Matt Regan No Comments

Comprehensive Estate Planning | TPW White paper 03.08.2021

Navigating the Tax Laws to Maximize | Your Beneficiary’s Inheritance | Comprehensive Estate Planning

When most individuals are establishing an estate plan, they generally only think about the tax consequences to themselves. But a truly comprehensive estate plan is one that takes planning a step further and considers the tax consequences the beneficiaries of the estate may face. When creating an estate plan, having a clear understanding of, and properly planning for these taxes will help ensure your beneficiaries get the largest inheritance possible.

When one inherits money as a beneficiary of an estate, there are three different taxes that oftentimes need to be understood and accounted for:

Let’s take a look at these individually:

Estate and Gift Tax

• The 2021 federal estate tax exemption (commonly known as the unified tax credit) amount is $11,700,000 per individual.
• Only the deceased taxpayer is subject to the estate tax when the estate value is greater than the unused exemption.
• Even if the decedent did not have a taxable estate, the estate of the decedent survived by a spouse should file Form 706, Estate Tax Return, to pass any remaining/unused unified tax credit exemption to the surviving spouse.
• When someone dies, their assets become property of their estate. Any income those assets generate is also part of the estate, and may trigger a requirement to file Form 1041, Income Tax Return for Estates and Trusts.
• An inheritance is not considered taxable income to the beneficiary.
• Currently, in addition to estate taxes assessed at the Federal level, 12 states and the District of Columbia also collect an estate tax. California does not currently have an estate tax.

Inheritance Tax

• Only six states currently collect this tax (Iowa, Kentucky,Maryland, Nebraska, New Jersey, and Pennsylvania).
• Property passing to a surviving spouse is exempt from inheritance taxes in all six of these states.

Income Tax

• Inherited retirement account distributions are subject to ordinary income taxes.
• If you sell or dispose of inherited property that is a capital asset, you will be subject to either a long-term capital gain or loss, regardless of how long you, as the beneficiary, have held the asset.

Additional considerations

Inherited Pre-Tax Retirement Accounts

• Eligible Designated Beneficiaries and Non-Eligible Designated Beneficiaries are subject to different required distribution rules.
• Consider Roth conversions to allow the beneficiaries to take tax-free distributions.

Lowering the Value of Your Estate – Gifting

• Make annual cash gifts to your children, grandchildren, other family members, and even friends. You can also contribute cash to a 529 plan to help pay for future school to any individual you would like. The receipt of cash is non-taxable to the recipient, and, if the gift is below the $15,000 annual exclusion amount, you will not eat into your above-mentioned $11,700,000 lifetime estate and gift tax exemption amount.

Lowering the Value of Your Estate – Philanthropy

• If you are charitably inclined, you can make gifts of any size at any time while alive directly to charities or to a Donor Advised Fund. The donation of appreciated securities provides not only an immediate deduction of the fair market value of the stock at the time of contribution, but also avoids capital gains tax upon sale.
• Charitable contributions due to the death of the taxpayer result in a dollar for dollar reduction of the taxable estate.
• Additional vehicles available include Charitable Remainder Trusts or Charitable Lead Trusts.

Life Insurance

• If you are considering buying life insurance to either pay for the estate tax liability or provide more for your beneficiaries, set up a life insurance trust and have it purchase the policy so the death benefit isn’t included in your taxable estate.

Step-Up in Cost Basis – Take Advantage!

If you have appreciated stock or property and gift it to someone, the recipient gets the carried over basis and will have to pay capital gains when he or she sells the asset. Instead of gifting before your death, have them inherit it after your passing so they get a “step up” in basis and recognize a smaller gain on future disposition.

The Future of Estate Taxes Under the Biden Administration

• During his campaign, President Biden discussed the possibility of decreasing an individual’s federal estate tax exemption amount either to $5 million per individual (and $10 million for a married couple) or to the pre-Tax Cuts and Jobs Act amount of$3.5 million per individual (and $7 million for a married couple). This decrease in lifetime exemption could be paired with an increased top tax rate of 45 percent.
• President Biden also proposed eliminating stepped-up basis on death and possibly taxing unrealized capital gains at death at the proposed increased capital gains tax rates.

How Can We Help?

At Towerpoint Wealth, we are a legal fiduciary to you, and embrace the professional obligation we have to work 100% in your best interests. If you would like to learn more about Towerpoint Wealth and how we can help you achieve your financial goals, we encourage you to call (916-405-9164) or email ( to open an objective dialogue.

Towerpoint Wealth No Comments

One Minute Tax Tips – Roth IRA conversions

Wealth advisor Matt Regan, with the first in a weekly series, One Minute Tax Tips, discussing Roth IRA conversions.

In today’s low (and possibly temporary) current income tax environment, considering paying some tax *this year*, in 2020, to do a partial Roth conversion and gain the benefit of having sheltered additional money in a tax free Roth IRA may make sense.

Watch Matt’s 60 second video to better understand what this strategy entails, and email us at to discuss if this strategy may make sense for you.

Steve Pitchford No Comments

2020: The Perfect Year for a Roth Conversion

While 2020 will rightfully be remembered for the challenging and unprecedented COVID-19 battle we have all been impacted by, at Towerpoint Wealth we have continued to proactively work with clients to identify economic opportunities presented by the coronavirus crisis. Specifically, we have identified a “silver economic lining” tax planning strategy this year, one that is designed to take advantage of today’s low income tax rates, which we feel are temporary, while at the same time leave our clients better positioned for tomorrow’s higher income tax rates, which we feel are inevitable. This white paper will discuss what a “Roth IRA conversion” is, who may benefit from a Roth conversion, why 2020 is a potentially great year to do a Roth conversion, and how to utilize important tax planning tools to evaluate this opportunity.

Roth IRA Conversion

A Roth conversion is a retirement and tax planning strategy whereby a taxpayer “converts” some, or all, of their “regular” pre-tax retirement assets into tax-free Roth retirement assets. It is important to note that ordinary income taxes are owed on the tax-deferred contributions and earnings that are converted.

While the most common Roth conversion strategy is a pre-tax IRA to a Roth IRA, two other popular methods exist:

  1. Convert pre-tax employer-sponsored retirement plan assets (401k, 403b, 457, etc.) to Roth IRA assets (if the taxpayer has separated from service from the employer).
  2. Convert pre-tax 401k assets to Roth 401k assets (if the employer retirement plan allows for an in-plan conversion).

A Roth conversion, when utilized properly, is a powerful tax planning strategy for the following reasons:

• It maximizes the tax-free growth within a taxpayer’s investment portfolio.
• As distributions from Roth retirement accounts are tax-free, a Roth conversion provides a hedge against possible future tax rate increases.
• As Roth IRAs do not have required minimum distributions (RMDs), it reduces taxable RMDs on pre-tax retirement assets that a taxpayer is annually subject to after reaching the age of 72.
• It leaves a greater tax-free financial legacy to heirs.

However, even understanding these benefits, a Roth conversion may not always be in a taxpayer’s best long-term economic interests if:

• The current tax cost of the conversion is prohibitively high. A Roth conversion, in its simplest sense, is a trade-off between paying taxes now vs. paying taxes later. For the strategy to be impactful, the current tax cost of the conversion should not be so expensive that it outweighs the benefit of any expected future tax-free investment growth.
• The taxpayer is making regular and material withdrawals from their pre-tax IRA.
• The taxpayer does not have the cash to pay the tax due on conversion.

Towerpoint Tip:

We recommend converting shares of investment positions rather than selling investments in the IRA and then converting cash proceeds. This ensures that the taxpayer continues to have market exposure during the conversion process, and also saves on the transaction fees that may be levied when selling an investment position.

2020 – A Perfect Year for Roth Conversions?

There are three reasons why we believe 2020 is a great year for Roth conversions:

  1. While no one has enjoyed this year’s market volatility, material intra-year market pullbacks, such as the one we experienced in March, provide a unique opportunity to convert pre-tax investments to Roth IRA at a time when their value is, we believe, temporarily depressed.
    Performing a Roth conversion with these temporarily depressed assets “locks in” the income taxes owed at their lower value upon conversion. While we are humble in recognizing we do not have a crystal ball, we strongly believe that crisis events are temporary, and given time, these assets will recover in value. Thus, this tax strategy results in paying a lower tax price when converting investments to a tax-free Roth IRA.
  2. Understanding the uncertainty surrounding the upcoming Presidential election, and given the government’s need to raise funds to offset its massive 2020 stimulus packages, there is certainly no guarantee that income tax rates will stay this low in future years.
  3. Given that the CARES Act eliminated RMDs for 2020, this is a uniquely low tax year for those taxpayers who are ordinarily subject to RMDs, allowing them to convert a greater amount of assets while remaining in low income tax brackets.

Towerpoint Tip:

At Towerpoint Wealth, pairing a Roth conversion with the “frontloading” of a Donor-Advised Fund (DAF) has been a powerful tax planning strategy, allowing our clients to convert more to tax-free Roth assets at lower tax rates, while also allowing taxpayers who would not ordinarily itemize deductions to “hurdle” the standard deduction – this ensures that they receive at least a partial tax deduction for their charitable contributions.

Executing a Roth conversion

When determining the optimal amount to convert to tax-free Roth assets, there is no “one size fits all” approach.
A taxpayer’s unique personal and financial circumstances should drive the conversion discussion. For one taxpayer, recognizing any amount of conversion income may not make tax or economic sense, while for another, particularly those who want their heirs to inherit assets tax-free, converting a sizeable amount (even at a material tax cost) may be attractive.

One window of time in which we look to help clients aggressively execute a Roth conversion is immediately upon retirement, before they begin filing for Social Security benefits. This is often a uniquely low income-tax window of time, where a taxpayer is still young enough to potentially enjoy many future years of tax-free growth that Roth assets allow.

If a Roth conversion is worth evaluating for a client, many CPAs and tax professionals assemble customized tax projections to optimize the decision-making process.

And while Towerpoint Wealth is not a public accounting firm, we regularly utilize BNA Income Tax Planner, a powerful tax projection software, to assemble Roth conversion tax projections for our clients, in order to streamline collaboration with their CPAs and tax professionals. If our client prepares their own tax returns, we work directly with them to evaluate these Roth conversion scenarios.

Towerpoint Tip:

Under the Tax Cuts and Jobs Act (TCJA), the IRS eliminated the ability to recharacterize (i.e. undo) a Roth conversion after it has been made. For this reason, we generally recommend waiting until closer to the end of a tax year, when taxable income is clearer, prior to executing a Roth conversion. However, in unique tax years such as 2020, we have been strategically executing Roth conversions throughout the year to ensure we are taking advantage of market volatility and pullbacks, while also looking for an opportunity to “top up” the conversion later in the year.

How Can We Help?

At Towerpoint Wealth, we are a legal fiduciary to you, and embrace the professional obligation we have to work 100% in your best interests. If you would like to discuss whether a Roth conversion may make sense for you, we encourage you to call (916-405-9166) or email (, Steve Pitchford, to open an objective dialogue.

Towerpoint Wealth No Comments

President Joseph Eschleman Cited As Expert

Our President, Joseph Eschleman, recently penned a white paper for Towerpoint Wealth that discussed 14 different strategies to consider during the coronavirus crisis. Joseph was cited as an expert by for his work and content on the subject, who published his commentary on their website on June 11.