Solo 401(k) Saves Tax for Small Family Business

(4/11/2014 AZ Republic by Dr. Harold Wong)

People are scrambling to finish their 2013 tax year return and wondering how they can save tax for the 2014 tax year. The Solo 401(k) is a strategy that few utilize. It is designed for small business owners who have only family employees. The limit is two participants, which typically is the business owner and the spouse. The Solo 401(k) is not a new type of 401(k) plan and has the same rules and requirements as any other 401(k) plan. More details can be found on and search for “Retirement-Plans-One_Participant-401k-Plans”.

How much can one contribute? The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can elect to defer up to 100 percent of compensation (also known as earned income for the self-employed) up to $17,500 for both 2013 and 2014 tax years. If he is age 50 or over, there can be an extra $5,500 (called the “catch-up” contribution) to make the total $23,000 per year.

The second part is the employer contribution of up to either 25 percent of the compensation defined by the plan, typically wages, or a different calculation for the self-employed individual. One defines one’s compensation as “earned income”, which is net earnings from self-employment after deducting half of one’s self-employment tax (calculated on Schedule SE). Then 20 percent of this number is what the employer contribution is. The total of both the employee salary deferral as well as the employer contribution cannot exceed $51,000 for 2013 and $52,000 for 2014. If the individual is age 50 or over, there can be an extra $5,500 “catch-up” contribution, making the total maximum contribution to the Solo 401(k) plan $56,500 for 2013 and $57,500 for 2014.

Example of a Schedule C, unincorporated small business, where the owner is at least age 50 and the net profit in 2014 is $200,000:

One calculates the Section 1402(a)(12) Deduction, which reduces the figure to $184,700. Next one uses Schedule SE to calculate FICA and Medicare Tax, which totals $19,864.30. Half of this is $9,932,15, and is subtracted from $200,000. The result is $190,067.85 of Self-Employment Income. The maximum Employee Salary Deferral contribution is $17,500 plus $5,500 or $23,000. If one takes 20 percent of $190,067.85, the maximum employer profit sharing contribution is $38,013.57. The total of the two contributions is $61,013.57. However, one cannot exceed the total limit of $57,500. Note: a step-by-step worksheet for this calculation can be found in IRS Publication 560. In contrast, the contribution limit for a SIMPLE IRA plan would be $20,035.96 or $38,013.57 for a SEP IRA plan. One can contribute substantially more to a Solo 401(k) instead of these other two employer IRA plans, and certainly much more than the $6,500 limit for a traditional individual IRA plan.

Deadlines: One must establish your Solo 401(k) plan by December 31, 2014, if you want to make a contribution for tax year 2014 and reduce taxable income. The contributions must be funded by your tax-filing deadline. If one files for the 6-month extension before the April 15, 2015 deadline to file one’s 2014 tax return, one would have until October, 15, 2015, to make the cash contribution.

Free Seminars: On Thursday April 17, 2014, from 6:30-8 P.M., there will be a seminar “How Obamacare Will Increase Your Taxes and Affect Your Retirement Future”. On Saturday April 19, from 10-12 noon, followed by a light lunch from 12-1 P.M., there will be a different seminar “How Women, Widow(ers), and Couples Can Increase Income and Reduce Taxes”. Both seminars will cover various tax-savings strategies and will be held at Keller-Williams Realty East Valley, at 2077 E. Warner Road, Suite 110, Tempe, AZ 85284. To RSVP, call 1 (800) 955-2490.

You can contact Dr. Wong at (480) 706-0177;; or For his articles and future seminars, click on

Use Section 1031 to Defer Higher Taxes

(3/28/2014 AZ Republic by Dr. Harold Wong)

The American Taxpayer Relief Act of 2012 (ATRA) adds a new higher ordinary income tax bracket of 39.6 percent for these filing statuses and taxable income in 2013: Married filing jointly and surviving spouses ($450,000); Single taxpayers ($400,000); Heads of households ($425,000); and Married filing separately ($225,000). These are inflation adjusted and will increase in future years.

My previous article, “High-income taxpayers must deal with 2013 rate increase” March 14, 2014 The AZ Republic, focused on the increase in long-term capital gains tax from 15 percent to 20 percent and the extra 3.8 percent tax on net investment income (NII) for successful taxpayers. Note: The top tax rate for qualified dividends also is increased from 15 percent to 20 percent for those whose income is at the levels noted above.

There is a new tax commonly referred to as the Obamacare Medicare Tax or Medicare Surtax. It is an extra 0.9 percent and applies to employees or those with self-employment income with Modified Adjusted Gross Income in excess of: $200,000 single or head of household; $250,000 married filing jointly; $125,000 married filing separately. When one adds this extra 0.9 percent tax and the 3.8 percent tax on NII, the total is 4.70 percent. This 4.70 percent increase plus the current 2.90 percent Medicare tax equals 7.60 percent. This is a 262 percent increase for high-income taxpayers and is designed to cover the increased cost of the Affordable Care Act, popularly known as Obamacare.

Here is a major tax strategy you might consider for the 2014 tax year!

Use a Section 1031 tax-deferred exchange for big real estate gains. Suppose that you purchased a rental house 40 years ago in San Francisco and planned to sell it in 2014 with a net $1,000,000 long-term capital gain. If you are a high-income taxpayer, to whom the 39.6 percent new tax applies, you would face a 20 percent long-term capital gains tax plus the 3.8 percent Net Investment Income Tax of a total of 23.8 percent. This would be $238,000 of tax.

If you were either a CA resident OR taxed by CA because your rental house was in S.F., you could pay another 13.3 percent CA tax if your income was $1 million or more. The combined effective Fed and CA tax rate on long-term capital gains would be 33.0 percent (not 33.3 percent due to some offsets).

Instead of selling your rental house, you can use the Section 1031 tax-deferred exchange provision of the tax law. It has been around for about 4 decades and, after a number of court cases, the rules were codified in The Deficit Reduction Act of 1984. Here are the main provisions: This is only for investment and business property and the property must be “like-kind”. You can exchange a rental house for an apartment building, commercial warehouse, office building, land, or retail strip shopping center. You can exchange certain equipment for other equipment. But you can’t exchange a rental house for a Caterpillar bulldozer. You must designate the replacement property in writing within 45 days of the sale of your property and close within 180 days of the sale of the old. The new property must be at least the same price and mortgage balance as the old property. You can’t receive the cash personally and the exchange must be handled by a third party, normally known as a Section 1031 intermediary. Some of the rules are complex and you should consult a specialist. There is no limit how many times you can do a 1031, which allows your investment to continue to grow tax deferred.

Summary: There are higher taxes, starting in 2013 for high-income taxpayers, and it’s especially bad if you also owe CA taxes. Future articles will cover other major tax-savings strategies.

Contact Dr. Wong at (480) 706-0177;; For previous articles or future seminars, click on

The Wisdom of Warren Buffett

2/28/2014 AZ Republic by Dr. Harold Wong

One of Warren Buffett’s favorite sayings is “Be Greedy When Others are Fearful and Be Fearful When Others Are Greedy” Buffet wants to sell when a company value is high and buy when others are afraid and the value is low. He became the controlling shareholder of Berkshire Hathaway in 1965. Since 1965, Berkshire’s stock has appreciated nearly 600,000 percent versus 7,400 percent for the S&P 500 stock market index, or 81 times better than the S&P 500. Berkshire Hathaway has averaged a compounded annual gain of 19.8 percent since 1964. Each dollar invested has grown to $400,863, versus less than $10,000 if invested in the S&P 500 index (Source: Warren Buffett’s Railroad, found in

During the 2008-2009 stock market crash, when the nation was in a total panic, he invested $5 billion with Goldman Sachs and got a terrific deal. According to “What Buffett deal says about Goldman Sachs”, 3-28-2013 Forbes, Buffett agreed to give Goldman $5 billion in late September 2008. In return, Goldman handed over $5 billion in preferred shares and a warrant that would allow Buffett to purchase an additional $5 billion shares at a price of $115, even though the shares were trading at $125 at the time, so in the money from the beginning.

For the preferreds, Goldman agreed to pay Berkshire a yearly 10 percent dividend, with option of buying back the stock at any time for 10 percent more than what Berkshire had paid, which Goldman did in April, 2011 for $5.5 billion. Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who has looked at the Goldman deal, puts the dividends at $1.3 billion. So that gives Berkshire a total return of $1.8 billion on the preferreds.

Now come the warrants. In the deal struck on Tuesday, Buffett’s firm won’t have to put up the $5 billion to buy the 43.5 million shares it has a right to purchase, which would be worth $6.4 billion today. Instead, Goldman is going to give Buffett the difference in stock at the time of the deal. Buffett’s return is the same, but he’s left with a much smaller stake in Goldman. All told, that means Buffett is walking away with a $3.2 billion profit on his four-and-a-half-year-old investment in Goldman, for a return of 64 percent. A classic value investor move. Swoop in when others are selling, and pick up dollars for pennies. Buffett’s legend is secure.”

The investing public might need Buffett to remind them to “Be Fearful When Others are Greedy”. In a September, 19, 2013 interview on CNBC, Buffett said that “Stocks are more or less fairly priced now. “We don’t find bargains around but we don’t think things are way overvalued either. We’re having a hard time finding things to buy.”

The stock market reached its low around March 9, 2009, and it’s been more or less a booming market for almost five years. However, January 2014 saw the Dow-Jones stock market index dropped 5.3 percent and the S&P 500 slid 3.6 percent, their worst monthly percentage declines since May 2012. “When the first month of the year is negative, the chances of finishing the full year in the plus column drop to roughly 50-50, according to the Stock Trader’s Almanac (Source: “S&P 500 ends January with a loss: Bad 2014 Omen?” by Adam Shell and Kim Hjelmgaard, found in 1-31-2014 USA Today).

Free Seminar “Secure Your Financial Future: Lessons from Warren Buffett” will be held March 6 and 8, 2014 at the Golden Corral in Surprise; March 21 and 22 at the Golden Corral, Mesa; and March 15, 2014 in Tempe. All times are 10 A.M. to 1 P.M. To RSVP, call 1 (800) 955-2490.

You can contact Dr. Wong at (480) 706-0177;; or For his previous articles and future seminars, click on

Baby Boomer Women & Money: Part 2!

2/14/2014 AZ Republic by Dr. Harold Wong

A previous article, “What Baby Boomer Women Should Know About Money!” was published January 24, 2014 in The AZ Republic. The article covered four major topics: (1) You should not depend on a marriage certificate for your desired lifestyle; (2) Women should plan to be able to live on their income only; (3) Women must understand Spousal Continuation; and (4) Financial and tax knowledge, not diamonds is a girl’s best friend! This article will explore some other financial issues that are important for women.

Don’t Overspend on Your Kids. It’s admirable to want to pay for your child’s college degree, but does that leave you enough for your own retirement? I met a lady, age 60, from Italy that met an American, got married, and then moved to the U.S. She eventually was divorced, but fortunately pursued a career and got a decent job working in engineering for the State of AZ. She had one son that was going to undergrad college at Gonzaga U. in Spokane, Washington. The estimated 2015 total costs included: full-time tuition ($36,040), room ($5,040) and meals ($4,540); $495 fees; and $1,074 for books and supplies. When one adds airfare to return to AZ three times a year, and a little for spending money, the total is $53,000. She covered this expense for 4 years, at a total cost of $212,000. Luckily, she had invested in 4 rental houses starting 20 years ago. To cover his private undergrad college expenses, she sold 2 of her rental houses.

While it’s mainly only the middle-class and affluent that even dream of paying for a child’s private college costs, I also see what happens at the other end of the economic pyramid. Several years ago, I met a divorced lady, age 70, who lived in a $120,000 mobile home in Sun Lakes, AZ. She was surviving on about $2,000 of combined monthly income from Social Security and a small pension. She only had about $150,000 of life savings. Her semi-unemployed son was living with her. He was not paying any rent and she paid for all the food and most of his car expense. Recently, I heard that he had appropriated for his own needs $50,000 and she had spent $25,000 on him during the last 3 years. So, her life savings was down to $75,000.

Understand the cost of long-term care. According to AARP and other sources, only 6 percent of those who are age 65 or older own a traditional long-term care (LTC) insurance policy. Americans refuse to buy LTC because they don’t think they will need it. However, there’s a 50 percent chance that one of the spouses will eventually need heavy-duty home care or eventually will have to move into an assisted living facility. The normal stay is 3-4 years. The monthly cost can range from a low of $3,000 to $10,000, depending on whether one wants Motel 6 or Ritz-Carlton facilities and amenities. Let’s say that the 3.5 years, at an average cost of $7,000 monthly, or a total of $294,000. If you do not have LTC insurance, you will have to pay this from your life savings.

Warning: the husband usually dies first. In American, the man typically expects the dutiful wife to take care of him when he has serious illness or needs LTC. Then he dies. She is not only physically and emotionally drained, but substantial life savings have been used for his care. Now, what does she do? Re-marriage is really not an option, as by age 80, at least 50 percent of women are non-married.

Summary: Over-spending on your kids and not planning for LTC expenses are two major reasons many senior women wind up in financial hardship. Baby Boomer women should make plans to avoid these two landmines.

Contact Dr. Harold Wong at: (480) 706-0177;; or For his articles and seminars, click on

What Baby Boomer Women Should Know About Money!

(1/24/2014 AZ Republic by Dr. Harold Wong)

Baby Boomers, those 80 million born in the U.S. from 1946-64, had a different experience than the Silent or Greatest Generation. In most households with a Baby Boomer couple, both work  for most of their adult lifetime until retirement. After meeting tens of thousands who have attended my financial, tax, and economic seminars over the last 33 years, here are some observations that apply to Baby Boomer women.

  • You should not depend on a marriage certificate for your desired lifestyle. The marriage statistics are sobering because only about half of the marriages last forever. For Baby Boomers, it’s not unusual to have 2 or 3 different marriages. Each time there’s a divorce, both spouses decrease their living standard. Although an even split of community property is the norm, the legal fees and emotional damage can become permanent. Now the two ex-spouses have to pay for 2 households; 2 big screen TV’s; and 2 sets of furniture when they split up. When one takes a vacation, the hotel room costs the same, whether there are one or two occupants.  
  • Women should plan to be able to live on their income only. The divorce courts have changed their opinions about spousal support. Unlike 40-50 years ago, the courts expect the woman to work. There may be temporary alimony until kids reach age 18 (sometimes age 23 if they go to college) or for 5 years so that the woman can go back to college. However, the divorce courts expect each spouse to cover their own living expenses on a long-term basis. 
  • Women must understand Spousal Continuation. An older couple recently came into my office. He has been a retired federal government employee for the last 30 years. He has a federal pension $35,000 per year. Each spouse only had $5,000 of Social Security income. She had never made much in her working life. His Social Security retirement benefit was severely decreased because he had a federal pension. Their total steady income, not counting investment income, was $45,000 and they spent $35,000 annually. However, upon his death, his wife will only receive $4,000 per year from his pension, and there will only be one Social Security check. The family steady income will drop from $45,000 as a couple to only $9,000 for her.

    If you or your spouse is lucky enough to have an old-fashioned defined benefit pension, you need to contact the pension administration firm and ask them to give you the answers to these 3 questions in writing: (1) How much should my pension be and show me the formula? You know how much you have been receiving but how do you know you have not been shorted. (2) After I die, how much pension income does my spouse get? (3) For how long? 

  • Financial and tax knowledge, not diamonds, is a girl’s best friend! Because women tend to outlive men by 4-6 years, at some time in your life, you will be responsible for managing assets that may have taken a lifetime to build. It may be financial investments, a small business, the family farm, or an inheritance from previous generations. It’s an awesome responsibility and 77 percent of women say they need help, “Financial Experience & Behaviors Among Women, Prudential Financial 2008 study”. Women who use a financial advisor feel 50 percent more responsible, confident, and optimistic about their finances, but who do you trust? You may love your kids, but do they have extensive training in tax, investments, and business?

Summary: It’s not unusual that women expect to live until their 80’s and 90’s. The best way for women to prepare for the future is expecting to earn their own money and having the knowledge to manage their investments.

Contact Dr. Harold Wong at: (480) 706-0177;; or For his previous articles and future seminars, click on

2014 Gold & Real Estate Issues for Investors

(1/10/2014 AZ Republic by Dr. Harold Wong)

Home Prices: Phoenix has had a huge boom over the last 3 years and particularly during the last 2 years. In March, 2000 the median Phoenix AZ area home price was $125,000. Then there was the crazy real estate boom and the peak occurred in June, 2006, when the median price hit $264,800. In May, 2011, the median price bottomed out at $108,300. In July, 2013, the median price rose to $185,000, which is a staggering 71 percent increase. In November, 2013, the median price was $185,000.

However, the real estate market has slowed considerably, especially during fall, 2013. Mortgage interest rates have increased by at least 1 percent since summer, 2013. The new Dodd-Frank Wall Street Reform and Consumer Protection Act, which was passed by Congress in 2010, is expected to fundamentally alter how the U.S. mortgage industry functions. The bulk of the rules take effect January, 2014 and will make it harder to qualify for a mortgage. In 2014, Phoenix real estate prices for houses could stay flat. This will require investors to get even bigger price discounts when they buy in order for their formulas to be profitable.

Sellers Have Not Got the Message Yet: It may take sellers at least 6 months to realize that it is no longer a seller’s market and that they will have to substantially lower prices. I talked to a realtor who listed a 2,500 square-foot house for $485,000 six months ago. The house has not sold and she believes the price will have to be lowered to the $410,000-420,000 range in order for it to sell. A neighbor of mine listed his 1,920 square-foot Tempe house for $375,000 and it sat on the market for over 9 months. He claimed that it had all sorts of upgrades. I recently met the new owner who paid $315,000 and is gutting the place so it can be remodeled. She said the house was dated and nothing major had been done to it since it was built around 1995. With increased inventory on the market and substantially lower demand from investors, sellers have to lower their price expectations.

Gold forecast 2014: (found in 1-2/2014 I have absolutely no idea where gold prices will go, after about 26 percent losses in 2013. This was the first annual year with losses since 2000. However, here are forecasts by 3 giant investment companies.

J.P. Morgan cuts 2014 gold forecast by 10 percent
Analysts at J.P Morgan Cazenove lowered their forecasts on gold prices – by 10 percent to USD 1,263 an ounce for 2014 and by 12 percent to USD 1,275 for 2015, according to their research note. Next year will be characterized by tapering and low U.S. inflation, with the downside exacerbated by the re-emergence of producer-price hedging, the analysts said. They left their 2014 and 2015 forecast for silver unchanged at USD 21.38 and USD 22 an ounce, respectively.

Goldman predicts steep losses for gold in 2014
Goldman Sachs predicts a “significant decline” in gold in 2014, following losses of around 26 percent in the previous metal so far this year. Bullion is set to fall at least 15 percent next year

Morgan Stanley
Morgan Stanley in October predicted that gold will extend losses in 2014 amid expectations of a further paring of U.S. stimulus – a prediction that proved prescient considering the USD 10 billion cut to QE announced on December 18. The investment bank said bullion will average USD 1,313 an ounce next year, compared to its 2013 forecast of USD 1,420, Morgan said in its quarterly metals.

Conclusion: Gold and real estate have historically been used as a hedge against inflation and economic uncertainty. With the economy improving and changing fundamentals, these 2 assets have cooled off.

Contact Dr. Harold Wong at (480) 706-0177;; or For his previous articles and future seminars, click on

New Year’s Financial & Tax Resolutions for 2014

(12/27/2013 AZ Republic)

As 2013 ends, it’s traditional for Americans to have New Year’s Resolutions for the upcoming year. The most common are “Quit Smoking” and “Lose Weight”, and most will NOT do what’s required to achieve their goals. Let’s list some financial and tax resolutions that, hopefully, are easier to implement.

Calculate Your Retirement Goals in Dollars: This involves determining how much annual spendable income you need in your retirement years. I advise people to ignore the conventional financial suggestion that you can live on 70 percent of your working income. Why would you plan on spending less? Do you want to cut back on eating out and entertainment by 25-50 percent? Do you want to take no vacations instead of the normal 2-3 week you get while working? When you retire, you now have unlimited time to pursue your dreams.

Understand the Effects of Inflation: If you think you need $50,000 of after-tax income for your first year of retirement, look at the effect of various levels of inflation. The U.S. government says that over the last 50 years, average inflation has been around 3 percent. I believe that’s a conscious understatement. In the 1970s, the U.S. government developed the Core Consumer Price Index, which excluded goods with high price volatility, such as food and energy. According to Wikipedia, “on January 25, 2012, the Fed announced they would stop using the core CPI and rely instead on the Personal consumption expenditures price index (PCE).” If one looks back to 1992, this PCE index rises one-third percent lower than the CPI index.

Dr. Wong comment: I’d like to see anyone in Congress live one month without any food, gas, or utilities. If you use a future 5 percent inflation projection, which may be very realistic for seniors as their medical bills increase, spending $50,000 today would require $81,444 in 10 years; $103,946 in 15 years: $132,665 in 20 years; and $216,097 in 30 years. Many Baby Boomers want to retire by 65 or younger. Actuarial studies show that there’s a 50 percent chance that at least one of a 65-year-old couple will live till 93. Your money may have to last for 20 to 30 years in retirement.

Understand Risk vs. Return: Let’s suppose that your life savings is $800,000 of liquid funds, whether it is composed of money in the bank; brokerage accounts; mutual funds; individual stocks and bonds; or cash value of annuities and permanent life insurance. If you risk your funds with Wall Street, and your funds increase 50 percent to $1,200,000, you are excited. Ask yourself whether this will significantly increase your happiness in retirement. On the other hand, if you lose 50 percent on Wall Street, you now have $400,000. Will this now significantly decrease your ability to pursue your dreams, such as: overseas travel; helping grandkids pay for college; or pursuing expensive hobbies? Everyone wants to dream about profits, but few understand how losses will affect their retirement lifestyle. Remember, Warren Buffett’s Number 1 Rule is: “Don’t Lose Money!” His Rule Number 2 is: “Don’t Forget Rule Number 1!”

Save Taxes: Most people think of January through April 15 as tax preparation time. Instead, this should be when you implement tax planning strategies so that by December 31, you have reduced your taxable income and therefore your income taxes due when you file your tax return by next April 15. If you have a profitable business, pay your kids for work and deduct travel, entertainment, and car expenses. Start a family 401(k) and/or a defined benefit pension plan. If you don’t have a business, start a side business in addition to your job.

Conclusion: Use the Holidays to write down a concrete financial and tax plan for 2014. Your retirement future depends on this.

You can reach Dr. Wong at: (480) 706-0177;, or For his previous articles and future seminars, click on

Secret Advanced Tax Strategies

(Special to the 12/13/2013 AZ Republic by Dr. Harold Wong)

I was invited to the annual AG Horizons Conference, held 12/3/13 and 12/4/13 in Pierre, SD. Seven different small agricultural associations have their joint meeting. Of the three different talks to the group, this article will highlight some of the material from “Secret Advanced Tax Strategies”.

Farming has changed from when I was a kid, 60 years ago, growing up on the outskirts of rural Joliet and Kankakee Illinois. Then, many small-time farmers could support their families with a 160-320 acre farm and a part-time job during the winter. Today, farms are huge enterprises and some of the folks I met farm 3,000-10,000 acres. Machinery is costly, with combines costing $300,000 or more. So, one needs a lot of acres to amortize the high cost of machinery.

In the past 5 years, there have been record crop prices, reaching as high as $7 per bushel corn; $16 per bushel soybeans; and $10 per bushel wheat. With high crop prices and large farms operated, net profit form farming is no longer small potatoes. A number of the farmers have net profits of $250,000 to $1,500,000 in a good year. So, they now have more cashflow than ever and therefore tax problems. They also have the cash to do things for the family that were previously unheard of. Let me cover their concerns as well as advanced strategies that are solutions:

  • I have big profits and want to save income tax: Earlier in 2013, a big farmer came to one of my Mesa, AZ seminars, as he’s a snowbird with a house in Mesa. He’s had as much as $1 million taxable income in the past. The solution was to establish a 401(k) plan and defined benefit pension plan. We added his wife to the payroll and the combined contributions to his July 1, 2012 to June 30, 2013 fiscal year was just under $300,000. This will save him close to $100,000 of tax not just in year 1, but every year that he makes this tax-deductible contribution. As a side benefit, this will also provide a retirement income for the two brothers (non-family) who are his employees and are now currently in their 30’s. For the farmer, his future annual retirement income will exceed $100,000.
  • None of my kids or grandkids wants to work the farm and I want to provide lifetime income to them: The solution is the Multi-Generational IRA with the Roth IRA conversion strategy.  Here’s how it could work for a farmer with 3 daughters and 4 grandkids. None of my client’s 3 daughters (or their husbands) wants to work the farm. In fact, they have moved out-of-state. The 4 grandkids are too young to work the farm and since they won’t grow up in the farm area, they won’t know how to work it once they become adults.  Suppose the farmer has $770,000 between his and his wife’s traditional IRA. Suppose the average age of the 4 grandkids is 9. This strategy will create slightly above $8 million of tax-free income over the life of the 4 grandkids. After the farmer and his wife, currently in their late 60’s, die, here’s the projected income to each of the 4 grandkids: $7,000 at age 25; $11,000 at age 35; $17,000 at age 45; $27,000 at age 55; $43,000 at age 65; $69,000 at age 75; and $90,000 at age 80.  

Summary:  Farmers in rural areas normally have not heard of tax strategies such as the family 401(k), defined benefit plan, Multi-Generational IRA, or the Roth IRA Conversion. These secret advanced tax strategies can save substantial taxes and provide lifetime income for the kids and/or grandkids. A future article will talk about how to guarantee a lifetime income to the farmers and avoid capital gains tax.

Contact Dr. Harold Wong at (480) 706-0177;; or For his previous articles or future seminars, click on

Be Thankful During this Thanksgiving Holiday!

(Special to the 11/22/2013 AZ Republic by Dr. Harold Wong)

This article will be published during the 7-day Thanksgiving week. Millions of Americans are still feeling the effects of the Great Recession. However, Thanksgiving week is traditionally a time for family gatherings and the first major event of the 6-week Holiday Season. Here are my thoughts on what to be thankful for:

You have a job that pays you enough to cover living expenses: Over 10 million jobs were lost during the Great Recession and not all have been regained. Even worse, some reports are that of every three to four middle-class jobs lost; only one has been regained. The average American family has $4,000 less median family income today than ten years ago. Yet, by budgeting, you can offset this $4,000 drop in income.

You have a roof over your head: During the recent real estate crash, millions of Americans lost their home to foreclosure, short sale, bankruptcy, or just mailing the keys back to the lender and voluntarily leaving a house they could not afford. Consider that it does not matter if you are currently renting an apartment or house. When you consider all the expenses of owning a home (mortgage, real estate taxes, insurance, HOA fees, and repairs) it is often cheaper to rent. Understand that you will be able to buy a house in the future. FHA and VA loan programs are the most lenient and will often allow you to buy your next home with these loans only 2-3 years after you lost your previous home.

When you downsize, you find out that at least half of your household possessions are NOT an important part of your life. In a “Hints from Heloise” column published over 40 years ago, she said that you should give away or throw away “any book not read in the past year and any item of clothing not worn in the past 6 months”. If we used this criteria, most people would only need 20-25 percent of what’s in their closet or bookshelf.  

You are not going through a divorce and have a stable relationship, whether married or not: If you’re not lucky, you got married and within 5 years (the median life of a marriage), you’re divorced and paying alimony and child support for your 2 kids. By the way, child support does not stop until the kids are 18, and if there’s a provision in the divorce agreement that requires you to pay their college expenses, not until they are 23. Now, you’re broke for the next 13-18 years. Note: 50% percent of first marriages, 67% of second and 74% of third marriages end in divorce, according to Jennifer Baker of the Forest Institute of Professional Psychology in Springfield, Missouri.

Your kids and/or grandkids are financially self-sufficient: According to the latest Census Bureau data, in Sacramento, CA, 36.4 percent of adults ages 18 to 31 were living with their parents in 2011. “The previous record was set at the dawn of the Great Depression, when 35.5 percent of Sacramento adults in that age group lived with mom and dad”. Source: “Boom in boomerang kids: Percentage of young adults living at home in Sacramento at a record high”, by Ellen Le, August 10, 2013, Sacramento Bee. According to a May, 1, 2012 New York Times article by Lily Altavena, one in 2 new college graduates in the U.S. were still either unemployed or underemployed.

Summary: In America, we still have one of the highest standards of living in the world. What is considered living poor here would be heaven to millions in the Third World. Although a record 47 million Americans receive food stamp assistance, they have enough to eat. We have free education for all and more potential for upward mobility than in many other countries.

Contact Dr. Wong at (480) 706-0177;, or For his previous articles and future seminars, click on