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Tax Code Changes Can Spark a Client Conversation

Charitable giving and college expenses are just two important areas that have changed in the tax code. 

I recently made some adjustments to my retirement funding vehicle. In doing so, I spent a little time updating myself on the 2016 changes in the tax code, as I usually do, so I can stay up to date as I advise my clients.

There are a number of interesting changes to the tax code, some of which are buried in the rules. These are the ones I seek out because they often are indicators of predictable buying behaviors. They offer you a way to have a conversation with prospects and clients that will set you apart from other advisors. 

Qualified Charitable Distributions

Congress brought back qualified charitable distributions (QCDs) retroactively after they had been expired for the past few years. Now QCDs have been made a permanent part of the tax code. This means your clients who waited until mid-December to decide whether or not they should make a QCD no longer have to wait to decide.

QCDs can be made only from individual retirement accounts, and only if your client is age 70½ or older at the time of distribution. This means you can mine your client database or you can target individuals who have an IRA, have an interest in making charitable distributions or have provided for their family in other ways and are looking for something to do with a dormant IRA.

Because this provision has frequently been authorized retroactively, you can ask tie-down, trial-close questions to uncover prospects who might have an interest in making a QCD. 

Agent: “In the past, have you had to wait until mid-December to decide if you were going to make a qualified charitable distribution?” 

Prospect: “Yes.” 

Agent: “Is that what you wanted to do, wait to decide? Or would you have preferred to know earlier in the year so you could plan better?” 

Prospect: “Yes, I would rather have known. I might have made some different decisions with my distributions if I had known.” 

Agent: “Let me tell you how it will work for you going forward.” 

Retirement Plan Portability — SIMPLE IRAs

Another provision in the new rules has an important impact on SIMPLE IRAs, one that can help you capture future wallet share from your clients. SIMPLE IRAs have some odd rules. One such rule states that, beginning with the first deposited contribution in your client’s SIMPLE IRA account, the funds can only be rolled into another SIMPLE IRA. This limitation applied only to the SIMPLE IRA funds, not other retirement account money.

According to the new rules, after two years have elapsed since your client’s first deposited contribution into their SIMPLE IRA, they are now able to roll any other eligible retirement funds into their SIMPLE IRA.

So how can this help you grow your book of business? Let’s look at this approach.

You have a client whose current employer offers a SIMPLE IRA and who also has an account from a prior employer. That client now can consolidate those accounts. 

Agent: “How has your SIMPLE IRA limited your ability to consolidate your retirement funds from previous employers?” 

Prospect: “Well, I was told I couldn’t move the money from my last job into this plan, so I think I have two retirement accounts now.” 

Agent: “Is that what you wanted to have happen, to have separate funds or be limited in the way you could earn a return on your money?” 

Prospect: “That’s not what I wanted but I don’t think I had a choice.” 

Agent: “Let me tell you how we can make it work with the recent changes in the retirement account rule.” 

529 Plan Out-of-Pocket Relief

Many changes were made to the rules for the 529 college-savings plans. But the one that I want to point out, relative to predictable buying behaviors, is the one that directly affects the out-of-pocket expenses of your clients who have or will have kids in college. My two youngest kids graduated from college in the past year. Although they had funding for most of their college expenses, their apartment, food and ancillary expenses were provided out of pocket by their parents — us.

Now, as the parent of six kids, I can say to you that if you think you are going to tell your college-bound teens that they can go to the library if they need to use a computer, you are in for … “the look”!

Many of these ancillary expenses were not previously considered “qualified education expenses” in the penalty exceptions for the 10 percent early distribution requirement. With the changes in the 2016 retirement account rules, computers, peripheral equipment, internet access and software are now considered qualified education expenses and are considered under the 10 percent early distribution penalty exception.

For existing clients, and as an opener to new prospects, you now can demonstrate your value by asking a tie-down question to see whether this has been a concern for your client or prospect. From there, you can pivot to a full presentation. 

Agent: “John, you mentioned you have a son in college or about to go to college. I had to pay out of pocket for my kids’ living expenses and other things like their computer, Internet access and software. Is that something you plan on having to pay for?” 

Prospect: “Yeah, I guess I’ll be stuck with those expenses. He has a scholarship for the school but I know books and other things like a new computer are expensive.” 

Agent: “Let me tell you about the new rules that can help you reposition these out-of-pocket expenses for his computer, internet access, software and other expenses.” 

We have looked at QCDs, SIMPLE IRAs and 529 plans, and how to fashion a tie-down, trial-close question to engage the prospect in the pain of the event and introduce a solution we as experts can bring to them.

Now it’s your turn to practice asking questions to uncover your prospects’ and clients’ predictable buying behaviors. These behaviors are lifestyle issues they have in common, the life events they are going to experience anyway. The process includes asking a question you already know the answer to, in a way that allows you to show your knowledge of their predictable pain and demonstrate how working with a professional like you will benefit them and their family.  

Lloyd Lofton is president of the Senior Insurance Marketing Association. Lloyd can be contacted at [email protected]

Lloyd Lofton is managing partner of 7 Figure Sales Tools, Marietta, Ga. Lloyd may be contacted at [email protected] [email protected].

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