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Case Study: You Have Financial Options
- Our client mentioned he was paying a large federal tax liability in the 400,000 range; a hard check for him to write every year.
- We learned more about his interests in real estate and income sources and found a couple solutions to reduce his federal tax liability.
- In the process of reducing his liability, we presented an additional opportunity to reduce his future tax liability through timely Roth conversions from his current 401k.
- By lowing his taxable income, the Roth conversion opportunity presented itself as an additional logical solution to his tax situation.
- Through our financial planning process, we gathered important financial data from our client. All income sources, assets owned, debts and a copy of their last two years of tax returns.
- We also conducted a goal development meeting to better understand what was important to them personally and financially.
- We collaborated with our tax specialist to confirm strategy and solution options.
- Currently, we’re in the process of converting his 401k to a Roth IRA. We are also helping him manage a diversified equity portfolio that is in line with his time frame and goals.
Case Study: Collaboration for Financial Success
- We had a client that had sold a business for a few million dollars. There was no cost basis in the business so there was a large capital gain tax expected.
- Through our discover phase we learned that this business owner was very active in the real estate market place. If he qualified has a “real estate professional” we knew that there was a potential favorable IRS code that could benefit his tax situation.
We conducted a goal development meeting to better understand what was important to them personally and financially.
In a down market we reached out to our client to discuss a Roth conversion strategy. Our advice was to have our client consider converting a portion of their IRA assets (that were decreased in value because of the down market) to a Roth IRA (nontaxable). The amount to convert was based on their current tax bracket.
We described the opportunity as a “Roth Conversion on Sale”. We took a traditional RA that was worth 100k before the market downturn and converted it to a Roth IRA when the traditional IRA value decreased to 75k. When the market tuned back up the client now has a Roth IRA valued at 100k. The growth on the Roth IRA form 75k to 100k (25k) is all tax free growth.
In summary we took a 100k fully taxable asset and got it taxed at 75% of its value and provided the client with an asset where the principle and all future growth will never be taxed.
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