Maximizing your tax bracket with Roth conversions instead of waiting for the government to tell you how much you need to withdraw (RMD) can minimize your taxes in the long run. The longer you wait to convert, the larger your potential taxes can grow.

Take this example of a couple earning $150,000 a year. Before any conversions, their taxes paid will be $16,682. But this couple had some extra $$ and decided to fill up not only their 22% tax bracket, but convert a total of $263,100. They then paid a total of $78,221 in taxes.

The $263,100 now enjoys tax free growth and withdrawals. Had they not done the conversion, their potential taxes at 24% would be $273,505, which is a great amount than the original principal. If Congress decides to let the rates from Tax Cut and Jobs Act expire, the current 24% tax bracket with go back to 28%, meaning you get to keep less of your hard earned money.

Waiting for RMDs is a passive approach that relinquishes control over your tax strategy.
By converting to ROTH strategically and maximize your tax brackets, you lock in lower tax rates, reduce or eliminate RMDs, and secure tax-free growth.

Maximizing tax free growth and minimizing taxes can have as much reward as picking the next investment winner. Consult a tax advisor for your personal situation to more accurately model your income and tax rates.

The power of uninterrupted compounding is a concept to behold. A little becomes a lot, and the magic of time can make your savings grow hyperbolically. Take this example of two siblings, Jack and Jill. Jill starts putting away $6000 a year from age 18 to age 32. She then stops contributing to her savings plan. Her brother Jack starts at 33 and puts away the same amount. Even though Jack puts away a total of $360,000 over 60 years, Jack never catches up to Jill. Uninterrupted compounding allows for Jill, at 5% interest, to grow her savings to $5.1M at 93. For young people this is a good reminder to put away what you can now, so that you can live like you want to live in the future.

I recently had a conversation with a friend that is doing well financially. She stated that her cash flow covers her expenses and she may not even have to touch her retirement funds.  Sounds great, right? Well, that might not be optimal.  

Not only should she touch her retirement funds, she needs to take out MORE than the Required Minimum Distribution. Reason: by having her retirement funds “let it ride” she is not only increasing her potential tax burden, but she is also unknowingly losing the opportunity cost of taking the distribution and putting it into a a tax free asset. The lost opportunity cost is a compounded, almost to the point where the hidden cost of waiting can be as large as the cumulative amount of taxes.

Reducing the balance on her IRA means also potential tax savings on her heirs, who are required to deplete any IRA balance within 10 years of her passing.

If you are over 59 1/2, consider redirecting your IRA funds sooner  to something that will be tax advantaged.  Don’t wait to take your RMD.  If you are under 59 1/2, there is still an opportunity to do a back door Roth rollover. As always, consult with your tax advisor before making any tax move.

Many people who purchase long term care insurance get it to ensure that their future nursing home costs will be covered. While these policies may bring some peace of mind, it’s important to understand potential gaps and gotchas. There can be uncertainty with rising premiums, new rules on what the policy will pay for, what type of facility it will pay for, as well as uncertainty of a payoff. Tens of thousands of dollars could be paying something that may not be needed.  The reimbursement claim process can also be cumbersome.

There also is a waiting period, usually 90 days, so if a loved one does need assisted living, the initial costs must be borne by the individual. Even with a large policy, there are limits on monthly reimbursement amounts. This can be a surprise when it’s discovered that the monthly cost of care is not fully covered, and any gap in coverage will need to be picked up using other assets.

Fortunately there is an alternative to getting coverage for long term care, critical care that is not a reimbursement program. It also allows the individual to determine the best type of care, with no restrictions on how it’s spent, whether it’s in home care, residential home care, or in a facility.  I set this alternative up for myself, and it affords my family options to provide the best care for me in my final days. This provides a simpler approach to getting a long term care solution. Medical expenses are the No. 1 reason why seniors go bankrupt, so it’s important to have a plan for this.

I recently ran across a family that had an aging parent.This parent can no longer live independently. Unfortunately, she distributed all her assets (including the house) to her children and does not have the resources for any assistance, whether it’s in home care or at a facility. Her children are not volunteering to step up to the plate. One adult child, who has a full time job working remote is now caring for her, but the situation is really tense.  There is no medical professional dedicated to managing the care of the parent , nor anyone with the skills to identify any signs of declining health. Any move requires the family meeting between the siblings for either care or money. All are stressed, but mainly the mom from being in an unfamiliar surrounding, and the caregiver who is juggling two large responsibilities. This stress while under the surface, can suddenly manifest itself in an unpleasant way. It is an unfortunate situation for all parties, but mainly for the mom, who spent all her years raising a family only to end up living her last days in suboptimal care.

The above story illustrates the importance of taking charge of your long term care.  With the cost of care averaging $10,000 to $15,000 per month today, it’s also important to set aside enough money for 3-5 years of care. There are several options to secure a plan. One of them is a life insurance policy with critical care and long term care riders.  It is not a reimbursement program, and can be used it for in home care, adult day care, or at a live in facility. I set one up for myself, and told my children that if the time ever came where I could not take care of myself, there will be funds to set me up in a nice facility (no linoleum floors, and no fluorescent panel rooms please).  It’s important to 1) make your long term care wishes known and 2) make sure you have enough finances to live the rest of your life in comfort with the proper care professionals.

If you don’t have a long term care plan yet, let’s talk.  Don’t leave how you want to spend your last days to chance.

In my last post I talked about how one can supersize their insurance policy using OPM (Other People’s Money) at a 3:1 match. I recently looked at a case for a 29 year old engineer. She was saving a lot and I showed her how she could contribute $50,000 a year for 5 years and a lender will match it 3:1, giving her $919,000 of premiums to fund a policy. The policy provides protection and a vehicle to grow cash tax free. The result: An initial policy of $2.483 Million. When she turns, 65 she can tap into an annual tax free distribution of $292,000 until she turns 90, That amount at a 30% tax rate is the equivalent to a $417,000 job. Of course she can also access the money in her policy before 65. If you are interested in seeing how this money strategy can work for you, hit me up. Happy to help you get leverage and get more tax free cash flow.

Besides our mortgages, taxes will be the largest expense of our lifetime. And with tax rates expected to rise, more of your hard earned dollars could be going to pay taxes, meaning less take home pay for you. But there is a strategy that can recreate the value of what those lost tax dollars have taken. Using leverage and a cash value life insurance policy (for tax free growth), an individual earning $400K per year can contribute $65K a year for 5 years, and potentially earn $2.8Million through policy loans. It sounds too good to be true but the use of leverage is a strategy well know to high net worth (over $10M in assets) individuals. But unlike traditional leverage, the Kai-Zen strategy does not require underwriting for the leveraged amount and you do not have any liability outside of the 5 years of payments. Learn more here by watching this short video: https://lnkd.in/gzKiY_bP.

This strategy can also be used to supersize any inheritance you plan to leave.  I have personally set this strategy up for my adult children who are now 23. More on this wealth transfer strategy later. If this is intriguing to you, let’s set up a time to chat.

Another tax season is behind us. Did you take a look at where you landed within your tax bracket? This is important if you are considering doing Roth conversions, as there may be some “headroom” to pay incremental taxes without crossing into a higher tax bracket. Given that taxes have to be paid upon retirement account withdrawals, there might be an opportunity to pay taxes now before they are expected to go up in 2026. Talk to a tax planner (not necessarily your CPA) before making this move. Your tax planner can look at 5 year and 10 year horizons to see what your tax obligations could be and if Roth conversions make sense. #taxes #Rothconversion #taxplanning

As 2023 draws to a close, here is a money move that can keep more money in your pocket. Many of us have traditional IRAs that grow tax DEFERRED. As the balance grows, so does our tax obligation. But if we take a look at doing a Roth conversion, with taxes paid off, we can let our next egg grow tax FREE and get more certainty about how much money we have for retirement.

Take this example of Jill, a 50 year old woman that has accumulated $500,000 in an IRA. At a 30% tax bracket the taxes can grow to $572,962 before any required distributions at age 73. If Jill begins converting her IRA to a Roth IRA over six years, Jill would have paid the taxes up front so that her nest egg can grow tax free. When Jill reaches 73, she is not required to take any distribution, but if she does, she does not have to pay any taxes, as they were paid already.

Her Roth IRA is also protected from any future tax increases.  This is not so with a traditional IRA: If taxes go up, so does the red slice of the pie. And should Jill pass away, her heirs will get an inheritance without any impact to their taxes. Again, not so with a traditional IRA. Her heirs will have additional income that could expose themselves to a higher tax bracket and higher taxes.

While Roth conversions offer compelling advantages, it’s important to assess them alongside your current and future tax situation, as well as your financial goals. Consult with your financial advisor or tax professional before proceeding with a conversion.

Many clients that have achieved financial success now want to help their children. What should they leave their children and grandchildren? How do they ensure their monetary gifts will be spent wisely and last? In today’s world of high consumption, a lump sum inheritance can be gone in the blink of an eye.

Fortunately there is a way to provide a lasting gift that creates financial security: a tax advantaged income stream that can be available to your children and grandchildren for their future needs. This program also provides you control so that this gift can last their lifetime. If you are interested, send me a DM and I can show you the possibilities and what I personally did for my adult children. Another bonus: these funds are protected from access by creditors and community property.

I recently had a car loan that had an interest rate of 5.9%. That would mean $10,000 in interest payments over the lifetime of that loan. To save money on the interest, I decided to tap into the cash value of my life insurance policy, pay off the auto loan using the proceeds. The process was quick and I never was asked why I needed the funds. As long as there was cash value, I could borrow against it. The cash in my policy still earned interest, and resulted in a net cost of borrowing to be .9%. Best of all, I could determine how to pay back the loan: either in monthly payments or bigger chunks at a time. Policy loans are often used by real estate investors as a means of quick access to cash. Take a look at your own policy and see if there is some cash value. It might be a good source of funds for expenses, emergencies, or even investments.

Is taking a 401K Loan a good idea? You are paying interest to your account after all. Access to cash can be quick. But what is the impact in the long run? Here are some things to consider.

1. Interrupted Compounding — The borrowed money loses the potential benefit of compound interest—a crucial element of long-term investment growth. In addition, there are some 401K plans that will prevent you from from making 401K contributions until your loan is repaid. If your plan has a company match, you can also be missing out on this key benefit.In this case study, Bob has $100,000 in his 401K and contributes $10,000 per year in his 401K. He needs to borrow $50,000 and plans to repay it in 5 years. His 401K balance in drops from $100000 to $50000. His plan prevents him from contributing while he has a loan, so he no longer can add $10,000 per year to his 401K. His payments and principal do go back into his account each year.Because he gave up uninterrupted compounding, he has to build his balances starting at a lower level, even with a loan interest that is higher at 9%. After 20 years, his loan would have resulted in a lost opportunity cost of $163,500.
2. Repayment is with After Tax Dollars — Like any loan, repayments are made with after tax dollars. Bob’s loan total principal and interest payments over five years are $61,374. At his 30% tax rate, he would need to gross $87,377 to pay back the loan.
3. Double taxation— Interest payments with after tax dollars will be taxed again upon distribution. In this case the interest of $11,374 will grow and be subject to taxes again. Bob paid tax once on the interest, and when it got put back into the 401K it will be taxed twice upon withdrawal.
4. Taxes and penalties for non payment — Should Bob lose his job after 1 year of loan payments, the balance of the loan may be be due and paid within 60 days. If he cannot pay the loan, the outstanding balance will be considered an early withdrawal, be taxed and subject to a 10% penalty.

401K loans are complicated and the rules can vary from company to company. They can work under certain conditions, such a short term bridge loan. It’s best to be informed so you can make the best decision for your situation. Please consult your financial advisor before you make any decisions

You’ve worked hard and achieved many career successes. Make your retirement years just as successful. Don’t live a “just in case” retirement where you are afraid of spending. There are tax-free income streams and lifetime income tools that ensure you won’t outlive your money.  Once you have tools that can have a guaranteed source of income that will last until your death and the death of your spouse, you can afford to live your dream, and be more giving and generous.  Make your retirement years your best lifestyle years.

Americans who are over 59 1/2 and who have purchased an eligible electric vehicle now have another decision to make: do we take the tax credit and pocket it, or do we make a move to take an IRA distribution? While taking the cash provides immediate gratification (who doesn’t love that), taking an IRA distribution might save you more money in the long run. In the example below the $7500 tax credit translates to $26,786 of income at a 28% tax rate.

Let’s say we don’t take an IRA distribution and our future tax rates go up by 4% to 32%. If we take the same distribution of $26,786 from our IRA, our taxes at 32% will be $8571, resulting in an additional $1071 in taxes. That’s less money in our pocket. The choice for you depends largely on 1) the need for the cash flow and 2) if you believe taxes will be the increasing in the future. For me, I’m going to take an IRA distribution to get that chunk out free from federal taxes. Doing this requires some planning, as I don’t want the distribution to push me into the next tax bracket. Ultimately you will need review your move with your tax accountant. #taxcredits #taxes #retirementaccounts #IRAs

Last week was a rough week. Some of my former colleague were laid off, some survived a layoff, and some had the unfortunate task of doing the layoff. With the economic uncertainty, having liquidity and cash flow is paramount. Here are some things that can be done to increase cash flow and give you more of a cushion: 

1. Get a HELOC — If you are still working and have sufficient home equity, consider applying for a Home Equity Line of Credit (HELOC). Most HELOCs can give you access to cash to weather loss of employment. Since most banks utilize income as a deciding factor in a loan application, it’s best to get one while you are working.

2. Stop Extra Payments on your Mortgage — If you are making extra payments on your mortgage, consider redirecting those payments in a safe money market fund that only earns interest, and gives you access to the money should you need it. Extra payments to a mortgage only lock up your cash and ability for that cash to build compound interest.

3. Leverage Your Insurance Policy—If you have a permanent life insurance, look at the cash balance of your policy and borrow from your insurance company. The insurance company will typically lend you up to 95% of your cash value. No questions asked.  Cash is available within 3-5 business days. Best of all, because it’s a collateral loan, the cash in your policy continues to earn interest uninterrupted. Extra bonus: any loan repayment will be on your terms. And you even have the option of not paying it back.

4. Slow roll your 401K contribution — Instead of maxing out your 401K consider contributing only up to your company match. The rest can be put into a tax advantaged account that earns interest and allows you access to the cash should you need it.

5. Tap into your retirement funds — If you are over 59½, you can take a distribution from your 401K, 403b, IRA, SEPP to replace any lost income.  Consider taking not just the required minimum, but take enough to not hit the next tax bracket and redirect those funds into a tax free account.

In these days cash FLOW is KING. Reach out if you have any questions or comments. Always happy to help. 

With Secure ACT 2.0 pushing out the age for required retirement account withdrawals from 70 1/2 to 73 (or 75), many retirees will opt to “let it ride” and delay taking funds out of their IRA, 401ks, 403bs, or SEPPs. But did you know that when you delay taking a withdrawal, not only does your tax obligation grow, but also the lost opportunity cost of paying the tax early, and redirecting the proceeds into a tax advantaged account?  Redirecting the funds earlier could mean keeping more of your hard earned money.

Take this example of a $1M balance of an IRA fund. After 25 years earning 8%, there will be $1.6M of tax (37% rate) due. If there was no withdrawal, not only are there taxes, but also $1.3M of lost opportunity cost by not taking action. Also because the lost opportunity cost is cumulative, in later years annual lost opportunity cost can even surpass the annual tax.

The above example is extreme, but intended to highlight a hidden cost in the funds that many of us rely on for retirement. The longer the delay, the bigger the tax obligation, and the bigger the lost opportunity cost. As always please consult with your tax advisor when making decisions that can have huge financial impact.

Many folks planning on retirement mistakenly believe they will be in a lower tax bracket when they retire. 

However, in retirement they often discover that their taxes did not go down as expected, even if their income was lower.  Why? the income from their IRAs, pensions, Social Security benefits are all taxable.  But if the house is paid off, there is no interest deduction, nor are there any deductions for their children, who are now adults. 

And let’s not forget that our government can decide to raise taxes, which means that your share will be less that previously planned for. Fortunately,  there are ways to minimize the tax surprise. If you have a large 401K, 403B, TSP, or IRA, you can shift your money to tax advantaged income streams. Ask me how. I’m always happy to help my clients keep more of their hard earned money.

When should you start taking your Social Security benefits? There is no clear cut answer as each person’s situation is different.  Does longevity run in your family? Do you need the money or are there other sources available? Will you continue to work?  If you take your Social Security benefit at 62, your monthly check will be reduced by 30%.  And if you work and make over $21,240 in wages your benefit will be cut in half. 

After you reach full retirement age (FRA) the work limitation is lifted.  You then can decide to take your benefit or wait three more years to maximize your benefit. Each year you wait is an 8% increase in your benefit.  Some may take the money at 67 and invest it, but these days an 8% return may be a challenge to achieve.

For my situation, I plan to wait until 70.  My parents lived until their 80s and 90s.  I have other monies set aside.  But that’s me.  Your situation may be different.  If you would like some help to figure this out, please reach out to me.  Happy to help you get more of the benefits that you have paid into.

The recent fail of Silicon Valley Bank has many people skittish. We’ve seen in the news how banks, which traditionally have been viewed as safe places for money, are at risk for not having enough cash reserves on hand. Moody’s has also downgraded the banking sector and placed six banks on their watch list.

While banks are only required to have a fractional reserves (minimum 10%), insurance companies are required to maintain a solvency margin, the amount of cash and assets compared to their policy liabilities.

Insurance companies are also more closely regulated than banks.This requirement for insurance companies to maintain sufficient capital and reserves is intended to protect policyholders.

Typically, insurance companies have a solvency rate of 1.2 or 1.3, meaning for every $1.00 of potential claims, the company has at least $1.20-$1.30. One insurance company has a solvency rate of 1.99. These rates can provide some assurance regarding the cash in your life insurance policy

While insurance company failures are rare, having a solvency margin over 1.00 mitigates that risk. If you have a cash value life insurance policy, it might be a good idea to check your insurance company’s solvency rate.

Valentine’s Day is a day for many to express acts love. Candy, flowers, jewelry, or a nice romantic dinner.  Another act of love to consider is a love letter, but this one is to be opened after you have left this earth.

Your letter can express your love for your family, and final words of encouragement, and advice on how to manage the resources that will be coming.  I often advise my clients to write one and put it alongside their life insurance policy.

Another act of love is to leave a financial directives document: the location of all the accounts and other assets.    When my husband passed, we had to figure out where all the money and assets were, which compounded our grief.

These two things, your love letter and financial directives document are true acts of love and care for your family.

If any of you would like a template to jumpstart the process, please reach out.

p.s.  don’t forget to leave your cell phone pass code as well.

As in my last post where I talked about the permission to spend your hard earned money, another area to think about is what type of asset to leave the kids. An asset that will create tax free wealth for the next generation, while allowing you to enjoy the retirement lifestyle you worked so hard for. Did you know that a well designed life insurance policy can do just that?

An example is Janet, 55 years old with four children. She has $200,000 in cash that she wants to leave her four children. Each heir will then get $50,000. But if she applied that $200,000 into a life insurance policy, she can get a $600,000 life insurance policy. Upon her death, each heir will get $150,000. That’s 3X what she could do for them with cash.

Janet also can access her cash value at any time to further her lifestyle and use the policy for her long term care needs should she require it. With this example, life insurance can be one of the most efficient vehicles to create and transfer wealth. Ask me how I can design a policy for your needs.