Read The Transcript Below:

Steven (00:54):

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 today I have a longtime collaborator, someone that I’ve done business alongside helping clients with taxes, Brent Gargano. Brent, welcome to the show.

Brent (01:11):

Great to be here. I think you and I have spent enough time behind the scenes talking, so it’s good to do it in front of the scene,s, so to speak.

Steven (01:20):

Yeah, Brent, I’m really excited that you were willing to join the show. I love hearing different perspectives from different advisors. We obviously have the chance to work together on several mutual clients, so I get to see firsthand your focus on helping people with the tax piece of their puzzle because, obviously, that’s only one piece, but it’s certainly an impactful piece. Even just thinking of some of the clients we work on together, you’ve done a great job of helping them see that this is something that we can proactively think about and proactively do something about. Before I get too far ahead of myself, why don’t you give us just a little bit of background. Let’s talk through your origin story as a financial advisor, and then one of the things I’m really interested to have you share is the progression of how you’ve thought about taxes and how you’ve learned about taxes throughout your career.

Brent (02:04):

Yeah, I’d be happy to share. I’ll give a little bit of the say longer but somewhat abbreviated story. So I grew up in the Carolinas and Charlotte Banking town. My dad was a first union banker, and so I grew up around finance and when I was a teenager, my dad got relocated. We moved up to Cincinnati, he started working for Fifth Third Bank, and soon after my parents ended up getting divorced, I watched my mom who was a homemaker, I watched her basically split away from my dad. That was a pretty tough time for her. That was 2006. If you follow markets, you know that 2008 was not a great time. So I’m the oldest and I had firsthand experience watching my mom go through this divorce, becoming a single mom, and then have the stock market sink and she was invested and I remember she hired an investment advisor and he kind of preached the benefits of long-term investing, right? We need to stay invested. I think the first tax loss harvesting lesson that I ever had to get back to taxes was actually in 2008 with my single mom taking tax losses to try to book out into the future. That was a big moment in my early life that really did a lot to define the course. There was, I don’t want to call it a distraction, but as I got into my senior year of high school actually won a science fair, so I ended up going to college for science and I realized midway through that I was really passionate about investing, so I was investing my own money and reflecting back on these lessons. And so,-, I mapped out changing degree, whatever I wanted to do, ended up graduating with chemistry degree and I went to Fidelity. So Fidelity Investments, I’m sure everybody listening to this is familiar with who they are. My role, you start out in just a service team, it’s get in and reset password, do whatever people are calling in about. But the great thing about a company like Fidelity is you have so much opportunity for upward mobility. There’s just so much going on there that depending on what you like or what you’re interested in, you can find a path. And so pretty quickly I ended up on the guidance pathway. So we were doing, I basically worked behind your corporate benefits. So if you worked at one of these large companies that had a benefits plan through Fidelity and you called in and you said, Hey, how should I be coordinating these things or how should I be handling my contributions? My job was to broaden that conversation out, integrate your holistic financial plan, and again, getting back to taxes because you were behind the retirement benefits. There was so much of that that had to do with being thoughtful about managing things like pre-tax versus Roth contributions, HSAs, all these ticky tack rules about accessing your retirement money and rule of 55 and 72 T. So that was just a great spot to cut my teeth and I spent a little over almost seven years at Fidelity and went to UBS after that, worked in wealth management at UBS on a team there and about two years ago I launched my own practice where I was able to get back really taking a turn and the tax planning, a lot of the things honestly that I learned back at Fidelity incorporated with some of the things that you guys do at RTS, and I guess I’ll make an honorable mention to companies like Holistiplan. It’s really cool what you can do today in the tax world as a financial planner, which has been in my career; that’s really been a place that I’ve seen newer advisors that are challenging the industry through tax planning has been really, I think good for the consumer and good for the CPAs hopefully too.

Steven (06:00):

Yeah, that collaborative environment certainly is a better outcome for the client. Brent, you’re absolutely right. Everybody listen to this has heard of Fidelity. Fidelity manages trillions of dollars of assets, but I think for most advisors, they really only think of Fidelity as it’s a custodian. They manage a bunch of money and then they kind of move on. Very few people have had that practical experience you’ve had of seeing how this works behind the scenes. And so I’d be curious if there’s anything in particular that stands out to you of things that you learned from that hands-on experiences you’ve moved into more of an independent financial planning role that stick with you that you feel like helped set you up for success.

Brent (06:34):

Well, it’s interesting because tax planning, it’s such a great start to the conversation. I mean, I can tell you that a lot of the new clients that I onboard, a lot of times it comes from a lot of times some of the meat and potatoes that you can talk about early on is some of the low hanging fruit in terms of how to be smart with your taxes and save dollars and you can equate that to savings. You can look and say:,- Hey, here’s the donor-advised contribution that you wouldn’t have done otherwise and here’s the tax savings due to that or whatever it may be. And I think this is true for any young planner, when you get started in the industry, you really get excited about all the nuts and bolts, right? How do I save the client a couple thousand dollars of taxes in this? And I don’t want to minimize that stuff. That stuff is absolutely important. But I think as you mature in your career as an advisor, you see the importance of solving the balance sheet problem and incorporating the taxes and fixing the logic side of the plan, but that only does so much to help somebody improve maybe their relationship with their money, the way that they look at money, the behaviors that they attribute that lead to wealth or not. And so I think as I’ve grown in the industry, that’s been the tax planning is always, and this happens in new relationships, you start off with logic, right? Build me a plan, show me how I can improve what I’m doing. And if you’re doing it right, I think what you end up with is a conversation that’s more about what’s really important to you and what’s this money go towards. So I hope that answers the questions you asked.

Steven (08:11):

Yeah, no, that’s helpful insight because like I said, I think a lot of people don’t ever have that opportunity. And one of the things that I’ve noticed with clients when it comes to taxes, especially you mentioned working with new clients, there are a lot of those kind of just blocking and tackling things that oftentimes clients don’t even realize they can have an impact. They give you that low hanging fruit from day one as you start working with a client, if you’re working with people who are still in their earning years, things that might seem simple to you like adjusting withholdings or making sure they actually are maxing out their HSA, these things that seem simple and that the total tax savings in one given year might not be this five or six figure number that we can call a home run and be done, but those things make a difference on the client’s experience. It builds trust that you actually can have an impact on their outcome. And then over the long term, those things do add up. Even if we just take this simple and multiply it by 10 of say, Hey, if we do this together for the next 10 years, here’s what the impact,, will be. So I do love what tax planning can do from that standpoint. And then to me, the other piece of it is that I never have to explain to a client that taxes are painful or that taxes are a part of their life. I don’t have to convince anyone that they have to pay income. And so we’re already starting from a place of just about anyone would love help in this area. And so if you can help them not just have the ideas but execute them because as you saw on the client service side of being at Fidelity, these things don’t always go perfectly right the first time and your well-intentioned tax planning as an advisor can end up creating more headaches than benefit if you’re not able to help a client navigate all the way through to reporting correctly to the IRS.

Brent (09:48):

Back to your question you asked before about how does that translate to being independent when you’re at Fidelity, one of the challenging things is that you deliver all of this great advice and then two years from now you may not see the impact of that. So I have a great story that you might appreciate. I had a guy that called in, and we ended up talking through basis isolation strategy. So he had an IRA that had co-mingled pre and post-tax money. And what we ended up doing was we took the pre-tax portion, we pushed it into his qualified plan, we isolated the post-tax money in the IRA and then we ended up doing a big Roth conversion. And I mean I think the Roth conversion was a hundred and some thousand dollars, $160,000 or something like that. I mean, it wasn’t a small conversion. And again, normally,,,a these relationships, you weren’t working with somebody two years later, but it was almost a year later, tax time, I get this call and lo and behold, it’s that guy. He says, I’m sitting here on TurboTax and what the heck did we do earlier in the year? I’m sitting there on the other phone like, oh, what is going on? Because it’s telling him he owes $60,000, $70,000 of taxes and he’s totally freaked. So long story short, it wa,ss testament to the making sure that this is filed and with the clients that I do these kinds of things with now, it’s so great to have partners like RTS and other CPAs where we can spot-check that and get that done, but basically what had happened was there was a button that wasn’t checked right in TurboTax and created a lot of tax. Turns out when you do a Roth conversion and you don’t list it as non-taxable, it’s a lot of taxes. So that’s very different running your own thing. You see those things all the way through every time.

Steven (11:33):

And for people who haven’t been on the logistical side of this, either working for a custodian, working for a processor like that or actually doing a tax return, that can sound like you’re making oversimplification that it’s, oh, there was just a box to check, but that’s literally the case in the tax prep software. It can be as simple as checking this one box or putting a number in this one field. That’s why we created a whole masterclass on backdoor Roth contributions because especially when you get into that pro rata rule, when you have both pre-tax and after-tax money, it can get convoluted really quickly. When we bring on new clients at RTS, which we’re gearing up to do for this coming filing season, that’s one of the first things we look at. Because I know when I’m working with taxpayers who have been with an advisor who have taken a little bit more proactive in an approach to their saving strategies that I need to be on the lookout for that form 8606 that shows whether we’re making Roth conversions, whether we’re making backdoor Roth contributions, and at least once a year, usually several times a year as we bring on new clients, we’re going back and amending prior year tax returns because people have overpaid their taxes because it’s great that you were able to help this person get it right the first time around, but a lot of people just don’t know who to call or what information to look for, and they just kind of hope for the best. And yeah, hope it’s not the greatest strategy when it comes to tax planning.

Commercial (12:50):

Hey there, advisors, this is Jamie Shilanski. You might recognize my voice from my World’s to Conquer episode over at The Perfect RIA podcast. I get a lot of questions from my financial advisors about what type of continuing education should they attend, how should they dedicate themselves to professional development this year and what conferences are really worth going to. Well, I’m going to let you in on a little secret. The one conference I will not miss is the Retirement Tax Services Summit this September. It is going to be held in Phoenix, Arizona, and this is the most sensational conference I go to and not because of all the fanfare involved in being in Phoenix, but instead about collaborating with like-minded individuals. And these are people that have legal expert tax planning advice. These are people that do qualified accounts, big retirements. They are creating five and 10-year tax plans. They have guest speakers that talk about hyper-efficiency and the things that you need to know to keep you on the cutting edge of being a financial advisor. It is certainly where I will be. You don’t want to miss this conference, so make sure that you jump over to retirementtaxservices.com and register to attend this summit. I know it’s where I’ll be this September.

Brent (13:59):

And what’s so tricky is that so much of this gets filed but doesn’t ever get picked up on. You have a better answer to this, but how many times do you go through a tax return that’s been done incorrectly for years? The IRS doesn’t have the resources to necessarily knock on your door and say, Hey, here’s what you need to correct in your tax return. And I’ve seen issues the other side of that where people have been doing backdoor Roth- incorrectly for years and there’s really a bunch of money they should have paid tax on, they haven’t been paying tax on. And now you get into how do you calculate what the basis is and how do you amend all these returns? And I’ve actually seen that situation and we’re talking 15 years of contributions and I’m certainly happy I have somebody like you to call on when I have those kinds of questions.

Steven (14:41):

It is interesting because in my experience, I mean you mentioned the IRS doesn’t have the resources, but I’ve also never seen a situation where the IRS comes back and has spent the time to something like that in the client’s favor. Now, just in the last year, I’ve had to help a client respond to the IRS because the IRS just didn’t understand their own rules. This client had correctly done a backdoor Roth contribution. We went back and triple checked everything they had reported every step of the way correctly. The IRS still came back and said, no, this looks like a taxable Roth conversion. Here’s the taxes you owe. And so we basically had to swear off to the side before I started responding to the IRS because it doesn’t do you any good to demean them, but it just basically had to politely explain to them how their own rules work so that this could get done correctly. But the client was so grateful that someone was on their team to help them navigate this. And this is also a client that works with one of our RTS Premiere members, and so their advisor is helping shepherd the whole relationship as well. But that tag team approach can make a real difference.

Brent (15:41):

I think getting a letter from the IRS that says you owe a bunch of taxes is for a lot of people, it’s a really scary thing, right? Because super scary, especially because there’s all these, we as advisors pump up all these really great backdoor Rothlow- is an easy low-hanging fruit. I mean, it’s something I’d spend a lot of time talking about with my clients and it is a fairly simple thing, but it is so easy to screw it up. Getting a letter like that or having it checking the box for $6,000 is taxable. It is a really easy mistake to make and I think having somebody that can, Hey, you got that letter from the IRS, is this actually something you need to think about? And then, hey, here’s how we’re going to respond to it. There’s a lot of value in that’s actually needed.

Steven (16:26):

Brent let’s change gears here a little bit because I mean you described some of your own background with where you started and where you’ve ended up, but you’ve also recently been teaching financial planning students and I know that you do a case study with them, and I would just love to hear maybe how you ended up in that position and then what your takeaways from working with these students on financial planning was.

Brent (16:46):

Yeah, so this past spring semester, I taught the CFP capstone class at the University of Cincinnati. So it’s kind of neat that these days as opposed to when I was coming up, if you were in college and you wanted to go into personal finance, you just got a finance degree or in my case, a chemistry degree. And even if you got a finance degree, how much of it was really personal finance? So what’s so neat now is the industry’s changed to where there’s a lot of programs for these schools where you can, with your college degree get prepped for the CFP. And so my class is essentially the practical applications class of that. So I basically get to design exercises and talk about different pockets from tax planning, retirement planning, estate planning, insurance planning, et cetera. And I mean, I’d never taught before, so I showed up and I had to design a lesson for, and I don’t know how much they know, how much they don’t know. This semester was really a kind of trial and error journey. We went for, what was it, through April, and I have some really great relationships with some of the students and it’s been a lot of fun.

Steven (17:56):

What surprised you as you’re going through these case studies with them of things that maybe you misjudged how well that they would adapt to? Because as we’ve been talking about here, there’s the practical and logistical side of things. We haven’t really spent a lot of time talking about the emotional or client experience side of it. I tell people all the time that you need to make good life decisions and then worry about the tax impacts. So what’s that for students coming through? Are they just completely laser-,focused on the math or are they going down this path because they’re really aware of that relational side?

Brent (18:28):

So yeah, it’s kind of back to that I had never taught before, so I just showed up and tried to figure it out. So day one, so I reached out to the textbook provider, the university said, Hey, here’s the people that make the textbook, give them a call. So I called the guy that runs the textbook and I get the instructor materials and I look them through and I’m looking through the PowerPoints and I’m not going to dog on it, but it was like I didn’t feel like I would want to take the class. I mean it was just so dry. So I am like, okay, I don’t really know what to do with this textbook. So I went into class and I did use their first presentation on here’s how the CFP process. The second thing, I planned two halves of the class. It was like a three, four hour class and second half I brought a case study in and the case study was completely made up, but it was a couple in their fifties and they were super stressed about money. They had done a ton of savings. So I think they had, thinking back, I think they had something like $5 million and they spent like $80,000 a year. I think the case study said they think they spend $80,000 a year, but they don’t track it. And so I handed out the case study in the second half of class and it also said in the case they’re stressed about sending their kids to college and she wants to retire to spend time with her parents, but she’s not sure if they can. And I mean there were all these indications in the study that they was just really stressful about money. And I go around, I partnered ’em in groups and I start going around to the different groups and just asking, what do you guys think? And I got a lot of different answers. Some of ’em related to tax, .Hey, they should do a 5-29 for college or whatever it is. But the funniest one that I got was I got total, they need to create a budget. It says in the plan that they think they spend $80,000 but they aren’t sure. So let’s double check that. So kind of back to what you were saying about logic versus emotion, they had a lot of answers. The estate plan needs to be redone. The five 29s need to be implemented properly, the budget needs to be reviewed, the 401k contributions need to be maxed out. All of that stuff was really good, but forest for the trees, they kind of miss the fact that this client could retire tomorrow and pretty much spend two or three x what they think they spend, which, so it was eye opening for me. I ended up teaching, I think that class we ended up teaching the 4% rule. That was where my first lesson, the first day after that ended up being like, let’s talk about the 4% rule. I think that shows again what I said at the beginning, which is when y,ou get started, you’re just so eager to try to add the value. And it’s not like you don’t want to solve the problems, but sometimes you have to zoom out and think, how do I serve this family best as an advisor? And if they’re really stressed about money and there’s all this anxiety, maybe the first thing that you should do is like, yeah, we’ll get to optimizing some of this stuff, but let’s talk about you’re on track. I think I ran the financial the next class. I came in and built that scenario in the financial plan and showed ’em, I think the client was going to die at an 8% rate of return with like $60 million or something, some ridiculous number. And my intent with that was to hopefully open their eyes to the EQ side of how you help somebody with their money. So I hope that’s helpful.

Steven (21:55):

Yeah, that’s really interesting perspective to hear because you’re absolutely right there. There’s more and more financial planning programs that are popping up all over the country. More universities are offering this. There’s going to be more and more financial planners who have this academic foundation because prior to this, I don’t know the percentages. It would be interesting to know what percent of the industry are career changers, because right now I know more advisors who follow more of your path. If I picked something else I was interested in and then came over to financial planning: – one, I’ll just give a shameless plug to people who have ever thought about being involved at the university level teaching students. For me personally, as I came through college, all of my favorite professors, all the ones that had the biggest impact were ones who had practical experience to share. That makes such a huge difference on the learning process. And I’m with you. This isn’t a knock on the people making the textbooks, but there is a difference between real world application and what you’re going to read in a textbook. So I certainly commend you for being willing to put the time and effort into that. Yes, adjunct teaching positions typically are paid, but in my experience, this is not going to revolutionize your life by being compensated as a professor. This is something that you’re doing because ultimately you probably enjoy it and it’s a great way to give back to the industry and help the next generation coming up.

Brent (23:06):

I got some messages this week from some of my students that they passed their CFP exam. Some of ’em were getting jobs just earlier today. I set a meeting for next week with one of my students to go have lunch and I’ll get to hear what did the CFP actually ask you? They keep all of that stuff pretty under wraps, and it’s so much fun to watch as they figure it out because I think in the industry, if you care to, if you invest yourself into the industry your first 10 years, there’s a bit of a grind to it. And watching them wake up to their potential is pretty cool.

Steven (23:42):

And then anybody who’s working with financial advisors always love to throw this reminder of the more real world application we can give people, the more hands-on experience, the more tax returns they can actually review. There’s a local university here in Spokane, just launched their masters of financial planning last year and have been really open to incorporating our 37 point checklist masterclass so that people are looking at actual tax returns. We’re trying to make a big push to help as many people get that hands-on experience as possible that makes such a difference on client outcomes. So Brent, really appreciate you taking the time to be willing to come and share all this.

Brent (24:18):

Yeah, this was great. Thanks for inviting me. It’s nice to get a little bit of extra time to talk with you and share some of it, and I hope that some of the listeners were able to get something of value from that. Yeah.

Steven (24:29):

Brent, for people listening, if they’re interested in getting connected with you or following it up, what’s the best way that people can reach you?

Brent (24:34):

I’m most active on LinkedIn of all the different social media outlets I do; my website is www.infinitewealthplanning.com. And then one of my colleagues and I, Ben Jones, we actually recently started our own podcast, which is the Money Alchemist. And so we just have fun. I’ve always been able to talk a lot. So podcast seems like a good way to harness that. So we have fun and hopefully have some interesting things to talk through. So just trying to have fun out there and do what I like and happy to interact through any of those channels.

Steven (25:07):

Well, Brent, I certainly appreciate that. And of course it’s been great being able to work alongside you supporting clients together. And for this coming 2024 tax season, we likely will have a few new spots available. So if you’d like to join the ranks of RTS, Premiere members like Brent and work alongside us doing tax work with your clients, go to www.retirementtaxservices.com. You can learn more there. We’d love to get to know the clients you serve and see if there’s a good fit there. So Brent, again, thanks for being here. And to everyone, listen in. Until next time, good luck out there. And remember to tip your server, not the IRS.