Financial advisers working with members of the military often need military-like precision and knowledge of the special circumstances facing service members to help them avoid costly missteps.
Last year, Christy Raines, owner of Azimuth Wealth Management, a $40 million AUM advisory firm, faced the challenge of helping a military widow invest part of a $400,000 life insurance death
benefit in a Roth IRA, which she described as a little-known military benefit.
"The widow I was working with paid off her house and put $200,000 into a Roth IRA," Ms. Raines said. "Under the law, you only have a year to put the money into the Roth."
The ability to roll all or part of a military death benefit payout directly into a Roth IRA was part of the
2008 HEART Act, but according to advisers working with the military, it is not commonly known or properly used.
Annual contributions to
Roth IRA are otherwise capped at $5,500.
"The Roth makes a lot of sense because the insurance payout is essentially tax-free going into a tax-free account, and it doesn't get any better than that," said Curtis Sheldon, owner of CL Sheldon & Co., a $20 million AUM advisory firm that works primarily with people in or near retirement from the military.
Under the
Heroes Earning Assistance and Relief Tax Act, which was introduced under President George W. Bush, the entirety of a service member's $400,000 life insurance policy, plus an additional $100,000 for a combat-related fatality, can be rolled directly into a Roth.
"If every potential penny went in, a survivor could contribute $500,000 into a Roth," Mr. Sheldon said. "That means, for a young widow, their retirement could be set. But there is obviously some financial advice needed."
That's the message
Ms. Raines wants to share with adviser colleagues who may be considering or already working with military clients.
"In building my practice, I've found that the military benefits are just fascinating from a financial planning perspective," she said.
Ms. Raines' client, Christie Badstibner, received a $400,000 death benefit in early 2016 after her husband, Brian, died of cancer while serving his seventeenth year in the Air Force.
"I'm so grateful for the advice I received, because I don't know anything about this stuff," Ms. Badstibner said. "Even Vanguard didn't know you could do this."
Ms. Raines, who is married to a career Air Force officer, doesn't have a lot of military clients, but she does volunteer her time to work with military families whenever possible.
In this case, she directed Ms. Badstibner toward
The Vanguard Group Inc. to make the lump sum Roth contribution, but had to step in and offer more help when it became clear Vanguard was unfamiliar with the rare strategy of such a large contribution to a Roth.
In response to a request for comment, a Vanguard spokeswoman offered the following statement: "Vanguard appreciates legislation such as the HEART Act that benefits and provides financial flexibility and support to the families of our country's service men and women. Note, we are not able to provide comment on any investors. While we don't track the number of HEART rollovers, we are certainly able — and do — facilitate these types of transfers."
As is illustrated by the
latest changes to the National Defense Authorization Act, providing financial planning services to members of the military is a
constantly-evolving situation that requires special advisory skills and attention.
"This is a unique class of client," said Michelle Buonincontri, owner of Being Mindful in Divorce, a fee-only planning firm. Ms. Buonincontri volunteers through the Financial Planning Association to offer financial planning services to military families.
"Retired military clients typically become part of the working retired, and this can create a unique opportunity for an encore career in which the client can follow his passion, try something different, or work to make up for a retirement gap that had not previously been well planned for," she said. "Military benefits can contribute to the assets military folks will utilize in retirement and if planned properly, this can be a big benefit to those retirees in the future."
