Tax-Aware Retirement Advice

Taxes are a critical piece in retirement planning, yet most financial advisors avoid discussing the topic entirely out of fear violating federal regulations or industry standards that limit who can provide "tax advice." Lumping anything tax-related into "tax advice," however, is a disservice to the client. Learn how to give retirement advice that is tax-sensitive without crossing the line into tax advice in our FinPlan Friday discussion with Joe.

advisors and tax

FinPlan Fridays

In our video blog series, FinPlan Fridays, Covisum® Founder and President, Joe Elsasser, CFP®, offers his take on the issues financial advisors see every day. Joe is a practicing financial planner with a unique perspective into the challenges for which Covisum provides technology solutions. Join us on the first Friday of every month for FinPlan Fridays, and get helpful tips to grow your financial planning practice. 


Hi, this is Joe Elsasser, Founder and President of Covisum, and thanks for joining us for another FinPlan Friday. Today, we're going to talk a little bit about how to give retirement advice that is tax-sensitive and generates tax alpha without crossing the line into tax advice.

In order to go there, we first have to talk a little bit about what constitutes tax advice. Tax advice is advice delivered by someone who is qualified to practice in front of the IRS. This is so important because an end-consumer who relies on tax advice is able to seek a waiver of any penalties if they followed the tax advice in good faith. So, the challenge for financial advisors is knowing that if we cross the line and the client believes that we were delivering tax advice, they may expect to be able to have a waiver of any penalties that might be associated with advice that we had provided. That relief, of course, would not be there.

So what is one of the critical steps? The critical step is in relation to the 1040, the tax form. So as a financial advisor, it makes a lot of sense for me to be building tax-efficient retirement income plans. It makes a lot of sense for me to be evaluating whether to withdraw from an IRA or a non-qualified account or which position to sell in order to have the least tax impact and be able to estimate those impacts because they're relevant to cash flow. But at the point that I tell a client, "this is the number that belongs on this box on the tax form," I've arguably crossed the line into tax advice. We want to avoid that.

The second consideration is really, how can I go about delivering a service that is tax-sensitive, tax-aware and delivers tax value to the client without being mistaken for tax advice? And I think the focus is on zooming out.

In tax prep, it's really all about a single scenario: what belongs on the 1040? So, we should try to stay away from the 1040 and instead focus on the landscape; specifically define the universe of possibilities that are available and how we chose the one or two possibilities that we ultimately recommended to the client. There are tools that are focused on those sorts of decisions and there are a variety of them out there. But the key element I would suggest in any of those tools is that they actually stay away from the 1040 and instead focus on the tax implications of the coordination of a variety of different strategies. That's what you'll see in our tools. And that's why you'll see them set up that way.

How Can Covisum Help You Navigate Taxes In Retirement?

Clients often don’t understand the relationship between ordinary and capital incomes, leading to potentially significant tax-inefficiency in their retirement strategy. With our Tax Clarity® software, you can quickly identify sub-optimal situations, and show clients how to make retirement decisions in the most tax-efficient way. Try Tax Clarity for free for 10 days.


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