Read The Transcript Below:

Steven (00:49):

Hello everyone, and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals Edition. I’m your host, Steven Jarvis CPA, and with me on the show today, I have Randy Dippel, who is a financial advisor doing great stuff around tax planning. I’m really excited to have him on the show to talk about how this stuff works in practice and how we can impact clients. So Randy, welcome to the show.

 

Randy (01:13):

Hey, thanks Steven.

 

Steven (01:13):

Yeah I’m excited to have you here. I mean, part of what led to you coming on the show is a conversation we had where you were sharing some examples of some things you’ve been able to do specifically for clients to help them not get killed on taxes to, I mean, just to put it real succinctly, to have an intentional approach to let’s try to keep as much money as we can. So, Randy, if we can, let’s start with that specific example that prompted this, and then we’ll kind of work backwards of kind of how your thought process around taxes has evolved over time.

 

Randy (01:42):

Sure. Well, you know, the very basic ask we’ve been making for clients now for a year or two has been can we get a copy of your tax returns to kind of look and see kind of what’s going on under the hood and is there a way that we can help you plan for some of this? And I had a client who had recently retired and he was an insurance executive and done pretty well for himself and made a good income and then went to basically no income. He had a small pension, but over the course of the prompt time between, he filed his last tax return as a W2 employee and his retirement tax return, we kind of looked at it and said, Hey, you know what, you have these two small IRAs for you and your wife on a combined basis.

 

(02:20):

I think it was about $32,000 all in. He had a small pension that he was taking on that was maybe another 18 or so thousand. And we said, geez, you know, this might be a really optimal time for you to think about taking some capital gains. And he said, well, maybe we should look more at Roth conversions. I said, well, we can look more at doing some more, but ultimately, let’s kind of run some numbers here and see what comes out. And so we were able actually to realize an additional $65,000 of long-term capital gains. I think his all in income ended up being about 128,000 when it was all said and down with dividends and distributions and whatnot. But he ended up paying only $4,700 in taxes, and he was floored. And the best part I think in this whole process was, I approached his CPA, who I had actually referred him to five, six years ago, and asked them if it’d be okay if we kind of shared these results and, you know, kind of kicked the tires and make sure that they thought, you know, what we were doing made sense.

 

(03:17):

And they were like, yeah, this is fantastic. Congratulations, great job. You know, good job planner. And so he was ecstatic. I was ecstatic. And, you know, now I’ve kind of got a great little story to share with others, clients and prospects about why we want your tax returns. It’s not just because we want to, you know, look inside and see how much you actually make, but at the end of the day, it’s really about what else can you keep? So I’m very excited to do this and just very happy that I’ve had a very, you know happy retired client.

 

Steven (03:46):

Yeah, I love how you described, there’s a couple of things I wanna draw out of that. I mean, what you ended on is really most important, right? That we’re adding value to the client. The one who benefits from all this. But I like that you highlighted in there that now this gives you a story that you were involved in firsthand to share with all of your other clients and prospects of here’s why we request tax returns. And for listeners who don’t have that story for yourselves yet that’s why we share things on this podcast. You use stories, I share, use stories that Randy shares. You wanna be genuine with this. So, hey, I was listening to a podcast specifically for financial advisors working on tax planning, and here’s an example of the kinds of things that can be identified.

 

(04:27):

There’s, I mean, that gives validity to why you’re requesting text returns from clients. And Randy, I love that example because I mean, there’s nothing, I don’t mean to discount what you did there, but there’s nothing overly complicated there, right? I mean, this is having an intentional process. No, right? You didn’t set up any accounts in the Cayman Islands. There’s no like four shenanigans going on. Like, I mean, all, you asked for a tax return, you had an intentional process for looking through it, and you said, wait, we’ve got a couple of years where we’re gonna have very low income. And you understood what that meant for capital gains harvesting in this case to be able to say, let’s intentionally recognize some income. So yeah, that just blows me away. The number there. I know it’s totally possible, but I love hearing these real examples of over a hundred thousand dollars of income, less than $5,000 of taxes. That’s amazing.

 

Randy (05:17):

Yeah, it was really shocking. So I mean, I knew it was gonna be pretty low, but I, when I saw that, I was like, wow, we’re all feeling good. So, and I’m very, very excited.

 

Steven (05:26):

That’s always a really positive outcome to have. So Randy, I mean, we love celebrating the wins, but talk about how, like what your kind of progression was to get to a point where you felt confident asking for those tax returns and could step back and say, yes, I’m gonna be able to deliver massive value to a client once I have that return.

 

Randy (05:45):

And I think that really the whole thought process started around, you know, being the holistic advisor and going beyond the investment manager, beyond the financial plan and looking for other ways in other areas to, you know, kind of round out our service offering to help clients with arguably one of the biggest expenses they’ll have in retirement, which is taxes. And so, you know, everybody says, oh, I’ve got, you know, a million dollars in my 401k million dollar IRA. Well, you do, but you don’t, right? Because you’re gonna owe a chunk of that to the IRS. And so how do we account for that? And, you know, how do we think about when and how you want to take that income? What are some strategies you might put together to help some of your clients, you know, be able to take a little bit from here and a little bit from there and get the income that they need to take care of their annual spending without having to, you know, take these massive amounts of money out of these tax deferred accounts.

 

(06:41):

And so, and I’m sure plenty of advisors out there are doing the same type of work, but you know, from the standpoint of, you know, modeling some of these smaller Roth conversions and showing that the long-term effect on wealth is really impactful by doing those versus doing massive Roth conversions all at once and educating the client on why you would do that. You know, I have a couple of clients when we talk to them about this idea, let me see your tax returns, and we can go through and model some things for you. Like, you know what, we don’t think that’s right and we don’t wanna do that because, you know, we’re all about saving for retirement. We’re gonna put more and more and more into retirement. And I said, you know, the, the problem with that is at some point you’re gonna have so much money that you’re gonna feel really good about it, but then you’re gonna have these massive distributions as you get deeper and deeper into retirement and it’s not gonna feel so good anymore. And so let’s kind of take a look and see about what we’re doing and what are other things we could be putting money into just than the good old 401k.

 

Steven (07:41):

Yeah. You mentioned there that the education piece, and that’s so critical when we’re working with clients because all these planning topics that we talk about here on the podcast that you’ll find online, it turns out that your clients can find those same things, but a lot of times they’re getting stuck on the headlines or they don’t know how to sort through to the ones that are meaningful because as much as we’re fans of Roth, I’m with you, they getting have an intentional strategy for converting to Roth can be very powerful. You can also find articles online that tell you that Roth is always a bad idea. I mean, you can find anything you want on the internet. And so taking that time for the education side with clients is very impactful. Earlier today I was on a call with a taxpayer, and not the first time, just in the last week, I’ve had a conversation that starts this way, the taxpayer says, my friend was telling me, and then, they’ll proceed to relay whatever it is.

 

(08:33):

Their friend most recently told ’em, this happened to be about donor advice funds, but your clients are getting information about these things. And so if you are not taking the time to intentionally and proactively say, here’s why this is important here, here’s how this applies to your situation. And Randy, I think you were speaking to this of, of what this means for you long term, that this isn’t just an elevator pitch of, Hey, everyone should convert to Roth and here’s why it’s for you in your specific situation. Here’s what this could mean if we were to execute this strategy together.

 

Randy (09:04):

Yeah, that’s right. And you know, I had a client the other day that was talking about, you know, hey, well I wanna send you my annual contribution to my contributory IRA. And I said, well wait a minute. I said, I know you’ve had this account for a while and we’ve talked about it as a byproduct of like, what is this line item on the tax return? And so we went through the process of going through all the different retirement accounts and this kind of bubbled up this idea of, oh, I’ve got this also this small contributory IRA that I just keep putting money into every year. And I said, well, just to be clear on this, I don’t see anything in your tax return here with regard to your form 8606, and, you know, do you do that?

 

(09:46):

And he said, well, I don’t know what you’re talking about. And I said, well, you need to set that basis with the IRS cuz otherwise they’re not gonna know, they’re gonna think it’s all pre-tax money. And he says, well, we’ve got our checks. It’s proof that they’re after tax money cuz it came from our checking account. I said, I don’t think the IRS cares, but you should talk to your accountant about that. And, sure enough, the account was like yeah, you should have been giving us that information because we didn’t know. So the, you know, little things like that is where you’re gonna pick up lots and lots of value add to clients that you’re gonna make them happy, they’re gonna feel better about their money decisions.

 

(10:25):

And you might think you know everything, but until you really gotta peel back all the layers of the onion to find out where’s all this money going? And so some of the strategies that you help us think about through Retirement Tax Services, know it’s really impactful. It really helps us kind of, you know, get reinvigorated you know, beyond an asset allocation and asset management and, you know, estate planning. So I mean, I look at it as we get more and more competitive and more and more technology is allowing us to do more things with our time to position ourselves from a valuation or value standpoint. This type of service is how you’re gonna separate yourself from the rest of the pack. And I think you’re gonna be able to position yourself really as a go-to advisor when you have these, you know, kind of full set of skills. Not that you have to do it all yourself but just to be in a position to realize what’s gonna move the needle for the client one way or another. And how to come up with strategies to help them act and make smart money choices.

 

Commercial (11:28):

If a client walked through your door right now and asked to see their 10 year tax plan, what would you do? How would you answer that question? What would you show them? What actions have you taken as a financial advisor to ensure you’re delivering massive tax value to every single one of your financial planning clients without being a CPA? If you are like the hundreds of financial advisors that reach out to us from across the country, you know, you need to do a better job for your clients when it comes to tax planning. And that is why leading financial advisors across the country will be going to Las Vegas, Nevada, September 27th through the 29th to learn directly from Retirement Tax Services, how they can improve their tax planning for financial planning clients go to retirementtaxservices.com and register to attend this incredible tax planning session September 27th through the 29th in Las Vegas, Nevada.

 

Steven (12:22):

Well, Randy certainly appreciate that you’re a member of the RTS community and that’s certainly part of our goal is to help advisors, like, you know, what are those things that we can do with clients? How do we communicate those? You know, it might have gone quickly for some of our listeners, but it stood out to me that you said in there that the client basically the thought process was, oh, well I was writing a checkout of my checking account so that, oh, it has to be after tax dollars. Everyone’s gonna know it’s after tax dollars. And when you say that out loud, like I can totally see where the client’s coming from like there’s a certain amount of logic there. It’s completely wrong, but there’s a certain amount of logic there. I can see where it’s coming from. But that’s how so much of the tax code is there, there’s no logic or reason to it. It’s just here’s this arbitrary set of rules that happens to be about 80,000 pages long. And if you don’t have somebody who can help you navigate them, you can wind yourself in a lot of trouble. Or in this situation, you can wind up paying taxes on the same dollars twice, which has gotta be the worst way to tip the IRS.

 

Randy (13:25):

Exactly right. Exactly.

 

Steven (13:27):

Randy, as I talk to advisors about getting more involved in tax planning or even just starting with, hey, let’s request tax returns from every client every year. One of the hesitations, one of the pushbacks I’ll get is, well, you know, the story you told about the one client is great, but what about all the other clients? What about the clients that you don’t have some exciting thing to do with them each year? Talk about what your process looks like to make sure that all of your clients feel taken care of, even if you’re not getting their tax bill down to $5,000 in a specific year.

 

Randy (13:56):

Exactly. I think it’s just a couple of things there, Steven. So first one is it’s just this is part of our service, we’re gonna review it. Not all clients have sent their returns in. So we’re asking, and a lot of people, not surprisingly, they’re still very nervous about letting their social security number outside. And we’ve talked to ’em about, Hey, you can redact those numbers on your tax returns or let us come in and copy and we can, you know, we can write out and ink over all the important numbers and details, but at least we’ve got the raw data that we can analyze for you. And if nothing else, just to give you a clear snapshot and maybe help you think more clearly about, geez, you know I forget, I don’t know if it’s Ed slide, but it’s one of those uber professionals in our space that talks about when they look at these tax returns, the first thing they see is the amount of taxes paid.

 

(14:48):

And they go, wow, you’re really patriotic. Look at how much you’re paying in taxes. Thanks for helping us all out. So yeah, so that’s what I really want clients to think about it in terms of, well, I, you know, you might be able to say, oh yeah, I make a hundred, 200, 300,000 in income. Well, how much do you pay in taxes? I think most people go, I don’t know. And wouldn’t that be kind of a good kind of fun fact to have at your disposal so that you can think about, all right, well geez, is there a way to pay less? Why am I not looking after those things? Why are my other advisors not talking to me about this kind of stuff? So, you know, I had a conversation just the other day at the prospect asking the exact same thing, like, you know, he’s at Chase and I used to work at JP Morgan, so I know kind of what, what goes on there.

 

(15:32):

And they’re fine. But he said, yeah, well, you know, we have our meetings and we talk about the portfolio and we talk about family and we talk about the plans and you know, things are kind of looking good for retirement and all that good stuff. I said, but has he ever asked anything about your tax returns other than who does them? No. And do you give them copies? No. I’m like, well, wouldn’t you like to know a little bit more about that? Maybe? I guess so, yeah, I think you need to educate your clients a little bit more beyond the balance sheet. You need to be able to sit down and say like, you know, make you understand like risk management is gonna include like how much you pay in taxes there. There’s a risk of you running out of money if you pay too much in taxes. So how do we help think about this when we go through our retirement spending plans and help you figure out ways to stay in those lower brackets as much as possible? So for me, it’s really about helping clients kind of realize that hey, income is the outcome. What is the outcome of all these financial buckets and all this financial engineering and fancy accumulation strategies that you’ve done for 30 years? How do we take this out thoughtfully and cost effectively?

 

Steven (16:36):

Yeah, it’s such a great way to think through that,  it’s a piece of the puzzle. That’s the way I describe it as I work with advisors, I mean, obviously we’re doing hands on tax preparation and tax planning and collaboration with advisors. But I tell people, both advisors and taxpayers all the time, I’m the tax guy. Taxes are just one piece of the puzzle. The reason I like collaborating with advisors, cuz then I know that someone is looking at the whole picture. Cuz most of the time, the vast majority of the time, we don’t make decisions for tax purposes. We have our goals, we have our plans, and we try to do them in the most tax efficient way possible because we want to make sure that we’re doing what we can to sand the rough edges off of that very patriotic contribution that we have to make.

 

(17:18):

Anytime I’m looking at a tax return with a new client, line 24 is the first place I go to to say, Hey, this is the amount of your hard-earned money the IRS kept last year. Because to your point, a lot of people get really focused on did how much income did I have or did I have to make a payment or get a refund at tax time? And they totally missed, here’s how much of your money the IRS is holding onto. And so there’s some great opportunities for education that builds context for us. So, that at over time, as we do tax plan together, the clients can see why this is such an important topic. One of the ways I’ve started wording this as I’m talking to clients and prospects is this idea of small hinges swing big doors that when it comes to tax plan, just like we talked about with your example at the top of the episode of that this wasn’t some crazy elaborate scheme to save money. This is consistent intentional actions over time. It’s not about hitting home runs, it’s about consistently hitting base hits.

 

Randy (18:17):

Yep. I a hundred percent agree with that. I think that’s right on.

 

Steven (18:20):

So Randy, can you speak a little more to how tax plan has changed for you over time? I mean, when did you first start asking for tax returns?

 

Randy (18:29):

Yeah, I think, you know, in mass is kind of a part of the service offering. It’s really only been a couple of years. Every now and then it’d be like, well, you know, I’ve got this issue or I’ve got these things, or wow, I got killed on my taxes. And I’d say, you know, all right, well send me a copy and let’s see why. And you know, one of the other things that comes out of this quite honestly more often than not is you might, maybe you’re not the only advisor. Maybe you’re managing someone who’s got, you’ve got a nice portfolio with them, but maybe they’ve got a lot of money with somebody else and that advisor, they’re indifferent or blind and they’ve never even thought about asking the question, you know, do you have a capital gains budget?

 

(19:07):

And the answer, most of the clients go, I have no idea. And they think, well, maybe, I don’t know, five, $10,000 at most. And you know, there were a couple other in this one client’s situation, you know, they had $250,000 of capital gains income on top of all their other ordinary income in 2021 because of lots of fund distributions. And then this one manager who’s a kind of a stock picker and did really well from, but on an after tax basis, it wasn’t so pretty. And, so to that end, it’s kind of like, well, if one hand’s not talking to the other, how does it all work for you? If you don’t know, your investment manager might be doing really well for you, but if you end up paying a ton of taxes, that kind of defeats the whole point of taking on that risk.

 

(19:57):

And so, should we revisit all of this? Or, should we have a conversation with your accountant and the other portfolio manager to talk about, Hey, let’s try to keep it under 50,000 this year, or whatever that number is, right? Because you don’t wanna pay any more taxes than you have to. So I think that for me, it became kind of an ongoing conversation and the ability to kinda look through and see where is all the money coming from that was also a really good tool that I kind of picked up through looking through these tax returns is like, yeah, we can look at these different schedules and where all the accounts, you know, you told me you have accounts here, here and here. What’s this other account over there? We should really be accounting for all of these things and, providing value around all of this. So that’s really how it became part of the process. And, now I just see it as it’s an inseparable piece of the value add proposition.

 

Steven (20:51):

Yeah, I definitely agree with you that it should be an inseparable piece. I really struggle to see how effective planning can happen if the taxes aren’t being considered. Because, every money decision, every money movement has a tax implication and somebody on the client’s team needs to be thinking about what that tax impact is. That’s quite often the way I’ll talk to prospects, to taxpayers about it is cuz you have a lot of people who want to do their own taxes and that’s great in some situations, but there’s gotta be somebody on your team who’s paying attention to these things, who has a plan for how this is gonna turn out. I like that you talked about having a conversation with a client around a capital gains budget. I’m not sure I heard it referred to quite that way before, but to me it speaks to this idea that taxes don’t just have to happen to us by default, which is what most people, which most people assume that, hey, there’s nothing I can do about my taxes, so I’ll just let ’em happen each year and we’ll just hope for the best.

 

(21:48):

But really if we can have some of these proactive, intentional conversations to say, okay, well what would we like to have happen? What should we plan ahead for? Not that we can control it. My crystal ball isn’t working any better than anyone else is, but we can certainly start to make a difference, even if it’s a small difference over time, we can definitely make a difference if we’re having those conversations early and often.

 

Randy (22:09):

No, I a hundred percent agree and I think it’s, you know, again, when you look through the lens of, you know, at the margin, if you all of a sudden trigger your total gains and you pop above the two 50 income level, and I’ve got the knit to deal with and you know, now that nice little lower capital gains rate is now not so nice and low anymore, right? So, where can we kind of put a yard stick in here and say, Hey, you know, this is the line we don’t wanna cross, we’ll take gains up to here and then we’re gonna stop, and if we have some losses to offset, then we can take some more games. But, for this calendar year, let’s kind of try to keep it in line here. And, I think that the clients appreciate that they’re kinda like, oh wow, you know, this is beyond just like remembering when my birthday is and sending me a birthday card. That’s nice, but wow, you just, you know, you figured out how to save me an extra five, 10% of taxes. That’s pretty good.

 

Steven (22:59):

Yeah. I think most clients will take the tax savings over a birthday card just about any year.

 

Randy (23:04):

Yeah.

 

Steven (23:05):

Randy, I always like to make sure that the information we share is valuable so that we can give people actions they can take on what we’re doing. So really what I’d love for you to speak to is we’ll take this in two pieces. An action you’d recommend that advisors take related to things they can do to serve their clients around tax planning as well as an action that advisors can take to enhance their own knowledge or skills around tax planning.

 

Randy (23:30):

Wow. Okay. So the first question is regarding what actions can advisors take with clients to help them? I think you can really kind of look through the various schedules when you get your tax returns and, you know, identify, you know, where are these sources of income coming through? You might say, Hey, we didn’t take any capital gains last year at all. We’re good. But, oh, we forgot we did have all these, you know, $14,000 of capital gains distributions from these inefficient funds that we have in the portfolio. Wow. How do we thoughtfully think about that? Should we be looking to rebalance our portfolios in the future with ETFs that might be a little bit more tax friendly and maybe that’s a good approach. So reviewing, you know, not just the basis points and kind of the best class of mutual fund available, but also kind of like look at the distribution, looking at those dividends that are thrown off and are they qualified or not?

 

(24:25):

Are they, you know, are those capital gains distributions are they gonna be qualified or not? So I think that’s an action advisors can take right away to help, you know, kind of unlock some value there as far as an action to enhance your own education, I think it’s just, you know, like anything else, you have to budget some time maybe outside of the office if you have to get your head clear and kind of put down one, two or three areas that you think you can help. Go through a couple of client situations, review the situations and see if these things are happening to all your clients. Or is it just a one-off for this client? You know, are we seeing that hey, we’ve got some unrealized appreciation that’s available to work out through their 401K or some other type of deferred compensation plan that they’re gonna be coming into in the next few years. Educate yourself on like, when those distributions happen, what will be the likely outcome of those distributions? Are they gonna really get kicked up into a much higher bracket? And how much more pain is that gonna cause the client? And if you can put out these little workflows, I think you’ll really make yourself a much better advisor.

 

Steven (25:40):

A hundred percent agree with that. Those are great recommendations, Randy, I really appreciate that. I definitely like that you specifically said it, it’s not just about doing more to get educated. You’ve gotta carve out time for this potentially even time outside of the office. I’ll selfishly plug that if you’re looking for time outside of the office the RTS Tax Planning Summit in September in Las Vegas is going to be a great venue for that. Go to retirementtaxservices.com and check it out. We’re really excited about the lineup of speakers, about the number of advisors we already have attending. It’s gonna be a phenomenal event for a lot of different reasons. So we’ll look forward to seeing so many advisors there. And then Randy, you really kicked off the episode talking about getting tax returns from your clients, that’s how this situation came up, the trail to help this client in such an impactful way. And so that’s actually item my tag on to basically all these episodes of you have to be getting every tax return every single year, otherwise you’re not playing with real data and we’ve gotta have the real data.

 

Randy (26:38):

Agree a hundred percent.

 

Steven (26:39):

Well, Randy, thank you so much for coming on the show today. Really appreciate your time and sharing your experience with us.

 

Randy (26:44):

Yeah, thank you for having me. It’s been a pleasure.

 

Steven (26:47):

And to everyone listening, thanks for being here and until next time, good luck out there. And remember to tip your server, not the IRS.