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STAY ON TOP  OF YOUR TAXES

What You'll Learn In Today's Episode
  • Investment management, alone, is no longer enough of a value-add to bank on. In the age of robo advisors, it’s important to branch out. Tax planning is a natural fit for some.
  • There are tax implications to nearly every aspect of any client’s financial life. This makes them vitally important. The better you understand them, the better value you can generate through your planning.
  • Don’t be intimidated: You don’t need a CPA (or the entire tax code memorized) to become an effective tax planner. More than anything, you need intellectual curiosity and a willingness to look up the answers.
  • Some people “don’t know what they don’t know.” In other words, abundant financial data has given them a false confidence. Regardless, learn all you can and then respectfully share insights with each prospect. Many will experience I-never-knew-that moments... and then become clients.

Executive Summary:

Welcome back to the Retirement Tax Services Podcast! Steven’s guest today is Andy Panko, a CFP with Tenon Financial. Andy hasn’t just dipped a toe in the tax-planning waters. Strategizing with clients is a staple of his business. Especially if you’re an advisor considering branching out, his insights are well worth hearing.

A Quantifiable Quest

In Andy Panko’s own words, “good investment management has become cheap, easy and commoditized.” As he reflects, the Internet is the best and worst thing that’s ever happened to our society.

The days of advisors holding all the information cards are over for the foreseeable future. Investment management, alone is no longer a value-add. This makes diversifying into tax planning wiser than ever.

Some people develop a culturally-introduced math “block.” Similarly, others are taught to fear taxes as an inscrutable intellectual maze.

At the same time, some firms bar advisors from anything smelling vaguely tax-related. Try to placate them by working things out with Compliance. Make sure you approach compliance as the team member they are, not an obstacle.

Andy sees things differently. To him, taxes are as intriguing as they are important. There’s a beauty to their black-and-white, quantifiable nature.

For starters, there are tax implications to nearly every aspect of any client’s financial life. Meanwhile, their lure runs deep. Those puzzle-like complications become an engrossing intellectual challenge.

Andy Panko On Tax Planning’s Value

That challenge is why Andy’s practice covers taxes and retirement. In fact, he does tax minimization and consideration for retirees and retirees to-be.

Some prospects are easier to pitch to than others. Financial information is at everyone’s fingertips today. As a result, there are people who won’t consider allowing you to touch their returns. For all that data, they are unaware of what they don’t know.

Meanwhile, others may be persuaded. Despite the abundant information, a case can be made using lesser-known quirks of investing, retiring, timing, and so on.

Steven recently heard someone at a conference observing that “tax laws are written in pencil”. Indeed, the landscape seems to change with the wind at times.

Andy Panko uses all of these things, respectfully, to make a case. As a result, many prospects have epiphanies. Next, they become clients.

He doesn’t try to foresee the future. Instead, he reviews the knowable facts. Consequently, he formulates a plan for each of their situations.

Your Action Items

  • Learn as much as you can about taxes. You don’t have to pursue a CPA license yourself. Just learn. If you don’t understand something, figure it out. In fact, look at the IRS’ information and instructions. Much of those are well written.

  • Look up Andy Panko at Tenon Financial, You can also join his group on Facebook and watch videos on his Youtube channel.

  • Get tax returns from your prospects and clients, every year. Do it because it adds value that can’t be replaced elsewhere. It’s like a financial doctor taking patients’ pulses.

  • Leave a 5-star review where you get your podcasts (please). Your feedback helps us grow. That, in turn, helps us deliver more value back to you.

Steven and Andy Panko have more on the benefits of planning tax strategies in today’s Retirement Tax Services Podcast. Please visit us at Retirementtaxservices.com, too. Feedback, ideas for future episodes, and unusual tax planning stories can be sent to advisors@rts.tax.

Thank you for listening.

Transcript

Steven Jarvis:

Welcome to the next episode of the Retirement Tax Services podcast, Professionals Edition, I’m your host, Steven Jarvis, CPA, and in this show, I teach financial advisors how to deliver massive value through tax planning. Today on the show, I’m really excited to have Andy Panko here with me, a certified financial planner and the owner and founder of Tenon Financial in New Jersey. So, Andy, welcome!

Andy Panko:

Hi, thanks for having me. I’m super excited to be here and love the show.

SJ:

Thank you. Appreciate that. I’m always excited to meet people who are not just willing, but interested in talking about taxes. I feel like there’s a growing group of us that can nerd out on this a little bit, which is actually really where this came from, as far as us getting together is that, I mean on your website and a lot of things you do, you lead with tax planning, the way you phrase it as ‘tax efficient retirement planning’. So talk a little bit about why that’s front and center for you.

Andy’s Twofold Approach To Taxes And Why Advisors Should Get More Invested In Them [01:25]

AP:

Sure. Twofold. Partly because it’s super important first and foremost, but also I find it interesting. Tax is fairly black and white, fairly quantifiable, and kind of difficult, kind of like a puzzle – that all fascinates me. So historically, a lot of advisors have focused primarily on investments, as you probably know, and many people sort of take the same opinion. Investment management has become increasingly — good investment management has become increasingly cheap, easy and commoditized to do and do well. So the real value-add isn’t really investments anymore. Not to say it’s not important, it’s one part of the picture – but it’s tax, in my opinion, that there’s tax implications to virtually every aspect of someone’s financial life and financial decisions they make; yet the vast majority of advisors will flat out say we don’t do tax planning or their firms strictly prohibit them from touching anything that looks or smells like tax-related advice. So they’ll say you got to talk to your CPA about that. Then you go to the CPA and more times than not, the CPA is just focused on doing, sort of, the compliance function, if you will – of preparing a proper tax return for the year and they kind of hind their value on, “let me get this year’s tax bill as low as possible for you, even if that’s at the expense of potentially or hopefully saving you more, down the road.” So I set out to bridge that gap and pitch my tent, as the sort of – taxes and retirement guy, who kind of does both. Not that I have to do tax returns for people, but I do careful, thoughtful tax minimizations, considerations throughout all aspects of the financial planning process, specifically for people in or near retirement. 

SJ:

Yeah, I asked quite a few advisors, I still haven’t come up with any good answers as to what an advisor does that doesn’t have a tax impact, but unfortunately you’re spot on. There are many advisors, still the majority of advisors who don’t touch it, whether it’s because they’re told not to, or that’s just, “hey, I’ve never done that before, why would I do it now?” One of the things I’d be interested to hear from you on, because you’re right – historically that’s what advisors focus on, the investment side, but that’s also what a lot of clients come in looking for, as, “hey, a financial planner is going to help me save for retirement or help me invest my money.” So how do you help explain to a client, “hey, here’s really why this is so important, here’s what this is going to look like for you.”

Andy On How To Address Tax-Related Uncertainties With Clients [03:42]

AP:

Yeah, that’s a great question, and a lot of people don’t know what they don’t know. Now, thankfully because of the internet, you know, one of the best and worst things that ever happened to us as a society, but because there’s so much available information out there, a lot of people are becoming more educated about things they don’t know or things to consider – about investing, about retirement, about taxes, about social security, about pensions, about whatever. But yes, a lot of people think an advisor is just someone who manages assets and they’ll say, “I can do that myself, you’re not going to beat the market, why should I hire you?” And for some people, the conversation ends there, and they’re just closed to ever working with someone. But for other folks, if they’re open to discussing other things, you know, the other aspects of planning financially, for life and for retirement, and then it starts to open their eyes like, “wow, there’s a lot more to it.” So things like — and none of these things can be decided in isolation – like when to start social security; if you have a pension, when to start that; what to do with your house, you pay off a mortgage, you tap home equity; maybe you have some insurance, how does that fold into things? Obviously the investments as well, especially once you get near retirement, your investment mindset, your investment processes, change from just kind of save, save, save, accumulate to now you got to start kicking money out, and that’s a very different game in and of itself. So even disregarding all those other things I just mentioned, investments themselves are a different animal in retirement than they were in your working and savings years, and people at some point typically realize that and start to think, “maybe this is a little more than I’m willing or able to do myself at this stage.” 

SJ:

I liked that description of the internet being the best worst thing that’s ever happened. The tax code is an incredibly complicated, and in addition to the literally thousands of pages of tax code, there’s millions of articles and opinions and things out there about taxes – information is not the issue, trying to get to relevant information, trying to get to a specific application is where the issue comes in and really where the value can come in for an advisor, really an advisor with their clients. So, what are some examples of things that you’re working with clients on that you found to be impactful when it comes to, uh, from a tax planning standpoint? 

Impactful Communication Tools For Tax-Planning With Clients [05:48]

AP:

Sure, and I should say that there’s so many big unknown variables about the future that neither myself nor any other advisor out there can pretend to claim that “we will save you X amount of dollars per year over the next 30 years.” Just stepping back briefly – I tell everyone, if you can tell me exactly when you’ll die, exactly how many dollars you’re going to need to spend every year on life, what the stock bond and interest rate markets are going to do, what tax legislation is going to do, you know, over the next 40 years, I will give you a rock solid plan with finite quantifiable answers, but we don’t know all that stuff. So a lot of this is sort of educated guessing, you know, it sounds bad to say that, but it’s true. Honestly, it’s kind of taking a position based on what we know now and historically how things have done, etc., and formulating a defensible view/opinion about – if you take this action, you know, there’s a strong chance that this may be the outcome, things like that. That’s kind of long-term tax planning to me. Sometimes there are more definitive things to do or dollars to be saved, but longer-term, it’s kind of like that let’s spread our bet, hedge our bets a little bit. So things I do, Roth conversions is a big one; now I almost sort of feel guilty for talking about them so much, because the more people hear about it, read about it, see videos about it – they think, “oh, I have to do Roth conversions, everyone’s talking about it.” And it’s not the case. Like, you know, it all depends on everyone’s situation and so forth, but Roth conversions, definitely just, distribution strategies in general, so good tax planning opportunities, particularly for retirees – is the years where you’ve since stopped working, so your wages go away, your income drops precipitously, you may not have much other than dividends and interest income, you know, if you haven’t yet started social security or pensions. So you can have the better part of 10 years where you’re in a really, really low income environment. So you have control — a lot more control over how your portfolio distributions are taxed, such as, let’s pull out money from your tax deferred accounts, you know, fill up those lower few tax brackets, don’t let them go to waste, then for income needs above and beyond that, then maybe we, you know, we tap some cash you have, or if you have a reverse mortgage or something…so that’s part of it. Asset location, you know, this kind of folds into the investment management umbrella, so it’s not just what you make, it’s what you keep that matters – the taxability of your investments and your gains has an impact. So which asset type turn, which account type, is part of the tax planning, if you will, you know, the higher growth things, ideally better suited to Roth, because all that growth will be tax-free at some point; whereas lower growth things, if you could control it, are better suited to be in tax deferred accounts, those are kind of the big ones typically.

SJ:

Yeah. There’s certainly a great spectrum in there, of things you can do, which is one of the things I love about tax planning is it’s not just this one thing that you do once and set aside and move on. People file taxes every year, it turns out. Most people, hopefully most of them, [Laughs] hopefully everyone’s aware that you should be filing taxes every year. And so, especially if you’re an advisor doing these different things that Andy’s talking about, I mean, you’ve just set yourself up for really unlimited recurring value to clients, that this something that’s going to come back every year, and to your point of: that’d be great, if someone could tell us how all those things are going to play out, how tax legislation is going to change, what exact amount of money they’re going to have, you know, we can’t guarantee what the outcomes going to be, but we do know that whatever plan we make today is going to change tomorrow. So again, especially this tax planning piece of it – this gives you an opportunity to come back at least every year and reevaluate and say, “hey, are we still on the right track, are there adjustments we need to make?”

AP :

That’s exactly it. That’s sort of the hard thing to articulate to clients, is they ask, “What do I get for the fee, whatever your fee is?” And it’s kind of, well, your income plan is going to change year by year, we’ve got to figure out, you know, as life happens, as tax legislation changes, as financial markets do what they do, where you pull your income from each year – when and why, could be a little different year by year. And some people are okay with that and get it and put the trust of you, other people are like, “ah, I’m not quite comfortable with that, like I want a paycheck, you know, whether it’s buy me an annuity or do whatever” – they just want the money to roll, and they don’t have to think about it or rely on someone else to do this sort of tactical year by year planning.

SJ:

Yeah, it’s really interesting trying to manage client expectations. And, you know, I liked that you talked about that, at least the way I took it was that, that’s a conversation you’re having with your clients like, “hey, as we go through this, there’s just unknowns that, you know, this is our best guess based on what we know now.” Setting those clear expectations is so important. I do really like that there are pieces of tax planning that we can quantify, even if it is an estimate, but making sure it’s really clear to a client, of when we were talking about, you know, if we’re talking about the current year and here’s how much, you know, you are going to have withheld or whatever it might be, we can get a lot more precise for one year, but then we can still look out five, ten, twenty years ahead and say, “okay, best guess right now, but here are the factors that go into this…” 

AP:

Yeah. And I’d mentioned, I like taxes because it’s black and white, it’s kind of rules-based and it is, I mean, the tax code itself is, now granted there are certain things the IRS hasn’t given clear guidance on it, but generally speaking tax code is fairly black and white; what’s not is the future assumptions and projections, you know, that’s where it is kind of an educated guess. So anyway, that’s what I meant by taxes are black and white. The code is clean, you know, the current code we’re operating under — but going forward, who knows what’s going to happen to it?

SJ :

[Laughs] I don’t know if I’d say clean, but yes. I was at a conference recently and, uh, Ed Slott made a comment about how tax laws are written in pencil, which made me laugh, kind of in an ironic sort of way, because it’s very true. Like you said, the tax rules as they’re written right now, we can go in and see, okay, here’s how they apply, but what we don’t know is if they’ll change this year or next year, five years from now. So it certainly creates complexity, it creates uncertainty, but it creates a great opportunity for advisors who are committed to it, to add value to their clients. So Andy, if we change the focus just a little bit, and I mean, at some point, even though there’s, there’s unknowns and there’s, you know, our best guesses involved, at some point you’re, you’re sitting down with a client and saying, “okay, here are the decisions we’re going to make as far as which account to pull from first or how much of a Roth conversion to do.” So when you sit down to do that, to make those decisions, what are you using to get to those dollar amounts in that specific situation – because you’ve got to recommend specific numbers at times?

Andy’s Method To Get To Decisive Moments in Tax Planning [12:15]

AP :

Right. Yeah. That’s a great one. And I’m of the camp that – let’s not try to get too in the weeds with the modeling and assumptions and predictions. So I use this system called E-Money, I’m sure most advisors I’ve heard of it, for my cash flow modeling, Monte-Carlo’s and even I use that for the sort of base engine of my tax analysis; but E-Money is not very robust, you know, as far as future taxes are the issue, you layer on some percentage point increase to the assumed effective tax rate, above and beyond that, there’s not a lot of granularity you can do. So we use that nonetheless, as kind of the, the roadmap to say, “okay, based on these reasonable assumptions, it looks like if we convert X amount over the next five years, you’re going to be better off.” So once we come up with that X amount, then it’s a matter of implementing it year by year. Year by year, it is a little easier to do tangible “how much dollar amount should we do” and that’s based on, as you know, you typically wait towards the end of the year, so you have a full picture of what your wages are, what your capital gain distributions are from mutual funds, your bank interests, your rental income, your whatever, and then figure out what we’re solving for – is the goal to fill up the 12% tax bracket, the 22% tax bracket? Is the client 63 or older, such that we need to start worrying about the Medicare premium surcharges, with regards to their income, so we also keep that in the back of the mind; the biggest monkey wrench that gets thrown in is for people who are on ACA health insurance and are eligible for premium tax credits – that completely flies in the face of maximizing conversions, because you typically want to keep your income as low as possible for that. So it all depends on what factors impact that particular client and what level of tax rate you’re comfortable with, what level of premium credit they’re willing to forgo. That’s how we solve, you know, this year’s conversion or this year’s distribution.

SJ :

Yeah. That’s such a great description of all the different pieces you have to consider. The question that comes to my mind, that I’d like to hear from advisors on, is as you and I talk about this whole list of things, we can kind of quickly go through some of these terms, because it’s things we both deal with, but I mean, a lot of that’s got to be overwhelming for a client as you sit with them. So what have you found to be helpful to kind of find that balance between – I mean, they came to you because you’re a professional, they want you to handle this for them, but they also want to be informed. You also want to be clear to them on “this is why this is valuable”, it’s not just, “hey, trust me, I’m Andy.” You know, there’s got to be some piece of education in there. So how have you found success handling that with a client? 

Educating Clients on Taxes While Adding Value as a Professional [14:33]

AP :

Yeah, I’m huge into education and a lot of advisors say this, so maybe it’s kind of cliché, but I truly feel like I’m an educator at heart. I am actually, not currently, but I have been an adjunct professor at a major university for five different semesters, I believe. So I truly enjoy that. And I have, you know, a Facebook group, a YouTube channel, where it’s all about just giving away boatloads of time and knowledge, very technical in-depth knowledge for free, I don’t even ask for emails or no lead capture out of it. So I do the same with clients, I want clients who are interested enough in this to ask questions, to hopefully have some basic level of understanding and interest, it’s okay if they don’t but I thoroughly appreciate it when people ask me – why does this matter? Explain to me how this works? Because I love talking about it, I love the sense of satisfaction and fulfillment from having explained something difficult to someone and having them be like, “oh, I get it now, that makes sense.” So I always follow that into what I do. I don’t just say “I’m Andy, trust me”, even though that sounds cool and I’d like to put that on a t-shirt. I do want people to understand what I’m doing and why. So education’s a big part of it, with people I work with.

SJ:

What has your experience been with how much kind of time and effort goes into this with the client as you’re first on-boarding someone and kind of letting them know what your process looks like, as far as kind of on an ongoing, yearly [process] as you’re coming back and reviewing things for them.

Andy’s Annual Process With Clients [15:47]

AP:

So I’m a true solo operation and that’s intentional, I want to say that way. I’ve gotten my processes fairly well, ironed out. They could be better, but I’m not a high volume shop, I’m not looking for hundreds of clients, I’m looking for 50 and I’m done. So being ultra efficient isn’t of the utmost concern to me. But nonetheless, I think my process is fairly decent. So on-boarding is, you know, initial phone call with all prospects, that’s typically an hour. I get probably 80% of what I need from them, general information wise in that call, whether or not we ended up working together or not. If we do then it’s, you know, get them uploaded and E-Money, get their tax returns, detailed expenses, social security statements, pension statements, churns policies, the typical stuff you would ask for. Then it’s synthesize that, get E-Money cleaned up with the data, make sure it’s all good, go through an initial plan with them, that meetings typically two hours. Then my, sort of, service calendar going forward is two formal meetings per year, typically May or June, you know, right after tax return time, and then November, December, right before end of the year. And that’s where we…during those meetings is where we hash out the opportunities for the year refined income projections early in the year, you know, refine the final income amounts late in the year, decide how much conversion we do, etc. That’s it on a, sort of, formal basis. But throughout the year, I’m here, I’m available. Like I had a client who owned six rental properties out of state that she…our initial plan was she’d kind of dull them out, you know, she wanted to get rid of them, we’re going to sell them off one or two per year, over the next few years to minimize the tax bite. But this was pre COVID. A developer stepped in earlier in the year and gave her a really good cash offer to take all six off her hands lock, stock and barrel. So she took it and it was a monstrous tax this year, but she doesn’t regret it. She didn’t want to be a landlord anymore. This is all behind her. She doesn’t have to worry about manipulating massaging income and dancing around IRMAA and ACA credits going forward, like it’s done. So anyway, point is that something big that came up outside of our normal semi-annual meeting schedule. So I’m kind of here when people have something that comes up. The reason why I do every six months is yeah, there are times where I’ll go six months without talking to someone, but I don’t want to go like a year without touching base. So I kind of force everyone – let’s circle up at least twice a year to touch base, you know, update our facts and figures clean up our projections. That’s it, I mean, that’s my process as far as investments, I do manage investments with discretionary management, I’m an indexer, but you know, van-guarding at heart, I do that, I rebalance every once in a quarter to, you know, get their allocations back in line. So that’s my process.

SJ :

Yeah, so specific to the tax piece of that, is that…as you have those semi-annual meetings, is that something that you have an agenda about, and you come ready to talk about? Or it just depends on their life events, like this client and rental properties, to something you intentionally make sure you’re bringing back up to them?

AP:

Yeah, it really all depends on the client. So for people where we are doing like a, you know, they’re in that sort of tax planning window, post retirement, pre social security, the income distribution plan for the year is big, and, and that’s what we focus on, you know, during both of the meetings during the year. For some other folks, where they really don’t have a lot of tax planning per se – like I do have some clients where all their money’s in traditional IRAs, Roth conversions, aren’t that compelling, plus they really don’t want to bother, you know, client says like, “yeah, I get the possible benefits, but I’m just not interested.” So anyway, so in that case, their distributions are kind of on autopilot and there’s frankly not a tremendous amount to do or discuss, there’s not a lot of planning opportunities other than, we’re delaying social security with one of the clients, so that’s kind of the plan there. So it really all depends in those meetings. There’s really not a lot to talk about. It’s kind of like, “hey, how’s life going, anything else you want to discuss?” The husband just started going back to work part-time for like 20 grand a year, just for something to do – stuff like that folds into some of our, uh, you know, planning and redoing their projections and Monte Carlos and stuff like that. 

SJ:

You mentioned that as you’re on-boarding clients, you get their tax returns – that’s something that I’m always encouraging people to do, but before I get on my soapbox about it again, what led you to having that on your list of things you request, and to you, what’s the value of taking the time to do that?

AP:

I don’t view it as an option to not request it. I don’t know. I never thought otherwise, to not ask for it, honestly. So people say it shows like a life-blood of clients’ finances and things like that. And it does, to some extent, I don’t know if it goes that far as being like, it’ll tell you everything you want to know about them, but certain things like – you can catch if they have carried over realized losses that they couldn’t eat up to one year. So that’s definitely something to be aware about that impacts what I do with their portfolio and, sort of, the tax loss or gain harvesting; knowing that they have…looking at their form 8606’s for example, to see that they have basis in their IRAs, that’s very important to know for when we take distributions that build that into their plan. What else? You can see that they have rental income, self-employment, get a little bit of a flavor for the investment holdings…although frankly, you get more of that by seeing their account statements. So I don’t rely too much on like schedule D in that case. Those are some of the things that come to top of mind. 

SJ:

Yeah. I think those are all really great. I mean, like we talked about in the beginning of the show, you know, with this kind of traditional mindset of –advisors are investment managers, and there’s clients who expect that as well. So it’s not even like the clients are going to come in and intentionally withhold information from you, but if you have a client coming in expecting, “hey, I’m working with a financial planner that they’re going to manage my investments.” That’s what they’re going to be thinking about as you’re asking them about their financial life, and so seeing their tax return can really prompt some of those things that they just might not have thought to bring up, like, “oh, I do have a rental property, why would you want to know about that?” You know, and so it’s a great way to prompt those conversations and make sure that you’re taking a really holistic approach to this, because you’ve mentioned a lot of things today that are impacted by so much more than just what your investment portfolio looks like. Premium tax credit is huge, I mean, every, every additional dollar of income impacts how much of that credit you’re getting and that can come as…it might still be the right decision to accelerate income or make some of these choices but having that clarity, kind of, getting rid of some of those surprises at tax time really adds a ton of value.

AP:

Yeah. And I’m sure you’ve seen this firsthand as well, but the last year and a half have been really difficult in terms of tax planning and doing this stuff because there’s so many one-off things thrown into the mix, like ACA credits how the phase out level was changed or actually removed, now it’s kind of this glide path. Plus this wrinkle that if you’ve got unemployment in 2021, you know, that there’s no income, you know, a drastically different ballgame for ACA credits, if you have unemployment. So all this stuff, everything we know and everything we’ve been planning for, it was kind of…or a lot of it at least was thrown out the window with the last year and a half – a lot of legislation to digest. Hopefully now the pandemic seems to be kind of slowly winding down, although it’s not leaving without a fight. Hopefully these one-off changes kind of stop happening after the American Rescue Plan Act, let’s hope that was the last one.

SJ:

Yeah. That probably was on your list of things, you’re not going to guarantee, huh? 

AP:

[Laughs] No, no, I mean, even now, there’s a…securing a stronger retirement act that is slated and appears to have bipartisan support and traction so far, that’s going to change RMD dates or ages, if that passes. [It could] Potentially make steps in simple IRAs eligible for Roth, which is really cool, you know, I’m happy about that and some other things. So that again will be like another fairly large overhaul to tax planning and strategy and things we need to consider going forward, if that legislation passes.

SJ:

Yeah, there are a couple of different pieces. That’s certainly the one that’s got the most traction right now, but I think there are three different proposed legislations out there that have tax impacts. Anytime there are proposed tax changes coming in, it’s this balancing act of trying to stay informed, trying to be aware of what the potential impacts might be. So we can act quickly if changes do become final, but also not getting too hung up on trying to guess what might happen or starting to get into these speculative transactions to hoping that the outcome of the tax legislation might be one way or another.

AP:

Right. It’s a difficult balance, you don’t want to preemptively act, but you don’t want to get caught flat-footed when something passes. So it’s hard as you know, right? How much action do you advocate taking, or at least keep on people’s radars to possibly take? And when do you do that…like, what if it’s something where the change was retroactive, as has been batted around about capital gains tax…I think it was? That wouldn’t be cool, right? If that passes and all of a sudden it does revert back to any, any, you know, transactions from April of this year onward, or now under this new rule, like there’s nothing we can do about that at that point, but should we have gotten in front of it and recommended people take action based on speculative views if legislation may pass? No, I don’t think that’s the right answer either. It’s a tough spot.

SJ:

Yeah. Yeah. It really is. And I think staying informed is really important because these are things your clients are going to be hearing about in the news. Even though the Congress is the one who makes the rules, listening to what they have to say before they’re finalized is usually not very helpful. Listening to the media is even less helpful. Being informed that you know what kind of questions your clients are going to ask…I’ve heard a lot of questions being asked of or comments being made up, “oh well, it’s not going to be retroactive, that can’t possibly be legal.” It’s like, well, actually it is, Congress can make retroactive tax law changes, they’ve done it before, Supreme Court has actually ruled on it before. So I can’t tell you what the odds are of that happening or not, I’m not going to speculate on political motives behind any of that, but it certainly can happen. And so if I’ve got someone like, “I’m not worried about it, it’s not legal.” [Laughs]

SJ:

Andy, I love all your insights you’ve been sharing. I appreciate you taking the time to do that. One of the things we like to do on this show is make sure that we’re taking information and turning it into action, because knowledge on its own doesn’t do us a whole lot of good. So as you think about either what you currently do with your clients or things that have gotten you to the point where you feel this confident working on tax planning, what are action items you’d recommend to advisors listening to this, to up their game, when it comes to tax planning with their clients?

Andy’s Actionable Advice [25:23]

AP:

This is kind of a fuzzy action item but learn as much as you can about taxes. You don’t have to go so far as pursuing the CPA or IRS ruled agent designation, but just learn, right? Start with picking through people’s tax returns, if you don’t understand something in there, figure it out. The IRS actually has lots of really good, generally well-written information and instructions to these forums and kind of summaries about things. The information is there – it’s on you to go find it, to go digest it and go understand it. So educate yourself on taxes. And then eventually the picture starts to come together…you’ll realize things start to make sense and the big picture starts to form itself in your head. That’s when you can do tax planning – when you can sort of visualize how action A is going to manifest itself down the road, by understanding how tax returns work, how tax legislation works, that’s when you can add value here. Not a super succinct answer, sorry about that, but that’s kind of my view. It’s just – up your tax game, you know, read, learn as much as you can about taxes.

SJ:

Yeah, I appreciate that. That constant education piece of it is so important. It’s not about memorizing the tax code, especially if you focus on a particular group of clients – it’s about learning those opportunities that are specific to your niche so that you can get real deep on those items. Andy, you included it in there and I already mentioned it, but one of the action items we always throw out is get those tax returns and review them. It’s such a great way to learn, not just about that specific client, but in general, how these things work, how decision A is going to impact the outcome B, thinking about it that way. Yeah, that’s great. That’s something that, you know, to get good at tax planning, it’s about establishing a foundation and then continually building; no matter how smart you are, your tax knowledge gets real stagnant, real fast.

AP:

Exactly. Yeah. 

SJ:

And, if you want to learn more about the things you’re doing Andy…you mentioned that you have a Facebook group and a YouTube channel, I mean, how can people learn more about what you have going on?

AP:

Sure. So my, my day job is retirement, investment management, planning, at a firm called Tenon Financial that’s T-E-N-O-N financial dot com. Facebook group…if you go to Facebook and search ‘taxes in retirement’ – you’ll find a group there. That’s just kind of me answering questions, doing weekly live videos, sharing knowledge about tax efficient retirement planning. And finally YouTube channel is Retirement Planning Demystified, still largely tax focused, but there are lots of videos on there about other just sort of general retirement themed, financial planning things. 

SJ:

Awesome. Well, Andy, I really appreciate you coming on today and taking the time to do this has been great.

AP:

Likewise, thanks for having me and keep up the great work with the show.

SJ:

Thanks. All right! Thanks everyone for listening and good luck out there and remember to tip your server, not the IRS!

The information on this site is for education only and should not be considered tax advice. Retirement Tax Services is not affiliated with Shilanski & Associates, Jarvis Financial Services or any other financial services firms.

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