You are a planner who is working with a newly licensed Medical Doctor who has finished his residency and is about to accept a position paying him $240,000 net of taxes and retirement contributions as a single individual. He has $220,000 in student loans ($100,000 each at 4% and $120,000 at 6%, a mixture of Federal and Perkins loans) both with 20 year terms. He also has $5,000 of credit card debt at 9.5%, a car loan for $50,000 at 4.5% for six years, and believes he can purchase a $500,000 house within a year with 5% down through a special program for new doctors. He has $12,000 in liquid savings accumulated during residency. What would be a reasonable recommendation for this new doctor based on this scenario which would allow him to balance a purchase of a new home while paying down debt?
a. Pay the minimum on the credit card and buy Cryptocurrency to maximize potential return in the year, then buy the house.
b. Since he is above the Roth IRA contribution limit, put $50,000 into a Single Premium Life Insurance policy and borrow the money out for the down payment.
c. As Federal Student Loans have a six-month grace period post-graduation (nine months for Perkins loans), he should take the monthly payment and save it in a money market fund. Given the big jump in income, he should also look at refinancing the credit card debt to reduce/eliminate the interest rate.
d. He should sell his car and buy a used one for $5,000 and downgrade the house he wants to in the $250,000 range.
Ken has an inherited investment portfolio of individual securities from his mother valued at $1,250,000 at her date of death in 2022, representing her entire estate. There was no previous gifting. She had purchased these securities in the 1980's for $50,000. Assuming no state inheritance taxes nor state capital gains taxes, how much tax does Ken owe if he sells the securities for $1,300,000, nine months after inheriting them? Assume that Ken is single and earns $300,000 a year and no dividends were paid.
a. Ken does not owe any taxes.
b. $7,500 in Capital Gains tax.
c. $250,000 in Capital Gains tax.
d. Estate Tax of $370,000.
Devesh seeks to increase his net after tax cash flow for the first decade of retirement, commencing this year. Given that he has no pension, Social Security benefits of $2,250 per month, $1,250,000 in his IRA, an appreciated stock portfolio of $1.5 million ($500,000 basis), $300,000 in savings, and a home with no mortgage worth $425,000 and is widowed with one grown child who is independently successful.
a. Donate half his stock portfolio to a Charitable Remainder Annuity Trust with a ten year payout and use the charitable deduction to take greater distributions from his IRA as well as receive his distributions from the CRAT.
b. Use $100,000 of his savings to purchase an immediate annuity.
c. Gift his son $15,000 a year to purchase life insurance on his life, thus avoiding annual income taxes on this amount.
d. Sell the house and use the proceeds to fund a tax-exempt bond portfolio.
Juan has three ex-wives, Juanita, Kavita, and Lori. He and Juanita were married for 11 years and she is remarried. He and Kavita were married 12 years and she is not remarried. Lori and Juan were married in Las Vegas and divorced a week later. Lori has not remarried. Assuming Juan is 68 as is Juanita, Kavita is 63 and Lori is 27, what is the impact on Juan's Social Security benefits when he, Juanita, and Kavita all apply for retirement this month?
a. Because they were married for over 10 years, both Juanita and Kavita get 50% of Juan's benefit. As such, he receives no retirement benefits.
b. Because they were married for 10 years and she has not remarried, Kavita receives 50% of Juan's benefit, Lori receives 0% because she has remarried after the 10+ years of marriage to Juan, and Juan receives 50% of his benefit.
c. All three ex-wives will receive 50% of Juan's benefit.
d. Juan receives his full benefit, regardless of any of his ex-wives being eligible or ineligible for benefits.
Richard (age 75) and his wife Fly (age 73) have been married for 47 years, and have one daughter Simona (45). Simona is married to Connor (also 45) and they have three minor children: Aiden (15), Ryan (14), and Keegan (11). Richard and Fly are in great shape and expect to live another 15 years based upon family history, diet, and two hours of tennis every day. The couple have a net worth of $15,000,000 including their home ($2,000,000), Fly's $2,200,000 IRA that she is taking RMDs from, Richard's $500,000 IRA that they take RMDs from, $260,000 of personal property, $2,240,000 in artwork that Fly created during her career, and the balance in investments of publicly traded securities.
a. Convert the IRAs to Roth IRAs that are excluded from Estate Taxes.
b. Use income from their securities portfolio to purchase $10,000,000 of second to die insurance as joint property to cover the future taxes.
c. At her death, Fly can bequeath her artwork to a local museum.
d. Richard and Fly could superannuate contributions to 529 Plans for the three grandchildren, moving $240,000 out of the estate today and excluding that growth from their estate. After five years they could repeat this.