Legends Don’t Retire and Neither Should You - With Part 1 Kyle Gabhart

Aug 22, 2023
 

Are you afraid of having to work hard all your life and never getting a break to enjoy what you’ve earned? What’s the secret to using the tax code as a legal means to keep your financial gains, so that you can keep building your financial freedom from now on? Or have you had a windfall and are afraid of losing a lot of it to taxes?

In this podcast, we talk with Kyle Gabhart of Bluegrass Legacy Group, and author of Legends Don’t Retire, and Neither Should You, to get insights into how to manage your wealth to achieve your retirement dream, and create a work-optional lifestyle by gaining real financial freedom.

In this episode, we discuss

  • How we’re wired to be contributive and not passive
  • How retirement is not just golfing for the rest of your life
  • How to view a work-optional lifestyle as an outcome of financial management
  • The importance of having an advisory team to help you achieve your goals
  • How to start building financial independence if you’re new to it
  • How to take control of your money rather than it control you
  • The importance of having a vision-driven view of your finances through budgeting
  • How the services of a CPA and financial advisor work together to achieve financial goals
  • How property-related revenue can partner with charitable giving to both build money as well as save taxes
  • Leveraging donor-advised funds or Roth conversions, along with harvesting tax losses, to offset capital gains
  • How to access and use large amounts of invested and saved capital with minimal loss by using the hidden money in the tax code

To Learn More

You can connect with Kyle at his website Bluegrass Legacy Group – Turning Lives into Legacies and find out just how you can achieve that work-optional lifestyle to pursue your passion and leave a legacy.

To access the bonus tax content mentioned in the episode, go to https://www.hiddenmoney.com/bonus

To start using the tax code as a tool to grow your wealth, schedule a call with Pine & Co. CPAs: https://www.pinecocpas.com/consultation 

 

TRANSCRIPT

Mike Pine: [00:00:00] Welcome to The Hidden Money Podcast. We are super excited to have the one, the only super Kyle Gabhart here today. Thank you for joining us, Kyle. Kyle is an amazing, weird, but amazing dude. Kyle is my investment advisor. He's Kevin's investment advisor. He is our firm's investment advisor, and happens to be a bunch of our clients' investment advisor too.

One of the things, one of the, well, there's a lot of things I like about Kyle, and I'll focus on those and not the things I don't like about you, Kyle, but one of the great things that finally got me to be interested in speaking with Kyle, a financial advisor, after he walked into our office store six or seven times over a couple years in his three piece suit- 

Kyle cares more about what his clients are looking for and want to do, versus lining up portfolios in this perfect lined up way, that happened to give him [00:01:00] the most commissions. Kyle will advise people to invest in things that he doesn't get any commissions on. I happen to know this. He will also advise you not to buy bags of silver like I tend to do, and he gets really annoyed with me on that.

Kyle, thank you for being here. I also want to point out, Kyle is a respected and published author. 

Here's proof of it- at least, there's one book out there. He wrote Legends Don't Retire, which is a little disconcerting from my financial advisor. I have a dream of retirement, Kyle. Do I need to find someone else?

Kyle Gabhart: That's a really great question, Mike. You're welcome to retire- you just won't be a legend. That's kind of the choice you've got there. 

The key from my standpoint is really, it's okay to retire from something, just make sure you retire to something because we are not wired to just sit on the beach all day or golf forever.

We are wired to have purpose and drive and to make an impact with our family and our community, and so that's really premise.[00:02:00] 

Mike Pine: So he also gives good life advice, and occasionally, really good spiritual advice as well. So thank you, Kyle.

Kyle Gabhart: My pleasure.

Kevin Schneider: Well, golfing and being on the beach doesn't sound terrible, but I guess, for an extended period of time, we need to also be contributing to something. So how do you tie that in with financial advising and portfolios and taxes? How do we get to that stage in knowing that our audience could be in any walk of life?

We could be 20, could be 50, I don't know.

Kyle Gabhart: I love that question. First, let me address for a moment, something that we all experienced a few years ago. So, March, 2020, the entire world took retirement for a test drive. The first two weeks, your schedule's clear, you don't have anywhere to be. It was Tiger King, it was pajama pants, and we were living the good life, and then week three rolled around, and we're like- so [00:03:00] we're just going to keep doing this over and over and over, and then week four rolled around, and that's like Cabin Fever, The Shining, and we're at each other's throats. 

We are just fundamentally not wired to do nothing. It seems like a promising idea, but the reality of living it out is a bit different. So in light of that, it then is a matter of shifting our perspective not to say- Hey, you've got a die at your desk, but more so to say- Okay, maybe there's going to be a chapter of my life that I close, and a new chapter of my life I open. We talk a lot at Bluegrass Legacy Group, not so much about the term retirement, as we do a work-optional lifestyle.

So we frequently help our clients organize their assets, organize their cash flow so that they are able to achieve a point in life where work is optional for them, [00:04:00] and if they want to do something that happens to generate a paycheck, great, but if they choose to go a different path, and they want to volunteer, or they want to get more involved with their family, or they want to start some passion projects, or just build up new skills, they have the flexibility to do whatever their passion leads them to do without having to be tethered to their desk for 40, 50, 60 hours a week, just to generate a paycheck. 

And so that is where the planning comes into play, and that's where we weave in the tax strategy with the estate plan, with the investment portfolio, with the real estate, to say- Given where I'm at today, where do I want to see myself in 5, 10, 15, 25 years? And how do we organize all these pieces to make that a reality?

Mike Pine: Very well said, and I would say sign me up, but I already signed up with you a while back, so...[00:05:00] 

Kevin Schneider: Yeah, and I love how there's always a team component to what you have, the tax, and you just mentioned that there's the tax aspect, the attorney, the financial advisor, how we all have to work in unity because we each have our own specialties, and so having that team around you to make sure that.. because taxes- those are a a huge component of building wealth, whether that's in real estate, whether that's in stocks or heaven forbid, crypto, I don't know,

but it's a big component. And just as much as that, protecting your money with an attorney is going to.. you can grow all the wealth you want, but if you do something stupid and you get sued, then what's the point? You've got to be smart about your structure, you've got to be smart about your taxes, and you also have to be smart what you invest in, and make sure you're budgeting, and make sure you're cash flowing.

And so, I love how you take the quarterback position on a lot of our clients with this, is where you are communicating with the client more so on a routine basis, and you'll bring in [00:06:00] those experts as they need.. when to raise a hand and bring someone in, and it's very important to have someone like that.

Kyle Gabhart: It's so key and I've always enjoyed the team mentality that you guys have as well. It shocks me when I'll encounter a tax professional that also has two or three other hats they're wearing, because the tax code is enormous, and just getting your arms around that, in and of itself, is challenging,

and I know you guys will even tap other tax professionals when it's time to go way down in the rabbit hole on some nuanced piece that you just don't encounter all that much, and then I'll encounter folks that try to do everything, and it's just my mummy. I mean, how can you possibly do justice to all the complexities of what's going on while you're trying to juggle all those different pieces?

It just doesn't make sense. You have to bring a team together, and let everyone specialize in their area, and then synthesize [00:07:00] those pieces in pursuit of the broader plan.

Mike Pine: The tax code may be enormous, but it is beautiful. It's beautifully enormous, and it's complicated, but the complexities is what makes it beautiful, and there's so many things, so many facets of that tax code that provide hidden money to help people build financial freedom if they're investing smartly.

Kyle Gabhart: Makes sense, but it's easily the first time I've ever heard someone articulate the tax code as beautiful. Does that make you guys tax artists?

Kevin Schneider: Perhaps. I don't know what kind of gallery we would be in as artists or who would come see us, but yes.

Mike Pine: Just lovers of the tax code.. can't help it.

Kevin Schneider: 

Mike Pine: Kyle, I think most of our listeners are looking to grow in their financial freedom. They would like that to be work-optional one day. For someone that's just getting started, someone who really hasn't thought about this much, someone [00:08:00] who doesn't have a game plan, where do you start? How do you start building that independence?

Kyle Gabhart: I love that question. It's been said a lot - What isn't measured isn't grown. If you don't know what it is you're dealing with, it's going to make it really challenging to identify- where is the money going on a weekly, monthly, annual basis, and where are the opportunities to improvement?

And so, I would say the first thing would get to just actually getting really good accounting of what's going on. If you're purely a W2 employee, that may just be a matter of getting yourself on a budget and getting clarity about where all of your dollars are going, and then partnering with your CPA to make sure that you're doing the smartest thing with that.

If, on the other hand, you have a business or several, then you're going to to get your arms around the accounting for those as well, but the bottom line is, [00:09:00] if you don't know what the cash flow looks like, the inputs and the outputs and where all of it is going, then you're not really going to be in the position to start directing it where it ought to go.

And so it starts with just getting clarity on all of that, and knowing where every dollar is targeted so that you can then begin to look for the opportunities to improve it.

Kevin Schneider: Taking control of your money.

Mike Pine: Taking control of your money. I like that, partner. So, anyone who doesn't have an accounting background or financial planning background, you're saying the first place to start is to build a set of financial statements, a profit and loss and balance sheet, or did I just hear that through my CPA ears?

Kyle Gabhart: Yeah, I think you heard it through your CPA ears. I do think that those kinds of statements would be really valid ways of doing that, and it may be the right answer for some folks, but for some of the non-nerds, what we could do is leverage any one of the FinTech (financial [00:10:00] technology) solutions that are out there,

and a lot of times it's built into stuff you've already got. So your bank might have some budget tracking software available that you just haven't utilized. Your financial advisor may have software that you can utilize that would give you clarity on this. You could tap into any one of the free resources that are out there, like mint.com for example, where you'd have the opportunity to start getting clarity on where those dollars are going, how they're being allocated,

and once you are clear and understand where all of that's happening, you are now in a position of power to begin making decisions and ensure that you are the one telling the dollars where to go, rather than them making the decisions for you, and we don't have the tail wagging the dog, as so often happens.

Kevin Schneider: I like that because I always try to equate it like- let's say you make $150,000 a year. You typically get that on a bi-weekly [00:11:00] basis, couple times a month or bi-monthly basis, so you just get these increments and taxes taken out throughout the year. So how are you smart with that money as you earn it?

Because what if someone gave you $150,000 on January 1st and you had no more income, but it's the same amount of money. What are you going to do with those dollars on January 1st? How are you going to plan those dollars so you can eat, December 31st? So, it's really looking at a bigger picture, and not just living from paycheck to paycheck anymore, but really taking control and telling your money where to go,

and budgeting is such an important role. As CPAs, that's second nature to us, which I don't know if that's a good thing or bad thing, but it really is a skillset that everyone can do. It's really just taking time and holding yourself accountable.

Kyle Gabhart: No, absolutely, and at the risk of a shameless plug, a book that was mentioned earlier, I go through five different strategies for budgeting, because some of the [00:12:00] folks that are listening to this may say, 'Look guys, I tried the budgeting thing. It just doesn't work for us because my income is variable. So, I can't really build a budget because I don't know what my income's going to be this month versus next month.' 

I've actually got a strategy in the book that specifically says- here's how to deal with variable income. Or someone else might say, 'Ah.. I've tried the budgeting thing. It doesn't work for me, because really, there's just these handful of categories that I just don't know what's going to happen with them.'

And that's really where the issue is, and so, we've got a budgeting strategy specifically for that situation. We've got a strategy in there for what happens if you want to focus on paying yourself first, rather than paying your bills first, and so everyone comes at it from a little different angle, and just because you've tried budgeting once in the past, or a couple of times in the past, doesn't mean that it's not possible for you to do it.

You just may not have run across the strategy [00:13:00] that'll help you to finally get a handle on your money, and start telling it where to go.

Mike Pine: Very sage advice.

Kevin Schneider: So, a lot of what we do as CPAs is we try to be as proactive as possible. We try to get ahead of the curve, we try to understand our clients' needs, understand their situation throughout the year the best we can, and during that process things come up, like maybe they're going to sell a house, move to a different area with higher property tax, and now they're going to be able to take the itemized deduction.

So now, we just start talking about charitable giving, maybe we start talking about some donor-advised fund, or some sort of creative way to donate that fits their needs, and from the tax standpoint, we know how the tax code's written, we know how to enact it, but sometimes, they need to take a step back away from the tax side of things. They agree with the tax plan, but they need someone to help them actually execute it, and maybe even bring some other ideas in,

and that's where we bring someone like you, Kyle, who has the [00:14:00] expertise of a lot of, I would say, Jack-of-all-trades stuff, where you know a lot about charitable, you know a lot about retirement plans, you know a lot about insurance, you know a lot about estate planning- you know so much in those areas.

And so, how do you see that a CPA and a financial advisor working together, can most benefit a client in that kind of situation?

Kyle Gabhart: There's a lot to unpack in that question, Kevin, I definitely appreciate it, we'll take a shot and take it a few steps at a time. First off, I think it's important to just realize that you guys as CPAs, are looking at the client's world through a different lens.

 By and large, your role is a more historical one. Now, you guys are very proactive, and you guys do ask penetrating questions about where a client wants to go, but for the most part, the tax code and the way it's set up is historical and backwards looking. You're crafting a narrative to articulate to the IRS- Let me tell you what happened last year- these are the [00:15:00] various things that happened, and then sometimes things occur a little differently, or we look at it a little differently. We say- Let me tell you the story a little bit differently, and you do an amended return, and so it is, generally speaking, by its nature, more reverse looking. It's that rear view mirror side of things.

And then my role more so, is kind of that pioneer, forward looking, through the dashboard of- where are we going over the next 5, 10, 15, 25 years? And more importantly, how does the tax piece fit into and integrate with all the different things that client is aiming to accomplish? And so, that's why the combination of the two is so crucial,

and you gave a great example. Let's say that there's a piece of real estate that's sold, and that's going generate a sizable capital gain. Well, that's going to be a crucial collaboration between the two of us because there's so many different ways we could go about addressing that. Obviously, we might coach the client on doing an exchange, and so they pivot [00:16:00] through a 1031 to deal with the cap gains.

It may be that in their portfolio, there's an opportunity for us to harvest some tax losses to offset the capital gains that occurred, maybe a charitable giving strategy is going to be the better answer for them, and like you say, that could be by utilizing a DAF. We're even running across now, private equity opportunities to create charitable giving situations.

And so, there's a lot of different pieces that we could utilize, different plays that we can run. We could look at a Roth Conversion that maybe historically didn't make a lot of sense, but now in a given year, as we're balancing the different pieces of capital gains and of charitable giving, and maybe some losses that were carried forward from their business or their real estate the prior year, suddenly makes a Roth Conversion really a viable solution for them, given where they're now at within the tax brackets,

and so that's why it's got to be such a tight partnership.

Kevin Schneider: [00:17:00] Beautiful.

Kyle Gabhart: For the people listening or watching, what is a donor-advised fund, and how is that useful?

You know, I really enjoy the donor-advised fund, or what is called a DAF, and when I first started talking with clients about it, there was a lot of misconception, because I think, as soon as you hear that there's a separate vehicle that feels kind of like a trust that you put money into for charitable giving strategies, it sounds like- Okay, I'm not a Rockefeller, so this really doesn't fall into something I can use, but the beauty is the DAF

is a tool that every normal person can take advantage of. It is as simple as opening an account at, say, Fidelity, and I use Fidelity as the example because Fidelity Charitable is actually the largest manager, not only of DAFs, but of charitable dollars in the world, and you could open an account with them for [00:18:00] free 99, which is my favorite price. Every dollar you put in is immediately considered a deduction. It's just like you wrote a check to the Red Cross, and then inside of the DAF you can actually invest the dollars that are now out of your estate that you've already gotten the charitable deduction on. You can invest the dollars and it begins to grow and compound,

and so eventually down the road you can be giving money out of the DAF. That you never even contributed because you're actually giving growth in the future as those dollars compound.

Mike Pine: So let's talk about one specific situation. There's a lot, but one situation where DAF might make a lot of sense, and like Kyle said, it's not just for the super uber-rich in the world. Let's say you've got your normal W2 taxpayer- you do some charitable giving, you tithe to your church, you pay property [00:19:00] taxes, and that's about it,

and you're just barely able to eke above your standard deduction. So, maybe in one year, you could give a lot more to a donor advised fund- two years worth of giving, just using your budget, two years worth of giving in the same year that you pay your real estate tax a year ahead of time. So suddenly, you've got a much bigger itemized deduction in one year.

You've really leveraged the tax savings off of that through the larger charitable deduction, through the larger property tax deduction on your itemized deductions, and then the following years you've already done that. You've paid your property taxes, you've given your year's worth of tithe a year ahead, a year ago.

So now, you use a standard deduction and you just alternate back and forth, and that's for just a normal, reasonable W2 taxpayer, but it helps, and you're using donor advised funds to do it.

Kyle Gabhart: No, that's absolutely I love that tax bunching, and it works even more effectively in some states than others, but [00:20:00] it is a tremendous strategy, and we've got some clients, shared clients that are doing that. 

Another great example that comes to mind is, let's say you have a significant liquidity event. So that could be from the sale of a piece of real estate, it could be from a business activity, or it could just be you got a large bonus at work. You suddenly have this giant pool of dollars that showed up. You're going to get taxed really significantly on that, and one of the many ways that you could reduce that is a charitable gift,

but then you look, and to your point, you've got your normal giving that you tend to do, and then all of a sudden, you're going, 'Oh my goodness! I am used to giving a few thousand dollars here at a time, but I suddenly now have to write a check for $40,000, or whatever it might be that fits into the, this scope.'

And you go, 'Man, I don't know that I even feel comfortable writing a $20,000 or $40,000 check to one particular now I've got to scramble around and figure out who going give all this money to. The beauty of the DAF [00:21:00] is you make that contribution one time- it's out of your estate, you get the charitable gift, and now the pressure's off.

You can let it build, you could give it away once, you could give it away five times, you could give little pieces of it every year over the next 10 years if you want it to. You've got the flexibility to decide what you do with that.

Mike Pine: Beautiful.

Kevin Schneider: Have you run into an instance where.. Let's say.. because we have a lot of clients who actually have their own charitable causes.. so, let's say you have your own 501(c)(3) organization. Could you give money to your DAF, and get the charitable deduction there, and build and grow, and let those funds grow, and then over time, give it to your own charity that you may be on the board of, or you may be the actual president of, or something, there?

Kyle Gabhart: Yeah, it's a great question. The bottom line is with the DAF- it is a donor-advised fund. It is not a donor-directed fund. So, what that means is that, ultimately, the [00:22:00] entity, in this case, let's say it's Fidelity, is making the decision about the entity that you give to, and you advise them- Hey, I would like to give $500, $1,000, $5,000, whatever it is, to the following charity.

Then they decide if that's acceptable, and 99 times out of 100 it's fine, because what they're looking for is - Is this a publicly registered charity? Are they doing all the things that they should? Are they filing as they should? Is everything above board? Yep. Looks good. Okay, terrific. So there it is- just a little bit of a check and balance there,

and I suppose, theoretically, if there was something that was inappropriate about doing that, which I can't imagine what it is, well, then ultimately, that entity makes that decision.

Mike Pine: I can tell you I've experienced firsthand where they're actually really helpful. So it wasn't with Fidelity, it was with Schwab's donor-advised funds, and I had some missionary friends that set up their own charity and they wanted to do this, and they [00:23:00] put money into the donor-advised fund, and then it was time for them to get some draws out of it to pay for their missionaries, and some of the pastoral care that they were trying to pay for,

and Schwab sent a notice and said, 'We see that you are officers of this charity and we just want to make sure it's legit.' So we met with the Schwab people and we gave them the Board of Governance documents. They wanted to make sure that they didn't have a majority of the board- the people who had given the gift, who were also on the charity,

and they didn't, and they actually helped us. And we changed some of the documentation so that they were more.. be more legit, and we do that anyways for our clients with the IRS, but these guys were serious about it, and they made sure that the charitable contribution they were giving out of the donor-advised fund would hold water with the IRS, and it did.

Kyle Gabhart: Love that. Again, it's a team, 

Mike Pine: Yeah, 

Kyle Gabhart: And even if it's not a team member - face-to-face and grab lunch with on occasion, it's a team.

 

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