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Deepak and Rupali already started a 529 plan for Aarav’s education savings but wanted guidance on assessing the expected funding need and choosing the right mix of investments. They sometimes feel a lack of direction or long-term strategy about how to align their finances to their values and goals. They were wondering if they had sufficient amounts and the right kind of insurance coverage to protect their family from unforeseen circumstances.

Recently, Deepak’s father passed away in India, and Deepak inherited a large investment account in India. He was unsure of how it would impact him in the U.S. from a tax perspective and was debating whether to keep that account as is in India or sell the investments and repatriate the proceeds to the U.S.

Plan:We began our analysis by focusing on the household’s cash flow (income and expenses) in detail to identify any excess cash being saved regularly. Using this projection, we were able to direct those savings to a carefully designed investment portfolio on a periodic basis. Simultaneously, we looked at the investment choices they had in employer 401(k)s, as well as in the 529 education savings plan, to implement a well-diversified long-term investment strategy.

While assessing their existing accounts, we realized they had traditional IRA accounts with a reasonable balance. Since Rupali was not working at the moment, they were in a lower tax bracket compared to the future expected tax bracket when their household income was set to rise in the next two to three years. We decided to exploit the situation for effective tax planning and initiated a three-year Roth conversion schedule. It helped us get most of the traditional IRA balance to the Roth IRA account (which is potentially tax-free in future for qualified withdrawals) by paying minimal taxes.

Deepak’s inherited investment account in India had very few concentrated stock positions. As step-up in basis is not allowed in India for inherited assets, the investments had a large capital gain built into it. Also, historically, the Indian rupee depreciates against the U.S. dollar at an annualized rate of ~ 4 to 5%, exposing those assets to a significant foreign exchange risk. We developed a plan to stagger the sale of Indian stocks and bring the money to the U.S. over three to four years. This ensured minimizing the capital gains tax impact in any one year and reduced forex risk eventually.

In collaboration with insurance and estate professionals, we implemented a right-size insurance plan and created documents like a will and powers of attorney to shield the family in case of unfortunate incidents.

With a comprehensive plan in place, Deepak and Rupali now have a sense of control and confidence about their financial future.

Disclosure: These stories are not testimonials. They are based on hypothetical clients and not actual client interactions. However, they showcase similar clients and situations with which PWA has experience helping. The outcomes are not a guarantee of similar results as actual client experience will depend on their own specific circumstances, effort, and discipline.

While John and Kathy are diligent about their savings, they were unsure if they were maximizing the employee benefits available to them. In addition, they lacked confidence in their ability to choose the right investments for their savings. Sometimes they felt they lack the necessary know-how to optimally organize their finances. They owned a primary home and had been renting out their prior home for a couple of years. However, they were not too keen to remain invested in real estate. Dealing with property managers and/or managing tenants and multiple properties concurrently was derailing their priorities. Besides, having two mortgages was weighing on them and making them anxious about higher levels of debt. They preferred having more quality time to spend with family, pursue their hobbies, and travel without having to worry about their financial future.

Through our initial discussions, we narrowed down what was most important to John and Kathy: lower dependence on debt, being present for their kids during developmental years, preparing financially for their education, and implementing investment strategies for longer-term goals like retirement with clarity and confidence.

We developed a plan to sell the rental home while John and Kathy can benefit from the exemption of capital gains from the sale. It got rid of their second mortgage, substantially reducing the debt burden. Most of the net proceeds were invested in 529 plans, giving them a solid foundation of tax-advantaged funding for their kids’ education. The rest of the proceeds were invested in a taxable account. The investment portfolio was designed to align with the household’s risk tolerance and incorporates globally diversified, tax-efficient asset allocations.

In addition, we assessed the day-to-day cash-flow needs to come up with a plan to maximize contributions to employee benefits, such as a 401(k) and HSA, leading to tax optimization. We helped implement the planned actions and now monitor the progress periodically to adjust any future actions as life changes.

With reduced debt levels, a well-diversified investment portfolio, education savings for kids on track, and availability of our guidance to depend on as needed, John and Kathy are not anxious and overwhelmed about their finances anymore and feel confident about their financial future.

Disclosure: These stories are not testimonials. They are based on hypothetical clients and not actual client interactions. However, they showcase similar clients and situations with which PWA has experience helping. The outcomes are not a guarantee of similar results as actual client experience will depend on their own specific circumstances, effort, and discipline.

Asha has great employee benefits from her employer, including a significant match for her own contributions to a 401(k) and annual award of equity compensation in the form of restricted stock units (RSUs). She was not sure if she was maximizing the employee benefits. Also, she was curious about how the RSUs would fit in the context of her overall investment strategy and what would be the tax consequences of any potential sale of the RSUs. In addition, Asha wanted to assess if her financial assets in India would impact her taxes in the U.S. in any way.

As we explored Asha’s current assets and employee benefits package, we realized her employer’s 401(k) plan allows contributions to an after-tax and Roth 401(k) as well. Availability of these options can be used to channel contributions above and beyond the annual limits of traditional 401(k) contributions. We developed a plan to use those options and add $25,000 to $30,000 toward Asha’s Roth IRA. The strategy is often called a mega backdoor Roth. In the gamut of various retirement accounts, Roth type of accounts typically have the most tax benefit. In addition to the benefit of tax-deferred growth, qualified withdrawals from Roth accounts are tax-free. With implementation of a mega backdoor Roth, Asha’s tax-free bucket of retirement funds began building significantly.

Regarding her investments through RSUs, we educated Asha about all the rules associated with managing such compensation and the concentration risk it would eventually build in her portfolio due to periodic vesting of her employer stock over the years. We implemented a plan to sell some of these RSUs in a staggered way to minimize its tax impact while mitigating the concentration risk of the portfolio.

As a U.S. tax resident, Asha has tax liability on her global income and was unaware of the IRS reporting requirements related to her assets in India. We collaborated with Asha’s CPA to comply with IRS rules such as filing Form FBAR and Form 8938, etc.

Now that Asha’s tax affairs are in compliance, her retirement planning is bolstered and her taxable portfolio is more diversified than before. She has the peace and confidence to pursue her passions and get involved in her favorite charity to make a difference.

Disclosure: These stories are not testimonials. They are based on hypothetical clients and not actual client interactions. However, they showcase similar clients and situations with which PWA has experience helping. The outcomes are not a guarantee of similar results as actual client experience will depend on their own specific circumstances, effort, and discipline.