Why Less Than 2% of Advisors Actually Do Retiree Tax Planning

Most retirees assume their financial advisor is helping with taxes.

And most assume their CPA and financial advisor are communicating with each other.

Unfortunately, those assumptions can create one of the biggest blind spots in retirement planning.

I see retirees every day who have a financial advisor. They have a CPA. They may have worked with both professionals for years.

Yet when an important retirement tax decision comes up, they suddenly discover that the two professionals are operating in completely different worlds. Transcript

And the retiree gets stuck in the middle.

The Roth Conversion “Ping Pong” Problem

Roth conversions are a perfect example.

Your financial advisor may determine that converting money from a traditional IRA to a Roth IRA could make sense.

But then comes the important question:

How much should you actually convert this year?

The advisor may provide a general target, but determining the exact amount often requires detailed tax calculations.

So the advisor tells you to talk to your CPA.

The CPA runs the tax numbers and sends you back to your advisor.

Then something changes.

Back to the CPA.

Then back to the advisor again.

You become the ball in a game of financial ping pong. Transcript

The problem isn’t necessarily that either professional is doing something wrong.

The problem is that nobody is truly coordinating the entire strategy.

Taxes Touch Almost Every Part of Retirement

Tax planning in retirement isn’t a separate box on your financial plan.

Taxes can affect:

• Roth conversions
• Social Security
• Investment withdrawals
• Required minimum distributions
• Health insurance and Medicare decisions
• Estate planning
• Retirement income

Virtually every major retirement decision can have a tax consequence. Transcript

Yet most financial advisors aren’t tax experts and don’t prepare tax returns.

That creates a natural limitation.

An advisor may understand retirement planning extremely well, but eventually you may hear:

“You’ll need to talk to your tax advisor about that.” Transcript

More Advisors Are Offering Tax Planning

The financial industry has recognized this problem.

New technology now allows advisors to review tax returns and identify potential tax-planning opportunities much more easily than in the past.

Some software is specifically marketed to financial advisors as a way to go from a tax “zero” to a tax “hero” very quickly. Transcript

That has helped create a major shift in the industry.

Nearly 1 in 6 advisors now claim to offer tax services, according to the figures discussed in the video.

But when you look at actual regulatory filings, less than 2% of financial advisory firms are actively engaged in the accounting business. Transcript

That’s an important distinction.

Offering some form of tax planning is not necessarily the same thing as having an experienced CPA integrated into your retirement planning team.

Your CPA Has the Opposite Problem

Now let’s look at this from the CPA’s perspective.

CPAs are highly trained tax professionals.

But much of traditional tax preparation is focused on the past.

How much income did you make last year?

What deductions did you have?

What forms need to be filed?

What do you owe by April 15?

During tax season, many CPAs are working extremely long hours simply trying to accurately prepare and file tax returns. Transcript

That doesn’t necessarily leave much time to model how a tax decision today could affect the next 20 or 30 years of retirement.

And even when a CPA identifies a good tax strategy, they may not have the retirement-planning tools needed to determine how that strategy affects Social Security, investments, estate planning and other parts of the retirement plan. Transcript

So you end up with two different worlds.

The advisor is primarily looking forward.

The CPA is primarily looking backward.

And the retiree is standing between them.

Questions Retirees Should Be Asking

If your financial advisor says they provide tax planning, don’t automatically assume that means a CPA is involved.

Ask questions.

Some of the questions I suggest include:

Who is actually doing my tax return?

Is a CPA involved in my retirement planning?

Will that CPA actually participate in my planning meetings?

Is the tax work being handled internally or outsourced to a third party?

Has my advisor ever prepared a tax return for a client?

And one of my favorites:

Who prepares my advisor’s own tax return? Transcript

Those questions can tell you quite a bit about what “tax planning” actually means inside the firm you’re working with.

Retirement Planning and Tax Planning Shouldn’t Live in Separate Worlds

As you approach retirement, the decisions become increasingly interconnected.

Your investment decisions affect your taxes.

Your taxes affect your income.

Your income can affect Medicare.

Your Roth conversion strategy can affect your RMDs years later.

That’s why I believe retirees should look for a retirement planning process where the financial planner and CPA are actually working together as one team.

The goal isn’t simply to have a CPA.

And it isn’t simply to have a financial advisor.

The goal is to make sure the people advising you are looking at the same retirement plan.

Because when your CPA and advisor aren’t communicating, somebody has to coordinate everything.

And too often, that somebody ends up being you.

Want to See What This Could Look Like for Your Retirement?

If you’re approaching retirement or recently retired and want to see what an integrated retirement and tax-planning process could look like for you and your family, take our free AIM Assessment.

It takes less than a minute and can help determine whether our retirement planning process may be a fit for your situation.

Christian Cyr, CPA, CFP®
President, Cyr Financial Wealth Advisors

Take the AIM Assessment:
https://cyrfinancial.net/aimassessment/

Cyr Financial Wealth Advisors is an SEC-registered investment adviser. This material is provided for educational purposes only and should not be considered individualized tax, legal or investment advice. Tax laws and individual circumstances vary. Consult your tax and financial professionals before implementing a Roth conversion or other tax-planning strategy.

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