Tax Planning

Liquidity, liquidity, liquidity

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Unless you’ve been living under a rock (and if you have, please stop, that sounds very uncomfortable), you’re aware of the banking crisis kicked off by the Silicon Valley Bank collapse and its ripple effects on the financial markets.

You may be thinking, “Well, that’s an understatement. I’m downright worried.”

Yes, this story is developing rapidly, and the markets have been turbulent. But it’s not a time to hide (no matter how comfy that rock sounds right now), nor a time to panic and make rash decisions about your finances.

Instead, tune out the headlines, and tune into the fundamental issue at hand: liquidity and access to cash.

In the same way liquidity is crucial to bank risk management, it’s also an essential factor in your own financial plan.

Which is where insurance comes into the conversation. 

Yes, insurance. Cash-value life insurance, to be specific. 

More than a means for taking care of those we leave behind when the inevitable happens, cash-value insurance can also provide liquidity.

While cash-value life insurance is not typically considered a primary savings vehicle, there are some potential benefits to incorporating certain types of cash-value life insurance policies into your overall financial plan, such as:

  1. Protection against losses: Cash-value insurance policies offer savings that can protect against losses. For example, if you have a cash-value life insurance policy, your cash value may protect you from losses during market volatility or a market downturn.
  2. Access to funds: Properly structured cash-value insurance policies allow you to access the cash-value component on a tax-efficient basis. These options can provide flexibility if you need access to funds for emergencies or other unexpected expenses.
  3. Uninterrupted compounding: In the words of Albert Einstein, “Compounding interest is the eighth wonder of the world.” Some types of cash-value insurance policies, such as whole life insurance, offer guaranteed minimum returns on the cash value component of the policy, which can provide predictable tax-free growth on your savings. 
  4. Tax advantages: The cash-value component of properly structured life insurance policies can grow tax-deferred, which means that you do not have to pay taxes on the growth, and it can transfer to your beneficiaries tax-free. Additionally, some policies allow you to withdraw money tax-free as long as you meet certain conditions.

As with all financial products, trade-offs exist, such as potentially high fees. So, a conversation with your financial advisor is a crucial next step in exploring whether properly structured cash value insurance can be added to your circle of wealth. 

If you need guidance in determining where insurance fits your financial plan, Kaspian Group is here to help. Contact us at kwesi@kaspiangroupinc.10e1e9c.rcomhost.com to get the conversation started.

Updating Beneficiary Designations: Why It Matters

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Welcome to March, where tax season is in full swing, and we’re gathering all the documentation needed to prepare for The Big Event: April 15th.

While tax season weighs on all of us, it’s particularly challenging this year, given significant changes to the tax code.

Don’t worry. We’re not going to delve into that right now. That’s a conversation for another time.

Instead, let this time of year remind you to do one simple, yet crucial thing.

Update your beneficiaries on all your financial accounts.

There’s a great saying that there are two certainties in life: death and taxes, but the third constant is often overlooked: change.

There are joyful life events like marriage, the birth or adoption of a child, and career shifts that bring more fulfillment and more money.

And then there are the not-so-happy ones: death, divorce, or unexpected job loss.

As your life changes, so do your plans, policies, and designations. But you may not think to keep up with them, which can lead to an unintended result. Consider the following scenarios:

Listing parents as beneficiaries: When you started your career, you may have listed your parents as your beneficiaries on an insurance policy or investment account. A noble act, but if it’s been a few years (or decades) since your first job, you may want to change that person to your spouse or domestic partner. Otherwise, your benefit payments will go to your parents, not your beloved husband or wife.

Divorce and remarriage: Let’s face it, not every marriage lasts. If you remarry and don’t update financial accounts to designate your current spouse as the beneficiary, your prior spouse could inherit your funds.

Neglecting to List a Beneficiary: Sometimes, in haste, we transfer accounts and think, “I’ll get to the beneficiary information later.” Well, later is now. Otherwise, your assets will likely be held in probate if you don’t designate a beneficiary for a retirement account like a 401(k). A court will sort out your financial situation and determine how to distribute your assets.

And to add insult to injury, once the account is probated, your loved ones could find themselves with a tax liability instead of an inheritance.

None of these is the legacy you want to leave behind.

In short, if you want your wishes to be honored, make sure your wishes are updated.

What is the simplest way to do so? Fill out a new beneficiary form for each of your investment accounts.

If you need guidance in finding, changing, or obtaining beneficiary forms or selecting appropriate beneficiaries, Kaspian Group is here to help. Contact us at kwesi@kaspiangroupinc.10e1e9c.rcomhost.com to begin the process today.

Your 2023 Financial Roadmap

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The New Year is here, and the battle cry of “New Year, New Me!” can be heard from all corners. Folks are back at the gym, eating their veggies, participating in Dry January, and hitting the pillow at 9 p.m. sharp.

The renewed energy and mindset this time of year are contagious and inspire us to live better physically.

It’s also the perfect time to think about your financial health.

And by “financial health,” I mean thinking beyond your budget for the year.

What do you want the end of 2023 to look like for you? Are you contemplating retirement? A cross-country move? Or are you inspired to travel more now that the kids are out of college and on their own?

Whatever your dream, you need to forge the financial path to get there.

That requires first determining where you are.

Charting Your Financial Course

Step 1: Review your finances

Review your financial plan. If you don’t have one, work with an advisor to create one. Think of your financial plan as taking a road trip with GPS. Before you can tell the GPS where you want to go, you have to tell the GPS where you are. Revisiting your plan with your advisor helps provide the baseline for what resources you have at your disposal.

Step 2: Align your wants and financial needs

Once you’ve established your financial foundation, it’s time to think about how they relate to your goals.

Let’s say you want to save more money for retirement. The obvious question becomes, “Are your financial habits aligned with that goal?” Similarly to how losing 10 pounds requires cutting back on desserts and eating healthier foods, saving money means looking at where you are losing money and reallocating it.

But that’s not the only way to look at a goal like this one. Sometimes you need to think differently, which leads us to examining these five areas: taxes, mortgages, qualified plans, college, and other large expenses.

Step 3: Consider multiple paths to achieve your goals

Let’s continue with the example of saving for retirement. The popular notion is that we all need to save a lot for retirement because everything is expensive and people live longer.

What matters more is saving the right amount in the right places.

Think about it: You could save a bundle of money, but if you’re keeping it in a cookie jar or under your bed, is it working for you in the long run?

Those are extreme examples, but they illustrate the point: strategic allocation provides options, freeing up your mind to the possibilities, instead of stressing about pinching pennies at Starbucks.

Step 4: Prepare for road bumps along the way

Now let’s consider the other side of the retirement equation: withdrawals. Yes, there’s planning to be done in this phase, too, especially with the roller-coaster markets at the forefront of our minds.

Much like the contribution phase, the withdrawal phase of retirement comes with its own popular notion: that longevity —outliving your retirement savings — is your most significant risk.

But what doesn’t get as much attention is sequence of return risk; the risk that you choose to retire when the market is at its worst.

If the market declines in the early years of retirement while your making withdrawals, then the value — and therefore the longevity — of your money is impacted.

In other words, the timing of your withdrawals is as important as where your money is located.

Withdrawal strategies — timing your distributions appropriately while leveraging other aspects of your finances — are one way to mitigate that risk. Reallocation, diversifications and sequencing are others.

These are just some steps to creating a financial strategy for the year ahead. If you’re ready to take the conversation further, schedule a financial check-up with the Kaspian Group, where we help clients feel assured with the right amount of information that’s right for them. Contact us at kwesi@kaspiangroupinc.10e1e9c.rcomhost.com to begin charting your financial course for 2023!

Liquefy Illiquid Assets to Produce More Net Income

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Liquefy Illiquid assets (real estate) and produce more net income to you and more inheritance to your heirs

There are ways to be able to take advantage of opportunities in the tax code, including but not limited to: income tax law, estate tax law, insurance law, pension law, and lending laws that you need to be familiar with.

When discussed and implemented correctly, by timing, combining and sequencing the aforementioned, in some situations it is possible to create liquidity out of real estate equity and increase income tax savings without 1031 exchanges.

If properly orchestrated, you could generate more net after-tax income with less risk. Also, if properly structured you could have more of your estate assets go to your heirs with less estate tax.

If you’re not aware of how a situation like this works, we invite you to connect with us to learn more!

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What’s Your Biggest Expense?

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The answer may shock you

When asked to identify their biggest expense, most people, no matter how successful or savvy, struggle to provide the correct answer. We receive answers like, “my home mortgage,” or, “my child’s tuition bill,” and while those are considered as some of the largest of all expenses, they don’t come even close to the real answer.

The real answer is that the typical American’s largest expense is … taxes! Practically everything we spend our money on has already been reduced by taxes. Taxes permeate our financial life and put a drain on everything that we work so hard to earn and keep.

Most people don’t realize that the payment of taxes can actually be voluntary with the proper planning. The IRS has earmarked certain methods and structures that allow one to defer, reduce, or even eliminate the payment of certain types of taxes. However, to understand these solutions, we should first identify a few of the most prominent types of taxes.

INCOME TAX

If you earn an income, you probably already know about this type of tax. It is assessed at the Federal level and usually at the State level and can reduce your taxable income by over 50%, depending on the state in which you reside.

While income taxes almost always affect your earned income, what you may not realize is that some of your most valued investments may already be partially or entirely subject to this tax, rather than the lesser Capital Gains tax. For example, withdrawals from many qualified accounts (such as your IRA, your 401(k), your Profit Sharing Plan, and your Defined Benefit Plan) are entirely subject to income tax.

CAPITAL GAINS TAX

Are you attempting to profit on an appreciated asset — whether that be a non-qualified stock portfolio, a building, or a closely-held business? Prepare yourself (and your pocketbook) for the capital gains taxes on those earning!

This tax is usually assessed against the earnings in your non-qualified investments when you try to sell your asset, and as of 2018, that rate can reach 20% for top income earners. For example, if you are in the top income bracket, and you try to sell a commercial building that has appreciated tremendously over the years, you may be hit with a huge capital gains tax bill!

ESTATE TAX

You have saved and invested wisely throughout your life, and you want to transfer some of your hard-earned wealth to your loved ones after you pass away. You’ve already paid income and capital gains taxes on your earnings. But Uncle Sam apparently doesn’t think that is enough, because the Estate Tax is assessed against the wealth that you intend to transfer to your heirs.

This tax has had a tumultuous history — being raised, lowered, cancelled, and reinstated more times than our government cares to admit. One thing is for certain with this tax though — the government loves to use this as a quick fix, and since our national debt has risen to over $20 trillion dollars, one could surmise that this tax may be with us for a while. That being said, even if this tax does go away or is reduced, there may come a time when the powers that be reinstate it when you’re least expecting.

What is frightening for some is that many of these taxes pile up on top of each other, which can reduce your cash flow and net wealth by a huge margin. If we could help you defer, reduce, or even eliminate just one of these taxes, would that be worth a conversation?

After all, what really matters is not what you make, it’s what you keep!

You owe it to yourself to explore your tax efficient possibilities.

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