Don’t Let Your Senior Clients Make These 3 Tax Mistakes

(4 Minute Read)

With tax season on everyone’s minds, we thought it was a good time to make sure that advisors aren’t letting their senior clients make these three simple tax mistakes. As a trusted advisor, it’s imperative that you are keeping your clients on the right financial track, and part of that means guiding them through many financial situations, like their taxes. To be of the best help to your clients, make sure they aren’t making these mistakes.

1. Forgetting All Taxable Income:

Almost all income is taxable, even if it isn’t received in standard paychecks. Many seniors forget that even Social Security can be taxed, depending on their other sources of income. If they have large amount of income outside of their benefits, they may need to pay taxes on the benefits themselves.

Seniors should total all of their income received outside of Social Security, add in any tax-free interests (like those received from bonds), and add 50% of their Social Security benefits. If that number falls between $25,000 and $34,000 as a single filer—or between $32,000 and $44,000 as a joint filer—they can be taxed on up to 50% of their total Social Security benefits. If their provisional incomes exceed those amounts, however, they might even be taxed on up to 85% of their benefits.

2. Neglecting Minimum Required Distributions

Traditional IRAs and 401(k)s maintain a required minimum distribution. This minimum distribution starts when the holder turns 70 ½ and is determined by considering the total account balance and the holder’s life expectancy. Because all distributions from traditional IRAs and 401(k)s are taxed, these minimum distributions are set to ensure a minimum amount of taxable money is withdrawn. This is so important because any amount of the total required distribution that is neglected will be taxed at 50%. If a senior left $4,000 of the minimum distribution in the account, they will be saying goodbye to $2,000 of it. Even if your clients don’t need the total amount of the minimum distribution, they still need to take it out in order to avoid losing out on half of the neglected funds.

3. Keeping Sloppy Healthcare Spending Records

Healthcare is easily one of the biggest out-of-pocket expenses that senior retirees face. Even with Medicaid, Medicare, and medical insurance coverage, seniors are often left with large outstanding medical bills for their ongoing care. Luckily, any out-of-pocket expenses can be deducted when filing taxes if they total over 10% of total Adjusted Gross Income. Many seniors make the mistake of not adequately documenting all of their medical expenditures, which is necessary when filing taxes and disclosing exactly how much money was spent on medical bills. Forgetting to keep records on even a single expenditure can mean claiming less of a deduction. Don’t let your senior clients make this mistake and not take advantage of the deductions offered to them.

For many, tax season might be the only period where seniors spend a considerable amount of time and energy reviewing their financial situation. If you have clients that are finding it difficult to stay afloat financially, it’s a good time to consider available options for increasing their income and funds. One such way is through a life settlement, also referred to as a viatical settlement. In a life settlement, a senior sells all or a portion of a life insurance policy that they no longer need or want to a second-party buyer for an upfront amount of cash that is significantly larger than the policy’s surrender value. We specialize in walking senior clients and their advisors through the life settlement process and determining whether a life settlement is a good fit for an individual.

Don’t hesitate to call us is you have any questions about life settlements or how they work!


Leo LaGrotte

Case Study:

John and Judy purchased a life insurance policy many years ago and put the policy in an irrevocable life insurance trust. Judy passed away last year and John no longer has a Federal estate tax issue that he and Judy once had.

John sold his life insurance policy for $175,000 through a life settlement.

Download our free resource, Serving Senior Clients, for more information about how you can unlock a powerful new source of financial liquidity for your clients today.

Get in touch with Life Settlement Advisors today to take the first step toward converting your policy into cash.
Life Settlement Advisors
Leo LaGrotte
At Life Settlement Advisors, we strive to be a voice of confidence and assurance for our clients. Our goal is to educate you about the life settlement process so you can make an educated decision about whether it is right for you.