Financial Planner questions to me

[BHoffman]

One of my clients is working with a financial planner who called me on 04/11 to ask whether he was able to participate in both a SEP and an IRA, contribution limits and other questions regarding retirement account planning with his business and his employees. The planner wanted me to calculate the amount and determine the eligibility. The planner stated that the the CPA "always advises on these matters". I've never had any planner ask me this before and must admit that these are not things I know off the top of my head.

I have clients who have SEPs and I tell them how much they can contribute but I'm not involved in a lot of the nuts and bolts of setting up their retirement plans, especially 401ks with employee participation.

I'm wondering if I'm out of touch?

Do many of you advise your clients' financial planners on selecting and setting up plans and participation rules and amount limits, etc?

[JoshinNC]

Well, for me

I'm the planner and the accountant, so it's not an issue.

If a client were using a planner other than me I would provide that info and bill the client accordingly. The planner isn't allowed to give tax advice and doesn't have the knowledge to make those calculations, generally.

[Roberts]

I agree with Josh. Passing the CFP license includes next to nothing in tax planning or tax preparation. If they are a broker or insurance agent they'd have nothing.

Tell the planner you will be charging the client with a reference to the planners services.

[Gary2]

I'm not sure if you were also asking for the answer to the planner's question, but in general if you put money into a SEP, that's treated as being covered by a retirement plan at work, so the usual rules for IRA contributions will apply (just like having the retirement plan box checked on a W-2).

This means, for example, that if someone has a choice between making a spousal IRA contribution of $5K or a SEP contribution of only $2K (due to limited Sch. C income), they may be better off skipping the SEP and using the traditional IRA.

[Lion]

Oh gosh, I might've given someone the wrong advice. Client nets under $30,000 on her Sch C. Told her to get her $6,000 Roth in by 15 April. She's on extensions, so we'll prepare her return later and compute her SEP contribution. So, if she had contributed to her SEP, she could NOT have done the Roth?

The Roth is actually a larger contribution, so at least this works out OK for her this year. If I'd been able to file her returns on time, I would've had her contributing to BOTH a Roth and her SEP -- and that would've been wrong?!

[Bees Knees]

Oh gosh, I might've given someone the wrong advice. Client nets under $30,000 on her Sch C. Told her to get her $6,000 Roth in by 15 April. She's on extensions, so we'll prepare her return later and compute her SEP contribution. So, if she had contributed to her SEP, she could NOT have done the Roth?

No, you can do a Roth and a SEP. You can do a traditional IRA and a SEP. What the SEP does is make the taxpayer an active participant in an employer sponsored retirement plan, so a deductible IRA contribution may be subject to the phase-out rules, depending on other income. Even if the contribution is entirely non-deductible under the phase-out rules, you can still contribute to a non-deductible traditional IRA and a SEP.

Roth contributions on the other hand phase-out at higher AGI levels regardless of whether the taxpayer is an active participant in an employer retirement plan. So even if there is no SEP, if AGI is too high, no Roth.

See TTB tab 13 for Roth and traditional IRA phase-out limits.

[Lion]

Whew! Thanx for the reminders. In my still sleep-deprived state I was second-guessing myself about what I might have done in years past. Gotta calm down. Client coming in a few minutes. (Yes, I put her on extension.)

[taxea]

I would tell him 1. I bill for advice of this typed and 2. I will be happy to schedule an appointment for you after my tax season has closed. Is he asking for himself and his employees or for your client and his employees? 3. (Which actually should be #1 unless you have a release from your client and you are referring to your client...I can neither confirm or deny whether this person is a client and cannot discuss anything in regard to specific tax files without a waiver from your client if it turns out he is also my client.

[S T]

One of my clients is working with a financial planner who called me on 04/11 to ask whether he was able to participate in both a SEP and an IRA, contribution limits and other questions regarding retirement account planning with his business and his employees. The planner wanted me to calculate the amount and determine the eligibility. The planner stated that the the CPA "always advises on these matters". I've never had any planner ask me this before and must admit that these are not things I know off the top of my head.

I have clients who have SEPs and I tell them how much they can contribute but I'm not involved in a lot of the nuts and bolts of setting up their retirement plans, especially 401ks with employee participation.

I'm wondering if I'm out of touch?

Do many of you advise your clients' financial planners on selecting and setting up plans and participation rules and amount limits, etc?

From the original post it does seem like this is a "Payroll" and "Employee Benefits" Issue - not just the Taxpayer SEP/IRA on his own personal return. It would seem like the Financial Advisor and/or Pension/Administrator should be able to guide the Taxpayer relating to "retirement benefits" through the plan set up through payroll.

A lot of other good information posted on this thread regarding the deduction of Sep and/or IRA on the Personal 1040 Tax return.

Sandy

[Bees Knees]

I think this is an opportunity to establish your tax practice as something more than just data entry of tax information into tax software.

Here a tax client is reaching out to us for advice because a financial planner is ignorant of many tax rules that could make a difference as to how the client should proceed. If we act irritated and don’t want to be bothered because we are too busy entering data, then that is all we are…data entry people.

If, on the other hand, we take the opportunity to advise our clients by suggesting tax planning strategies, we show our worth as more than just a data entry person. We set ourselves up to raising our fees because of our knowledge and perceived value by the customer.

If you don’t fully understand tax planning for small businesses with retirement plans, I suggest you buy TTB tax planning strategies edition and read up on Tabs 7 through 11, which has numerous tax planning strategies for small business, family businesses, business entities, and retirement planning. The book lists the applicable tax rules, the planning strategy, possible risks in doing that particular plan, as well as court cases that deal with taxpayers who tried something similar. This is not a book written just for financial planners. This is a book written for tax preparers who want to provide clients with valuable advice that goes beyond telling clients what is deductible and what is not.

[taxxcpa]

The best financial planning recommendation I have is to avoid financial planners. One of my clients pays a financial planner about $18,000 per year to manage her account.

[JoshinNC]

Does the planner generate an additional $18,000 in investment income

The best financial planning recommendation I have is to avoid financial planners. One of my clients pays a financial planner about $18,000 per year to manage her account.

that the client would not have otherwise earned if she had managed her own account?

[Bees Knees]

The best financial planning recommendation I have is to avoid financial planners. One of my clients pays a financial planner about $18,000 per year to manage her account.

You might be surprised to learn that mutual funds charge similar fees for the privilege of you the investor investing in their funds. You never see how much is actually being charged because funds typically pay their regular and recurring, fund-wide operating expenses out of fund assets, rather than by imposing separate fees and charges on investors. These expenses are identified in the fee table in the fund’s prospectus under the heading "Annual Fund Operating Expenses." So if a financial planner is charging $18,000 per year to manage someone’s account, it is more than likely a fee charged to buy and sell investments similar to the way a mutual fund operates.

I have clients as well who pay huge fees for someone to manage their investment accounts. In each case, the fee is due to the financial planner doing hundreds of buys and sells of individual stocks and bonds for the client, rather than simply dumping the funds in a mutual fund to let them do the buying and selling.

[Burke]

And then there are those financial planners who charge quarterly fees to manage the clients' accounts, and they are all in mutual funds. So they get whacked twice. In fact, the majority of my clients who have financial planners do this; only about 25% are stockbrokers who buy and sell stocks/bonds for the portfolio. I always try to compare the fees against the gains/losses in the portfolio (including income from dividends/interest) to see if it is reasonable.

[MRPLOW]

I think this is an opportunity to establish your tax practice as something more than just data entry of tax information into tax software.

Here a tax client is reaching out to us for advice because a financial planner is ignorant of many tax rules that could make a difference as to how the client should proceed. If we act irritated and don’t want to be bothered because we are too busy entering data, then that is all we are…data entry people.

If, on the other hand, we take the opportunity to advise our clients by suggesting tax planning strategies, we show our worth as more than just a data entry person. We set ourselves up to raising our fees because of our knowledge and perceived value by the customer.

If you don’t fully understand tax planning for small businesses with retirement plans, I suggest you buy TTB tax planning strategies edition and read up on Tabs 7 through 11, which has numerous tax planning strategies for small business, family businesses, business entities, and retirement planning. The book lists the applicable tax rules, the planning strategy, possible risks in doing that particular plan, as well as court cases that deal with taxpayers who tried something similar. This is not a book written just for financial planners. This is a book written for tax preparers who want to provide clients with valuable advice that goes beyond telling clients what is deductible and what is not.

I agree.
At the end of every tax appointment, I give a brief(1-5 minute discussion) about retirement plan options(Roth IRA, Trad. IRA, SEP IRA, 401K, and 403B) that are available to them and discuss tax savings and contribution maximums.

Some clients really appreciate this advice. I have some clients with relatively simple returns, tell me that this advice is the only reason they still have me do there returns.

There is definetly a higher retention rate for clients that take advantage of this advice and contribute to IRA's each year.