BROKER-DEALER | ESTATE PLANNING | HOW I SOLVED IT | INSURANCE | INVESTING | REAL ESTATE | RETIREMENT | TAX PLANNING

Marguerita Cheng found herself looking for solutions after this client couple got a big tax hit while trying to pay off their mortgage .

By Karen DeMasters

Editor ’ s Note : This article is part of the Financial Advisor series “ How I Solved It .” Advisors describe a client with a problem and what they did to help .

That is what befell a couple who became clients of Marguerita M . Cheng , CEO of Blue Ocean Global Wealth , a financial services firm based in Gaithersburg , Md . Cheng founded the firm in 2013 because having her own business was going to help her achieve more satisfaction in her career .

She says that shortly after the Covid-19 pandemic threw many lives into turmoil in March 2020 , a Washington , D . C ., couple approached her . The wife , 73 , was a medical doctor who had worked in international development with a focus on maternal health , and she had just retired . The husband , 68 , was also a medical doctor , still working in cancer research at the National Institutes of Health .

They had been referred to Cheng by one of the wife ’ s work colleagues after they found themselves confronting a big problem : In 2021 , they had withdrawn $ 200,000 from a 403 ( b ) retirement account that the wife owned , an account valued at $ 844,000 , in order to pay down the balance of their home mortgage .

They thought they were doing the right thing financially at the time by taking money out of a conservatively invested retirement account . Yet their seemingly sensible decision cost them an extra $ 48,000 in taxes for 2021 , in part because the withdrawal threw them into a new tax bracket , even though they ’ d already withheld taxes from the distributions they ’ d received .

Marguerita M . Cheng , CEO of Blue Ocean Global Wealth in Gaithersburg , Maryland .

Besides that , they were also paying for the health insurance of their adult daughter , who ’ d lost her job during the pandemic and had joined the gig economy with a limited income . For 2021 , the couple had expenses of $ 208,000 , including the extra $ 48,000 tax bill .

When they realized they were going to face that big tax hit , they knew they had to take a new look at their situation . “ When the couple brought me in they were experiencing a deficit of $ 1,900 per month ,” Cheng says . “ For this couple , the extra tax bill really caused stress because it significantly depleted their cash reserves . They also had medical expenses and were concerned about accumulating credit card debt .”

However , she didn ’ t want to dictate terms to them . They had a lot of strong feelings about their debt and obligations .

“ Understanding their values was critical because I realized a new loan was not an option ,” Cheng says . “ This couple has traditional Midwestern values and feels uncomfortable having debt .

“ Sure , they could stop helping their daughter with health insurance premiums … or cut expenses elsewhere , but I found from speaking with them that providing for education and healthcare are core values for their family ,” Cheng adds .

“ I did not want to dictate to them what they should do , so we talked through their options .”

PHOTOGRAPHY COURTESY OF MARGUERITA M . CHENG JUNE 2023 | FINANCIAL ADVISOR MAGAZINE | 33