Your Retirement is a Business

Transcript

Mike:

Welcome to another episode of Mike on money. I’m Michael Reese certified financial planner, founder of Centennial Advisors and I guess creator, we would call it the prosperity planning system. All right. I love this topic. This you’re, you’re going to love this topic, but I don’t want to give it away. So I can’t name it yet. You’ll you’ll just stick with me. You’ll see what this is. I promise you just like me. You’re going to love this. Well, at least I hope you will. Anyway before we dive in, remember as always, if you like this video, thumbs up, click the like button, make sure you subscribe and please feel comfortable sharing this with your friends, neighbors, et cetera. Okay, here we go. Now, by the way, some of your clients, you might’ve heard this before, but Hey, if you’re not, this is kind of an interesting way to think about things. So let’s, let’s imagine that you own a business.

Mike:

It is a business. And let’s imagine that you own this. You own, how about two thirds of it? This is you two thirds of the business and you have a silent partner just for fun. Let’s pretend it’s me. Right? So here’s Mike, I am your SP silent partner, and I own one third of the business and this just for fun. Let’s say this is a, oh, I don’t know how about we’ll call this a million dollar business. So you and I own a business together. It’s worth a million dollars. You own two thirds. I own one third. I’m a silent partner. You are the managing partner, right? So you are MP managing partner. You make all the decisions like you knew everything. I am truly thus the essence silent here. I don’t, I don’t say boo, you make all the decisions. You decide, yo, Hey, here’s what we’re going to invest.

Mike:

You know, business assets in. Here’s how we’re going to grow the business. Here’s the distributions we’re going to take. Like you do it all. You figure you do everything, right. I don’t do a stupid thing. And that makes me silent. And I’m happy with that. And whenever you take, you know, distributions and roughly you get two thirds, one third is how it works. How are we doing so far? Good. All right. So here we go. This is an unusual partnership here, because the way this works is two things. Number one, let’s say you do a really good job growing the value of the business. You grow up from a million dollar business to, I don’t know how about a $3 million business. And because you grew the company, you did such a good job. And you’re the one that did all the work. Remember? Because you did such a good job growing the business.

Mike:

I, the silent partner, I’m pretty happy about that because guess what? My share is no longer one-third I’m now a 40% an owner. Now, if you do the math one third, it’s like a 33% owner. Now I’m like a 40% owner. Your ownership share went down to 60%. So, so I, as a silent partner, I love that deal. Right? You do all the work. You grow the value of the company in science. I get a bigger percentage. Cool. This, do you want to grow your business now? I mean, probably not, right. Oh, one more thing. I forgot to mention. I have an unusual ability in this partnership. See, anytime I feel like it, I can increase my percentage share just because I feel like it. And you need to understand that in this little story, imagine I’m the kind of guy that I spend money, like crazy.

Mike:

In fact, every year I spend more money than I make. Let’s imagine that’s the case. Like I go, I’m nuts. Right? I’m just spending money like crazy. I don’t even know how to balance a checkbook in this now, by the way, I really don’t do that. I’m not like I’m very financially. I mean, you would imagine I’m very financially mature, right? But we’re pretending here. Right? Pretending I’m a crazy spender. And I have the right to increase my sharing time. I want, and you can’t do anything about it. How you like your business so far. How do you like that partnership model? Yeah. That’s not very good. Is it like you grow the business? Your percentage goes down, right? Mine goes up. I’m spending my life crazy and I can my percentage and reduce years anytime I want. Yeah. I mean really, if you think about this as silly, right?

Mike:

You’d never be in that kind of environment, would you? But here’s good news. Good news is you let’s see if my green one’s working well, you can put a big old X in my name. Anytime you want. You can buy me out anytime you want. So let’s say, let’s go back using the math. Let’s go back to when it was our million dollar business. You’re saying, well, gee, I don’t like this deal. If I grow it to 3 million, you know, you’re, you’re saying to yourself, gosh, my would go down. I don’t like that. I don’t like that. This goofball partner of mine can increase his share at any point. I don’t like that. I think I want to buy them out, but the way you buy it out, you don’t have to like when it’s a million dollar business, remember what’s our ownership. One third, two thirds.

Mike:

Do you have to write a check for like 333,000? Buy me out. I mean, I guess you could, or what you could do is you could just say to me, you can say, Hey Mike, silent partner here, here’s what I’m going to do. I’m going to take this business, cut it in thirds, you take your third. I’ll take my two thirds. And we will just separate and go our separate ways and be happy. And that way you can do whatever you want with your two thirds, you can grow it all you want. And all my power goes away right now. My question is, if this were your business, how fast do you buy me out? I mean, how fast are you buying out that goofball? Mike silent partner character, right? How fast? I mean, I don’t care if you write a check, I don’t care if you split the business, how fast are you getting that guy out of your life? How fast? Well, by the way, everyone in the world, if you understand what I’m showing you here, what is everyone say? There’s only one, right? Answer. The answer is I’m getting this goofball out of my life. N O W, now like, now you’re out of here, dude, cause this a crummy deal for me. Right? That’s how it works. So here’s the thing. And this is the part that didn’t want to give away earlier on.

Mike:

Do you know what the name of that business is? Do you know what it is? The name of that business is your, IRA or it might be called your 401K your 403B. That business is nothing more than a qualified retirement plan. Think about it. If you have an IRA or 401k worth a million dollars, you try to cash that bad boy out, right? What’s it worth something’s worth. Or you put in your pocket, guess what? You get about two thirds of it. The IRS gets about a third fact. They probably get a little more. And if you grow it, the bigger it gets, the bigger percentage goes to the IRS. See, I’m not your silent partner. The IRS is your silent partner.

Mike:

Can the government change the tax code anytime they want? Yeah. And do they spend money like crazy? Yeah. So I mean, guess what? The minute they increased taxes down the road, guess what just happened? Their share went up, your share went down, right? It’s that simple. And you have the ability to kick out your silent partner. The IRS, anytime that’s called a Roth conversion. If you do a Roth conversion, right? You do a Roth conversion on a million dollars. It’s now your money, whatever. It’s all your money. If you’re over 59 and a half, you can say, Hey IRS, I’m going to withhold the tax. 667 goes to me, 333 goes to you. We go our separate ways. All is good. If you’re younger than 59 and a half, you have to write a check to buy out your silent partner, the IRS. When’s the last time you thought about your IRA, your 401k as a business.

Mike:

And if you really look at the tax rules or the business structure, no one in their right mind would ever settle for something like that. This is why wealthy people, people are really rich. They don’t have money in their IRAs or 401ks. They convert it to Roth and they do it as fast as they can because they get this. How am I doing? Make sense. All right. Now, does that mean you should run out and convert a hundred percent of your IRA to Roth IRA tomorrow? Maybe, maybe, maybe not. Maybe you should do it over a period of time. Taxes are different for everyone. This is why before you run out and do that, you know, make sure you’re talking to someone that knows what they’re doing from a tax planning perspective, you can call us. We help people do it every day. You can talk to your CPA and get well, CPAs.

Mike:

Aren’t really trained on this. So I don’t know that they’ll give you the greatest help there, but make sure you’re talking to someone that understands this world so they can give you good advice. All right. That’s this week’s episode. If you liked it, click the like button subscribe. If you haven’t done it already. And of course share this with your friends. I’ll tell you what, I’m not sure. I’ll bet you haven’t thought about your IRA as a business, but that’s exactly what it is. Make sure you’re making good business slash tax planning decisions. All right, we’ll catch you next time.

Leave a Reply

Your email address will not be published. Required fields are marked *

© 2021 Centennial Advisors LLC ยท