Mini Case Study: Financial Planning for the Adult Children of Clients
This week, we helped the adult child of one of our clients in Danville, CA with a tax planning problem (at no additional cost to our client).
Many of our clients join our firm when their children are younger. But, as their children age, they too have financial planning questions they need solved. However, they might not yet have a complex situation that requires our comprehensive wealth management services.
So, when a client mentions their adult child has some questions, our solution is to give them a few hours of financial planning work at no cost.
Here’s what the recent tax planning problem looked like:
A client’s adult child, Mark, bought Moderna stock late last year.
He then sold half of it for a large profit following the announcement of their mRNA cancer vaccine doing well in trials.
This gave Mark two problems:
(1) He was unsure of the tax implications of this.
(2) He wanted to know if there was anything he could do by the end of the year to decrease his tax bill.
Here’s how we helped him with each problem.
1) Tax Implications
We did a tax projection for him, which allowed us to estimate how much money he should expect to owe to the IRS next April.
This amount came out to ~$7k.
So, we recommended he hold the proceeds in a treasury bill ETF. This would allow him to earn some interest, and make sure those funds were readily available come tax season, eliminating the chance of being a forced seller come April.
2) Decreasing his tax bill
We gave Mark two options.
First, Mark was already contributing to his Pre-Tax 401(k) and had room to contribute more. In his case, contributing $5000 more to his 401(k) would cut his tax bill by $1,800. He is on the edge of the 12 to 22% cliff, so small contributions had a big impact.
Second, we explained to Mark that he could tax loss harvest his portfolio should we have a market pullback in the next few months. Mark owns the ETF VOOG, and VUG or VOO would both be suitable tax loss harvesting replacements.
A little bit of planning can go a long way for someone in their late 20s / early 30s.
If you are looking for a wealth manager for your entire family, send me an email (nick@swrpteam.com) or book a time on my Calendar (https://calendly.com/nick-swrpteam/phone-call) to see if we are a fit to work together.
This material is purely intended to be general and educational in nature, and should not be construed as specifically-tailored investment, financial planning, tax, legal, or other professional advice. Information and data contained herein is as-of the date of publication, and may be subject to change in the future without notice. Any investment performance referenced is purely past performance, which is no guarantee of any future performance. Nothing contained herein should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or other financial product or investment strategy. All investment, tax, and financial planning strategies involve risk that you should be prepared to bear. You are highly encouraged to consult with professionals of your choosing before taking any action based on this material.
