“I send tons of clients to my local CPA, but she never sends me a single client back!” As an advocate of advisors working closely with tax preparers, and as a tax preparer myself, I hear the complaint of unreciprocated referrals all the time from financial advisors.
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When I last Googled “IRS RMD Table,” the first result that popped up was a link to an active IRS web page with the outdated RMD information. Millions of people who clicked on the first link provided by Google were given, by the IRS, incorrect information. Countless other examples of incorrect tax information, ranging from capital gains rates to Medicare premiums to gifting limits and especially the math on Roth conversions can be found prominently displayed across the internet, including on some of the most reputable websites.
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Many financial advisors will object to the headline of this article, but advisors represent an incredibly small percentage of all taxpayers. Very few taxpayers care to be able to describe the difference between a Roth IRA and a traditional IRA. What they want to know is which option is right for them and what action they should take.
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There is a fantastic opportunity for advisors to add value for their clients by checking in midyear and reviewing a pay stub to make sure their clients are on track.
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A powerful strategy to discuss with clients interested in gifting is funding Roth accounts on behalf of children or grandchildren.
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Bringing on another professional to assist in planning can be daunting, but it can add value for clients.
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The default approach to tax preparation does little to ensure tax planning, and with it tax savings, are actually happening. This creates a huge opportunity for financial advisors who are willing to be proactive.
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There is also no earned income requirement to convert to a Roth. As long as you have a balance in an IRA, in theory, you can keep converting to a Roth as long as you like.
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Some financial advisors may be tempted to wash their hands of taxes and leave them to the accountants. But that approach doesn’t ensure the best outcome for their clients. Great financial advisors know that, while the calendar has turned over on 2022, there is still work to be done before it is left behind. And that work is around taxes.
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