Accounting And Tax Clients Don’t Understand Their IRA

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According to IRS statistics, only approximately 15.2% of the U.S. population owns an IRA. While the average among those who do own them is over $27,000, 46 percent of those responding to a recent survey by TIAA-CREF don’t think they have enough money to save any more than they currently do.

But, experts say that it’s OK to start small: Of those who do have an IRA, nearly one-fifth contribute less than $250 each year.

These statics present an exceptional oppportunity for practitioners who double as asset managers, opening the door to larger and more lucrative tax planning opportunities.

“With so many competing financial priorities, it’s not surprising to find that Americans focus on their current needs,” said Kathie Andrade, chief executive officer of TIAA’s Retail Financial Services business. “But by learning about the tax benefits of contributing to an IRA, your tax clients may find they can take the sting out of saving for their long-term goals.”

With 91 percent of current IRA contributors reporting that they are confident about their retirement savings – compared to 64 percent of those not contributing to an IRA – the lack of understanding about IRA’s and how they work, leads many of your clients to miss out on a valuable tool that can help them feel more secure in their retirement preparations.

“By learning about the tax benefits of contributing to an IRA, they may find they can take the sting out of saving for their long-term goals” Andrade continued.

People who do have IRAs listed three factors as the biggest help getting started:

  • Personal support from a financial advisor (40 percent),
  • General educational information about IRAs (25 percent), and
  • A clear and simple process to open an IRA (10 percent).

Women especially value a personal relationship, with nearly half saying support from an advisor helped them start saving with an IRA.

One Practice Builder Publishing member, Rick S., located in Indianapolis, Indiana, includes asset management as a part of his practice, and notes that his personal and advisory services contribute significantly to his customer retention, and his revenue growth. Rick reports that currently, revenue from advisory services and asset management equals or exceeds his income from accounting and tax services.

It is this personal service that Rick, as a local practitioner, is able to provide clients, where firms like TIAA run the risk of seeming too large and aloof, unable to provide the personalized advice that independent advisors do.

Since 28 percent of Americans who don’t own an individual retirement account (IRA) say they don’t know enough about them to invest in one, and another 17 percent indicate that IRAs are too complicated, this service has the potential to act as a major client growth and retention means for local practitioners.

People who do have IRA’s aren’t necessarily using them efficiently. Nearly four in 10 of those with an IRA (37 percent) have more than one, with just over half (53 percent) saying that they hold IRAs at different financial institutions to balance risk.

This fragmentation offers a terrific opportunity for a tax preparer to increase efficiency and reduce expenses for their clients, advising about local or regional investment opportunities.

Another factor stopping the people who don’t use IRAs: 46 percent of those surveyed don’t think they have enough money to save any more than they currently do. It’s OK to start small: Of those who do have an IRA, nearly one-fifth contribute less than $250 each year.

But those who have the resources to save more may be making other choices worth reconsidering as they plan for the future. While a majority of IRA owners contribute more than $1,000 a year, only 5 percent contribute more than $5,000 a year to IRA’s—which have an annual contribution limit of $5,500—compared to 8 percent who spend that same amount on vacations.

Many Americans could use more information about the potential tax benefits that come with IRAs, as 44 percent of those surveyed say they don’t know about those benefits or don’t understand them. While seven in 10 Americans say they are aware of these potential tax benefits, only 54 percent say they actually understand them.

Learning more about these benefits could drive more to open an IRA: More than two in five of those who have no IRA, and also don’t know about the tax advantages, say they’d be more likely to consider one after learning about them. (Contributions to traditional IRAs may be tax deductible, and account owners don’t pay tax on any earnings until they make withdrawals.)

As a tax professional, offering tax advice on investments is part of your job, and doing it adds ‘stickiness’ to your client base. Expand that to become a financial planner, and you can not only nurture the stickiness, but increase your revenue

Join us here at Practice Builder Publishing and become a part of the community, whether you become a contributing author, a peer recruiter, or merely a raving devotee of the Practice Builder Publishing resources, I'll work with you personally so you can reach the goals you set.

Best to you and yours,




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