Not my job!
April 7, 2022 11:19 AM Subscribe
Are there client seeking professionals who focus on the grey area between investment management and taxation? What name do i call them to locate them?
My partner recently received an extensive inheritance of her parents investments. Initially we have been using the same large investment management firm her parents used. We are also using the same accountant I used when I had a business.
In trying to sort out the investments, we ask the investment firm a question like should we be rolling the bulk of the money into a Roth IRA? Will it maximize our overall wealth to keep it as it is and not pay taxes on it until we need it? Their response was "talk to your accountant".
Similarly, most of our current year taxes are the result of capital gains and dividends. We ask the accountant if she could estimate the taxes we would pay without relying on those types of investment incomes. her reply is "talk to your investment firm".
Are there professionals who help individuals sort out the area between investment strategy and tax strategy. What is their professional title?
My partner recently received an extensive inheritance of her parents investments. Initially we have been using the same large investment management firm her parents used. We are also using the same accountant I used when I had a business.
In trying to sort out the investments, we ask the investment firm a question like should we be rolling the bulk of the money into a Roth IRA? Will it maximize our overall wealth to keep it as it is and not pay taxes on it until we need it? Their response was "talk to your accountant".
Similarly, most of our current year taxes are the result of capital gains and dividends. We ask the accountant if she could estimate the taxes we would pay without relying on those types of investment incomes. her reply is "talk to your investment firm".
Are there professionals who help individuals sort out the area between investment strategy and tax strategy. What is their professional title?
I think you have a fairly unsophisticated and/or crappy advisor at your investment firm? This is very common! I work for a software company and our product helps advisors estimate the tax consequences of various kinds of decisions, and in general when advisors start using our software they are able to save their clients money on taxes AND track more closely to their investment target goals. If they were investing properly to start with they should only be able to do one of those things, not both at once.
There are almost certainly ways you can improve the tax treatment of your investments but you can't just "roll the bulk of the money into a Roth IRA" - IRAs are for money you *earned* (you can't contribute more to an IRA than you earn in a year), and there are limits to how much you can contribute each year. You might want to do some basic background reading/research before you choose an advisor.
These are probably not trivial questions that you're asking - at the end of the day tax optimization is all about tradeoffs; you could likely move into investments that don't generate as much capital gains and dividends, but in order to do that you would have to sell the underlying investments, which might incur even larger capital gains (but that would be a one-time/occasional expense rather than ongoing one).
Find a good financial planner, ideally one who you pay a one-time or annual fee to help you understand your situation.
posted by mskyle at 11:56 AM on April 7, 2022 [1 favorite]
There are almost certainly ways you can improve the tax treatment of your investments but you can't just "roll the bulk of the money into a Roth IRA" - IRAs are for money you *earned* (you can't contribute more to an IRA than you earn in a year), and there are limits to how much you can contribute each year. You might want to do some basic background reading/research before you choose an advisor.
These are probably not trivial questions that you're asking - at the end of the day tax optimization is all about tradeoffs; you could likely move into investments that don't generate as much capital gains and dividends, but in order to do that you would have to sell the underlying investments, which might incur even larger capital gains (but that would be a one-time/occasional expense rather than ongoing one).
Find a good financial planner, ideally one who you pay a one-time or annual fee to help you understand your situation.
posted by mskyle at 11:56 AM on April 7, 2022 [1 favorite]
You want a Certified Financial Planner, or CFP. Make sure you hire one who is a fiduciary (they are obligated to act in your best interest) and are fee-only and ideally charge flat fee (they'll charge you an amount for solving the problems you bring them, rather than charging you a percentage of your money for managing it). If you don't already know one, you can search for them via Garrett or other sources.
posted by NotMyselfRightNow at 11:58 AM on April 7, 2022 [2 favorites]
posted by NotMyselfRightNow at 11:58 AM on April 7, 2022 [2 favorites]
Investment advisers — very much including those with the CFP credential — have gotten very cautious about even the appearance of giving tax advice lately. Some have in-house tax departments for their wealthiest clients but other punt altogether. (This doesn’t mean they don’t offer products which are tax-advantaged for most clients … they just won’t advise you regarding them.)
You need a individual-wealth-tax-savvy accountant. Your ex business accountant may either not know tax or knows the very different set of rules on business tax.
posted by MattD at 12:32 PM on April 7, 2022
You need a individual-wealth-tax-savvy accountant. Your ex business accountant may either not know tax or knows the very different set of rules on business tax.
posted by MattD at 12:32 PM on April 7, 2022
I just want to quickly address this comment:
you can't just "roll the bulk of the money into a Roth IRA" - IRAs are for money you *earned* (you can't contribute more to an IRA than you earn in a year), and there are limits to how much you can contribute each year.
A contribution and a rollover are two different things, and rollovers are not are not restricted to earned income, nor do they have a yearly limit.
posted by NotMyselfRightNow at 1:53 PM on April 7, 2022
you can't just "roll the bulk of the money into a Roth IRA" - IRAs are for money you *earned* (you can't contribute more to an IRA than you earn in a year), and there are limits to how much you can contribute each year.
A contribution and a rollover are two different things, and rollovers are not are not restricted to earned income, nor do they have a yearly limit.
posted by NotMyselfRightNow at 1:53 PM on April 7, 2022
A contribution and a rollover are two different things, and rollovers are not are not restricted to earned income, nor do they have a yearly limit.
But are there conditions under which you can rollover inherited assets that are currently invested in taxable accounts? I am not a tax professional but that seems really unlikely.
You can roll money from your 401k/403b/etc. into an IRA, sure, this is easy and I have done it many times. You can convert investments from Traditional IRA into Roth. If you inherit an IRA or 401k from your spouse, you can roll that right into your own retirement funds (I've done that too). If you inherit an IRA from a non-spouse (like in the OPs case) it's a bit more complicated but you can keep some of the tax advantages.
But the assets the OP is talking aren't currently in any kind of a tax-advantaged retirement account - they're paying taxes on the capital gains and dividends. Before you can do a rollover the funds have to be in a tax-advantaged account to start with.
posted by mskyle at 5:14 PM on April 7, 2022
But are there conditions under which you can rollover inherited assets that are currently invested in taxable accounts? I am not a tax professional but that seems really unlikely.
You can roll money from your 401k/403b/etc. into an IRA, sure, this is easy and I have done it many times. You can convert investments from Traditional IRA into Roth. If you inherit an IRA or 401k from your spouse, you can roll that right into your own retirement funds (I've done that too). If you inherit an IRA from a non-spouse (like in the OPs case) it's a bit more complicated but you can keep some of the tax advantages.
But the assets the OP is talking aren't currently in any kind of a tax-advantaged retirement account - they're paying taxes on the capital gains and dividends. Before you can do a rollover the funds have to be in a tax-advantaged account to start with.
posted by mskyle at 5:14 PM on April 7, 2022
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Although I have no idea why your accountant was not willing to do a tax estimate of how much you would owe if your investment income was zero than seems like a straight-forward question for an accountant.
posted by metahawk at 11:34 AM on April 7, 2022 [3 favorites]