks on the higher end of things. So again, the idea that this is going to be pain free and it’s not going to cost anything is just kind of ridiculous.

Brian mentioned a little bit about that article you referred to about a state tax this morning. That was fascinating. It’s the mindset that is interesting.

Shey: Let me expand on that a little bit. But before I do that, we talk about, and we use the word uncertain in the phrase, “It’s difficult to plan in uncertain times.” When I started thinking about that word today, I said to myself, “You know what? It’s not uncertain. It’s actually certain.” Now, do we have a crystal ball? No. But when you look at the landscape of the government, you look at the debt, you look at everything that’s going on, it actually is certain.

Tom and I have spent the better part of almost two years talking about repositioning qualified assets into the Roth conversion or getting it into permanent life insurance where it can grow in a tax-free shelter. And taxes, marginal rates, really can only go in one direction. When you look at the landscape again, everything’s moving in that direction.

Tom’s referring to an article that we were reading this morning, or I was reading then sent out to the rest of the team. It talked about the estate tax, and we should post it in one of our upcoming newsletters because I can’t remember the amount of zeros. The numbers were staggering to the point of the amount of trillions that the government has lost since 2017, when the Trump administration moved the unified credit to basically a husband and wife can shelter $23.5 million. Each person has an $11 point whatever million to shelter. So, the government has lost trillions just in the last couple of years due to the fact that the wealthier individuals in the country have taken advantage of the high unified credit. They’ve worked with comprehensive estate planning teams and sheltered wealth or gifted wealth and repossession or transferred wealth to another generation. And it’s not that we haven’t been talking about it because we have. It’s that the article was staggering with the amount of money that they’ve lost. And regardless, if the Biden administration moves that number, which they’ve talked about moving all the way down to $5 million per person, that’s going to happen in 2025, regardless of whether or not the Biden administration makes a change.

I don’t know if that’s too long winded, but we talk there being two ways of doing an estate plan. There’s sophisticated confusion and there’s mature simplicity. You can do all of the GRITs and the GRATs, and you can have the greatest estate planning attorney in America. There’s no perfect plan. There’s a plan, but that plan has to be reviewed every couple of years because the tax laws are going to change. And whether it be the GRITs or the GRATs or the dynasty trust or gifting or any other – don’t get me wrong on the attorneys, Drew. I’m beating up on the attorneys – but attorneys can do all the planning in the world, but Congress can change the law and change things.

This is one of the reasons we talk so heavily about using some portion, a small amount, of permanent life insurance in your overall estate plan because it’s going to transfer tax-free regardless. The last time the government messed around with life insurance was back in 1998. And if anyone can tell me the politician who, when running for election, is going to stand up and say we’re going to tax the widows and orphans of someone who has passed away and get elected, I think that’s a long wait.

Zamerski: Thanks, Brian. And Tom, I think the point you and I were talking about as well in that article was the headline talking about the dramatic decline in IRS revenue of 50% that they collect is $10 billion. They’re missing $10 billion, but let’s look at what they’re spending, right? This is the U.S. debt clock, which is always fun to watch sometimes. In the upper left-hand corner there, we’re approaching $29 trillion. So, what’s another $10 billion? By the way, we just spent another $2 trillion this morning or at least they’re trying to. It’s all about perception and what’s going on, and that’s really the tricky part.

Gibson: We had a $2.8 trillion deficit this year. And here’s the thing. It’s not a revenue problem. When the Tax Cut and Jobs Act was passed and the right struck, we had record revenue collections. It is a spending problem, not a revenue problem.

And on the estate tax issue, I love where the article says the IRS hasn’t lost anything. The IRS doesn’t produce anything. They’ve never made a dollar in their life. All they do is take money from people who have. And the estate tax is the most immoral of taxes because you tax somebody their entire lives and then you have the audacity to tax them again when they die. One of my comments is if you just understand that the Internal Revenue Code is about punishing productive people and rewarding bad decisions, then you’re not going to be too far off from what it is.

I agree with Brian. Obviously, you want to have your bases covered in terms of taking care of your family, making sure that you don’t have to go through probate, and all of that stuff. If you’re in your late 30s, early 40s, 50s, yes, there’ll probably be some things that we’ll recommend that you do a little bit later in life, but you can run yourself crazy trying to adjust to every change that happens with a state tax law.

Shey: I want to make two comments. One, I want everyone to write down that Tom said that he agreed with Brian, because that’s monumental. And then two, the name of that article is, The Ultra-Rich Skip Estate Tax and Spark a 50% Collapse in IRS Revenue. It was basically said that the IRS went from a $20 billion collection of 5,500 families, down to about a $5 billion collection of 1,700 families. So basically, almost 70% of the ultra-wealth families in the country sidestepped the estate tax over last four years, really due to what the Trump administration did.

Zamerski: Thanks, Brian. Tom, did you have a couple more you want to go into?

Gibson: I did – a couple of things that did not make it into the final version of the Bill. A lot of you listening to this call are in what is call a specified trade or business. So, when we’re working on your tax planning every year, one of the goals that I have is to get you as much of the qualified business income deduction, the QBI deduction, as we can. Some of you are going to get the QBI deduction regardless. Owners of construction companies, owners of manufacturing companies, things like that. There was a move to cap the amount of QBI that you could actually take from non-specified trades and businesses. That’s out of the Bill at this point.

Brian alluded to this next one, the dropping back of the unified credit to $5 million per person. That’s going to happen in 2025 regardless, unless they change the law, but the immediate change is out of the Bill at this point. Those are some things that didn’t make it into the final Bill.

But there are some things that got thrown back into the Bill. And here’s the good news and bad news. One of the provisions is raising the cap on the deductibility of state and local taxes from the current $10,000 level up to $80,000. I can hear my clients in New York and California applauding because now you’re going to get to go back to deducting those crazy high state tax bills that you have. Well, I wouldn’t get too excited if I were you.

I have been looking at tax returns from a tax planning standpoint for about 10 years. Getting that deduction, I can tell you exactly what it’s going to do. It’s going to throw you back into paying alternative minimum tax (AMT). The reason that a lot of you have not been paying AMT for the last few years is because of that $10,000 cap. When you’re able to go back to deducting, that’s a preference out of AMT, and you’re going to get stuck with it. So they gave you something that probably isn’t really going to amount to anything. And secondly, the people who benefit the most from that deduction, for all the populist rhetoric about this and making the rich pay their fair share, guess who the primary beneficiaries of raising that to $80,000 will be? It will be people, first of all, who live in states where they could potentially pay that much tax. I mean, Florida, Texas, Tennessee, Alaska, it’s not going to do anybody in any of those states any good because they don’t have state income tax. And it will be people who are wealthy enough to have an $80,000 state tax bill.

The other provision that is back in the bill is an expansion of the net investment income tax. The good news is the top bracket is still going to be 37%. The bad news is if you are an S-Corporation owner in a business that you actively participate in, up to this point, the income from your S-Corporation, your partnership, your sole proprietorship, was not subject to net investment tax. A lot of folks refer to that as the Obamacare Tax. That’s when it came into the code. It’s a 3.8% tax. Up until this point, it’s been on things like interest and dividends, capital gains, if you own a rental property that you’re passive in, just basically passive income. Now they’re expanding it.

The good news is your top bracket didn’t go to 39.6%, potentially it went to 40.8% if you’re a business owner. A lot of the advice that we’ve been giving in anticipation of a 39.6% rate next year still holds true if the Bill passes the Senate. And it just passed the House literally a couple of hours ago. So now it’s going to go to the Senate. If it passes the Senate in its current form – which, again, I don’t think is terribly likely – holding off on cost segregation until next year, buying that piece of equipment next year as opposed to this year, all of that still makes sense because it’s not only going to reduce your income tax, but also reduce the amount of net investment income tax that you pay on top of that.

Shey: The other area that that we were really happy to see that was taken out was all of the language talking about the Roth conversions. They went so far left to possibly thinking about eliminating 401(K) Roth accounts. And now they’ve stripped all of that back out. One of the strategies that we’ve talked a lot about is utilizing a SEP IRA or something like that to put a lot of money away into a qualified account and then immediately convert it over to the Roth and get it into a sheltered environment where you can invest it, grow it, compound it over 10, 20, 30 years and never pay any taxes in the future. And not only did they take it out, but they moved the goalposts again, imagine that, from people have to do this before 2024 to now they have until 2028 to continue to do the Roth conversions.

I share this today because one of the first things that I look at when we onboard a new relationship, if you will, is immediately look at what amount of assets they have in traditional IRAs, simple IRAs, SEP IRAs or a traditional 401(K) plan because we’re going to immediately start having the conversation of repositioning some of those assets over a four- or five-year period. We’re never going to tell somebody, “Let’s convert a million dollars out of an IRA and pay the taxes that year.” But I say all of that to say, if you’re one of those people out there who is still sitting on the fence wondering whether or not you should convert, it’s not a matter of whether or not you should. It’s a matter of how much you should convert over the next three, four or five, six years while that window is open. And when you look at the numbers that Tom bakes up in the cake, in most of our working relationships, we’re getting you down into an effective tax rate of 20%, 21%, maybe 23%, 24%. So, you have to ask yourself, when are you ever going to be in a 20% or low 20% effective tax rate to move assets from one pocket to the other? Again, I highly encourage you to have that conversation.

Zamerski: Conventional wisdom, right, Brian?

Shey: Conventional wisdom is wrong.

Miles: I can piggyback on what Brian was saying about the Roth IRAs and whatnot. I think it’s a good time to chat a little bit about our family office services and our approach. The family office term can mean different things to different people. The purpose of ours specifically is to help our clients build and preserve lasting wealth, multi-generational wealth. It came out of the recognition that we’ve said for years to our clients, “It’s not how much you make, it’s how much you keep.” We help them keep more.

There’s no doubt that we’ve saved people an enormous amount of money, frankly. The problem is when you don’t take the next step. Our family office is designed to close the gap with what you save. It’s nice to be able to say, “I saved $50,000, I saved $100,000 a year. I saved $200,000, whatever it is, client by client.” But unless you’re doing something productive with it, it just gets absorbed into lifestyle.

The family office services are our answer to that, giving people something worthwhile to do with that savings. I don’t want to say investments because I’m not here to talk about investments, but the atypical strategies that will allow you to take the savings. Here’s a comparison. When you talk to a typical financial advisor or insurance person after the preliminary “get to know you” kind of conversation, invariably one of the next things is going to be, “Okay, I need you to send me a check for some amount to make that investment, to purchase that policy, to do whatever.”

As a function of working with our family office, your investments, these strategies, are going to be funded by the tax savings. That’s a really unique position to be in, and it’s no mistake. It wasn’t by accident that we got there because we’re businesspeople and we look at things from a business perspective. If you’re saving $100,000 a year, get with the family office and find out what to do with some of it. Have a little fun. Enjoy yourself. But put it toward lasting wealth. And again, get with your relationship manager. Set up that appointment. They’ll get you with Brian. They’ll get you with other experts on the team to guide you. Take advantage of the services and expertise we provide.

Zamerski: Definitely. I just want to throw in a couple of things back on the Roth IRAs because I think it’s such an important area. So many people are under the misperception that they can’t do it because of their income, which is different than contributing versus a conversion. The conversions right now in the current form of the law will actually be in place until 2031. The other provisions that were talked about come to an end at the end of 2028.

One of the really big ones, which I find fascinating, is the mega IRA accumulation. If your IRAs and your 401(K) plans, etc. exceed $10 million, there’s going to be a required minimum distribution. If they exceed $20 million, it’s going to be a different type of calculation. But where this came from really came out of Peter Thiel, one of the founders of PayPal, who was able to put company stock in the Roth IRA in the amount of about $2,000.

Since that time to today, it has grown to over $5 billion. So he’s got a massive IRA account. And this goes back to the comments about the mentality, right? How fair is that? All the guy did was follow the rules. He did exactly what he was told, yet it’s being portrayed as if he found some magical loophole and now, he’s not paying his fair share for doing exactly what he was told to do. Having to pull that money out would amount to almost the entire account relative to how much is in there. And since it went in at such a small, small amount, under $2,000, that’s all earnings which are taxable. When you pull the earnings out, your contributions come out first, then the earnings come out. So, he’s looking at a $5 billion tax hit on that. It’s really interesting. In the proposal, they were kind enough to say that he wouldn’t have to pay the 10% early withdrawal penalty.

I’d like you guys to weigh in a little bit on that, but on the other hand, even with those provisions in there, I’m thinking I still would like to have $20 million or $10 set aside in that tax-free environment, even if some portion of it becomes taxable thereafter. You’ve got to get there first.

Shey: Exactly. I think the one rule of thumb and advice that we give to our clients is, don’t make $5 billion in your Roth IRA. $4.8 billion, $4.9 billion, keep it under the limit and you’ll be okay. But seriously, let’s just talk about the Roths. So, a different way of looking at things. We talked about the inflation rate being six point something. Tom, what’s it at now?

Gibson: 6.2% annualized.

Shey: And a lot of folks have money in savings accounts that are paying, I don’t know, about 0.25%. When you do the math on that, every day that goes by you backslide, you’re losing money. You don’t feel it, you don’t see it, but that’s very real. That’s a very real outcome when you’re in that kind of environment. If you were doing investments that bring in less than that six point something percent, you’re still losing ground. In a normal environment, 6%, 8%, 10% is a really good return, but there are investments out there that you can learn to do yourself. I’m not talking about something that you need a financial adviser for. Investments you can learn to do yourself, whether it be in real estate or other kinds of trading. Takes education, but they can give you returns of 25%, 50%, 75%, 100%. That sounds crazy, but I’ve seen it. We do it and you can learn to do it.

When you do that inside of a Roth, now you’re talking. It’s one thing to have an investment in a Roth that’s going to pay you 10% or 15% if you can find it. But just picking up on Ted’s story about Peter Thiel, look at the ROI on that. It’s almost infinite. And it’s a whole heck of a lot of money. But the secret there is he invested in a business. He’s making investments outside the normal menu of things that are available from a typical financial advisor using conventional wisdom.

I encourage you to expand your horizons in terms of getting education about the kinds of investments that are available today, It takes a lot of time. It takes a lot of work. It takes a lot of study. But anybody who is at the level of our clients can learn that stuff and take advantage of the family office services to help you build and preserve that wealth.

Shey: Ted, if you don’t mind, I know we’re on the one-yard line and have to finish this up, but I wanted to make one comment and then give a reference. The comment is this. Ted threw up the national debt a little bit ago, and let’s just call it $30 trillion. Well, depending on whose numbers you believe, there’s around $35 trillion wrapped up in qualified retirement accounts in this country. And my opinion is, I believe the government of the United States looks at the 401(K)s and the IRAs and all of that money that has never been taxed as collateral against the national debt, which is why they don’t really talk about it.

Secondary to that, from a reference standpoint, there’s a book that was written back in 2014 by the name of The Power of Zero. I did not write it. It was written by a gentleman by the name of David McKnight. And if any particular person has a conversation with me, that’s the starting point. You can pick the book up for about $12 on Amazon, and it’s about 160 pages. It’s an easy read for laymen people. I recommend that you read it, and then reach out to your relationship manager and let’s start having a conversation about offsetting something out there called provisional income, which, if I asked 100 people if they know what that is, I get 100 answers of, “No, I’ve never heard of it.” And there’s a good portion of the people that I ask that are financial advisers that have never heard of what is called provisional income. It’s in the book. I recommend that you pick it up and let’s have a conversation.

Zamerski: And Brian, I want to ask you a follow up too because I like the analogy you used. Can you talk about the part about starting a partnership and having a partnership relative to IRAs?

Shey: It’s interesting. We all have children. I have three boys – 18, 15, 10 – and, I’m not afraid to say it, I’m a Gator, came out of the University of Florida. I remember the corporate America thought of, “Get a degree, get out, get a good job and then go max out your 401(K) plan.” Well, here’s the analogy. If I said, “Look, I’d like to become partners with you. We will both put a little bit of money into the account and we’re going to grow the business over 10, 20, 30 years. And after 30 years, when we will have grown a business to whatever it’s worth, millions and millions and millions.” It’s not hard to grow a couple of million dollars in a business. It’s also not hard to grow a couple of million dollars in a 401(K) plan. So here’s the analogy. We’ve been partners for 30 years. We’ve grown a business, and now we’re ready to liquidate it. That’s when I’m going to tell you what percentage of ownership I actually own in the business. Now ask yourself, would you ever get in business with someone that gave you that offer?

If you’ve chosen to participate in a 401(K) plan, you made that decision. You chose to get in a partnership with the government of the United States. And when you start distributing that money back to yourself normally in retirement, that’s when the government is going to let you know what the tax rate is that you have to pay on the money. It’s a pretty easy analogy, and no one would ever take the business opportunity.

Zamerski: I think that’s a great example.

I do have a couple of questions I want to throw out quickly. One of them was, and Drew, this was probably for you. “Are you aware of any lawsuits that have been filed against the IRS for their actions, specifically around the conservation easements?

Miles: I’m certain of one that’s been filed, and I’ll tell you about one that has either been filed or is about to be. We talked about listed transactions before. By the way, there are many, many, many listed transactions, and the list keeps growing. Another listed transaction is something called captive insurance, and it’s basically a privately owned insurance company. That became a listed transaction some time ago and, mostly because of the way they’ve been treated for the last five years, a lawsuit was filed about a year ago, I think, alleging that the IRS has not followed its own due process rules in auditing them. They’ve targeted them, they’ve gone after them hard, and they’re doing things that are just improper and inappropriate. So that lawsuit has been filed and it’s going to take years to go through the process. That’s going on right now.

There’s another very similar lawsuit specific to conservation easements, because as I mentioned before, the IRS didn’t follow their own guidelines, their own due process rules in making conservation easements a listed transaction. Nor are they following their own rules in many of the audits that they’re conducting. That lawsuit has either been filed or will be to challenge that and force them to follow their own rules. And again, it’s going to take years. It’s not something you sit around waiting for updates on, but it will happen.

I will tell you that there are a lot of people doing a lot of good work to ensure the integrity of these programs and that they’re done right. The group that we have is the best in the country to make sure that they’re done right, they’re done safely, and that any scrutiny they get will be handled properly and appropriately. It’s a shame that we have to go through all these gyrations, but it is what it is.

Zamerski: Thanks.

And Tom, one for you since you filled us with so much great news today talking about the Build Back Better proposal. What about the Infrastructure Bill that was recently passed? Anything we need to be concerned about there?

Shey: There were a couple of tax provisions in that Bill, but not really anything that particularly impacted our clients. My bigger concern is if this current Bill actually makes it through the Senate. Bad ideas don’t ever really go away. They just come back later. And we may have dodged a bullet on personal tax rates at this point.

We have congressional elections next fall. I think that there’s a high likelihood that Republicans will retake one, if not both, Houses of Congress. But unless they do that with a veto proof majority…. The thing that I’m concerned about is in that lame duck session after the congressional midterms, the Democrats will cram through everything that was in this Bill because they theoretically could do that unless Manchin and Sinema stand in the way like they did this time. But without a veto proof majority, we’ll still have a Democratic president. Republicans are great at doing this, “Oh, we’re going to pass these Bills. We’ve got control of Congress.” They know they can’t override a presidential veto, but they’ll pass them anyway to satisfy the base. When the Republicans had Congress for two years and could have passed anything they wanted to, they did absolutely nothing except pass a tax bill. That’s the difference between Republicans and Democrats. When Democrats get control of things, it is put the pedal to the metal and try to cram as much in as we can. That’s my bigger concern. If you didn’t have enough to worry about, now you can worry about what’s going to happen after the midterms. You’re welcome.

Zamerski: Does anyone else want to offer any closing comments? And I think you I’ll mute you, Tom. 😊

Shey: Ted, I’ll throw one comment out there. We talked a lot about repositioning assets. Drew had a really good point that I think our clients often overlook. We do all of this great tax strategy planning, and we save all kinds of money, and then I’m not so sure our clients do a great job of recapturing it. They do a really good job of probably spending a lot of it. And there’s nothing wrong with some of it. Now, I want to make one comment regarding repositioning qualified money into a tax-free growth shelter. Don’t wait. Don’t procrastinate. I always talk about perfectly healthy, psychologically well-adjusted human beings are in denial of different things. Don’t wait to start repositioning assets. Right now you have a window of opportunity. I haven’t seen it not make sense one time. It always makes sense. It just depends on letting Tom run the numbers and finding the sweet spot that works for you and your family.

Zamerski: Drew?

Miles: Just do the best you can with our help to navigate the certain uncertainty that this environment brings. We’re here to help. We’re here to support you. And it’s not just the subject matter experts who are great. We’ve got a lot of high business IQ in this building. Take advantage of that as well.

Zamerski: Very good. That’s going to wrap us up for today. Happy Thanksgiving to everyone and to your families. Be safe. Enjoy the holiday together.

If you have any additional questions or if you would like to keep the discussion going, reach out to us at (772) 257-7888.

Again, happy Thanksgiving, everyone, and we’ll talk soon.