Introduction

David is a 49 yr old federal worker. He’s married with 5 children ranging from 6 to 27 years old. David's income as a Federal Special Agent brings him $200,000 per year. His wife Sarah earns income as a successful realtor with income ranging from $100,000 - $500,000 per year. This case study highlights their dynamic financial situation, marked by high income, family responsibilities, and an innovative tax strategy through a DOS Analysis.

Background

Sarah and David's family includes three 6-year-old triplets and two older children, aged 23 and 27. Their combined income ranges widely, and they face substantial tax obligations. Their primary goals are to accumulate wealth, secure their children's education, and plan for a comfortable retirement.

Dangers

1. Variable Income and Tax Challenges: : Sarah's fluctuating income creates uncertainty in their financial planning, and their combined high income results in significant tax liabilities. They must be careful of too much debt or fixed expenses that are too high due to wide swings in income.

2. Wealth Accumulation and Tax Efficiency: Balancing wealth accumulation, tax optimization, and family responsibilities poses challenges for the couple. But, it also presents some powerful tax planning opportunities.

Solutions

1. Tax-Efficient Investment Strategy: Sarah and David should consider utilizing a maximum cash value IUL insurance policy, which allows them to accumulate cash value tax-free and access it when opportunities arise, such as investing in rental properties during market downturns. The policy must be meticulously designed utilizing low cost policies or blending non-commissionable term to make the policy powerful for tax free accumulation of wealth and for family protection.

2. Real Estate Investment: The couple can use the "dry powder" accumulated in the IUL policy to purchase additional rental properties when the real estate market experiences a significant dip. With a 20% down payment, they can acquire several properties during favorable market conditions. Assuming an ultimate rebound in real estate markets, this strategy can create substantial long term wealth.

3. Children's Involvement: Sarah and David can engage their children in their business by having them create marketing videos. Paying each child for their work can result in a tax-advantaged income stream, shielding up to $60,000 per year from taxes until each child reaches 18. These funds can be allocated toward the children's college education and also contribute to their future retirements. This strategy can shield well over a million from their taxable income over the next decade. This is but one of the tax strategies that they can implement.

4. Retirement Plans: Given that David will have a FERS pension and Sarah owns her own business, they have the opportunity to set up a variety of retirement/pension plans, health savings accounts, and profit sharing plans which can allow them collectively to defer from $100k to $300k of income per year.   

Outcome

By systematically addressing Dangers, leveraging Opportunities, and implementing Solutions, Sarah and David are poised for financial success. They benefit from a tax-efficient wealth accumulation strategy using proactive tax planning opportunities to seize opportunities during normal markets and to seize outsized returns with their “dry powder” tax strategies when markets are on sale. This innovat

NOTE: The preceding case study is hypothetical in nature and does not pertain to any real WE Alliance Wealth Advisors’ client. None of the information presented should be interpreted by a client or potential client as a guarantee that they will achieve similar results or satisfaction levels if they engage WE Alliance’s investment advisory services.