00:02:59
Francisco Sirvent: Being an attorney at the age of 26 was a scary proposition, and I look back and wonder, how did I tell anybody anything? I knew nothing. But I took on simple things that I did know how to solve, and as time has gone on, I’ve been able to solve bigger and bigger problems, opportunities, and scarier things for some people.
00:03:32
Francisco Sirvent: So, one of the things we’re going to talk about in that category is this: for somebody who has about $3 million—you know, $2 million, $5 million—how much of it is actually going to the IRS? Because there are a lot of hidden tax liabilities that maybe you haven’t experienced yet. Maybe they get bigger as time goes on.
00:03:57
Francisco Sirvent: Maybe the beneficiaries are going to have a bigger tax issue than you’re even aware of. So today, my goal is to give you the nuggets that you can use so you say, “Oh my gosh, I didn’t realize that,” at least once during this—at least a good nugget you can walk away with. My name is Francisco Sirvent. I’m the founder of Keystone Law Firm and the Retirement Management Office.
00:04:23
Francisco Sirvent: We do these webinars for purely educational purposes, so all of the disclosures apply. This is not legal, tax, or financial advice for anybody’s specific situation. I love seeing people join these. We post them to our YouTube channel afterwards and watch how many people watch those. I love that this knowledge and information is getting out there, but it’s educational in nature.
00:04:50
Francisco Sirvent: Please don’t act on anything you learn here unless you know what you’re doing or you get professional advice. Deal? Deal. Let’s move on. It takes decades usually for most people to amass some wealth. You know, very few people are overnight millionaires, and for most people, it just takes a lifetime.
The Shift from Wealth Accumulation to Tax Strategy
00:05:16
Francisco Sirvent: You work, you’re disciplined, you work, and you save some money. You save some money, you save money, and you do it consistently for a long time, and you’ve invested it well. When the market takes a big dip, you don’t cash in and run for the hills and then miss the next spike. You just stick to a disciplined process.
00:05:36
Francisco Sirvent: And so, really, congratulations if you’ve reached the point where you have some significant savings, whether it’s in an IRA, 401(k)s, Roth, brokerage accounts, or real estate even—truly, congratulations. You’ve done something that a lot of people don’t do. The scary part of that is it took a lot of work and time to get to the point where you’ve got it.
00:06:08
Francisco Sirvent: The thing that gets missed is once you get to that point, there’s a real strategic shift in your mindset of what you should do next. Because staying in the zone of continuing to put money away can actually be a big tax problem for you. Even though you feel like you’re saving, you might be creating a bigger bill, a bigger debt to the IRS later.
00:06:42
Francisco Sirvent: So, you want to think about these things because the more time you have, the more tax dollars you can save. So many people—you know, I mean, I remember the first time I heard of an IRA, I thought, “Wow, I can put some money in there and I get to take a tax deduction. This is amazing.
00:07:04
Francisco Sirvent: And then it’ll grow tax-deferred.” In my mind, I thought tax-free. There are a lot of people that have that misnomer, but tax-deferred is really not at all, honestly, a tax savings, because the federal government was smart. They’re like, “We’ll give you a deduction of $3,000, but when that grows to $30,000, that’s when we’re going to tax it.” And that’s how tax-deferred accounts work.
00:07:31
Francisco Sirvent: And if you have a big chunk of your savings in things like IRAs, 401(k)s, or other tax-deferred account types, you are looking at some big effective tax rates on those accounts when they have to come out. So tax deferral—it’s a little bit of a delusion, because you’re not just deferring the exact amount you invested, you’re deferring what it grew to.
Understanding the RMD Snowball Effect
00:07:59
Francisco Sirvent: And the higher it grew, the higher the tax bracket you’re going to be in. When portfolios get to this amount—they get to like that $2, $3, $5 million amount—there’s a giant snowball building. I mean, it is rolling downhill fast. And it’s the RMDs, you know, the required minimum distributions. When you get to a certain age, depending on your date of birth, you can’t leave those accounts in there to grow tax-deferred completely like you always have before.
00:08:40
Francisco Sirvent: At that age, you’re forced. The IRS is going to force you. That’s why it’s called required—it’s a required minimum distribution. If you’re in that stage of life, you know what it’s like. If you’re headed towards there, you know it’s coming. But you turn 73, if that’s your age, then you literally get a little new number on your investment account statements that says your 2025 RMD is X. And that’s the amount that you must pull out of that account in
00:09:13
Francisco Sirvent: 2026 in order to avoid massive penalties. And the penalties are enormous; it’s not worth incurring the penalties. So, you pull the money out. What happens when you pull the money out of an IRA or a 401(k)? It is now ordinary income. It’s classified in the same tax brackets as ordinary income, as your W-2 was.
00:09:40
Francisco Sirvent: So if your RMD is $50,000—if your 2025 statement said your RMD for 2026 is $50,000—guess what? You now have $50,000 of income you are going to have to report for your 2026 tax return. Some people, they say withhold some tax dollars from the $50,000 and send it to the IRS so that it’s not so painful when it comes around.
00:10:10
Francisco Sirvent: Some people take the full amount. They’re like, “I’ll pay the IRS later, thank you very much.” Either way, it’s ordinary income. It’s going on your tax return for the year you pull it out. Why does it snowball? It snowballs because you’ve been so good at saving. It does.
00:10:30
Francisco Sirvent: You start at retirement with some amount. Whatever it is—$2 million, $1 million, $8 million—doesn’t matter. You start with some amount. Your RMD that you’re going to have to take out when you hit that age is not going to be—for most of you, it’s not going to be what you spend. It’s going to be either less than you spend or it’s more than you spend.
00:11:04
Francisco Sirvent: It doesn’t matter; you’re not pulling out enough to prevent that account from continuing to grow. That sounds like a good thing, but “Francisco, we want it to grow.” Sort of. Again, your RMD is based on the value of the account from the prior year. So if the prior-year account balances are constantly going up, what is your RMD?
00:11:39
Francisco Sirvent: It is also going up. So then your RMD for some years is going to be a little bit, but as you look into the future, it’s going to start to be large. You know, when we sit down—I mean, we sat down with a client who had just retired, and they’re like, “We’ve got to figure out our estate and our investments, and we don’t know… like,
00:12:03
Francisco Sirvent: we really need to figure this out.” And so, we just ran some simple numbers for them and showed them that you have plenty of money to live. Like, you’re good. You’re not going to run out of money. You guys spend this much. If you spend that much plus inflation plus a buffer, and your investments grow reasonably, you’re not going to run out of money all the way to age 100, right?
00:12:27
Francisco Sirvent: There’s still going to be a lot of money left over. But the thing that we showed them that, honestly, still surprises me was that when you look at this amount of income—okay, because that’s what your RMD is—when you look at that amount of income in these years after your accounts have really started that exponential kind of hockey-stick growth, it’s so big.
00:12:54
Francisco Sirvent: Your RMD might be $100,000; it might be $150,000. You get into your 80s, and you can start looking at RMDs that are $200,000 or more. And all of that is going to be taxed in the ordinary tax brackets. That’s a big tax bill, right? You could be looking at 35% to 40% when you add Arizona income tax as well.
00:13:23
Francisco Sirvent: So every single dollar that comes out of there in those later years could be a 40% tax bill. Ouch. When we added this specific client’s example up—they’re in their early 60s—and projected out the growth of the accounts, the withdrawals to pay for their life expenses, a reasonable investment mix growth, and their RMDs,
00:13:55
Francisco Sirvent: it showed that the amount of tax they’re projected to pay was $1.5 million in taxes. And this was a client that had about $3 million in their portfolio. They were going to pay $1.5 million in taxes during their lifetime. Holy moly. It still shocks me when we do these numbers and I go, “Oh my gosh, a million bucks in taxes. Like,
00:14:29
Francisco Sirvent: how?” And it’s because of this growth of the account, and the withdrawals are only being taken at the minimum amount level. So, the account just keeps growing. The IRS loves this. They’re like, “Let those accounts grow. This is fabulous.” That’s the snowball effect. It’s a big deal. And if you haven’t run those numbers to see what that total tax bill is—it’s not a claim
00:15:02
Francisco Sirvent: that the tax rates will never change and the market never does anything; it’s just a thing to benchmark against. Because when we talked to these clients with the $1.5 million tax projection, we showed them one tax strategy that cut that in half to $750,000. You know, when you’re sitting in your early 60s and you’re like, “I have a tax bill that could be $1.5 million the rest of my life,”
00:15:30
Francisco Sirvent: you can cut that in half. That is a lot of money saved, and that gives them the ability to do a lot more things with their life.
Inherited IRAs and the SECURE Act Trap
Okay. So, what else comes up? Well, what else comes up is the SECURE Act, which has been in place now a few years. And what it does is it deals with inherited accounts.
00:15:52
Francisco Sirvent: Inherited accounts that are IRAs or 401(k)s must be distributed within 10 years after your death—so fully liquidated and pulled out of the account. So think about that. If you pass away, let’s pick a number, at 80, and you’re leaving this to your kids, your kids are what? They’re going to be in their 50s, 55, something like that.
00:16:23
Francisco Sirvent: At what age are most adults in their highest earning capacity years? Yeah, it’s going to be in their 50s. And so, right when they go to inherit this account from you, they’re going to be required to add more income to their own income. Because you pass away and give them the IRA, they now have immediate minimum distributions that have to come out, and they cannot delay it longer than 10 years.
00:17:01
Francisco Sirvent: So now there’s this extra income on top of their regular income. And you know how our tax system works, right? The first amount is taxed at this rate, the next amount at this rate, the next amount at this rate, the next amount at this rate. So when you add income to what they’re making from work, that additional distribution from your IRA that they have to take is taxed at their top tax bracket—all of it—
00:17:32
Francisco Sirvent: and maybe bumps them into another tax bracket. It’s literally the worst result for an inherited IRA. But the SECURE Act makes it mandatory, and it’s been mandatory now for a few years.
The Widow’s Tax Trap and Medicare Penalties
All right. What about the other one? This is for widows. You know, not everybody here’s a widow.
00:17:56
Francisco Sirvent: Not everybody we work with is married, but there’s a huge impact when you are married and one spouse dies. The widow or the widower who’s been taking these RMDs out with their spouse—they’ve been operating under the married filing jointly tax brackets, right? And their RMDs—if they each have separate accounts, they have to add up hers and take that amount, and add up his and make sure they take that amount every year.
00:18:34
Francisco Sirvent: Well, when one spouse dies, they still have all the RMDs, but now they’re in the single filer tax brackets. All of a sudden, the tax rate on every RMD, on every dollar that comes out now—it’s not exactly doubled, but it went into the single person tax brackets. That also really hurts with the snowball concept. A $3 million portfolio is going to generally start at about $100,000 in annual withdrawals.
00:19:18
Francisco Sirvent: In your late 70s, you’re going to be pushing $200,000 or more per year. And as I said, every dollar is ordinary income on your federal and your state tax return. What does this also mean? Well, if you’re on Medicare, you maybe have heard about the IRMAA penalty. If you’re being forced to take out $200,000 per year from your IRA, and you’ve also got Social Security, and maybe you have a pension, maybe you have a rental property—
00:19:56
Francisco Sirvent: so you’ve already got these other sources of income, and you’re forced by the IRS to take $200,000 out—you’re not only going to be paying higher taxes, but now you’re looking at the premium surcharges, the IRMAA penalties, and these can be thousands of dollars per year. And you’re like, “I didn’t want to take the withdrawal out of my IRA.
00:20:20
Francisco Sirvent: Why do I have to do that?” Because withdrawals from an IRA are ordinary income, and they count towards the IRMAA cliff. And then you also are at risk of your provisional income caps, which could end up taxing Social Security. So, when you look at all of these things—the federal tax bracket, Arizona’s income tax, the Medicare penalties—you could be looking at, while you’re alive, a 40% tax bracket or 40% overall tax rate.
00:21:01
Francisco Sirvent: And that’s a lot of money. It’s a lot of money. I don’t like giving a lot of money to the IRS if we don’t have to. Deferring taxes is not avoiding taxes. It is simply partnering with the government and letting them set the tax rate at the time of withdrawal, right?
00:21:21
Francisco Sirvent: Because if you just delay, delay, delay, delay, the government is looking for how to raise money because of the deficit and all the spending. So, you’re just saying, “I’ll let you guys decide what that tax rate is.” Under the SECURE Act, it used to be that an inherited IRA by a child could get the distribution stretched out over their lifetime.
00:21:55
Francisco Sirvent: You know, so if they’re 55, the tax tables say maybe they’ve got 30 years left. So they only have to take 1/30th of the distribution or of the account balance that first year. That’s much smaller than 1/10th. But with all these reforms, it’s mandatory. If you have a $2 million portfolio, it’s going to force $200,000 or more on top of their salaries.
00:22:24
Francisco Sirvent: If it’s split between two kids, the distribution is split $100,000 and $100,000. But that account is probably going to be invested during those 10 years, so it’s going to grow. That $200,000 distribution is going to grow. You add $100,000 or $200,000 on top of somebody’s employment income in their top tax bracket—that stops feeling like a gift and it starts feeling just like a tax bill.
Utilizing Roth Conversions for a Tax-Free Legacy
00:22:56
Francisco Sirvent: When you look at things, one of the simplest strategies is Roth conversions. When you look at Roth conversions, you do it over multiple years. You try to get it done before your RMD kicks in. Maybe you have a little bit of time between retirement and when Social Security starts, so your income is low. Some good ways to play around with it: getting it converted to Roth.
00:23:20
Francisco Sirvent: You all know a Roth account can be invested and grown. Whatever it grows to, pulling money out of there is tax-free. The growth plus what you put in—it’s all tax-free instead of that 40% liquidation to the IRS. The thing that I want to mention about Roth accounts, actually—I talk to so many clients who are just… they’re not big spenders, and I respect that.
00:23:56
Francisco Sirvent: You know, it’s amazing to see how well they did by living on less than they made, right? They’re able to sock it away. Carrying that lifestyle, that spending discipline, into retirement where your IRAs are just growing, growing, growing, growing, growing, and then passing away… where’s the account balance when you pass away?
00:24:31
Francisco Sirvent: The highest it’s ever been. When you pass away, you’re leaving this huge tax bill to your heirs. Even if you were to consider the reality that “I’m not spending this money, I’m just going to leave it to the kids”—okay, if you’re not spending the money, how about looking at an alternative way to leave it to them?
00:24:55
Francisco Sirvent: Even if, late in life, it’s the first time you heard of doing Roth conversions, you decide to do it and you bite the bullet, you pay the tax bill on it, move it straight back into an investment portfolio, and then what? Okay, yes, you took a hit on the tax. Maybe now your account balance has dropped 20%
00:25:23
Francisco Sirvent: because of the tax bill, because of the conversion. Now, though, you’re looking at a tax-free account that’s going to go to your kids. If you really aren’t using the IRA to support your life, taking a hit during your life gives them a total tax-free inheritance. They get to pull it out and not pay a dollar.
00:25:55
Francisco Sirvent: They get to save it. They get to invest it. It gives them exactly that: a tax-free inheritance. So really think about that. That’s why it’s called a tax-free legacy. Now, quick caveat: if your retirement accounts, your Roth, your IRAs, your real estate, your savings—all your net worth—is over the $14 million exemption, your Roth account won’t be tax-free.
00:26:26
Francisco Sirvent: It’ll be tax-minimized, because if you’re over that exemption amount of $14 million, then the estate tax will kick in, and the estate tax will count against your Roth investment accounts. So it’s not totally tax-free. It’s tax-free for you while you’re alive, but being inherited, if you’re over the $14 million, then there’s going to be a tax just for the total amount of wealth that you have.
00:26:56
Francisco Sirvent: Ultimate test, you know—protecting your kids from tax brackets. It’s not just a game of “minimize my taxes.” It’s also a game of “if they can benefit from it too, why not?” Let’s minimize their tax brackets. But if you’re married, it’s your surviving spouse that gets hit first. So, what is the widow’s tax trap?
00:27:25
Francisco Sirvent: Let’s talk a little bit more about it. Because of the way our tax system is built and the incentives that the federal government has in place, there are some marriage penalties under the tax code, but there are also some marriage benefits. One of them is that married filing jointly status. When you convert that to a single filer, it’s a big bracket squeeze.
00:27:52
Francisco Sirvent: Your brackets drop. And if you have the same amount of income from RMDs or other sources, your taxes are going to go up. Usually, when there are two spouses and they both have IRAs or Roths or other investment accounts, they leave it to the other one first. That’s very common. And if it’s an IRA that has required minimum distributions happening and that’s left to a spouse, those RMDs are going to continue.
The Sequence of Returns and Market Risk
00:28:27
Francisco Sirvent: The problem with that from an investment standpoint is a very different thing to think about. From an investment standpoint, what do we want to do? We want to see our investments grow, right? That’s the whole idea—that’s the word “investments.” So, you want to buy low and you want to sell high.
00:28:53
Francisco Sirvent: By the nature of investing, when you are either a married couple or, really, that widow, and you now have all of the IRAs because they’re now all yours—you were the beneficiary, and your RMDs start hitting that $100,000, $200,000, $300,000 per year that you have to pull out—it is forcing you to make investment decisions that you otherwise wouldn’t do.
00:29:29
Francisco Sirvent: It’s forcing you to liquidate investments at times you may not necessarily want to. And that’s what the sequence of returns is. This is a big risk for your overall portfolio performance. If you are forced to take distributions out while the market’s in a slump, it makes it that much harder for your portfolio to make its way back up.
00:30:00
Francisco Sirvent: RMDs require you to pull it out each year that you’re over the age. You can’t defer it. You can’undo it. You can’t tell the IRS no. You can, but the penalties are not worth paying. So, getting away from RMDs altogether is a really good way.
00:30:24
Francisco Sirvent: You just avoid this whole thing, because then you sell when you want to—when they’re hopefully high.
A Unified Approach: Legal, Tax, and Wealth
Now, this gets complex. You know, when I sit down with clients and we talk about legal matters and trust and estate planning, a lot of people sit down and they give me their 5 or 10-minute background, like, “We just want something simple.”
00:30:53
Francisco Sirvent: And great, I love simple. And we start talking, I get to know them a little bit more, find out they have money in IRAs or retirement accounts or investments, and I’m like, “Okay, simple means it avoids probate when you pass away, right? It means you can designate the power of attorney or healthcare agent so that your loved ones, whoever you pick, can make those decisions for
00:31:18
Francisco Sirvent: you and take care of things if something happens to you, right? Great, perfect. We’ll do that. Do you have any idea what tax situation you’re looking at?” And most people say no. I say, “Let’s take a quick look at it.” We look at it, and I show them some tax numbers, and they go, “Holy cow, nobody showed us this before.” And they work with a CPA,
00:31:44
Francisco Sirvent: they work with a financial adviser, but nobody’s given them that projection that shows, “As your accounts grow, as your RMDs grow, as your tax brackets change, this is what your tax bill is going to end up looking like,” or, you know, is projected to look like. And then they want to know, “Why has nobody ever shown me this?”
00:32:05
Francisco Sirvent: Or we show them, “Here’s how you can save half of it,” and they go, “Why has nobody ever shown me this?” Having separate teams makes it complicated, mostly because tax advice and tax strategies are like the bane of a professional advisor’s existence. They’re scared of it. They don’t want to get it wrong because the liability of getting it wrong is significant.
00:32:40
Francisco Sirvent: And so they typically say, “Talk to your tax advisor. Sorry, I can’t give tax advice.” And so it misses this huge component that impacts so much of how much you can spend and how much you can enjoy. A standard living trust cannot execute a tax conversion. The static legal folder cannot rebalance a portfolio during a down market.
00:33:06
Francisco Sirvent: A synchronized team—that’s what we do. We’ve talked about this before. This is our Retirement Management Office, where we coordinate the legal, the tax, and the wealth all under one roof. You guys know Keystone Law Firm—that’s the estate law office. We define your goals, we help identify people that you love and care about, and what roles they should take on or not take on.
00:33:31
Francisco Sirvent: We have tax strategies. We have CPA services that can help make sure not only are the tax strategies good tax strategies, but that they can go onto a tax return and actually be reported properly. And then lifestyle planning is the one that does the actual investments. “Hey, let’s make sure that your investments are appropriate.
00:33:55
Francisco Sirvent: It’s not too risky. We’re going to project that you get certain returns, and oh, on top of it, let’s coordinate that with the tax plan. And on top of that, let me make sure all these accounts have the right trust name or beneficiary designation so that it all matches, right?” That’s what the retirement office is, so that nothing falls through the gaps.
00:34:20
Francisco Sirvent: Traditionally, it’s just, you know, different professionals trying to—maybe trying to coordinate with each other. It usually ends up, at least my experience before we did this… my experience was me communicating to a financial adviser, “Hey, can you help us fund the accounts?” and them getting grumpy about it or saying, “That’s not how we do things.” And it just… there was very little collegiality between the relationships. Or, you know, we think of a great tax strategy, and I run it by their CPA and say, “Hey, will this strategy actually work when they go to file that tax return?” And the
00:34:58
Francisco Sirvent: CPA is like, “I don’t even touch this stuff. When the year is done, you give me the numbers and I’ll put them on the return.” And it was a frustrating experience. And so that’s why we brought everything together and unified it into one retirement office. Set up one table: you get your lawyer, your tax strategist, your financial adviser, and your one blueprint right there.
00:35:23
Francisco Sirvent: You know, we met with our team internally yesterday to go over some of the client projects we’re working on. And when you have the caliber of people in the room talking about your stuff, we find things and we go, “Wait, what are you doing?” And we have a conversation. Somebody says, “Oh, this is what’s happening in their life, you know, this month, this year, next year.” And somebody else is like,
00:35:54
Francisco Sirvent: “That actually is good because I need to change the beneficiary form on this account.” Oh, ding, ding, great. When you have that level of professional advisor sitting in the room working collaboratively, that’s where the gaps go away.
Next Steps and How to Schedule a Lifestyle Map
So, I don’t know everybody on the webinar today, but for those who are going to watch this on YouTube: we only do two new client interviews per week because we have a very deep investment of our time into what we do.
00:36:33
Francisco Sirvent: And so, we limit it to two. That’s eight a month. We generally only accept two new clients a month after interviewing eight. And if that’s something you want to look at, I encourage you to schedule something. We don’t charge for the process to interview you, because you’re also going to interview us.
00:36:54
Francisco Sirvent: We sit down over two appointments and we try to get a good map of where you are. Where are you now, right? Just get that snapshot done. And then, second appointment, we identify what we think are maybe some big leaks, some things that are maybe really missing. And it could be tax planning.
00:37:15
Francisco Sirvent: Maybe there could be a real questionable setup of the portfolio—it’s too risky, or something’s just weighted in an odd way. Or maybe you’re not taking enough risk. Maybe you’re sitting all in cash, and you’re like, “I don’t know what to do.” We map it out, and then we sit down at the second meeting.
00:37:33
Francisco Sirvent: We say, “Here’s what we see, and here are some ideas.” And then we all decide if we want to partner together. We build it on these three pillars: tax, trust, and making sure a surviving spouse doesn’t get destroyed by those single-filer brackets. The way we do it is you schedule something we call a Lifestyle Map,
00:38:02
Francisco Sirvent: and you can just call the office and ask for that. There’s no cost, there’s no catch, there’s no hard sales. I talk with you individually like I do on this webinar. We’re just going to see where you are, see how things work for you right now, see what you’re happy about with what you’re doing right now,
00:38:19
Francisco Sirvent: and find out if there’s anything you think could be done better. We try to learn enough about your situation so that at the next meeting, we can come back with some ideas for you. And we’ll tell you how we work, how we operate, what we can do, what we can’t do, and some things that we just refuse to do.
00:38:38
Francisco Sirvent: We know we’re not a good fit for everybody. You know, not everybody’s a good fit for you. And that’s what the process is for—to see if, in that interview process, there’s a good fit. That is all I had for today. Thank you for coming. I wish you all a wonderful rest of your day.
Transcription ended after 00:39:30
