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Schedule a 30 minute strategy session today
with TruChoice Financial’s Alan Roman

Alan Roman has over 25 years of experience working with financial professionals and high net worth clients.  He has a passion helping folks uncover the opportunities in the wealth accumulation, distribution, and legacy markets.  His hands-on approach will put you at ease when building tax diversification strategies.

If You Have Clients Who:

Feel they are already paying too much in taxes

Contribute to, or have most of
their retirement savings in, one type
of account (i.e., most of their savings are in an IRA or 401(k))

Are doctors, attorneys, engineers, business owners, or dual income households

Then you need to begin exploring tax diversification strategies.  Today! 
By waiting, you may miss out on the ability to build flexibility into
your clients’ retirement income strategies.  If you attempt to act after
any potential tax law changes, it may be too late for your clients.

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Working with upper income clients who have an eye toward taxation may require you to explore concepts, strategies, and products that you would ordinarily not consider.  But not every client will be able to utilize these strategies.  And not everyone will want to.  Additionally, there are plenty of financial professionals that are simply unaware or not knowledgeable enough about the strategy to effectively put it into place.  And some financial professionals may dismiss certain strategies or approaches as too “old school.”  And granted, some of these approaches do require a longer-term view.

4 Strategies
1. Take advantage of 2021 income tax brackets

One of the easiest ways for Congress to increase taxes is to change tax brackets and rates.  The result is that upper income clients could see tax increases on almost every dollar of taxable income, including taxes on traditional IRA and 401(k) dollars.  As a result, 2021 may be the last chance to leverage today’s historically low tax rates.


The most obvious way to leverage today’s rates and position taxpayers for a higher tax rate environment is through Roth conversions.  But care must be given when considering Roth conversions as they do result in taxable income,  and increased taxable income can have a downline effect on things such as Medicare premiums, loss of tax credits and deductions, and tax-bracket creep.  But it may be worth it to generate tax-free retirement income in the future.


2. Utilize appreciated property

The run-up in real estate and the stock market may mean that taxpayers are sitting on highly appreciated property.  With President Biden proposing to increase capital gains tax rates to over 40%, the time may be now to consider ways to tackle appreciated property.  One method for selling appreciated real property, such as real estate or a business, has been to utilize a deferred sales trust (DST).  However, while a DST spreads the tax burden out over several years, a taxpayer would still be subject to the higher capital gains rates.


One alternative is to utilize a charitable remainder trust (CRT).  CRTs provide flexibility for those that are charitably inclined.  Not only does the use of a CRT provide for a tax deduction today, but the donor can receive income from the CRT for either a set period or for the life or lives of the donor and his or her spouse.

3. Use leverage to accelerate funding of tax-favored vehicles

The income limitations of Roth IRAs can create difficulties for upper income individuals who are looking for tax-favored vehicles.  Additionally, Roth 401(k) contribution limits may not be sufficient for those same taxpayers to save enough for retirement.  Plus, Roth conversions may be too tax punitive to be an effective way to diversify retirement income.  But with the pressure of coming tax changes, it may be time to explore an approach utilized by corporations and universities.


Cash value life insurance not only provides the death benefit protection that upper income taxpayers may need, but also the potential for tax-free income.  And through the use of premium financing, today’s low interest rates can result in the taxpayer using leverage to supplement the funding they personally have available.


4. Use it or lose it with gift and estate tax exemptions

There are multiple proposals that would result in huge reductions in the current $11.7 million lifetime gift and estate tax exemption.  Taxpayers who would be exempt from the estate tax in 2021 may find themselves directly in the crosshairs of the proposals to lower the estate tax exemption to $5 million and limit gifts to $1 million.


However, the IRS has clarified that they will not “claw back” gifted assets if the gift exemption is reduced.  That means that higher net worth taxpayers may need to take steps in 2021 if they wish to take advantage of today’s exemption levels.  Simply put, the clock is ticking. If these taxpayers do not utilize  the current lifetime gift exemptions in 2021, they may lose out on those exemptions in the years to come.

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