This story is a request and dedication from long-time clients, that we’ll call Mustang Sally & Goldfinger (even though they wanted to be featured in this newsletter I’d like to protect their anonymity).
We had a good laugh in the office as we talked about sharing their story with you via our Dollars & Diagrams newsletter.
Goldfinger (82) and wife, Mustang Sally (80) are retired educators and have “won the game.” Their Social Security and teachers pensions adequately cover their monthly expenses.
Over the years, their daughter, Jane, has also joined in our financial planning discussions. Jane helps ensure that Goldfinger doesn’t keep too much cash in the house and doesn’t accumulate too much gold.
Mustang Sally has a zest for life. Goldfinger enjoys painting and teaching art classes at the local community college. They are a delight to be around.
Goldfinger likes having a little extra “walking around money” so we suggested that Jane get them set-up with a fireproof safe.
Over the years, their investments have blossomed, which allows them to leave a projected legacy for more than they would have ever imagined when we began working together a decade ago.
You might be thinking, how do we help a couple who has “won the game?”
There’s always work to do.
Currently, we are trying to “fill up” their current tax bracket to try to take advantage of historically low tax rates.
Their annual income is approximately $72,000. The current 12% Federal tax bracket for couples filing jointly is $23,201 – $94,300 in 2024.
This allows us to take additional distributions of approximately $22,000 per year and convert to a Roth IRA or distribute to a taxable investment account.
Their preferred route has been to distribute the funds to their taxable investment account to avoid dealing with any complex Roth rules.
Why are we taking distributions, we don’t want to pay unnecessary taxes?
Reason 1: We want Mustang Sally and Goldfinger paying taxes on distributions at their current 12% tax level as opposed to their children inheriting the retirement accounts and paying taxes at their tax bracket, (which is higher) currently 22% and up.
Reason 2: Under current tax law, the children would receive a step-up in basis at the passing of their parents.
For example, Goldfinger and Mustang Sally purchased ABC ETF at $100,000 and it’s now worth $250,000. If they were to pass away, Jane’s tax basis would be $250,000.
If Jane liquidated the ABC ETF, she would not have a taxable event because her new cost basis is now the cost basis at her parents date of death.
This is one of the many benefits of having an ongoing planning relationship.
Goldfinger & Mustang Sally are MAXIMIZING the funds for the life of their plan. In their eyes, their children – anchored by Jane – are a continuation of the plan.
If you or someone you’re close to could use help aligning their finances and establishing a financial plan, please reach out to us, we’re accepting new clients and eager to help.
Cheers,
Nic
This is a hypothetical situation based on real life examples.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
