Jason Hartman starts the show with in-house economist Thomas as they talk about the impact of state and local municiplities increasing minimum wages. Later on the show Jason brings on Tom Wheelwright, 2019 Meet the Masters speaker and Rich Dad Advisor. They discuss how to legally avoid taxes with the help of a real estate professional. Then they get in a discussion about Opportunity Zones weighing the pros and cons.
Jason Hartman 0:00
To get some other people who might be on the fence out there, it took me a while to, to buy into the concept of buying out of state. And that’s really one of the things that I really attribute to you guys, you know, you all the podcast and then just kind of working through that and how the numbers worked and the comfort level of it. But you know, one of the things that I think the best for me is after talking extensively with him, I think he might have paired me up with, you know, like almost like a match. com like he paired me up with the perfect local market specialist to fit my personality and my my investment philosophy. And so I kind of attributed to him, but I’m very, very happy with the way the transactions go and the way the interactions kind of all fluidly occur with you know, with me and a local market specialist and just, you know, it really has been a pretty seamless process.
Welcome to the creating wealth show with Jason Hartman, you’re about to learn a new slant. on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:44
Welcome to Episode 1134. This is your host, Jason Hartman. Thank you for joining me today. And we’ve got our in house economist Thomas back on the show. We talked about population on Monday, and it is now Wednesday and you heard Danny Amen on the last two episodes, so I hope you enjoyed that I had a few, while actually several requests to have him back on the show. We talked with Thomas about the book of the new book empty planet and the population scenario what it means for everything really and definitely economics. And today I want to talk a little bit about minimum wage. I love the title of one of Peter shifts articles even though I definitely have my differences with Peter Schiff. But, you know, it’s like what they say about Peter Schiff, he’s right once every 15 years. So there you go. But Peter Schiff had a great article years ago, he called it minimum wage, maximum stupidity. So with that, maybe we’ll bring Thomas in and let’s talk about minimum wage. Thomas. How you doing?
I’m doing well. How are you?
Jason Hartman 2:50
Good stuff. Do you agree with Peter that minimum wage equals maximum stupidity? I’d say
right now is a bad time to be raising the minimum wage.
Jason Hartman 2:57
Yeah, okay. So minimum wages go up, it went up federally, right. And then in every state what’s going on to tell us the story of minimum wage? I haven’t followed it too much lately.
And yeah, so the minimum wage is set to rise in 22 states or jurisdictions across the US and 2019. It’s going to $11 and 10 cents in New York, 12 bucks in California, to unboxing, Massachusetts and 12 bucks in Washington.
Jason Hartman 3:23
Okay, so in California, it’s a $1 increase. In New York, it’s 70 cents, Washington, that’s 50 cents. It’s up in all these places. But you know, people might be thinking Donna’s, it’s going up in the highest in the highest increase place. It’s going above buck and the Socialist Republic of California. Is that really that big a deal? Like, how much does that matter? You know, this is an extra dollar an hour for a whole bunch of people. They’re spending that into the economy. How much effect does that really have?
Yeah, I think right now the three main effects are the first is it puts way too compression on the individuals that are making currently more than the minimum wage. So if someone that’s making less than me gets a raise, then obviously I’m going to ask for a raise as well. So wage compression. The second issue that I think is most important right now is the inflation pressure. So the Fed is concerned about inflation. And right now, I don’t think we’re quite at full employment. But you know, we’re getting there close. And there should already be wage pressure in the system without the minimum wage increases. And I think that just makes the situation and compounds the situation just makes it worse. Yeah.
Jason Hartman 4:39
And you know what’s interesting, though, I read off a bunch of the state minimum wage increases. It’s more pronounced when you look at the counties and municipalities. Let me give you a couple examples there. New York City, not state city, increased it by $2. Okay. Nassau County, New York. Dollar Suffolk County $1 Westchester County $1. And then you look at Redwood City, California $2 and 50 cent increase. Wow, that’s pretty significant. Richmond, California $2. Santa Clara $2. Yeah. Wow. And you know what’s amazing to me. I mean, I don’t know how some people mostly on the left, they just don’t get it at all. When I have gone to Seattle, we hosted a venture Alliance retreat there. And I took pictures of this and posted them on my Facebook page, you would get the check from the restaurant, and it would have a surcharge, not the tip, just a surcharge, and it would say due to minimum wage increase, I mean, when you gotta pay people a minimum, this is not just a minimum of $15 an hour, who is crazy enough to think that that doesn’t pass through to the consumer. It passes right through, like the same day, you know, because the They just raised all their prices and so ultimately this What’s this chilling effect into the economy causes inflation But hey, we love inflation as real estate investors right? I’m curious what your responses to that one I don’t know I love in the home run you kidding? I mean philosophically I hate it but as an investor just selfishly I love it because yeah, you know, inflation induced debt destruction you pay your debt back and cheaper dollars. It’s the best deal ever. It’s the hidden wealth creator. And so it’s great. Oh, and by the way, I should mention for our upcoming meet the Masters event, we probably should have done this a while ago, okay, so I’m going to whack myself upside the head for not doing it sooner. But we are going to update our inflation induced debt destruction example. Okay. And I think you’re going to be pretty amazed. We’re going to add a whole new column to that a new dimension to that chart, and I think you’ll be quite fascinated by that. So look for that at at meet the Masters coming up will present it there. I think you’ll like it a lot. But yeah, you know, it’s not good overall, but it is really good for real estate investors.
Yeah, certainly not only for the inflation induced debt destruction factor, but also, you know, it makes real estate, the profitability looks even better compared to say stocks or other asset classes. Oh, yeah, real estate does a lot better with it already does better. Yeah, you know, make the situation even stronger.
Jason Hartman 7:26
Right. I couldn’t agree more. Couldn’t agree more. Anything else you want us to know about the minimum wage? And do you want to tie that in at all with retail sales? Because some new data is just out on retail sales?
What do you say the first month of 2019 hasn’t been pretty so far. You know, retail sales did pretty well at the end of 2018. But so far, indications for the first quarter of 2019 are not not real good.
Jason Hartman 7:55
So what do you attribute that to? Is it a sign that the economy is Slowing, or is it just a sign that people sort of don’t need anything? Because they have all their stuff already? Or they just bought it all during the holidays? I mean, it’s too small of a sampling size. Right. I mean, you know, it’s only a month.
Yeah, I think part of it is comparing 2018 was really good. So, although it’s slowing compared to 2018, its consumers are still in a good shape. You know, in 2018, we had Trump tax cuts that boosted business spending and end consumer spending, you know, most tax filers, a tax can have around 20%. And that certainly showed up.
Jason Hartman 8:43
Well, let me tell you something, those of you who are skeptical about trickle down economics, I’m practicing it. And you know, I just decided last year, since I’ll be saving so much money on the new tax plan, of course, this year is our first filing. The new plan, I just decided to loosen the purse strings and I spent a lot more money in my business last year. I mean a lot more, because I could I mean, I kind of had to for some things I thought, but also, you know, I didn’t feel quite as bad about doing it because of the government was helping me out. Right. And so I enriched a lot more people it trickles right through, you know, I hired more people spread more money around. And hey, you know, Arthur Laffer and the Laffer Curve I I met Arthur Laffer in 1989. Actually, you know, he was, of course, in the reagan White House, and he’s the creator of the Laffer curve. And you know, Thomas, I’ve never talked to you about the Laffer curve. What do you think of that whole supply side? You know, I assume you’re you’re in agreement with it, but I don’t know I never asked you.
I think most economists generally call it Voodoo economics, but I think part of that is because a good chunk of country has worked for the federal state or local governments and they don’t like the idea of lowering tax rates to boost overall economic growth. That doesn’t sound too great. But overall, I think the empirical case is pretty straightforward. You know, it does boost growth. Obviously, business owners care about it. And soda consumers,
Jason Hartman 10:21
right. Yeah, absolutely. Absolutely good stuff. All right. Well, hey, Thomas, let’s get to part two of our show. Thank you so much for joining us today, and we’ll talk to you soon. Join us March 23, and 24th for the 2019 meet the masters of income property. Let’s break this down and look at some of the strengths of income property as an asset class. Now, I found that this event is really helpful because I’m totally a newbie to real estate investment. And
so I picked up so much information. One of the great things about it
Jason Hartman 10:53
is it’s so fragmented, right? embrace the fragmentation. actually been learning a lot about the tax benefits to real estate and a lot of I’ve been investing actually well over 10 years now. And I learned a lot of new things today. The other advantage of this weekend is networking.
Meeting new property managers meeting new area specialists and seeing the product they have to offer that changes here by you. Register now with Jason
Jason Hartman 11:23
hartman.com slash masters. It’s my pleasure to welcome a returning guests back to the show and that is none other than Tom wheelwright. He will be speaking at our upcoming meet the masters of income property event, and we’re looking forward to having him. He spoke a couple years ago, one of our venture lions mastermind events to a small group just really enjoyed his talk. He of course, is the author of tax free wealth is part of the rich dad advisor series with Robert Kiyosaki. It’s good to have him back. Tom, welcome. How are you
Tom Wheelwright 11:52
doing? Great, Jason. Always good to be with you.
Jason Hartman 11:54
Yep. Good to have you. And I saw you in Dallas. We shared the stage actually a few weeks ago and Ryan Moran’s event, he’s a good friend of mine, and that’s capitalism calm, and got to talking. And you know, I really enjoyed your talk, as I always do. Let’s talk about a few things today. You know, bonus depreciation, maybe touch on opportunity zones just a little bit pass through deductions and what to do. I think this is going to be a hot one, by the way, what to do if you can’t, if you can’t become a real estate professional? We’ve done a lot of shows on how to become a real estate professional. But what if you just can’t qualify? All right. How’s that sound?
Tom Wheelwright 12:31
Sounds great. I’m pretty passionate about that last one, because I can’t qualify like that. A lot of I’ve learned a lot of figuring out how to deal with that because I can’t qualify personally.
Jason Hartman 12:43
Yeah, good deal. Okay. Okay. Well, that’s a good topic. You want to start with that one, actually.
Tom Wheelwright 12:46
Yeah, sure. Let’s go for it. The interesting thing about this whole real estate professional passive loss issue is that people get hung up on passive losses. And they go Well, look, I can’t pass the losses now. not deductible unless I’m a real estate professional. And that’s just patently wrong. Okay, that is incorrect. A passive loss, all it means is that you can only deducted against passive income. All right? So you’re thinking, Okay, and rental real estate, unless you’re a real estate professional creates passive losses and you’re if you’re going to leverage, especially with bonus depreciation, you’re going to end up with a loss. And it’s going to be a passive loss if you can’t be a real estate professional if you can’t meet those rules. So then the question is, okay, so how do I take advantage of that loss currently, Now, obviously, eventually, you’re going to get that loss because once you sell the property in a taxable transaction, you get to use all those losses. So it’s not like you’re losing that benefit. The question is, so here’s the question. We’ll talk about this more and meet the masters. The question is, okay, so if I can’t turn the passive loss into a ordinary loss by being a real estate Professional. The question is, how can I turn some of my income into passive income? Right? People mass and that’s what we’ll talk about that we don’t have time today, but we’ll talk about that at meet the Masters is how do I turn my other income into passive incomes all I have to do? I don’t have to be a real estate professional, I just have to
Jason Hartman 14:24
get my other income to be passive income. If I can do that, then I can still use the loss. Right, right. Okay. So the loss the tax loss, I should say and, and, you know, I just want to preface this whole discussion with, of course, income property is the most tax favored asset class in America. We just love it. Real estate professional has always been kind of considered the holy grail of income property tax benefits. So that’s why we’re talking about it. We’ve done many podcasts on that topic over the years. And it’s interesting that you yourself cannot qualify as a real estate professional, and that all kind of depends on you know, how much time you spend Where your income comes from and so forth so what you’re saying Tom and this is just a beautiful philosophy on it is look, maybe you really can’t qualify okay you can’t become a real estate professional unless you’re retired right or something like that or or you got a non working spouse you know only right you needs to and that’s that’s a cool deal. But if you can shift some of your income from the active income column or the active income bucket to the passive income column, then you can offset these passive depreciation losses and depreciation is the best tax benefit of all because it’s a non cash right off it’s like a phantom right off. So we love it is real estate investors. Give us a little hint about that. I know it’s complicated and you know it’s going to be great when you’re on stage and you have a whiteboard and you know, PowerPoint slides and all the all the tools to demonstrate but
Tom Wheelwright 15:50
give us a little hint. Most people who invest in real estate they’re not w two employees. So first of all, husband or wife w two full time And you have nothing else going on other than real estate, you’re gonna have a tough time creating passive income because w two wages can never be passive. So that’s a challenge, okay? It’s not impossible. Okay. There actually are some things you could do, but it’s really challenging. But most people that I find and our clients are literally, I mean, I did my weekly webinar the other night, and did a little survey 95% of the people on the call. And we had a lot of people on the call were real estate investors. So we deal with a lot of real estate investors, that is our specialty. So the thing is, though, is that most of these people also own a business, okay? And it’s when you want a business that you have to think, okay, now, I’m always going to be active in that business, but who do I have around me that might not be active in that business? For example, do I have Children, do I have parents? Do I have other people that maybe could have an ownership interest in the business in some way that I still control? and yet they’re never going to be involved in the business. I mean, I’ll give you a really good example. Let’s say that you’ve got an elderly parent that you’re, you’re supporting. Why not have them on some of your business and some of your real estate? Yeah, right. Right. And now they’re passive. So their ownership is passive. So sometimes it’s just who owns the business. I mean, one of the things that we forget is that we’ve got all these one of the big assets I think one of the most under utilized assets that people have is other people’s tax brackets.
Jason Hartman 17:42
That’s good. Okay. Other BOPTO other people’s tax
Tom Wheelwright 17:47
to be there. You got other people’s tax bracket. I mean, like your children have tax brackets, your parents have tax brackets. You might have another family member or somebody else that you’re supporting. They have tax brackets and You know, why not take advantage of the people that you’re going to be? You want around you anyway. And if you don’t mind, be if you don’t mind them having some involvement in your finances, right that you can control by the way, mine show you how you can control it, right. So you can still control it completely. In fact, you can make sure they never get any money. If you want to do it that way. It’s really just an ownership function. So it’s, it takes some planning, don’t get me wrong, it takes some planning, you know, there’s some eyes to dot and some T’s to cross some, not everybody will want to do this. But I’ll tell you, this is how I do it. So this is what I do. My my kids are big real estate owners because of this
Jason Hartman 18:39
good stuff. Well, I can’t wait to see you kind of demonstrate that on stage at our event. So touch on opportunities zones a little bit I’ve sort of said I think are kind of overrated and overhyped, a little bit especially the funds because a fund is the same, you know, commandment number three problem thou shalt maintain control and you’re you’re relinquishing control, but you can do it directly. You know, there are some perks and clarifications, definitely it’s not completely without benefit, of course. I mean, hey, it’s called an opportunity zone. Do you want to touch on that for a moment?
Tom Wheelwright 19:09
Yeah, just a couple of things. You know, first of all, the two big benefits are, if you invest in an opportunity zone directly, and you hold that investment for over 10 years, then you could end up with no tax when you sell it. And that’s actually a bigger deal than people think. Because you go, Well, I could always do a 1031. Yes, but when you do a 1031, you don’t get new depreciation. So let’s say I bought a million dollar property and it rose in value to $3 million. Okay, yes, I could then roll that into a $3 million, or even probably more at that point, because you got equity, you can get more debt, but I could roll that into a new property, but that $2 million of gain, I’m not going to get depreciation on that. Okay, when I roll that into the new property in an opportunity zone, you’d be able sell the property for three and $3 million, take the whole $3 million. And you’ve got whole new depreciation on that $2 million of gain. So there is actually some tax benefit beyond a 1031 exchange, even if you’re staying in real estate. The other big one, I think that people don’t really think about a lot is that you can roll over any capital game into an opportunity zone. So that means that you could have had a big stock sell your house may be beyond the $500,000 $250,000 exclusion limit, you could have capital gain from your house, you could have capital gain from your business. You can even have capital gains from real estate that maybe you don’t want to roll over all of the proceeds into a new property but you only want to roll over the game. In an opportunity zone you only have to roll over the game. So if you sell stock $4 million and you have $300,000 of game, you can roll over 300,000 yards a game now you can’t roll over stop game any other way. So you can’t roll over a business game. So this is a way to roll over game and it is a roll over you will be taxed on it eventually. It’s just a deferral, right. But you could roll over capital gain from things other than real estate, which I think is really where a lot of people been investing in the stock market. And they’re thinking, well, the stock market’s not going to stay up here forever and ever, and they’re taking their gains, then, okay, maybe an opportunity don’t make sense. The other thing you and I were talking about is that there actually are some nice places to invest. Yeah,
Jason Hartman 21:31
yeah, they’re not they’re not all these blighted areas. There’s a lot of bad ones, but but they’re not all bad.
Tom Wheelwright 21:36
There are a lot of bad ones, but they’re, you know, I mean, it’s like Amazon, their new place in Long Island is at least partially in an opportunity zone. Now, the
Jason Hartman 21:43
real question is, are they going to actually end up there because epic war going on?
Tom Wheelwright 21:49
That is a question the Congress, the congressional delegates from New York seem to be against having business and new jobs. So that’s a rather interesting New York and California or not not known to be business friendly by any stretch. It’s really interesting, really, really interesting. Anyway, so you know, if you’re careful about where you invest Now remember, you actually have to develop the property, this isn’t like going and buy a building.
Jason Hartman 22:13
I’m so glad you said that, because you got to take a pretty active role here and increase the basis, you got to basically double it right?
Tom Wheelwright 22:21
Right, you have to double the basis not not of the entire property, just have the improvements. So the land, you know, you don’t have to double the basis the land you just have to so basis is basically what you paid for it. So basically, if you pay, I don’t know a million dollars for this property. And $500,000 is the land and $500,000 is the building, then you have to add $500,000 of improvements for the you know, double the base of the building spaces of 500,000 units to double that to me, so you either need to do a knock down, okay, and put up something new, or you need to really go into a complete rehab refurbishing, right
Jason Hartman 22:58
so it’s you got to really You’re like a pretty active investor who’s ready to be a developer?
Tom Wheelwright 23:03
Yeah, you really have to be a developer.
Jason Hartman 23:05
Right. Right. Okay. Good to know. Okay. Talk a little bit, Tom about the past through last issue, or did you really kind of cover that I need me know.
Tom Wheelwright 23:14
This is something that nobody in real estate is talking about. And there’s reasons for it that people aren’t talking about. So we all know about the corporate tax rate reduction went from 35% 21%. what some of us have heard, some people have heard Not a lot of people actually, is that business owners, they get a deduction equal to 20% of the net profit from their business. Okay, that’s called the pass through deduction. It’s actually called the qualified business income deduction. What most real estate investors don’t know is that this applies to them. Okay, this 20% deduction now you have to have net income from the property, but there are a lot of real estate investors. They’re like, six, seven years into their property. They’ve depreciated all the contents of their property. They took big depreciation in the early years. And now they actually or they’ve reduced their leverage because they’re concerned about the market or they paid down their loan. So now they actually have positive net income from their real estate. If you have positive net income from your real estate, you may qualify for 20% of that being a deduction. You know, the rules are pretty, they’re detailed, okay? And you kind of have to walk through them pretty carefully to make sure that you know, you get everything that you’re going to get and maximize that. But I think there are a lot of people that show positive net taxable income on their on their real estate, and they don’t know that there’s a potential 20% deduction out there.
Jason Hartman 24:39
Yeah. Okay. Good to know. Good to know. I’m sure you’re going to get a ton of questions about this. At meet the Masters coming up, but everybody always wants to talk about the real estate professional stuff a little more and you know, like you said, What to what to do if you can’t become a real estate professional. Anything you want to say about what if you can become one Is there anything more on that? Is there anything new on that that’s worth talking about?
Tom Wheelwright 25:03
Well, if you can be a real estate professional, first of all, documentation is going to be key for you. Because one thing I can promise is that if you claim that your real estate professional and you get audited, they will disallow it. They will disallow you will have to prove, okay, remember, this is guilty until proven innocent, you will have to prove that you are real estate professional. And the courts have been holding pretty consistently, that you need really good documentation to prove that not only do you have over seven or 50 hours and more than your other businesses, which is the general rule, but that those 750 hours are really qualified real estate time and not only invest your time so that there’s a difference between being actively involved in real estate and being a passive investor. And so you do have to protect yourself in the case of an audit because I can just guarantee you I’ve never seen Seen a taxpayer be audited, that claimed real estate professional that was not challenged on that. So I think that’s actually a big one. You know, of course, the other one is the big opportunity if you are a real estate professional now, bonus depreciation just becomes huge for you. Because I mean, I’ll give you an example. I’m just working with a client, brand new client. And very first meeting, I’m on talking to them, and turns out that I think they can qualify for real estate professional. And because they qualify for real estate professional and because of their investments during 2018. I think they’re going to eliminate a four to $500,000 tax liability. I mean, eliminate it. That’s so we’re talking about really big numbers when you add bonus depreciation, I mean, talk about an amazing tax shelter. So consider this Jason, I remember when we when I was at your group A few years ago, talked about investing through an IRA. So consider this that there people if they’re real, if they qualify as real estate professionals, especially that if they have money in an IRA, that pulling it out, and investing in real estate will produce a net tax benefit to them, even after considering the income tax and the penalty on the IRA. I mean, that’s how big bonus depreciation is it you can actually generate a net, you’re better off tax wise by pulling it out of the IRA then leaving in there. We never had that before.
Jason Hartman 27:32
Yeah, well, that’s an interesting thing that you say that because I agree with you and I’ve read this. I’ve never talked to you about it, but I’ve read it in your work. I think these qualified plans are actually a bit overrated, okay. And I know Garrett Sutton has kind of parroted your work on that too, and, you know, shared it in some of his writings and speaking, and sometimes taking an IRA penalty is even worth it just to do a regular investment. Now, I wouldn’t do that. day because the market is getting, you know, pretty frothy, you know, especially, you know, and it’s definitely softening in that, you know, high end cyclical markets. But you know, when we were just coming out of the Great Recession, and everything was so cheap, you know, we had some stories of clients who did that. It’s like, okay, I’ll pay the tax and take it. What is it’s 10% penalty and additional tax. And if I can buy relatively new houses for $35 a square foot in these great markets, heck, I don’t care. Right.
Tom Wheelwright 28:31
But with bonus depreciation, you actually end up not paying any tax or penalty, you actually end up with a tax refund by doing this. Yeah. So it’s like, what do you mean I don’t have to pay tax now. You don’t have to pay tax on that IRA withdrawal, no tax, and the net tax benefit can be more than the penalty. So you actually end up putting money in your this is so bizarre, you can actually end up putting money in your pocket by pulling the money out of your IRA and investing That money into a real estate project. Now, you know, obviously real estate professional, you’ve got to be able to use that loss in that same year, and you make sure you match up the years properly. I run the numbers 100 times, and it’s just like, Are you kidding me? That’s amazing. That’s just amazing. And, you know, the US is the only, you know, I travel a lot with Kiyosaki and the US is one of the very few countries that allow, actually, that allowed depreciation on us property at all. But now we allow bonus depreciation on used property. So it’s like, this is like, if you’re not taking advantage of this, I mean, you just miss an incredible opportunity to reduce or eliminate your taxes.
Jason Hartman 29:40
Yeah, that’s definitely true. And it’s it’s pretty darn fascinating. When you talk about the qualified plans in general, can you just share a little bit about you know what you wrote about that in your book because I think that’s pretty topical since we just mentioned it because, you know, one thing people don’t realize, look, if you don’t have a Roth and you know, I’m not a big rock Fan honestly, because I’m just too paranoid that they’ll change the law. And, you know, the government’s got so much debt, they’ll just start looking for low hanging fruit to tax. And they might just change the rules, right? So I didn’t do a Roth myself. And you know, you’re going to pay tax on that money, eventually, you know it either 59 and a half, or 70. Right, right. So it’s not like that money is tax free, it gets to accumulate tax free, yeah. But it’s not tax free. You know, you’re going to have to pay you either paid it already and did a Roth conversion, or you’re going to pay the tax later. And in the funny, kind of ridiculous assumption is that you will be poor in retirement, I want to be richer in retirement, not poor.
Tom Wheelwright 30:43
That’s the only way it works is that you’re going to be in a lower tax bracket when you retire than you are when you’re working. And the challenge with that, of course, is that when you’re working, you end up you normally have a lot of deductions, you have business deductions, you have children have a home mortgage, you have all sorts of deductions, that when you retire You know, you’re not thinking that you’re going to have a lot of those deductions. I had a client that he put heavy into qualified plans. And he became a client the year he retired. This is one of my very earliest clients. And he started screaming at me. He said, I never paid so tax so much tax since I came to you. And I said, Hold on. You’re paying all this tax, because it’s all coming out of your profit sharing plan. You have no more deductions. This has nothing to do with me, pal. We had this big argument over it, because he’s going I just can’t believe how much tax I’m paying. I’ve never paid this much tax. Well, he owned a business and real estate for years and years and years, he retires and all he does is have money coming out of qualified plan, which is ordinary income. So you’re right that you know, I think that’s a if you want to be poor. Sure. Yeah, I’ll do it. Let me tell you one other by the way. One other challenge with a Roth IRA. I said two challenges with Roth IRAs. When it comes to Investing in one is that it’s really hard to leverage. Okay? So if you’re looking at any kind of serious leverage, certainly more than 50% loan to value, it’s really hard to do that in a Roth IRA, because you cannot personally guarantee that long. So that’s a really tough one to do. The other issue is, is, let’s say that you invest in something and it goes south. Okay, so you didn’t get a deduction when you put the money into a Roth, right. But it let’s say it goes south, and now it’s worthless. Guess what? No deduction. Wow. So you didn’t get any deduction going in and now you don’t get a deduction for the worthlessness of the investment. I’ve seen people invest in hard money loans. I’ve seen people invest in other projects and they lost their investment Well, it’s bad enough to lose your investment but to lose your investment and not get a tax benefit is like salt in the wound
Jason Hartman 32:52
right here really is that’s just ridiculous. Yeah. I think these plans, you know, when they when they started in, I guess, the early 70s I believe they were basically like this old idea, and it was promoted by wall street. Look, you’ll be in a lower tax bracket when you retire. I mean, first of all, do you think the tax brackets will actually be lower when you retire? First of all, that’s the first thing because the government is starving for money. And number two, who wants to be poor when they retire? It is to be richer.
Tom Wheelwright 33:20
So no, and you know, you said something earlier in the show, Jason, that is one of my hot buttons. And that is, you know, when you talk about a qualified plan, what you want to do is just write down next to it. government controlled good words. Yeah. So, you know, you talked about I think it was your third rule, right, is you want to be in controls, right. Okay. Well, that’s the biggest issue with any kind of qualified plan because the government tells you how much money you can put in they tell you what you can do with it. They tell you how you can do with it. They can tell you, they tell you how. When you have to take it out. They tell you how much you can take out. They tell you what tax rate you’re going to pay when you take it out. There’s so much control from the government and just going, you know, my experience with most real estate investors who are really at their core entrepreneurs that want to be in control of their life and you want to do something that’s completely opposite, controlling your life. And you know, use a qualified plan. Yeah, no, exactly.
Jason Hartman 34:17
I agree. I agree. I just I just think they’re, they’re overrated. Good stuff. Tom. give out your website, you will be speaking at meet the masters. We’re looking forward to having you there. So but what’s your website?
Tom Wheelwright 34:29
I’m looking forward to a website is wealth, ability calm. Our goal is to help you increase your ability to create wealth. So I love what you’re doing, Jason because that’s really what you’re doing is, you know, this is all part of our mission. So wealth, ability, calm and you know, anything we can do to help. We’re happy to good stuff, Tom, we all right. Thanks for joining us. Thanks for having me.
Jason Hartman 34:51
Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes, be sure to check out the show’s specific website and Our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.