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Retirement Planning > Retirement Investing

8 tax & investing tips for advisors’ wealthy clients

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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:

piggy 401k

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.


2. Gifting

“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.”

Foss has been urging her clients to include municipal bonds in as part of the investment strategy, saying yields rates can only go up.


5. Diversify

“It sounds vanilla,” Foss says, but it’s important to spread your investments around. Having a mix of bonds and stocks improves the odds of weathering the next market downturn.


6. Asset allocation vs. asset location

Once portfolio diversification is achieved and retirement vehicles are maxed out, another option is to put money into variable annuities. Not only do the vehicles defer tax liability, they provide a guaranteed income during retirement and a death benefit for a spouse.


7. The drip

Living off the interest and dividends of the portfolio is key to preserving capital, Foss says, something she calls “the drip.” In retirement, she urges clients to make sure that 75% of the spending comes from the drip.

“It’s been a very good strategy over the last five years, but it’s been increasingly difficult to squeeze out enough, Foss says, partly because of the new Medicare surtax.

Still, she says, the strategy helps ensure income will last throughout retirement.


8. Avoiding capital gains taxes

Foss describes the case of a client who was moving between states. The client wanted to purchase a new home before selling her previous domicile. To pay for it, she wanted to liquidate some of her investments. That would have cost her big time in capital gains taxes. Instead, Foss convinced her client to use her securities to secure a line of credit. Once she sold her old home she was able to pay off the loan. The method saved her client thousands of dollars.

See also:

5 key tax deductions for the self-employed

Roth IRA changes to weigh for the 2014 tax year

2 ways to help protect non-U.S. spouses from estate tax liability


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