How do you manage taxes during accumulation and distribution?

There is an order to how your clients should amass wealth and withdrawal funds upon retirement to increase net after-tax cash flow. It’s essential to differentiate how you approach tax management, just as you diversify an asset portfolio.

As Dave Alison, CFP®, EA, BPC, shared during our Win Business Through Tax Management Seminar Series:

“One of the biggest mistakes I see people make is not understanding the Order of Money. When we’re accumulating and building wealth, there’s an order to how we should save that money between different account types. And when we retire, there’s a certain order to how we should take distributions.”

Tax Strategies Before and After Retirement

Pre-retirement:

• Fund goals before age 59.5
• Eliminate 10% early withdrawal penalty
• Opportunity fund
• Eliminate marginal tax traps

Post-retirement:

• Early retirement (pre-55) without 72(t)/(q) complexity
• Blend out income to maximize income and minimize tax brackets
• Lower withdrawal rates because of tax-free or advantaged income
• Eliminate marginal tax brackets
• Legacy planning for surviving spouse
• RMD suppression
• Reduce taxation of Social Security benefits
• Decrease Medicare premiums
• Ease fear of government policy

Accumulation and Distribution: Phases of the Money Cycle

You know all about the order to how your clients should save their money. If not, here’s a quick refresher:

1. Accumulation

The first stage of the money cycle. This usually starts when the client is young, beginning with graduation gifts, summer job income, allowances, etc. Accumulation continues into adulthood and throughout the working years as they build their life savings. Since there is an expected lengthy time horizon before retirement, they can afford to take more risks with their capital during this stage.

2. Preservation

As the client moves toward retirement, they transition into the preservation stage. At this point, they’re financially stable and looking forward to winding down their career, effectively ending the accumulation phase on a significant portion of their income. There’s less time to make mistakes or experience major volatility because they will need funds sooner rather than later.

3. Distribution

The last phase in the money cycle. Distribution is when the client starts to withdraw from the wealth they have accumulated and preserved and starts taking an income from those savings and investments.

But did you know there is also an order to how they should withdraw their income in retirement?

Understanding the Order of Money for Early Retirement Tax Planning

Early retirement tax planning follows the same basic standard as a traditional retirement plan—minimize taxes and maximize capital.

Early retirees will have less time to amass wealth and a longer expected retirement than most. Their plan requires an accelerated scale and pace to make up for the lack of time, with a focus on tax management to maximize their retirement income and make the most out of the holistic financial plan.

Whether your clients are focused on tax planning for early retirement or a more traditional timeline, following the proper order of money for accumulation and distribution can have a major impact on the lifestyle they get to enjoy when they retire.

Accumulation and Distribution for a Tax-Efficient Retirement

The Order of Money divides your retirement income into four different categories.

The first type is tax-free income, the second is tax-favored income, the third is post-tax income, and the final type is pre-tax income.

You should consider all four categories when creating your own retirement income distribution plan.

1. Tax-Free

   • Company Match
   • Inheritance
   • Gifts

2. Tax-Favored

   • Roth
   • HSA
   • FSA
   • 529
   • Life Insurance

3. Post-Tax

   • Brokerage
   • Real Estate
   • Joint Accounts
   • Non-Qualified Plans

4. Pre-Tax

   • IRAs/401(k)
   • Qualified Plans

Recommended Order of Accumulation

1. Establish a 1-month emergency fund
2. Pay off high-interest debt
3. 401(k) up to match
4. Fund 3-month emergency fund
5. Max Health Savings Account (if applicable)
6. Max Roth IRA (or Back-Door Roth)
7. Max 401(k) or Roth 401(k) Depending on marginal bracket
8. 529 Contribution (if applicable)
9. Excess savings to permanent life insurance and taxable brokerage account

Note: HSAs are especially beneficial because they are triple tax-advantaged. The client gets an upfront deduction, they can defer as those funds grow, and if used for qualified medical expenses, they can take distributions tax-free in the future.

Order of Distributions for a Tax-Efficient Retirement

Zero-Tax Strategy

1. Social Security
2. Pre-tax retirement accounts up to the provisional income limits (tax on Social Security)
3. Roth IRA & permanent life insurance for remaining income

Low-Tax Strategy

1. Social Security Income
2. Pre-tax retirement accounts up to the 12% bracket
3. Long-term capital gains/dividends up to IRMAA limits
4. Roth IRA & Permanent life Insurance for remaining income

Help Your Clients Master Tax Management

To learn more about how C2P Enterprises can help you manage taxes for your clients. One of our business development representatives can provide you more information about the Tax Management Journey training course.

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Financial Professional Use Only
The information provided in this presentation is not intended as investment advice or legal advice. The information provided is for informational and training purposes only. The information in this presentation was accurate as of the time of the material was created. Tax laws and rulings can frequently change. Please discuss the client’s current situation with an accountant or tax advisor.

What Is Tax Management?

Most advisors are familiar with tax preparation, and some are even knowledgeable about tax planning. But one of the greatest ways to elevate the success of your clients’ financial situation is to deliver proactive tax management.

With The Tax Management Journey®, we’ve outlined seven critical checkpoints you can use to simplify the process with your clients. Within each concept, we’ve developed tools and financial advisor strategies. These help your clients understand how your firm’s proactive tax management helps them increase their odds of financial success.

After all — entities don’t tax all money the same. 

1. Understand the Order of Money

There’s an order to how clients should accumulate money and take distribution upon retirement to help increase net after-tax cash flow. We leverage the tax-efficient funnels tool to help them visualize how to save for retirement and turn retirement assets into tax-efficient income.

2. Measure Your Tax Bracket

The U.S. tax system is a dynamic, pay-as-you-go system. Many opportunities exist for proactive tax management within the brackets. We use a tax measuring cup visual aid to educate your clients on ordinary income tax brackets and capital gain tax rates. It also illustrates annual tax management opportunities.

3. Avoid Marginal Tax Traps

Tax traps lie in the code. Within this concept, we share ways to articulate the importance of proactive tax management before your client takes major withdrawals from their retirement accounts or elects to receive Social Security income.

4. Allocate Tax-Sensitive Assets

It’s not about what you make — it’s about what you get to keep. Taxes can create a major drag on investment returns. It’s never been more important to ensure you allocate your client accounts with the right type of investments. That’s true not only for diversification but also from a taxation perspective. 

We have tools that illustrate to your client that they should hold certain investments among their accounts for greater efficiency:

• Retirement accounts
• Post-tax accounts 
• Tax-advantaged accounts

5. Grasp Gifting Strategies

We arm you with tools to help your clients maximize both charitable and intra-family gifting within this tax management concept. As a result, they can minimize their income tax and their families’ future transfer tax.

6. Differentiate Pay Now vs. Pay Later

Everyone has to pay taxes, but the U.S. tax system allows flexibility on when you pay. You can defer income through retirement accounts or deferred asset sales. You can also recognize income through Roth conversions or strategically timed asset sales. 

This creates incredible opportunities to amplify your value with proactive tax management of these accounts and assets.

7. Manage Your Dynamic Bracket

Tax management is a moving bull’s-eye. Your clients’ personal circumstances change each year. Tax management is about evaluating the tax policy landscape and your clients’ unique needs. You then strategically think several moves ahead to ensure you maximize their income and minimize their taxes.

How Do Tax Management Services Differ From Tax Preparation?

The process of preparing and delivering annual tax returns guarantees you a yearly opportunity to meet potential clients.

This doesn’t just spark their interest in becoming a financial advisor services client. It also proves how valuable your wealth management services are. This allows you to charge higher planning fees and provide your clients with better service.

Learn tools and techniques to increase your profitable business lines by transforming tax clients into leads for your services. 

Even if you don’t have a tax practice, our financial advisor training program can help. It introduces opportunities to partner with an existing tax firm to borrow from its client list and increase your revenue.

About C2P’s Tax Management Training Resources

At C2P, we’ve created training resources for advisors like you to succeed:

• Confidently deliver completed tax returns to your clients. 
• Review future tax management and planning opportunities.
• Introduce the comprehensive financial planning services your firm can provide.

These resources frequently include the following:

• Read and understand tax returns.
• Deliver tax returns and review for sales opportunities.
• Identify tax opportunities.
• Use the “what-if” analysis.
• Learn to convert tax clients into financial clients.
• Identify new revenue opportunities.

The problem with tax preparation and tax returns is that you’re essentially a historian talking to clients about past events. By the time the return is complete, you don’t have time to proactively make changes that could’ve saved them real money.

Tax savings strategies become a year-round activity with tax management services. When the clock strikes midnight on December 31, most tax savings ideas for that year are gone forever.

How Do Tax Management Services Differ From Tax Planning?

Imagine you’re going to build a house. The first thing you do is hire an architect to draw up a blueprint. This is similar to tax planning.

 A client may come to your office and hire you for a retirement and tax plan. There, you can take valuable actions:

• Build their customized bucket plan.
• Share how to position their assets.
• Discuss how they should withdraw their money in the most tax-efficient way.

This plan may be valuable to that client, but many clients need help carrying out the plan you give them. 

Constantly changing tax laws and personal circumstances enter the picture. As soon as the plan is complete, it’s already on the way to becoming obsolete.

Tax Management Details

Tax management is a specific service we provide to our wealth management clients. 

Just as many of your clients can’t execute their investment plans solo, they struggle to implement their tax plan independently. They need an advisor to help them with proactive tax management.

This is like hiring a builder and maintenance team to execute the house’s blueprint. Tax planning is the architect, and tax management is the construction crew. Without the builder and maintenance team, the blueprint isn’t useful.

Implement financial advisor strategies to anticipate tax changes and differentiate yourself from other advisors and tax professionals. This allows you to charge higher planning fees and provide greater service to your clients.

As a holistic financial planner, you can work with tax professionals to look further into the future, adding value for your clients. Part of your fiduciary responsibility is also to integrate tax management into financial planning and investment management. 

This is essential if you’re a Certified Financial Planner™. Review the wealth management services your firm can provide. Outline any tax strategies, and develop strong relationships with your clients.

“A competent financial planner can evaluate multiple years of prior 1040s and supporting documents to inform present tax-planning decisions and identify planning opportunities and areas of concern for the current and future periods.” —Certified Financial Planner Board of Standards

Do you want to be more confident while engaging in tax management with your prospects and clients? Integrate profitable business lines like taxes, financials, investments and insurance into one holistic plan. You provide them with more valuable financial advisor services.

Scale Your Business With Process-Driven Tax Management

You know how important it is to diversify your client portfolios across equities, bonds, annuities, alternative investments and more. But you should also differentiate your tax plans to mitigate future IRS pitfalls. Fortunately, you don’t need a tax background to begin — you’ll become more competent and confident.

Taxes aren’t a one-time thing. You’ll deliver ongoing advice and provide solutions to tax concerns.

“In my personal opinion — and I know I share this with some of my colleagues — it’s very hard to be a holistic advisor if you’re not talking about taxes.” —Dave Alison, CFP®, EA, BPC

How Does Tax Management Benefit Your Clients?

Manage your clients’ taxes to add immeasurable value and worth to your job as a financial planner. Tax management offers your clients an array of benefits: 

• Only pay their fair share.
• Choose when to pay taxes.
• Reduce further taxation on retirement income.
• Plan flexibility.
• Lower RMDs and Medicare premiums.
• Avoid a tax hit for a surviving spouse.
• Implement legacy planning.
• Reduce policy risk.
• Coordinate their financial and tax plan cohesively.
• Make better investment decisions.
• Become more likely to achieve their goals.
• Eliminate avoidable taxes and penalties.

How Does Tax Management Help Build Profitable Business Lines?

Tax management is one of the most significant profitable business lines you can have at your firm. Clients often view taxes as their most daunting and confusing expense, especially in terms of retirement. Our financial advisor training programs help you make sense of the chaos.

You don’t need a tax background to be successful. You can hire a CPA, enrolled agent, accountant or other tax expert for your in-house team. If you’re interested in starting a tax preparation business, our proven model guides you every step of the way!

The most successful advisors are always thinking about growth! They want to increase their offerings and expand the profitable business lines they offer. You can accomplish both simultaneously by building a tax practice within your financial advisor services business.

Tax preparation allows you to get in front of them once a year. This enables you to take two steps:

• Review their taxes with them. 
• Provide an overview of how to include their tax strategy as part of a holistic financial plan.

Even if they aren’t ready for your other financial planner services right now, you’ll be there when they are.

If you aren’t interested in starting your own tax preparation firm, no worries! You can still bring your clients incredible value by offering integrated tax management alongside your financial planning process and investment management.

We can share how to take this approach. We’ll demonstrate how to partner with other CPAs or tax professionals to bring your clients this valuable service.

How Does Tax Management Help You Grow Your Practice?

Tax management sets you apart from the competition, allowing you to distinguish yourself:

• Attract more clients.
• Differentiate yourself.
• Charge higher planning fees.
• Provide a new marketing platform to use in your town. 

It helps you go above and beyond for your clients by providing additional retirement and legacy planning.

Integrate taxes into your financial advisor services. It’s one of the fastest ways to get in front of new prospects and grow your business.

Our financial advisor training program covers each step: 

• Building a tax business
• Delivering tax planning integrated with your financial planning process
• Offering tax management as part of your wealth management offering 

And it helps you in many ways:

• Become a truly holistic advisor.
• Grow your business through tax management marketing.
• Leverage tax data to create new opportunities for your clients and your business.
• Provide better advice to your clients.

How You Can Build Tax Management Into Your Financial Advisory Business

We’ve perfected a three-pronged approach to integrating tax management into your business, getting in front of prospective clients fast:

1. Start a Tax Practice — The Tax Practice Builder
2. Rent a Tax Practice — The Tax Client Conversion
3. Buy a Tax Practice — The Tax Practice Buyer

The opportunity to bring a proven tax management process to clients differentiates you from other advisors and brings value to your clients’ financial situations. That’s true whether you build a tax practice from the ground up, partner with a tax professional or acquire a tax business. 

You can partner with an existing tax firm to test it out. You’ll see whether adding taxes to your profitable business lines would work for your practice. 

This allows you to borrow from the pro’s client list until you get more tax experience within your company. It also helps you convert more prospects into wealth management clients!

The Tax Management Journey®

Attend The Tax Management Journey financial advisor training program if you’re interested in adding tax management to your service offerings.

The Tax Management Journey is a financial advisor training program. We designed it to provide you with the competency and confidence to stand out:

• Expand your business.
• Set yourself apart from competitors.
• Deliver powerful tax strategies to your clients and prospects.

The Tax Management Journey is a financial advisor training program delivering a seven-step process. It identifies and educates you on important factors:

1. Understand the order of money.
2. Measure your tax bracket.
3. Avoid marginal tax traps.
4. Allocate tax-sensitive assets.
5. Grasp gifting strategies.
6. Differentiate pay now vs. pay later.
7. Manage your dynamic bracket.

Be more confident while engaging in tax management! You can provide more valuable advice by integrating clients’ tax, financial, investment and insurance into one overall plan. 

Learn how to deliver proactive tax management to attract prospects and apply real-life comprehensive tax management solutions to existing clients.

Build Your Tax Management Practice With C2P

You have many ways to gain new clients and grow your business:

• Online seminars 
• Live events 
• Social media 
• Search engine optimization (SEO) 
• Television appearances 

And while this type of marketing certainly deserves your attention, it’s a slow process. What if you could acquire new clients almost instantly? One sure way to do so is to add profitable business lines like taxes into your existing wealth management services.

Start a tax practice to grow your current financial advisor services business. Adding a tax practice to your wealth management services generates additional revenue and adds new leads to your sales funnel. 

Clients are uncertain about the future economic landscape and the best way to take advantage of it. Their uncertainty opens the door for you to seize the opportunity that taxes provide to your growing business.

Consider incorporating a tax practice if any of these apply to you:

• You’re an entrepreneur looking to grow your business.
• You want to provide your clients with better advice.
• You aspire to become a truly holistic financial planner.
• You need to find new prospects and potential clients.
• You want to add additional rainmakers to your business.

C2P Enterprises Helps You Build Your Business — Your Way

Adding tax management to your financial advisor services portfolio can be daunting for even the most seasoned professionals. But it differentiates you as a distinctive, multi-solution financial advisor and showcases your firm’s capabilities to new potential client groups.

Book a call with us to learn more and discover how tax management supercharges your offerings!

 

ADVISOR USE ONLY

Executive Vice President of Marketing at C2P Enterprises, Matt Seitz, was recently quoted in an article by Barron’s regarding the new SEC marketing rule which went into full effect November 4^th, 2022.

Over 3/4 of compliance staff at registered investment advisor firms said the new SEC marketing rule is the hottest topic of the year.

Matt describes the collaborative process of working with Chief Compliance Officer Ryan Warner, CFP®, to identify which elements of the new SEC marketing rule to focus on, like updating the compliance training processes.

Before these new regulations, you could not utilize first-hand accounts from satisfied customers. But that has all changed! Now you can use testimonials to maximize your marketing efforts.

Barron’s quoted Matt, saying:

“We plan to incorporate testimonials and endorsements into our existing campaigns to help illustrate our value proposition and strengthen our brand. The powerful part of the new marketing rule is it allows us to let our clients and partners help tell our story. I also see third-party ratings coming in handy for recruiting new advisors and staff members to our team. People want to know they are joining a strong company with a loyal client base.”

Recently, Matt and Ryan co-hosted a seminar to share their knowledge with other advisors to prepare for the change.

Watch the replay to learn about:

• Disclosures needed for compliance
• Pros and cons of the new marketing rule
• Selecting and soliciting client recommendations
• What to consider when implementing testimonials in your marketing

ABOUT MATT SEITZ

Matt Seitz is the Executive VP of Marketing at C2P Enterprises; and CMO for JL Smith, an independent retirement planning and wealth management firm. In his role, Matt has spearheaded the digital growth of the company, reinforced branding, and implemented content marketing strategies to drive leads into the sales funnel.

Matt has over 15 years of marketing and sales experience in the professional services and financial services industries, as well as accounting, insurance, and construction. He has degrees in marketing, management, and human resources. His professional philosophy is grounded in relationship marketing—focusing on customer service and satisfaction through data-driven marketing plans with clear ROI.

Matt’s areas of expertise include strategic planning, digital marketing, lead generation, and content marketing, receiving industry recognition for content marketing, video marketing, and lead generation campaigns. He is an author and speaker on a variety of marketing and business development topics.

ABOUT RYAN WARNER

Ryan Warner, CFP®, is the Chief Compliance Officer for C2P Enterprises. He is responsible for handling supervision and compliance matters for the investment advisory business.

He has more than twenty years of industry experience. Before joining C2P Enterprises, he was a Senior Firm Compliance Consultant for MassMutual and MetLife Financial Services. Ryan also served as Agency Training Director and as a Financial Advisor with MetLife before entering his compliance role. He holds a bachelor’s degree in finance from the Carlson School of Management at the University of Minnesota.

ABOUT C2P ENTERPRISES

C2P Enterprises consists of four individual companies that share one vision: improving the lives of American families through holistic financial planning. Prosperity Capital Advisors is an SEC Registered Investment Adviser (RIA) that provides financial planning and holistic wealth management solutions to investment advisors and clients nationwide. Valor Capital Management is an SEC Registered Investment Adviser operating as a portfolio strategist and turnkey asset management program. Clarity Insurance Marketing is a best interest-focused insurance marketing organization that facilitates product screening, selection, and support for all lines of fixed insurance products. Clarity 2 Prosperity is a financial training, coaching, and IP development organization committed to simplifying financial planning for financial advisors while helping them understand best practices for integrating investment and insurance solutions in a single, holistic plan. Collectively, these organizations provide advisors the training, resources, products, and tools to successfully grow their independent advisory firm while serving in the best interest of each of their clients.

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