Do you find yourself daydreaming about retirement? How about your clients? Do they discuss their retirement plans with you? Many of us think about retiring, but we fail to adequately plan for it. Instead, we focus on the here and now. Decades pass, especially for business owners. We get to the other side and realize our nest egg and/or our business isn’t worth what we thought or hoped. This is where you, the tax advisor, can shine.
To properly plan for your retirement, you have to determine where you are with your finances—and where you need to be to live the lifestyle you want during retirement. As your client’s tax professional, you already know—or should know—their current financial position, investment strategies, and areas for other planning opportunities.
Helping clients make retirement decisions should come naturally: After assisting them with their annual returns and helping them understand the complexities of their taxes, they should consider you one of their most trusted advisors.
There are several planning topics you can discuss with your clients to facilitate food for thought as they consider their own personal retirement plans—and maybe even your future.
Existing plans and available plans
- Discuss their existing retirement plans. If they are contributing to an employer-sponsored plan such as a 401(k) or 403(b), are they maximizing their contributions? Are they taking full advantage of an employer match?
- If your clients do not have an employer-sponsored plan, discuss with them the options for traditional or Roth IRAs, SEP IRAs, and SIMPLE plans.
- For those who can no longer contribute to a deductible IRA, there is back door Roth option that involves making a non-deductible IRA contribution and immediately converting the contribution to a Roth contribution.
- Each plan type varies considerably. Advise your clients on maximum contributions and deadlines for funding plans. Maintenance and compliance are areas where you can add value and educate your clients, in order for them to have the tools and knowledge to evaluate their options and plan accordingly.
Life-changing events and beneficiaries
In most instances, the beneficiaries named on retirement plans trump a client’s will. Clients go through life-changing events, and sometimes forget about who they named as their beneficiaries for their retirement plans. Failure to keep a current list may result in retirement savings not necessarily going where they intended it to go.
Pro tip: During your annual tax planning meeting or tax season kickoff meeting, consider confirming with your clients if their will, trusts, and beneficiaries reflect their current wishes.
We all have clients who bring us stacks of 1099s from a variety of brokerage firms. Unless your client has an advisor actively managing their portfolio, it’s likely the client isn’t benefiting from having numerous unmanaged retirement accounts. Also, remember that investment advisory fees are no longer deductible for federal income tax purposes, so consolidation of accounts could reduce account management.
Consider encouraging clients to consolidate their brokerage accounts to one brokerage firm. Be sure to educate them on the correct way to rollover funds to avoid accidentally taking an early withdrawal, and avoid triggering an early withdrawal penalty and taxable distribution.
Let’s face it: The past two years have been challenging for many. If you have clients facing financial hardships, it’s sometimes challenging to convince them that their retirement accounts shouldn’t be viewed as emergency cash.
Help them weigh the pros and cons of taking early withdrawals from their retirement accounts. One option to pursue is the option of taking a loan from a 401(k) or 403(b) plan instead of a withdrawal.
You’re the trusted advisor
It’s easy to find financial advice online, in person, or by word of mouth. However, it’s not always easy to find a trusted advisor who has your clients’ best interest at heart and isn’t earning a commission on the products they sell.
Finding a trusted tax advisor who understands someone’s tax and financial situation—and who doesn’t sell financial products—is a great place to start as a sounding board, as clients begin their retirement planning journey. It’s also a key point to discuss with clients to help them understand your role as an advisor and deliverer of tax advisory services.