Client Background
A retired couple approached our wealth management firm seeking to optimize their financial plan. With a modest income primarily from Social Security and minimal investment earnings, they had accumulated significant assets, including a sizable estate. Their primary goal was to pass as much of their wealth as possible to their children while minimizing tax liabilities.
Challenge
Upon reviewing their most recent tax return, we identified an opportunity. The couple’s income was nearly equal to their standard deduction, meaning they were paying little to no income tax but were underutilizing their deductions. This “wasted” deduction represented a missed opportunity to extract wealth from their tax-deferred retirement accounts tax-efficiently, limiting the legacy they could leave for their children.
Solution
We recommended a strategic Roth IRA conversion plan. By increasing withdrawals from their traditional IRAs and converting those funds to a Roth IRA, we could raise their taxable income to fully utilize their standard deduction. Since their deductions offset the additional income, these withdrawals were effectively tax-free. The Roth IRA conversions also positioned their assets for tax-free growth and distributions, enhancing the wealth they could pass to their heirs without future tax burdens.
Results
Through this strategy, the couple successfully converted a significant portion of their IRA assets to a Roth IRA without incurring additional income tax, preserving more of their estate for their children. The tax-free nature of the Roth IRA ensured that future growth and distributions to their heirs would be free from income tax, aligning with their goal of maximizing their legacy. The couple gained peace of mind knowing their wealth transfer plan was both tax-efficient and aligned with their long-term objectives.
Are you making the most of your deductions to optimize your wealth transfer? Contact Michael Brady for a personalized consultation to discuss how your wealth can align with purpose and possibility.