Educating clients’ adult children about tax planning can help you earn their business and retain the family wealth.

This article was written for and originally published in Rethinking65.

Now that tax season is in the rear-view mirror and you have stopped sending client’s their year-end tax reports, you can look ahead and help them with tax savings for this year. As a financial advisor, one of the most important aspects of retirement planning is to provide tax planning for your clients. Your clients likely appreciate your efforts.

However, their adult children may not realize how taxes can significantly impact their retirement savings and income, and how you can help. Educating them and showing you care can help you earn their business and hold onto the family wealth.

If you’re used to working with sophisticated clients, you may have forgotten how little some people know about tax-planning tools. Referring to this article can help you save time and avoid missing basic points when speaking with clients’ children or new clients requiring a basic explanation of why tax planning is critical to retirement planning.

I’ll also discuss topics your clients might like to learn more about in order to improve their retirement outcomes. This includes Roth conversions, Roth 401(k)s and using life insurance as an investment strategy. Lastly, I’ll share other ways to help your clients’ children maximize savings.

Efficiently saving for retirement

Conversation starter: Tell your client’s children (and your clients) that you want to help them understand the tradeoffs between different kinds of retirement accounts and that you can help them make informed decisions about how to save for retirement.

Explain that a variety of tax-advantaged retirement accounts are available, including traditional IRAs, Roth IRAs, 401(k)s and Roth 401(k)s. Each of these accounts has different rules regarding contributions, withdrawals and taxes, and each can fit into a financial plan in different ways.

Help them understand the differences between these accounts and how they can use them to maximize their retirement savings. Traditional IRAs and 401(k)s allow individuals to contribute pre-tax dollars, which can reduce their current tax liability. However, withdrawals from these accounts are taxed as ordinary income, which can be a significant tax burden for retirees. On the other hand, Roth IRAs and Roth 401(k)s allow individuals to contribute after-tax dollars, which means that withdrawals are tax-free in retirement (more on that in a moment).

Roth conversions

Conversation starter: Help your clients and their children understand the potential benefits and drawbacks of Roth conversions.

Explain the conversion process of moving money from a traditional IRA or 401(k) to a Roth IRA. The primary benefit of a Roth conversion is that it allows individuals to pay taxes on their retirement savings now, rather than later.

This strategy can be particularly useful for those who expect to be in a higher tax bracket during retirement. By paying taxes on the converted funds now, individuals can potentially save on taxes in the future when they withdraw the money from their Roth IRA tax-free.

However, a Roth conversion can trigger a significant tax bill in the year of the conversion, which can be a challenge for some retirees. However, for those who can afford to pay the taxes upfront, a Roth conversion can be an effective strategy for reducing future tax liability. Another consideration is the opportunity cost of the conversion.

Older clients may not enjoy much tax savings because they don’t have the time to allow their Roth accounts to grow enough to have a huge impact on their retirement income. I often advocate younger clients to consider Roth conversions because they have a longer time horizon to allow their converted dollars to grow.

Roth 401(k)s

Conversation starter: Help your clients understand the benefits of a Roth 401(k) and how they can use this type of account to maximize their retirement savings while also managing taxes.

Explain that a Roth 401(k) can help individuals maximize their retirement savings while managing taxes. This type of retirement account combines the benefits of a traditional 401(k) with those of a Roth IRA. Individuals can contribute after-tax dollars to a Roth 401(k), and withdrawals in retirement are tax-free. I always like to remind clients that’s it’s better to pay tax on the seed, rather than crop.

Don’t forget to tell them that a big advantage of a Roth 401(k) is that it allows individuals to contribute more than they could to a Roth IRA. In 2023, the contribution limit for a Roth 401(k) is $22,500, compared with $6,500 for a Roth IRA for those under 50 and $7,500 for those 50 and older.

Additionally, there are no income limits for contributing to a Roth 401(k). In contrast, the income limits for contributing to a Roth IRA, for married taxpayers filing jointly or a qualifying widow(er), start phasing out at $218,000 of a modified adjusted gross household income and phase out completely $228,000.

Permanent life insurance as an investment strategy

Conversation starter: Inform clients that life insurance can be used as an investment strategy and that it offers several key tax advantages.

Permanent life insurance as an investment strategy is often a controversial topic in financial professional circles. In my view, when used properly, it can complement a client’s other investment strategies. Typically, using permanent life for investing purposes is done once other methods have been maximized.

Universal life insurance policies can offer a range of tax benefits that make them attractive for financial planning. Some key tax advantages of using a universal life insurance policy that you can explain to clients are:

  • The cash value of a universal life insurance policy can provide a combination of tax-deferred and tax-free income. This means you won’t have to pay taxes on any investment gains until you withdraw the money. Also, you can withdraw money from a universal life insurance policy tax-free up to the amount of your basis (the premiums you paid into the policy). After withdrawing your basis, any additional withdrawals will be subject to income taxes. Or, if you structure the policy correctly, you can use policy loans for tax-free income.
  • The death benefit paid out to beneficiaries is generally income-tax-free. This can be a valuable benefit for estate planning purposes. If your client has a large estate, a universal life insurance policy can be used to provide funds to pay estate taxes. Since the death benefit is income tax-free, it can be used to cover estate taxes without adding to the tax burden of their heirs.
  • Unlike retirement accounts, universal life insurance policies don’t have contribution limits. This can be beneficial if you want to save more than the annual limits allowed in other tax-advantaged accounts.
  • It’s important to note that the tax benefits of a universal life insurance policy will depend on your client’s individual circumstances and the specific policy you choose.

Maximizing Savings

I find that younger people especially are not contributing enough to save for retirement and often not utilizing the best kind of account to maximize their saving efficiency. Here are some simple tips and hacks that can help bolster their savings:

  • Boil the frog slowly: I use this technique to help clients increase their savings over time and often deploy it with my 401(k) plan clients. Basically, I have client start by saving just enough to get the full employer match, usually 4% but that can vary. Then each calendar year, I suggest that they increase their deferral by 1%. So, in Year 2 they’d be withholding 5%; Year 3, 6%; and so on. Do this until they reach at least 10% withholding on their retirement savings. This can also be done for systematic monthly savings plans by using dollars.
  • Avoid over saving in the wrong account: Set clients up for success by helping them analyze what accounts to use and how much to save in each. Over saving in any one account can, potentially, limit liquidity and harm financial outcomes.
  • Make it automatic: Where clients can, insist on making their savings automatic. This removes tendencies to procrastinate or rationalize reasons to not save.
  • Be a cheerleader: This may seem awkward, but being a champion for your client’s success will help them build confidence in their plan. Acknowledge their wins and encourage them when they make great financial decisions.

Creating income streams with different tax treatments

Tax planning is also critical to retirement planning because it can help clients create income streams that are taxed differently. For example, some sources of retirement income are taxed as ordinary income, such as withdrawals from traditional IRAs and 401(k)s. Other sources of income, such as Social Security benefits and long-term capital gains, are taxed at a lower rate. By helping your clients create a diversified tax portfolio of retirement income sources, you can help them minimize their tax liability in retirement.

Taxes can be a scary and overwhelming part of any client’s financial plan. However, they are a critical element to create a better retirement plan. Take the steps to understand personal taxes and explore the myriad of tax tools available to you. By incorporating tax planning into your retirement-planning strategy, you will set yourself apart from many of your competitors.


Advisory services are offered through CS Planning, Corp., an SEC registered investment adviser.

This Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained on our Site constitutes a solicitation, recommendation, endorsement, or offer by Four Points Wealth Management or any third-party service provider to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction.

All Content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the Site constitutes professional and/or financial advice, nor does any information on the Site constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content on the Site before making any decisions based on such information or other Content. In exchange for using the Site, you agree not to hold Four Points Wealth Management, its affiliates, or any third-party service provider liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through the Site.