- When will things stabilize?
- When will the market volatility be behind us?
- How will my retirement goals be impacted by everything going on?
Although no one has all the answers, as a CPA financial planner, you have a strong relationship with your clients, vast knowledge of tax and planning strategies and you offer objective advice that is in your clients’ best interest.
It’s important to proactively talk to your clients about their concerns and fears, connecting with them by carefully listening and then guiding them as you’re so well-equipped to do.
I’ve been reaching out to my clients to see how they are coping, so that I understand their top concerns.
Retirement concerns are high on the list.
Client’s question: As you know, I’m retired and you’ve mentioned a lot lately about extended tax deadlines, waived required minimum distribution (RMDs) for 2020, and the planning we can do around that. What do you suggest?
Advice: It’s certainly been a busy year regarding IRS action. As we discussed, since you owe for federal and state income taxes, I would not recommend filing/paying until early July. Had you been due a refund, however, I would encourage you to file as soon as possible.
Another planning aspect is the ability to waive RMDs for 2020. As a general rule, unless someone needs the money for living expenses, you should accept the government’s gift of an extra year of tax deferral within your retirement accounts. This also applies to your Inherited IRA RMD for 2020.
However, because you don’t need your RMD proceeds each year for living expenses, it presents an interesting planning opportunity to potentially convert some amount of that waived RMD to your Roth IRA. Because you’d be paying ordinary income taxes on the entire RMD amount in a typical year, you could convert that same amount to a Roth and the money would grow tax-free for the rest of your life. Thereafter, your heirs would enjoy tax-free distributions as well.
Client’s question: Given the recent market downturn, I look at my portfolio assets and worry. Will I have to work longer?
Advice: All along, we’ve been helping you plan for challenging times like this! Recall that when we began working together, we built — and have since maintained — your long-term cash flow projection. We developed a diversified portfolio that took into consideration your time horizon, risk comfort-level and retirement goals. We keep multiple years’ worth of living expenses in cash/bonds which means we won’t need to sell equities in a temporarily depressed market just to fund your retirement needs. We’ll continue to evaluate things and will make changes to your portfolio as needed.
Client’s question: My son lost his job during the COVID-19 crisis and is struggling to support his wife and two children. My wife and I would like to help. Is there anything we can do that won’t materially affect our retirement plan?
Advice: Parents having to step in and assist adult children during this very trying time has become a common occurrence. Luckily, your retirement is in good shape and you have the wherewithal to assist financially. Helping your son could be in the form of either a direct gift or intra-family loan.
A direct gift allows you to gift $15,000 each to him, his wife, and each of their two children. Your wife could even do the same for a total gift of $120,000.
An intra-family loan would necessitate a promissory note whereby there is a documented payback schedule and a required minimum interest rate. The Applicable Federal Rate (AFR) is set by the IRS, and fortunately, they are at historic lows. For instance, a 5-year loan could have an interest rate as low as 0.58% according to the May 2020 schedule. We can discuss a reasonable amount to gift or loan in the context of your overall financial plan.
Preparing for retirement can feel daunting. Your role is key.
- The coronavirus (COVID-19) personal financial planning resources — podcasts, videos, webcast recordings and more — are available to help.
- The Tax and financial planning tips: Retirement highlights important tax implications — share with your clients.
As a CPA financial planner, you provide such a valuable service, advising clients and easing anxiety during uncertainty. Don’t overlook the dramatic impact you can have now by connecting with your clients and finding out what’s on their minds.
Michael Landsberg, CPA/PFS, Principal, Homrich Berg Wealth Management based in Atlanta, GA. Michael engages in comprehensive financial planning and investment management for high net worth families across the country.