Financial Planning Guide: What to Discuss with Your Financial Advisor Annually (Part 1)

Year End Review - What Your Financial Advisor Should Discuss (Part 1)

When working with a financial advisor, there are two important reviews you want to be included in your fees – the annual review and a year-end review. The annual review should cover your financial plans and adjust for any life or financial goal changes you have in mind. The year-end review should prepare you for tax season so that you are not caught off-guard by high taxes based on actions your financial advisor did – or did not – take on your behalf. 

In this two-part article, we will first review the coordination between your financial planner and your tax planner, whether converting your IRA may be a good option, explain tax harvesting, and planning for required minimum distributions from your retirement accounts. Part 2 will cover charitable contributions, capital gains distributions, and reviewing your withholdings when conducting your year-end review with your advisors.   

Why Your Financial Planner Should Work With Your CPA

A good financial planner will work closely with your CPA (Certified Public Accountant) to ensure the best decisions are made regarding your financial accounts and taxes. Your planner may recommend selling certain stocks so that gains can be offset by losses, moving money from or into specific retirement accounts, and making charitable contributions that also have tax benefits for you. 

Your CPA’s expertise as a tax professional can help guide your financial planner’s recommendations. For example, if the CPA tells your advisor you are in the lowest tax bracket of 10%, your advisor should look for ways to maximize that low 10% bracket. One option might be to take money from your retirement account early instead of waiting until later when you estimate being in a higher tax bracket. Another option could be to harvest gains from your portfolio since capital gains are not taxed when your income is in the 10% income tax bracket. 

Your financial planner should also be looking ahead to when you – or your beneficiaries – must begin taking required minimum distributions from your IRA (in 2020 the minimum age went up to 72 years old). There is a 50% penalty plus tax if you do not take distributions. Additionally, that distribution amount may push your income into a higher tax bracket, leading to more taxes due at tax time.  

Converting to a Roth IRA May Be a Good Tax-Saving Option 

Roth IRA accounts have several benefits. They offer tax-free withdrawals in retirement, have no required minimum distributions, and there is an option to leave an income-tax-free legacy to your beneficiary (child or grandchild, for example). If your CPA determines you have retirement money that can be converted to a Roth IRA, this may be a good option to save you from paying more in taxes. 

Important note: If you currently have a Traditional IRA account you wish to convert to a Roth IRA, there may be tax ramifications. The converted amount may be subject to income taxation, and there are age and income restrictions when converting from a Traditional to a Roth IRA. Plan ahead by putting money aside at the time of withdrawal for the taxes owed so there is no unpleasant surprise at tax time. Once you convert to a Roth IRA, you cannot revert the money back to your Traditional IRA.

If you are a business owner, you want to have your financial planner move money into a 401K or IRA before the end of the year deadlines. You cannot do it after December 31 to count towards your taxes for that calendar year. 

What is Tax Harvesting? 

Tax harvesting occurs when securities are sold at a loss to offset a capital gains tax liability. It is typically used to reduce the amount of federal income tax due from short-term capital gains, which are normally taxed at higher rates than long-term capital gains. Tax harvesting can be an incredibly valuable tool for many investors by helping to reduce taxes now and in the future. 

When working with your financial planner to make these decisions, keep in mind that a CERTIFIED FINANCIAL PLANNER™ is a fiduciary. This means they must make recommendations that are in your best interest, not theirs. That means the decision to sell securities for the purpose of tax harvesting should be carefully considered since the timing of when to sell is crucial. Your tax advisor should be consulted before making these final decisions to prevent unexpected and unplanned consequences to your tax returns. 

In some instances, you may have a stock you want to keep in your portfolio but it had a bad year. Let’s use Boeing as an example. If you consider them a good investment overall but recognize they had a bad year, you might consider harvesting some of those losses on your taxes. One option your advisor might recommend would be to sell Boeing, capture the losses, then 31 days later, buy Boeing back. Tax harvesting means finding the gains and losses throughout your portfolio so they offset each other. 

Planning for Required Minimum Distributions from Retirement Accounts

Important note: Required minimum distributions (RMD) were not required in 2020 due to the CARES Act which waived RMD requirements. 

When conducting a year-end review with your financial planner, it is important to look ahead to when required minimum distributions will begin. The Internal Revenue Service (IRS) requires distributions from your retirement accounts by April 1 of the year after you reach age 72 (or age 70½ if you reach that age before Jan 1, 2020). The distributions must be taken by December 31 each year after that. This means you will have two RMDs the year after you reach age 72. 

Talk to your advisor about when to take these distributions to avoid having both amounts included in your income for the same year, which may impact your tax liability. You also want to ensure you take the distributions to avoid penalties, which are 50% of the amount of the required distribution plus taxes. 

You can visit the IRS website to learn more about what happens if the RMD is not taken: 

Need More Information? 

Call us to learn more, ask questions about your specific circumstances, and determine if we are the right fit for you. Our phone number is 813-556-7171. We can also be reached by email at

Elijah Heath, CERTIFIED FINANCIAL PLANNER™ (CFP®), is a *fiduciary with an ethical obligation to provide information, products, and services in your best interest, not what earns him the best fee or commission. Heath Wealth Management wants to be your advisor for life so you, your children, and your grandchildren all benefit from the relationship.

Click here to read Part 1 of “What Should Your Financial Advisor Discuss in Your Year-End Review?” 

This information is not intended to be a substitute for specific individualized tax advice.

We suggest that you discuss your specific tax issues with a qualified tax advisor.

*Fiduciary services are for advisory relationships only.