A financial decision can be beneficial from one perspective but harmful from another.
An investment sale may reduce portfolio risk while creating a large tax bill. A strategy that lowers this year’s taxes may produce much larger required distributions later. A strong investment portfolio may still fail if the retiree must sell assets during a market decline.
That is why retirement planning often requires coordination among:
- A CFP professional for the overall financial plan.
- A CFA charterholder or qualified investment adviser for portfolio management.
- A CPA for tax projections, compliance, and IRS matters.
One decision can have several consequences
Consider a Roth conversion:
- The CFP professional determines whether the conversion supports the retiree’s lifetime income and estate goals.
- The CPA calculates the federal, state, and Medicare-related tax consequences.
- The investment professional determines which assets should be converted and how the Roth IRA should be invested.
If only one perspective is considered, the retiree may receive an incomplete recommendation.
Case study 1: An oversized Roth conversion
Maria, 68, has:
- $80,000 of annual income from Social Security, pension, and investments.
- $1.2 million in traditional retirement accounts.
- $200,000 in cash.
- Medicare coverage.
Her investment adviser recommends converting $250,000 from her traditional IRA to a Roth IRA because qualified Roth withdrawals can eventually be tax-free.
The mistake
Most of the conversion will be included in Maria’s taxable income for that year. The conversion could:
- Push Maria into higher federal and state tax brackets.
- Increase the taxation of other income.
- Trigger higher Medicare Part B and Part D premiums later.
- Require Maria to use a large portion of her cash to pay taxes.
- Reduce the emergency reserves available for medical or living expenses.
Roth conversions are generally taxable in the year of conversion. (IRS Publication 590-A) Medicare’s income-related premium calculations generally use tax information from two years earlier. (Social Security Administration)
A better approach
- The CFP determines whether the conversion supports Maria’s long-term plan.
- The CPA models several conversion amounts.
- The investment manager determines which assets should be placed in the Roth IRA.
The coordinated recommendation might be several smaller conversions over multiple years instead of one $250,000 conversion.
Case study 2: Diversification creates a major tax bill
David, 72, owns $700,000 of one technology stock. His original tax basis is only $100,000.
Holding so much money in one company exposes David to serious investment risk. His adviser recommends selling the entire position immediately.
The mistake
Although diversification may be appropriate, selling everything at once would realize approximately $600,000 in capital gain.
The sale could:
- Produce substantial federal and state capital-gains taxes.
- Trigger the net investment income tax.
- Increase future Medicare premiums.
- Require large estimated-tax payments.
- Leave less money available to reinvest.
- Interfere with David’s charitable and estate-planning objectives.
The investment recommendation may be reasonable, but it should not be implemented without tax analysis.
A better approach
The investment professional determines how urgently the concentrated risk must be reduced. The CPA then compares alternatives such as:
- Selling the stock over several tax years.
- Selecting particular tax lots.
- Using available capital losses.
- Donating appreciated shares if David is charitably inclined.
- Considering an appropriate hedging or diversification strategy.
- Coordinating the sale with David’s estate plan.
The CFP evaluates which approach best supports David’s income, family, and charitable goals.
Case study 3: Minimizing today’s taxes creates a future tax problem
Robert and Linda retire at 65 with $1.6 million in traditional IRAs. Their CPA recommends avoiding IRA withdrawals because every taxable distribution increases their current tax bill.
They live entirely from cash and taxable investments.
The mistake
The strategy reduces current taxes, but the traditional IRAs continue to grow. When RMDs begin, Robert and Linda could be required to take much larger taxable distributions.
If one spouse dies, the survivor may face:
- Less favorable tax brackets as a single taxpayer.
- Higher taxable IRA distributions.
- Higher Medicare premiums.
- Less flexibility to control taxable income.
Traditional IRA owners generally must begin RMDs at the applicable age, while original Roth IRA owners generally do not have lifetime RMDs. (IRS RMD guidance)
A better approach
A CFP and CPA could compare:
- Spending from taxable accounts first.
- Taking voluntary IRA distributions.
- Completing partial Roth conversions during lower-income years.
- Maintaining sufficient cash reserves.
- Planning for the surviving spouse’s future tax situation.
The objective should be to manage lifetime taxes—not simply generate the lowest possible tax bill this year.
Case study 4: A good portfolio fails the retirement-income plan
Susan, 70, needs $75,000 annually from a $1.5 million portfolio. Her investment specialist builds a growth-oriented portfolio expected to produce strong long-term returns.
However, no one establishes a cash reserve or withdrawal policy.
The mistake
A severe market decline occurs during Susan’s first years of retirement. Because she needs money for living expenses, she must sell investments while their values are depressed.
This creates sequence-of-returns risk. Withdrawals and investment losses occur simultaneously, leaving less money in the portfolio to participate in a future recovery.
The portfolio may have been reasonable as a collection of investments, but it was incomplete as a retirement-income system.
A better approach
- The CFP identifies Susan’s essential and discretionary expenses.
- The investment manager designs the portfolio around those cash-flow needs.
- The team establishes short-term liquidity and rebalancing rules.
- The CPA determines which accounts and investments provide the most tax-efficient withdrawals.
Case study 5: A retiree misses a valuable charitable strategy
Henry, 75, gives $20,000 to his church every year. He takes his RMD, deposits the money into his checking account, and then writes a personal check to the church.
The mistake
The IRA distribution is generally included in Henry’s income. He may not receive the full benefit of the charitable deduction, especially if he claims the standard deduction.
The additional income may also affect other tax calculations and Medicare premiums.
A properly completed qualified charitable distribution, or QCD, may count toward an eligible retiree’s RMD while being excluded from income, subject to applicable rules and limits. (IRS IRA guidance)
A better approach
- The CFP confirms that the donation fits Henry’s retirement plan.
- The CPA verifies QCD eligibility and proper tax reporting.
- The IRA custodian sends the donation directly to the qualifying charity.
- Henry retains the required charitable documentation.
Who should lead each decision?
| Retirement decision | Lead professional | Additional review |
|---|---|---|
| Complete retirement-income plan | CFP | CPA and investment adviser |
| Social Security and pension timing | CFP | CPA when taxes materially affect the decision |
| Roth conversion | CFP and CPA | Investment manager |
| Sale of stock, business, or property | CPA and investment adviser | CFP |
| Portfolio construction | CFA or qualified investment adviser | CFP and CPA |
| RMD and withdrawal strategy | CFP and CPA | Investment manager |
| Tax return or IRS problem | CPA | CFP if it changes the retirement plan |
| Estate documents and trusts | Estate-planning attorney | CFP and CPA |
| Long-term-care funding | CFP and insurance specialist | CPA |
| Complex charitable gift | CPA and estate attorney | CFP and investment adviser |
Questions retirees should ask before hiring an adviser
Retirees should not rely only on the letters following someone’s name. Ask:
- What services do you personally provide?
Retirement planning, investment management, tax projections, and tax preparation are different services. - Do you specialize in retirees?
Ask about Social Security, Medicare IRMAA, RMDs, Roth conversions, surviving spouses, and retirement withdrawals. - How are you paid?
Request written disclosure of planning fees, asset-management fees, commissions, referral payments, and product compensation. - Will you coordinate with my other professionals?
Major recommendations should be shared with the client’s CPA, CFP professional, investment manager, or attorney when appropriate. - Are you properly licensed or registered?
Verify CPA licenses, investment registrations, insurance licenses, and professional credentials. - Will you provide recommendations in writing?
A written recommendation allows the other professionals to review the assumptions and consequences. - What services are you not qualified to provide?
A trustworthy professional should clearly identify when another specialist is needed.
Retirees can verify a CFP professional through CFP Board, investigate investment professionals through Investor.gov, and confirm a CPA’s license through the appropriate state board of accountancy.
Part 2 takeaway
The danger is not simply choosing the wrong credential. The greater danger is allowing one professional to make major decisions outside that person’s expertise without independent review.
Before implementing an important retirement decision, ask three questions:
- CFP: Does this support my income, spending, insurance, family, and estate goals?
- CFA or investment adviser: How will it affect investment return, risk, diversification, and liquidity?
- CPA: What are the immediate and long-term tax consequences?
Coordinating these perspectives before a transaction can help retirees avoid unnecessary taxes, protect their income, manage investment risk, and preserve more of their retirement funds.
-Lê Nguyên Vũ-
*This article provides general educational information and is not individualized investment, accounting, or tax advice.