Is this a viable plan for helping alleviate parents' tax burden??

[Jon Dowe]

Hi and thanks for reading. I will try to be as concise as possible while providing as much pertinent info as needed.

I am the only child of my parents, aged 69, who have done quite well amassing significant retirement funds and a large pension on a fairly modest salary. But all their penny pinching did not help them at all when it came to preparing for the impending RMDs, and now they are looking for ways to reduce their tax burden at the 11th hour. With SS also, their AGI will be more than double what it was for most of their lives and will put them in the top tax bracket where they have never been before.

Their objective, quite honestly, is to preserve as much of their savings as possible to pass down to myself or their grandkid(s). I would like to think, hopefully, that it also will come in handy as they live on for many many more years.

As for me, I am a full-time real estate investor. We've done decently well, enough to allow my wife to quit her high-paying corporate job and become a middle school teacher (her dream!)

So I was wondering, is it a viable option for them to start a business, hire me and pay me a modest salary to run the company, and deduct all the expenses of the business and payroll? I figure for the sake of good faith I would need to bring more value to the company than my salary, so realistically I'm thinking around 40k or so. If the business purchases 3 properties needing significant rehab I should be able to easily achieve built-in equity that far exceeds 40k. Of course I'd also want to achieve maximum deductions with the least amount of capital expense so that's a subsequent analysis to perform on investing strategy (buy land? buy SFH or apartments? leverage? buy negative cash flowing properties in quickly appreciating markets?) but before I get to that point I find it prudent to first see if the overall concept is sound. Or does it not work cause they are retired and business deductions cannot offset unearned income?

Thanks again for your thoughts and advice!!

[Drew M.]

No offense but that seems silly.  The tax burden would just be passed on to you if they put you on the payroll. There's no such thing as a free lunch, somebody will need to pay the tax man eventually.

You describe the issue as one of preserving wealth for future generations. That is not the primary purpose of saving money in a tax deferred retirement account. It's a tax advantaged way for the government to encourage citizens to save for their own post-retirement support.  It sounds more like your parents problem was a failure to plan for the payment of income taxes on their RMDs. 

I have a relative who is a certified financial planner. He always says that owing taxes is a good problem to have, because it means you are making money.  While your parents should certainly take advantage of all the deductions they can, the ship has more or less sailed on 2016 personal income taxes.  Perhaps for the rest of this year they will want to calculate their tax burden regularly and make sure they are setting aside enough to cover their taxes. I hav no idea if there are retirement account custodians out there who will do tax withholding from RMDs but maybe you could try to find one.