Tax season is here, but wealth advisors know that, in truth, helping high-net-worth clients takes planning that must start months before the April 15 deadline.
Kimberly Foss, CFP, founder of Empyrion Wealth Management in Roseville, California, and the author of several books, in an interview with ThinkAdvisor offered a list of steps she says she advises her clients to take to minimize their tax liability and ensure their portfolios remain robust.
“Taxes. Taxes. Taxes. Taxes,” says Foss, who specializes in working with HNW consumers and investors. “They are the number one thing. There are many ways to skin that cat.”
Foss works with her clients starting in “December and moving through to April” to review their portfolios and retirement.
To that end, some of Foss’ advice comes in the way of simple steps that everyone should be aware of because, well, everyone can stand a reminder of the basics. Other tips are outside the box and are aimed at balancing portfolios.
Take a look at 8 Tax & Investing Tips Advisors’ Wealthy Clients:
1. Don’t neglect saving for retirement
“For some reason clients forget to max out their 401(k)s,” Foss says. And that’s a mistake. First, there is the extra tax paid now and, second, the loss of funds to pay for retirement.
“Gifting is a big thing,” Foss says. “I try to coach and remind my clients that if they are going to do that every year we need to sit down and rebalance their portfolio. I tell them to use highly appreciated assets.”
Foss also recommends putting the gifts in Roth IRAs in the names of the recipients if they are of working age, rather than just handing over the cash. That way recipients will start to accrue money for retirement.
3. Roth conversion
Foss recounted the case of a client who switched employers and as a result had a down year as far as income goes. She urged him to convert his traditional IRA to a Roth. That allowed him to take the tax hit now and set up his finances up so his children will inherit the money tax-free.
4. Time for bonds
“With (Fed Chairman Janet) Yellen yelping about interest rates” Foss says it’s time to include municipal bonds in the portfolio. “From millennials up through retirees higher interest rates are a good thing,” she says, adding, “as long as the Fed is transparent any change will be absorbed by the markets.”