If you play golf, you've probably taken a mulligan.

 

A poor drive heads into the trees, someone in your foursome smiles, and you're given a second chance. Unfortunately, most financial mistakes don't come with mulligans.

 

Or do they?

 

One of the most common mistakes I see isn't bad investing, poor saving habits, or spending too much money.

In fact, it's often the exact opposite. Many successful people have done everything right. They've worked hard, built profitable businesses, maxed out their retirement plans, accumulated investment accounts, and created significant wealth.

 

The problem is that much of that wealth may be sitting in the wrong tax bucket.

 

As retirement approaches, many investors discover that a substantial portion of their assets may eventually be subject to income taxes, capital gains taxes, estate taxes, required minimum distributions, and potentially even higher future tax rates. That's where a financial mulligan may still be available.

 

Most business owners are familiar with 401(k) plans. What many don't realize is that there are retirement plans that can allow dramatically larger tax-deductible contributions than a traditional 401(k). A Cash Balance Plan works much like a pension plan. Instead of being limited to the contribution levels of a traditional retirement account, eligible business owners may be able to contribute well into six figures annually, depending on age, income, and business structure.

 

Here's why that's important: Let's say a successful business owner earns $750,000 this year. Rather than paying income tax on every dollar earned, a portion of that income may be redirected into a Cash Balance Plan, generating a substantial current tax deduction while simultaneously building retirement assets.

 

In simple terms, it's a way to move money from a highly taxed environment into a tax-advantaged retirement vehicle.

 

For business owners in their 50s or early 60s who are trying to accelerate retirement savings, the strategy can be especially attractive because contribution limits generally increase with age. For the right person, a Cash Balance Plan can be one of the most powerful tax-reduction opportunities available today.

 

Cash Balance Plans tend to work best for:

• Business owners earning $300,000 or more annually
• Physicians, dentists, attorneys, consultants, and other professionals with high incomes
• Individuals already maximizing their 401(k) or SEP contributions
• Business owners in their 50s and 60s who want to accelerate retirement savings
• Owners of stable, profitable businesses with predictable cash flow
• Individuals looking for larger tax deductions than traditional retirement plans can provide

 

While these plans aren't appropriate for every business owner, they can be remarkably effective for those seeking both significant tax deductions and accelerated retirement accumulation.

 

The second strategy addresses a different problem.

 

Many successful families have accumulated large IRA and retirement account balances over the years. While those accounts provided valuable tax deductions when contributions were made, the IRS eventually wants its share.

Required minimum distributions force money out of retirement accounts. Those distributions create taxable income. When retirement accounts are eventually inherited, beneficiaries often face additional taxation as they withdraw the funds. In some situations, retirement assets can be exposed to income taxes, investment taxes, and estate taxes before the family receives what's left.

 

Retirement Tax Minimization Strategies are designed to address that issue.

 

At a high level, the strategy seeks to reposition a portion of retirement assets from a future taxable environment into a more tax-efficient environment. The objective is to reduce future tax exposure, reduce required minimum distributions, increase flexibility during retirement, and potentially increase the amount ultimately transferred to heirs.

 

Think of it as relocating assets from a bucket the IRS has a claim on into a bucket where fewer future tax claims may exist.

 

I've seen situations where families projected to leave several million dollars to the IRS were able to substantially reduce that tax exposure through proper planning. The goal isn't to create extraordinary investment performance. The goal is to keep more of what you've already earned and pass more of it to the people you care about. That's an important distinction.

 

This isn't an investment strategy. It's a tax strategy.

 

This strategy is often worth exploring for:

 

• Individuals with $1 million or more in IRAs, 401(k)s, or other qualified retirement plans
• Retirees concerned about future required minimum distributions (RMDs)
• Families worried about rising tax rates in retirement
• Individuals who want greater flexibility over where retirement income comes from
• People interested in maximizing what ultimately passes to children and grandchildren
• Investors who have accumulated substantial tax-deferred assets over their lifetime

 

The larger the qualified account balance, the greater the potential impact future taxes may have on retirement income and legacy planning.

 

Most people spend their lives focusing on asset allocation. Stocks versus bonds. Growth versus value. Domestic versus international. But as retirement approaches, another question becomes equally important:

 

Because two investors with the same net worth can leave dramatically different amounts to their families depending on how efficiently their assets are positioned. Sometimes the most valuable planning opportunity isn't earning another percentage point of return. It's preventing unnecessary dollars from leaving the family altogether.

 

And while the IRS doesn't officially offer mulligans, there may still be opportunities to take one before the final scorecard is written.

 

If you'd like to learn more about Cash Balance Plans, Retirement Tax Minimization Strategies, or other advanced planning ideas that may help reduce taxes and preserve family wealth, I'd be happy to have a conversation. Sometimes a simple review can uncover opportunities that have been overlooked for years.

Have questions? Gary Wilberg is the Managing Partner at Infinity Wealth Management. Call or text Gary at 630-800-6860.