The article below touts the virtues of Roth conversions and life insurance purchases as tax savings tools for high net worth individuals. However, more effective mechanisms exist to achieve tax savings in high net worth situations. Examples include charitable giving, or utilization of legitimate business structures in which valuable services purchased for the benefit of employees can be expensed to reduce income.
Roth conversions are of limited use to high net worth individuals with large traditional IRA’s or employer-sponsored plans because they are taxed on the converted amount, in the year of conversion, at their applicable tax bracket rate. Additionally, any type of life insurance is purchased with after tax dollars. Theoretically, with whole life insurance, a person can utilize the tax free dividends to hedge or reduce other taxes, but cannot avoid tax on income to start. High net worth individuals need a range of solutions. Roth conversions and life insurance may play a part, but they are of limited use as tax avoidance mechanisms.
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Five Stone Tax Advisers has years of experience negotiating directly with the IRS to get the best possible outcome. Our Tax Preparation and Planning unit has a team of tax attorneys, certified public accountants and enrolled agents that form a single sourced point of contact to ensure you stay compliant and pay less taxes.