5 Questions to Ask Your Advisor Now
November 26, 2019
NOW MIGHT BE A GOOD TIME to check in with your financial advisor about where you stand—and what you might want to consider doing differently going forward.
You can use the following 5 questions to help inform that important conversation. The answers could help you plan ahead for any life changes (getting married? buying a home? starting a new job?), respond thoughtfully to fluctuations in the markets and maybe even lower your tax bill.
Merrill, its affiliates and financial advisors do not provide legal, tax or accounting advice.
Are there financial steps I can take to potentially lower my tax bill?
Up to 90% of individuals will claim the standard income-tax deduction rather than itemizing in 20191, says Ben Storey, director of Retirement Thought Leadership at Bank of America. But even if you aren’t itemizing, there are ways to reduce your taxable income. For instance, consider making an additional contribution to an IRA before next year’s tax day. Harvesting tax losses to offset capital gains might also help you trim your tax bill. And bundling several years of charitable contributions into a donor advised fund (DAF) could help you exceed the standard deduction. DAFs let you claim an immediate deduction and make decisions about where you want the money to go later on. Check in with your tax pro about all of these ideas, Storey suggests.
The Health Savings Account, known primarily as a tax-efficient vehicle for covering medical expenses, is an often-overlooked way to boost retirement savings.director of Retirement Thought Leadership at Bank of America
Am I saving enough for the retirement I want?
People are living longer, and need to save enough to get through a retirement that could last 30 years, Storey says. So, if you’ve gotten a raise or a bonus this year, consider increasing the percent you contribute to your 401(k) or other workplace retirement plan. Adding an IRA or Roth IRA to your retirement mix could provide both tax and retirement advantages. “And the Health Savings Account (HSA), known primarily as a tax-efficient vehicle for covering medical expenses, is an often-overlooked way to boost retirement savings,” Storey adds. You contribute pre-tax dollars to the account, don’t pay taxes when you use the money for qualified medical expenses, and your investment also grows tax-free. When you turn 65, you can withdraw the funds for retirement, as needed, with no penalty.
Do I need to start taking RMDs this year?
“Once you reach age 72, you’re legally obligated to take annual required minimum distributions (RMDs) from any IRAs and qualified retirement plan accounts, such as a 401(k) plans. RMDs are required by April 1 of the year after you turn 72.2 Subsequent RMDs would then come due by December 31st each year. If you delay taking your first RMD until the following year, you will be required to take two RMDs in the same tax year, which may have an impact on your tax bracket and Medicare premiums. If you’re still working, you may be able to postpone taking RMDs from your current employer’s qualified retirement plan accounts until you fully retire – if the plan rules permit.
The SECURE Act, which went into effect January 1, 2020, has significantly changed the rules regarding RMDs, so speak with a tax advisor before taking any distributions.2 If taking RMDs pushes you into a higher tax bracket, you can consider dedicating part of an RMD (from an IRA only) as a charitable gift, Storey suggests. There are also some specific rules that need to be followed—your tax professional can help with that. RMDs sent directly from an IRA to a qualified charity are not counted as income for Federal tax purposes.
What other life events should I be planning for?
Working with your advisor to plan ahead for the unexpected can help you keep your financial goals on track. Some major milestones or changes could include rising healthcare costs as you age, becoming a caregiver for a loved one, widowhood, and establishing your end-of-life legacy. As you discuss the future with your advisor, consider the financial implications of such major changes. For instance, if you become a caregiver, will that mean you have to limit the hours that you work? How can you plan ahead for the lost income?
Should I consider rebalancing my portfolio?
The current bull market has been going for more than a decade now, making it the longest in history. That means that the equity portion of your portfolio may no longer be in sync with your risk tolerance. But you can periodically review and adjust the percent invested in equities versus fixed income or cash—a process called rebalancing.
“You and your advisor will likely be connecting throughout the year to discuss any opportunities, risks and life changes that may come up. But this kind of big-picture annual financial checkup is a good time to pressure test your risk tolerance, as well as review your goals and how much time you have to pursue them,” Storey says. "So plan to ask these questions all over again, same time next year.”
For more insights on how an advisor can help you pursue your goals, read “What Can an Advisor Do for Me?”
1 The Urban-Bookings Tax Policy Center, “Tax Policy Center Briefing Book Key Elements of the U.S. Tax System,” Page 138, 2018.
2If you were age 70 ½ or older as of 12/31/2019, you would be required to take a required minimum distribution (“RMD”) for 2019. Effective 1/1/2020, in accordance with new legislation, the required beginning date for RMDs for individuals who turn age 70 ½ on or after 1/1/20 is age 72. You may defer your first RMD until April 1st in the year after you turn age 70 ½ or 72, as applicable, but then you’d be required to take two distributions in that year.
Merrill, its affiliates and financial advisors do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisor before making any financial decisions.
