By Stacy Mercer
Taxes and numbers are two things that people rarely like to hear about. So, financial professionals need to talk about taxes without sounding like a math teacher. But the question remains, how can you help your client plan for the future without it sounding like a lecture?
Open up the conversation. Instead of focusing on the numbers, open the conversation by asking some simple questions. With a few easy tips, you can walk your client through tax options and scenarios so they feel more confident in your suggestions and gain a deeper understanding of what their tax numbers mean.
Below are a few examples of how to use key financial data to start a conversation with clients, including questions to ask and next steps to take.
- Scenario 1: The 2015 tax rate schedule
What to ask: Do you think you pay the lowest taxes on investments and income?
Next steps: In their answer, listen for any concerns. For clients who are still working, you can easily segue into discussing contributions to an individual retirement account by saying, “If you need another deduction, you can contribute up to $5,500 to a traditional IRA to lower your taxes, depending on your age and income.”
For those clients already retired, “Let’s do a quick check to see if you’re drawing down on your income sources in a way that triggers the least tax.” You can show that this could be an opportunity to make an investment by pointing out, “An annuity might reduce taxes while maintaining investment flexibility.”
- Scenario 2: Retirement plan contribution limits and IRAs
What to ask: Did you maximize your 401(k) contributions to your plan at work? Do you have other retirement accounts from an old job, IRA, etc.?
Next steps: After their response, walk them through their retirement planning options. If they are over age 50, you might mention, “You have the opportunity to make catch-up contributions. This may be a good time to review your investments and make sure they’re meeting your needs.” You also can discuss opportunities for consolidation by saying, “Bringing everything under one roof could make management far easier, could prevent confusion and could potentially lower fees.” This is also a great time to review the new (as of 2015) rollover rules. You can start the conversation by saying, “The new one-rollover rule specifies one rollover every 365 days - not every calendar year. The safest way to do a rollover without triggering penalties is institution to institution. I can help you through that process to make it easy.”
Going through all of your clients’ key financial data points helps you develop a better understanding of their goals and concerns. But, more important, it can also help your clients understand what these tricky numbers can mean and how to unlock potential opportunities.
Keep in mind three important items: 1) An annuity is not required for tax-deferral with a qualified plan; 2) clients retiring or changing jobs have options and, in some cases, it may be beneficial for clients to leave money in their current retirement plan or consider their new employer’s plan; and 3) clients should consult with their tax advisor before making tax-related decisions.
Stacy Mercer is director of marketing and strategic initiatives at Sammons Retirement Solutions. Stacy may be contacted at firstname.lastname@example.org.
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