Advanced Wealth & Retirement Planning

by Leslie McClintock

There is a great deal of financial information in the media for middle-class families. Everywhere you look, you are advised to get out of debt, fully fund individual retirement accounts and 401k plans at work and to buy term life insurance. But what about those who earn too much to qualify for these plans or who own their own businesses? If this describes you, your financial concerns and the means available to you are going to be very different.

Asset Protection

If you have substantial assets, others may perceive you to be a "deep pocket." Part of advanced planning is protecting assets from loss -- whether due to market forces or due to a lawsuit or bankruptcy. Make maximum use of the protections your state grants to assets in annuities, permanent life insurance plans and home equity. If you own a company, pay close attention to how your business entities are structured. Separate your business assets from business activities that potentially create liabilities or become targets for lawsuits.

Income Tax Planning

You may want to structure your assets to diversify against the possibility that Congress will raise income taxes on wealthier taxpayers. This may mean forgoing some current year tax deductions in favor of buying assets that grow under long-term capital gains taxes, which are lower than the taxes you would pay on a traditional individual retirement account or 401k distributions. You can also put money into a life insurance supplemental savings plan, which grows tax-free, and you can access the cash in the policy tax-free, provided you structure the policy correctly.

Retirement Savings

Even if you earn too much to contribute to a Roth IRA, or make tax-deductible contributions to a traditional IRA, you still have a number of options available. You may be able to establish a SEP-IRA, or simplified employer pension plan, for your business. You can also make nondeductible contributions to an IRA, and purchase annuities that give you the benefit of at least some asset protection and tax deferral. You can also create a self-funded insured pension plan, under Section 412 of the Internal Revenue Code. Consult an experienced insurance professional or financial adviser for more information on how these plans work. They work best for those with substantial free cash flow and few or no employees.

Estate Planning

As of 2011, the federal government imposes a 35 percent estate tax on all assets over $5 million, except where inherited by a spouse. To minimize this tax, you will want to consider maximizing the use of permanent life insurance (term life insurance does not work reliably for this purpose), trusts and a strategic gifting program. For example, you can gift up to $13,000 to any person in a given year, tax free. Your spouse can do the same. Every gift you make to an heir is that much less that will remain in your estate and be subject to estate tax when you and your spouse pass on.


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