• Tax Rates: With Jean’s increased medical expenses from assisted living this year, her itemized deductions had increased to the extent that she had no taxable income. The plan called for giving Jean sufficient income from her portfolio to bring her no higher than the top of the 24 percent marginal tax bracket. The financial advisor pointed out that the extra income would mean that Jean would have to pay more for Medicare due to her higher income and estimated that it would be the equivalent of an extra 3 percent tax on the extra taxable income. However, this was more than offset by the fact the family would save about 10 percent from the 37 percent marginal tax rate that Rick and his wife pay.

• Annuity: Because of the death benefit on the annuity, they did not think it wise to liquidate the annuity. Instead, they changed the beneficiary from Rick to his two children, who are in their 20s, just starting out in their careers, and in lower tax brackets. When the two children receive their \$200,000 portion of the death benefit, of which \$145,000 would be taxable, they would have several options for withdrawing the proceeds in the most tax-efficient manner (such as a lump sum, spread over five years, or systematic withdrawals over life expectancy).

• Savings Bonds: Although Rick thought that Jean should redeem the savings bonds, realize the \$10,000 of income, and invest the proceeds into a higher yielding investment, Jean likes having them as a remembrance of her late husband and wants to keep them. Given this, Rick arranged for Jean to report all of the income earned on the bonds to date for her tax return this year. She must continue to report income earned on the savings bonds every year. Consequently, Rick will inherit the bonds with only a minimal tax liability.

• IRA: Each year going forward, Rick will work with his and Jean’s accountant near year end to get a good estimate of what her taxable income will be and how much additional income she can have to bring her to the top of the 24 percent tax bracket. They will then do a Roth conversion in the determined amount. They estimate that they will be able to convert over \$100,000 of IRA assets each year to a Roth IRA, saving the family over \$10,000 in tax liability and getting tax-free growth in the future.

8. Shifting Future Growth Out Of The Taxable Estate