Helping clients generate cashflow in retirement plans.
1. CPAs need to focus on one segment of the retirement plan marketplace. IRAs are a good place to begin, as they are the fastest growing segment of that market. The increase in IRAs is due to (1) employees being able to withdraw funds from employer-sponsored retirement plans (while still employed) and roll them into IRAs for greater investment choices and (2) the large number of baby boomers expected to retire in the next few years. An estimated $1.3 trillion will flaw from qualified retirement plans into IRAs; thus, the majority of qualified plan participants will he looking for advice at the time of rollover.
2. Tax advisers should determine method of compensation--through either planning or consulting fees. It may also he possible to receive referral fees from investment companies in which clients invest.
3. CPAs should investigate alternative investment options, by contacting local private lenders, mortgage brokers and reel estate brokers or researching the Internet. For example, the California Department of Real Estate has an excellent publication, "Trust Deed Investments: What You Should Know" (available at www.dre.ca.gov/trust.htm).
4. Which transactions are prohibited inside an IRA? The Sec. 4975 prohibited transaction rules are intended to (1) ensure that IRA assets are invested to benefit the plan and (2) prevent a serf-serving use of such assets. Although the definition of a prohibited transaction is complex, basically, under Sec. 4975(c), an IRA may not, directly or indirectly, sell, exchange or lease any property to an IRA accountholder or a disqualified person (as defined in Sec. 4975(e)(2)) (i.e., the IRA holder and his or her spouse, ancestors, lineal descendants and their spouses; investment advisers and managers; any corporation, partnership, trust or estate in which the IRA holder has at least a 50% interest; and anyone providing services to the IRA, such as the trustee or custodian).
5. Tax advisers should ask clients to sign a disclosure agreement. An attorney can draft it; the language can he as simple as:
In addition to any planning/consulting fees, we may receive other types of compensation directly from the product source. In most situations, these fees will not affect the yield you will receive on your investments.
6. CPAs should offer clients several investment options and allow them to make the final choice. This will help appease clients' newfound interest in directing their own investments, while at the same time reducing liability exposure.
7. Once the tax adviser has presented the cashflow solutions and the client has made his or her choice(s), the practitioner will need to find n self-directed IRA custodian (SDIRA). Typically, SDIRA custodians are financial services companies (e.g., banks, brokerage firms and mutual fund and trust companies). Under such arrangements, the IRA accountholder, rather than the custodian, decides how to invest the funds.
Most firms today claim to provide self-directed IRAs; however, the majority restrict investments to those publicly traded. CPAs should look for an independent (i.e., non-product-source) IRA custodian, to enable investors to select from a wider range of options. Over a dozen such companies are located in the U.S.
Offering self-directed assets is a natural extension of the services many CPAs provide. By offering clients even more options, CPAs will continue to build value for their services and become indispensable. For more information, see www.trustlynk.com.
James R. Wagner, J.D., President and Chief Executive Officer, Trust Administration Services Corp., Carlsbad, CA
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|Author:||Wagner, James R.|
|Publication:||The Tax Adviser|
|Date:||Dec 1, 2004|
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