"Qualified money like IRA and 401(k) ... stuff you haven't paid taxes on yet, could be the best to use first... for the sole purpose of you're missing some great tax deductions [for aging or crisis planning scenarios]. It's the thing that we've been brainwashed for forever is that taxes are bad. Taxes are emotional when you have to pay them, but qualified funds could be used as tax deductible in many cases."
- Brian Byars
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Financial planning innovation takes many forms. Sometimes it involves technology and new ideas. Other times it is simply thinking out of the box and understanding the fundamentals. Today we explore a topic that is often taken for granted. Which asset do you liquidate first in a long term care or crisis planning situation? I have the pleasure today of being joined by Brian Byars of Advanced Retirement Planning. Brian helps families develop aging and crisis plans that are customized to their needs.
In this video, Brian discusses a topic that is counter-intuitive to many retirement experts and CPAs. Deciding how to take distributions to pay for retirement expenses can be complex. When given the choice of liquidating assets, often times in a crisis planning situation, most advisors would use non-qualified funds or after-tax money first, so as not to incur taxation on the distribution.
Seems logical enough, right?
Well, it turns out that in many crisis situations, like needing long term care, if insurance was is not available, this may not be the optimal source of funds. Sometimes using qualified funds or pre-tax money first can make sense because the IRS may allow withdrawals in these types of crisis situations without incurring taxation. There are also instances when significant funds are needed for medical or long term care expenses where itemizing these expenses as tax deductions can be the most economical approach.
It’s important to think out of box at the different scenarios to figure out which approach is best for the client and their heirs. This is why working with an expert that is a specialist in these areas can be a huge financial advantage.
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