How to Help Your Clients Plan for Retirement

By Sally Herigstad

How to Help Your Clients Plan for Retirement – TaxAct Professional

Your clients know they need to plan for retirement. They may be contributing to an IRA every year or deducting retirement plan contributions on their tax returns. Unless they are especially financially savvy or they receive expert advice, however, their overall retirement plan may be rather hit or miss.

That's where you come in.

As their tax professional, you're already in a great position to give your clients retirement planning advice. By the time you complete their taxes, you know a lot about their financial habits and financial standing.

Plus, clients already trust you to help them understand complex tax and financial choices.

By providing your clients with additional retirement planning advice, you will enhance your client relationships and help them realize they need tax and financial advice on a regular basis – not just at tax time.

Here are some ways you may be able to help your clients plan for retirement.

Discuss clients' existing retirement plans and whether they are making full contributions.

If your clients are contributing to an IRA or a 401(k) plan, for example, you can see if they are contributing as much as they could. Because the limits change frequently and are affected by amounts on your clients' tax returns, your clients may not be aware of the maximum amount they can contribute.

You can tell clients not only how much they can contribute, but how maximizing the amount may be to their advantage. In some cases, you may look at their finances and suggest an optimal contribution amount other than the maximum. It's all about priorities – and helping them reach all their financial and retirement goals.

Make clients aware of other available retirement plans.

Almost everyone knows about IRAs, or whether their employer offers a 401(k) or similar retirement plan. Fewer clients know about SIMPLE plans, SEP IRAs, and other retirement plans. Some of these plans allow clients to contribute several times more per year than the better-known IRAs.

The rules for different retirement plans vary considerably – not just by maximum contribution, but by the deadline for establishing or contributing to the plan, whether clients must contribute to their employee plans, and other details. Some plans are a cinch to set up and maintain; others not so much.

You can provide a great service to clients by helping them sort out the advantages and disadvantages of different plans.

As your clients ask questions about retirement plans, a great resource is TaxACT's Retirement Guide. It can help you explain different types of retirement plans and other retirement issues in a clear, straightforward way.

To access the Retirement Guide, click the "Help” button at the top of the TaxACT program, then select "TaxTutor Guidance” (or press F3).

Ask clients if beneficiaries are updated for all accounts.

Many people experience major life changes but never update the beneficiaries on their retirement and other financial accounts. If a client dies and hasn't updated beneficiaries since before the last divorce and remarriage, or since one or more children were born or became adults, that hard-earned money may not go where he or she intended it to.

If clients have an excessive number of accounts, suggest consolidating them.

Sometimes, clients come in to your office with stacks of Form 1099s and statements from different financial institutions. Perhaps they opened an account every time they moved or got a new job. Having too many accounts makes life – and certainly their taxes – unnecessarily complicated.

You might encourage them to roll over amounts from one account into another. Make sure they understand the right way to roll over funds to avoid having unnecessary income taxes withheld, and to prevent penalties for early withdrawals as they move money from one account to another.

For clients experiencing financial hardship, discuss possible retirement plan withdrawals.

If your client has been receiving unemployment benefits or shows an unusually low income level for the year, he or she may be experiencing financial stress. When it's hard to pay the bills, people often start eyeing their retirement accounts as a source of emergency cash.

Before they start taking from retirement accounts, you can discuss with them the pros and cons of doing so. There's the 10 percent tax penalty on early withdrawals if they don't qualify for an exception. In addition, they may owe income tax. Their overall retirement plan can be set back by years if they take substantial withdrawals before retirement.

On the other hand, if they really need to make a withdrawal, you may be able to help them do so without causing a financial and tax catastrophe. They may qualify for an exception to the penalty, especially with a little planning.

They may be able to take a loan, instead of a withdrawal, from a 401(k) or 403(b) plan, for example (but not from an IRA or IRA-based plan). For very short-term financial emergencies, they may be able to take money from a retirement account and replace it within 60 days to meet the rollover requirements.

Discuss appropriate levels of risk taking and how it affects potential return.

Clients have different styles of investing, once they have money in retirement accounts. You see the risk takers, always chasing big returns – but sometimes ending up with a loss instead. Then you read the 1099 forms of the risk averse clients, who only invest in the safest bonds, or even keep large sums of cash in money market accounts.

As you know, a secret to successful long-term investing is to balance risk with potential reward. Explain to your clients how neither risky investing nor ultra-safe saving is likely to provide them with the comfortable, secure retirement they want, and how to find a better balance of risk vs. reward in their investing habits.

Explain deductible vs. nondeductible contribution plans and help clients decide which is best for them.

The original IRAs operated on one basic principle: Lower your taxable income now, and pay tax on withdrawals in retirement. Many taxpayers still fund traditional IRAs and other retirement accounts because that's what they're used to doing. Other clients may contribute to Roth IRAs and other nondeductible plans simply because someone told them that was the way to go.

In truth, no one type of plan is best for everyone. Clients who expect to be living mostly on Social Security income would probably be best served by a traditional IRA. They'll be in a much lower tax bracket after retirement.

Other clients should be taking advantage of Roth IRAs. You can help them calculate the investment and tax results of making deductible or nondeductible retirement plan contributions.

Help clients understand how tax-favored retirement plans are only one part of planning for their retirement years.

You learn a lot more about your clients than what retirement accounts they have when preparing their returns. You may find your clients have real estate holdings, a home, and other assets. They may also have debts or other issues that could keep them from being able to retire.

You can help them understand their current after-tax cash flow and net worth and help them plan strategic changes that may improve their situation.

Answer questions about whether they can afford to retire.

Perhaps nothing causes clients more stress than wondering if they have enough money for retirement. But how much is enough? If clients have asked you for a dollar amount, you know how difficult it is to answer such a question.

As a tax professional, you can look at what your clients are living on currently and make adjustments for their income and expenses after retirement.

If they are paying less taxes in retirement, no longer contributing to retirement plans, and perhaps downsizing their living situations, they may get by on considerably less than they make now. By helping your clients predict future income and living expenses, you may give them great peace of mind.

On the other hand, if the numbers don't work in their favor, you may help them face reality and keep working longer than they intended or make other changes.

Let clients know that you are available as a trusted, impartial advisor.

It's easy to find financial advice, in person or online. Finding solid advice from someone they trust – someone who isn't trying to earn commissions, and who understands their total financial situation, can be more difficult for clients. You can help them prepare more effectively for retirement, which will help you take care of your clients – all year long.

About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at,,, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.