Situation: A real estate professional and his spouse owned a significant interest in a construction and real estate management company. As a result of the recent downturn in real estate, the couple had accumulated net operating losses from the business over and above what they could deduct each year in their taxes.

Opportunity: In such a situation Burt Wealth Advisors can design a comprehensive wealth management plan by integrating a thorough tax analysis with a review of a client’s financial and retirement planning strategies.

Solution: By working closely with the couple’s CPA, Burt Wealth Advisors quantified the net operating losses that would be available. There were two basic options available to the client: (1) amend prior tax returns or (2) use the accumulated net operating losses against future income. The analysis showed that amending prior tax returns was not the best solution. Instead, Burt Wealth Advisors and the CPA recommended that net operating losses be used to shelter income generated by converting all existing 401(k) plans and standard IRAs to Roth IRAs. Because of the net operating losses, there were no taxes due on the conversion and the subsequent Roth IRAs would enjoy tax-free returns into the future. The client only had limited need for income from these accounts and thus most of the corpus and gains would accumulate for the benefit of their children and would not be subject to required minimum distributions.