Entrepreneurs

Business owners face unique challenges maintaining financial stability for their family as well as their employees. These individuals need to utilize tools to provide financial growth in more than one way. AOG will provide solutions allowing business owners to think outside the box.

CASE STUDY

Brett and Tracy

BACKGROUND

Brett and Tracy joined AOG Wealth Management ten years ago as a couple in their late-40’s. Prior to joining AOG, Brett had spent 15 years working for a couple of IT firms before deciding to start a company consulting smaller companies on maximizing the utility of cloud storage and computing. At the time they joined AOG, Brett’s firm had three employees and had achieved gross revenues of a little more than $2 million/year and net revenue to him of more than $1.2 million/year.

As with most startups, the lean earning years while building up the business forced Brett and Tracy to postpone funding retirement plans and college savings. With the business generating significant income, they approached AOG Wealth Management to help them establish a Wealth Management Plan focusing on long term goals. This included developing a plan to help prioritize and fund those life goals while simultaneously arranging their finances to be as tax efficient as possible.  

The goals Brett and Tracy wanted to focus on where to get their retirement savings up to speed, fund college for their two daughters aged 9 and 12, fund charitable interests, pay down the mortgage on their primary residence, and to purchase a vacation residence.

AOG

ACTION PLAN

Starting a 401k w/Profit-sharing and Safe Harbor – Brett did not have a 401k plan in place when he joined AOG.
  • Brett started a 401k plan with AOG and began to employ Tracy in the business so she could also participate.
  • With the maximum 401k contribution of $16,500 and profit-sharing/safe harbor of $52,000, there was the need for additional opportunities for tax-deductible retirement savings and income deferral.

Adding a Cash Balance Pension Plan – Setting up a Cash Balance Pension Plan allowed Brett and Tracy to defer additional revenues into retirement savings.
  • With the addition of the Cash Balance Pension Plan Brett was able to save $150,000/year on his behalf and $20,000/year for Tracy in addition to their 401k, profit sharing, and safe harbor contributions.
  • In addition to significantly enhancing their retirement planning, utilizing these tools created a secondary benefit by helping them to focus on their Financial Plan. With confidence in their long-term plan, they naturally found a little more discipline in their spending habits and keeping a healthy short-term savings account. Their biggest surprise came at tax time, when they saw how much less they paid in state and federal income tax. The net change meant that less money went to Uncle Sam, and more money stayed in their retirement accounts.

Adding Virginia 529 Plan – Virginia 529 plans allow investors to grow their contributions tax-free and withdraw them tax-free if the proceeds are used to fund college tuition and other expenses, as well as benefit from a potential state tax deduction.  

Donor Advised Fund – A Donor Advised Fund allows an individual to generate a sizable charitable deduction in a single year while gifting the funds over successive years. The funds can be invested while waiting to finance the specific charitable causes. Charities benefit from both the initial contribution to the fund as well as the growth of the endowment fund over time.  
  • When Brett and Tracy sell their consulting business, they anticipate realizing a profit of between $4 and $5 million. They intend to use half the profit to fund a Donor Advised Fund. This will allow them to experience the charitable write-off in the year of the sale, thereby reducing the capital gains taxes from the sale of the business and facilitating their charitable gifts for years to come.  

Tax Mitigation – The retirement deferrals were a great first step for income tax reduction. With the strength of the increasing cash flow from their growing practice, there was interest and need for additional income tax mitigation.
  • AOG worked in concert with their CPA to introduce investment strategies that helped further reduce their annual income tax bill, while providing community-friendly investment options.

Investment Management – Since none of their former Broker/Advisors had approached Brett and Tracy with a holistic plan and comprehensive wealth management strategy, they had not focused their resources, and had just maintained small pockets of investments here and there.
  • AOG consolidated their accounts under one umbrella using a single custodian and a risk-adjusted endowment style investment strategy.
  • The modified university endowment model expanded Brett and Tracy’s portfolio beyond stocks and bonds into commercial real estate, private equity & credit, absolute return strategies, and natural resources.
  • This diversification has had the added benefit of generating an income stream for them to utilize in retirement and replace their “paychecks” with a “work optional lifestyle”.

Professional Support
  • Engaging with AOG was the first step in getting Brett and Tracy’s on the path of building a team of trusted advisors around them.
  • We coordinated our efforts with an Estate Planning Attorney and a Certified Public Accountant.
  • Ultimately, what began with a Financial Plan became a Wealth Management Strategy. The investment of time by Brett and Tracy to build their circle of Trusted Advisor relationships enabled them to have confidence that they had the right people working on their behalf while they focused most of their time and attention working in their business.

AOG

WHERE ARE THEY NOW?

In the 10 years that Brett and Tracy have been clients of AOG, they have made significant progress toward their retirement goals. Additionally, they were able to pay off their mortgage within ten years, purchase a vacation home and completely fund their children’s college accounts.

Between the equity in their home, the equity in their business, and the durable income stream from the portfolio, they have achieved their work-optional lifestyle. Since Brett has groomed a good staff, he can spend less time in the business and more time with his family and pursuing other endeavors. He now goes to work each day because he enjoys it, not because he needs to pay bills, a mortgage or fund college accounts. They are living a life of financial freedom because they believe that they have achieved their work optional objective.
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