AICPA Survey: Retirement Savings a Key Focus for Wealthy

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A recent American Institute of CPAs (AICPA) survey on wealthier Americans reveals that 63 percent will likely adjust their financial plans to meet changes in tax policy and about half believe that working with a professional who has significant tax expertise could help them meet their financial goals.

The online survey was conducted for the AICPA by the Harris Poll from Sept. 26 to Oct. 10 — before the new tax-reform law was voted on and enacted, including last-minute changes made on the floor during the December vote. The survey involved 507 U.S. adults who have either $250,000 in investable assets or more than $200,000 in household income.

“Given the sharp bite taxes can take out of returns, the importance of structuring investments and income-generating savings in a tax-efficient manner cannot be overstated,” said Andrea Millar, CPA/PFS, director of the AICPA’s Personal Financial Planning Division, in a statement. “However, taxes have an impact on all aspects of a financial plan, from retirement to medical care to charitable giving.”

Here’s how survey respondents ranked the most important aspects of their financial plans:

  • Retirement savings or income: 68 percent
  • Tax efficiency of savings and investments: 43 percent
  • Health care plan: 39 percent
  • Achieving investment return goals: 36 percent
  • Estate planning: 26 percent

The AICPA pointed in particular to the second item, noting that only 43.5 percent of affluent adults’ total investments and retirement savings are in tax-qualified accounts or tax-favored investments. Yet, while most of the respondents indicated that they would be more likely to reach at least one of their financial goals with a tax-efficient financial plan, only 25 percent said they would be more likely to give a bigger inheritance to the kids or grandchildren, and 18 percent said they’d be more likely to pay for college expenses.

In the wake of the new tax law, financial planners who also are CPAs offered this investment advice:

  • Charitable contributions: Combine a few years of contributions in a Donor Advised Fund rather than making them yearly. That should help exceed the standard deduction.
  • Home Equity Loan or Line of Credit:  Taxpayers with a balance on these accounts should consider paying them off quicker. The interest paid on money used for anything besides buying or improving the house won’t be deductible as mortgage interest. That means a higher effective rate than when paid interest could reduce taxable income.
  • 20 Percent Deduction Against Qualified Business Income: This deduction can be a big one for businesses that qualify but record-keeping and documentation will be especially important because paid wages and cost basis will be considered in the calculation.
  • Lifetime gifting: Estate, gift and generation-skipping transfer tax exemptions doubled to $10 million adjusted for inflation.  Clients will need to determine if it makes sense to gift assets during life and remove the future appreciation for their estate, or retain the assets until death and receive a step-up in cost basis.
  • Estate plans: The transfer tax exemption — once $5 million — is now $10 million, adjusted for inflation. So it may be that the entire value of the estate will transfer to the exemption trust and nothing passes to the beneficiary. And the beneficiary may not want to have the funds tied up in trust.

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.

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