Your clients are likely gearing up for tax season, so now is the perfect time to bring up their tax situation. While most financial professionals and Transamerica may not provide tax guidance, here are some ideas to bring up with your clients in the month ahead.
Help clients manage their tax liability
Your clients have worked hard to reach a level of income that can provide the financial security they desire. Unfortunately, that can also result in them paying more in taxes. Even with successful investment strategies, taxes can have a tremendous impact on your clients’ returns.
You client’s taxes can vary in a number of ways that are set for them such as the Tax Cuts and Jobs Act, the taxation of Social Security benefits, the amount they pay in Medicare premiums, and their ability to contribute to a Roth IRA or deduct contributions to a traditional IRA.
But, your clients may have more control over their taxes than they think.
Investment income such as stocks, bonds, and mutual funds are held in a taxable account. The interest, dividends, and capital gains distributions are taxable in the year they are received or realized, even if you reinvest them. But if you purchase an annuity, you can choose between investment options and the income generated is excluded from current income. This lowers your overall taxable income and in turn, your tax liability.
The power of tax-deferral
First, you may want to explain or remind clients that “tax-deferred” doesn’t mean “tax-exempt.” They will still owe taxes on their tax-deferred investments at some point.
Second, explain how using a tax-deferred investment strategy may allow them to change investments among various subaccounts without triggering a taxable event. Instead of having to pay taxes on any capital gains distributions, they’re able to keep more of their money tax-deferred and working for them, which can make a significant difference in the long run. A 1035 Exchange might be beneficial for clients who own outdated insurance policies and/or annuity contracts.
Third, coach them on how they may not have control over the amount of capital gains generated each year, which can lower the predictability of their tax bill. Also, discuss how they can hold their tax-deferred investments until they find themselves in a lower tax bracket, which may provide more flexibility.
Finally, remind them how their 401(k) and IRA individual contributions are limited to $18,500 and $5,500, respectively, in 2018. The amount of after-tax contributions for nonqualified tax-deferred investments is essentially unlimited.
The flexibility your clients need, only when they need it
If flexibility is important to your clients, talk to them today about the flexibility an annuity strategy may provide for them. While there are fees and charges associated to an annuity, this strategy can help them save more for retirement in a tax-efficient way and defer their taxable income until they’re in a lower tax bracket. The long-term difference can be significant.
Access the white paper “Tax Efficiency for Today, Flexibility for Tomorrow”that provides strategy to help your clients manage the amount of taxes they pay each year by significantly reducing taxable income.
Neither Transamerica nor its agents or representatives may provide tax or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors regarding their particular situation and the concepts presented herein.