Sample Clients, Sample Results
Sample clients with real life planning challenges we can help navigate.
Utilizing NUA and 72(t) strategies for an early retirement...
Jack was in his early 50s and unemployed. His assets consisted of only his home and a 401(k) balance in the range of $900,000. Jack was contemplating full retirement but still had a mortgage. After analyzing Jack’s finances, we determined Jack had his employer’s stock in his 401(k) dating back decades. The basis on this stock was extremely low. We utilized the Net Unrealized Appreciation (NUA) strategy to extract the stock in a tax-efficient manner and pay off his remaining mortgage balance. We encouraged Jack to continue working, even if at a reduced capacity. Supplemented his lower income with distributions from his IRA using the 72(t) provision to avoid the 10% penalty. Jack’s employment income helped preserve his existing asset base by distributing a smaller sum of retirement funds prematurely.
A Generous Donor with expiring stock options...
During initial conversations with Laura, it was quite obvious she was rather generous with her charitable giving. She recently separated from her previous employer, but Laura established a new opportunity shortly after. Her prior employer’s vested stock options were given one (1) year to be exercised. Analyzing multi-year cash flow and tax projections revealed current year would be ideal to exercise her stock options. Exercising Laura’s in-the-money options also removed any potential deterioration in the stock price due to market fluctuations. To mitigate the significant tax consequence expected, we also advised Laura to establish a Donor Advised Fund (DAF). Laura used appreciated stocks in excess of $250,000 in value to fund the DAF. Together, we met Laura’s goal of continuing with her generous giving, helped reduce her current tax liability, and removed future capital gains consequences from the appreciated stocks gifted.
A Real Estate investor with a sizeable deferred compensation payment...
Joan retired at the end of February. She and her husband have multiple real estate investments scattered nationwide. Joan’s deferred compensation payments will be paid over several years after retirement, the largest being the year after retirement. This payment will be above $1 million. We discussed the strategy of making such a state as Texas their primary resident state. They were already considering an investment property there. They finalized the move to Texas and changed residency. The move helped avoid their original resident state’s approximate 5% income tax being assessed on their future deferred compensation payments. This strategy alone saved in excess of $50,000 in state taxes on the first year’s $1 million deferred compensation payment.
Maximizing post-tax contributions into the company 401(k) plan...
Carl is an executive at a large publicly traded company. Carl wasn’t aware that his employer has a feature within the 401(k) plan that allows him to allocate after-tax dollars into the plan after fully funding it with pre-tax dollars. We informed Carl of this feature. These after-tax dollars can then be rolled into a Roth IRA even while Carl is still employed. Carl can contribute a little more than $30,000 per year into this after-tax pool and immediately roll it into his Roth IRA. That’s more than five times (5x) the limit on what Carl would be able to contribute into a Roth IRA per year.
A social security surprise for a struggling pre-retiree...
Michelle is 65, single and living on her own. She is experiencing cash flow limitations and is accumulating consumer debt. She is also not capitalizing on her employer’s 401(k) plan. During initial interviews and data gathering sessions, it was determined Michelle was married but divorced. Her ex- husband had also been long deceased. We revealed to Michelle that she would be entitled to her ex’s social security survivor benefits which we later determined would reach approximately $2,000 per month. She is currently working, and any social security benefits will be subject to offsets due to the annual earnings limit. Instead, we advised Michelle to commence survivor benefits when she is 66, her Full Retirement Age (FRA), and let her personal benefits increase due to the delayed retirement credits until age 70. The added social security income will allow Michelle to fully capitalize on her employer’s retirement plan and help alleviate her current cash flow struggles.
Utilizing NUA and 72(t) strategies
for an early retirement...
Jack was in his early 50s and unemployed. His assets consisted of only his home and a 401(k) balance in the range of $900,000. Jack was contemplating full retirement but still had a mortgage. After analyzing Jack’s finances, we determined Jack had his employer’s stock in his 401(k) dating back decades. The basis on this stock was extremely low. We utilized the Net Unrealized Appreciation (NUA) strategy to extract the stock in a tax-efficient manner and pay off his remaining mortgage balance. We encouraged Jack to continue working, even if at a reduced capacity. Supplemented his lower income with distributions from his IRA using the 72(t) provision to avoid the 10% penalty. Jack’s employment income helped preserve his existing asset base by distributing a smaller sum of retirement funds prematurely.
A Generous Donor with
expiring stock options...
During initial conversations with Laura, it was quite obvious she was rather generous with her charitable giving. She recently separated from her previous employer, but Laura established a new opportunity shortly after. Her prior employer’s vested stock options were given one (1) year to be exercised. Analyzing multi-year cash flow and tax projections revealed current year would be ideal to exercise her stock options. Exercising Laura’s in-the-money options also removed any potential deterioration in the stock price due to market fluctuations. To mitigate the significant tax consequence expected, we also advised Laura to establish a Donor Advised Fund (DAF). Laura used appreciated stocks in excess of $250,000 in value to fund the DAF. Together, we met Laura’s goal of continuing with her generous giving, helped reduce her current tax liability, and removed future capital gains consequences from the appreciated stocks gifted.
A Real Estate investor with a sizeable
deferred compensation payment...
Joan retired at the end of February. She and her husband have multiple real estate investments scattered nationwide. Joan’s deferred compensation payments will be paid over several years after retirement, the largest being the year after retirement. This payment will be above $1 million. We discussed the strategy of making such a state as Texas their primary resident state. They were already considering an investment property there. They finalized the move to Texas and changed residency. The move helped avoid their original resident state’s approximate 5% income tax being assessed on their future deferred compensation payments. This strategy alone saved in excess of $50,000 in state taxes on the first year’s $1 million deferred compensation payment.
Maximizing post-tax contributions
into the company 401(k) plan...
Carl is an executive at a large publicly traded company. Carl wasn’t aware that his employer has a feature within the 401(k) plan that allows him to allocate after-tax dollars into the plan after fully funding it with pre-tax dollars. We informed Carl of this feature. These after-tax dollars can then be rolled into a Roth IRA even while Carl is still employed. Carl can contribute a little more than $30,000 per year into this after-tax pool and immediately roll it into his Roth IRA. That’s more than five times (5x) the limit on what Carl would be able to contribute into a Roth IRA per year.
A social security surprise
for a struggling pre-retiree...
Michelle is 65, single and living on her own. She is experiencing cash flow limitations and is accumulating consumer debt. She is also not capitalizing on her employer’s 401(k) plan. During initial interviews and data gathering sessions, it was determined Michelle was married but divorced. Her ex- husband had also been long deceased. We revealed to Michelle that she would be entitled to her ex’s social security survivor benefits which we later determined would reach approximately $2,000 per month. She is currently working, and any social security benefits will be subject to offsets due to the annual earnings limit. Instead, we advised Michelle to commence survivor benefits when she is 66, her Full Retirement Age (FRA), and let her personal benefits increase due to the delayed retirement credits until age 70. The added social security income will allow Michelle to fully capitalize on her employer’s retirement plan and help alleviate her current cash flow struggles.
Disclosures
Case studies are for illustrative purposes only and should not be construed as a testimonial. It is unknown if the client will approve or disapprove of our services. Each client’s situation is different and goals may not always be achieved.
Tax information provided is general in nature and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
