Ed Slott's top 5 ways to add tax, retirement planning value in 2024

5 ways to be a tax planning 'rockstar'

January 30, 2024 3:00 PM

Ed Slott speaking at 2024 Technology Tools for Today conference — Ed Slott speaking at the 2024 Technology Tools for Today (T3) Conference in Las Vegas.

Many advisors decline to characterize themselves tax planners, acting almost as if the service was their "kryptonite," said Ed Slott, president and founder of retirement planning outfit Ed Slott and Company. But they're doing themselves a huge disservice, he said.

"If you touch an IRA, you're doing tax planning. If you advise on an IRA contribution, you're doing tax planning. If you advise on a Roth conversion, you're doing tax planning. If you advise beneficiaries on inherited rules, which are so complicated, you're doing tax planning.

"So either admit it or get out of the business, because that's where all the money is, and that's where all the value is, because it's so complicated," Slott said.

Slott, who described himself as a "recovering accountant," took the stage at the Technology Tools for Today (T3) Conference in Las Vegas on Jan. 22 to deliver an hourlong rapid-fire crash course in tax planning for 2024.

"Here's what I mean," Slott said. "There's a big difference between tax preparation and tax planning. … Most CPAs — tax preparers, not planners — are really just history teachers. They tell you what's already happened. Where's the value in that? Obviously, I can tell you what the value of that is: zero. How do I know? Because I just watched all the football games last week, and every ad was 'Do your taxes for free.'"

Between lighthearted jokes about bad commercial flights and the Sports Illustrated swimsuit edition, Slott exhorted the audience to deepen their education and experience so they could become "rockstar" tax planners, not preparers, for their clients.

"Retirement money is like an eggshell: You break it, it's over — you don't get a lot of second chances," he said. "And the rules are very complex."

Slott cited a recent case in which he said the advisors helping a wealthy client "made every possible mistake that could be made," including blowing the 60-day rollover rule, the once-per-year rollover rule and the same property rule. The errors cost the estate, that of actor James Caan, more than a million dollars, he said.

"Taxes will be the single biggest factor that separates people from their retirement dreams. And that's why they're relying on you."

The former Financial Planning contributor identified five top areas of opportunity for planners in 2024. Scroll down to learn more.

Demographic ‘sweet spot’

The Census Bureau predicts that by 2030, every baby boomer in America will have turned 65 — a significant demographic turning point for the country. With more than 11,000 Americans turning 65 every day, that opens a big door for planners, Slott said. "More people need your services than ever before."

Many of these people are now older than 59½, the age at which they can start withdrawing money penalty-free from retirement accounts, but also younger than age 73, when they have to begin taking required minimum distributions.

"This is the middle, the sweet spot, and that's where they all are," Slott said. "So you have the most flexibility in planning."

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"This is also the first generation of people that actually are coming into retirement with account balances" instead of pensions, Slott said. "There are issues with balances, especially large retirement accounts, all subject to tax."

Rollover issues

The tens of thousands of layoffs across U.S. industries in early 2024 present another opportunity for planners, Slott said, because "layoffs mean rollovers," and people need help with those rollovers.

"They need advice. Should I roll it over? Do I have company stock in the 401(k)? Maybe I can take advantage of the NUA [net unrealized appreciation] tax break."

Having deep knowledge of the tax and retirement landscape is crucial to a planner being able to help clients in these situations, Slott said.

"There are a bunch of options; it's not just rolling to an IRA," he said. "But you've got to bring the goods. This is where they're counting on you to be a rockstar. But you can't fake it, can't lip sync, can't play air guitar. You've got to bring the goods."

Stock market

The stock market closed out 2023 with record year-end values.

"What does that mean for your clients this year that are taking RMDs?" Slott asked. Their distributions — and therefore taxes — would likely go up, as the RMD for 2024 is based on its value as of the end of 2023.

"Most people that have highly appreciated company stock in their 401(k)s have lots of it. And with the market up, that's a new opportunity for '24," Slott said.

It could be a good time to help clients get more money out of retirement accounts.

"The market is up — maybe take some of those gains off the table and lock in guaranteed income. As people get older, if the market crashes, they don't have the years to recover. Protect them now — maybe fixed income, annuities and things like that."

Tax rates

"We're in the lowest tax rates you may ever see in your lifetime," Slott said. "You should be connecting with clients that have the largest IRAs … or 401(k)s. Why? Because more of that money is going to be subject to future taxes. And it's a limited-time offer. Get it now. Why? In 2026, rates are supposed to go up."

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"Get that money out when the rates are the lowest. That's the fundamental principle of saving taxes — helping clients and their beneficiaries keep more of their hard earned savings."

Slott advised planners to constantly check on ways to save clients money.

"You should have a copy of the tax rates, the brackets, on your desk at all times, especially when you're thinking about things like Roth conversions, because you should be looking at ways to get money out of those IRAs when rates are low. This is how you save people money, long term."

Secure Act and RMDs

By eliminating the stretch IRA and implementing a 10-year rule for distributions, the Secure Act upended retirement planning. One result is that there's room for professionals to show their value to clients with issues like required minimum distributions.

"People are confused about the 10-year rule. Do I have to take RMDs? What about the successor beneficiary? There are so many questions. I don't know why it's so hard to get money out of an IRA. But we know for a fact it's one of the worst vehicles for transferring wealth. That's what you have to help [clients] do."

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"The M in RMD stands for what? Minimum, but it doesn't stand for maximum. Why not take more than you have to, if you can get the money out at low rates? [The] No. 1 mistake people make is leaving too much money on the table," Slott said.