A high-net-worth individual is generally classified as a person that has around $1 million in liquid financial assets. Today, we will discuss a few key concepts that may be useful to consider for HNWIs interested in structuring their finances.

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Focus on Your Goals, Not Just Your Money

Many people consider receiving financial advice when they realize their liquid assets have catapulted them into the range of high net worth, but often these individuals focus solely on ensuring a decent return on their established investments. While focusing on the money is important, many advisors would caution against making the money the sole focus of any financial management plan.

Instead, people may be better served by establishing what their goals and objectives are first before seeking out financial advice. Understanding what an individual’s life goals and expected large expenses are can greatly benefit them as they begin to take stock of and plan their finances.

Understand Your Retirement Savings Vehicles

Preparing retirement savings plans can help individuals generate passive income from their assets and grow their net worth. Learning each plan’s specific qualities can help save individuals a large amount in early withdrawal fees and other penalties. Understanding tax-saving strategies can also help individuals maximize their benefit from retirement savings, such as taking the unused portion of required minimum distributions, paying off any taxes owed on it, and moving the remainder into taxable investments. Other strategies include converting pre-tax wealth into post-tax wealth by moving it out of traditional 401ks and IRAs and into Roth 401ks and IRAs. Creating a financial plan can help individuals decide which retirement savings strategies make the most sense for their situation.

Consider Extensive Estate Planning

For HNWIs hoping to leave behind significant assets for their heirs or beneficiaries, whether it be children, other relatives, or charitable or religious organizations, estate planning can be greatly beneficial. With the difficulties involved in accounting for and properly allocating wealth during an individual’s lifetime, some fail to carefully plan for the proper allocation of these assets after their death—and much of the value of those assets can end up being lost. For many high-net-worth individuals, trusts can be a useful component in financial planning, because they can help establish secured and customized accounts that help to minimize the amount of inheritance tax heirs may be forced to pay.

In addition to estate planning, having a solid succession plan may help many high-net-worth individuals preserve their business assets and ensure that their business is disposed of in accordance with their wishes. Having an understood transition plan with a defined timeline for transition can help individuals establish expectations in their business to help ensure that their departure does not compromise the value of the business.

Consider How to Reduce Taxes

For middle-aged high net worth individuals, traditional savings accounts and investment vehicles are typically seen as sound ways to ensure the growth of their wealth with lower risk. However, one major concern for any high-net-worth individual reaching retirement age or beyond is how best to reduce their tax obligations and the obligations of their heirs and beneficiaries while retaining liquidity and access to their funds if necessary.

Seeking professional tax advice on these matters can be a useful way to begin to understand the options individuals have to retain as much liquidity as they can while also reducing their tax burden. Specifically, with respect to older individuals, the gradual introduction of savings that are not tax-advantaged alongside traditional tax-advantaged savings can be an effective way to retain liquidity. Introducing taxable bond investments with interest payments that are not taxed at normal income tax rates can also help elderly individuals reduce their tax burden.

Speak With A Financial Advisor

When you work with The Templeton Group at Cornerstone Financial Management, we will take the time to have real conversations about your current financial situation, your values, your career, and your family to help you work toward your financial goals. Contact us today to request a consultation.

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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.