Why advisers must talk tax-free retirement strategies with clients

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Tax-free strategies are often underrepresented in retirement planning and this is a problem in the employee benefit space. Unfortunately, many of the employees who have access to Roth IRAs or designated Roth accounts in their 401(k), 403(b) or 457 savings plans are not taking advantage of them. While many financial advisers talk about risk, return and fees in building a healthy portfolio, there is very little education surrounding taxes. A well-balanced financial plan must take taxes into account, in addition to these other elements.

Discussing tax strategies with employees is crucial, especially now that tax changes are on the horizon. Many employees mistakenly believe they will be in a lower tax bracket in retirement because they will no longer have active income. However, if they’re funding their expenses with a tax-deferred retirement account, they’ll likely be in a similar or even higher tax bracket than they were during their working years. Also, while we may be in a low tax environment right now, many people are concerned about tax rates rising in the next 10 or 20 years due to national debt and budget deficits. By creating a retirement savings plan that includes a combination of tax-deferred and tax-free accounts, we can help clients better prepare themselves for a future tax landscape that is uncertain.

Why they need your help

Most employee benefit advisers don’t talk to their clients about the importance of saving money in both tax-free and tax-deferred accounts. Since most advisers are not compensated for sharing tax strategies, this topic can easily fall by the wayside. But without our guidance, employees receive financial advice on these matters from unqualified resources.

Without proper financial advice, employees often reach out to older family members for direction on financial decisions. These people have no education or experience in the financial industry, and most of them would probably admit that their knowledge is somewhat limited. Even if they are financially savvy, the financial world we live in today is constantly changing which makes it very difficult for a normal person to stay on top of everything.

It’s crucial that advisers provide the correct guidance and clear up misconceptions on the employee benefit side since this is where most retirement assets start accumulating. If employee benefit advisers aren’t talking about tax strategies, then the employees won’t receive the necessary information they need to make the best choices.

Also see:3 unexpected retirement costs that can shake up employees’ finances.”

In order to best service employees, each adviser needs to do their homework. You don’t need to be an expert in tax strategies, you just need to find the right resources that can help you guide and educate your clients. My firm uses a resource company that has specific expertise in advanced, holistic financial planning. This firm offers advisers like me access to experts in all different areas of financial planning (investments, taxes, retirement, insurance and estate). They also offer excellent marketing materials and technology that help me educate the client on why they need to make a change. By working with a firm like that, we are able to spend more time with our clients instead trying to figure everything out on our own.

There is a serious need for employee benefit advisers to fill this gap for clients. However, there is also a need for financial advisers and planners to educate people on the range of services and advice we provide. Robo-advisers allow anyone to invest in numerous portfolios. However, a robo-adviser cannot help put together a tax plan, an investment plan, a retirement plan and an estate plan. Moreover, they definitely cannot help coordinate these plans with each other. Now, more than ever, clients need the help of a holistic adviser that help can bring all of that together, and taxes are a big part of it.

Kinetic Financial & Insurance Solutions, Inc. and Kinetic Investment Management, Inc. are two separate entities. Insurance products and services are offered and sold through individually licensed and appointed agents in all appropriate jurisdictions under Kinetic Financial & Insurance Solutions, Inc. Investment Advisory Services are offered through Kinetic Investment Management, Inc., a registered investment adviser.

Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

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Retirement education Retirement readiness Retirement income Retirement planning Retirement benefits