Four Ways a CPA Could Help Wealth Management Clients

Financial advisors get trained in taxes, of course, but they often just get a basic framework for how to structure investments. A CPA can bring a much deeper level of understanding to a client’s tax situation, here’s four reasons how:

1. Let’s face it – taxes are complicated.

From the Medicare surtax to the new, higher top tax rate, wealthy clients face a tax picture with widening complexity. Knowing how investments impact the tax picture — in ways that are not always obvious — can save clients big money.

For Example, will selling an investment this year produce gains big enough to trigger the Medicare surtax? Should municipal bonds be pursued as a source of tax-free income? A CPA can define this for you, avoiding unnecessary surprises come April 15..

2. Asset location is critical.

Investment professionals know that asset allocation is important, but so is asset location. The tax treatment of assets varies by which type of account they’re housed in. Bonds, for example, are better held in tax-sheltered accounts because their income is taxed at the ordinary rate of up to 39.6%. Stocks fare better in non-retirement brokerage accounts because long-term gains can be taxed at the favorable capital gains rate of 20% rather than the higher ordinary income rate.

Where assets are housed is a key component of Morningstar’s gamma factor, a way to calculate an advisor’s value. Proper asset location can boost returns by 20 to 50 basis points a year, Morningstar researchers have concluded.

3. Boomer clients are retiring.

You know the stats: 10,000 baby boomers retire each day, a pace expected to continue for the next 19 years. If your boomer clients haven’t already made the shift to retirement, they soon will.  Boomers need financial advice on how to minimize taxes and generate enough income.

Retirement withdrawal strategies are complicated. The rules of thumb around which accounts to tap, and when, may not work in all circumstances. For example, Some clients may be better off depleting their tax-deferred accounts early on in order to avoid a big tax hit late in retirement. Accountants take a holistic approach to retirement planning.

4. Tax returns show what you’re missing.

A talented accountant can spot not just missed opportunities for tax savings, but also potential gaps in a client’s financial picture. A CPA can review a tax return and understand where a client should be going with their wealth management.  Can your clients defer income to take advantage in a federal subsidy for health insurance on the new exchanges?  Are they contributing too much – or too little – in tax-deferred retirement accounts?