5 Missteps to Avoid in Your Financial Plan

February 8, 2024

In this episode of FIN LYT by EWA, Matt Blocki, Chris Pavcic, and Jamison Smith discuss five crucial things you should avoid in your financial plan and shed light on the potential risks and pitfalls associated with various financial strategies.

They draw from real life experiences with clients throughout their careers as advisors. Included in their list are Initial Public Offerings (IPOs) likening some IPOs to pump and dump schemes, hedge funds that aim to outperform the market and “indexed universal anything” including annuities and indexed life insurance contracts. Learn more about hidden fees and limitations that can significantly impact your returns and accessibility to capital.

They also discuss various tax-related scams and the significance of prudent tax planning, drawing attention to schemes that target unsuspecting taxpayers during filing season. Join the EWA team as they empower you with the knowledge and insights you need to build a resilient financial plan and make wise investment decisions.

Episode Transcript

Welcome to EWA’s Finlit podcast. EWA is a fee only RAA, based out of Pittsburgh, Pennsylvania. We hope all listeners of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you. And we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your family and also save time them. Welcome, everyone, to this week’s Finlit podcast, joined here with Jameson and Chris. We’re going to be talking about five things that we recommend to avoid in your financial plan. We found that quite often, high net worth investors have a big network and they have a lot of big resources, so a lot of third parties will go after them for different strategies. A lot of things we’re going to talk about today. 

speaker

Speaker 1

·

In general, these five things we’ve found, more often than not, they’re not always bad, but more often than not, we found that clients looking back 10, 20, 30 years, have regretted decisions when they’ve invested in these type of things. So we’re going to go through what they are. Why you generally want to avoid them. It’s not just a black or white, like avoid these at all costs. There can be good aspects of these. So we’re going to talk through how we do our due diligence process as well. So, Chris, let’s start out with number one. What’s the first one that made the list? 

speaker

Speaker 2

·

Yeah, the first one we identified here IPO’s initial public offerings, which, like the name sounds, it’s the first time a stock’s coming to a market like the New York stock Exchange, for example, and the first time that public investors, or retail investors for the most part, can get money in. 

speaker

Speaker 1

·

So let’s just break down. There’s this huge kind of underground network of venture capital where a new company starts up and the company needs funding. And so people buy into the company before it’s publicly traded. And this is very high risk. But if the company is successful, let’s say you invested in a company at one dollars a share price, and now it’s ipoing at $50 a share price. So you’ve now 50 x your return, hypothetically. And at this point, you just want maybe when waiting one 2510, maybe years of I want to get my money back, let alone I want to get the growth back as well. So a lot of times when an ipo occurs, the easy money has been made. 

speaker

Speaker 1

·

The accredited investors who had the network or the resource to invest early on now want to get their money off the table. And so recently, we found ipos are kind of similar to like, pump and dump schemes, where all of the investors that got initially before it was public, put their money and they’ve got their gains. And now when it goes public, a lot of people like the word IPO. It’s something fun to talk about at a party, it’s something fun to talk about with your friends. And just looking at the statistics, really, of just like the last couple of years or last ten years of ipos, most of these companies that have gone public have just gone way down. Essentially, we’re to summarize, IPO market in the last couple of years. 

speaker

Speaker 1

·

It’s a transfer of wealth, unfortunately, from poor to middle class people to the rich people, because the rich people are selling their shares that are now going public and other people are buying them. And that’s essentially, if you look at a high level, what it’s become. So give us some statistics of what’s happened here. 

speaker

Speaker 2

·

Yeah, so we came across an article, looked at all of the largest offerings in the last ten years. So a lot of companies you’ve probably heard of Uber, Coinbase, Airbnb, Doordash, Lyft, a lot of these big name companies or apps that we use every day. Out of all of these, there’s only been three out of the last ten years that have actually made money, which were Airbnb, Pinterest and Snowflake. 

speaker

Speaker 1

·

Interesting. 

speaker

Speaker 2

·

So out of this group that they looked at as a whole, their valuation at IPO, it was much larger as a whole. And now what they’re worth today is several billion, hundreds of billions less as a group for all these ipos. 

speaker

Speaker 1

·

Okay, so let’s talk about some of the failures, like Rivian, the electric car market. He says here they shed 54 billion in market cap since its debut in 2021. It was the largest IPO of 2021, briefly, was more valuable than GM or Ford combined, than those two combined. So someone who invests in this would have gotten crushed. Same thing for Coinbase, down 84% from its first day closing price. So it’s very unfortunate, but a lot of these ipos have been highly sexy, highly marketed, highly. It’s really just a sales of getting the IPO price as high as possible. And then once people that made the money get their deload, their shares, whoever then carries them out, the real results come in and unfortunately, a lot of money gets lost. Only three of the last ten have worked out of the last ten years. 

speaker

Speaker 1

·

As far as looking at what gain, that’s crazy. Okay, well, Chris, anything else to add before we go to. Yeah, I think, number two, the last. 

speaker

Speaker 2

·

Thing article kind of stated, a lot of people are buying the idea of the IPO, not necessarily the long term vision of the company. So I think that kind of speaks to what’s going on here, because a lot of these offerings, they’re brought to the table by salesmen, and usually that’s kind of not going to be in your best interest. People are buying it for the short term and not as a long term investment. 

speaker

Speaker 1

·

Yeah. And it used to be ipos, like, the results were much better if you look back historically, more than ten years beyond, but recently, I guess with the rise of social media and the rise of all these fads and TikTok, and unfortunately, it’s essentially a professional pump and dump scheme. And that’s what the data just clearly shows here. So, in general, does this mean every IPo is bad? No, I’m sure there’s going to be some ipos that come up on the market. They’re going to be incredible opportunities. They’re going to have the fundamentals down and set it for long term growth. Like Facebook, for example. If you did the IPO, you did extremely well, just as an example, years and years ago. 

speaker

Speaker 1

·

But we’d recommend our clients have a lot of caution before investing in the IPO in the next few years until more regulation is put into place around these pump and dump schemes, essentially. Okay, well, that brings us to number two. So, number two, Jameson, what is the second thing we recommend to proceed with caution? 

speaker

Speaker 3

·

Second thing is around hedge funds. So, yeah, not all, say most can be pretty bad, but in general, proceed with caution. Just from a high level, what a hedge fund is, it’s basically pulling a bunch of investors money together. So let’s say three of us put all of our money together into a fund. Obviously, we’re going to get more money in there than one person would individually. So investors pulling their money together, and then you have a really hedge fund manager who, their purpose is to try to literally beat the market. So they’re going to do some crazy derivatives, short some stocks, crazy stuff to try to outperform what normal market returns are. A lot of times those are successful. But a couple of things to be aware of. Number one, the fees on them are pretty astronomical. 

speaker

Speaker 3

·

So general fee is 2% per year, management fee to put a million bucks in, 20,000 a year, no matter what, is going to go to the fund manager. 

speaker

Speaker 1

·

That’s assuming you invested a million bucks. 

speaker

Speaker 3

·

Yeah, 2% of 20,000. Got it. And then 20% of all profit generally goes to the fund manager. 

speaker

Speaker 1

·

So if the fund did 10%, you’re going to pay 2% in fees plus 2% profit. 

speaker

Speaker 3

·

20,000 in fees plus 20,000. If it went up 10%. Yeah, you pay 40,000. 

speaker

Speaker 1

·

So your return would be 6% then. Net of fees. Yeah. 

speaker

Speaker 3

·

So fees are pretty crazy. Next thing, they’re really illiquid. So they’re really hard to get money out of. Usually they’re not liquid, actually. 

speaker

Speaker 1

·

How do you commit to a time frame? Or obviously, you have to be able to get your money out. How does that work? 

speaker

Speaker 3

·

Yeah, I’m actually thinking of the movie the big short right now. If you’ve ever seen that, it’s a hedge fund. They’re betting on the housing market and it’s starting to crash. Go against the guy’s bet, and everybody’s calling to get his money out, I believe. I don’t know the exact answer. I think it’s just up to the fund manager or whatever type of a contract you sign, which is probably just the discretion of the fund manager. 

speaker

Speaker 1

·

Well, you got to be careful what the contract is before you put your money in. 

speaker

Speaker 3

·

Yeah, but anyway, yeah, you’re probably locked up for a certain time frame. And the other thing is, they’re not. So if you were to compare this to, like, a mutual fund or ETF, those are regulated by the SEC. Hedge funds are not regulated, and they’re only for accredited investors. And so basically, the way accrediting, if you’re an accredited investor, they’re basically saying you make enough money or you have enough in net worth that you are qualified to know enough to not put money into a stupid investment. 

speaker

Speaker 1

·

Chris, can you look that up real quick? In 2023, what is it? What are the requirements? 

speaker

Speaker 3

·

It’s 200,000 or 250 of income. 

speaker

Speaker 1

·

What’s the income requirement? 

speaker

Speaker 3

·

Liquid net worth. 

speaker

Speaker 1

·

Okay, James, continue. But that’s crazy. So it’s basically available for the rich. It’s where some rich people play. And then ultimately, if we look at all hedge funds, I know Warren Buffett made a bet against several hedge funds and said, I’m going to invest in the SP 500. And he crushed everybody in that bet. You can look that up. That’s public information, but have it right here. Yeah. 

speaker

Speaker 2

·

So the financial criteria is net worth over a million, excluding primary residence, and then income over 200,000 individually, or 300,000 with a spouse. 

speaker

Speaker 1

·

Okay, so one of the two, or both of those. One of the two doesn’t say, here I can find one of the two. Okay, well, obviously you need to have money to invest. Okay, very good. Well, what else? Anything else for? So obviously, not all hedge funds are bad. There’s some hedge funds that have crushed the market, have outperformed. There’s a guy in Pittsburgh that many people are familiar with. There’s obviously, like the Ray Dalia who’s written a book. I’m not sure his exact performance. I know in general, that company has had good results as not. We’re not saying every hedge fund is bad, just in general. Hedge funds are very fancy, very complex, very private. It feels good to be in this exclusive, but the reality is it’s hard for mutual fund managers to beat the market. 

speaker

Speaker 1

·

It’s especially hard for hedge funds to beat the market, given the fees they charge as well. So in general, they don’t. I mean, there’s just, there’s exceptions to everything. But in general, we’d recommend, if you’re considering a hedge fund, is this extra money or how does this fit into your financial plan? Why are you doing it? What goal are you attaching it to, et cetera? And why is this better than just a traditional diversified asset allocated portfolio? And if it’s just you want to feel good and have part of your money in kind of that exclusive something that no one else has, I mean, hedge fund may be for you, but just not going to get you the results that are going to support your financial plan, typically as a regular diversified portfolio would. Okay, cool. Anything? 

speaker

Speaker 1

·

Closing remarks for hedge funds before we move to number, and I would say. 

speaker

Speaker 3

·

Similar, you could probably tie a bow in this, in ipos, to not invest anything. You don’t understand. They’re very complicated. And there’s more bad than good. 

speaker

Speaker 1

·

Yeah, absolutely. Okay, perfect. Well, James, thanks for going through the details there. Okay, so, number three, we’re all going to talk about this. So we just labeled this indexed universal, anything. So there’s a lot of indexed annuities, there’s a lot of indexed life insurance contracts. These are all over TikTok. And the pitch is so good on them, it’s like, get the good side of the stock market and then you avoid the downside. Basically. Salesperson will say there’s no risk in the reality. When we’ve analyzed these, we had a client, I’m thinking of specifically put in 50,000 into four different ones and won’t call it the company by name, but looked it up like what the commission was, it was 10%. So whoever sold it, we know the person. So we saw on the statement who sold it. But it’s $5,000 a pop per $50,000. 

speaker

Speaker 1

·

If you put a million dollars, it’d be $100,000 commission. So right off the bat you think, okay, how can this company afford to pay that big of a commission? Well, one, there’s typically like an eight year lockup of a surrender charge. So if you surrender it in year one, you’re going to pay that 10% right back. You’re only going to get 90. Like, if you put in 100, you’re only going to get 90 back. The second thing is, if you look at the company, what they’re investing in, they’re not. If it’s an S and P 500 tied, you’re going to get the upside SP 500, but no downside. Well, the company is not even investing in the SP 500. They’re investing in derivatives. That be very hard for a common investor to understand, let alone if you’re an advanced investor, to understand the derivatives. 

speaker

Speaker 1

·

So why aren’t they just investing? Well, that’s red flag number two. So talk through. So, Chris, obviously we looked at the 50,000 that went into this. It was an indexed annuity, right. And the way it worked, it was no downside. If the SP 500 dropped, it didn’t drop. The fees that they quoted were 1%. But then the two things we noticed, one, what was excluded from the returns? Do you remember? 

speaker

Speaker 2

·

Dividends. 

speaker

Speaker 1

·

Dividends of the S and P 500, which make up about 40% of the returns over the last 100 years. Of the SP 500. SP 500 has done over 9% of the last 40 years. You take away dividends, it’s less than 6% returns. That’s like a third of your returns are just ripped right off the table. The second thing is it was capped at like, was it 1.2% per month? 

speaker

Speaker 2

·

Whatever it was very restrictive. 

speaker

Speaker 1

·

Yeah. So if you look at the SP 500, like, returns by year, by month, and I think the years were capped at like 12%. 2021 markets up 25%, SP 500 is up over 25%, you’re capped at twelve, you just missed 13. On months that go up six, you’re getting 1.2. There’s no chance. If you look at how the S and P 500 has worked over the last 100 years, if you take dividends out of there and then you look at how big the returns are, if you’re just capping yourself, there’s no chance you’re going to get a return. And there’s a reason why after six years, they put in 50,000. The thing was worth 53,000. So it was less than a 1% compound of return over the six years when the s and P 500 over those six years would have doubled. 

speaker

Speaker 1

·

So his 50 should have turned into 100. It was only worth 53,000. So the salesman came in and said, hey, you can get SP 500 returns without the downside risk. Well, if he had just invested in the SP 500, his money would have doubled from 50 to 100. Instead, his money went from 50 to 53. And when we told him how this actually worked, he had to pay a surrender charge. So he was like, right back down to 50,000 to get out. And now, obviously, he’s in a good term contract. But, James, I know you went through the same thing. It worked a little bit different way with a client. And this client was like in an indexed annuity for their 401 ks and their set by raise and literally everything. 

speaker

Speaker 1

·

So tell us a little bit about the analysis that you did and what the results were versus what was promised. 

speaker

Speaker 3

·

Yeah, they had been in for the last ten, maybe eight years. We got them out in 2021. So think about the SP, think about the s and P 500 or us equities in that, what, 2014 to 2021? We could probably look up the return. It’s probably in the thousands, the percent return. So they missed all of that, plus didn’t have dividends. Exactly. You just said they were capped at like, it was like 9% or 10% per year. It was in 401K, Sep, IRAs. Yeah, it was pretty strong thoughts on people that try to sell these. So we’ll speak more positive than negative, but bottom line, just don’t do them. 

speaker

Speaker 1

·

What positive thing do you have to say about this? I’m just curious. 

speaker

Speaker 3

·

I mean, it helped them sit there, I guess maybe they wouldn’t have saved the money if they didn’t put it in there. 

speaker

Speaker 1

·

I don’t know. I don’t know if I have anything positive to say about indexed annuity or indexed life insurance contracts. So. Speaking of life insurance, I actually hear. 

speaker

Speaker 3

·

The positive is now that it was a catalyst to them having a good financial plan. 

speaker

Speaker 1

·

There you go. There you go. Love it. Okay. Speaking of life insurance, we’ve had some clients not only get pitchies index, universal life policies, but also along with some crazy. Essentially we’re going to talk about IRS, dirty dozen with some illegal charitable stuff. We obviously went through it, but the agent was showing like a 12% return. So the other thing to look out in life insurance is it’s not regulated the way it should be so the agent can show essentially whatever return they want, and the result of that typically will be dramatically less. And if you don’t, in a life insurance contract, there are higher fees because there’s what’s called a mortality and expense ratio. If you die while the thing is still in existence, the company has to pay a death benefit to your family. 

speaker

Speaker 1

·

So an index universal life insurance contract has extra pressure on it because extra fees, often fees that aren’t disclosed, often fees that can be changed at the discretion of the insurance company. So if you look at your contract, you’re really in a bad place right off the get go and then all the promises. So the salesman gets you to put the money into the contract and generates a high commission. Once that’s paid, it’s out of the picture and you’re kind of stuck with high entrance fees, high exit fees, and something that’s probably not going to pan out the way you intended it for your family. So, Chris, what’s your thoughts? Anything to add that we missed on index universal? Anything? 

speaker

Speaker 2

·

No, I think you guys nailed it. Fees crush the performance, and a lot of times it’s not necessarily liquid when you need it. So I think a lot of these products are proposed for safety. And hey, the rest of your portfolio is invested in equities. What are you going to do if it goes down? But a lot of the time you can’t even access this money anyways because of these fees or surrender fees and charges that result in when you get. 

speaker

Speaker 1

·

To retirement, they even cap you at, you can only take, they have all these like, oh, these lifetime income. What you have to understand with annuity is there’s two values, right? There’s like this annuity value, which is just a phantom value. The only reason this actually ever matters, if you start drawing income out of the thing, and then there’s the actual contract value. Well, if you want to take all the money out, or if you want to pass the money on to your family, the annuity value is worthless. It’s the contract value. And the contract value is getting hit with the fees. Every year, the contract values are subject to the surrender fees, et cetera. So the other thing to really look out for is a lot of times companies will offer bonuses. 

speaker

Speaker 1

·

Like if you put your money in, we’ll give you a bonus on your money. Well, that bonus is on the annuity value. Which do you really need annuity? And if you look at how little you’re able to take out and how little access you to have to your money and how the company just owns it. It’s really hard for this to make economical sense, even over. If you’d have put your money in, like, I hate to say this, just like, treasuries over your lifetime, and if those were in a tax deferred, very low cost, no commission annuity, you just were able to invest in, like, a 4% compounded environment over 30 years and then take that out safely at retirement, you’re going to crush the results and do so with less risk than you would an indexed annuity. Anything. 

speaker

Speaker 1

·

James, did you have some closing remarks before we go to the number four? 

speaker

Speaker 3

·

I just sum it up by just run from these, run the other direction. If someone tries to sell, it. 

speaker

Speaker 1

·

Said, I’m not allowed to run yet, Jamie. 

speaker

Speaker 3

·

What would I. I do? 

speaker

Speaker 1

·

Just had hip surgery. Drive off. 

speaker

Speaker 3

·

Looks like you’re getting. 

speaker

Speaker 1

·

We’re not. We. We have a policy. The Wa. We don’t sell them. We’re not allowed to sell them. So hopefully I’m safe here. Okay, so number four. So number four is really assets that own your time, attention, and money. So an example of this is a lot of private. So again, if you’re high net worth, accredited investor with a good network, you’re going to get pitched up all the time. And you have to realize about private investments. Number one is generally, they’re liquid. I mean, there are secondary marketplaces, but typically the company you invest in won’t even allow you to sell your shares if you try to. 

speaker

Speaker 1

·

And more often than not, because we have a lot of clients that have made these investments, and especially given what happened with COVID So if you look at the last, like, three or four years, Covid happened, interest rates rose dramatically. So these private companies had to shut down for a little bit or had to keep running payroll. Then interest rates went up, and so them getting money in other ways, the cost of that went up. So more often than not, there’s something called a capital call. So if you put 100,000 into an investment and the company is going to go back to the ten people that funded the company, and they’re going to say, hey, if you want your money back, this company, to be successful, we need more money. 

speaker

Speaker 1

·

And so you look at the contract that you signed, more often than not, you’ll need to make a capital call or your equity will get majorly diluted. So you just have to be really careful. Like, if you make a private investments, will capital calls come on the table? Can you afford to make the capital calls? Do you want to make the capital calls are you going in? Because the company is expecting your time, your network. So it not only can suck up your money unexpectedly, it can suck up your time unexpectedly. Now you have five different private investments, and now you’re on calls every month with their founders. Now you’re trying to figure out your budget with supporting these other companies. And so we’ve seen this happen more often than not. 

speaker

Speaker 1

·

And so it’s like the maintenance of a house, instead of it being an asset that supports you and saves your time, it ends up being an asset that sucks your money and waste your time. And not saying all of these are bad, there’s some that work out really well and you could ten or 20 extra money, but just in general they are illiquid high stress. You need to have a balance sheet and flexibility to be able to support these kind of investments. If you do so like venture capital would be, and there’s ways you can invest in a venture capital fund where they’ll invest in 20 different startups and if one hits it, kind of makes up for the 19 that failed type of thing. But in general, we recommend our clients put less than 10% of their money into private investments like this. 

speaker

Speaker 1

·

If they do, we need to do a lot of due diligence up front to understand what the potential cash flow obligations and liquidity needs that could arise if you start investing in these type of investments. But James and Chris, anything to add on the private investment side? 

speaker

Speaker 3

·

From the time standpoint? We have some clients that are at startups and they have equity in these companies and that’s great. Obviously you want to still consider all those things. A capital call is liquidity. But if that’s where you’re spending your day to day, and you’re actually involved in growing the business and you’re making decisions, stuff, go ahead, put some money in there, tie some of your equity up. If you’re not though, it can become a big headache. And if were to think then the time, compared to just like passively investing in the stock market, it takes zero of your time. 

speaker

Speaker 1

·

Absolutely. 

speaker

Speaker 3

·

That would be the big consideration, I would say. 

speaker

Speaker 1

·

Yeah. And so I would say too, this part of your financial plan can be fun. Let’s say all your stuff is on track, your retirement, your education, everything like that, with the traditional, boring, diversified ways. People do like to speculate. Yeah, gamble, big industry. Yeah, I mean it’s a billions, billion, probably trillions soon of industry of just like sports gambling. And so there is that dopamine hit. And so if you have everything on track, we’re not going to judge you. I mean, a lot of people do this and sometimes opportunities do arise that do make sense. If it’s like a friends or family deal I have right now, like three very small deals I’ve done, but they all made complete sense. And it was like I knew the founder. 

speaker

Speaker 1

·

We’ve had some clients that have come to us, but I fully understand it is highly speculative. I put in an amount. If I had to put that in again, I could afford that. It’s not going to throw my financial plan off track whatsoever. But that’s how I view it. It’s a fun, highly speculative, and it’s not going to mess or make or break any other part of my goals or my financial plan. That’s how we recommend to handle it with any client that we advise in these private investment space. Okay, so, Chris, what’s the last one? Number five, the last one that we looked at. 

speaker

Speaker 2

·

They call it the IRS dirty dozen list for 2023. And it’s breaking down. Just a dozen things to look out for during tax time scams and phishing, stuff like that. 

speaker

Speaker 1

·

Yeah, so you can just google this. It’s right on the IRS website. A lot of these just be careful about cybersecurity, essentially like email fraud, like trickling emails, text messages during filing season, et cetera. So we’re going to talk about the ones that clients get solicited for. So number one is the ERC. And if you have a business and you qualify for the employee retention credit, know do it. But a lot of times these companies earn extremely high commissions. If they get your company funded and if the IRS comes back and says you were ineligible, I mean, that company helped you, they’re going to have taken their commission, they’re going to be long gone and you’re going to be responsible and liable to pay that money back and potentially get in legal troubles. 

speaker

Speaker 3

·

Do you get calls for. I get those like weekly of people just soliciting for that. Yeah. 

speaker

Speaker 1

·

That’s why my number one rule of thumb is I never answer a phone call that I don’t recognize. 

speaker

Speaker 3

·

They’ll leave a voicemail and be like, hey, yeah, that’s exactly what it is. 

speaker

Speaker 1

·

So avoid it. So avoid that. That’s money that does get taxed as well. So not only are you going to, if you get the money and they know it back, you’re going to pay tax on it. That’s a complicated mess. You’re going to owe probably back interest, penalties, and there may be legal trouble. If it was really outrageous, if you really broke the rule. So if you’re eligible, and it’s clear you’re eligible, work with your CPA firm hopefully does this, and they’ll be able to tell you whether you’re eligible or not. And if you are, great. If not, it’s not just free money. It’s not. Okay, so number two that we see affects our clients, not number two of the dirty dozen list. We’re skipping a couple fake charities to exploit taxpayers following natural disasters. Pretty obvious. Anything with. 

speaker

Speaker 1

·

We’ve had many charitable ideas brought to our clients through life insurance stuff, through trust, all kinds of craziness. And in general, the question is, if you’re going to give to a charity, make sure it’s for the reason of giving money to a charity, and then work with an advisor that can help you get the tax deduction, whether it’s itemizing one year or standard deduction the other year. But if you’re giving money and creating an LLC or a trust or something like that, just for the sake of saving taxes, and you have no idea what the charity is like, run away as quickly as possible. I know several clients have gotten solicited from CPA firms for these that aren’t their CPA, and maybe their friend did it. And it’s too good to be true. If it’s too good to be true, it’s definitely too good. 

speaker

Speaker 1

·

And if you can’t. My number one flag is they can’t even explain it to me when they’re pitching it to me. 

speaker

Speaker 3

·

I had one of these with a client that was getting pitched probably a little bit different, but similar. It was like a private investment. You put money in and you got like, a charitable deduction plus any of the growth you got to deduct in the future. And it was so, like, they weren’t allowed to share any of the information. So they weren’t even allowed to have anybody analyze it for them. So it was like, that was like the biggest red flag for me. They’re not even being transparent about it. Absolutely. Do not do this. 

speaker

Speaker 1

·

And they hide behind, like, oh, it’s proprietary information. 

speaker

Speaker 3

·

We don’t want intellectual property. 

speaker

Speaker 1

·

Yeah, well run. Okay, so we’re going to skip a couple more ones. We’ve seen specifically, a lot of these are common sense schemes aimed at, this is number ten, aimed at high income filers. So charitable remainder annuity trust crafts and monetized installment sales. So charitable remainder annuity trust is definitely a great tool if you’re estate planning and if you’re very charitably inclined. But if you’re like a young investor, that’s high net worth and you’re trying to save tax. Don’t lock up your money just for the sake of saving taxes. You need to do it for the right reason. The government can read right through that, obviously. And then number eleven is micro captive insurance arrangements, syndicated conservative easements. We had a client get pitched on that recently, offshore accounts and digital assets, individual retirement range, misusing treaty, puerto rican and other foreign captive insurance. 

speaker

Speaker 1

·

So just obviously be careful around all these. But we hear the pitches all day and typically have to convince clients not to move forward because the taxes saved obviously are going to always be tempting. But especially with like I was sitting down with a friend recently who actually works at the US government and he was telling me their, they’re letting the IRS adopt it to have algorithms to check on tax fraud, essentially. So it’s going to be really easy in the future for the government to look at and pick out. If you are claiming this on your tax return, your chance of audits are going to go way up. And so be careful. Chris Jameson, any closing thoughts on the dirty dozen list? No, all good. 

speaker

Speaker 3

·

Yeah, they all sound way too good. They just like sounds. Even you just explaining some of this sound sketchy. 

speaker

Speaker 1

·

Yeah, they’re like index universal life, part of a tax preparation. But do good tax planning. Save as much taxes as possible. Work with the CPA that allows you, that keeps you in check, allows you to be aggressive, but also everything you do is above board and legal. That’s our general advice. Well, thanks for joining. Look forward to catching you next week. Thanks for tuning in to our podcast. Hopefully you found this helpful. Really hope this is as beneficial and impactful to as many people across the nation as possible. So hit the follow button, make sure to rate the podcast and please share with any friends or family members that would also find this beneficial. Thank you very much. 

Show Full Transcript

Recommended Videos

How to Access Your QPR
RSU (Restricted Stock Unit) Basics
Should I Buy or Rent a Second Home?
How To Take Advantage of Market Downturns?
How to Structure a Family Loan
Buy or Lease: What is the Best Car Ownership Strategy for You?