What You Need to Know
- Long-term tax planning is a key function advisors need to orchestrate with their clients.
- Roth conversions are one of the most potent tools to use for tax planning.
- Make sure you work with clients' CPAs so they don't alter your careful tax planning.
Are your client’s CPAs destroying your 10-year tax plan for your clients?
Maybe we should start with a better question: Have you built a 10-year tax plan for your clients? If you are like most of the elite investment advisors that we work with, you already have a 5- to 10-year tax strategy in place.
The effectiveness of your tax strategy most likely rests on whether or not you’re using the time between your clients’ retirement date and the start of required minimum distributions from their traditional accounts.
Sure, Roth conversions have been talked to death in the last decade, but they remain one of the most potent conversations you can have with clients about tax planning, as long as their CPAs aren’t trying to foil your plans.
Each year hundreds of prospective clients email my office or schedule an appointment to learn more about Roth conversions. The main reason for that is they have heard they’re the most powerful tax planning strategy that middle America can use to mitigate their taxes in the future, but they do not know where to start.
Most of my clients retire from their primary jobs around age 60. That gives me 12 years under the Secure Act to work with my clients to convert as many funds in their traditional tax-deferred accounts to a Roth IRA as their tax tolerance will allow.
Tax tolerance is the amount of taxes that a taxpayer is willing to pay to capitalize on the benefits of having tax-free funds available in the future. Spoiler alert: when you ask your clients their tax tolerance, the first number you hear will be $0.