Retirement Planning Using a Client's Tax Return


Many CPAs never follow up with clients after tax season, but CPAs can provide valuable assistance by taking some time after busy season to use the tax return as a guide to helping clients prepare for retirement. A tax return is an excellent starting point for the personal financial planning process. While clients might feel threatened if asked to complete a lengthy financial planning questionnaire, starting with an already prepared document is less daunting for the client and provides a natural transition into financial planning. Consider the following points in reviewing Form 1040 for retirement planning.

Are clients funding any employer-sponsored 401(k) or other qualified retirement plans? This consideration is especially important when the employer matches employee contributions. (In what other way can a client obtain an immediate return on an investment?) With the current economic slowdown, many employers are cutting back on matching contributions. Nonetheless, it is still advisable for clients to contribute to their plans.

For clients with retirement plans, review their portfolios’ diversity. Is it time to change investments? How has the economic crisis changed older clients’ plans for retirement? Do clients have adequate disability insurance to protect against loss of earning power?

Ask clients if they are satisfied with the returns on their portfolios. Discuss the portfolios’ diversification. Evaluate the taxability of the portfolios—is more tax-exempt income an appropriate objective? For older clients, is it appropriate to add guaranteed investments such as annuities?

Ask why the client is taking distributions. Many clients do so to satisfy short-term cash needs. Remind the client of the 10% penalty on early withdrawals. Can a short-term line of credit or loan be obtained instead? For normal distributions, discuss the amount. For 2009, required minimum distributions have been suspended, so clients should not automatically take one. Review the beneficiary designation. Is it still correct? Or has a remarriage been overlooked? If there is a minimum distribution, is it calculated correctly?

For clients who have inherited IRAs, the rules are complicated, and the penalties for not taking the correct amount are substantial. Review them with the client.

For clients who are self-employed or members of a partnership, is there a deduction for a retirement plan? If not, discuss retirement savings with the client. If they do have a plan, is its funding adequate?

Is the client eligible for a deductible IRA and were contributions made to it? If so, was a deduction taken? If the client has a traditional IRA, should it be converted to a Roth IRA while portfolio values are low? Again, now is the time to discuss retirement planning. Is the client happy with his or her retirement plan? Review asset allocations and beneficiary designations.

Many clients had a difficult year in 2008, and 2009 promises to be challenging as well. Spending a few minutes with clients reviewing their tax returns will lead to an increase in billable fees as well as a better and more personal client relationship.

For a detailed discussion of the issues in this area, see “Financial Planning Using a Client’s Form 1040,” by Michael David Schulman, CPA/PFS, in the May 2009 issue of The Tax Adviser.

—Alistair M. Nevius, editor-in-chief
The Tax Adviser


The Tax Adviser is the AICPA’s monthly journal of tax planning, trends and techniques. AICPA members can subscribe to The Tax Adviser for a discounted price of $85 per year. Tax Section members can subscribe for a discounted price of $30 per year. Call 800-513-3037 or e-mail for a subscription to the magazine or to become a member of the Tax Section.



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