Life insurance is an amazing fiscal tool when used properly. The good news is that life insurance has multiple applications which can make a huge difference to you and your family’s financial well-being. Few people realize the versatility of life insurance and how it can be a powerful solution in different scenarios. In the following scenario, a family decides to inquire about how to use life insurance to protect the family in case the primary wage earner is either incapacitated or dies prematurely. The purpose is to provide sufficient resources for an appropriate length of time for the surviving spouse and children. This requires an analysis to calculate the “human life value” of the primary earner, the person being insured, as a way of understanding how much tax-free money the family will need each year. The calculation will determine the minimally necessary guaranteed income to sustain the surviving spouse and children should their life be financially disrupted with the death of the insured. Once this minimal sum is known, the family can then decide whether they want to insure the primary provider’s life for an even higher amount. The process starts by first knowing the minimum insurance the family should purchase. As odd as it may sound, insuring the value of a human life uses the same risk management principles as when insuring assets. The insured has an economic...

It may be hard to believe, but it’s true: 30% of all American households don’t have life insurance. This calculates to about 37,000,000 American families that are unprotected when a death affects the family’s financial needs during an emotional crisis. This is compounded by the admission that 62% of uninsured families expect to suffer financial vulnerability should a primary wage earner unexpectedly die. These unhappy statistics are a result of a 2016 study by the Life Insurance and Market Research Association (LIMRA). Life insurance can facilitate this difficult time by providing funds to cover immediate or short-term cash requirements when a wage earner in your family dies. Your family may own assets that are not easily liquidated, such as a closely-held business, or property in the form of land, a vacation home, or your family home. When a forced sale of estate property is required, economic loss is likely. This is why having cash available, such as in the form of life insurance, can preserve your family’s assets until a more circumspect financial review is conducted. It’s important to estimate the amount of cash your family will need so your calculations can acquire sufficient life insurance coverage to meet those needs, and perhaps others. This is an exercise you should conduct at least once every three years and also whenever your financial situation and asset ownership changes. Adequate insurance...

Despite all the mayhem that COVID-19 has caused, the pandemic could provide a benefit that’s helpful to you and your family. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides that an eligible IRA owner is entitled to withdraw up to $100,000 in 2020 and take up to three years to repay the funds without the imposition of federal tax. This means that if you need cash to help you get through the financial burdens caused by the pandemic, this could be a resource and a solution. These tax-favored withdrawals are called coronavirus-related distributions, referred to here as CRDs. CRDs have no restrictions on their use, which means the money you withdraw from your IRAs can be used to pay your monthly bills and help family members, but there are certain basics that need to be reviewed first. If you are the owner of an IRA or IRAs, you can take a total of up to $100,000 for your personal use from one or several IRAs, and it doesn’t matter if you are under the age of 59½. Under normal circumstances you would be taxed with a 10% early withdrawal penalty, but this does not apply now because of the CARES Act. You must repay all the funds within a three-year re-contribution window that begins the day after you receive the distribution. You can make re-contributions either as...

You may have a traditional IRA you’ve been thinking about converting into a Roth, but either you never got around to doing it or the timing was wrong because the conversion would have created extra taxable income and a higher tax bill. Guess what? In either case, luck might now be on your side and this could be the right time to make lemonade with a sweet lemon. If the impact of COVID-19 on your business and finances has resulted in decreased revenue and income, converting a traditional IRA into a Roth IRA now could make conversions an affordable tax cost for this year while also giving you an advantage against the higher tax rates most analysts are expecting to see in the next few years. Before we explore those details, here’s some necessary background. Roth IRAs offer two advantages … Qualified withdrawals receive tax-free treatment, and they offer an exemption from the Required Minimum Distribution (RMD) rules. Let’s take a closer look at each of these advantages. Tax-free Withdrawals Roth IRAs are free of federal income tax, and usually exempt from state income tax as well. In order for a withdrawal to be qualified for tax-free status, the owner of the Roth must have had the IRA for over five years and must either be 59½ years old, become disabled, or deceased. The five-year clock begins on the...

While every year is different, this year is more different than most. Nations around the world are still dealing with the effects of COVID-19, and it appears this will be a continuing experience for some time to come. Something that has not changed is the importance of considering money-saving strategies that may minimize this year’s tax bill. A mid-year tax plan review gives you sufficient time to employ one or more of these four tax-limiting strategies. 1. Net Operating Losses (NOL) Acting in your favor, the CARES Act has temporarily limited the Tax Cuts and Jobs Act (TCJA) of 2017 by removing restrictions on NOLs. Under the authority of this new law, you are permitted to retroactively move losses you suffered between 2018 – 2020 back as much as five years, meaning you could shift a 2018 business loss as far back as 2013. Because 2017 tax rates were higher then and in previous years, moving a NOL retroactively could prove beneficial to your bottom line and increase your cash flow, which is a much better option than taking a loss in 2020. 2. Excess Business Losses The CARES Act also provided another tax-saving opportunity for businesses by retroactively eliminating the limits imposed on Excess Business Losses (EBLs) by the Tax Cuts and Jobs Act. Starting in 2018, the TCJA mandated that sole proprietorships and business organizations like S...