An older friend has asked me to help her out with her finances. While I'm not a financial planner, I work in the investment world and regularly am asked for financial advice. I usually turn people away, explain that my job involves advising entities with billions and strictly involves investments (not personal financial planning), but not an option in this case.
She is a recently divorced 60 year old; the husband took care of all things financial. She takes care of an adult child with special needs and files as Head of Household. She enjoys her job and wants to work until health issues / death prevent her from doing so.
So far I've helped optimize some expenses (bids on various insurance things, dropping collision on her car with value of $2000) etc.
Balance Sheet
Assets
Home Equity $45K* (hopefully liquid in 0-3 years, house on market)
Traditional IRA: $150K (40% index funds, 60% cash)**
Accrued Pension Benefits Will get ~$1000/month when retire
Unsure about SS, obviously will vary with when she takes it.
Liabilities
Personal Loan $30K*** (friendly family loan, 3% interest, due upon sale of home)
Sources of cash
$65K Gross Salary
1/2 of mortgage paid by ex (he owns 1/2 of house), she pays all maintenance / taxes
~$600 / month social security to adult child
Uses of cash
Still TBD, but estimated monthly cash expenditures of $3K, a lot of which is related to the home..her run rate is probably lower if/when the house sells... I've showed her Personal Capital and we're working on getting a better idea of exact expenditures.
Goals: increase net worth for long term nest egg / care of the child.
Questions
I don't know the health insurance situation and how the care for the adult child w/ special needs works.
As stated previously, she has access to regular and roth 403b and 457, which opens up the possibility of a ton of deductions. I feel like with her relatively low cash needs (55% of her gross income), access to a traditional IRA w/o penalty we should be able to get her to something close to a $0 federal tax liability and start building up her savings.
State income tax rate is 5-6%. IRA withdrawals are taxable. Deductible contributions reduce income for state tax purposes.
Last year she had itemized deductions of $13K (i think mostly MI and property taxes) so new HoH standard deduction will be better.
What mix of regular / roth 403b /457b contributions is optimal?
My thought was to set the her 403b and 457b to the maximum ($48K), contribute to a traditional IRA ($6K) and then fund her spending with withdrawals from her traditional IRA, such that she'll pretty much only pay taxes on her precise cash needs, and then possibly create some additional income with Roth conversions, but I'm not sure if that's optimal.
For example, let's say she goes that route, her taxable income goes from $65K to $11K ($65-24-24-6), the new standard deduction for HoH would lob off $18K, so she's at -$7K. Let's say she withdraws $28K from her IRA, so that puts her at taxable income of $20K. It may be simpler to put less in tax advantaged and just live off her salary, but I thought this way she'd only be taxed on her exact needs.
I've already set up her 403(B) which is maxed and investing in index funds, but am seeking different opinions on the optimal next step or calculators to better assist me with this.
Thanks in advance.
*$370K home value after haircut to where its listed and not getting interest and 6% realtor fee, less $280K mortgage = $90K divided by 2 (ex husband's)
**this was previously with high fee asset manager, i moved it to index funds, have not invested the low risk portion yet on account of haven't finalized IRA/403b/457 withdrawal contribution scheme
****the thread is about tax optimization, but any advice related to resources/people to consult/contact on estate planning related to special needs would be greatly appreciated. google is a bit daunting.