Stephan Shipe
Welcome back to the Scholar Wealth Podcast. This week, a high earner realizing his CPA is filing history rather than shaping strategy, and what tax planning looks like at $800,000 of income. Then a professional being recruited to a competitor with unvested RSUs and deferred comp on the table, and what negotiation needs to include. Then we'll wrap up with Money Masters, where our guest Mike shares his story of navigating a successful corporate career while intentionally building financial confidence and stability for his family.

So let's go ahead and get started with our first question. And one I hear way too often. My CPA is great in March and invisible the other 11 months of the year. I agree. I don't know where they go for those other months. Every year I get the return and think nobody's actually planning here, we're just recording history. At $800,000 of income, what's the difference between what I'm getting and real tax strategy, and how much is this gap costing me? So unfortunately,

the accounting and CPA landscape is really set up for failure in the area of tax planning. And it's not necessarily a knock against CPAs or accounting firms. It's really just how the structure works in many cases. It's actually day one of game theory in economics courses. You talk about this competitive advantage and where it's at. And what typically happens is

CPAs, especially when you're dealing with tax returns — the goal for many people is, I need my tax return filed, so I need to see a CPA. Do you have a CPA? Do you have a CPA? Right? We all go through and we're just looking for someone to file the return. So the business in general is structured in a way where it's almost commoditized. As long as you get your return filed — I can file that return cheaper than the CPA firm across the street, which is really bad, right? That,

in a competitive market, the price goes to cost is what ends up happening. In other words, two firms that are competing, when the output is exactly the same and commoditized, the price of the output ends up dropping to the cost of producing that output, which is why you see a lot of CPA firms ship the jobs of even data entry overseas to help input all of the data, because they've got to drop that cost so they can still make a profit. What ends up happening in an environment like that

is that they are structured in a way to, as you said — which I think you nailed it — file history really well. They have a process in place that says, give me all of your data, I'm going to collect all this data, somebody else is going to go and enter that data into my system, I'm going to review it, hit go, and it's filed. Sign the document, we're done, roll to the next one, because volume is how it's going to work. So the firm is structured that way. They're not structured as an advisory firm

in many cases. Again, I'm not saying that's all of them, but in many cases, CPAs are not advisory firms. They're filing firms. And that's their goal, which is why in your case, you're saying I don't know where they go for the other 11 months. Right. I'll tell you, after April 15th, they're going on vacation. Try to email a CPA in May, June, and you get a bunch of out-of-office replies, because they're dealing in a world where their filing is done early in the year and

at the end of the prior year when everything's trying to get done. So in your case, what you're missing out on — I think it's valid for the majority of people. And some people look at this and say, well, that's ridiculous that CPA firms are structured like that. Not really. Not when you look at the average income in the United States being right around $50, $60,000 likely. So someone at $50, $60,000 doesn't have the complexity where they need a CPA for the other 11 months of the year.

So they just need their tax return filed. As you start going up in income, the need for a CPA increases. You get away from the TurboTaxes of the world and you start having that — maybe that hits around $100,000, $200,000 a year. There are some deductions there. Maybe you're starting to itemize some things. Again, all things that are going to be really easy to just input. What tends to happen, though, is once you start jumping up past five, six hundred thousand dollars of income and you get to where you are at $800,000,

there's a lot of stuff going on. You don't get to $800,000 of income without some sort of complexity. There are either distributions that are coming out from investments that are big, we have considerations around tax loss harvesting, we need the different retirement accounts. You're not looking at retirement accounts, you're looking at maxing out retirement accounts. So in your case, what is that gap costing you? It really depends on the type of income that you have. If this is $800,000

of W-2 income where you have no option and you're just going to get a paycheck for $800,000 that year — not a lot of options. There are some. I mean, you can do some backdoor Roths. Maybe your company has availability for a deferred comp plan or something like that. Your biggest benefit is maybe going to be the structure of the investments that you have. If you have a larger portfolio, you can think about some tax location or some asset location strategies there.

Maybe you start getting into some things like real estate. But if you're making $800,000 of W-2 income, you probably don't have a ton of time on your hands to deal with the real estate. Once your income gets away from that — assuming that you're not dealing in the $800,000 of W-2 income — then things get real interesting really fast. Now we're talking about things like you having separate entities. Entity structure becomes something you're going to want to talk about. Even something as simple as an S-corp election. Let's say you have an LLC and

you're paying yourself $800,000 of income as a W-2. That's a problem when you could have paid yourself, maybe — depending on if your CPA's giving the advice — less as W-2 and the rest you're taking as distributions, and you're saving on self-employment taxes. Maybe that saves you a few thousand dollars there. You could go and have different structures and retirement accounts. Maybe you have a cash balance plan that you open up, you max that out maybe for $300,000 or so in there, and that's $300,000 of that $800,000

that you're not paying taxes on. If you're paying, let's say, a blended 40% in taxes, easy — that saves you $120,000 right off the bat. So there are a lot of things that can happen when you have a little bit more flexibility. And my guess is at $800,000 of income, there's some flexibility there, on both spending and where that income is coming from. So things like charitable contributions — are you doing DAF contributions? Are you bunching those DAF contributions

or any charitable contributions? You say, well, Stephan, I want to give fifty thousand dollars a year. That's great, you give fifty thousand dollars a year. Does it make sense, though, for you to take all four years and give two hundred thousand dollars in one year? And that would help you in a significant way in a time when income's higher, and then you don't give the other years to even it out. Those are the types of planning discussions that I think are going to be really important for you, based on just the information that we have here on that level of income and my guess of

what's there. So good planning, probably five, six figures in this case. If it's truly eight hundred thousand dollars of business income, this may be a six-figure opportunity for planning. If it's less than that, if you're closer to $800,000 of W-2, there are some opportunities there, especially around charitable giving and investments, but not as much. And I'd say you're probably looking at that lower five figures of savings from some good tax planning.

Be careful though not to get into a trap of saying, I want to save on taxes, so I'm going to go and invest in some really wonky investments out there that say I'm going to donate something for a dollar, but I'm going to get five dollars of deduction. That stuff is fraudulent in many cases. So you don't want to get into those worlds. But in this case, to answer your question in the simple way — what's the difference between what I'm getting and real tax strategy? It's all the stuff we're talking about here, right? It's all these things that require them to know you longer

than just one meeting, if that, and you filling out a document that says what's changed this year and here are all my tax documents. They need to be going through them and not just entering the data you give. A good example of that is, if you hand them a 1099 at the end of the year, are they looking at it, or are they just entering the number at the bottom of the 1099 that says how much earnings you had? That's the big difference in what you're missing. You need conversations throughout the year.

And finding a good CPA who's going to have those conversations and have the knowledge to have those conversations. There are many of them that say, sure, let's meet quarterly, and they're not really bringing anything to the table. But you find some good ones, there are some good opportunities there. Financial advisory firms do this as well on the planning side. That's a big question we get regularly — like, well, can you help me save on taxes? And I always go back to the idea that investment advisory firms registered, you know, with let's say the SEC or anything like that, are allowed to do tax planning.

They don't do tax advice. And that is the perfect example of gray areas of the IRS, where they're like, sure, you can do tax planning, you just can't give tax advice. So what does that mean? Tax advice is an opinion. In other words, if you came to me today and said, Stephan, how much should I pay myself from my W-2 and my company compared to distributions? That's an opinion, and I can't tell you. I can't go and give you an opinion of, I think you should pay yourself 150,000,

or you should pay yourself 10,000, or whatever it's going to be. That's going to be a time where there's a gray area and a decision has to be made. Now, can we go and plan for what a cash balance plan looks like in your account, or how much you would save on certain types of contributions, or should you sell certain stocks versus other types of stocks, or should you pick investment A as opposed to investment B? That's absolutely tax planning, because it's black and white. What we're doing is bringing different options available to you. So that's a really distinct difference there.

And you see that as well with EAs compared to CPAs and different tax firms that exist. But I absolutely think you should be on the market for a CPA, looking for someone who's going to go into a little bit more detail for you on the planning aspect and being proactive as opposed to reactive on what happened last year. So, question two. I'm being recruited to a competitor with a 40% comp bump, but I'd walk away from about 2.8 million in unvested RSUs, and my deferred comp would pay out immediately

as a lump sum, all taxed in one year. The recruiter keeps saying they'll make me whole. What does that "make whole" actually need to include for that to be true? It needs to include a heck of a lot, right, for them to make you whole on this scenario. And the reason for that is this. I mean, just off the bat, the deferred comp scenario is going to be a huge tax hit. You're going to take deferred comp, you're going to have all this income hit, and it's going to be taxed at the highest rate. I'd look at deferred comp and throw

a 50% cut immediately on it. So if you've got $500,000 in deferred comp or a million dollars in deferred comp, in my mind it's only worth half of that, because of it all having to vest at that one time. So that's not going to be worth much to you if you take this job. It's going to hurt you. So the other one is the walking away from the $2.8 million in unvested RSUs. This is where things start to get a little bit interesting, because it depends on what that vesting schedule looks like.

If it's $2.8 million in unvested RSU structure over the next 10 years, it's going to be harder to show that has a huge value. Now, that's assuming that you're comparing this to 2.8 million. And obviously 2.8 million is a significant amount of money if they're giving you something similar at the new place. So you can look at the new place and say, if you're going to make me whole, I've got $2.8 million of unvested RSUs out there. I need an RSU package and a comp package

that's going to at least match 2.8 million in unvested RSUs. But ideally, you have that on an accelerated vesting schedule. So are they willing to come in and say, I know you have 2.8 million out here, what if instead of taking 10 years, we grant these 3 million over the next three years? That's more helpful right now. Still issues there from a tax perspective — 2.8 spread out over 10 is

a lot less of a tax impact than three million spread out over three, because a million dollars in income every single year is going to be taxed at a heck of a lot higher of a price. So the way we'd model that is I would look at everything you're leaving right now. And the nice thing about this is it's not an opinion. So you can easily bring this to them on a spreadsheet. It's not an opinion of what "make whole" is. So when they keep telling you we'll make you whole, you want to make sure that they're using the exact same numbers you're using, because

there's an answer to this question, right? It's a solvable question. So you should be able to look at this and say, I'm leaving 2.8 million spread out over all these years. Now, some people would say discount all of that back to today, which is technically true, that you should be dealing with the present value of those unvested RSUs. But you'd also expect that that stock itself is growing at a reasonable rate. So it's not really 2.8 over the next 10 years, it's 2.8

over the next 10 years that's been growing over that time. So it might be closer to four, four and a half. So that'll wash itself out. In other words, if you grow a million dollars next year over the next four or five years and then discount it back by that same amount, you get to 2.8 million. So you can save yourself some math there, and some messy Excel work, to just say that's 2.8 million dollars that you need today, as long as the vesting schedule is faster.

If it's not faster on the vesting schedule, then you are going to have to do some of that discounting math to make sure it's set up. And then from a deferred comp perspective, I'd look at that and say that's going to be probably your biggest issue if deferred comp's a significant amount of what you have. I would be surprised if that's the case. Usually deferred comp is not huge, but I've seen deferred comp programs have a few million dollars in it. And if that's the case, a lot of that's going to taxes.

So they need to make up for the fact that you're about to lose half of your deferred comp in taxes. So I'd be looking for an RSU schedule that's faster but has at least 2.8 million. And that's to match it, right? That's not them convincing you to leave. And that's where the 40% comp bump could work. But going into this other deferred comp scenario of saying, how do we make that deferred comp plan whole,

is going to be the more interesting problem. So I would look for at least deferred comp that's similar, or compensation that's high enough to get you back to whatever it is — which is easy math, 50% of whatever your portfolio is right now in deferred comp. So to summarize that: if you have a million dollars in deferred comp right now, I'd be looking for an additional $500,000 of compensation somewhat soon, early in this contract,

and at least 2.8 million of RSUs vesting at an accelerated rate compared to what you're dealing with now. And you've already got your base comp with a 40% bump. So with all that, I'd say that's what making you whole means for that scenario. Because you want to make sure that there's enough meat on the bone there for you, with the uncertainty of leaving a current job for another job. Tons of uncertainty in that scenario. So you want to make sure that you're covered both now,

on the immediate side, and what the next three to five years looks like. I wouldn't want to be hanging anything out past five years for uncertainty reasons.

Stephan Shipe
All right. Now we can jump into our special segment for today. We're excited to welcome Mike to our Money Masters series. This is where we spotlight real stories of people conquering complexity and building financial confidence. So let's go ahead and jump in.

Stephan Shipe
Mike, welcome to the Scholar Wealth Podcast. As we start off today, why don't you give us a little bit of background on yourself?

Mike
Okay, that sounds good. Good to be here with you, Stephan. My name is Mike. I retired about two and a half years ago after thirty-four years of working at a large corporation. Before that, we got married at an early age. My wife and I, Jody, have four kids, and we live in Indiana right now. But retirement has been fantastic. It's sure been a blessing to be able to retire

at a younger age where you're still a bit active.

Stephan Shipe
So tell me about — you had a very successful corporate career, lots of energy going in there, managing many moving parts. How did that transition go? Did you intentionally put all that into something that required just as much energy, or did you ramp things down, and how'd you make that decision?

Mike
No, it's a good question. So we got married really young. I was nineteen when we got married, Jody was twenty-one, and we had our family very early. And so we never had that time, like right out of college when you're kind of discovering who you are, to kind of discover what your path in life's going to be. So without having that stage, it probably made sense for us to retire early. And so I retired at fifty-six.

And it was really an awesome and sometimes overwhelming feeling that, for the first time in my life, I could really just step back and say, okay, what's important to me? And kind of design the life that you always wanted to be able to. And so I took a year to just slow down and say, okay, what's important to me? And what I found was there's always things to fill your time with. And if you weren't thoughtful about

where you're going to spend your time, two, three years down the road, you'd be busy and you'd go, wait a second, am I fulfilled at that point? And so I sat down, took about a year, got a retirement coach, and just spent a lot of time kind of getting to know myself again — kind of stripping away any ego that you had left from having a big job, and then going back to the foundation and saying, what's important to me? Who am I? And I arrived at probably

seven, eight, nine different things that were important to me that I wanted to get out of retirement. Not specific things of saying I want to do X. It's like, this is important to me, and I want to make sure in anything that I do that I'm able to achieve this. And so obviously I can't do seven or eight things to fill my time. So what I then did was sit back and say, okay, how can I find three or four or five things that can each one touch on and

give me fulfillment in two or three of those things that were important to me. And so that's the journey that I'm on. I went through that process. It was more difficult than what it sounds, because you really have to strike through and say, okay, if I decided to do something, would I be doing that for ego, or would I be doing that for really what's important to me? And so it allowed me to get back to my foundation, what was really important to me.

And it allowed me to be very careful in selecting those three to five things that I wanted to spend my time on and really have a fulfilling retirement. So I'm loving it. It's been a great process for me.

Stephan Shipe
And if you don't mind sharing, what are a couple of those things that you narrowed in on, or maybe some of the ones that you thought you were going to go to and didn't end up choosing?

Mike
Yeah, I'll maybe go into one that was really successful that I was really thoughtful on, and then one that I had to make a quick decision on and I made the decision to do it and I regretted it deeply, because I didn't follow what I promised myself I would do. So maybe the first one — I was an engineer by training at school. So I graduated with a bachelor's in chemical engineering. And then I started my career, and I worked

five, six years in a technical role, and then moved into management and more business medical type of roles after that. And I really enjoyed the technical work. I really enjoyed being the engineer. That's kind of who I was growing up. And that's how I always introduced myself to anyone, no matter where I was at in my career, because that was my identity. And so I enjoyed the technical piece of it. I also enjoyed — one of the things was

giving back, you know, charitable giving with both time and money. I really enjoyed and got a lot of value out of the university I went to. And so I wanted to give back to the university. And one of the things I really enjoy doing is being around youth and young adults. So I went back to teach an engineering class at the university I graduated from. And that's just been wonderful. I've enjoyed

going back and embracing who I am, kind of technically. The energy that you're on when you're on a large campus is phenomenal. And working with this generation of people in college is just really wonderful. They're so talented, and they have such a bigger perspective on life than I did at that age. I was so naive at that point. They've seen so much. And so that has been just a blessing. And I've done it for a year and I look forward to school starting

in August. So I'm excited for the next year of that. The one that didn't go very well — one of the things that I had promised myself to do was that I wanted something that was on a career side, more for fulfillment. I wanted a mission to go after that was important. I wanted something intellectually that I could continue to keep sharp there. And I wanted to do that with people that I respected. And so a board opportunity

got presented to me. But it was a situation where I couldn't see who I was going to be working with. The company was going through a transition, and so a new board would be formed at that time. And so I kind of took it on a leap of faith that I should join that. And going through that process, I learned that you really need to understand why you're doing things, who you're working with.

And that wasn't as pleasant of an experience. And so after a year I got out of that. So I would say it taught me a lesson to go back to why you're doing what you're doing, choosing the right people to be around, and just being honest with the process you did. So overall things are going well, but I would say that's probably a good example of one that went well and then one that did not.

Stephan Shipe
I think that's a great thing to get into, because one of the most common questions that I end up getting with clients is they say, well, I don't want to retire, because what am I going to do with myself? And then once someone retires, they realize that their schedule's completely filled, and there seems to be this vacuum. It's like, once you stop, you just say yes to a bunch of things because you're worried about not having anything to do. But then you end up in the trap that you described — which I think you avoided —

which is, it's not a scarcity of things to fill your schedule. It's saying yes to too many things and then realizing that you're back in the same feelings that you had pre-retirement of, well, now what am I going to do after I get done with all the things I said yes to in my first year of retirement. So I think that's great framing for that.

So how did you get into academia then? Because that seems like a lot of lectures, a lot of commitments — or maybe I'll take a step back on that one. How did you choose engineering versus going to teach a course in the business school? Because you'd be qualified for either. Was that part of that process of determining what you enjoyed more?

Mike
Yeah, it is. I wanted to get back to the technical side of it. And so my university had — I reached out to the university and said, hey, here's what I'm looking to do. I don't need a paid position, I'm happy to volunteer. Where could you use my talents? And they had this program there where they had brought in people from industry to do this program. And so I was really happy. Now, they have reached out to be like a

mentor to the business school. So I think I'll tackle that. I have a passion for ethical leadership. And so on the business side, that's the area I'm exploring right now — how I can best engage in that, whether it's through academia or professional.

Stephan Shipe
If we take a step away, maybe from the corporate side, and think about just wealth creation in general — your thoughts on that, especially when it comes to family. What are some of the skills that you've picked up over time that you're hoping to pass down to that next generation and hope they either build upon or take into account for themselves?

Mike
Yeah, it's a good question. I think for me, we had four kids early, so we were living paycheck to paycheck for a long time. And one of the things that helped us out quite a bit is that our company, even for associates, first-line people, were able to participate in an annual bonus program.

And so, as a percentage of your sales, it was a small percentage when you first started. But having that lump sum once a year was very helpful for us to then pay down any debt we had. We never lived on that. And then we were able to pay off all of our debt slowly over the years using that money. And then when we had that, we were able to start saving for our kids' college.

And then begin to do some investing. And so that was really important for us — getting to not having any debt, being able to live within your base salary was really important to us. And so we spent our money on things that were important to us, not things. And, you know, education for kids and family time, more so than cars and big houses and things like that. And so trying to

pass that on to the kids. Also the value of saving, the value of compounding is really important. And so making sure that we can pass that on to our kids is really critical. But that really helped me over time, because when you start out, you're living paycheck to paycheck, then you have a little bit of money to begin to invest, you're able to learn a lot. You make a lot of mistakes, you have some success, and you build upon that. So I started probably 25 years ago investing.

And it allowed me to learn quite a bit from the different market events and from how to behave in those events. Whatever investing mistakes I made were just great, because you learn from those. Say, I'm not going to do that again. So I'm a much better investor now because I went through that process, started young, and learned from those.

Stephan Shipe
So that makes me kind of go into two different areas that I'd like to get your opinions on. One is, with your experience investing and going through all these different market events, and a big difference from living paycheck to paycheck to being successful — one thing I hear regularly is, well, as my wealth increases, it has to increase the complexity of the investments and everything that I have going on. Do you think there's truth to that, or have you found that to be true through your own life?

Mike
I don't think there's a necessary reason why it has to be more complicated. You have some opportunities to invest in things that you didn't when you were younger and when maybe you didn't have as much money to invest. But just because they're out there doesn't mean you should invest in them. And so anytime — what I look at is, if there's an opportunity to invest in something new that may be a bit more complicated, may come with additional fees —

what's the value of that? Is that bringing performance that I can't touch in the public market, or in a less complicated investment style with lower fees? Or is that bringing some diversification that I need that I don't have in my portfolio? So I have a really high bar, but I do do some private investments, and I do that on things to kind of fill up my portfolio,

but I do that in a way that is very simple. It doesn't add a lot of complexity.

Stephan Shipe
Are you trying to look for private investments that match the skill set you generated throughout your career? Or are you looking for diversification away from that at this point?

Mike
Yeah, I would say I'm not looking for private investments in the industry that I worked in. My industry is very risky — a lot of people find it attractive, but the more you look into it, venture capital in my industry is, you need to have many, many, many shots on goal for one — for the one, two, three percent to make it to the marketplace. So for an individual it doesn't make any sense to

go into my industry and do that. So I do it more for long term. I've built an endowment-style portfolio, as we've talked about. And so it's more long-term focused. And so what I look for in private investments is, how do I have a portfolio that's durable long term? We plan on handing this over to the kids and their generations long term. And so we want a portfolio that's very stable. And so that's the focus. And I had a great amount of time

designing it, looking historically, doing a lot of analysis in the market to really come up with a portfolio that I thought could be very stable for a long time, no matter what market event. So I had a lot of fun doing that.

Stephan Shipe
And as we wrap up here, I need some wisdom from you, Mike. So, someone who has had a successful career, has started from living paycheck to paycheck, and now

you're talking about endowment-style portfolios for your family. There's a big difference there between generation one and generation two. I know that the years of living paycheck to paycheck are super helpful on how you've thought about

wealth and money and building skills there. How do you handle looking at the next generation to help instill those same skills in them, where you started out without having an endowment portfolio out there and living paycheck to paycheck? How do you think about that? What is the wisdom you've generated over these years for handing that wealth on to kids in the future?

Mike
Yeah, I guess to me, handing the wealth isn't the most important piece of it. Because having more money now than what I had when I was twenty-five or thirty — I'm no more happy now.

And sometimes wealth can take you into directions and opportunities that can be more of a distraction and away from what your values are. And so I think it was important for me, as I went through the retirement stage, to go back and understand who I was as a person. And that just reinforced that there are three to five things in my life that stay constant, from the time I was a kid to the time I was in college, time I was in a career, and now.

And those are the most important things. And if you can invest your time — and then if you have more money, then you can invest more into giving back, more into those things that are really important to you. Obviously your family, your kids. And so we're going through right now — we're kind of going through our second round of estate planning. Because at first we did it kind of as an emergency thing. But now we're going into phase two. And that's the questions that Jody and I are talking about right now, is,

how do we pass on our wealth? Because what we've done is more of an endowment style of portfolio, where we're living off the income coming from that, the dividends and whatnot. And that's more than enough for us to live comfortably in our retirement. And we never have to touch the principal, so that'll continue to grow. And it's like, where do we want that income the endowment produces after we're gone? How do we want that to have the best impact

on our kids, on our charities? There's an opportunity to ruin the next generations if you give too much wealth for the wrong reasons. But if you pass it on in a value-driven way, then I think you can actually do good and not harm. And so that's what we need to work through. But I think the foundation will be those things that have carried with us — that any time we're focused on the right values, the right foundation, that's what makes you the happiest in life.

Mike
And so we'll make sure that we're focused on that as we go through this next phase.

Stephan Shipe
Sounds great. Perfect. Well, thank you so much for joining us today. I think a lot of good wisdom there to be handed down to those listening and those thinking about that same transition into retirement, and thinking about wealth and complexity and all of those fun things. So I appreciate you joining us today.

Mike
No, thank you, Stephan. And I would say, part of my process was getting help through you, and going through that process with you, I just gained so much respect for you, and I appreciate what you're doing. You made a big impact on our family and our retirement, and I really appreciate everything you did for us.

Stephan Shipe
Appreciate that. Absolute pleasure. Thanks.

Stephan Shipe
That's our show. Thanks for listening, and we'll see you next week.