Financial Health: 3 Financial Cautions You Need to Take Before Tax Season

Posted On Tuesday, 02 April 2019
Financial Health: 3 Financial Cautions You Need to Take Before Tax Season

Navigating your investments during tax season can be tricky.

Many people feel pressured to make financial decisions about retirement contributions and other funds based on potential tax breaks, without understanding the long-term ramifications of their decisions, or knowing the right questions to ask that should be directed to a financial adviser, and not necessarily your accountant.

Here are three financial cautions to take before tax season:

1) Don’t Forgo Making a Retirement Contribution
You have until April 15, 2019, to make a contribution to either a Traditional IRA, Roth, or SEP IRA (Best for solo business owners). The limits on the IRA and Roth are $5,500 each ($6,500 if you are over 50), and the SEP could allow you to save up to $55,000. There are income phase outs, so make sure you are eligible to contribute. In general, if you are single and have more than $40,000 of adjusted gross income or if you are married and have more than $80,000 of AGI, choose the Traditional IRA over the Roth. (The Roth is often mistakenly listed as the best choice, but this actually not the case for many of us. Learn more.)

2) Don’t Think You Are Out of Options if Your Income is Too High
If you are maxing out all of your available retirement accounts and you are phased out of contributing to an IRA, but you still have money that you want to contribute to retirement, consider making a backdoor Roth Contribution. You make a nondeductible contribution to an IRA, then convert that money to a Roth. There are several moving parts to this, so it is best to read up on it and have a certified public accountant that is familiar with the procedure. (Despite the name, this is a perfectly legal strategy, as the IRS has published specific guidance on it.)

3) Don’t Rely on Financial Advice From a Salesperson
Unfortunately, more than 85% of financial advisers and advisory firms are salespeople, which means that it is likely that your financial advice isn’t completely best for you. If a firm is a brokerage or insurance company, for example, if you are working with a financial adviser at Merrill Lynch or Northwestern Mutual, they are a salesperson giving you advice, and they are not obligated to look out for your best interest. Instead, get to know the word fiduciary, as it is quite arguably the most important word in wealth management.

Fiduciary originates from the Latin word, fidere, which means “to trust.” Fiduciary isn’t just a financial word, as it applies to any situation in which one person justifiably places confidence and trust in someone else and seeks that person’s help or advice in some matter. A financial fiduciary must act in the best interests of the other person at all times. If they violate this, they can be sued for breach of duty. Because of this, fiduciaries tend to be the most educated practitioners in financial advising, as they must have the expertise to be confident that they can legally back up their advice to you.

So, why wouldn’t all wealth managers and financial advisers want to be fiduciaries? Because they don’t want the liability. Taking a legal oath that you know what is best for someone requires tremendous expertise and confidence, and you are only going to take on such a responsibility when you are sure you can deliver. Therefore, when selecting a wealth management firm, it makes sense to choose one that will take on a fiduciary responsibility for you at all times, as it will most likely improve your result.

James Di Virgilio, CIMA®, CFP®

James Di Virgilio, CIMA®, CFP®, is one of the country’s leading fiduciary investors and financial planners. He is the co-founder of Chacon Diaz & Di Virgilio Wealth Management, a fiduciary firm that serves as legal guardians in financial matters for their clients, a claim that fewer than 15% of financial firms can make. Di Virgilio is a certified Investment Management Analyst®, a certification that only 2% of investors earn, having completed the education program at The Wharton School of Business at the University of Pennsylvania. Additionally, he is a Certified Financial Planner™, CFP®, a level of training that only 20% of financial planners obtain. Di Virgilio is ranked among the industry elite by having acquired both the CIMA® and the CFP®, which only 1% hold. Since graduating cum laude in 2004, Di Virgilio was named a Gator 100 Honoree for one of the fastest growing companies founded by a University of Florida Alum. He also holds a master’s degree in management from the University of Florida.

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