In my experience when I speak with financial advisors who focus solely on investment management, that leaves a gap in the marketplace for advisors that are tax-focused.
With any profession, firms need to find new ways to differentiate themselves from the pack, and I have seen those that focus on adding value to their clients, are able to do just that. One area that is often overlooked but can have a significant impact on your clients’ financial well-being is tax-efficient retirement planning. By focusing on tax planning strategies, you may help your clients save money, maximize their retirement income and in turn, build a more successful practice. This focus may help you stand out from the pack.
Good news, you’re likely closer to tax planning than you realize. I talked with a wonderful resource on the subject, Chris Dixon of Oxford. He gave some great insight on how to effectively add tax-planning to your practice.
Retirement planning is already complex, and taxes play a significant role in determining how much your clients will have through their retirement. With the SECURE Act and 2.0 there has been enough buzz about taxes already to get the attention of your top prospects (and likely top clients as well).
Chris Dixon from Oxford Advisory Group breaks down some of the overarching concepts for adding tax planning into your conversations with clients and prospects:
“These are things you are already looking at and helping your clients with, learning more about the tax laws and implications will only help your clients and your practice” – Chris Dixon
When it comes to retirement planning, taxes are a crucial consideration that can significantly impact how much income your clients will have to live on in their golden years. Various sources of retirement income such as Social Security, pensions, and investments can all be subject to different tax rates that can eat into your clients’ retirement income. Consequently, it’s important to consider the tax implications of these sources and strategize accordingly.
Furthermore, the type of retirement accounts that your clients invest in can also impact their tax situation. Traditional 401(k)s and IRAs offer tax-deferred savings, meaning that taxes are deferred until the money is withdrawn in retirement. On the other hand, Roth 401(k)s and IRAs require taxes to be paid upfront, but the withdrawals in retirement are tax-free. Depending on your clients’ individual circumstances and tax situation, one option may be more advantageous than the other.
It’s also important to note that the current historically low tax rates may not last forever, and the national debt is at an all-time high. As such, it’s prudent to be proactive in making your clients aware of potential future tax bills and to develop strategies that will help minimize the impact of future tax increases.
Estate planning is an essential aspect of financial planning, and it’s important to consider all the potential tax implications that could impact your clients’ strategies. Specifically, taxes can play a critical role in determining the amount of money your clients will be able to pass on to their heirs.
With the recent changes to the stretch IRA rules, beneficiaries may be in for a higher tax bill than expected due to the shortened withdrawal window. The stretch IRA was a popular estate planning strategy that allowed beneficiaries to stretch out their required minimum distributions over their lifetime, reducing the impact of taxes on the inherited funds. However, with its elimination, beneficiaries may be forced to withdraw the full amount of the inherited IRA within ten years, leading to potentially higher tax bills.
It is crucial to be proactive in helping your clients navigate these changes and optimize their estate planning strategies.
Life insurance can help equalize inheritances among beneficiaries. For example, if your clients have one child who is heavily involved in the family business and another child who is not, the business-owning child may receive a larger inheritance. By taking out a life insurance policy on themselves and naming the non-business owning child as the beneficiary, they can ensure that both children receive an equal inheritance.
Taxes and estate planning are complex and ever-changing. It’s essential to stay up-to-date on the latest tax laws and regulations to provide the best possible guidance to your clients. By being proactive and thoughtful in your approach to estate planning, you can help your clients achieve their financial goals while also leaving a lasting legacy for their loved ones.
“Navigating the tax maze is something that to truly helps, you should become familiar with this topic to better serve your clients” – Chris Dixon
In short, taxes play a significant role in many areas of financial planning, including estate planning, retirement planning, and investment management. So for you to invest in education and stay up-to-date on the latest tax laws and strategies, this could lead you to help clients minimize their tax burden, optimize their retirement income, and achieve their financial goals. By understanding the tax implications of various investment and income sources, you can develop tax-efficient strategies that help clients maximize their wealth and secure their financial future.
With taxes being a complex and constantly evolving area of financial planning, ongoing education and experience in tax law are essential for advisors to provide the best possible service to their clients.
Oxford Wealth Group, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The communications of an adviser provide you with information about which you determine to hire or retain an adviser. Information about Oxford can be found by visiting the SEC site www.adviserinfo.sec.gov. and searching by our firm name.
The information herein was obtained from various sources. Oxford Advisory Group does not guarantee the accuracy or completeness of information provided by third parties. The information in this report is given as of the date indicated and believed to be reliable. Oxford Advisory Group assumes no obligation to update this information, or to advise on further developments relating to it.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.