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End-Of-Year Contribution And Distribution Planning For Tax-Favored Accounts

November 28, 2018 07:37 am 0 Comments CATEGORY: Retirement Planning

End-Of-Year Planning For Tax-Favored Accounts

Of the many ways that financial advisors try to provide demonstrable value-added services for their clients, one of the most effective is making the most efficient use possible of tax-advantaged savings accounts, for the hard-dollar tax savings it can create. And while it often takes consistent planning through the year to make the most of those accounts, the end of the year provides the opportunity to make a number of last-minute changes, not only in order optimize contributions and distributions, but potentially to avoid any unnecessary and preventable costs as well.

For those with the means to do so, the first, most obvious first step is to make sure that they’ve contributed as much as they can to any available qualified retirement plans through their employer(s), and even consider establishing (or changing) a separate employer retirement plan for any side businesses that the individual may own in order to take advantage of the (non-coordinated) employer limits for defined contribution plans, which in 2018, stands at up to $55,000 per non-related business (plus catch-up contributions!).

Meanwhile, those 70 1/2 or over have the opportunity to manage their tax exposure by making (up to) $100,000 in Qualified Charitable Contributions (QCDs) from pre-tax funds in their IRA, which counts towards their Required Minimum Distribution obligations as well (thus allowing them to minimize both their taxable income and their Adjusted Gross Income). Especially since QCDs have become even more valuable following the passage of the Tax Cuts and Jobs Act… as with the steep increase in the standard deduction, most taxpayers won’t itemize deductions in the future, and therefore taking RMDs and then donating to charities won’t provide any offsetting deduction on their tax return in the future (but donating from an IRA via a QCD is still a perfect pre-tax donation!).

Continuing in that same post-Tax-Cuts-and-Jobs-Act-landscape vein, year-end Roth conversions are now even more valuable from a planning perspective. Because, even though the overwhelming majority of taxpayers will have lower tax bills in 2018 than in 2017, the most impactful cuts for individuals are scheduled to expire in 2025, which means that they have a relatively limited window in which they can make Roth conversions at a lower rate than would otherwise be possible in the future. Yet going forward, taxpayers may increasingly need to wait until the end of the year to decide exactly how much to convert, as TCJA also eliminated Roth recharacterizations (making the Roth conversion itself a one-time irrevocable decision).

And, although much of the focus at the end of the year is on optimizing savings, advisors should also pay attention to any tax-favored funds individuals may have in a healthcare flexible savings account (FSA) that should be spent before the end of the year, given their inherent “use-it-or-lose-it” provision. And while some employers may give employees the option to carry over up to $500 on a year-to-year basis, or utilize a 2 1/2 month grace period the following year, the fact is that money inside an FSA needs to be spent… preferably in a way that doesn’t involve negative outcomes for the individual’s well-being.

Other planning options advisors have at their disposal for end-of-year tax planning include rolling over employer retirement plans to an IRA in anticipation of purchasing Qualified Longevity Annuity Contracts in 2019, and (when appropriate) utilizing Achieving a Better Life Experience (“ABLE” or 529A) accounts, which are accounts that allow for tax-deferred growth and distribution of funds used for ongoing disability expenses for those who were disabled prior to age 26.

But, ultimately, the key point is to recognize that year-end planning around tax-advantaged accounts is just another way that advisors can provide great service for their clients… with real tangible hard-dollar savings. And while some of these planning issues may be relatively straightforward, the fact is that optimizing the use of tax-advantaged accounts often requires a nuanced look and properly navigating what are sometimes complex rules and provisions.

#FASuccess Ep 100: Scaling A Financial Life Management Firm By Starting With Client Intentions Instead Of Goals with Joe Duran

November 27, 2018 07:03 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 100th episode of Financial Advisor Success Podcast!

This week's guest is Joe Duran. Joe is the founder and CEO of United Capital, a national independent RIA that oversees nearly $25 billion of assets under management. It's one of the largest independent wealth management firms in the country.

What's unique about Joe, though, is that he doesn't view his own advisory firm as being in the wealth management business but instead in the financial life management or FinLife business instead, where, as Joe puts it, the primary focus is to help clients live richly, not die richly.

In this episode, we talk in depth about United Capital's financial life management offering, why the firm starts by talking to clients not about their goals but about their values and their intentions instead. The unique tools that United Capital developed specifically to facilitate the values and priorities conversations with clients, and especially couples.

How United Capital standardized the value-add of their financial planning process even while allowing their advisors to choose from multiple financial planning software platforms. And why Joe believes it's not wise to force every client to go through a comprehensive financial plan up front even for firms that are otherwise very financial-planning-centric.

We also talked about the evolution of United Capital itself, why the secret to scaling an advisory business is moving beyond what Joe calls a cult of personality business centered around the founder/owner to a cult of company business, where both clients and talented employees want to work for the company itself. How United Capital began to charge standalone financial planning fees to reflect their financial planning value, but ultimately shifted back to charging AUM fees instead.

And why asking two simple questions, "Will this help us serve more people?" and, "How would we beat United Capital if we were making a competitor to ourselves?" has guided United Capital's evolution from being an RIA aggregator to a single advisory firm with a unified client experience to increasingly becoming an advisor technology platform company instead.

And be certain to listen to the end as Joe shares the advice he wishes he could go back and tell his younger self. That in the end, you have to keep focusing on the process of serving clients and not the results. Because you can't control the results, only your inputs. Even a steady focus on the right inputs has allowed United Capital to grow an advisory firm with more than $200 million of revenue in under 15 years. And so with that introduction, I hope you enjoyed this episode of the "Financial Advisor Success" podcast with Joe Duran.

Nerd’s Eye View 2018 Reader Survey – Your Input Is Requested!

November 26, 2018 07:03 am 0 Comments CATEGORY: Nerd's Eye View

Every year, we make new reinvestments back into Kitces.com and the Nerd’s Eye View blog to make it an ever-more-valuable resource for the financial advisor community, and especially all of you, our readers. Which we do first and foremost by asking you, every year, what you want to make this website even better for you!

Over the years, your reader feedback has shaped everything, from the visual design of the blog (from its original dense small font!) the comment system we use, to the expansion of our Members section to offer CFP and IMCA/IWI CE credits, and now CPE credits for accountants as well for Nerd's Eye View blog posts, the launch of the Financial Advisor Success podcast, and more, allowing us to be recognized in 2017 by Erdos & Morgan as the #1 digital media brand amongst financial advisors for influence, objectivity, credibility, and outright usefulness to an advisor’s daily work!

But I know there’s still more we can do. Which is why, every year, we conduct a feedback survey for all of you who read this blog, to get your thoughts and feedback about everything we currently offer, your perspective on some new ideas we're considering, and take in whatever other input you're willing to share (good or bad!) about what we could do to make this a more valuable site (and a better user experience) for you.

So regardless of what kind of reader you are: an advisor, an individual consumer who reads this blog for your own benefit, a related professional that works with financial advisors, or you're associated with a vendor who serves advisors... I hope you'll participate in this year's survey. It's only 12 questions, should take no more than a few minutes, and will remain open until the end of next week.

Thanks in advance for taking a few minutes to click through on the "Read More" link below to access our reader survey, and share your feedback! 🙂

Weekend Reading for Financial Planners (Nov 24-25)

November 23, 2018 02:01 pm 0 Comments CATEGORY: Weekend Reading

Enjoy the current installment of "weekend reading for financial planners" – this week's edition kicks off with the latest round of public hearings in New Jersey regarding its coming 2019 proposal to issue a state-level fiduciary rule, as fiduciary advocates suggest that it may be necessary given the SEC's non-fiduciary "Regulation Best Interest" proposal, while the product distribution industry objects on the grounds that it will create an untenable regulatory burden between state and existing Federal regulations.

Also in the news this week was an indication from Congresswoman Maxine Waters, who will soon take over the powerful House Financial Services Committee (which oversees the SEC itself) as the Democrats take control of the House, and has already proposed changing the existing "Capital Markets, Securities, and Investment" subcommittee to instead become the "Investor Protection, Entrepreneurship, and Capital Markets" subcommittee with a particular focus on fiduciary and annuity issues (setting up for a new conflict over the SEC's proposed Regulation Best Interest rule in 2019?). And industry commentator Bob Veres shares his (very concerning) first take on the new OneFPA Network initiative, raising the question of whether FPA National's growth problem is really a result of "dysfunctional" chapters or because National hasn't figured out how to manage its own business model woes in the face of declining revenues from Journal advertisers and conference sponsors.

From there, we have a number of articles on advisor marketing and referrals, including: how to actually handle the conversation with a prospect you've been referred to in order to ensure they actually set a meeting to learn more about your services; how introverts can succeed in business development by creating and sticking to a clear and consistent process; how to stop using "filler words" (like Um, Uh, and Like) to sound more professional; why some advisors adopt a "by referrals only" growth strategy, the potential problems with doing so, and how to do it successfully (for those who really want to); and why it's important to remember that even prospects who don't turn into clients still might in the future (so be certain to be cordially helpful to all prospects you interact with!).

We wrap up with three interesting articles, all around the theme of personal change and improvement: the first looks at how despite a historical view that human traits are fixed (i.e., you're either "born with it," or you're not), in reality the plasticity of our brains means we can and do learn new skills and abilities and can even change our personalities (which means it's less about having the right traits or not, and more about how to cultivate them in yourself); the second is an interesting look at how adopting a more "analogy" processes around managing your tasks for the day can actually help you be more mindful (and ultimately more productive); and the last provides a powerful reminder that, while our brains can rewire themselves to break old habits and build new ones, it still requires a concerted and willful effort to do so... although the good news is that, because our brains can be re-wired into new habits, the change you're trying to accomplish does eventually get easier to maintain!

Enjoy the "light" reading!

End-Of-Year Medicare Planning Opportunities During The Open Enrollment Period

November 21, 2018 07:05 am 0 Comments CATEGORY: Insurance

Comparing Original Medicare to Medicare Advantage

The final weeks of the year are some of the busiest for financial advisors as they help their clients not only plan for the upcoming year but wrap up their planning for the current year before it ends. Often, that work is heavily geared towards end-of-year tax planning strategies, such as partial Roth conversions, tax loss (or gains) harvesting, and now deduction bunching under the Tax Cuts and Jobs Act. But the end of the year also offers advisors the opportunity to help clients over 65 potentially save money (or preserve access to key doctors) during the Medicare Open Enrollment Period, which runs each year from October 15 through December 7, by making changes to their coverage (which then take effect on January 1) that generally can’t happen during the other 44 weeks of the year.

The first key adjustment opportunity – and important annual review process – is to assess whether any changes need to be made to a Medicare enrollee’s Part D prescription drug plan, as providers do change formularies (the list of available favorably-priced drugs) from year to year, and failure to monitor the situation can lead to a spike in medical costs if key drugs are suddenly no longer covered.

For those who are over age 65 and don’t have a Part D prescription drug plan, the next option during the annual Open Enrollment Period is to add one. The caveat, however, is that, for individuals that did not sign up for Part D during their initial enrollment period (which is a six-month window spanning the three months prior to and after their 65th birthday) they will almost certainly have to pay an ongoing “late enrollment penalty” in addition to their regular premiums, unless they have “creditable coverage” from another prescription drug plan in retirement. Though for those who already face a late enrollment penalty, waiting further will just further increase the penalty from here!

In some cases, though, the key Medicare change opportunity is not just to switch Part D prescription drug plans, but to change the entire Medicare plan itself – from original Medicare to a Medicare Advantage (Part C) plan, or vice versa. Medicare Advantage plans are offered through various private insurance companies (rather than through the Federal Government) and are often lower cost than traditional Medicare (with often an even wider range of benefits, including not only Part B and Part D coverage but sometimes even dental and vision coverage as well). However, Medicare Advantage plans encourage (or really, require) individuals to utilize providers with whom the carriers have negotiated concessions and discounts (i.e., in the Advantage plan’s “network”)… which means it’s necessary to monitor the plans each year to ensure that the desired doctors are available, or otherwise switch plans to another that includes the desired doctors. And those who relocate may wish to switch altogether into (or out from) a Medicare Advantage plan, as the quality of network (and therefore popularity of the plans) varies tremendously from one geographic region to another.

Ultimately, though, the key point is simply to recognize that, while the last couple of months of the year are especially hectic, there are several opportunities for planners to add real value for their clients. And for older clients, it goes beyond just end-of-year tax planning, but also helping them perform an annual “check-up” on their Medicare coverage, which can end up saving them not only time and money, but can ensure that they continue to see the doctors they want to see (and take the prescription drugs they want/need to take) in the first place!

#FASuccess Ep 099: Finding Better Alignment Of Values And Belief Systems By Focusing On A Religious Niche with Rob West

November 20, 2018 07:09 am 0 Comments CATEGORY: Financial Advisor Success Podcast

Welcome back to the 99th episode of the Financial Advisor Success podcast!

This week's guest is Rob West. Rob is the president of Kingdom Advisors, a membership organization that supports financial advisors who want to serve Christians as their niche market segment.

What's unique about Kingdom Advisors, though, is that they've formed not only a community of 2,600 financial advisors from all the different industry channels all serving the niche segment of Christian clients, but they've also developed a training program and supporting CKA designation, short for Certified Kingdom Advisor, to be, as they put it, the gold standard for delivering biblically wise financial advice.

In this episode, we talk about what it really means to serve Christians as a niche segment. How you can even have a niche in a target market that's technically 67% of all Americans, according to the Pew Research Religious Landscape Study, the way that Kingdom Advisors integrates their faith and nearly 2,300 passages from the Bible about money and possessions into their financial planning conversations with clients, and why despite the traditional view that politics and religion should be forbidden subjects to discuss with clients, that the advisors with the CKA designation have actually been able to find success specifically because holding out as a Christian financial advisor helps to connect with clients who share similar values and belief systems.

We also talk about the evolution and growth of Kingdom Advisors itself as the industry has transitioned from its generalist roots to be increasingly focused on niches and specialization. How Kingdom Advisors as an organization focuses on four core pillars of advocacy for Christian financial advisors, that includes a radio show to more than 1,500 Christian radio stations to attract Christian consumers to advisors with the CKA designation, training with both the CKA designation itself and monthly virtual educational programs, community with more than 200 study groups and a 1,500-attendee annual conference, in an effort to become the recognized organization of distinction when it comes to biblically wise financial planning.

And be certain to listen to the end, where Rob reconciles the biblical concepts of stewardship and the industry's current debates about the fiduciary duty, and why in the long run Kingdom's focus is really simply on helping advisors discover how their work can be aligned with their own purpose and significance.