November 18, 2014 David McKnight
Tales from a CPA Conference

Yesterday I had the opportunity to address about 100 CPA’s at their annual symposium.  As I led them through my presentation, a couple of things really stood out.  First, when I asked how many of them thought that tax rates were going up, nearly all of them raised their hands.  Second, when I asked how many of them knew what provisional income was, only one hand in the entire room went up.  Both of these answers were shocking on a number of levels:

First, the taxes.  If the vast majority of CPA’s believe that tax rates are going up, why do they continue to recommend that their clients max-fund their tax-deferred accounts like 401k’s, IRA’s, SEP’s, SIMPLE’s, etc.?  Why experience a tax deduction at historically low tax rates only to postpone those payments until somewhere down the road when tax rates are likely to be higher than they are today?  My hunch is that many CPA’s have the primary goal of saving their clients money today.  The prospect of a tax refund for many of their clients is what keeps them coming back year after year.  By the way, max-funding a 401(k) and/or an IRA is a great way to get a tax refund.

Second, provisional income.  I was dismayed that only 1% of the room was familiar with the phrase provisional income.  This means that if you are well-versed in tax-free retirement planning, you may well know more than your clients’ CPA’s.  So, the next time your client says, “Hey, I’d like to run all of this past my CPA,”, feel free to share this story.   Remember, Social Security taxation will dramatically reduce your clients’ cash flow in retirement.  It’s not just what they lose in Social Security, it’s what they have to withdraw from their IRA’s or 401k’s (plus taxes) to compensate for it.  Social Security taxation has a huge opportunity cost for your clients’ portfolios.  I’ve done the math on hundreds of clients, and my number crunching tells me that if your Social Security gets taxed, you’ll run out of money 5 years faster than someone who gets their Social Security tax-free.

So, by talking about Social Security taxation and tax-free retirement strategies, you’re setting yourself apart not just from your competition, but from many CPA’s in the world of save-taxes-today financial planning.



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