Proactive Tax Planning 6 of 6

Benjamin Haas |

CASE STUDY: Proactive Tax Planning Strategies

Over the course of the last couple weeks, we have shared several proactive tax planning strategies that one might use in planning their financial future. Today we will share an example of how one couple might implement these strategies based on their personal values, vision and wealth. This is a hypothetical case and may not be suitable for all investors.

There's a husband and wife, ages 64 and 62 who are recently retired. They have two adult children and four grandchildren and have downsized their home to move closer to their family. Their primary goals are to make sure their retirement income is secure, to reduce their income tax liability and to prepare their estate, which they intend to leave primarily to their heirs but also to a specific charity they regularly support. They are also concerned about future healthcare expenses.

They have assessed that their pension and Social Security incomes are sufficient for their retirement needs. They also receive investment income and dividends that help cover their retirement wants and wishes from year to year. They have built a cash reserve but also have the cash proceeds from downsizing their home which they think of as their “healthcare buffer.” There is appreciated stock from her working days and IRAs that they are not currently taking money from. Finally, he has some old life insurance policies that they continue to pay for.

With their goals in mind, here are a couple of proactive tax planning strategies, that when used together, might help the couple meet their short-term and long-term objectives.

  1. They might consider the Roth conversion strategy – They ask their financial planner to work with their tax accountant. Together they determine the couple could convert $50,000/year without moving into a higher tax bracket. The approximate tax liability for this conversion would be $12,500. Should they implement this strategy between now and their respective “required minimum distribution” (RMD) ages, they could have in the neighborhood of $350,000 in Roth IRA assets, reducing their future RMDs and enjoying tax-free growth moving forward. When considering a conversion strategy it is important to note that Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation, as shown in this example.
  2. They could consider transferring their corporate stock to a charitable remainder trust. Because the stock has appreciated over her working career, there is potential tax liability to selling it. This strategy allows them to avoid that capital gain tax, receive an approximate $125,000 tax deduction for their gift, while also entitling them to $15,000 of income, back from the CRUT until she passes away. Ultimately, the remainder of the assets in the trust will go to their charity of choice, meeting another stated objective of their estate plan.  Note:
  • This gift would afford the couple the ability to accelerate their plan to convert Traditional IRA assets to a Roth IRA because the charitable deduction could, in part, offset their tax liability.
  • If they do not need the income from the CRUT in a given year, they could make gifts to their grandchildren with the proceeds.
  • They also could use the income for a life insurance policy, which is the next consideration.
  1. They could consolidate their life insurances into a new policy with a higher death benefit. By consolidating these policies, he could apply for a $500,000 permanent death benefit, requiring a $8,000 annual premium expense. This expense could be covered by the CRUT income, or the projected RMDs they will be forced to take in the next couple years. Finally, he could list his wife as $200,000 beneficiary and his children $300,000, effectively replacing the stock they have now earmarked for charity. When considering this strategy it is important to exam your health as that may affect the ability to take out a new policy as well as the premium cost

In summary, the combination of these strategies helped this couple meet their financial planning objectives, all while being proactive about their tax strategy. They

  • “Moved assets to the right” generating tax free income
  • Received tax deductions for their charitable gift
  • Repurposing life insurance to create larger tax-free death benefit for heirs
  • Structured estate plan to include both their heirs and charity
  • Removed assets from their estate (strategies that we will discuss in our next series)

As stated before, these strategies can be a bit complex, and may require the services of multiple professionals to ensure you’ve aligned your finances, taxes, and estate plans. So be sure to speak with qualified professionals before implementing any of the strategies discussed.


This information is for illustrative purposes only. There is no assurance that the techniques or strategies discussed are suitable for all investors or will yield positive outcomes.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific tax or legal issues with a qualified tax advisor or estate-planning attorney. Haas Financial Group, US Financial Advisors and LPL Financial do not provide tax or legal advice or services.

Securities offered through LPL Financial, Member FINRA and SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor. U.S. Financial Advisors and Haas Financial Group are separate entities from LPL Financial.


Article tracking #1-623894     Video tracking #1-626075