April 15A Day of Rejoicing?

Yes, Say Advisors, Who Cite A Spike In Business

By Warren S. Hersch

Tax return filers who were eligible for refunds werent the only ones rejoicing on April 15. Advisors also benefited from a spike in business, because of clients heightened focus on tax-advantaged investment vehicles, as well as the more favorable tax treatment of those products in 2003 returns.

The combined effect led clients to pump big bucks into new and existing individual retirement accounts and cash out on long-term investments that benefit from reduced capital gains tax rates, say advisors. Many clients also invested in new health savings accounts, which replaced medical savings accounts in December of 2003.

“HSAs got a lot of attention this tax season because they expand on and make permanent the older medical savings accounts,” says Paul League, a principal with League Financial Services, Beverly Hills, Calif. “Health care expenses are fully deductible under HSAs. And the plans are open to everyone. I think youll see more advisors getting behind them.”

Congress enacted the HSA as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The law aims to help individuals not yet eligible for Medicare save money to meet medical and retirement expenses on a tax-free basis.

The HSA improves on its MSA precursor by enabling account holders to secure services from any doctor of their choosing. HSA premiums paid to the plans catastrophic health insurance component are also 100% tax-deductible (as are personal contributions to the savings account). That compares with 65% and 75%, respectively, for individuals and families under MSAs.

Not all advisors, however, are convinced that HSAs will prove attractive to a broad base of clients in all parts of the country.

“The cost savings involved in the higher deductibles are not creating enough incentives for HSAs in the tri-state [New York/New Jersey /Connecticut] area,” says Anthony Domino, president of Associated Benefit Consultants, White Plains, NY. “Although a great concept, they havent demonstrated the savings we anticipated.”

Advisors witnessed increased interest in another savings vehicle: individual retirement accounts. Because contributions are tax-deductible, many IRA holders sought to fully fund their accounts by the April 15 deadline, thereby reducing their 2003 taxable income.

“Our clients are funding their retirement plans not solely because it makes sense to invest but also because there are tax benefits for doing so,” says Domino. “We typically see a spike in IRA contributions this time of year.”

Adds Brian Cohen, president of Los Angeles, Calif.-based Farmers Financial Solutions: “From a sales perspective, the wonderful thing about April 15 is that it offers reps an opportunity to remind people who dont have an automatic deposit program to max out on their allowed contribution. We also use this time to urge prospects without an IRA to open an account.”