This week in his Hidden Value column for ThinkAdvisor, Joe Elsasser, CFP®, discusses the difference between tax-aware retirement planning and "tax advice," and why advisors can, and should, talk taxes with clients. 

Many financial advisors are afraid to talk to clients about how taxes can impact a retirement strategy. They worry about violating federal regulations or industry standards that limit who can provide tax advice. However, those who refuse to address taxes in retirement entirely are doing a huge disservice to their clients.

A tax-related conversation isn't necessarily considered tax advice.  In fact, given the current market, advisors should be considering harvesting capital losses and Roth conversions. Advisors can and should give retirement advice that is tax-sensitive without crossing the line into tax advice.

"One of the central challenges in financial planning is appropriately balancing today with tomorrow. From a tax perspective, this often means leveling out effective tax rates over the lifetime of the portfolio. The lifetime of the portfolio may span longer than the client’s life or even the initial beneficiary’s life. Often the accountant’s focus is on reducing taxes in the current year. Financial advisors are uniquely able to find situations where paying more tax earlier or maybe even more taxes in total are actually more beneficial to the client," said Elsasser. 

Read the ThinkAdvisor article in its entirety.

Use Tax Clarity® to Create Tax-Efficient Retirement Strategies

Tax Clarity can help you calculate your client's effective marginal tax rate and identify dangerous points where just one additional dollar of income can push them into much higher effective marginal tax rates. Roth conversions are particularly valuable given the recent market volatility. 

  • Roth conversions can be especially advantageous because the growth comes back tax-free.
  • Doing Roth conversions can spread out the tax liability earlier in retirement.
  • Right now, there are no required minimum distributions under current rules for Roth IRAs, so it’s a good time to consider accelerating off Roth IRA and Roth conversions.

Start your 10-day free trial of Tax Clarity.

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