Dear Tax Talk, My husband and I are in our early to mid-70s. We have two children with special needs who are not self-sufficient. We have about $620,000 in a defined benefit plan, and we receive about $9,000 per month in pensions and Social Security, not including the defined benefit plan. The $9,000 will be reduced by about half when the first of us dies and will be about $3,000 when the remaining spouse dies.

We just moved to New York from California, where we sold a house that we bought for $300,000 in 1985. It sold for $2 million after closing costs. There was a $700,000 mortgage, leaving us with about $1.3 million. We know we have the $500,000 exclusion of gain, plus we put about $500,000 into remodels over the years, so our cost is $1.3 million. Our taxable gain will be $700,000, so we will be paying about $105,000 (15 percent) in federal taxes and $70,000 (10 percent) in California taxes. This leaves us with $1.1 million to buy a house in New York.

We want to buy an apartment that we will be happy in. We spend a lot of time at home and entertain a lot. If you can imagine, the apartments in Greenwich Village that we love are not very nice in the $1 million range. So our business manager suggested we put a small amount into a mortgage, so we can afford $1.3 million, a price at which we would be able to find something we like.

I am an actor, well thought of, and my husband is a playwright whose play is being done on Broadway this year with a major star, so he will probably make about $1 million before taxes. We have made very little over the past 10 years, but we love it here in New York and are doing well. But I am not making any money.

In addition to a house, my greatest concern is my kids. I think the apartment will be a good investment to leave for them, but also I feel we need second-to-die insurance and long-term care insurance. So I worry. Can you help? -- Margaret

Dear Margaret, The help to your question may very well reside in your question. Your business manager should be the person on top of planning for your children's future. If he can't do it, then he needs to find the right qualified professionals.

While second-to-die and long-term care insurance are great products, they're also best purchased at a younger age. These products also involve high commissions to the broker that sells them, obviously creating a conflict of interest in their recommendation. At this stage in your life, these products may not make economic sense for you or your dependent children.

If your husband is making up to $1 million this year from his play, you may want to consider additional contributions to the defined benefit plan. While an individual retirement account has an age limit for contributions, a defined benefit plan does not necessarily have to have an age limit.

With respect to the home sale, you have California taxes due on the sale. The same applies for New York and your husband's earnings. You may want to consider paying those taxes prior to the end of the year to make sure they're deductible. That is, anyone owing state income taxes should consider getting a prepayment in for the year to ensure the tax deduction.

Your CPA should prepare a tax projection to see what makes the most sense to pay to maximize your deductions and minimize any late-payment penalties. The projection should also be mindful of the alternative minimum tax. I hope this helps answer some of your concerns.

More here:
Planning for retirement, special-needs children