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Talking retirement planning with tax prep clients – Accounting Today

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Retirement financing takes planning — and some clients need a lot of it.

True, clients are probably more conscious of growing their retirement accounts than ever before. And yes, contribution limits for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan increases are due to creep up again next year, but hardly enough to land a retiree on Easy Street. The limit on annual contributions to an IRA will also see its first bump ($500) in six years.

Clients need help mapping what may well be the biggest expense of their lives. And many have only one primary financial professional to immediately turn to: their preparer.

“It’s inevitable for a tax consultant to talk about retirement planning since these are also vehicles for tax savings,” said Manasa Nadig, an Enrolled Agent and owner of MN Tax and Business Services and a partner at Harris Nadig in Canton, Michigan. “A conscientious tax consultant should talk to clients about retirement savings no matter how young the client, and have a good financial planner at their disposal if they themselves don’t offer financial products.”

“Been keeping me very busy for the past few years due to demographics. How many boomers are turning 65 every day?” said Lawrence Pon, a CPA/PFS and CFP at Pon & Associates in Redwood City, California. “My long-time clients are in pretty good shape because we’ve been working on this decades: debt reduction, contributing to retirement plans and setting up their post-retirement cash flow.”

“Our focus prior to retirement is to help our clients accelerate debt payments and have at least a year’s worth of cash on hand for the year they retire,” said Caitlin Campbell, an EA at Tower Financial Partner in Colorado Springs, Colorado. “This robust emergency fund protects them from market volatility and prevents use of debt going forward.”

“With younger clients, it’s often advising them during the accumulation phase of their planning,” added Phyllis Jo Kubey, an EA and CFP in New York. “Planning can be as simple as showing them the benefits of regularly saving toward retirement, often balanced with other financial goals. With higher-net-worth clients, the planning is more sophisticated. As clients approach or attain retirement age, we’re looking at withdrawal strategies … I usually bill hourly for this additional work,” she said.

Waking up

“Most of them aren’t interested in advance planning but they wake up the year before they reach 70-½,” said Mary Kay Foss, a CPA in Walnut Creek, California. “When we do returns, we generally enclose a paragraph the year before [required minimum distributions] are due saying that RMDs are required that year or the next and suggesting a planning meeting. I tell clients that … their expenses and income taxes are unlikely to go down when they retire. I suggest that they write down what they’re actually spending or even try living for a month on 70 percent of their usual income.”

“We start with a discussion about budgeting, because you really need to know what you are spending each month to know how much you’ll need in retirement,” Campbell said. “Once we have budgeting under control … we look at available retirement income. Most of our clients have Social Security benefits and retirement savings in IRAs. We don’t sell the investments; we only guide people through what they’ve invested in and make sure they understand the investment and the tax implications. If we find there is a shortfall, we work on the budget to reduce spending and increase income while the client is still working, to free up more income for investing.”

Some retirement planning involves not future golden years but current cash crises: reckless spending, unfamiliar investments or too many adult children demanding too much money from parents’ nest eggs.

One of Pon’s new clients, for instance, “was an electrical engineer working for a tech company in Silicon Valley; the wife was in sales for an office-supply company,” he explained. “He was laid off from his job. He changed careers and became a contractor. He is now 71 and does kitchen and bathroom remodels and home additions. During the mid-2000s, he decided to get into real estate [and] had six rental properties. During the 2008-2009 downturn, he eventually lost all six. He emptied his 401(k) trying to keep the properties.”

The couple now has $40,000 in consumer debt and an equity line on their house for about $123,000 at 8.2 percent, as well as a first mortgage with a $1.5 million balance at 4.08 percent. “Wish I’d met them 20 years ago,” Pon said. “I might have helped them preserve their retirement savings and not invest in ill-fated rental real estate.”

Pon tried various potential answers, including equity sharing in which an investor kicks in a percentage of the value of a property for a substantial eventual return. Pon’s client in this case would receive $560,000 to pay off the debt and other commitments, with the remainder “invested conservatively” for cash flow.

Separate businesses

Half to three-quarters of firms surveyed in the 2018 National Association of Tax Professionals fee study reported offering retirement service and Social Security advising under the general umbrella of “tax consulting.” The services contributed to only about 4 percent of annual gross revenue, firms added.

Retirement planning also requires tax prep firms to consider specialized credentials and business structures. “The taxes are done via a separate business … and should a tax client who isn’t an advisory client need anything more done than an RMD calculation or some very basic advice, they’re required to sign an agreement with the advisory firm,” said Morris Armstrong, an EA and registered investment advisor with Armstrong Financial Strategies, in Cheshire, Connecticut.

“Despite having my broker’s license at one time (as a supplement to my CPA) I limit my retirement planning to the tax situations, mainly maximizing IRA contributions and answering questions about whether a Roth IRA or 401(k) employee contribution makes more sense over a traditional IRA or 401(k) contribution,” said Brian Stoner, a CPA in Burbank, California. “I generally charge my standard flat fee for a tax planning meeting when we do this, as it usually involves other items of tax planning.”

“I’m a CFP as well as an EA, which helps us transition our conversations from tax prep to tax planning,” said Chris Hardy at Georgia-based Paramount Tax and Accounting. “I own a separate RIA where we offer financial planning, which includes retirement planning and projections.” Hardy typically charges a project fee from $2,000 to $10,000 that covers four to five meetings and a financial plan.

Melissa Bowman, an EA at Rainbow Accounting Services in Bradford, Ohio, said she’s “in the unique position of holding a Series 6 investment license, so retirement planning is a part of our services. We don’t charge for this. Unlike most tax professionals,” she added, “I don’t have to be as worried about crossing that investment-versus-prep line. I also offer to review the funds that they have their 401(k) plans. This is also at no charge.”


Jeff Stimpson

Jeff Stimpson is a veteran freelance journalist who previously served as editor of The Practical Accountant.

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