“Don’t hire a financial advisor, it’s expensive”
I see posts like this all the time
But… what if the mistakes you make are way, way more costly than the advisor?
Sure, I can agree that people with really simple situations may not need an ongoing advisor
But people with complexity, that’s a different story
To show the power of working with an advisor, I am going to share 5 mistakes I have come across from people that have a huge impact.
All of these would be easily avoidable by working with the right planner
A person came to me post a business sale. They built a really cool business and sold for quite a large dollar amount. The problem, they never worked with anyone and did not realize that both him and his spouse could have been setup as a C Corp and both received nearly $10mil without paying any tax. The difference was millions dollars lost in taxes because they did not hire financial help
This person had an amazing career as an executive. They saved and invested a ton in pre-tax accounts and are setup to have a tax bomb down the line. This person then was laid off and had a couple years that they just took off, enjoyed life, hung with kids, etc.
During that time, they did not realize they could be converting these large accounts from pre-tax to post tax and using up the 0%-24% brackets each year.
They are not back to work and making a good income and do not have this opportunity. Moving this money to Roth at a low effective rate and then letting it compound for the next couple decades could have been a game changer
This person moved to S Corp years ago and followed the advice of friends to pay the lowest reasonable salary of $50k (red flag already).
But what they did not know is that this led to only a $25k deduction from QBID. When in reality, depending on the year, they should have paid themselves between $250k-$350k.
That means each of those years they missed out on $100k-$150k in deductions. That is the difference of $37k-$55.5k in tax savings per year
Talk about a missed opportunity. This also does not factor in adding a retirement account and deferring more based on salary.
Asset location is about putting the right investments in the right accounts.
This person had all equities in their pre-tax 401(k)’s, mostly all bonds in their Roth, and then in their taxable account they had reits, high dividend funds, etc.
This is pretty much the exact opposite as you want. You want:
This will lead to way, way more in taxes vs optimizing and having great tax location
A young person started a business that got funded. They did not know that they could file an 83(b) election to “pay” tax now at a really low valuation
Because of this, down the line when the stock became theirs and was worth $5+ million, they had a massive tax liability to be paid
Yet they did not have the funds for this at all. The only wealth they had was from the valuation of this company.
This creates a really tough position to be in
See all of these are easily avoidable by working with the right professionals
It’s the reason great advisors are in demand, have waitlists, etc.
The impact can be massive!
Disclaimer: None of this should be seen as advice. This is all for informational purposes. Consult your legal, tax , and financial team before making any changes to your financial plan.
Financial Advisor