How To Talk To Clients About Options After They’ve Maxed Out Their 401(k)

When only astir one-third of non-retirees consciousness for illustration their status plans are connected track, you whitethorn beryllium amazed erstwhile a customer comes successful who is afloat backing their 401(k) and still has much to save. These unicorn clients whitethorn not look each day, but nan questions they inquire you astir status savings are ones you will apt spot many times successful your practice. 

This article and nan downloadable guideline linked beneath tin thief you hole for specified conversations and reply clients' questions astir what to do adjacent if they max retired their 401(k).

Download: Client-Advisor Discussion Guide: I've Maxed retired My 401(k). Now What?

Client: “What Investments Would Help Me Reach My Financial Goals?”

Don't presume that a customer who maxed retired their 401(k) has extended finance knowledge and wants to proceed maximizing savings for retirement. Before nan first meeting, nonstop nan customer a questionnaire to ascertain their consequence tolerance, goals, and accusation astir their existent investments and wide financial picture. 

These questionnaires not only supply a broad knowing of your client's financial situation, but they besides group nan shape for you, arsenic nan advisor, to proactively align their investments pinch their early needs. Regardless of their finance experience, your clients spot your expertise for recommendations. One effective measurement to show your proactive attack is to hole exemplary portfolios based connected their consequence tolerance successful advance, aligning pinch nan goals they person outlined successful their questionnaire.

Client: “Am I Eligible for a Roth IRA?”

If your customer knows capable to inquire if they're eligible for an IRA, you tin stake they cognize astatine slightest a small astir nan Roth IRA and why it's an charismatic status savings vehicle. You'll cognize whether they suffice for a Roth IRA erstwhile you spot nan answers connected their questionnaire, which will supply accusation from statement 11 of their astir caller 1040, tuition-related costs aliases deductions, student indebtedness interest, losses written disconnected from rental properties, aliases self-employment taxes they paid during nan year. 

If they do suffice for a Roth IRA, spell distant and conquer those status goals. If they do not suffice for a Roth IRA, don't conscionable reply "no." Consider your options: 

1. You tin urge a backdoor aliases mega-backdoor Roth IRA based connected their modified adjusted gross income and nan company's 401(k) scheme allowances. 

2. You tin high-five them and show them they are connected way for their status goals based connected nan accusation they person fixed you. You will revisit this successful your yearly review. 

It's important to statement that unless your customer intends to support a zero equilibrium successful nan relationship they're rolling complete from, nan pro rata rule of backdoor and mega-backdoor Roth IRAs tin beryllium analyzable and whitethorn require precocious accounting measures. A CPA tin thief clients guarantee these strategies don't backfire and pass them of nan imaginable risks involved.  

Client (for Married Couples): “How Can My Spouse and I Maximize Our Savings?”

Start by asking your clients if some spouses person earned income. If so, do some spouses person entree to company-sponsored status plans?  

Roth and accepted IRAs tin thief your clients maximize their status savings. While publication limits for IRAs are considerably little than 401(k)s, you tin usage portfolio modeling to create plans based connected each spouse's consequence tolerances to exemplify nan worth of IRAs and nan effect of dollar costs averaging and compounding interest. 

Maximizing savings is astir much than conscionable redeeming much money. It is astir redeeming money and utilizing that money to turn your relationship done finance products that see consequence tolerances and goals.

According to a study by nan Investment Company Institute (ICI) successful 2019, 60.2% of participants successful employer-sponsored plans held target-date funds. Chances are bully that you will brushwood galore clients successful your believe pinch their 401(k) successful these funds. Target-date costs aren't bad. In fact, they're awesome for galore investors, but are they nan champion finance to thief your clients maximize their savings successful nan agelong run? 

If some clients participate successful employer-sponsored status plans to astatine slightest nan matching contributions threshold, now is nan clip to adhd worth to your services by reviewing your clients' employer-sponsored status portfolios to guarantee their assets are allocated appropriately for their consequence tolerance successful value investments. 

Client: “When It’s Time To Retire, Do I Have To Take This Money?”

New IRS regulations made it truthful that Roth 401(k)s are nary longer taxable to required minimum distributions (RMDs) starting successful 2024, but accepted 401(k)s still person them starting astatine property 73, and RMDs are a root of angst for galore investors. We cognize Uncle Sam will get his trim from status accounts, truthful informing your clients successful accepted 401(k)s astir nan hefty 50% excise taxation if they don't return RMDs is conscionable bully business.  

Clients who inquire if they person to return this money either expect that they will not request it aliases are unsure what they should do pinch it if they do get it. 

As a trusted advisor, you person an opportunity to explain what happens to this money erstwhile it's withdrawn. A high-level reappraisal of 401(k) taxation and suggesting strategies for RMD funds, for illustration putting them successful a Roth IRA to turn tax-free, tin spell a agelong measurement toward easing your client's concerns. 

Client: “How Should I Best Allocate My Money Based connected My Risk Tolerance?”

As a prudent finance advisor, you should reappraisal your client’s employer-sponsored scheme to guarantee their portfolio reflects investments that make consciousness for their consequence tolerance. After you congratulate them for reaching maximum contributions, you mightiness besides show them a exemplary portfolio that tin springiness them an thought of what their relationship will look for illustration erstwhile they retire. These models are based connected past capacity and will apt show much blimpish investments erstwhile nan customer is person to retirement. 

Because you cognize your client, you recognize that they astir apt person immoderate goals unrelated to conscionable retiring. They whitethorn want to build a house, return a dream vacation, aliases put kids done college, to sanction a fewer priorities. This is nan constituent successful your speech wherever you request to show them what redeeming for their different goals looks like, too, utilizing different investments that are due based connected their consequence tolerance. Additionally, you tin exemplary portfolios because, ultimately, really overmuch they person to invest, their consequence tolerance, their goals, and erstwhile they request nan money dictates what investments are champion for them. 

The Bottom Line

When you brushwood a uncommon customer who has maxed retired their 401(k) and wants proposal connected really to proceed saving, usage nan opportunity to show your expertise and thief them enactment nan course. 

By knowing clients' financial goals, consequence tolerance, and existent investments, you tin connection applicable proposal that's much analyzable than what you would supply an mean investor. Whether that intends exploring backdoor and mega-backdoor Roth IRAs, optimizing spousal status contributions, aliases strategically readying for required minimum distributions, you tin thief clients navigate nan complexities and supply clear, actionable recommendations that thief them make nan astir of their hard-earned savings.