Running Head: CASE STUDY: TAXATION 1

Case Study: Taxation

Name

Institutional Affiliation
CASE STUDY: TAXATION 2

Background of the Case

The basis of the client is to have as much tax free savings in the ROTH accounts where

both of the client's Husband and wives are 62 years and 63 years respectively. They intend to have

a joint tax return which is equivalent to $300,000 but the current salary and bonus of the client

amount to $250,000 per year and it will continue to a period of six to ten years and no significant

changes are expected in the near future. Additionally, the client also participates in a profit sharing

plan which has a cash or deferred agreement or the 401k qualities of which the client is the majority

shareholder. The paper explores how to maximize the amount of money the client can contribute

towards the ROTH accounts and subsequently transfer to their children. Additionally, the client

would like to obtain an advice regarding their actions on the amount in which they should take and

the corresponding amount to be accumulated annually to be able to achieve their goals (Chen &

Munnell,2017). .

The decision by the client to establish the ROTH account is based on the concept that the

ROTH would enable them to minimize their tax liability in retirement and also be able to leave the

assets to their heirs without tax payment (tax-free). It also provides the client with the ability to

save the amount of money and not touching them when the demand or need arises (Chen, &

Munnell,2017). . According to the client, ROTH account is the best saving and investment vehicle

since it gives them tax-free growth and qualified withdrawals. For instance in the event that the

client’s income does not exceed the IRS limit then, ROTH will be the best investment long term

saving option. The option allows the client to contribute to the ROTH accounts at any age as long

as one has earned income from the job (Chen, & Munnell, 2017). .

The ROTH allows individuals of 50 years by 2018 to contribute up to $5500 tax for the

year 2018 but those who are 50 years of age by the end of 2018 are expected to pay an increased
CASE STUDY: TAXATION 3

amount to the tune of $6,500.The figure will increase to $7,000 for those above 50 years. In this

case, the expected joint return for 2018 is $199,000 for the client who files the joint tax return. The

client tax amount will be an amount that is less 199,000 as the aggregate amount. For the client to

meet the desired goal since they are within the range of above 59.5 years threshold they need to

take advantage of the existing relief (Chen, & Munnell, 2017). . The high wage earners like the

client will need a lower tax rate in the retirement and receive the tax-free income stream to accrue

the required minimum distributions because they have not reached 70.5 years.

In this case, the client needs to take advantage of the ROTH account because it will

encourage them to save till retirement but after the 70.5 years, they will not be able to access the

retirement plan for investment tax-advantage. Additionally, the client will not be compelled to

withdraw in the event after the 70.5 years. It also flexible as the client will be able to withdraw

their amount of money anytime they need. Therefore, to be able to obtain the maximum amount, I

will advise the client to wait and withdraw the amount of money from at least five years and since

they are above 59.5 years they can take advantage of the earnings tax-free and penalty-free.

(Lichtig, 2013).

The Implication of having the ROTH for the client will be beneficial in the long-run apart

from the savings but also act as the best option that will guarantee future investment plan for the

client. Thus, emphasis on the savings is only an afterthought but instead creates a platform in which

the heir can be distributed their share as long as the requirement are met.Thus,in the next 9-10

years will put them into the threshold that makes them eligible to the ROTH programme fully.

This means that the corresponding amount to be obtained annually is the sum of $300,000

and $250,000 to the amount of $550,000 and 20,000 less 199,000 which gives a net of $361000

but because of their age threshold they will be allowed to contribute an annual amount which is
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equivalent to $550,000 with a zero tax and penalty free in future or at maturity. Moreover, in the

event that they will need to distribute their investment to their heirs, which will be tax-free.

However, the limitation of the ROTH account is that it has eligible income restrictions

because one need to have earned income and the modified adjusted income which will not exceed

the annual contribution limits. This means that it restricts income from interest, investment and

dividends (Holden, 2018). Additionally, the client needs to be aware of the existence of the early

withdrawal penalties until one is eligible for the qualified distribution and need to fulfil the

requirement and this may make the ROTH account not an ideal point for the client (Holden, 2018).

Despite the fact that they will take out the contribution anytime without tax payment or penalties.

Additionally, there is a restriction on the amount of investment one need to carry out under the

ROTH (Holden, 2018).

In conclusion, the determination of the suitability of the ROTH depends on the underlying

circumstance and in this case because the client is eligible for benefits from the ROTH scheme I

will recommend him to continue but also understand the limitation of premature withdrawal and

the basis of the allowable tax –free implications.

CASE STUDY: TAXATION 5

References

Chen, A., & Munnell, A. (2017). Who contributes to individual retirement accounts? (No. ib2017-

8).

Lichtig, E. (2013). U.S. Patent Application No. 10/123,703.

Holden, S. (2018). How US Households Steward Their Individual Retirement Account (IRA)

Assets To and Through Retirement. Benefits Quarterly, 34.