Retirement planning fintech highlights tax impacts on clients

The Timelineapp tool helps advisers decide the best combination of tax-deferred and brokerage account withdrawals for clients

Timelineapp, a retirement income fintech that models client withdrawal rates for financial advisers, launched a new feature Wednesday that automatically calculates clients’ tax liabilities using U.S. Federal Income tax brackets.

Conventional wisdom holds that most retirees should withdraw money from tax-deferred accounts, like 401(k)s as well as Social Security benefits, to fund their retirements. Drawing on retirement assets in brokerage accounts first, however, could prove advantageous, according to Timeline CEO Abraham Okusanya.

“Traditional retirement plans have a fundamental problem — they are out of date the minute you create them and the process of updating these plans is incredibly manual and time-consuming,” Okusanya wrote in an email. “By tracking real-time portfolio balance, withdrawals and asset allocation, [Timelineapp] provides ongoing monitoring and actionable alerts to the planner.”

Timeline launched the tax-planning tool to help advisers decide the best combination of tax-deferred and brokerage withdrawal rate for clients.

“There’s logic to drawing on taxable accounts first,” Okusanya wrote in a company blog post. “Leaving tax-deferred accounts untouched means there’s more time for their value to increase. Doing it the other way around — taking income initially from tax-deferred 401(k)s — could mean your income is taxed at much higher rates.”

The tool works by incorporating taxes across investment and retirement accounts by modeling traditional IRAs, 401(K)s, Social Security, Roth IRAs, and Defined Benefit pensions and annuities, according to the blog post.

About 20% of the app’s users are U.S. advisers despite being a U.K-based platform. “That number continues to grow, even throughout the recent lockdown,” Okusanya said. “In the deed, we saw an uptick in growth, presumably because the lockdown allowed advisors a bit of breathing space to review newer software solutions available on the market.”

Financial planning expert Michael Kitces has served as a Timelineapp advisory board member since 2018. “Timeline’s success highlights the ongoing gap between today’s accumulation-centric financial planning software used primarily for asset gathering, and the kinds of conversation that advisors have (and have to model) with real-world retiring clients who can and do make adjustments along the way (and want to know the impact and consequences of those decisions to make a real plan up front),” Kitces wrote in a blog post last year.

Since its founding in 2018, Timeline has integrated into other financial planning solutions including Redtail, Morningstar and SS&C Technology’s Black Diamond Wealth Platform.