As the so-called "fiscal cliff" looms, and the debate continues about whether to solve the country's fiscal woes with tax increases and/or spending cuts, a third option to help the situation is also emerging: do a better job collecting the taxes already due under the laws as they're written now. In the latest such shift, the word is out that the IRS is becoming less and less lenient regarding IRA mistakes, given the significant potential penalties involved - for instance, failing to take a required minimum distribution results in a penalty that is a whopping 50% of the RMD itself, and the penalty for an improper IRA contribution is 6%, per year, potentially accumulating for years on end. And there is potential that the IRS' efforts could extend further, leading to a crackdown on perceived abusive IRA strategies. As a result, clients should be more cautious than ever to comply properly with all IRA rules, including the timely distribution of RMDs, and proper compliance with all IRA contribution and rollover limits, and be wary of aggressive IRA strategies. From the planner's perspective, it's more important than ever to not only help clients comply properly with the rules, but to be cautious about giving accurate IRA advice, or run the risk that if the client ends out with IRS penalties, that the advisor - or his/her E&O insurance - may end out sharing in the high penalty cost to fix the mistake.Read More...
It is an experience that almost any financial planner has gone through at some point: a prospective client who is totally disconnected from reality. Unreasonable expectations, completely unrealistic goals, and an obsession with the latest get rich quick investing scheme. Sometimes, the prospect can be guided in a more reasonable direction, but often there's just no connection to be made, and we show the prospective client the door, acknowledging that some people we just can't help. We move on to the next prospect, who hopefully won't be such a "bad" future client.
Yet I have to wonder... given the state of financial literacy - or lack thereof - in the United States, many such prospective clients have totally impossible expectations and goals not because they're being irrational, but simply due to financial ignorance. And by excluding such prospective client relationships, are financial planners themselves excluding the majority of Americans as potential clients?
Because if that's the case - that we as financial planners have put ourselves in a position than we can't help the majority of all Americans - then I also have to wonder if maybe it's not the the prospective clients who have the problem... maybe WE are the ones with the problem?
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