Active investment management’s weekly magazine for fee-based advisors

David Stellpflug, RICP • Eau Claire, WI
Family Financial Associates Inc. • Packerland Brokerage Services Inc.

Tax planning is often a forgotten part of retirement planning for many people, but it is critically important to maximize the effectiveness of a client’s retirement assets.

Close to a decade ago I decided to place a greater emphasis on working with clients’ CPAs or tax preparers to develop more forward-looking tax-aware strategies. While tax planning has always been a part of our financial-planning process, we have taken it to a more sophisticated and effective level by actively building these relationships.

I ask all new clients to provide their tax returns as part of our discovery process. The value proposition for clients is to make their retirement-income streams as tax-efficient as possible, identifying additional income they otherwise would not have or better building their legacy funding. Part of this effort is to seek a client’s permission to reach out to their tax professional for additional calculations that might be necessary to help facilitate our work. Virtually all of our clients are quite willing to do so.

We identify a client’s assets by three different categories: pre-tax deferred, post-tax nonqualified, and tax-free. We need to carefully consider these categories as we develop a full financial plan and specific financial solutions for clients. Some clients are surprised to learn that their Social Security income can and will be taxed without strategic planning because of the provisional income rule. We are currently taking advantage of the 2017 tax bill by repositioning some of our clients’ assets via a Roth IRA conversion without bumping those assets into a higher tax bracket. I ask permission to speak with their tax preparer on a conference call. I ask the tax preparer to analyze a client’s current year projected income via their tax software to determine a dollar amount that could be converted to a Roth without jumping to a higher tax bracket.

I took this process one step further about five years ago by developing a formal relationship with a highly experienced accounting and tax preparation firm in our area. The owner, Patrick Poeschel, was becoming increasingly frustrated with some of the financial decisions his retirement-age clients were making that had significant tax implications. He felt that if there was better coordination with a financial-planning and investment advisor, these mistakes could be avoided. He obtained his securities license and started working with our firm’s broker-dealer. It has been a “win-win” situation for his firm and ours, as we work closely together, sharing certain client planning relationships and mutual referrals.

More importantly, I think all of our shared clients benefit from having financial and retirement plans that are more tax-efficient. Collectively, we continuously monitor federal, state, and local tax law changes to allow our clients to minimize current and future tax liabilities in the context of their retirement planning. This adds tangible and much-appreciated value for our clients.

Disclosure: Securities and advisory services offered through Packerland Brokerage Services Inc., an unaffiliated entity. Member FINRA & SIPC.

RICP is a registered trademark of The American College of Financial Services.

Photography by Travis Dewitz

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