Altfest advisor tackles frequently asked retirement tax questions

Jessica Nelson

There's often a tax element in retirement planning that can be tricky for advisors, sending them for input from a CPA.

To paraphrase a line from “Hamlet”: To itemize or to take the standard deduction? That is the question.

Okay, maybe it’s not exactly Shakespeare, but it is a question frequently posed by clients to their financial advisors. A greatest hit, right up there with: “When should I take my required minimum distribution?”

While such questions are quite common, in many cases there is a tax element involved that can be tricky for advisors, often sending them for the input of an external CPA. Having that tax expertise in-house is a boon for any wealth management firm.

It’s even better if your financial advisor has a CPA license along with that CFP designation.

To answer some of these oft-repeated questions, InvestmentNews caught up with Jessica Nelson, who was a senior tax accountant at Deloitte and Ernst & Young before joining Altfest Personal Wealth Management as a financial advisor in 2021.

InvestmentNews: What’s the best way for clients to defer taxes or max out their retirement plans during pre-retirement?

Jessica Nelson: For those years leading up to retirement, clients usually have two things on their mind: wealth accumulation and saving on taxes. The great thing is by contributing as much as you can into those pretax retirement accounts, you solve both of those issues. Also, something I like to remind advisors about is that SECURE Act 2.0 is really going to change the way clients can do that. Soon they’ll be able to do a lot more with those cash contributions.

IN: And then when they finally get to put their feet up in retirement, how should they adjust their spending?

JN: The way I like to think about it is, where are we getting the funds from? They have a lot of different options, including Social Security, taxable accounts, pretax accounts and possibly even pensions. So what I like to do is sit down with clients and map out where we’re going to get different funds from and how we’re going to spread that out in a tax-advantaged way.

IN: What about required minimum distributions? Any strategies for maximizing those?

JN: Absolutely. One thing about required minimum distributions that I like to remind advisors about is thinking about what you can do before that date starts in order to minimize some of that. For example, Roth conversions. Before clients reach retirement age where they are thinking about Social Security, and before they’re doing their required minimum distribution, is a perfect time to do Roth conversions. That way they are paying taxes now at a lower tax bracket, and in the future their required minimum distribution will be less.

IN: Once your client is retired and they are at the beach or in the country, should they be thinking about standard deductions or itemizing?

JN: A lot of tax advisors and financial advisors have found that with the Tax Cut and Jobs Act, it’s harder for some clients to itemize. As a result, they find that they are taking the standard deduction, especially once you are a senior and your standard deduction is higher. In those situations, a lot of clients are taking the standard deduction. And then it’s important to remind clients of things like taking their qualified charitable distributions, which is great because it allows them to gift to charities directly from their IRA. It satisfies their RMD and those distributions do not count toward taxable income.