A Unique Niche

It’s been 15 years since I swapped out music for personal finance as my primary professional pursuit. Now I’m running a firm that specializes in retirement planning and tax planning for Christians and generous families who want to leave a legacy for their children’s children.

I wish I would have known 15 years ago to start specializing in this right away. It could have saved me some time, but here we are! Malcolm Gladwell popularized the idea that it takes 10,000 hours of practice to become great at something. That may or may not be true, but it definitely feels close to right.

I’ve built my business around this niche of coordinating retirement planning, tax planning, and charitable giving. I’ve spent the past 2 years specifically building the infrastructure and acquiring the tools to serve in this capacity and it’s my hope that I’ll have an impact on the local church as well as the local community with the service I provide. I’m confident I will.

Maximizing Living and Giving

The first priority in retirement planning is making sure you can keep living without running out of money. This is a math question and we can handle this with basic retirement planning techniques and assumptions. A good rule of thumb has been saving 15% of your income for retirement. That might work. How much should you have saved and how long will it last are questions we can answer when considering:

  • Social Security
  • Medicare
  • Private Health Care / Sharing / COBRA
  • HSA Balances
  • Pensions
  • Taxable (non-qualified) savings
  • Tax-Deferred balances
  • Tax-Free balances
  • Lifestyle Expenses (how much is enough?)
  • Giving Goals
  • Leaving an inheritance

Minimizing Taxes

While tax planning doesn’t drive any retirement or giving strategy, it does supplement it really well. Almost every retirement decision has a tax consequence that sends ripples through your entire plan. That’s why I think it’s ridiculous that some financial planners don’t talk about taxes.

Off the top of my head:

  • Distributions from IRAs are ordinary income
  • Taxable accounts have short and long-term capital gains and losses to manage as well as interest and dividend income
  • Saving into a Roth doesn’t reduce taxes in the current year
  • Gifts to your kids can trigger gift tax reporting
  • Inheriting a traditional IRA from parents can cause increased income.
  • Increased ordinary income can trigger IRMAA and cost an additional ~5k a year.
  • And so much more!

It Sounds Complicated, But It’s Worth It

It can get really complicated really fast, but it’s still worth it to work through these issues. The tax savings could mean thousands and thousands of dollars more for you, your kids/grandkids, and your church and favorite charitable organizations.

An Example

Many folks come to me when they’re about to retire and haven’t thought much about taxes other than trying to pay as little as possible each year when they file. Their tax preparer has maybe told them to make an IRA contribution but that’s about the extent of the planning usually.

Now they’re about to retire and usually their income will be lower than it has been at any time over the past 20 years.

This is a perfect opportunity for some planning.

Let’s say there’s around a million dollars in their 401(k). All traditional (pre-tax).

They’ve also done a great job saving and have around 200k in their savings.

They have no debt and own their home.

They have regularly given to their church and charities for a total of about ~20k a year (not enough to itemize deductions every year, but sometimes).

They’ve got a few grown children and have several grandkids.

After some review, it seems like they’ll be fine with social security as their primary income source and can supplement with savings as they need to, which will let that Traditional IRA grow. They were planning to leave most of that to their kids and grandkids anyway.

If this is the case, leaving Roth IRA money to their kids would be far more beneficial than Traditional IRA money, since they have to pay ordinary income taxes on any inherited IRA they receive from the parents.

So lets fix that.

A Solution

By converting some of the Traditional IRA each year to a Roth and offsetting the increase in taxes with a charitable contribution to a Donor Advised Fund these folks can create a charitable giving vehicle while simultaneously making a tax-free inheritance for their kids all while reducing taxes and increasing charitable deductions on their own tax return.

This all relies on great communication with your CPA or tax preparer and detailed planning, but it can greatly increase the efficiency of your plan.

Support From Scripture

A good man leaves an inheritance to his children’s children,

But the wealth of the sinner is stored up for the righteous.

The New King James Version (Nashville: Thomas Nelson, 1982), Pr 13:22.

But if anyone does not provide for his own, and especially for those of his household, he has denied the faith and is worse than an unbeliever.

 The New King James Version (Nashville: Thomas Nelson, 1982), 1 Ti 5:8.

Render therefore to all their due: taxes to whom taxes are due, customs to whom customs, fear to whom fear, honor to whom honor.

 The New King James Version (Nashville: Thomas Nelson, 1982), Ro 13:7.

 Owe no one anything except to love one another, for he who loves another has fulfilled the law.

The New King James Version (Nashville: Thomas Nelson, 1982), Ro 13:8.

  So let each one give as he purposes in his heart, not grudgingly or of necessity; for God loves a cheerful giver. 

 The New King James Version (Nashville: Thomas Nelson, 1982), 2 Co 9:6–7.

but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. 21 For where your treasure is, there your heart will be also.

 The New King James Version (Nashville: Thomas Nelson, 1982), Mt 6:20–21.

Soli Deo Gloria!