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Laila Pence Luncheon Presentation (2021)

Laila Pence, CFP® discusses potential tax changes, planning strategies and how it could change your retirement plan for the next future.

Dryden Pence (00:00):

I get to introduce my wife, which is really kind of fun. And for gentlemen out there, you know, if you ever get the opportunity to introduce your wife then it’s a very, it’s a very good thing because you get to sing her praises in public. And so thank you for indulging me. The point of the matter is, is, you know, Laila and I have now been married for 22 years. And our daughter, who many of you saw out in the lobby is turning 19 and about three days. And she’s going to be a freshman at a university of California, San Diego. She got into Berkeley, but she wanted to go to UC. So she could be closer to her mom and dad. And so that, that’s a good thing. Most kids want to get far away but Sarah decided she wanted to be, be close.

Dryden Pence (00:54):

And she’s very excited about studying international relations at at UC Berkeley. But more importantly, the great tribute here is to, to Laila. You know, Laila has been in this business for a while. She’ll tell you a little bit about her story, but let me talk to you about what, what has happened over the last couple of years, Laila is recognized both nationally and internationally as one of the top advisors in the nation. And everybody in the Pence wealth management team, we all follow the same methodology. We all have the same investment team. And so the important thing is, is all of the expertise that, that we have is shared throughout the entire firm. So regardless of who your advisor is, it’s important to recognize that we have a tremendous amount of expertise and Laila leads that she, she leads that tremendously and she’s listed as in Forbes, right?

Dryden Pence (01:50):

Most of, you know, Forbes magazine best in state wealth advisors. She is the number one financial advisor in Southern California for 2021. And I think this is the second or third time, third time that she’s been ranked that she’s the number one, not only that she’s been in Barron’s women’s top advisors, a number of times. So Barron’s magazine the other in the industry rag, if you will, that many people look at she’s one of the top woman advisors in the nation. And then the most important thing that we talked that, that she really welcomed is that in addition to be the Barron’s top financial advisers, but she’s also in the barons hall of fame. And what that means is you’ve been on a top 100 list in this nation for 10 years in a row. And that’s a consistent tribute to how hard my wife works and she works really hard. So so yeah. Give her a hand, please. Everybody clap for her. Laila’s been Laila has been on TV. She’s been all the major networks like to have her because she’s so enlightening and beautiful, I think. So without further ado, my wife, Laila Pence

Laila Pence (03:19):

Thank you so much, Dryden, for that introduction. You know, I always say I married, well, you guys agree. All right, I’m going to do something a little different this year. I’m actually, you know, we’ve been doing this for, this is our 24th year, and I never took the time before to tell you about my story and hope I don’t talk up saying it, but I I never really wants to talk about my story because I dunno I was a little embarrassed by it. I didn’t want to talk about myself. Maybe I thought no one would be interested, but then I got a dragon really pushed me. He says, you should really tell people about your story. And then the BBC called and said, they want to do an interview with me about my story. And and I said, okay. And they did a story that went viral.

Laila Pence (04:18):

Story went viral. It actually got translated in many international newspapers and also in Egypt. So here we go. I’m going to tell you a little bit about it. So as many of you probably already know that I was born and raised in Egypt and I had a really wonderful life. We had, we lived in a beautiful of Villa seven bedroom Villa. We had chauffeurs, we had everything and we lived in a city called Suez, this west canal. And I remember very well, I was very, very young child, but in 1967, we were having breakfast in the morning. And we heard this unbelievably loud noise. Ooh, this horrible sound I never heard before. There was a sound of an inmate, the sirens of an air raid that was the beginning of the six day war. So really shocking. So we, you know, we decided to move away from the home for awhile and things died down a little bit, so decided to come back and I kind of get some clothes that we left behind.

Laila Pence (05:36):

So we’re back in the home, you know, we’re packing and so forth. And all of a sudden, again, the sound of the air raid, Ooh, really very, very loud. And we knew what that was for sure. And my dad kept saying, let’s go, let’s go, let’s go. And we’re trying to pack stuff away. And I get into the car and we were turning the corner. I hear this boom, very loud sound of a bomb that she, that bomb hit in the room. I was just in five minutes ago, that was pretty much entered my childhood. We lost everything so fast forward, we decided my parents decided a few years later to immigrate to United States. And we coming to Staten island, New York, and a month before we were supposed to leave, my dad got into a very big accident and broke his legs in so many ways.

Laila Pence (06:44):

So he couldn’t come with us. So it was just me and my mother, all of ourselves coming to Staten island, New York, not speaking a word of English, not having any friends, any family whatsoever. We had to move in, in a two bedroom apartment with a Puerto Rican family. And we had to go to work on the Staten island ferry to selling hot dogs and conditions just to get by. It was a really, really hard time that made it through. You know, I remember going to school, have to take two buses to go to school. And it was so cold. I wasn’t used to all the cold weather in New York. That was that. And you find it all. So finally we moved to California to go to school and my family came along so forth. And even all through school, I waitressed and went to school and studied.

Laila Pence (07:43):

It was really hard, no personal life, just, you know, you work, you go to school, put yourself at school. And then my last year of college, I got introduced to the financial services business. So this business, I was very, very young and I’ll never forget this. My very first client, her name was Hilda gave me $20,000 to invest. I was so excited. I could not sleep all night long. I couldn’t believe anyone would trust me with $20,000 of their hard earned money as a fortune absolute fortune. But today Pence wealth management manages over $2.4 billion in assets.

Laila Pence (08:37):

That’s what I call living the American dream. You know, as I been interviewed about this quite a bit, people started asking me, what, what is the secret? What, why, how did that happen? And I tell them, it’s really all about the team. See if you want to go fast, go alone. But if you want to go far, you go with a team. And I really truly feel I have the best team in the entire financial services business. This is the pest wealth management team. If I can have, I know some of you have, some of them are back in the office, Manning the phones because the zoom, but if I can have the team that’s here right now, just on that and give him a round of applause, please.

Speaker 4 (09:29):


Laila Pence (09:31):

I really think that our team is not only talented and smart and dedicated, but they have a servant’s heart. It’s really about any, you know, people could be smart and they could be talented, but if they are not here to serve you, they will have that server time to really want to do this. Then it doesn’t matter. And that’s so many people do what we do. Why do we succeed versus others? And really feel, of course you have the talent, you have the smarts, you have the experience, you have the dedication, but it’s a heart that matters when we hire, we hire people that heart people here will take the time they will go visit clients. You know? So with COVID when people couldn’t come out, we actually went up to their homes to help them. We, you know, we did whatever we did shopping for them.

Laila Pence (10:15):

We did whatever it takes. This is not just we do this because we care. And it’s really important to set team. And not only do I think that we’re a great team, but barest thinks so too. Doris gave us as we are in the top 100, the private wealth teams for 2021 Legion Tillman is a great compliment for our team. There’s 450,000 advisors who do what we do. We are in the top 100 and you know what? We couldn’t do this without you. It’s all of your here we do. If you are not here, if you’re on zoom, you’re not able to, we can do anything. It’s all of you, the fact that you trust us with your hard earned money, just like I remember that first $20,000 would, that meant to me. I still think every dollar a client gives us today. I take that to heart. They trust you and trust us with your livelihood, with your kids, money, with your retirement. We take that to heart and that is why we continue to succeed. And I can’t. Thank you also. I want to give you a round of applause.

Laila Pence (11:27):

Okay. Enough about that. I get to talk to you about what you really came to hear is this proposed SACS law changes. You know, there were so many changes that started out last year, last year. And in April, there was all these proposals, but these are hot off the press. These are the laws that are proposed us as of last Monday. And hopefully you’re not going to need a, to figure out your taxes like this. So I’m going to go through and tell you about the most important ones that we think affects most of you here today. First one is the top marginal tax rate. So right now the highest federal rate is 37%. If you’re a joint couple, you have to make $628,000 to be in that highest tax rate. What they’re proposing is to take it from 37% to 39.6%, but on a much lower level of income.

Laila Pence (12:30):

So if you’re a joint filers, it only takes 450,000. And if you’re single 400,000, so not only is the rates going up, but the amount that it gets tax on is a lot quicker. They’re actually also added a surtax where people that make $5 million. So the next one is the corporate marginal tax rate. So right now it’s a flat rate for C corporations of 21%. So they actually have a lot of graduated. One, it’ll be like 18%. Then we’ll go to 21%. But if your income is over $5 million as a corporation will be 26 and a half percent, this matters, maybe not to you personally, but it matters in the stocks that we buy, right? They pay corporate tax rates. Now we don’t know, again, these are just proposals. You know, the talk in the Congress right now is maybe going down to 25. And again, there’s a lot of work that still needs to be to happen between the house and the Senate.

Laila Pence (13:30):

And, and these are just, what’s proposed right now. Please don’t take this as the law. These are just proposal, but we want you to be aware of them because there is some planning that I’ll talk about later that you may want to consider. But the one that everybody’s been asking me about long term capital gains, I think all year long, I’ve been asked, what’s going to happen to capital gains. You know, cause I don’t know if you remember, but in the original law proposals back in April, that we’re talking about you know, if you get, if you have a million dollars capital gains, you’d be taxed as ordinary income, which would be like 39 and a half percent. So thank God right now, it’s a little bit livable. Right now the, you pay 20% of capital gains. Once you reach all your income, your income from work or interest or dividends that any capital gains, once you’ve surpassed 500, $1,000, you are not taxed at the 20% rate.

Laila Pence (14:30):

So the proposal right now, it says 25%. It didn’t say exactly at what income level we think that it might be at the 4 5400 50,000 joint level. That seems to be the number that they’re using. And a lot of these, because I, you know, president Biden had said that, you know, he’s not going to tax anybody, that’s making over 400,000. So we’re kind of thinking that that level would probably apply to maybe incomes that were four 50 or 500 or 400, but it is 45% is what’s proposed right now. Now they did say that that could be effective as of last Monday, but that’s not likely we, of course we don’t know for sure. We don’t know for sure whether law make it retroactive to that. Or like, is there still a lot of negotiations that are going to happen before this goes into effect?

Laila Pence (15:24):

Another one I’ve been getting a lot of calls on is what’s going to happen to sit taxes section, what’s going to happen to the CIS tax exemption. Because right now it’s very, very big and it’s wonderful why an individual can leave 11.7 million. And as a couple, they can leave 23.4 million to their heirs without the state taxes. So the law is this law it’s going to expire on 20, 27 anyway, but what they’re proposing right now is that it would go down to 5 million and but it would be indexed for inflation. So we’re thinking that would be like maybe five and a half million. We don’t know. And again, that’s just a proposal, but that, that one seems to have a lot of legs because it is going to go to family in any way in 2027. So maybe there’s a high likelihood that that’s some something that will that will pass, but we don’t know the exact numbers, but that’s, what’s proposed right now.

Laila Pence (16:23):

Now this one I really hits home with me because I think you’ve probably have never heard me speak in a podcast or other luncheons, other events on big, big proponent of Roth versions. She guys agree with that. I talking about Rotkin version because I do really think it’s, it’s amazing to have new money grow tax-free and and then also to EHRs for 10 years. So right now, anyone, regardless of how much income they make, they can convert as much as they want. And there’s no limits. Okay. They’re talking about putting limits back in. And so they’re talking about that next year. That’s proposed for next year, maybe later, we’re not sure some people are saying they may allow a couple more years before this goes into effect for the last conversion, but they are definitely talking about limiting your ability to convert. If your income, as a joint, taxpayer goes over 450,000 and a single taxpayer taxable income of 400,000.

Laila Pence (17:34):

So it’s, you know, you might think, well, I’m not, I don’t have 450,000 or I have 450,000, but if you convert, let’s say your income is two 50. That means you can only convert 200,000 that year. Right. So it definitely gonna change things. All right. So I’ve just covered some of the main highlights of this proposal that was done. There’s a lot more, I’m going to cover a lot more of them at the podcast. And remember you have to register to listen in on that. Now what I’m going to go through your 10 things that you might want to consider to help out in some of these things, in some other planning things. All right. Well, you know, if we know I kind of feel that this year is probably going to be one of the lowest tax year. So if you’re planning to sell real estate or you place your business or you plan to sell some stock or you know, you might want to do it this year, right?

Laila Pence (18:39):

If you have to do it anyway next year, maybe push it to this year. Also ordinary income. I’m pretty sure ordinary income rates are probably going to go up next year. So if you, if you, you know, normally we say push income to next year, this year, we say, maybe push income here because the rates are lower 37 versus 39.6%. So if you have that ability, you might want to do that. Number two, instead of contributing to a donor advice fund, okay, if you have any charitable intent at all, I’ve had people even do this, that donors when recently have a charitable intent, but once they see the benefit of it, they go, oh, I may want to do it anyway because the donor advise fund really is a fund where you get to, if you have stocks or assets that are highly appreciated, you know, one of the things that we have right now is that, you know, stock market’s been great.

Laila Pence (19:32):

We’ve, you’ve had great gains, right? And you want to maybe diversify your portfolio a little bit. And, and so one thing you can do is you can donate highly appreciated stock into this fund and get a tax deduction on the market value of that fund. So let me give you an example. Let’s say, you know, you have apple and you P you paid maybe $20,000 for apple. And today it’s worth a hundred thousand dollars. You can take the apple stock donated into this fund and get a tax reduction of a hundred thousand dollars off your income taxes. Okay? It is subject to 30% of your adjusted gross income, but it is you get that tax deduction. If you don’t use it all, you could carry forward to next year, but you get a hundred thousand and you save, pay the capital gains on the difference between the 20,000.

Laila Pence (20:23):

You paid for your stock and a hundred thousand that it’s worth. So to save saving, you get a tax deduction. You say, paying the capital gains, you get this fund, the fund gets invested. You can invest it in stocks. Again, you can invest it in mutual funds. You can so continues to grow for the benefit of your charity. And then you get to, don’t give it to any charity you want. But most of all, you don’t have to give it any time. Soon. You can leave it there growing, and you can give 5,000 at a time or 2000, or have it monthly to your charity. As you do. If you give to your church, you can just take it out. It’s all online. It is such an easy thing to do. It is really one of the best things. I, you know, we, we’ve probably opened these once a week for clients because they’re really a great way to save taxes and donate. Also, you know, what’s nice about it is you can donate that distribute later. A lot of clients don’t know who they want to give it to right now, right? So this is a good way to put it in it. And then you have the rest of your life to give that money away.

Laila Pence (21:29):

All right. Rossmann version, you know, Raskin version, Roskam version. So, you know, any, anything you convert is 100% taxable, right? It just gets added onto your ordinary income and you have to pay the tax on it right now. There’s no limit to the amount you can convert, right? That’s the law right now. We know that potentially change that this year, maybe a very good year to make, to make a big hit. Yeah, I know I was talking to a client just yesterday. I said, I think you should do a million dollars where she goes, okay, this is great because she has the money in other investments you can use. And I said, this would be the best thing you ever do. You may never get this chance again. I know last year I had a client in the midst of, you know, you know, if you hear our podcast, I’m constantly telling Ross conversion, rascal virtual in the midst of the downmarket, we converted $1.4 million.

Laila Pence (22:26):

By the end of the year, that account was worth 2.1, all tax-free, all that growth burst. Tax-Free right. And as, as you know, with the secure act that passed last December, 2019, you could no longer you beneficiaries can no longer take their money out over the life expectancy. When you pass away, they have 10 years to take taking money out from their IRA or the Roth. But if they have a ROS, they can just leave a growing tax-free for 10 years and then take it out. So it’s very, very powerful growth. And then of course, since you’ve already paid the tax, there’s no required minimum. Right? And I am a big believer in tax-free compounding. I really feel tax-free compounding is the eighth wonder of the world.

Laila Pence (23:18):

All right. So number four kind of says, this is just a little planning trick. Okay. It’s just, what if, you know, a lot of people want to convert, they really don’t like paying the tax. So if you’d like to donate, so why not do this? Why not convert a hundred thousand take a hundred thousand of stock donated to the donor advise fund. Then you get a a hundred thousand dollars deduction. So a hundred thousand income, a hundred thousand blockchain gives us your attacks. So that’s one way you could reduce your tax liability on a Roth conversion. Another way is this one doesn’t reduce. It just makes it less painless to pay the tax. Okay. What I find as clients retire and, and they they get to you know, age 72, obviously many of them are living just fine from their investments and their trust, money and support.

Laila Pence (24:19):

And don’t really need the requirement of distribution. They have these big Iris can you have a big IRA they’re sitting and you know, it’s gonna keep growing and it’s just going to get taxed. You errors in the future and so forth. So if you don’t need all that RMD to live on, then you could say, you know what, why don’t you send all the taxes and see how much I could convert? So I know this is a little bit complicated here on this slide, but I’m going to try and make it as simple as possible because I use this quite a bit, you know, and this is something that other advisors don’t necessarily recommend because most advisors will tell you, okay, you have a hundred thousand dollars in R and D you take 40,000 taxes, send me the check for 60,000 or put it into my investment account, invest.

Laila Pence (25:04):

And that’s what they want to do. They want to leave that money for them to invest. But I’m saying, if you ha, if you don’t need this money to live on the best thing you could do for yourself and your heirs, especially tax rates are gonna go up. It’s just take the whole required minimum, send it to the government. I could do that for you. Okay. And that would, in this example, here would allow you to convert about $150,000 of a Roth conversion. And it’s just, it feels better because it doesn’t, you know, I find that clients are willing to do this. If they, they don’t have to touch her bank account or their investment account, they’re most likely to, you know, to convert if they don’t have to take it out of their own account that they spend with. So this is just another way to help you convert more into into Ross.

Laila Pence (25:52):

All right. The other thing you could do is you are allowed by law to give up to a hundred thousand dollars from your required minimum distributions that you have directly to charity, rather than you getting the money and donating that money that usually do it’s better for you to say, Hey, Laila paid a bail, whatever the is, send. It sent that 10,000 for my arm directly to charity, because that lets you take full advantage of your standard deduction and lets you also possibly not get into where you’re paying your Medicare. Surtax okay. There’s a lot of changes in the estate planning. As I talked about one of the things that’s also I will talk about in the podcast that also changing a lot of the strategies that we normally have to reduce estate taxes like eliminating the grant or trust eliminating discounts. So this may be one of the last year. You can do some real estate planning. If you have a larger state over 20 million or so forth, this may be a really good year. You have a few months to do that, meet with your state planning attorney to see what your option is. Options are.

Laila Pence (27:07):

All right. If you have a, if you’re working and you’re have a 4k, a lot of people just automatically contribute to the regular 401k and then they have the tax problems in the future that we’re talking about now that big IRAs and big RMDs and so forth and so on. So we see again, tax-free compounding is the way to go. For most people, a better option for them is to go into the Roth 401k. The maximum for eight 50 you can contribute is 19,500. If you’re age over 50, the maximum is 26,000 number nine. The best gift that you can give to your children, branches who are working is to contribute to a Roth IRA for them. Okay. They have to have income, but you can contribute $6,000. It’s the best gift. I know that’s something you see Sarah working just so she can work so we can contribute for her.

Laila Pence (27:59):

She works. So she makes $6,000 a year. We can take 6,000 and put it into a Roth IRA last but not least is to fund your children gain to learn 5 29 plan. Like, you know, as an individual that you can fund five years in advance, you have 15,000, you can give to an individual, you can give it all in one year. That’s 75,000. If you’re a couple it’s 30,000 per couple, you can give 150,000 on one year that money grows saturate and it can be used for all education costs. You know, and and it’s all tax free. It’s just like another rough really. But it’s for education purposes. I know I’m, I’ve been funding the FA the fact when place plus a Serbian born and it’s great, you know what, you know, instead of her going to a dorm, she has a choice of going to an apartment. Instead of having two meals a day, she gets to have three meals a day. That’s what you want. It’s a wonderful thing to give it’s the best thing that you can do for your children. Grandchildren is a 5 29 plan.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Pence Wealth Management (“PWM”) is a sophisticated financial services practice within LPL Financial, LLC (“LPL Financial”) comprised of multiple financial professionals that provide a series of services including personal investment advisory, third party managed advisory and brokerage services. Pence Wealth Management, Inc. is an investment adviser registered with the State of California to provide financial planning services. The financial professionals affiliated with PWM are registered with and offer securities and investment advisory services through LPL Financial, member FINRA/SIPC and a registered investment adviser. As of 4/1/2021, the total assets serviced by PWM through LPL Financial consist of $1.7 billion in advisory assets and $300 million in brokerage assets.

PWM and LPL Financial are separate and unaffiliated entities. Content to be presented is for general information only and not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful. No products will be discussed.

Laila Pence is a registered representative with and securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. Financial planning offered through Pence Wealth Management, a Registered Investment Advisor.

Pence Wealth Management and LPL Financial do not provide legal and/or tax advice or service. Please consult your legal and/or tax advisor regarding your specific situation.

Barron’s – Top Women (2021), Top 1,200 (2021) and Top Private Wealth Management Teams (2021) are based on assets under management, revenue produced for the firm, regulatory record, quality of practice and philanthropic work.

The Forbes – (2021) Ranking of America’s Top Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors that are considered have a minimum of seven years’ experience, and the algorithm weights factors like revenue trends, assets under management, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receives a fee in exchange for rankings.

Barron’s Hall of Fame (2019) – Advisors appearing in the rankings have answered 100-plus questions about their practices in our annual survey. The questionnaire addresses a wide range of data points, including the assets the advisors oversee, the revenue they collect on those assets, the industry designations they possess, their regulatory records, the length of time they’ve been in the industry, their charitable and philanthropic work, the investment vehicles they use to allocate assets, the sizes and shapes of their teams, and more.

The rankings specifically do not factor in investment performance, as returns are tied inextricably to the risk tolerances of individual clients; to reward outsize returns would be to encourage advisors to chase them. Instead, Barron’s use assets and revenue as their primary quantitative measures, as clients tend to express their satisfaction by voting with their assets and their fees.

Working Mother Magazine’s Top Wealth Advisor Moms (2020) – SHOOK Research considered wealth advisors who are mothers with at least one child living at home and under the age of 18. Ranking algorithm is based on qualitative measures derived from telephone and in-person interviews and surveys: service models, investing process, client retention, industry experience, review of compliance records, firm nominations, etc.; and quantitative criteria, such as assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. Rankings are based on the opinions of SHOOK Research LLC. Neither SHOOK nor Working Mother receives compensation from the advisors or their firms in exchange for placement on a ranking.

InvestmentNews Women to Watch (2019) – Each of the advisors and executives who made the 5th annual InvestmentNews Women to Watch list were chosen from a rigorous selection process designed to identify women who possess leadership skills, the ability to effect change in the industry, a willingness to share their expertise with other women and are committed to giving back to the community.

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