Financial and Legacy Planning Essentials Part 2 of 3

Income Tax Planning

By: Patrick R. Lyte, the Financial Network Group Legacy

Photo of Patrick Lyte

Objective: Minimize income taxes liability and maximize tax savings, benefits, credit and deduction.


Some examples of employing effective income taxes strategies:

  • Participating in qualified retirement plans to shelter some of your income from taxes.
  • Holding non-qualified assets and investments (stocks, bonds mutual funds shares etc) for 12 months or longer to take advantage of long-term capital gain rates.
  • Selling assets non-qualified assets and investments at a loss to reduce your adjusted gross income. Gains and losses are not recognized until realized, meaning you don’t incur a capital gain or loss until you actually sell the investment. This gives you full control over the timing of the recognition of gain and loss. Tax law requires capital losses to be netted against capital gains according to specific ordering rules. Losses in excess of gains can then offset up to $3,000 of ordinary income per year. Losses in excess of capital gains and $3,000 of ordinary income may be carried forward indefinitely.
  • Opening a Roth IRA plan and maximizing contributions.
  • Home ownerships – take advantage mortgage interest and property tax deductions.
  • SEP (Simplified Employee Pension), SIMPLE (Savings Incentive Match Plan for Employees) IRA, and Solo 401(k) plan. for small businesses.


Retirement Planning


Objective: To enjoy a financially secure life style in retirement.

Knowing whether you are on track to achieve your objective (i.e., of enjoying a safe secure retirement life style) is very important as you get older and move from pre to post retirement.


Recommended Action:

  • Start building your nest egg early – save and invest wisely during your pre-retirement (employment) years.
  • Participate in employee sponsored plans and take advantage of employer matching contributions to t e maximum allowable by the employer.
  • Open, fund and maintain qualified retirement plans or annuities to take advantage of tax-deferred growth.
  • Consider Non-qualified variable annuities that offer the opportunity for tax-deferred growth.
  • Consider implementing a Roth IRA retirement plan. Consider making annual Roth IRA contributions. Although you do not receive a tax deduction for Roth IRA contributions, distributions are tax-free after five years and age 59-1/2. Unlike other retirement plan assets, Roth do not require mandatory distributions at age 70-1/2, allowing the assets to continue appreciating and enabling you to exercise greater control over income recognition.
  • Avoid or refrain from taking early withdrawals (distributions before the age of 59-1/2.)…



Life Insurance

Objective: To use life insurance as a means to leave a strong financial legacy and bequest; pay final expenses, provide a source of income for surviving heirs and beneficiaries.

In the event of your deaths you have sufficient life insurance coverage to meet your legacy and bequest to surviving beneficiaries; and the value of your estate will be sufficient to:

  • To pay-off your mortgage.
  • Your estate will continue earning investment income (dividends, interest).

Permanent life insurance policies offer several benefits, which are not provided by term policies. Among the benefits are flexibility, tax-deferred growth of the cash value, various investment account options and possible tax-free income in the form of loans.


Strategy and Recommendations:

Understand the benefits of an Irrevocable Life Insurance Trust (ILIT) as an estate planning tool.

Establish (create) a valid Irrevocable Life Insurance Trust (ILIT) and transfer ownership of policies you currently own or may purchase, so as to not to increase your gross taxable estate. Keep in mind that access to policy cash values would be restricted.


Earnings Protection – Disability Income

Objective: To protect you from economic devastation as a result of an injury or illness.

The Loss of earned income over a prolonged period of time could result in significant financial hardship. Insurers typically will insure only a certain percentage of documented salary, generally 67%. Therefore, you may find it difficult to obtain the entire amount of protection our analysis suggests you require.

Social Security disability income benefits will not be received in the event of your disability.


Recommended Action:

  • Purchase and maintain disability income insurance protection you can rely on for income if you become disabled.
  • Conduct periodic reviews and upgrade of your policy to cover your needs.
  • Consider the following features when reviewing disability policies:
    • The definition of Total Disability and whether “Own Occupation Protection” is offered
    • Whether the policy is Guaranteed Renewable or Non-Cancelable
    • The elimination period (30, 60, 90 or 180 days)
    • Cost of Living Adjustment (COLA) and Automatic Benefit increases
    • Waiver of Premium and Residual Benefit Rider
    • Occupational Rehabilitation


Long Term Care Protection

 Objective: To protect and preserve your assets from the high costs of nursing home or home health care

As part of your overall asset protection strategy, long-term care insurance can be an effective tool for preserving your assets for distribution to heirs and maintaining control of them for as long as possible


Recommended Action:

  • Obtain long-term care insurance with sufficient nursing home or home health benefit coverage necessary to preserve your assets. The coverage will put you in a very good position, because the odds are that without the policy, your assets may be depleted rapidly, should you encounter an extended period at a nursing home facility.
  • Conduct periodic reviews of your long-term care policy with an experienced insurance agent.
  • Continue to maintain sufficient long-term care insurance to meet your needs.

Stay tuned for part 3 of 3 on “Financial and Legacy Planning Essentials” in the next issue of Ethnic Online




Your Life & Legacy Matters. Seek us out for competent advice and guidance.
PO Box 600562, Newton, Massachusetts 02460
Telephone: 617-306-9672


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