1. Elliot dole, ea, cfp® wealth advisor
Managing the spend down increasing your odds of not running out of money
Elliot dole, ea, cfp® wealth advisor

2. 1980s 1980s - 2016 2017 History of spend down 6/20/2018
History of the Spend Down:
1980's Corporations began the abandonment of defined benefit plans
1980s Accumulated assets for retirement with defined contribution plans
Oldest Baby Boomers start Required Minimum Distributions (RMD) at age /2
2017

3. Most significant financial concern?
6/20/2018
Most significant financial concern?
Running out of money

4. How do you increase your odds of not running out of money?
6/20/2018
How do you increase your odds of not running out of money?
Draft and implement a written spend-down plan to minimize taxes

5. Two key concepts for success
6/20/2018
Two key concepts for success
Tax alpha
Spend-down

6. Strategies enhancing after-tax market returns by reduction of tax cost
6/20/2018
Tax alpha
Strategies enhancing after-tax market returns by reduction of tax cost

7. 6/20/2018
The numbers
10% market return taxed at maximum federal capital gain tax of 23.8% nets 7.62% market return after tax
A 10% return taxed at maximum federal capital gain tax of 23.8% nets 7.62% return after tax
-Tax Alpha strategies goals are to enhance the return beyond the 7.62% net after tax

8. Applying tax alpha to the numbers
6/20/2018
Applying tax alpha to the numbers
Tax Alpha strategy goals are to enhance the market return beyond 7.62% net after tax

9. Tax alpha opportunities are created …
6/20/2018
Tax alpha opportunities are created …
Estate Planning Documents
Income tax planning at the intersection of tax and finance

10. opportunities in estate planning documents
6/20/2018
opportunities in estate planning documents
Step-Up in Basis
Double Step-Up
Portability
Family Trust
Estate Planning Terms:
Step Up In Basis- At death, basis is stepped up to fair market value as of date of death. Avoids capital gains on unrealized gains at death. (Community property state- both spouse assets are stepped up)
Double Step Up In Basis- At death of surviving spouse, all assets owned, including assets inherited from deceased spouse, are step up before transferring to heirs.
Portability- At death of first spouse, unused estate tax exemption is transferred to surviving spouse to be used the surviving spouse death along with their own exemption.
Family Trust- Assets do not receive double step up in basis. Heirs receive basis as of date of first spouse. Traditional planning before Portability in order to use exemption.
Tax deferred- Assets such as annuities and IRAs are not subject to step up in basis. Creates ordinary income to heir. Annuities deferred income are tax at death while IRAs income maybe stretched.
Tax-Deferred

11. Estate planning opportunities
6/20/2018
Estate planning opportunities
Minimization of taxes by surviving spouse
Manage risk of which spouse dies first
Avoid Family Trust
Die owning the right assets
Transfer non step-up assets tax efficiently
Minimization of taxes by surviving spouse selling step up basis assets inherited from deceased spouse and holding their lower basis assets
Manage risk of which spouse dies first by owning equities equally between spouses
Minimization of taxes by heirs by receiving double step up by not funding Family Trust
Die owing the right assets in right accounts- Own equities in taxable accounts. Avoid owning equities in IRA accounts.
If funding charity at death- Transfer the assets that are not subject to step up to the charity such as naming charity beneficiary of IRA
Hold- Avoid selling assets with significant appreciation during lifetime. Avoids paying capital gain taxes subject to step up in basis
Sell- Only sell assets with unrealized gains to create cash to fund lifestyle. Select asset acquisition with highest basis which produces lowest capital gain.
Hold
Sell

12. 6/20/2018

13. Tax alpha opportunities in income taxes
6/20/2018
Tax alpha opportunities in income taxes
11- Tax Alpha Opportunities in Income Taxes
-Move tax planning from 1099s to the intersection of tax and finance
-Plan before building portfolio

14. Intersection of tax and finance
6/20/2018
Intersection of tax and finance
-Intersection of Tax and Finance:
-Manage income tax brackets thresholds over lifetime
-Avoid capital gains
-Asset placement

15. Manage income tax thresholds
6/20/2018
Manage income tax thresholds
-Avoid higher effective tax brackets
-Spread income or deductions over longer periods rather than one year
-Recognize deferred income in appropriate year from traditional IRAs, annuities
-Increase income by Roth conversions when appropriate
-Manage payment of deductible expenses in appropriate year
-Project income in Spend Down Phase, then plan Black Out Period

16. Avoid creating taxable capital gains
6/20/2018
Avoid creating taxable capital gains
-Accumulate portfolio growth in unrealized gains which receive step up in basis at death
-Realized gain only to fund lifestyle or re-balance allocation
-Loss harvest when possible

17. 6/20/2018
Asset placement
-Match the appropriate investment asset class to the appropriate tax cost vehicle
-Match ordinary income (OI) asset class with OI structure
-Match capital gain (GC) asset class with CG structure

18. Benefits of asset placement
6/20/2018
Benefits of asset placement
-Position higher expected growth asset for lower tax rates
-Position equities for income tax free step up in basis
-Position equities for loss harvesting opportunities
-Capture foreign tax credit
-Reduce future dollar amount of RMDs which starts at age 701/2

19. Spend down ACCUMULATION BLACK OUT SPEND-DOWN 65 23 70 ½ (Retire)
1Black Out Period:
-Begins at end of earning income from working
-Ends at age 70 1/2 when RMDs from tax deferred accounts begin
-Social Security income begins near the end of the Black Out Period
-Number of years in this period for a client could be zero to 20 years
-Taxable income may be lower than in Spend Down Period
-Plan the Spend Down Period first to determine required planning in the Black Out Period

20. 6/20/2018
What is your current plan to decrease your tax cost over this timeline to increase your odds of not running out of money?
-Position higher expected growth asset for lower tax rates
-Position equities for income tax free step up in basis
-Position equities for loss harvesting opportunities
-Capture foreign tax credit
-Reduce future dollar amount of RMDs which starts at age 701/2

21. 65 23 (Retire) ACCUMULATION Accelerate Charitable Giving
Asset Placement
Position Portfolio for Step-Up
Double Step-Up
Buy and Hold
[CLICK TO BRING UP ACCUMULATION]
Accumulation Period Planning
-Build portfolio to achieve "After tax, risk adjusted, market returns"
-Accumulate growth in unrealized gains, not realized gains
-Minimize income taxes by asset placement
-Position equities for step up and double step up in basis by asset placement and estate planning documents
-Use institutional equity mutual funds with buy-and-hold strategy
-Accelerate deductions near end of period during high tax brackets- i.e.- charitable giving by funding Donor Advised Fund

22. 70 ½ SPEND-DOWN Did You Save Enough? Create Social Security Strategy
Lifestyle Cost $250,000
Fund With Lowest Tax Cost
[CLICK TO BRING UP SDP]
Spend Down Period Planning
1-Determine desired lifestyle before income taxes
2-Prepare Monte Carlo to determine financial capacity to fund desired lifestyle
3-Prepare Social Security Optimization
4-Estimate all non portfolio income and convert to cash
5-Project portfolio income and convert to cash
6-RMDs converted to cash in first quarter
7-Additional cash required, if any, by rebalancing portfolio selling highest basis

23. 65 70 ½ (Retire) BLACK OUT Least Tax Cost Over Lifetime
Avoid Least Tax in a Year
Project Tax Cost of Spend-Down
Move Tax Cost to Black Out
[CLICK TO BRING UP BOP]
Black Out Period Planning
-Income tax minimization requires paying the least amount of income taxes over lifetime to avoid "bracket creeping"
-Avoid the common goal of paying the least amount of tax in the current year
-Project income tax brackets during the Spend Down Period including the projected growth of tax deferred accounts and its projected RMD
-Determine goal for Black Out Period:
-Goal A- Avoid 3.8% Net Investment Income Tax (NIIT) by keeping Adjusted Gross Income under $250,000
-Goal B- Avoid 20% capital gain rate by keeping taxable income under $470,700
-Focus on losing the least amount of wealth to taxes during your lifetime
[CLICK TO BRING THESE UP]
Reduce tax during Spend Down Period by realizing income during Black Out Period:
1-Annuities
2-Deferred government bond interest
3-Deferred compensation

25. 6/20/2018
Do you think these Spend Down strategies will increase the probability that you will not run out of money during your lifetime?