Emphasis on creating wealth while reducing income taxes
Am I really doing everything I can to lower my taxes?
Retiree Name: Victoria Retiree Age: 56
Victoria has a successful, closely-held small business. Her earnings always put her in the highest marginal tax bracket, and she is exploring options to reduce her income taxes. Additionally, as she plans to retire in the next ten years, she aims to build enough wealth to maintain her financial independence and current lifestyle.
Victoria is maximizing her 401(k) plan contributions. However, due to her income, she cannot make Roth IRA contributions. She takes wages, and the tax benefit of pass-through income is not subject to payroll taxes from her business. She has been advised that she is doing everything possible to minimize her tax liability.
Is that really the case?
Victoria is concerned that the amount of federal and state income taxes she has to pay every year creates a catch-22 situation when it comes to funding her investments. The more income she earns, the more taxes she pays, and the more she accumulates in investments, the more she is taxed on that income as well. She has several key questions and concerns, including:
Is there anything else I can do to lower my taxes?
Can I do anything more than maximize my 401(k) contributions?
I don’t have the time to constantly reach out to my multiple professionals handling different aspects of my finances. Can you help me save time while being more effective in my overall planning?
Our Customized Approach
We took a step back and gained greater clarity on what Victoria truly wanted to achieve, including her ideal vision for her future. We conducted a thorough review of her tax returns with the assistance of our outside income tax practice, David Burgio CPA, LLC. We collaborated with our advanced planning team and a business attorney to determine the most favorable type of business entity for Victoria in the event of a future sale of her corporation. Our Strategic Retirement Solutions Department was consulted to explore various retirement plan options for Victoria. Additionally, we reviewed her estate planning documents to ensure they reflected Victoria's vision, minimized taxes and probate, and included a proper succession plan.
We created an overarching financial plan giving Victoria a much more focused game plan that she felt very confident about, which led to the following:
We created a retirement plan that allowed her to put away $150,000 to $200,000 each year in a tax-deductible retirement plan that would save her tens of thousands of dollars each year in income taxes, which, simultaneously, would expedite her wealth accumulation for financial independence. Her CPA was not aware that this plan was available.
Since she was going to benefit from the large tax deductions from funding her new retirement account, we had Victoria change her 401(k) contributions to 401(k) Roth contributions so that later she would receive tax-free income from her Roth 401(k). In addition, although her high income didn’t allow for a Roth IRA contribution, she was able to make back-door Roth IRA contributions, which would help further increase her tax-free income at retirement.
For Victoria’s non-retirement investments, we reallocated them to a more tax-efficient portfolio to help her further reduce her income taxes.
After meeting with both the estate attorney and corporate attorney, her legal and estate documents were updated to better reflect her wishes along with being more proactive in her succession planning and minimizing taxes and probate.
As a result of the above changes:
Victoria's Custom Wealth Architect™ financial plan gave her the reassurance, confidence, and efficiency that had been previously absent. She could focus her efforts on creating more value in her own company knowing that her other financial pieces were being taken care of properly.
Victoria greatly appreciated that our Custom Wealth Inspection™ process would be proactive in keeping Victoria current in her planning since it would evolve over time. She felt confident knowing that going forward, we would help her keep her goals on track, be proactive in her financial life, and help her make better financial decisions on an on-going basis.
It's nearly impossible for clients to stay up-to-date with the inevitable changes in life, the economy, as well as rules and regulations. It is our duty to our clients to help successfully guide them through these changes in their financial life, so that they can live the truly fulfilling life they desire, without having to worry about their financial wellbeing.
*This is a case study and is for illustrative purposes only. Actual performance and results will vary. This case study does not constitute a recommendation as to the suitability of any investment for any person or persons having circumstances similar to those portrayed, and a financial advisor should be consulted. This case study does not represent actual clients but a hypothetical composite of various client experiences and issues. Any resemblance to actual people or situations is purely coincidental.
Retirement Readiness Workshop
Wednesday June 07th, 2023 from 6:00pm-7:00pm
We invite you to a free and informative event, the "Retirement Readiness Workshop," hosted by David R. Burgio, CPA, PFS, and Michael Malaney, CFP® , EA. This free community event is set to take place at the Julia Boyer Library, located at 1030 Losson Rd,...
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