The vast majority of seniors need every last dime of their money to enjoy their golden years. Medical and long-term care costs are significant over a lifetime, it doesn’t compare to the accumulated taxes paid over a lifetime. We need to manage both our health and wealth. Part of managing your wealth is managing your taxes and it’s a worthwhile endeavor to learn how to do it. It’s possible that many retirees may be able to generate 10-15% more income by just managing their taxes. And there’s no place better to start than Social Security income. Social Security attracts taxable income like a magnet. With the exception of HSA Accounts, Roth IRAs, Reverse Mortgages and Cash Value Life Insurance, everything falls prey to the provisional income test. Even items you would never consider like municipal bond income or capital gains of non qualified mutual funds or ETFs. Qualified retirement funds are the biggest contributor to Social Security taxation of all income sources. Keep in mind that a qualified plan has no basis, so it’s all taxable. And although you can delay taking distributions from your qualified plan until age 70½, you’re forced to take required minimum distributions (RMDs), which directly   Read more…

“Sanctuary, sanctuary,â€� cried Quasimodo, the hunchback of Notre Dame as he ran into the church with the convicted woman Esmeralda to escape the lynch mop who had tried her and found her guilty. Back in the day the sanctity of the church was a safe harbor for those fleeing the law.  Today many of America’s affluent, upper middle class and even seniors in retirement are fleeing taxes. What tax shelters remain can help you keep more of your money. Here are the most popular for retirement. Health Savings Accounts: Contributing to a qualified health savings account is tax deductible, accumulates tax deferred and is distributed tax-free for medical expenses and medical insurance premiums for coverage like disability, health, Medicare and long term care. The annual contribution limits for 2017 are $3,400 for individuals, $6,750 for married couples and $7,750 for married couples over age 55. There is also a once in a lifetime transfer from an IRA or Roth IRA to an HSA tax free up to $7,750 for married couples over age 55 in a non-contribution year. Roth IRAs: These accumulate tax deferred with tax-free distributions after age 59½. Under the five-year rule you could access part of your   Read more…

Even after the Tax Cuts and Jobs Act of 2017, the wealthy are paying at least a third of their income based on the new tax brackets. (And that doesn’t include their state taxes.) But the additional Medicare surtax they pay in wages (.9%) and capital gains investments (3.8%) just add to their IOU that they already owe the government. And the bleeding doesn’t stop there. Many affluent taxpayers are still subject to the alternative minimum tax, a regressive assessment against high-earning Americans to make sure they pay their so- called “fair shareâ€� in taxes. But now it gets really crazy. “If you don’t talk taxes, you’re not in the game as a consultant to the affluent.â€� For decades, the wealthy have used municipal bonds as a safe haven from taxation. And depending on the issuing jurisdiction the interest rate may be tax-free in one place and not in another. So, it’s important to review the tax con- sequences before purchasing a municipal bond. That being said, even some types of muni bonds may trigger an alternative minimum tax event and could, as unlikely as the odds are, create a capital gain scenario. But even if the client’s muni bonds   Read more…

The economic leverage of life insurance and, in most cases, its tax-free transfer aspect, delivers a financial to beneficiaries like no other product line or planning strategy. Whether indemnifying a single life or two lives, life insurance can pay estate-transfer taxes and costs as well as create an estate with pennies on the dollar. Life insurance is the law of large numbers working for you. Content: Passing an inheritance to family, friends or a beloved charity can financially position them to accomplish goals even when you’re gone. Protecting partners in a business arrangement can add significant solace to the company and fund succession plans in case of the demise of a partner. For domestic planning survivorship, life insurance is ideal, especially if both policy insureds are healthy, but even when they’re not, the leverage or bang for the buck generally remains the economic way to go. The transfer of family assets may incur taxes at the state and federal levels as well as transition costs. With new and improved mortality, survivorship life insurance can also create legacies not just for the succeeding generation, but also for two additional generations. This new trend is already emerging in estate planning where children,   Read more…

Undergoing a risk-tolerance test can help you build a financial profile that can serve you in the decision-making process. If the results of your test determine you’re a conservative saver or investor, make sure your 401(k) or IRA reflects your psychonomic characteristic of a conservative. Often a risk-tolerance test will result in a conservative profile, while your retirement plan has beta risk exposure unsuitable for you. Just as there are thousands of mutual funds and ETFs, there are thousands of cash-value life insurance policies. All financial products have current expense loads and differing historical performance. In there, the product inventory of participating whole life and current interest rate universal life, the consumer contenders are limited to a dozen insurance companies. Here are the basics on why you may want to look into these products. Participating Whole Life Insurance can be optimized to generate more than 5 percent with its base policy and no other riders. But a minimized base policy with a “paid-up additions riderâ€� for excess contributions can generate 5.5 percent. Keep in mind the best in this category could be returning dividends (a combination of portfolio returns and unused premiums) north of those numbers. Dividends are not guaranteed,   Read more…

What is your economic earning power and how important is that to your family, business associates and the charities you contribute to? Life insurance should cover your human ability to earn money for those who depend on you. Life insurance is generally calculated on debt, future obligations and dependent charities, but rarely is the notion of calculating and replacing human capital for a breadwinner or key employee. The average person in our western democracies can work between 35 and 40 years. What does a person earn during their working lifetime?  What is their earning power worth? What is the value of their human capital? How can you replace income generated from a family member, business associate or a contributor from a charity? Consider economist Tom Hegna’s explanation of lifetime earnings and human capital. “Let me explain… When you begin your career, you have a greater proportion of wealth in human capital because you have many more years to earn compared to the time you’ve spent acquiring financial capital. As you progress through your career, the numbers change and your financial capital outweighs your human capital because you’ve been accumulating financial capital over the years, and you will have fewer prime   Read more…

Most people have some kind of debt. Your home mortgage is debt. Your auto loans are debt. Your student loans are debt. Many in the middle have significant credit card debt. The American household just seems to run on debt. So all debts are financial liabilities. Families have obligations, whether it’s college education, future weddings or a charity that depends on your contributions. Future obligations are also a financial liability. Most households today run on two incomes. All debt, mortgages and future family dreams are built upon two incomes either DINKs (dual income no kids) or DIRKs (dual income raising kids.) So the American family’s finances are generally predicated on two incomes. When you have two breadwinners, the potential loss of one can be economically catastrophic. Could a family continue in its present lifestyle if one of the breadwinners was suddenly gone? Most families would suffer, not only the loss of a loved one and the immediate expense of medical bills and funeral costs, but the loss of their lifestyle as well. The economic equation of two earner households requires financial protection that only life insurance can secure. You need to cover both breadwinners to protect the financial stability of   Read more…

The main benefit is saving for retirement. Employers who perform economic due diligence on the use of defined benefit plans, defined contribution plans or a combination on both are likely to design the optimal retirement scheme for their company and employees. Often employers use the benefits to recruit top talent and retain skilled employees that are highly valued. Many times those who generate income for the firm are called  “rainmakers” and are highly sought after in competitive markets. Even highly organized operational experts that run the day-to-day operations are of equal value to a company.  Some organizations use additional compensation perks that are generally discriminatory and categorized as non-qualified plans to lure major players in the market place and retain the bench strength of their existing personnel. Qualified plan benefits can save significant tax dollars every year. In addition, defined contribution plans like 401(k)s  allow individuals to defer up to $18,000 of income (2017 limit). And for older contributors ages 50 or more can contribute an extra $6,000 into your 401(k) plan in 2017. The sum of employer contributions and your salary deferral contributions cannot exceed $54,000 in 2017 ($60,000 for individuals over 50 years of age in 2017). Jodie   Read more…

Defined Benefit Plans are one of the most useful of all retirement plans that can favor the older business owner with large income tax deductions while securing significant retirement and estate benefits. This is a brief outline of the potential benefits of these plans. Actual benefits must be calculated and certified by a qualified actuary. General Plan Design: These plans work best when the business owner(s) are older than the general employee population. A Defined Benefit Plan favors older employees because larger contributions are required in light of the shorter time to retirement. Contributions are mandatory each year based on the plan’s benefit formula, unless that formula is amended prior to the accrual of any benefits during the plan year (i.e. first few months of the plan year) or if the plan is terminated. These plans are best suited for those companies that have consistent profits and have a need for ongoing business tax deductions. Integration of a Defined Benefit Plan with a 401(k) Plan: We will strive to have the benefits of the non-key employees funded in the 401(k) plan, while the Defined Benefit plan will fund the benefits for the owners and older employees. Plan Contributions by the   Read more…

The federal formula for assessing how much a family can pay for college is strictly focused on the finances of parent and child. So 529 plans opened by grandparents go uncounted in the federal calculus. In distributing their own aid, however, colleges often look at all 529 plans that name the student as beneficiary. So even if the strategy works for the federal-aid calculation, it won’t necessarily work for the institution’s own aid assessment. – From Wall Street Journal; December 18th, 2006 Here are a couple of lines taken from CSS Profile, Section Q #521) Enter the total value of assets held in Section 529 college savings plans that were established for the student by someone other than the student’s parent(s) #523) Enter the estimated amount that will be withdrawn for the student for the 2017-2018 academic year from Section 529 plans established for the benefit of the student. If you own a 529 Plan, make sure you have a competent college funding advisor examine it BEFORE you apply for financial aid. One last thought: 529 Plans are often funded with mutual funds and ETFs. A lesson learned during the “lost decade” (2001-2010) is that markets are volatile. The S&P   Read more…