Hey parents, join the LA Kings on Saturday, November 25th for an unforgettable kids day presented by Pear Deck. Family fun, giveaways, and exciting Kings hockey awaits. Get your tickets now at lakings.com/promotions and create lasting memories with your little ones. Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less.

Today on the show, we're going to dig into a piece of pending legislation in the United States Congress and use it to bring out a couple of practical examples that I think will be helpful to you and to me as we try to think about some practical financial planning tools in our own portfolios and as we try to discern the future.

I think it's an illustrative example and so I'm ready to use it as a teaching point for you. The specific piece of legislation that I'm referring to is something called the SECURE Act. The technical name for this legislation is in the House of Representatives H.R. 1994, setting every community up for Retirement Enhancement Act of 2019.

There is a corresponding Senate version of this legislation called the Retirement Enhancement Savings Act, but usually this is being referred to as the SECURE Act. For context, I'm recording this podcast on Monday, July 15, 2019. As things stand currently, this bill is not yet the law of the land.

This bill was passed, the House version of this bill was approved by the U.S. House of Representatives on May 23 in a vote of 417 to 3. So an overwhelmingly, an overwhelming vote, almost unanimous, of 417 to 3 in favor of the House bill. Now, the normal process, it's my understanding that the normal process for this was going to be that the Senate would try to pass its own bill called the Retirement Enhancement Savings Act and then try to bring any gaps or discrepancies between the House version and the Senate bill together in conference.

However, it's my understanding that a little bit because of the overwhelming nature of the House vote, the leaders of the United States Senate decided to go ahead and just try to use a legislative maneuver called hotlining and hotline the SECURE Act, which basically means to try to bring this legislation and secure unanimous consent by all senators, and then just simply pass it through the House through this hotlining process.

Now, if, so this would only work if no senators object to it under the idea of unanimous consent. If any senators object to the House version of the bill, then it has to go on hold and it has to be debated and further changes brought in in some way.

At the moment, it seems as though one senator is publicly causing problems for this bill, Senator Ted Cruz from Texas, evidently, according to news reports, objects to the bill and objects to the fact that in the final version of the House bill, some provisions that would allow 529 educational savings account funds to be used to pay for homeschooling expenses were removed and also some other idea for uses of 529 funds as well.

It's possible that there are other senators objecting as well because holds can be placed on the legislation anonymously. So that's where things are in terms of a legislative process. We simply don't know if this bill will become law. We don't know if the US Senate will pass it. We don't know if the president will sign it.

So from that perspective, I am a little bit premature in talking about it. However, I want to use this because I think it's an important example of just how quickly things can change when your plans are reliant upon laws, legislation, and policy of the government, especially as it relates to taxation.

What is in H.R. 1994? What does it actually say? Well, there are a bunch of different provisions in this legislation. Here I'm just going to go with the House legislation and discuss that because that's what's actually been passed. These provisions in the legislation range from fairly small to very industry-specific to some very big things that will affect mainstream financial planning.

There are a number of just very small specialty issues in this bill, and then there are a number of things that are more on the corporate side of the financial planning space, some changes of different plans that can be offered and things like that. But there are some provisions in this legislation that would make a big, big deal, that would make a big, big change in terms of average financial planning.

Now the changes in 529 plans are one of those examples. Over the years, 529 plans have become increasingly attractive. I have here on Radical Personal Finance talked about why 529 plans are so attractive. I've tried to disabuse you of the idea that 529 plans are a great tool in the way that they're often used by parents saving for their child's college.

I've tried to show how the potential tax savings are relatively modest for a so-called stereotypical average family who is putting $100 a month into a college fund starting when the child is 10 years old and is planning to take it out at 18 years old. And I've tried to show how the savings in that type of plan are very, very modest.

However, 529 plans are very useful because they can be front-loaded with lots of money. They are protected from the claims of creditors, and so that can be very useful in terms of a simple asset protection plan. They're very, very useful from an estate planning perspective because they are considered to be a gift for estate tax planning purposes.

They're a completed gift where you're actually making a transfer into the account for your child, thus removing funds from your estate. But you still have the opportunity to change the beneficiaries to control the account. There's a high degree of control available for you in establishing one of these accounts.

And so I've tried to show how they actually can be very useful for many people. Just I don't love them in their mainstream application. I love them in some of the more radical applications. Now, a couple of years ago, 529 plans became much more attractive because now the use of 529 plans has been expanded from K through 12.

I guess this was last year, I think, from K through 12 private school education. So now you can use these to fund not only college expenses, but appropriate K through 12 private education. That's a big, big deal, and it really enhances the usability of a 529 plan because many families, especially many families, would like to save for their children's college, but they're also going to be committed to making payments for private school tuition along the way.

And a 529 plan allows you to set aside the money for those payments to use it in a tax efficient way and to fund those K through 12 expenses. Now, again, there could be some tax savings, but the tax savings will work out best if you have a very young child and you're using the money and you can get a lot of gain.

I don't think the tax savings are the number one reason to use a 529 plan. I think it's useful, but it would work if you have a very young child and you're planning for college. But if you're planning for a five-year-old's expenses at age 10, five years of earnings on an investment is likely not to be so, so significant.

But it can be there. Not denying it can be a factor, just that it's not the number one factor. In my mind, this K through 12 opens up a tremendous possibility for wealthy parents, wealthy grandparents to fund an expense that they're committed to, often high-priced private school tuition, and to do it in a way that is very flexible and allows them to protect the funds that they have from the claims of creditors.

So this is what I really love about 529 plans. Parents, grandparents can put 50 grand, 100 grand into an account, set it aside. It's not inside of a trust, but it is protected from the attacks of creditors and they can fund that educational expense and they can do that from K through 12.

And in my opinion, it's far more important to heavily fund an excellent primary school and secondary school education than it is to fund a college education. Any student who is bright and who is capable academically can fund their own college education with just working at McDonald's. And then there's massive amounts of money available for any student who is good at academics, available to pay for them to go to college.

Many students can get paid to go to college. But that's not the same way for K through 6 expenses or 6 through 12 expenses. Those are the years where there simply aren't many scholarships available. The student obviously can't pay for it themselves. I don't mind expecting an 18-year-old to pay for their own college education.

But even as much of a radical as I am, I don't expect a 6-year-old to pay for their private school education. That's obviously unreasonable. So it's much more valuable for, in my opinion, if a parent had to choose between prioritizing educational funds for college versus prioritizing educational funds for first grade, second grade, third grade, fifth grade, I would rather they prioritize those funds for first, second, and third and let the child deal with college on their own.

The reason most people don't think this, of course, is because of the fact that you don't have to pay out of pocket to put your child into a government school. There's no out-of-pocket expense for that. And so most people don't think of paying for K through 12 primary and secondary school education.

They think of paying for college because the number of government colleges that is available without tuition is rising, but is still almost non-existent compared to the number of K through 12 government schools that can be had without paying tuition. But if you put your child in a government school, you get general government school results generally, which on the whole are not particularly good.

So I would rather see those dollars prioritized through K through 12 than it through college, just from an analytical perspective. If you have to choose between them, it makes more sense to me to prioritize it in the early years. And now that the 529 plans are opened up to that, that's a big, big deal.

It makes them very, very useful. So I've grown over the last three to four years to think much more highly of 529 plans than I did previously. There are good investments available, low-cost investments. You can use the state that best serves your situation. A small number of US Americans will get some defray of their state-level income taxes with the 529 plan.

So that can be helpful as well. Now, the thing that 529 plans haven't covered thus far is homeschool expenses. And if they did cover homeschool expenses, I would now become probably one of the biggest cheerleaders because, of course, I think that dollars go much farther in homeschooling or some kind of looser educational system that doesn't just follow the factory school model.

But unfortunately, thus far, it's not the case. Now, will this legislation change that? Maybe. Time will tell. At the moment, I don't expect it to. In general, when you start talking about homeschooling in any way, you have to go up against the teachers' unions and the government school cartel.

And in general, they are very, very powerful, especially politically. And that's my understanding of what happened with the House Bill. The previous House Bill did have provisions in it that allowed for 529 accounts to be used to pay for homeschool expenses for K-12 students. And then at the last minute, due to the pressure from the teachers' unions, the House of Representatives pulled that provision.

Will it come back? I doubt it. But time will tell. That was a bit of a discourse on 529 plans, but it's not the main focus as far as the biggest threat of what this legislation would be for a broader audience. There are other benefits in the HR 1994 legislation, and some of these other benefits of the HR 1994 legislation are actually quite interesting and useful.

So, for example, there is a provision that would allow penalty-free withdrawals from retirement plans for individuals in case of the birth of a child or adoption. I like that. I'm happy to have those provisions if they are in the final legislation as it is passed. One bit of change in the law is some change in the rules, where there's an increase in age for required beginning date for mandatory distributions.

That's only modest. I think it goes from 70.5 to 72. But a bigger issue for me is there would be a repeal of the maximum age for traditional IRA contributions. That's useful to me as well. But there are some downsides. Let's get to the number one biggest threat here with this particular legislation.

And that is the change of what we in the financial planning business call a stretch IRA. The change in rules that would basically eliminate the usefulness of a stretch IRA. First, let's explain how the law is right now so you can understand the benefits of a stretch IRA. And then we'll talk about how utterly destructive this legislation is to this particular strategy.

As things stand right now, if you are the owner of an IRA, and that IRA can be a traditional IRA or that IRA can be a Roth IRA, then you have certain rules that govern you, and then you have certain rules that govern the beneficiary of that account in the case of your death.

Now, if you own a Roth IRA, then because you have already paid the income taxes on the account, the way things stand right now, you can own that account for your entire lifetime, and there are no required distributions from the account. So the account can continue to accrue and grow throughout your entire lifetime until your death.

If you own a traditional IRA, you can own that account through your death, but starting at the age of 70 and a half, you're required to make certain distributions from the account. Those are called required minimum distributions. And they come out because you fund a traditional IRA with money that you haven't paid income taxes on yet.

There's a formula that makes the money come out that you calculate to decide how much needs to be distributed, and that formula is based on your life expectancy. So when you are 70 and a half, it's a small percentage of the account. When you are 90 and a half, it's a larger percentage of the account.

So increasingly, more and more money comes out of the account. Now, for many people who have a small amount of money in an IRA or a Roth IRA, these rules are relatively immaterial. They want to take the money out and spend it on retirement. That's their basic idea that they, that's why they invested.

And they don't have enough money to have a lot left over when they're dead. They're just focusing on having the money and using it to pay for retirement. So most of these changes or even changes in rules would be relatively immaterial. However, for the radical personal finance audience, we're not the normal person.

Rather, we're looking to exploit the rules and say, "Can we, following the law, get major, major benefits that are not available to other people?" And for those, it are not available if we just use up all the money. And in those contexts, a tool like a Roth IRA can be an extremely powerful tool.

If you can set aside a stash of cash and then leave it alone for a long period of time, it can grow to be a huge asset for your beneficiaries as part of your estate. Let me give an example of how reasonably this can be done. Let's assume that a 50-year-old can successfully save and accumulate $50,000 in a Roth IRA.

So we're going to begin with a present value of $50,000. And let's assume that that 50-year-old doesn't need this particular account to pay for their own retirement expenses, such as they are. So they can keep this money invested in this account. Let's further assume that this 50-year-old is able to live to a total of, let's say he was 95, to age 95, for 45 years of total lifespan.

So that gives us 45 years of investing. And assuming that this 50-year-old can invest and earn, say, an 8% rate of return, this one account of $50,000, because it has 45 years available for it, can become worth $1.6 million at their date of death. If they could earn a 10% rate of return, it could be potentially $3.6 million.

So there's major value in a 50-year-old accumulating this and setting it aside as a primary asset for their children. One of the best assets we traditionally teach in good financial planning, we traditionally teach that one of the best assets for you to leave to your children is a Roth IRA.

And that's because of the rules of what can happen when you die and you leave it behind for your children. Now, let's assume for a moment that you leave this asset to your child, or even better, we could do a grandchild or your grandchild, and they inherit it at your death.

What can that person do with this Roth IRA? Well, the first thing they can do is they can obviously just take the money and they can spend it. They can just cash it all out. And if it's in a Roth IRA account, let's say they inherited $1.5 million, there would be no taxes due on the money.

They can just simply take the money and spend it. It's a Roth IRA, the taxes have already been paid, now they can take the full distribution out and do whatever they want. If it is a traditional IRA, then they can take the full amount out, the $1.5 million, but they would owe taxes on $1.5 million of income.

So you can see here why the Roth IRA can be really superior. But what else can they do? Well, they can take required minimum distributions over a couple different options of person's life expectancy. So they could take it off of your life expectancy, but if you're leaving it to a child, they can take the required minimum distributions out on their own life expectancy.

So if you left this behind for a 10-year-old or a 15-year-old or a 20-year-old, you can imagine how low the required minimum distributions are from this account. Now, if you have $1.5 million that's tax-free, and you leave it behind as an asset for a young person, that $1.5 million can basically become a trust fund that provides an income, a lifelong income for the young person, and in many ways could provide for the retirement security of that person.

And the rules around these types of accounts, I'm focusing on a Roth IRA because it's superior here to a traditional IRA, but the rules are applicable to both. The rules on a Roth IRA are so fantastic that they're wonderful. It's a wonderful asset to leave behind. First, you can fund a Roth IRA with just about any investment that you want.

There are a few prohibited investments. You can't own life insurance in it. There are a couple other prohibited rules, but you can pretty much fund a Roth IRA with just about anything. So you can put a house inside of a Roth IRA. You can put a stock inside of a Roth IRA.

You can put a mutual fund or an ETF inside of a Roth IRA. You can even put gold coins inside of a Roth IRA. You can put almost any type of investment inside of a Roth IRA. So this opens up a tremendous range of opportunities to you. Another thing you can do, though, is because of the Roth IRA being generally protected from the claims of creditors, you have a very safe asset that's available to leave behind.

So similar to what would happen if you set up a formal trust for your child or grandchildren, the Roth IRA has many protections. It's protected from the claims of creditors. Your child could have a million and a half dollars in their inherited IRA, but as long as the money stays in that inherited IRA, it should, in most states, retain its protected status as being exempt from the claims of creditors.

It should be an asset that can be segregated out in case of a divorce or other life happening that causes the child's assets to be exposed to the claims of creditors or other people. And so it's a very, very safe asset. But because it's a Roth IRA, it's eminently simple.

You don't have to pay a trustee for management fees. You just pay a simple custodian, and the costs on these are basically non-existent. And so it's a wonderfully efficient asset. And if you just think, I mean, I hesitate to even do the math, but if you just think of how much money this can grow to if you leave it behind to a young person, and the money is exempt from taxes and it can come out on the young person's life expectancy over an 80-year period, it can be an absolutely huge asset.

So given that this is so good, this has become a primary staple of financial planning advice. I've gone on and on about all these benefits here just now. And this is a major, major benefit of a Roth IRA. And it causes most people like me, financial planners like me, to use these as a primary tool.

And you should. But now watch what happens if this new legislation passes. What happens if the SECURE Act becomes law and passes the Senate by unanimous consent? The SECURE Act eliminates the stretch IRA. The SECURE Act eliminates the stretch IRA. As things stand right now, the beneficiary of an account can stretch things out over their actuarial lifetime, which is really wonderful.

But under the terms of the SECURE Act, a non-spouse beneficiary of an IRA has 10 years to pull out all the money inside of an IRA. Now here's where we're going to kind of slide to the side and morph over into talking about traditional IRAs instead of so much Roth IRAs.

Because from a tax perspective, the impact here to a Roth IRA is not so substantial as the impact to a traditional IRA. The reason is that when the assets come out of the Roth IRA, they're going to come out tax-free. So yes, you don't get to maintain the tax deferral over a long period of time.

You just have to take the money out. It's basically going to be kicked out and you have to spend it. So, okay, big deal. But what about the tax planning for a traditional IRA? And here, focus very carefully on the fact that this is applicable to a 401(k), traditional 401(k), 403(b), etc.

All types of traditional accounts. And the vast majority of savings are not in Roth IRAs, but in these types of traditional accounts. So imagine here that a parent, let's say that I set aside and put $20,000 per year into a 401(k) and then I happen to die at 50 years old and I've accumulated half a million dollars in my 401(k).

Now, this is a very normal scenario for people who are in the upper, the top half of median income earners who are contributing to retirement accounts, etc. It's not normal. Most people below the median income earners don't have retirement savings, etc. But it's normal for the audience of radical personal finance to put aside $20,000 per year into a 401(k).

Well, in this situation now, my wife could inherit the money, but if I leave the money to my child, now my child has 10 years to get the money out of the IRA. Now, let's assume that you are a child and you inherit $500,000 in an IRA. And let's assume now that you have 10 years to get the money out.

You do the math and you can see how big of a deal this is going to be from an income tax perspective. Let's assume for a moment that I die and I leave an 18-year-old child behind. My 18-year-old child inherits my half-million-dollar IRA that was my work 401(k). Now that 18-year-old child has $50,000 of income coming in, if they're going to take it out in equal payments for the next 10 years, $50,000 per year, I have just destroyed any ability of my child to qualify for scholarships.

I've just destroyed any ability of my child to get financial aid, student loans, major changes now because my child has $50,000 of income. Or what if it were more? What if I left behind a million-dollar 401(k) and now it's $100,000 per year and now my child has $100,000 of income coming in on top of their salary?

You can quickly see how under the progressive tax system of the United States, a major, major portion of that account would be lost to income taxes. Now first, let's talk about is this fair, right? Is this just? Well, I understand the arguments that would be in favor. For example, let's say we can cry big tears for my college student who can no longer qualify for financial aid and who can no longer qualify for scholarships because I have $50,000 of income and say, "Look, they have $50,000 of income.

They should pay for their own school." Okay, that's a fair point. I don't think that's wrong. I don't know in this situation that we can make an argument one way or the other. We can start at the basis of should there be taxation at all? That's a fair argument.

But I think in this situation, you can understand why the people voting for this legislation would certainly say, "Well, big deal. So what? A rich person has millions of dollars in their IRA and so what? Their kid has to pay taxes." Fine. You can understand how they would do that, which is why this legislation passed 417 to 3 in the House of Representatives and there's a decent chance that it'll pass unanimously in the Senate.

Time will tell. So you can understand why the proponents of this would try to make these changes. But as far as I'm concerned, this is a good example of how governments default on their promises by changing the law. That basically when you're dealing with government, you're not dealing with a person who can be held accountable to fulfill their word, to fulfill a contract as agreed upon.

Rather, you're dealing with an entity that can be moved by the winds of the day. So if you and I made an agreement and you and I made a contract and I said, "I will allow you to do this and you'll get these benefits," then you would expect those benefits to continue.

But when you're dealing with government, you don't have that. You don't have a contract. They didn't give you a contract when you participated in their IRA scheme. They just simply said, "Hey, do this and you'll have it," and then they changed the law. And this is why I really wanted to bring this subject out.

Because everything, every kind of government program, every kind of government scheme, every kind of government tax law, all of these are run by the same basic concept. There is very little stability or consistency to this. It has more to where you can say that this is the way it's going to be, has much more to do with where are the tides turning at the moment.

So the laws on IRAs changing, this is not changed, this is changed all the time. They have changed again and again. Sometimes they change for our benefit. Sometimes they change against us. But we don't have any choice, any control over their changing. The moral of the story is that you need to assume any time you're making decisions that involve government legislation, government rules, you need to assume that you're dealing with a fickle partner that can basically at any time with a little bit of advance warning due to legislative process change all the rules completely and completely destroy what you're trying to do.

Now, does this mean that a Roth IRA is a terrible deal or a traditional IRA is a terrible deal? I don't think it's a terrible deal, no. But if your strategy is 100% predicated on this one thing going, if your counterparty is the government, is the US federal government, you cannot trust them.

You cannot trust them not to change the rules. Why am I bringing this out? Well, there is an important question that needs to be asked. Any time you deal with a governmental entity, can we trust them to keep things the way they are? And in personal finance discussions, there is a broad range of trust.

There's a broad range of confidence that different people have. And I've thought through this question and been exposed to the different extremes that, and I've never quite known how to work it and to find the answer that I could put my own feet on. For example, there are people who will give you the advice and say, "You should always participate in a program like IRAs, 401ks, et cetera, because they're the very best thing and you'll save tons and tons of money.

You should always fund your 401k first. You should always fund your Roth IRA first because it'll save you tons of tax money." That's the mainstream financial planning line of argumentation. From a mathematical perspective, it's really hard to argue with that. And you look at it and you say, "Yeah, these can be compelling benefits." I've tried to show you how compelling a Roth IRA can be.

I didn't go into too many details, but as far as calculating the tax consequence, but these are compelling benefits. But on the flip side then, there's a more extreme, usually a fringe group in today's world where people say, "You should never participate in an IRA. You should never participate in a 401k because the government's just going to tax that money anyway." Well, are they right?

I don't know. I have a very hard time seeing the support for that fringe view. And the reason I say that is because I think that once these programs get so established, I think there would be an outcry if, for example, if today the US federal government started to impose a new tax on Roth IRAs, I think there would be enough of a voter outcry to stop that.

I do. Now, can I prove it? I can't prove it. But I think enough people have Roth IRAs and enough people would feel like they were being tricked, that there would be enough of an outcry that the politicians would scurry away and not change the rules. But I can't say that that's going to be the same way forever.

And that's where I've always struggled with that extreme fringe view, where I say, "You know, I don't trust the government either, but it seems like I've got to make a test here of the political will." So it's important now to look at legislation like this. This legislation, if it passes, dramatically, dramatically devalues retirement accounts.

It makes a huge, huge devaluing in retirement accounts. And it can very substantially point us in a totally different direction. For example, if this legislation becomes a law, then now we're going to, I would seriously look at my investments and I would much rather leave investments. So I would much rather leave an investment that's a capital gain asset that can receive a step up in tax basis at my death and thus be inherited income tax free by my children, or at least with a massive step up in tax basis, then leave an account filled with untaxed ordinary income, which is what happens in a 401k.

In this situation now, I would go back and I would say, "Man, I would much rather not participate in this 401k here. I'd much rather buy a piece of real estate or buy a stock or buy a business or some kind of capital gain asset and leave that asset just outright, not in any kind of qualified account to my child, maybe protect it by a trust instead of a qualified plan document." That's going to be a much superior tax strategy than the 401k.

If this legislation changes, the value of your retirement account is dropped by, what number to use? I mean, 20%, 10%. I don't know exactly how to defend a specific number, but there's a massive drop in value here from your retirement account if this new legislation passes. So what do you do?

How do you do? What do you do practically? Well, here's how I think about this. I'm uncomfortable with either of those extreme positions that I outlined. For example, I'm uncomfortable with the mainstream financial planning advice that just says, "Always prioritize retirement accounts," because I think they don't account for the embedded risk of dealing with a fundamentally uncontrollable entity such as a government where you cannot exert any control.

You can't sue them in court because of a breach of contract. We're dealing in a world where, hey, the legislators said this, they were duly elected by their representatives, and so you're basically dealing with a fickle group of people that is going to be representative of the winds of the day.

Now, thankfully, in the US-American system, there's a bit of a stabilizing influence. You have a house of representatives that is deeply responsive to the passions of the day. You have the US Senate, which is not responsive to the passions of the day, but is intended to be much slower, to make everything slow down.

And you see that happening right now with this particular legislation. Time will tell what happens. So thankfully, there is, at least in the United States of America, a moderating influence due to the system of government that was imposed. But at the end of the day, you're still dealing with a government that views itself as sovereign, that views itself as the owner of your money, and views itself to have the authority to tax you on your money and to imprison you if you don't pay them their tribute.

And so it's fundamentally, I think, dangerous to take the mainstream position and say, "Well, it's just, this is what they have, so I'll just participate fully in this program." But on the flip side, to totally walk away, although I understand and respect the commitment of people who do that, to totally walk away, I think, denies some of the practical value of these types of accounts.

For example, I've emphasized in this show and in many shows, one of the most practical values of retirement accounts is not the tax savings, but the simple protection from creditors. No, they don't defend you against super creditors, such as tax obligations, such as court judgments, such as court restitution, etc.

But they do protect you against the common ordinary credit, ordinary everyday creditors. And so these accounts are very, very powerful. For an average person, there is almost no better creditor protection scheme that can be engaged in than just putting money in a 401k account, putting money in a Roth IRA.

These accounts have a huge degree of flexibility, and they can be leveraged by a thoughtful person. And although the legislation will change, I think there is enough of an advance notice that a thoughtful person who's paying attention can see the writing on the wall. For example, it does seem excessive to expect that Roth IRAs will continue in the way that they have been established.

When the Roth IRA was first established, it was supposed to be a very small account. It was supposed to be a small account. But the government just doesn't give away tax-free growth and tax-free buildup for decades without it. It fundamentally belies the taxing nature of a government entity to say, "We're going to give you this account that you can build up millions and millions of dollars." So then Roth IRAs started to be used, and then they started to be exploited by thoughtful, intelligent people.

You started to have rollovers. You started to have the backdoor Roth IRA develop. So far, thus far, the backdoor Roth IRA is still legal. But you're in a situation now where people can accumulate millions and millions and millions of dollars in a Roth IRA. And anytime something is exploited like that, it now becomes a target.

And this is not new. Back in 2015, President Obama proposed several changes to the retirement legislation. President Obama in 2015 proposed a budget that would impose required minimum distributions for Roth IRAs. He also, in 2015, proposed a cap on the amount of money that you could accumulate inside of an IRA, and other changes as well.

So I don't feel that either of those extreme positions of, "I'm just not going to participate," although I understand that, or "I'm going to be all in," although I understand that as well, I don't think those are the right position. Here's what I think is the practical right position.

We only have the rules and laws that we have today. And if we're going to abide by the law, which I think is important, it's morally right, and it's practically necessary, again, don't mess around with people who will put you in jail and execute you. Follow their rules, no matter how stupid they are, because when somebody will put you in jail and execute you, that will cause us to...

Loses your freedom, and that kind of eliminates the whole idea. So we follow the law very, very carefully, and make sure that everything we do is law-abiding. If we don't want to follow the law, the practical way is to remove yourself from the laws that you don't like. So if the government imposes...

If the US government bans alcohol, the most practical course of action is not to become a rum runner. You might be put in prison for that and executed. The most practical option is just move to a place where the government doesn't ban alcohol. Then you can maintain your freedom, and you can...

It's just much more practical. So we follow the law. We follow the law very carefully, and especially in tax situations where, again, they will put you in prison for life if you don't play by their rules. But be practical and thoughtful, and never risk your entire plan on what the person says they will do.

Just like in any kind of practical business dealing, you don't risk everything on what somebody says they will do, especially when you're dealing with a fickle and corrupt entity such as a national government. So use the laws that are advantageous to you. Use a Roth IRA, use a 401k, etc.

But if you get to the point where your entire wealth is dependent upon this one rule staying in force, now I think you've got a risk that can't be trusted. Now I think you've got something that you need to adjust. And so keep that diversity there in your plan.

There have been a number of changes proposed to the HR 1994 and a number of different kind of caveats to the legislation. For example, oftentimes when you see rules change like this, you'll see a certain cap. They'll say, "Well, we're going to cap IRAs that are more than a million dollars, and we're going to tax you on the excess," or things like that.

It's a common way. And that fits in with the general ethic that you see applied by legislators. The basic idea is soak the rich and take care of the poor people. So we're going to give this, but we're not going to give it to the rich people. So you can play within those things.

Make sure that your accounts never look like they're all that rich. Make sure that you... I don't want to give too many examples, but you just play by the rules and don't ever make yourself look like a big fish. There are ways around it, and there are always going to be ways around it.

But my point here is don't bet the farm. Don't focus everything on just one account or one strategy. Diversification is important in more than just making sure you don't own one stock. Diversification is important in strategy because when you have multiple accounts, you have different things that you can draw on.

This is kind of classic retirement distribution planning 101. If you have an account that is a tax-deferred account, if you have like a 401(k), if you have an account that's a tax-free account like a Roth IRA, if you have an asset like stocks that have some capital gains or throw off some income that are outside of qualified plans, if you have some assets that can be sold when you need money, if you have access to life insurance, cash values that can be accessed from time to time, if you have access to lines of credit, then now an intelligent financial advisor can sit down, bring together those different assets, look at the tax code at the time, which none of us can predict, and then put together a distribution strategy that maximizes the benefits of each of those things.

So diversify. Diversify your plans. Diversify your strategies. There are other good things about HR 1994 if it is passed the SECURE Act. There are benefits and disadvantages. I don't love the insurance industry is lobbying very hard to get the annuity laws passed. I don't love it. Time will tell.

I don't want to talk more about things because it could be made totally irrelevant when we see final legislation, if any has ever passed. The basic thing I wanted to use is to say it's not crazy to think that the laws will change. The laws will change. It's crazy to think that things will just continue as they always are.

But that doesn't mean that you have to take that hardcore position of "I'm just never going to have a retirement account." Yes, taxes will go up. In my opinion, this is a perfect example of government default. This is what we can expect example after example after example after example of in the coming decades.

The US federal government is bankrupt. They're desperately looking for money. They're running almost trillion dollar deficit every single year. How do you fix that? Well, you raise taxes and you lower benefits. How do you do that in a way that doesn't count for a political revolt? You do it in little bits.

You raise taxes in ways that don't force a legislator to stand up in front of people and say, "Yes, I raised your taxes." You do it in back doorways like this. And then you raise it at the margin and you do it on people and you say, "Listen, who needs $5 million in an IRA?

Of course you don't need that. And hey, these accounts were never designed to have this provision where you could leave it to your kids and have it tax-free for 60 years or 50 years. These accounts were never designed for that. So all we're doing is just closing a loophole." Never mind that they wrote the law that way.

It was exactly what they did. They did it to incentivize people to participate in those accounts and then they changed the law. So the way that this is happening and is something that we can see again and again and again in the coming decades, or at least that's my guess on what will happen in the future.

You judge for yourself. I think that's the major point I wanted to communicate in this show. My intent is not that you worry about HR 1994. It will impact you if you've got a huge balance in your qualified plans or in your Roth IRA accounts. But it's not going to be a specific negative harm to you right now.

It just means that the great plan, if this passes, the great plan that you thought was going to be in place just isn't going to work out as well as you thought. But there will always be ways around it. You can remember this. What's the phrase that I think Jeff Schnepper loves?

"Where there's a will, there's a lawyer." And it's a lot better and more profitable for you to spend your money on lawyers and financial advisors than to spend it on paying taxes. At least if you spend it on your lawyer and you make his Porsche payment for him, you at least are stimulating the economy and helping him and everyone that makes the Porsche.

You're actually helping people instead of sending it off to make guns and bombs to control the world. So there's always a way through it, and you'll find it. Keep an eye on HR 1994. We'll see what happens. I would love it if the 529 provisions were expanded for homeschooling.

That would thrill me. But in general, almost none of us are ever happy. Probably any decent piece of legislation never makes everybody happy. It's always winners and losers. And that's probably, in the end, fair that it works out that way. So we'll deal with it as it comes along.

But watch it. Watch the process, because I think it's instructive. Don't put all your eggs in one basket. Don't bet the farm. And I wish I could come up with another list of cliches to show that there's wisdom in diversifying. Don't bet everything on one strategy. If your entire strategy is the backdoor Roth IRA, it's not dead.

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