Tax time may generate high anxiety for millions of Americans rushing to get their returns filed on time. But the season is an opportune time for you to help clients kick-start–or kick into high gear–their retirement, business and estate plans. The weeks preceding April 15th are also a great time to connect with prospects.
Many advisors are using the weeks leading up to the April 15th deadline for filing federal and state income tax returns to remind clients to maximize contributions to their 401(k)s, IRAs and Roth IRAs. The pitch should especially appeal to boomers who are eligible to receive an income tax refund this year and would be amenable to redirecting the money into these plans.
A retirement savings vehicle that came into force in recent years, the Roth 401(k), mirrors the contribution limits permitted under 401(k) plans ($16,500, plus $5,500 in catch-up contributions for employees age 50 or over). But unlike Roth IRAs, eligibility is not restricted by income threshold. And, as with the 401(k), employer-matching contributions are pre-tax.
Other planning opportunities can be identified by examining the client’s income tax return, specifically the taxable investments that cause clients the most pain come April 15. Among them: mutual funds, certificates of deposit, money market funds and bonds. By shifting funds from these taxable investments to tax-deferred vehicles, an advisor can reduce the client’s tax liability and boost retirement savings.
Proper tax planning, conversely, can free up dollars to purchase additional life insurance needed for the death benefit or for securing tax-free income in retirement. One option is a maximum-funded variable universal life (VUL) insurance policy.
Used by high net worth clients who could not fund a Roth because of the IRS cap on income, the technique entails contributing premiums up to the allowable limit under the Internal Revenue Code (i.e., the point at which the policy would convert to a modified endowment contract or MEC). Typically funded over 5-15 years, the VUL policy’s cash value grows tax-deferred. At retirement, the cost basis (premium contributions) can be withdrawn tax-free.