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How To Choose A Wealth Manager Financial Planner

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It’s no secret. High net worth individuals pay the most money in taxes, and this is unlikely to change anytime soon, especially if they keep working with the wrong advisors.

7 Secrets minified

7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning

The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.

Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.

However, since you pay the most, you also stand to save the most when you implement smart tax planning strategies to minimize your losses.

For thirty years, Pillar Wealth Management has helped families just like yours (with assets ranging from $5 million up to $500 million) make the most of their money. We want to help you protect and improve your portfolio to survive the ups and downs of the market like we’ve done for so many others over the years.

What follows are 10 ways to save money on your taxes. But some of these are time-limited (unless they get extended by the government), so don’t delay in figuring out which options make sense for you.

For more information about any of these strategies, reach out to Pillar Wealth Management to start the conversation. It’s free with no strings attached!

1. Invest in Municipal Bonds

Though the growth of municipal bonds tends to be lower than equities over the long term, all the interest from municipal bonds is tax-free. Suppose you earn 3.5% from a municipal bond and 6% from an equity-based mutual fund. After taxes, these aren’t as far apart as they appear.

Plus, in a down year for equities, bonds work to stabilize your portfolio and should be part of any healthy asset allocation. So if you’re going to pursue an optimized asset allocation with bonds anyway, why not make municipal bonds part of the mix?

Some states also exempt municipal bond interest from taxation. If you live in one of those states, you save twice.

2. Buy Solar Panels Before 2021

Unless the government extends it, the solar investment tax credit is set to begin expiring in 2019, and finish in 2021. So if you’re open to solar panels, they offer you a terrific way to take a massive bite out of your tax bill in one year.

If you have multiple homes, panels may make more sense at one place than the other. And, if you have a business with a physical location, the credit applies there too.

How much is the credit?

Through 2019, it’s a 30% tax credit off your total solar installation price. The following two years, it begins to decline to 26% and 22%.

To be clear – this is a credit, not a deduction. That’s good news. Do you know the difference? A credit comes straight off your actual tax bill. A deduction just lowers your taxable income. Both are nice, but a credit is much better.

For example, if you installed a $40,000 solar panel array in 2019, you could have cut your 2020 tax bill down by $12,000.

3. Convert Your IRA or 401k to a Roth

Roths have contribution limits, and high net worth households are generally excluded from using them. But because Roth investments grow tax free, the allure of getting your money into them should motivate you to be on the lookout for other ways to do it.

Rolling over your traditional IRA and 401k investments into a Roth might be your best option for protecting your wealth.

How and when you convert your traditional accounts to a Roth can get complex, so we’re not going to get into those details here. But the important thing is, start early. Why?

Because in the year that you do a rollover, you will pay taxes on the amounts your roll into your Roth. So the sooner you roll those funds in, the more years they’ll have to grow tax free. Some people like to annually rollover a portion of their investments into a Roth, keeping the taxes manageable each year.

But you can get really smart about this by pairing up your Roth conversions with other tax minimization strategies on this list. For instance, what if you do a big rollover the same year you install solar panels? You can use the sizable solar tax credit to offset the one-time tax bill from the rollover.

Get creative with the timing of this, and you can score some huge long term tax free optimized growth, even as a high net worth household.

4. Contribute the Maximum to 529 Plans

If you have kids, you can contribute to their 529 plans. These grow tax free and can be spent on qualified educational expenses. The new tax law expanded this to now include K-12 education at private and religious schools, not just college.

So you can contribute lots of money to 529s over the many years your kids will attend school. If you’re a grandparent, you can do the same thing for your grandkids.

You can give up to $15,000 per year, or $30,000 as a couple.

But note: These contributions are not deductible on your federal taxes, but they are in most states. Choose a financial advisorwho knows your local rules and can help you navigate 529 plans in your state.

5. Contribute the Maximum to Your 401k

You’re allowed to contribute up to $18,500 per person, per year, plus a $6,000 annual catchup if you’re over 50.

All of this counts as a tax deduction, reducing your taxable income.

6. Contribute the Maximum to Your Health Savings Account

Noticing the trend here? The amounts you can contribute to all these aren’t huge. But do them all each year, and they add up to a more sizable number.

You can contribute $3450 per person or $6900 as a couple to your health savings account (HSA). If you’re 55 or older, you can increase that by $1000.

The great benefit of HSAs is that they also grow tax free, and then can be used for medical expenses at any point in time. You do not have to spend them or lose the money each year like a Flexible Spending Account.

Let’s pause for a minute, and add all these up.

If you contribute the maximum to your 401k, 529, and health savings account, here’s how much you can deduct from your taxes:

Individual: $36,950
Couple: $73,900
Individual over 50: $42,950
Couple over 50: $85,900

Those are tax deductible contributions at either the federal, state, or both levels. Each year. Take a look at your current gross income. How much does the combination of these three strategies reduce it by? What else can your wealth manager do to reduce your taxes? 

7. Adjust Your Real Estate Strategy

The recent tax law reduced the maximum mortgage value for which you can deduct payments down to $750,000. And, interest on second homes is no longer deductible at all.

For now then, the days of huge real estate tax write-offs are over. From a tax perspective, you should consider adjusting your real estate strategy to focus on profits and income, rather than on tax minimization. How that looks for everyone will be a little different. An experienced wealth manager can develop a customized plan to help you figure out your best strategy. 

8. Increase Your Giving

The recent tax law raised the standard deduction up to $24,000 for couples. As a high net worth individual, you should have no trouble surpassing that. And you can claim tax deductions on donations of up to 60% of your adjusted gross income (and 30% of appreciated assets) to nonprofits.

By choosing to give to causes that matter to you, you’ll reduce the amount of your money the government gets to use for causes that matter to it. And you’ll reduce your tax burden as well.

9. Donate Items of Worth

You can donate much more than just money. You can give real estate, stock options, clothes, cars, airline miles, and other items of notable value that various nonprofits can use. You can even donate old wedding dresses for example. There are nonprofits that specialize in collecting and re-selling used wedding dresses.

The great thing about donating items is that you’re not touching your accounts, but you still get the tax benefits. So, finding things to donate that you probably wouldn’t have sold anyway is like getting a free tax deduction. It’s a terrific tax strategy for high net worth individuals, and this is why we refer to wealth protection as an art.

10. Start a Donor Advised Fund (DAF)

Here, you set up your own fund that grows tax free, and contribute your own money to it. Then, over time, you give away this money to nonprofits of your choice. You can also bequeath this fund to your heirs so it continues funding causes you care about even after your death.

The great thing is, the year you contribute to your DAF is the year you get to claim the tax deduction. NOT when you actually give the money to charity.

Did you catch that?

For instance, suppose you set up a donor advised fund and seed it with $200,000. Then, over the next 15 years, it grows, and you give out $10k here, $20k there, and $5k over there to various charities.

In terms of taxes, you get to claim the entire $200,000 deduction in the year you donated it.

Do you realize how powerful that is? It offers you a similar opportunity as the solar tax credit (not quite as good because this is a deduction, not a credit, but you can give unlimited amounts to a DAF).

Here’s the opportunity: If you pair up a gift to a donor advised fund with something that has a large one-time tax bite (such as a Roth conversion), the deduction from the DAF gift can offset the conversion cost.

So again – get creative with the timing of these.

If you’re older, you can also pair this up with your required minimum distributions (RMDs). Contribute to a donor advised fund the same year you take a large distribution, and you can blunt the tax consequence that action normally would have triggered.

You have to make the amounts work out in your favor, and the math can get tricky. So you would be wise to enlist the help of a high net worth financial advisor so you can maximize your tax savings in the year or years you take these actions.

Do You Have Access to High Net Worth Financial Advice?

Choosing the right financial advisor for your family is no small task. There are many things to consider and hard questions to ask potential candidates.

You want a firm that will protect your assets, especially if you’ve reached ultra-high net worth status. Pillar Wealth Management literally wrote the book on protecting ultra-high net worth portfolios, and we’re sharing the hardcover with you for free.

If you need help with your high net worth tax planning strategies, Pillar Wealth Management works exclusively with high and ultra high net worth households.

We have helped numerous high net worth households minimize their taxes using methods such as the ten you just read about.

If you’re a high net worth household and are ready to do whatever it takes to slash your tax bill, schedule a Wealth Management Analysis meeting.

In your meeting, we will show you tax minimization strategies that you can use this very year, based specifically on your unique financial situation.

Schedule Your Analysis Meeting Today