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Do you work at Merck?

Get expert insights from financial advisors who specialize in helping Merck employees and executives make the most of their compensation package and benefits.

Looking for a financial advisor who specializes in working with Merck employees? You’re in the right place. Below, you’ll find advisors who understand Merck benefits and compensation — along with their answers to common financial questions from Merck employees and executives.

Whether you recently joined Merck or you’ve advanced into a management or executive leadership role over a multi-year career, making smart decisions about your income and Merck benefits can have a lasting impact on your financial future. For example:

✅ Do you know the right moves to get the greatest value from the Merck benefits available to you?

✅ If you’re thinking about leaving Merck for another job or planning to retire in a few years, are you taking the right steps today to receive all the compensation and benefits you’ve earned?

Key Takeaways

1

Merck Stock in Your 401(k) May Qualify for Net Unrealized Appreciation Tax Treatment

When company stock with a low cost basis is distributed from the 401(k) under a Net Unrealized Appreciation strategy, the gain can be taxed at capital gains rates rather than as ordinary income. The advisors below describe using this strategy in a lower-income first year of retirement to reduce a concentrated Merck position tax-efficiently.

2

Plan Your Merck Pension Payout Choice Years Before You Retire

Eligible Merck employees must choose between a lump sum and monthly pension options at retirement, and waiting until the last minute limits the choices. One advisor below recommends starting that planning five to 15 years before retirement so the pension fits a coordinated income and tax strategy.

3

RSUs, Performance Shares, and the Merck Stock Fund Can Quietly Concentrate Your Wealth

Restricted stock units, performance share units, and Merck stock held inside the 401(k) can together build a larger single-stock position than employees realize. The advisors below recommend a coordinated, tax-aware selling plan rather than holding by default.

Why Merck Employees Work with a Specialist Financial Advisor

Throughout the year, Merck provides its employees and executives with updates about their benefits, ranging from health insurance and health savings accounts to retirement plans like a 401(k), a pension plan for eligible employees and, for senior leaders, a deferred compensation plan — along with equity compensation such as restricted stock units and performance share units. While the company offers many useful resources and access to knowledgeable staff who can assist with questions, you’ll also find financial professionals not affiliated with Merck who specialize in helping Merck employees make the most of their income and benefits.

Merck’s global headquarters is in Rahway, New Jersey, where the company consolidated its New Jersey operations after leaving its former Kenilworth campus, and its largest U.S. manufacturing and research presence outside New Jersey is in West Point, Pennsylvania. The company also has research sites in the Boston area and South San Francisco. Whether you work at one of those sites, in a field role, or remotely from home, you may have questions about your compensation package and benefits better suited for a financial professional who can offer unbiased advice and guidance.

Sensitive topics — like the steps you should take before quitting your job at Merck to work elsewhere, protecting yourself in advance of a corporate layoff, or deciding when you should plan to retire — are all conversations that may be more comfortable with a trusted financial advisor.

Should You Hire a Merck Specialist or a Local Financial Advisor?

You’ll likely find dozens of nearby financial advisors well-suited to help you reach your money goals with a personalized plan. But it can be harder to find a financial advisor who specializes in serving Merck employees. Fortunately, many financial advisors offer virtual services, so you can meet online no matter where you (or they) live — which means you can hire a specialist financial advisor who lives hundreds of miles away if their knowledge and experience working with Merck employees is the better fit for your unique needs.

💡 In the Q&A below, you’ll gain insights from financial advisors who work with Merck employees to help them make smart decisions, get the most value from their compensation and benefits, reduce their money stress, and prepare for a comfortable retirement.

🙋‍♀️ Have a question not yet answered? Use the form below to submit your question. You can also contact financial advisors directly to set up an introductory call or contact them with your questions.

Q&A: Financial Planning Tips for Merck Employees & Executives

In this section, you’ll learn how you can make the most of your Merck employee benefits and gain valuable tips from financial advisors who specialize in working with Merck employees and executives.

Financial Advisor Q&A  ·  Merck Employees

Albania Espinal, CFP®, Financial Advisor for Merck Employees at Alegre Wealth

Albania Espinal, CFP®

Alegre Wealth  ·  Wayne, PA  ·  Serves clients nationwide

Fee-Only Financial Planning for Hardworking Professional Women | Fiduciary
Book Intro Call

Albania Espinal is a financial advisor based in Wayne, Pennsylvania who specializes in offering financial planning services to Merck employees. Albania helps her clients get the most value from their Merck benefits and compensation package so they can enjoy life and feel confident about their financial future.

QAs a financial advisor with experience helping Merck employees save for their retirement, how do you help them make the most of their employee benefits?

When I work with employees from Merck & Co., the first step is helping them understand how all of their benefits work together as part of a long-term financial plan. Merck offers a strong benefits package, including a competitive 401(k), equity compensation for many employees, and in some cases legacy pension benefits. My role is to help employees make thoughtful decisions around how to maximize those opportunities.

Many Merck employees receive Restricted Stock Units (RSUs) as part of their compensation, which typically vest over several years and are taxed as ordinary income at vesting. Depending on role and seniority, employees may also receive Performance Share Units (PSUs) that vest based on company performance metrics. In addition, Merck has offered an Employee Stock Purchase Plan (ESPP) at times, allowing employees to purchase company shares at a discount through payroll deductions.

Because Merck has had periods of strength over the years, I often see employees accumulate a significant portion of their net worth in company stock without realizing how large that exposure has become. Over time, RSU vesting and performance shares can quietly build a concentrated position.

My role is to help employees look at their full financial picture and make thoughtful decisions about how much company stock to hold, when diversification may make sense, and how these equity benefits fit into their long-term retirement plan and tax strategy. When used intentionally, Merck’s equity compensation can be a powerful wealth-building tool, but it’s important to ensure it stays aligned with the employee’s broader financial goals rather than becoming an unintended concentration risk.

QIs there anything that comes up frequently in your initial meeting with Merck employees that surprises you?

One thing that often surprises me when I first meet with employees from Merck & Co. is how strong their saving habits are, yet how uncertain many of them feel about whether they have “enough.”

Merck employees tend to be very disciplined savers. Over the years they may have accumulated significant assets across several accounts, such as their 401(k), brokerage accounts, company stock from equity compensation, and in many cases a pension. Despite this, many still feel unsure about how all these pieces translate into a reliable retirement income plan.

What often brings them peace of mind is shifting the conversation from how much they have saved to how their savings can support the life they want in retirement. Together I walk through how income might realistically come from different sources, such as retirement accounts, company stock, Social Security, and other savings, and how those pieces can work together over time.

For many Merck employees, simply seeing how their years of disciplined saving can turn into a clear and sustainable income strategy is one of the most reassuring parts of the planning process.

QFor highly compensated Merck employees and executives, are there any special benefits you believe it’s important to take into consideration when preparing their financial plan?

For highly compensated employees and executives at Merck & Co., one benefit that often deserves special attention in the financial planning process is participation in a nonqualified deferred compensation (NQDC) plan.

These plans allow employees to defer a portion of their salary or bonus beyond the limits of traditional retirement plans such as a 401(k). While this can be a powerful tool for managing taxable income during peak earning years, it also requires thoughtful planning because the deferred income is fully taxable when it is distributed.

One of the most important decisions employees make when enrolling is selecting the timing of future distributions. Those elections are typically locked in well in advance, so it’s important to think carefully about how those future payments may align with retirement, other income sources, and potential tax brackets. Without planning, it’s possible for deferred compensation distributions to overlap with other income sources, such as RSU vesting, retirement account withdrawals, or consulting income, which can push someone into a higher tax bracket than expected.

When working with Merck employees, I often model how different distribution schedules might interact with their broader retirement income plan. The goal is to use deferred compensation strategically to smooth taxable income over time, rather than creating large spikes in income during retirement. When coordinated thoughtfully with the rest of a client’s benefits and savings, these plans can be a very effective tool for long-term tax efficiency.

QIs there a particularly memorable experience or a moment you recall with a client who worked at Merck when you realized they have unique opportunities and circumstances when it comes to their financial planning needs?

One experience that stands out involved a Merck employee who had built significant wealth through years of disciplined saving and long tenure at Merck & Co.. When we reviewed their accounts together, I discovered they held a substantial amount of Merck stock in several places, including shares from equity compensation in a brokerage account as well as a large position in the Merck stock fund within their 401(k).

Because the shares inside the 401(k) had a very low cost basis, I explored whether a Net Unrealized Appreciation (NUA) strategy could make sense. In this client’s case, it did. They were planning to have relatively limited income in their first year after leaving the company, which created a favorable window to implement the strategy.

By distributing the company stock using NUA, they were able to reduce a concentrated position in a tax-efficient manner, while also using the proceeds from gradually selling those shares to help fund their first several years of retirement income. It was a great example of how understanding the nuances of an employer’s benefits plan can turn what initially looks like a concentration risk into a thoughtful planning opportunity.

Considering a financial advisor who specializes in working with Merck Employees?

Financial Advisor Q&A  ·  Merck Employees

Michael Rosenberg, RFC, CPFA, Financial Advisor for Merck Employees at Diversified Investment Strategies, LLC

Michael Rosenberg, RFC, CPFA

Diversified Investment Strategies, LLC  ·  Florham Park, NJ  ·  Serves clients nationwide

Dedicated to providing experienced guidance on all aspects of wealth management.
Book Intro Call

Michael Rosenberg is a financial advisor based in Florham Park, New Jersey who specializes in offering financial planning services to Merck employees. Michael helps his clients get the most value from their Merck benefits and compensation package so they can enjoy life and feel confident about their financial future.

QAs a financial advisor with experience helping Merck employees save for their retirement, how do you help them make the most of their employee benefits?

The biggest benefit I see for Merck employees working with me, is coordinating their Merck benefits with their personal financial goals and objectives, this is further exemplified when we address retirement planning. Many Merck employees have Restricted Stock Unites (RSU) as an important part of their compensation plan as well as the companies Employee Stock Purchase Plan (ESPP), overtime these plans become a significant portion of the employee’s assets. These plans are great way to save for the future, the one pitfall I see is the employee’s assets are over concentrated in one stock, something they wouldn’t do with an individual portfolio. Therefore it is important to coordinate the holdings with their individual portfolio and have a plan to sell stock, before gains become to prohibitive to sell. A tax mitigation strategy should be in place to handle lowering taxes on gains from the sale of company stock. Selling company stock, should be within a coordinated plan with emphasis on tax mitigation. Additionally, Merck has a Pension Plan for employees, most employees do not address this until it is too late. Upon retirement, the employee must select between a lump sum or various pension options. Waiting until retirement, limits the employees options, therefore careful planning should take place for each employees between 5 and 15 years before retirement.

QWhen you first speak with a Merck employee, what questions do you like to ask to better understand their unique circumstances and determine how you can best help them achieve their goals?

I want to understand and know their short term and long term goals, what their risk tolerance is and when they plan to retire. I also want to know what they are doing outside the company, so we can better coordinate – savings within employee benefits program with personal savings they are doing currently.

QIs there a particular benefit available to Merck employees you feel isn’t as well utilized or understood by employees as it should be?

I would say the Back Door Roth, too often i see employees of Merck maxing out 401k plan which could be a good thing, but they are setting themselves up in retirement of not being able to control taxes, this makes them vulnerable to future tax increases. My goal is to do planning now, so we can minimize taxes in retirement. Essentially and back door Roth, is where employee makes a non-deductible contribution to the company 401k, and then converts it to a Roth, the only tax would be any gain made inside the 401k before converting it.

QBeyond Merck employee benefits for retirement savings, are there other types of benefits offered by the company that you find valuable to discuss with your clients?

Educational savings accounts available through Merck are a great way to save for college, the company offers scholarships as well, in addition they have a special savings plan for children of employees through Merck Credit Union. The difference between a Health Savings Account and Flexible Health Savings Account can be confusing. One thing I see is lack of planning, especially when it comes to retirement. I always suggest maxing out Health Savings Accounts because it isn’t a use it or lose it scenario. In addition, if your planning to retire within 10 years, maxing out the HSA for retirement is important, as the HSA funds can be used for dental cost, Medicare deductibles, as well as insurance premiums for Medicare supplemental insurance.

QFor Merck employees thinking about leaving the company to accept a job elsewhere, what actions do you recommend they take before resigning and shortly thereafter?

I would advise meeting with a financial advisor that is familiar with corporate benefits and compare current benefits package and compensation to potential new employer. One area we have had success, is utilizing deferred compensation, suppose someone is looking to move to new employer and the increase in pay might equate to $80,000. We actually created a deferred compensation plan, where the employee deferred 50% ($40,000) of compensation to receive the deferred income when retired. Also makes sense to weigh keeping 401k and present employer compared to rolling over to new employer or rolling over to an Individual Retirement Account. Thus once employee resigns or shortly thereafter they can have the decision already made to what to do with retirement funds. I would also suggest a review of current company stock owned in either inside 401k as well as through company stock options.

QFor Merck employees approaching retirement age, how do you recommend they prepare to make the transition from living off their salary to relying upon other sources of income?

First thing I would suggest is to meet with a Wealth Manager who specializes in working with people who are transitioning to retirement. Most people make the big mistake of not seeking advice, especially if they have been managing their own finances throughout their working careers. The reason I find it so important is because managing money in the accumulation stage is totally different in the withdrawal stage. Managing risk is so crucial, as well as selecting the right withdrawal strategy, a mistake here and the employee could face longevity risk, or the risk of outliving their money. Market risk needs to be considered, here it is creating a balance between managing risk, but also seeing growth. a mistake in this and the employee can suffer sequence of return risk. Also paramount, is determining a withdrawal strategy, does one take from personal funds first, may consider a Roth Conversion, and then take RMDs and Roth Income later, taking social security earlier than waiting to Full Retirement Age could make sense as well to let other funds grow. Again each person is going to be different and their circumstances are going to be different why it is so important as a first step to seek professional advice.

QWhat are some of the unique financial planning challenges you commonly see among your clients who are Merck employees and how do you help them overcome these obstacles?

I find Merck employees tend to be very diligent, organized when it comes to their personal financial planning needs. They also tend to be good savers. One thing I do note, they tend not to do a lot of forward thinking, for example – they may not adjust their portfolio to reflect their time horizon. another is over emphasis on tax deferral and not focus on future taxes. While working, most employees can handle inflation, taxes, even healthcare risks. But once retired these risks can be devastating, so the plan you lay out today for your future will dictate how comfortable your retirement will be. So when I work with an employee of Merck, we focus on three things, short term goals, mid-term goals and long-term goals.

QWhat questions do you recommend Merck employees ask financial advisors they’re considering hiring to help them decide if they’re a good fit?

I think experience is so important, the advisors commitment to education is also equally important. Really the most crucial detail one needs to ask though – does this person understand me and what I want to accomplish, if the advisor doesn’t understand his client, there will be no client success story. So make sure the advisor has a process to gain a full understanding of his or her client. I would start by asking the question, beyond me just showing you my numbers, what is your process to understand me?

QIs there anything that comes up frequently in your initial meeting with Merck employees that surprises you?

I am also surprised about questions about 401k plans, I frequently get asked should I contribute and how much should I contribute. I would say that employees should contribute up to the match, and then establish a personal savings plan on a systematic basis outside of that.

QFor highly compensated Merck employees and executives, are there any special benefits you believe it’s important to take into consideration when preparing their financial plan?

Company stock held inside 401k plan provides unique opportunity in that once ready to retire or after attaining age 591/2 , although there are some planning opportunities for those at age 55 to 59. But suppose someone has $100,000 in company stock in there 401K, with a $20,000 cost basis. If they transfer the 401k (like kind) to a brokerage IRA. They pay tax on the cost basis, but only pay capital gains on the balance. Typically all 401k withdrawals are taxable at ordinary income rates, this provides opportunity to pay less tax on your 401k through company stock ownership.

QIs there a particularly memorable experience or a moment you recall with a client who worked at Merck when you realized they have unique opportunities and circumstances when it comes to their financial planning needs?

I have worked with many Merck employees and three areas we really provided assistance on; 1) helping employees understand the importance of Roth IRA planning and assisting them in formulating a backdoor Roth strategy through their Merck 401K. 2) Assistance with Stock inside their 401k and how to minimize taxes and utilize the unique advantage of holding company stock inside their 401k. 3) Providing coordination, between company benefits and their personal financial planning goals and objectives.

Considering a financial advisor who specializes in working with Merck Employees?

Financial Advisor Q&A  ·  Merck Employees

Shikha Mittra, AIF®, CFP®, CMFC®, CRPS®, PPC®, RMA®, CEPA®, MBA, Financial Advisor for Merck Employees at Retire Smart Consulting, LLC

Shikha Mittra, AIF®, CFP®, CMFC®, CRPS®, PPC®, RMA®, CEPA®, MBA

Retire Smart Consulting, LLC  ·  Princeton, NJ  ·  Serves clients nationwide

Princeton, NJ Fiduciary Fee-Only Financial Planner
Book Intro Call

Shikha Mittra, AIF®, CFP®, CMFC®, CRPS®, PPC®, RMA®, MBA is a financial advisor based in Princeton, New Jersey who specializes in offering financial planning services to Merck employees. Shikha helps her clients get the most value from their Merck benefits and compensation package so they can enjoy life and feel confident about their financial future.

QAs a financial advisor with experience helping Merck employees save for their retirement, how do you help them make the most of their employee benefits?

Making sure they are maximizing their benefits package and prevent overlap of benefits hence reduce costs.

QWhen you first speak with a Merck employee, what questions do you like to ask to better understand their unique circumstances and determine how you can best help them achieve their goals?

How long have you worked for the company , pension, executive benefits. When would they like to retire.

QIs there a particular benefit available to Merck employees you feel isn’t as well utilized or understood by employees as it should be?

Retirement packages, stock options, lumpsum versus monthly benefits.

QBeyond Merck employee benefits for retirement savings, are there other types of benefits offered by the company that you find valuable to discuss with your clients?

Stock options, RSUs, HSAs.

QFor Merck employees thinking about leaving the company to accept a job elsewhere, what actions do you recommend they take before resigning and shortly thereafter?

Evaluate your total financial picture before taking that step.

QFor Merck employees approaching retirement age, how do you recommend they prepare to make the transition from living off their salary to relying upon other sources of income?

Get an independent fee only financial plan to see how income and expenses stack up.

QFor Merck employees who have managed their finances on their own to this point, what would you suggest they consider to help them decide if they should begin working with a financial advisor at this stage in their lives?

Evaluate what they have done and find if there are any gaps, if there are, point it out and if they want the advisor’s help, that’s their mutual decision.

QWhat are some of the unique financial planning challenges you commonly see among your clients who are Merck employees and how do you help them overcome these obstacles?

Loading up on target date funds or select two or three mutual funds for their 401k. By educating on importance of diversification.

QWhat questions do you recommend Merck employees ask financial advisors they’re considering hiring to help them decide if they’re a good fit?

Are they fiduciary, fee only? Will they put it in writing? Do they know how will the sunset on Tax Laws impact the executives?

QIs there anything that comes up frequently in your initial meeting with Merck employees that surprises you?

They think brokers/sales rep are financial advisors.

QFor highly compensated Merck employees and executives, are there any special benefits you believe it’s important to take into consideration when preparing their financial plan?

Comb through their executive packages to see what benefits go away at retirement. Some companies pay for executive financial planning as a perk.

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About the Author

Brian Thorp, Founder and CEO of Wealthtender and Editor-in-Chief

Brian Thorp

Founder & CEO, Wealthtender  ·  Editor-in-Chief

Brian Thorp is the founder and CEO of Wealthtender and serves as Editor-in-Chief. With over 25 years in the financial services industry — including nearly 22 years at Invesco, where he led strategic partnerships with wealth management firms representing more than $100 billion in assets — Brian founded Wealthtender to help people find financial advisors they can trust and make more informed money decisions.

A member of the National Society of Compliance Professionals and its SEC Marketing Rule Working Group, Brian was recognized by WealthManagement.com as one of its “Ten to Watch in 2024” for his work reshaping how financial advisors market their services. He holds a B.B.A. in Finance from The University of Texas at Austin.

Brian and his wife live in Austin, Texas.

Read Brian’s full bio →   ·   Connect on LinkedIn →

What this article covers

For real estate investors who are tired of active property management, Delaware Statutory Trusts, 721 exchanges, and 1031 strategies offer a path to passive ownership — without surrendering a large share of your gains to taxes. But these strategies are complex, the DST industry has long been dominated by commissioned salespeople rather than fiduciaries, and the difference between the right structure and the wrong one can cost far more than the tax bill you were trying to avoid. Here’s what you need to know — and what the most common mistakes look like — from a fee-only fiduciary who works exclusively in this space.

If you’ve spent years building wealth through investment real estate, you know what it costs to be a landlord, not just in dollars, but in time, stress, and the 2 a.m. phone calls you’ll never get back. What’s less obvious is what it could cost to stop.

Selling an appreciated investment property can trigger capital gains taxes (federal, state, and depreciation recapture combined) that claim a substantial portion of everything you’ve built. For many long-term real estate investors, that tax liability isn’t a number they’re willing to accept, which is why Delaware Statutory Trusts (DSTs), 721 UPREIT exchanges, and 1031 exchange strategies have grown increasingly popular as tools for transitioning from active property ownership into passive real estate without an immediate and painful tax event.

But these strategies aren’t simple, and the DST industry has historically been driven by commissioned salespeople rather than fiduciaries. The wrong advice (or advice from the wrong kind of advisor) can cost far more than the tax bill you were trying to avoid.

That’s why finding a specialist who works exclusively with real estate investors navigating complex exit strategies matters so much. While you’ll find many nearby financial advisors who can help with general financial planning, identifying one with deep, specific expertise in DSTs, 721 exchanges, and fiduciary-first real estate exit planning is a different search entirely.

The good news: advisors like Carl E. Sera, CMT, of Sera Capital in Annapolis, Maryland, offer virtual services nationwide, meaning geography doesn’t have to limit your access to genuine expertise.

Key Takeaways

1

A Delaware Statutory Trust lets real estate investors exit active property management through a 1031 exchange — without an immediate capital gains tax bill.

DSTs allow investors to exchange out of actively managed properties and into professionally managed real estate — multifamily communities, industrial assets, medical offices, and net-lease portfolios — while deferring taxes through a 1031 exchange. For many tired landlords, the appeal isn’t the legal structure itself; it’s the simplification, diversification, and freedom from active management it provides.

2

Whether a DST or 721 UPREIT exchange is right for you depends on your long-term goals — not just your tax situation.

A traditional DST preserves your ability to complete future 1031 exchanges, while a 721 exchange converts your interest into operating partnership units of a larger REIT — offering potential advantages in diversification, liquidity, and multigenerational estate planning. The right choice starts with a clear understanding of what you’re actually trying to accomplish, not which structure defers the most tax today.

3

The most costly DST mistake isn’t choosing the wrong structure — it’s waiting too long to start planning.

Investors who don’t begin the planning process until a property is already under contract face tighter timelines, narrower options, and reactive decision-making. Starting the conversation months before a sale — and working with a fee-only fiduciary rather than a commissioned broker — gives you the time and unbiased guidance needed to choose the structure that genuinely fits your goals.

Financial Advisors Who Specialize in DSTs and 721 Exchanges

💡 In the Q&A below, you’ll gain insights from a financial advisor who specializes in helping real estate investors transition from active property ownership into passive real estate through Delaware Statutory Trusts, 721 exchanges, and 1031 exchange strategies while minimizing tax exposure and simplifying long-term estate planning.

🙋‍♀️ Do you have questions not answered below? Use the form on this page to submit your questions. You can also contact the financial advisors featured in this article directly to set up an introductory call or ask your questions by email.

💸 Get to Know Financial Advisors Who Specialize in DSTs and 721 Exchanges

This page is organized into sections to help you quickly find the information you need and get answers to your questions:

  1. Q&A with Financial Advisors Specializing in DSTs and 721 Exchanges
  2. Get Answers to Your Questions About DSTs and 721 Exchanges
  3. Browse Related Articles

Q&A: Financial Advisors Specializing in DSTs and 721 Exchanges

Answers to DST and 721 Exchange Questions with Carl E. Sera, CMT | President & Managing Principal, Sera Capital

We asked Annapolis, Maryland-based financial advisor Carl E. Sera, CMT, who works exclusively with real estate investors navigating complex exit strategies, to answer the questions his clients ask most often when they’re ready to stop managing properties and start planning what comes next. As president and managing principal of Sera Capital, a fee-only fiduciary firm, Carl advises high-net-worth individuals, families, and financial advisors nationwide on 1031 exchanges, DSTs, and 721 UPREIT structures.

Q: What exactly is a Delaware Statutory Trust (DST), and why are more real estate investors using them?

Carl: Most people don’t wake up wanting to invest in a Delaware Statutory Trust. They reach a point where they’re simply tired of being landlords. Over the past several years, we’ve seen more real estate investors looking for a way to transition from active property management into passive real estate ownership without immediately triggering a large capital gains tax bill. That’s where DSTs have become increasingly popular.

A DST allows investors completing a 1031 exchange to move from active property management into professionally managed real estate ownership through assets such as multifamily communities, industrial properties, medical offices, and net-lease portfolios. For many of our clients, it’s less about the legal structure itself and more about what it represents: simplification, diversification, and freedom from active management.

Q: What’s the difference between a DST and a 721 UPREIT, and when does one make more sense than the other?

Carl: Many investors mistakenly think the DST is the end goal. Increasingly, we view it as one step in a broader transition from direct property ownership into professionally managed real estate. A traditional DST is typically designed to help investors complete a 1031 exchange and remain in real estate ownership. A 721 exchange goes a step further by allowing investors, over time, to convert into operating partnership units of a larger REIT structure.

For some families, that creates meaningful advantages around diversification, estate planning, liquidity, and simplifying multigenerational wealth management by moving from one or two concentrated properties into exposure across hundreds or even thousands of properties. That said, there’s no universal answer. Some investors prefer traditional DSTs because they want to preserve the ability to continue completing future 1031 exchanges. Others are more focused on long-term passive ownership and estate simplification, where a 721 structure may be more appropriate.

The key is understanding what the investor is actually trying to accomplish before choosing the structure.

Q: Why does it matter whether your 1031 and DST advisor is a fee-only fiduciary rather than a commission-based broker?

Carl: This is one of the most important and least discussed aspects of the DST industry. Historically, many DST investments were sold through commission-based broker-dealers, where advisors may be compensated differently depending on which product or sponsor they recommend. Investors should understand exactly how their advisor is being compensated before making a multi-million dollar real estate decision.

As a fee-only fiduciary firm, we waive commissions entirely and work solely on behalf of the client. That changes the dynamic of every conversation. Instead of asking “which product pays the highest commission,” the focus becomes “what structure actually makes the most sense for this client’s goals, tax situation, liquidity needs, and long-term plan?”

It also allows us to work collaboratively with existing financial advisors, CPAs, attorneys, and family offices, many of whom simply want a trusted fiduciary partner to help navigate the complexity while they maintain the long-term client relationship.

Q: How can a DST be used as part of an estate planning strategy, and what happens to a DST investment when the owner passes away?

Carl: For many of our clients, estate planning eventually becomes just as important as tax deferral. One reason DSTs and 721 structures have grown more popular is that they can help older investors simplify ownership while creating a smoother transition for heirs. Instead of leaving behind multiple actively managed properties, investors may be able to consolidate into professionally managed real estate with centralized reporting and administration.

Generally speaking, when a DST investor passes away, their heirs receive a step-up in cost basis based on the fair market value at the date of death, which can significantly reduce or even eliminate the deferred capital gains tax burden for the next generation. Every family’s situation is different, and these strategies should always be coordinated with an estate planning attorney and CPA.

But for many clients, the conversation gradually evolves from “How do I defer taxes today?” to “How do I simplify this for my family long term?”

Q: What’s the most common mistake you see real estate investors make when approaching a 1031 exchange or DST, and how can they avoid it?

Carl: Waiting too long.

A surprising number of investors don’t start planning until their property is already under contract or about to close. At that point, the clock is ticking, options narrow quickly, and decisions become reactive rather than strategic. The investors who tend to have the best outcomes start the conversation earlier, sometimes months before a sale, which gives them time to evaluate structures thoughtfully, coordinate with their CPA and attorney, and determine whether a DST, a 721 exchange, an Opportunity Zone strategy, or simply paying the tax is actually the right fit.

The other common mistake is focusing only on tax deferral rather than the bigger picture. Taxes matter, but the investment itself matters more. A good strategy should improve the investor’s overall quality of life and financial position, not just postpone a tax bill.

Get to Know Carl Sera, Specialist in DSTs and 721 Exchanges:

Headshot of Carl E. Sera, CMT
Sera Capital Carl E. Sera, CMT
Annapolis, Maryland
Serving Clients Nationwide
Helping Real Estate Investors Plan Tax-Efficient Exits | Independent & Fee-Only
3 Certified Advisor Reviews™
Areas of Focus
1031 Exchanges 721 Exchanges Business Transitions Charitable Remainder Trusts Delaware Statutory Trusts

Book Intro Call with Carl

View Carl’s profile page on Wealthtender or visit his website to learn more.

Carl E. Sera, CMT, is President and Managing Principal of Sera Capital Management, a fee-only fiduciary firm focused on complex real estate exit planning. He works with high-net-worth individuals, families and financial advisers to navigate the transition from concentrated real estate positions into more diversified, portfolio-oriented investments in a tax-efficient manner. 

Carl advises financial advisers and their clients nationwide on complex real estate decisions, including 1031 and 721 exchanges, and how those transitions integrate with broader portfolio construction and long-term investment strategy. 

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About the Author
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About the Author

Brian Thorp

Brian is CEO and founder of Wealthtender and Editor-in-Chief. He and his wife live in Austin, Texas. With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress. Learn More about Brian

Discover financial advisors trusted by residents of Palm Springs, California in the only local directory featuring 5-Star Certified Advisor Review™ recipients and Wealthtender Voice of the Client Award™ winners—recognition earned for exceptional client feedback. Compare fiduciary, fee-only advisors, CFP® professionals, and specialists to find the right fit for your unique financial needs.

Whether you have lived in Palm Springs for years or recently moved to town, you may need help finding the right financial advisor in the community best suited for your individual needs.

It’s important to first consider your own financial planning priorities before choosing an advisor. Here are a few quick tips to help you get started along with financial advisors in Palm Springs featured on Wealthtender you may want to add to your shortlist.

As you prepare to interview financial advisors in Palm Springs who may be right for you, get to know local financial advisors featured on Wealthtender.

📍 Map: Financial Advisors with their Primary Office Location in Palm Springs

Double-click (or pinch the map on mobile devices) to zoom in and expand the details for financial advisors whose primary office location is in Palm Springs.

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The Benefits of Hiring a Financial Advisor in Palm Springs

Hiring a financial advisor can be a great move to help you build a long-term investing strategy. Advisors can help you build an investment portfolio to meet your financial goals and help you plan appropriately for retirement.

As a resident living in Palm Springs, hiring a financial advisor who lives nearby and understands the local economy, cost of living, and regional employers can be quite valuable, especially if your individual circumstances are deeply tied to such factors.

Do you work for one of the largest employers in Palm Springs? If so, there’s a good chance the local financial advisor you hire will also have other clients who work there. This knowledge could prove valuable if they are already familiar with your employee benefits, such as a 401(k) plan, Health Savings Accounts, and other components of your total compensation package.

When you reach out to financial advisors you’re considering hiring, let them know where you work and ask if they are familiar with your employer’s unique benefits and compensation structure.

Quick Tips For Hiring an Palm Springs Financial Advisor

Before hiring a financial advisor in Palm Springs, here are a few quick tips to help you find the best advisor for you.

1. Decide Which Services You Need

Before hiring an advisor, determine what services you need from them. Whether it’s full-service investment management or a plan focused on a specific area of your finances, put together a list of what you’d like help with before contacting an advisor.

Though most people use a financial planner simply to invest for retirement, this is only a small part of what many advisors offer. Here’s a quick rundown of potential services a financial advisor may offer you:

  • Budgeting and money management
  • Debt management
  • Insurance planning
  • Retirement planning
  • Other investment planning
  • Inheritance planning
  • Estate planning
  • Tax planning

As you can see, financial advisors can help you with your entire financial picture, not just investing. As you start to plan for life’s bigger milestones, you should consider finding a financial advisor that specializes in those areas.

Finding the right advisor can help you minimize risk, maximize gains and take advantage of tax breaks while investing for your future. They can also help you protect your assets with the right kinds of insurance and help you pass on your financial legacy with a proper estate plan.

2. Consider Your Budget and Payment Preferences

Once you have a list of services you would like, review the fee structures financial advisors offer. Finding a balance between the services you need and the cost of those services will help narrow down the field of advisors you may want to work with.

If you are looking for a full-service advisor to manage all of your investments, consider searching among fee-based financial advisors. If you want to manage your money yourself, consider the flat fee and monthly subscription advisors for ongoing support.

3. Interview Multiple Financial Advisors

Once you have chosen the services and fee structure you prefer, it’s time to contact a few advisors and interview them. Here are questions to ask financial advisors:

  • What services do you provide?
  • What are all the ways you get paid? (fee transparency)
  • What is your investment strategy?
  • How do you measure investment performance?
  • How do we communicate about my plan?

Interview multiple advisors to get a feel for who you want to work with. A combination of fees, services, and customer service will help you determine the best fit for your financial advice.

4. Review Financial Advisor Credentials

Once you find an advisor (or two) you feel comfortable with, it’s always a good practice to check their credentials and the firm’s details. You can do this at the Investment Adviser Public Disclosure (IAPD) website. 

You can check both the individual and the firm to view their background and experience details, as well as any disciplinary action taken against them or their firm.

As licensed financial professionals, there is oversight into how financial advisors conduct business, so running a quick (free) check on them is recommended.

For additional information about advisor credentials, read our article to learn the most popular designations held by financial advisors, as well as specialized credentials which may be important to consider if you have unique financial planning needs.

Frequently Asked Questions & Additional Resources

How do I know if I’m ready to hire a financial advisor?

You should strongly consider hiring a financial advisor if you have a significant amount of money available for saving or investing. This could occur after years of making annual contributions to a retirement plan like a 401(k) through your employer or suddenly if you receive a large inheritance or sell your house for a large profit.

But even if you don’t have a lot of money saved, many financial advisors and planners provide reasonable pricing options and valuable services you should consider, especially if you’re facing a significant life event. For example, if you’re starting a new job, getting married, starting a family, getting divorced, lost your job, starting or selling a business, or approaching retirement age, working with a trusted financial advisor or planner may prove worthwhile.

Before I hire a new financial advisor, should I fire my current advisor?

You don’t need to fire your current advisor before beginning your search for a new financial advisor. In fact, your new advisor can help coordinate the transition of your assets from your previous financial advisor.

Where can I read reviews about financial advisors written by their clients to help me decide if I should hire them?

After 60 years of regulatory prohibition of financial advisor reviews in the US, a rule issued by the Securities and Exchange Commission (SEC) became effective on May 4, 2021 that means both financial advisors and directory websites that help consumers search for a financial advisor can collect and display financial advisor reviews, an important factor worth considering when choosing who you’ll hire to manage your investments and life savings. 

Wealthtender is the first independent advisor review platform designed to be fully compliant with the new SEC rule, and we look forward to helping you evaluate financial advisors based on reviews written by their clients.

I’m a local financial advisor interested in being featured in this guide. How do I get started?

Thanks for your interest. We look forward to learning more about your practice and helping you attract your ideal clients where you may be a good fit based on their individual needs and circumstances. Please click here to learn how you can join local financial advisors featured on Wealthtender.

How Much Does a Financial Advisor Cost?

➡️ How Much Does a Financial Advisor Cost? Read the Article

About the Author
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About the Author

Brian Thorp

Brian is CEO and founder of Wealthtender and Editor-in-Chief. He and his wife live in Austin, Texas. With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress. Learn More about Brian

What this article covers

Not every financial advisor is legally required to act in your best interest — and the difference can cost you thousands of dollars over a lifetime of investing. The term “fiduciary” describes advisors who are held to a higher standard than merely recommending “suitable” products. This article explains what the fiduciary standard means in practice, which credentials and affiliations reliably signal fiduciary status, how to verify whether your current or prospective advisor is a fiduciary, what working with a fiduciary actually costs, and how to find one on Wealthtender.

Financial planning is complicated. Developing an investment strategy, creating an estate plan, ensuring proper risk management, and even many everyday personal finance matters may require the help of a good financial advisor. But is your financial advisor a “fiduciary”? And what exactly does “fiduciary” mean?

What is a Fiduciary Financial Advisor?

In short, a fiduciary financial advisor must recommend the best investment solutions for their clients. It is not enough that a product is simply “suitable.” A higher standard applies to a fiduciary advisor.

You shouldn’t assume a financial advisor is a fiduciary, and before you hire an advisor, you should ask explicitly if they will always act in your best interest as a fiduciary. Fortunately, you can easily find fiduciary financial advisors today if you know what to look for and the right questions to ask.

Key Takeaways

1

A fiduciary financial advisor is legally required to act in your best interest — not merely recommend products that are “suitable” — and this distinction can significantly affect the quality of advice you receive.

The suitability standard only requires that an advisor’s recommendation be appropriate for your general situation. The fiduciary standard is meaningfully higher: the advisor must recommend the best option available for you specifically, fully disclose any conflicts of interest, and act with care, skill, and prudence. In practice, a non-fiduciary advisor could legally recommend a higher-fee investment that pays them a larger commission as long as it’s “suitable” — a fiduciary cannot.

2

CFPs, CFAs, NAPFA members, and RIAs registered with the SEC are among the most reliable indicators that an advisor is held to a fiduciary standard — but you should still ask directly.

The CFP Board’s Code of Ethics requires all CFP professionals to act as fiduciaries when providing financial advice. CFA charterholders agree to a similar fiduciary duty. NAPFA membership requires fee-only fiduciary status. SEC-registered RIAs are held to a fiduciary standard by regulation. However, some advisors hold fiduciary credentials in only some contexts — so the safest step is to ask explicitly: “Will you always act as a fiduciary in our relationship?” and get the answer in writing.

3

Working with a fiduciary doesn’t necessarily cost more — and the fee-only model, where fiduciaries are most common, is often the most cost-transparent arrangement available.

Fiduciary advisors frequently work on a fee-only basis — charging a flat fee, hourly rate, or percentage of assets with no commission income — which means their compensation isn’t tied to the products they recommend. A quality fiduciary advisor working under the AUM model typically charges around 1% annually or less, comparable to non-fiduciary advisors. The real cost difference often comes from avoided losses: the products a fiduciary steers you away from may cost far more over time than the advisory fee itself.

How CFPs, CFAs, and Other Credentialed Advisors Meet the Fiduciary Standard

One way you can be sure your financial advisor will act as a fiduciary includes hiring a Certified Financial Planner, often referred to as a CFP. Upon earning the Certified Financial Planner designation, each CFP acknowledges they will adhere to the CFP Board’s Code of Ethics and Standards of Conduct and act as a fiduciary when providing financial advice to their clients.

This means the CFP professional places each client’s well-being above their own and that of the firm for whom they work. Moreover, the fiduciary duty requires the proper disclosure of material conflicts. In practice, the advisor must act with care, skill, prudence, and diligence so that they can best serve the client’s objectives. Finally, the advisor must comply with all laws and regulations.

Why “Fiduciary” Can Be Hard to Verify — and What to Watch Out For

What is problematic today is that the term “fiduciary” is still not widely known and understood. Many investors are fooled by generic terms such as “financial advisor” and “senior planner” when seeking an advisor. Be careful. Believe it or not, there are so-called certification programs that can be completed in a few days that some advisors use to suggest expertise.

Making it all the more challenging to research and find a fiduciary advisor is that the onus is on the individual. Most people are not financial experts. They also do not have the time to sift through dozens of advisory firms to find the right fiduciary for their situation.

What’s at Stake When Your Advisor Isn’t a Fiduciary

Why is it so important that your financial advisor be a fiduciary? If your advisor is not working in your best interests, then he or she might attempt to sell you a product that is not the best for your individual situation.

For example, a sub-optimal investment solution might line the advisor’s pocket with commissions and high-fund fees, more than it helps you achieve your long-term goals. Or a non-fiduciary advisor could recommend complex products and portfolios uneasy to understand, in hopes clients won’t call their strategy into question.

How Do Fiduciary Financial Advisors Mitigate Conflicts of Interest?

In order to reduce conflicts of interest, many fiduciary financial advisors may choose to not offer certain products directly, and instead, recommend their clients purchase products elsewhere. In other instances, when fiduciary advisors offer their clients certain products or services, they will disclose any conflicts of interest regarding their recommendation, place their clients’ interests ahead of their own, and most importantly, act without regard to their financial interests.

We asked fiduciary financial advisors if there are products or services they don’t offer directly as a fiduciary but do sometimes recommend their clients consider purchasing. Here’s what they had to say:

Headshot of Brandon Renfro, CFP®, Ph.D., RICP®, EA
Brandon Renfro, CFP®, Ph.D., RICP®, EA A Better Retirement Simplified

“I might sometimes recommend a SPIA for a small portion of a retirees income plan. Although annuities are often complex, these are very simple. In exchange for a lump sum of money the client receives a fixed payment for life. It’s quoted before purchase so the tradeoff is known with no surprises.

These can be useful for providing a certain amount of income that the client can rely on regardless of what happens in the market or how long they might live. These might be good for retirees that have adequate savings in a 401k or IRA, but no pension, or a Social Security benefit that is smaller than they would like.”

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Brandon Renfro, CFP®, Ph.D., RICP®, EA | Belonging Wealth Management

🔗 Website | Wealthtender Profile

Headshot of Darryl Lyons, CFP®, ChFC®, BFA, AIF
Darryl Lyons, CFP®, ChFC®, BFA, AIF Fee Based Fiduciary Advisor

“As a fiduciary I have conviction that all our clients should own some form of Identification Insurance/Protection. Many of our clients can afford the financial obligations that happen in a breach. However, the time involved for many busy people would be overwhelming without a third party working on their behalf. The challenge for me, as a fiduciary, is finding a quality product solution and staying on top of the ever evolving features and benefits.”

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Darryl Lyons, CFP®, ChFC®, BFA, AIF | PAX Financial Group

🔗 Website | Wealthtender Profile

Find Fiduciary Financial Advisors on Wealthtender

You’ll find hundreds of fiduciary financial advisors featured on Wealthtender ready to help you develop a personalized plan to achieve your long-term goals.

Credentials and Affiliations That Signal Fiduciary Status

Financial advisor credentials and affiliations that require a fiduciary duty including CFP, CFA, NAPFA membership, XY Planning Network affiliation, and SEC-registered RIA status, with explanations of why each signals fiduciary status and links to find advisors on Wealthtender
Credential / Affiliation Why It Signals Fiduciary Status Find on Wealthtender
CFP® (Certified Financial Planner) ✔CFP professionals must adhere to the CFP Board’s Code of Ethics and Standards of Conduct, which includes a binding fiduciary duty when providing financial advice. They must act with care, skill, and prudence — and always place the client’s interests above their own. Find a CFP →
CFA® (Chartered Financial Analyst) ✔CFA charterholders agree to the CFA Institute’s Code of Ethics, which requires placing client interests above their own and the firm’s. The CFA designation is one of the most rigorous investment credentials in the industry. Find a CFA →
NAPFA Member ✔NAPFA (National Association of Personal Financial Advisors) requires all members to be fee-only fiduciaries. They accept no commissions and must comply with a comprehensive, client-centered code of conduct. NAPFA membership is one of the clearest fiduciary signals available. Find a NAPFA Advisor →
XY Planning Network (XYPN) Member ✔Every XYPN-affiliated advisor takes a fiduciary oath as a condition of membership. XYPN specializes in fee-only financial planners who work with Gen X and Gen Y clients, many of whom offer flexible, subscription-based pricing. Find an XYPN Advisor →
SEC-Registered RIA ✔Registered Investment Advisers (RIAs) registered with the SEC are held to a fiduciary standard by regulation — not just by a voluntary code. Their Form ADV, publicly available via the SEC IAPD, discloses business practices, conflicts of interest, and background. Browse Advisors →

Are You Ready to Hire a Financial Advisor?

You’ll find a growing number of financial advisors featured on Wealthtender. You can search based on the areas of specialization most important to you and where they’re located, or browse our financial advisor directory for more search options to find advisors who may be a good fit for you.

As you consider hiring a financial advisor, we’ll offer one more due diligence tip: review an advisor’s Form ADV via the SEC Investment Adviser Public Disclosure IAPD website. A Registered Investment Advisor (RIA) must register with the SEC. That relationship requires upholding a fiduciary duty to clients. An added step, though, is to dig into the RIA’s form ADV. The ADV form simply discloses business practices, conflicts of interest, and the background of the advisory firm and its employees who give advice.

Find Fiduciary Financial Advisors on Wealthtender

📍 Click on a pin in the map view below for a preview of financial advisors who can help you reach your money goals with a personalized plan. Or choose the grid view to search our directory of financial advisors with additional filtering options, including the ability to narrow your search to fiduciary financial advisors based on credentials held by advisors like the Certified Financial Planner and Chartered Financial Analyst designations.

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How Much Should It Cost to Work With a Fiduciary?

The good news is that the cost of hiring a fiduciary advisor may not be any more expensive than hiring a non-fiduciary. Often, fiduciaries work on a fee-only basis, which often means an annual planning charge of a few thousand dollars per year. Many advisors’ fee structure is based on “assets under management” whereby you pay a percentage of your portfolio to the advisor each year. In general, you should pay no more than 1% per year.

Should You Hire a Fiduciary Financial Advisor?

A fiduciary advisor is required to act solely in their clients’ best interests. They agree to put the client’s financial circumstances above their own. With so many opaque investment products available these days, working with a fiduciary is more important than ever.

Frequently Asked Questions About Fiduciary Financial Advisors

Are All Fiduciary Financial Advisors “Fee Only”?

Not all fiduciary financial advisors hold themselves out to be “fee only” financial advisors. While a fiduciary financial advisor does not need to be “fee only”, many advisors choose to exclusively earn income from fees, and not commissions, based on a belief that the “fee only” method of compensation is the most transparent and objective method available.

NAPFA, an organization of financial advisors that requires its members only work with a “fee only” structure states it this way:

NAPFA’s position is that the Fee-Only method of compensation is the most transparent and objective method available. This model minimizes conflicts and ensures that your financial planner acts as a fiduciary. Fee-Only planners are compensated directly by their clients for advice, plan implementation and for the ongoing management of assets. All NAPFA members are required to work only within the Fee-Only structure, accepting no commissions for their work.

Fee-Only financial advisors may be paid hourly, as a retainer, as a percentage of assets (AUM), or as a flat fee, depending upon the planner you choose.

Source: NAPFA – What is Fee-Only Financial Planning

Is Edward Jones a Fiduciary?

Edward Jones offers a diverse mix of financial products and services to its clients, at times acting in a fiduciary capacity. You can visit the Edward Jones website to learn how their financial advisors are compensated and the types of fees and commissions you may incur for each of the products and services they offer. You should also ask your Edward Jones financial advisor how they will be compensated for any products and services.

Read this article to learn more: Is Edward Jones a Fiduciary?

Edward Jones sign on a standalone building where a financial advisor affiliated with Edward Jones provides financial planning services to their clients.
Firms Is Edward Jones a Fiduciary?

Mike Zaccardi, CFA, CMT

Here are links to a few resources available from Edward Jones with more information about the types of fees and commissions you may pay depending upon the type(s) of accounts you open with them:

Mike Zaccardi CFA

About the Author

Mike Zaccardi, CFA®

Mike is a freelance writer for financial advisors and investment firms. He’s a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program. 

Learn More About Mike

    By: Jacob Wade | Edited By: Brian Thorp

    What this article covers

    Most people assume financial advisors charge 1% of the assets they manage — and many do. But that’s just one of the eight most popular ways advisors can be compensated, and for many clients it’s not the most cost-effective option. This guide explains every major financial advisor fee structure in plain terms: what you pay, what you get, who it’s best for, and what actual advisors say about when each model makes sense. Whether you’re comparing advisors for the first time or wondering if you’re overpaying an existing one, this is the starting point.

    Hiring a financial advisor can be a great move to help you achieve your financial goals and establish an investing strategy based on your individual needs and circumstances. Advisors can work with you to develop a personalized financial plan and build an investment portfolio to meet your longer-term goals, as well as help you plan appropriately to enjoy a comfortable retirement.

    But how much does a financial advisor cost, and how can you ensure that you’re not paying too much?

    Over the years, financial advisor fees have evolved as the industry has moved to a more transparent pricing structure. However, there is still considerable confusion about how financial advisors make money and what a reasonable amount to pay is.

    We’ve prepared this guide to explain how financial advisors make money so you can make an informed decision about who to hire and how to pay for their services.

    Key Takeaways – How Much Does a Financial Advisor Cost?

    1

    Most financial advisors charge around 1% of assets annually, but that’s just one of eight fee models.

    The AUM (assets under management) model remains the most common way advisors are compensated, but it’s far from the only option. Financial advisors today also charge flat fees, hourly rates, one-time fees, subscription fees, income-based fees, and commissions — giving you meaningful choices about how you pay.

    2

    Alternative fee structures can save high-net-worth clients thousands of dollars per year compared to AUM pricing.

    As your portfolio grows, the dollar cost of a 1% AUM fee rises even if the work your advisor does for you stays the same. Flat fee and advice-only advisors offer comparable services at a predictable, often lower cost — a distinction that can significantly improve your long-term investment outcomes.

    3

    Understanding how a financial advisor gets paid is just as important as knowing what you’ll pay.

    Compensation models shape advisor incentives — commission-based advisors, for example, may have conflicts of interest that fee-only advisors do not. Before hiring, ask advisors to disclose all the ways they’re compensated, verify their credentials through the SEC’s IAPD database, and interview multiple candidates to find the best fit for your needs and budget.

    Table of Contents

    Before we talk about how you can pay for a financial advisor, let’s review what an advisor can do for you and why hiring one can be a worthwhile investment.

    What Services Do Financial Advisors Provide?

    Though many people use a financial planner simply to invest for retirement, this is only a small part of what many advisors offer. Here’s a quick rundown of possible services a financial advisor may offer you:

    • Budgeting and money management
    • Funding college and higher education
    • Debt management
    • Insurance planning
    • Retirement planning
    • Investment planning
    • Inheritance planning
    • Estate planning
    • Tax planning

    As you can see, financial advisors can help with your entire financial picture, not just investing. As you start to plan for life’s bigger milestones, you should consider finding a financial advisor who specializes in the areas most important to you.

    By finding the right financial advisor, you’re more likely to minimize risk, maximize gains, and take advantage of tax breaks while investing in your future. They can also help you protect your assets with the right kinds of insurance and pass on your financial legacy with a proper estate plan.

    Now that we know a financial advisor can help you build a plan for your entire financial life, let’s talk about how much you can expect to pay to work with a financial advisor.

    The Eight Ways Financial Advisors Charge for Their Services

    The cost of hiring a financial advisor can vary significantly based on the services provided. Paying a 1% fee on your assets managed by a financial advisor is quite common, but there are at least eight ways financial advisors are compensated by clients, each with varying costs:

    1. Percentage of Assets Under Management (AUM)
    2. Flat Fee
    3. Hourly Fee
    4. One-Time Fee (Modular Pricing)
    5. Advice-Only
    6. Subscription-Based
    7. Percentage of Your Income
    8. Commissions

    Before we review each compensation model in greater detail to explain the costs you can expect to pay a financial advisor for their services, you may find the table just below useful for quick reference.

    Quick Reference: Eight Financial Advisor Compensation Models Compared

    Summary of Eight Financial Advisor Compensation Models

    Use this quick reference to compare how financial advisors can be compensated, what you can expect to pay, and which model may be the best fit for your situation.

    Comparison of eight financial advisor compensation models including percentage of assets under management, flat fee, hourly, one-time, advice-only, subscription, percentage of income, and commission-based, showing typical costs and best use cases for each
    Compensation Model Description Typical Cost Best For
    1Percentage of Assets (AUM) Advisor charges an annual fee based on a percentage of the assets they manage for you. ~1% annually; discounts common above $500K–$1M Those seeking comprehensive investment management and full-service financial planning.
    Find an AUM Advisor →
    2Flat Fee Advisor charges a fixed annual fee for specific services, regardless of assets managed. $1,000–$10,000+ per year depending on scope and complexity Clients with larger asset balances who want predictable, transparent costs.
    Find a Flat Fee Advisor →
    3Hourly Fee Advisor bills by the hour for services rendered, often with an upfront retainer block. $150–$400+ per hour Those who need specific advice or a financial plan without ongoing asset management.
    Find an Hourly Advisor →
    4One-Time Fee (Modular) Advisor charges a one-time fee for a specific service or focused financial plan. Typically starting at $500; varies by service Clients needing help with a particular financial issue without a comprehensive plan.
    5Advice-Only Advisor provides guidance without managing investments; client implements recommendations independently. Often hourly or flat fee; typically lower than full-service DIY investors who want professional guidance without delegating asset management.
    Find an Advice-Only Advisor →
    6Subscription-Based Clients pay a recurring monthly or annual fee for ongoing access to advisory services. ~$50–$500+/month depending on service tier Those with limited investable assets who still want ongoing advisor access and support.
    Find a Subscription Advisor →
    7Percentage of Income Advisor’s fee is based on a percentage of the client’s annual income rather than assets. ~1% of annual income (e.g., $1,500/yr on $150K income) Higher earners early in their financial journey who don’t yet meet typical AUM minimums.
    8Commission-Based Advisor earns commissions from selling financial products such as mutual funds or insurance. Costs embedded in product fees; varies by product (e.g., front-load fees up to 5.5%) Clients who prefer not to pay direct fees and are comfortable with transaction-based compensation.

    1. Financial Advisors Who Charge a Percentage of Assets Under Management (AUM)

    While paying an advisor a fee based on a percentage of the assets they manage for you remains the most common compensation method, alternative compensation models are growing rapidly, as we discuss later in this article.

    Paying an advisor a percentage fee is called the “assets under management “ or “AUM” fee model. The current industry standard is to charge anywhere from 0.50% – 2% of the assets being managed on an annual basis. Most advisors will fall somewhere around the 1% fee mark and will often charge a discounted rate above certain tiers or asset thresholds.

    This means if you deposit $500,000 with a financial advisor at a 1% fee, they will charge you $5,000 annually to handle your investments. Or, if they charge 1% on the first $250,000 of your assets they manage and .75% for assets above $250,000, your annual cost for a $500,000 portfolio would be $4,375 ($2,500 + $1,875).

    While the price you pay to a financial advisor under the AUM fee model is calculated based on the assets they manage for you, you will likely receive additional services, such as the development of a financial plan, for no additional cost. This fee pays the advisor to invest your money for you based on your risk tolerance, goals, timelines, and other factors of your financial plan.

    Finding a full-service advisor who will manage your funds for 1% or less is generally considered attractive, while paying significantly more may cost you a large portion of your potential returns over time.

    As your assets managed by an AUM advisor grow, you should also expect the percentage fee you pay to decline. For example, many advisors will lower their charge below 1% once the assets they manage for you exceed a certain threshold, e.g., $500,000 or $1 million.

    You should be aware that under the AUM model, an advisor could earn considerably more when the stock market performs well, even if they haven’t done any additional work for you. Of course, the opposite is also true. When the stock market declines, an advisor may earn considerably less while still providing you with all of the services you should expect from them, no matter the market conditions.

    Best For – If you want an advisor who provides financial planning and investment management services for around 1% of the assets they manage for you, finding a good fee-only advisor who charges based on AUM may be a good fit. As your assets grow, you should ask your advisor if they can offer tiered pricing so you will pay a lower percentage above an agreed-upon threshold.

    Find an Asset-Based Fee Financial Advisor

    2. Flat Fee Financial Advisors

    A growing number of financial advisors offer services for a flat fee as an alternative to traditional pricing models (e.g., charging you 1% of the value of your portfolio managed by the advisor). Especially as your net worth grows, you may find a flat fee compensation arrangement can save you thousands of dollars each year vs. an advisor who is paid a percentage of the assets they manage for you. And, of course, the less money that goes to your financial advisor means more money available for you to enjoy in retirement.

    If you’re thinking about hiring a flat fee financial advisor, it’s important to look under the hood to understand what services are offered and how the fee is calculated. For example, a flat fee charged by some financial advisors may include developing a financial plan for you but not investing your money on your behalf. Other flat fee financial advisors might include investment advisory services.

    And just because a financial advisor charges a flat fee doesn’t mean every client will pay the same rate. In many instances, the flat fee might be calculated based on your income, portfolio size, and/or the overall complexity of your individual circumstances.

    Flat fee financial advisors will typically outline exactly what is included in this planning service, with different tiers for more comprehensive planning. For example, the flat fee may include creating a detailed financial plan for your debt, goals, investments, and more. Be sure to ask the financial advisor upfront if they will implement the plan for your investments on your behalf or if they will leave it up to you to follow the details of the plan.

    In certain instances, you may only require a flat-fee financial advisor’s work one time (in which case, you may want to consider an hourly financial advisor, though the same financial advisor may offer both pricing models and should steer you to the pricing model likely best for your individual needs).

    Clients of flat fee financial advisors often work together for many years where the flat fee is often billed quarterly. The cost of hiring a flat fee financial advisor can vary significantly from $1,000 to $10,000 per year (or more), depending on the scope and detail of the financial plan provided, whether or not investment management is involved, and the complexity of your circumstances.

    Find a Flat Fee Financial Advisor

    Best For – If you plan to establish a longer-term relationship with a financial advisor who charges you a fixed cost each year, a flat fee financial advisor may be an ideal solution for you. This is especially true for affluent clients with larger asset balances above $1 million who are seeking ongoing investment management and planning in retirement.

    ASK THE EXPERTS

    We asked flat fee financial advisors to offer their perspectives on when and why people may want to hire a financial advisor who charges a flat fee. Here’s what they said.

    Headshot of Don Rudolph
    Don Rudolph FLAT FEE CIO is Your Fixed Fee Chief Investment Officer

    For affluent investors, your advisor fee can “make or break” your retirement income plan as a 1% fee charged on your investments can devour over 30% of your after tax investment income each year in retirement.

    Now, thanks to advancing financial technology, a low fixed fee is rapidly replacing the 30-year-old legacy percentage on asset (AUM) advisor fee and can transform your “income outcome” in retirement.

    Today’s low fixed fee offers clients greater transparency and control over their annual fee and, unlike legacy percentage on asset fees, fixed fees do not rise each time the market goes up or when you add to your investment account.

    Show more

    Don Rudolph | FLAT FEE CIO

    🔗 Website | Wealthtender Profile

    Headshot of TJ van Gerven, CFP®
    TJ van Gerven, CFP® Helping high-earning professionals in their 30s and 40s align money with meaning

    While no type of fee model is perfect, the flat fee model is one of the most transparent and fair advisor-client compensation methods. It helps to remove the conflict of interest of “looking to gather your assets,” as well as a variety of conflicts around paying down debt vs. investing. With a flat fee model, you always know what you’re paying and what you’re paying for. It also allows you to work with an advisor regardless of your assets.

    A flat fee model may not make sense for you if you’re looking for a one-off engagement. In that case, you may be better served by an hourly advisor.

    Show more

    TJ van Gerven, CFP® | Memento Financial Planning

    🔗 Website | Wealthtender Profile

    3. Hourly Fee Financial Advisors (with Retainer)

    Some advisors work on an hourly basis, with prices ranging from $150 per hour to $400+ per hour. These prices do not change based on your total assets managed, so you only pay for the time you need with the advisor.

    Many of these hourly services come with an up-front retainer cost, buying a block of hours upfront for the year for you to use when you want.

    For example, if an advisor charges a $2,500 retainer fee at $250 an hour, you’ll have 10 hours of planning services available to use throughout the year. Each additional hour would then be billed at the normal hourly rate.

    Some hourly financial advisors will give you full-service management of your investment portfolio (there may be additional fees for this), while others will only bill for 1:1 time and leave the money management and investing up to you (based on their guidance).

    Find an Hourly Financial Advisor

    Best For – If you simply want access to a financial advisor to answer questions and help you build a financial plan, paying for an hourly-based financial advisor may be a good fit.

    ASK THE EXPERTS

    We asked hourly financial advisors to offer their perspectives on when and why people may want to hire a financial advisor who charges by the hour. Here’s what they said.

    Headshot of Ryan Firth, CPA/PFS, CFP®, CCFC, GFP Fellow, RLP®
    Ryan Firth, CPA/PFS, CFP®, CCFC, GFP Fellow, RLP® Hourly planning that helps you address the financial complexities in your life.

    Hourly (or time-based) advice is highly flexible. It tends to make sense for someone who can self-implement recommendations, someone who is hands-on when it comes to their personal finances.

    For example, if you’re looking for a second opinion on your investment portfolio or just need one-off financial advice, then a time-based fee for service (i.e., “hourly”) might be just what you’re looking for.

    If you tend to delegate tasks or want someone to manage your investments for you, then hourly advice might not be a good fit for you. One of the cool things about hourly planning is that there really aren’t any restrictions on the type of clients that an advisor can work with.

    Show more

    Ryan Firth, CPA/PFS, CFP®, CCFC, GFP Fellow, RLP® | Mercer Street Financial

    🔗 Website | Wealthtender Profile

    4. Financial Advisors who Charge a One-Time Fee (Modular Pricing)

    Many financial advisors offer “a la carte” services, allowing you to choose the type of financial planning services you want to focus on. These services include budget planning, college funding, retirement planning, insurance planning, 401(k) review, and many other individual options.

    These are typically billed as one-time fees, typically starting at $500. These are not comprehensive financial plans for all of your goals but focus on a specific area of need. Clients pay for the advice and plan, but it is on them to execute the details of the plan.

    Best For – If you need help in a specific area and don’t want to spend thousands on a comprehensive plan, consider paying a one-time fee for a specific planning session.

    5. Advice-Only Financial Advisors

    If you consider yourself a DIY (do it yourself) kind of person, you’re not alone. Millions of Americans successfully start and complete DIY projects every day.

    But just because you decide to do a project yourself doesn’t mean you have to learn how to do the task yourself. In fact, most DIY projects start with education in the form of instructional videos, articles, books, or even live demonstrations.  

    The same holds true when it comes to managing your personal finances and investing. If you consider yourself a DIY investor and are comfortable managing your own money, you may not want to hire a traditional financial advisor and turn over financial decision-making to someone else. Fortunately, a new breed of advice-only financial advisors has emerged as a popular choice among DIY investors interested in professional guidance at a very attractive cost.

    An advice-only financial advisor offers financial planning and investment guidance to their clients, who are responsible for implementing the recommendations independently. Because they do not manage your investments for you, the cost of hiring an advice-only financial advisor is often considerably less than hiring a traditional financial advisor, especially for people with large investment portfolios.

    Advice-only financial advisors are Registered Investment Advisors (RIAs) regulated by the Securities and Exchange Commission (SEC) or by state regulators where their services are available. Many advice-only financial advisors will hold their Certified Financial Planner certification and will likely charge an hourly or flat fee for their services.

    Best For – DIY investors interested in professional guidance at a very attractive cost.

    Find an Advice Only Financial Advisor

    6. Financial Advisors who Charge Subscription-Based Fees (Annual or Monthly)

    Some advisors don’t collect a fee based on the assets they manage for you but instead offer a subscription-like service, charging a monthly or annual fee for advisory services.

    These services can range from $50 per month to $500 per month (or more), depending on the level of support needed.

    Most of these subscription services charge a one-time fee to sign up and then a monthly (or annual) fee for ongoing support.

    Depending on the level of service you sign up for, there are typically “packages” that offer a limited amount of annual meetings, reviews, and 1:1 time with your advisor. Typically, the more you pay, the more access and guidance you get from your advisor.

    Best For – If you don’t have a large balance of investable assets but still want access to a financial advisor, the subscription model may be a good fit.

    Find a Subscription-Based Financial Advisor

    7. Financial Advisors who Charge Based on a Percentage of Your Income

    A newer fee structure has emerged recently called the “percentage of income” model. Instead of charging a fee based on a percentage of your total assets, these advisors are charging a percentage of your current income.

    This fee is designed to help those who may have a decent income but are at the beginning of their financial journey and don’t meet the minimum investment threshold for many traditional financial advisory firms (typically, $100,000 – $500,000).

    Instead of paying 1% of assets under management, clients instead pay 1% of their annual income for financial advice. In this model, a $150k/yr earner would pay $1,500 per year for financial and investing advice.

    Best For – If you have a good income but don’t have a large balance of investable assets and still want access to a financial advisor, the percentage of income model may be a good solution.

    8. Commission-Based Financial Advisors

    When a financial advisor is commission-based, they make commissions from selling you certain financial products (such as mutual funds, insurance products, and other types of securities). This model is becoming less and less popular, as there may be an inherent conflict of interest involved. There has been pushback against this model, as many clients have been sold financial products that they did not necessarily need, netting the advisor a hefty commission while the products underperformed.

    An indicator that your advisor is commission-based is if they offer a financial product, such as a mutual fund, with a “front-loaded” fee structure. For example, if you invest $10,000 in a mutual fund with a 5.50% front-loaded fee, you will pay $550, and the remaining $9,450 will be invested.

    Some of these funds claim to outperform the stock market over time, but always research the historical performance and reviews of any fund before you choose to invest.

    Best For – If you want to avoid annual fees and don’t mind paying for financial products (as long as you understand them), you may consider a commission-based financial advisor.

    ↗️ Local Advisors | Specialist Advisors | Highly Rated Advisors

    How to Choose a Financial Advisor

    Now that you have the details of how most advisors charge for their services, here are a few things to review before choosing your financial advisor.

    Decide Which Services You Need

    Before hiring an advisor, determine what services you need from them. Whether it’s full-service investment management or a plan focused on a specific area of your finances, put together a list of what you’d like help with before contacting an advisor.

    You may also want to consider hiring a financial advisor who specializes in serving clients with particular needs or interests. For example, many XY Planning Network financial advisors are dedicated to a specific niche (e.g., business owners, attorneys, doctors, educators, and more).

    Review Fee Structures

    Once you have a list of services you would like, review the fee structures offered by financial advisors. Finding a balance between the services you need and their cost will help you narrow down the field of advisors you may want to work with.

    If you are looking for a full-service advisor to manage all of your investments, consider searching among fee-based financial advisors who offer the AUM pricing model. If you want to manage your money yourself, consider the flat fee and monthly subscription advisors for ongoing support.

    Interview Multiple Advisors

    Once you have chosen the services and fee structure you desire, it’s time to contact a few advisors and interview them. Here are a few questions to ask when interviewing a financial advisor:

    • What services do you provide?
    • What are all the ways you get paid? (fee transparency)
    • What is your investment strategy?
    • How do you measure investment performance?
    • How do we communicate about my plan?

    ➡️ Related Article: Top Questions to Ask a Financial Advisor

    Interview multiple advisors to get a feel for who you want to work with. A combination of fees, services, and customer service will help you determine the best fit for your financial advice. And remember, you don’t need to consider working only with local financial advisors. Many advisors work with clients nationwide as virtual advisors, using Zoom calls, email, and chat to stay in touch about your plan. 

    Check Advisor Credentials

    Once you find an advisor (or two) that you feel comfortable with, it’s always a good practice to check their credentials, such as the financial certifications they hold and the details of their firm. You can do this at the Investment Adviser Public Disclosure (IAPD) website. 

    You can check both the individual and the firm to view their background and experience details, as well as any disciplinary action taken against them or their firm. Since financial advisors operate in a highly regulated industry, often acting as fiduciaries, there is oversight into how financial advisors conduct business, so running a quick (free) check on them is recommended.

    Are You Ready to Hire a Financial Advisor?

    You’ll find a growing number of financial advisors featured on Wealthtender. You can search based on the areas of specialization most important to you and where they’re located, or browse our financial advisor directory for more search options to find advisors who may be a good fit for you.

    Find Your Next Financial Advisor on Wealthtender

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    FAQs: Financial Advisor Costs

    Here are some common questions about financial advisor fees.

    FAQs

    What percentage do most financial advisors charge?
    You can typically expect to pay a 1% annual fee on your assets managed by a financial advisor. The percentage charged by financial advisors can vary considerably, so be sure to ask for their rates and any discounts when preparing to hire an advisor. Most financial advisors will also offer a discounted rate above certain tiers or asset thresholds. For example, a financial advisor may charge you 1% a year on the first $500,000 they manage for you, then 0.8% on the next $250,000, then 0.5% above this level. Beyond the percentage you pay, it’s important to understand the breadth of services an advisor will provide you as part of this cost. And you may be better served or pay less by hiring a financial advisor who charges a flat fee, hourly rate, or another payment arrangement discussed in this article, so consider your alternatives carefully to determine the payment option best for you.
    What are standard fees for financial advisors?
    Historically, standard fees for financial advisors have averaged around 1% annually, calculated as a percentage of the assets managed by an advisor on your behalf. Many advisors charge their clients less when their assets exceed a certain asset level. For example, a financial advisor may charge you 1% a year on the first $500,000 they manage for you, then 0.8% on the next $250,000, then 0.5% above this level. A growing number of financial advisors now offer payment options for their clients ranging from flat fees to hourly rates, so it’s important to know that “standard” fees are increasingly becoming a thing of the past.
    Are financial advisor fees tax deductible?
    Short answer: No. Financial advisor fees are not currently tax-deductible in the United States. There used to be a deduction for advisor fees up until the Tax Cuts and Jobs act of 2018 was passed. This allowed you to deduct financial advisor fees as a miscellaneous itemized deduction. That deduction is now gone, but investing can still give you tax deductions in certain kinds of investment accounts. Your work 401(k) or a traditional IRA account allows you to invest pre-tax dollars. This means that the money invested in those accounts does not count as taxable income. You can also still deduct investment interest charges as an itemized deduction, including interest paid on margin loans.

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    Jacob Wade

    About the author:

    Jacob Wade is a nationally recognized personal finance writer. Jacob has written professionally for Money.com, The Balance, Investor Junkie, LendingTree, Investopedia, Money Under 30, GOBankingRates, and other popular sites. He has also been a featured expert on CBS News, MSN Money, Forbes, Nasdaq, Yahoo! Finance, and AOL Finance. His background includes five years as an Enrolled Agent at an accredited CPA firm, where he prepared tax returns for individuals and small businesses. Learn More about Jacob

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    Insurance Could the Cost of Long-Term Care Derail Your Retirement Dreams?

    What this article covers

    Life insurance is typically purchased to protect your family — but some permanent life insurance policies can also serve as a tax-advantaged retirement savings vehicle. A Life Insurance Retirement Plan, or LIRP, uses the cash value built up inside a permanent policy as a source of tax-free retirement income. This article answers seven key questions about LIRPs: what they are, how cash value works, how you’d use one in retirement, the pros and cons versus a 401(k) or IRA, when one actually makes sense, and what the alternatives are — plus candid perspective from two financial advisors on when LIRPs help and when the sales pitch doesn’t tell the full story.

    If you’ve ever thought of life insurance, it was probably colored by the instinctive unease of thinking about your mortality – the fact that one day you’ll no longer be among the living.

    After all, that’s the main reason to buy life insurance – making sure that your passing, as traumatic an emotional loss as it’s likely to be for your loved ones, won’t also be a financial catastrophe.

    There are many financial responsibilities life insurance can help cover:

    • Replacing income: With you gone, a significant part of your family’s income will likely also go away.
    • Paying off debts: Paying a mortgage, student loans, auto loans, credit card balances, etc., likely makes up a large part of your family’s budget. Paying these off reduces ongoing income needs.
    • Succession planning for a business: If you’re a key person in a business, life insurance can provide capital to mitigate problems caused by your passing, e.g., hiring a (possibly higher-cost) replacement.
    • Compensating heirs: If your estate comprises assets difficult to split equally, especially if your heirs don’t get along, life insurance can compensate those who don’t get a fair share of such assets.
    • Estate taxes: If your estate is large enough to trigger estate taxes, especially if it comprises mostly illiquid assets (e.g., real estate and/or businesses), a death benefit can cover estate taxes without forced selling of assets at a difficult and potentially inopportune time.
    • Funeral expenses: Your passing will likely be traumatic for those you leave behind. Covering the significant expenses of your funeral and burial avoids making a terrible time even worse.
    • College expenses: If you have young children and haven’t set aside enough to cover the full cost of college attendance, life insurance can let them attend their preferred schools.
    • Charitable giving: If you’re keen on leaving a larger bequest for a charity or your alma mater than your estate allows, a life insurance policy can make that possible.

    However, life insurance policies can also help in a variety of ways while you’re still alive, including:

    • Long-term care (LTC): If you lose your ability to carry out for yourself two or more of the six so-called Activities of Daily Living (ADLs: bathing, eating, dressing, transferring (e.g., in/out of bed/chair), continence, and toileting), you’ll need expensive help with these. LTC coverage is often available as a rider on life insurance policies (increasing premiums).
    • Loan collateral: Some policies can be used to secure loans that would otherwise be more expensive or not available.
    • Access to loans: Permanent (not term) life insurance policies typically have a “cash value” associated with them that can be borrowed from.
    • Tax-free retirement income: This is what Life Insurance Retirement Plans (LIRPs) are all about, as explained below.

    What Is a LIRP?

    Any permanent life insurance policy with a cash value component that will help fund your retirement serves as a LIRP. Since you can borrow or withdraw from the policy’s cash value after age 59½ with no taxes owed except on gains, LIRPs have many of the tax benefits of a Roth IRA. Since term life policies have no cash value, they cannot be LIRPs.

    With a LIRP, you pay in more than the required policy premiums, thereby building your cash value faster. Letting that value grow until retirement lets the LIRP be used as part of your retirement planning. LIRPs aren’t formally retirement plans in a legal sense. However, they can serve a similar purpose with similar tax benefits.

    Key Takeaways

    1

    A Life Insurance Retirement Plan (LIRP) is not a formal retirement account — it’s a permanent life insurance policy that’s overfunded to build cash value you can borrow against tax-free in retirement.

    LIRPs are funded with after-tax dollars, and you can borrow against the policy’s cash value after age 59½ without owing taxes on the loan proceeds — similar to a Roth IRA in that respect. Unlike term life insurance, permanent policies (whole life, universal life, indexed universal life) build cash value that grows tax-deferred over time. The critical word is “borrow” — you’re taking a loan against your policy, not a distribution, and outstanding balances reduce your death benefit if unpaid at death.

    2

    For most people, maxing out a 401(k) and IRA is a better choice than a LIRP — but LIRPs can make sense as a supplemental strategy for high earners who have already maxed out all tax-advantaged accounts.

    401(k) plans and IRAs offer lower fees, more investment options, and typically better long-term returns than any life insurance policy. LIRPs carry higher costs, less liquidity, and surrender penalties that can make early exit expensive. The case for a LIRP strengthens specifically when you’re already maxing contributions to 401(k), IRA, and HSA accounts and need additional tax-advantaged savings capacity — or when you genuinely need permanent life insurance coverage regardless of retirement income strategy.

    3

    Indexed universal life policies are frequently marketed with “market-like returns with no downside risk” — but that pitch typically omits dividends, fees, commissions, and surrender penalties that materially affect real-world performance.

    Indexed universal life (IUL) policies link returns to a market index like the S&P 500, with a floor that protects against loss and a ceiling that limits upside. What salespeople often don’t mention: the index calculation typically excludes dividends (which historically account for roughly 40% of total stock market returns), and the product carries commissions, administrative fees, and cost-of-insurance charges that compound over time. Before purchasing any LIRP, consult a fee-only financial advisor and a fee-only insurance advisor with no commission incentive.

    How Does Cash Value Work in a Permanent Life Insurance Policy?

    As mentioned above, the part of each permanent life insurance policy’s premium payment exceeding what’s needed to cover your death benefit builds up the policy’s cash value – a sort of tax-deferred savings account under your name and linked to the policy. Your policy type determines how returns on that value are calculated.

    This may be a set fixed interest rate, or a variable return linked to a market-based index such as the S&P 500, albeit with a ceiling above which returns go to the insurer and a floor that preserves your principal.

    The cash value is usually used to pay your premium for you (once it’s high enough) and/or to increase the death benefit. However, once it reaches an amount set by your policy, you can withdraw and/or borrow against a portion of your cash value (typically up to 90%). As long as the withdrawals and/or loans aren’t more than the amounts you paid into your cash value, these withdrawals/loans can provide tax-free retirement income.

    One caveat is that if you borrow and die before paying it back, this will decrease the death benefit to your beneficiaries.

    How Can You Use a LIRP in Retirement?

    First, you build up a large cash value by over-funding your policy.

    Then, once you retire, you borrow against (typically up to 90% of) the cash value that built up over your working career. As long as you don’t exceed the policy’s limit, you can borrow any amount(s) you want whenever you want.

    For example, if you spend more than your Social Security benefits, portfolio returns, and/or other income sources will cover, you can borrow from your LIRP as needed to cover the gap (e.g., monthly, annually, or periodically). This can be especially helpful if you want to avoid selling shares at depressed prices during a market crash. Then, when the market recovers, you can use excess portfolio returns to pay back the LIRP loans.

    Once you die, the insurer will first repay itself for any outstanding balances and accrued interest from the policy’s cash value. If that’s not enough, they’ll take the rest out of the death benefit before paying it out to your beneficiaries.

    What Are the Pros and Cons of a LIRP?

    As with all things, LIRPs have both pros and cons or limitations, summarized in the following table.

    LIRP Pros and Cons Compared

    Comparison of Life Insurance Retirement Plan (LIRP) advantages and disadvantages covering tax treatment, loan flexibility, investment returns, contribution limits, death benefit, and cost compared to 401(k) plans and IRAs
    LIRP Pros / Advantages LIRP Cons / Drawbacks / Limitations
    Loans in retirement are tax- and penalty-free (if you’re 59½ and the account is 15 years old). Can also take loans before retirement at any age (though penalties are possible if classified as MEC). Overfunding beyond IRS-determined annual limits turns the policy into a Modified Endowment Contract (MEC) with tax and penalty implications, especially for withdrawals before age 59½.
    Loans can be taken when markets crash and paid back when markets recover (or not until death). Loans accrue interest that must be paid by you, or by cash value or death benefit if unpaid when you die.
    Loans can be used to reduce your marginal tax rate and/or taxation of Social Security benefits, especially in years with higher spending. Withdrawals and/or loans exceeding contributions may be taxable.
    Loans can be repaid anytime or when you die, unlike 401(k) loans that must be repaid if you leave the employer (or be taxed and penalized if too young). Withdrawals may trigger fees if taken too early.
    In some types of policy, LIRPs get higher returns in years when investment markets go up. In other types, get guaranteed (albeit low) interest. Investment choices are more limited and returns lower than those of most 401(k) plans and IRAs.
    No contribution limits (though above an IRS-set annual threshold, the policy becomes a MEC); cash value grows tax-deferred; and no Required Minimum Distributions (RMDs). Contributions are not tax-deductible.
    Guaranteed tax-free death benefit (LIRPs are life insurance policies). If a large death benefit isn’t needed, you can buy a cheaper policy with a lower death benefit while building the same cash value. Permanent life insurance premiums are typically 5–15× higher than term policies with the same death benefit, and fees may be high. Premiums are ongoing if you want to maximize cash value.
    Depending on riders, may get accelerated living benefits (e.g., in case of terminal illness). May not be needed if the portfolio is large enough; may be a poor choice if you can’t max out 401(k) and IRA.

    This comparison covers the most common LIRP structures. Individual policy terms, fees, and tax treatment vary significantly. Consult a fee-only financial advisor and a fee-only insurance advisor before purchasing any permanent life insurance policy for retirement income purposes.

    Are LIRPs Better Than a 401(k) or IRA?

    401(k) plans and IRAs have significant advantages for funding your retirement. These include tax benefits (tax-deferred traditional accounts or tax-free growth for Roth accounts) and possible employer matching contributions for 401(k) plans.

    LIRPs, on the other hand, are funded with after-tax dollars like a Roth, but earnings are tax-deferred like in a traditional retirement plan, offering the worst of the two – traditional and Roth.

    These dedicated retirement plans also typically offer a wide variety of investment options, and many have far higher average annual returns than offered by any life insurance policy.

    For these reasons, most people would be better off maxing out contributions to their 401(k) and/or IRA before considering putting money into a LIRP.

    When Might a LIRP Make Sense?

    The situation that makes a LIRP most beneficial is if you’re already maxing out all tax-advantaged retirement plans available to you, e.g., 401(k)/403(b)/457(b) plans, IRAs, and possibly Health Savings Accounts (HSAs), but want a higher income in retirement than those will allow.

    The younger you are, the lower life insurance premiums become for the same death benefit, making LIRPs less expensive.

    If you expect to need to provide for your beneficiaries more than your estate will allow regardless of your age at death (e.g., you have one or more disabled children), that makes the case for the LIRP even more compelling since you need a permanent life insurance policy.

    This is not the case for most people whose financial obligations and responsibilities decrease over the years as they pay off their mortgage and other debts, their children become independent adults, and their portfolio may grow enough to cover their widow(er)’s needs.

    Jorey Bernstein, Executive Director, Wealth Manager, and Founder, Bernstein Investment Consultants, agrees, “A LIRP can be valuable to a client’s retirement portfolio when used appropriately. These policies let you save for retirement in a tax-advantaged way while also providing life insurance protection. LIRPs make the most sense for clients who maximize contributions to standard retirement accounts, own a business, or want to diversify their assets and leave tax-free money to heirs. However, LIRPs have higher fees and less liquidity than other investment vehicles. We always analyze a client’s full financial picture when making recommendations. For the right investor, LIRP can provide supplemental funds to help meet retirement income goals.”

    What Are the Alternatives to a LIRP?

    Assuming you need life insurance and recognize the need to fund your eventual retirement, and unless you fall into the above-mentioned category of people who’d benefit most from a LIRP, your best alternative is likely to buy term life insurance coverage and invest as much as you can in tax-advantaged plans like an IRA and/or 401(k), especially to capture your employer’s full contribution match. Note that the Roth versions are better than traditional accounts for most.

    If you want to invest more than the contribution limits allow, consider low-cost deferred annuities and/or tax-efficient investing through a taxable account as alternatives to the LIRP.

    Aside from their lower premiums, term policies, as their name implies, have a set term; they can also be dropped without surrender charges or other complications that often arise when canceling permanent life insurance policies.

    The Bottom Line

    LIRPs are far more complicated than 401(k) plans and IRAs and come with a raft of pros and cons (see the table above).

    For some people, LIRPs provide a good way to set aside more money for tax-deferred growth than formal retirement accounts allow. LIRPs can provide guaranteed interest or variable index-linked returns with a floor that secures their principal and a ceiling beyond which the insurer takes excess returns.

    This is especially helpful for people who also expect to always need insurance to provide for beneficiaries such as disabled children who cannot fend for themselves, even as adults.

    For most of us, it’s better to buy the right amount of term life insurance only for as long as the death benefit will be needed and invest as much as we can in our 401(k) plans and IRAs. Although contributions to these are limited by the IRS, most people can rarely max those contributions.

    And if you don’t expect to need permanent life insurance, even if you regularly max out your formal retirement plans, you may be better served by a tax-efficient taxable portfolio and/or deferred annuities than a LIRP.

    Finally, since LIRPs are insurance policies and come with a host of complexities and costs, consult your financial advisor and life insurance agent before making such a major decision.

    As Jeremy Keil, CFP, CFA, Financial Planner with Keil Financial Partners, says, “Cash-value life insurance may make sense as an alternative to bonds or CDs since the insurer generally invests in bonds so returns are usually bond-like. Often with LIRPs, the salesperson will tell you that you get ‘market-like returns’ with no chance of losing money. For some reason, they rarely mention the fact that you don’t get dividends from an indexed universal life policy, or that there are commissions, costs, fees, and surrender penalties for exiting the contract. Before buying life insurance, especially an indexed universal policy, do some research, e.g., through theiulexperiment.com and perhaps hire a fee-only insurance advisor to help you make the right decision.”

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    Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

    Opher Ganel

    About the Author

    Opher Ganel

    My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.

    Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.

      What this article covers

      If your income is too high to contribute directly to a Roth IRA, the “backdoor” Roth conversion is a popular workaround — but a little-known IRS rule called the pro-rata rule can turn it into an expensive tax mistake if you’re not careful. This article explains exactly what the pro-rata rule is, how it calculates your tax liability when you have pre-tax money in traditional IRAs, and four strategies financial advisors use to help high earners avoid the trap — including one underused approach that works particularly well but that some advisors may not proactively mention.

      Taxes. One of the most hated aspects of personal finance, but without them, we don’t have a country. So, unless you want to get in serious trouble and potentially go to jail, you must pay Uncle Sam his due.

      The US tax code is infamous for its complexity, resulting in over 510,000 tax accountants, over 1.7 million bookkeepers, 79,000 IRS employees, and hundreds of thousands of workers in other related jobs (tax associates, tax assistants, tax advisors, etc.) in the US. And that’s not counting the 0.6% of the average 1,872 annual hours of full-time work it takes 134 million taxpayers to file tax returns. 

      All told, nearly 1 in 50 American workers’ jobs relate to taxes, be it collecting taxes, reporting them, or helping the rest of us minimize and reduce them.

      Key Takeaways

      1

      The IRS pro-rata rule means that if you have pre-tax money in any traditional IRA, a “backdoor” Roth conversion won’t be tax-free — the IRS treats all your IRA money as a single pool and taxes your conversion proportionally.

      High earners often use the backdoor Roth conversion as a workaround to Roth IRA income limits — making a non-deductible traditional IRA contribution and immediately converting it to a Roth. The pro-rata rule disrupts this strategy by treating the conversion as if it contains the same pre-tax/after-tax ratio as all your IRA assets combined. The larger your pre-tax IRA balance, the smaller the after-tax portion of your conversion — and the larger your unexpected tax bill.

      2

      The most elegant solution for most high earners is to roll pre-tax IRA money into a pre-tax 401(k) before attempting a backdoor Roth conversion — but this only works if your plan allows it.

      The IRS does not lump 401(k) balances together with IRA balances for pro-rata rule purposes. Rolling pre-tax IRA money into a workplace 401(k) effectively removes it from the pro-rata calculation — after which a backdoor Roth conversion of new non-deductible IRA contributions can proceed tax-free. As one advisor notes, this is a massively underused strategy that some AUM-based advisors may not proactively mention because it reduces their fee base.

      3

      There are four strategies to avoid the pro-rata trap — but each comes with its own limitations, and the right approach depends on your income, existing IRA balances, and 401(k) plan rules.

      The four strategies are: contributing exclusively to Roth IRAs from the start; converting existing pre-tax IRAs to Roth (creating a potentially large tax bill in the conversion year); contributing to a Roth 401(k) instead; or rolling pre-tax IRAs into a pre-tax 401(k). None is a universal solution — which is why high-income earners navigating backdoor Roth conversions consistently benefit from working with a tax-savvy financial advisor or CPA who handles these situations regularly.

      Table of Contents: The Pro-Rata Rule

      Why High Earners Need a Backdoor Roth Strategy and Where the IRS Pushes Back

      Over time, our tax law was crafted to try and promote what lawmakers think is good for the country (or at least for their constituency and/or donors).

      One such “good” is that people save for their own retirement.

      Enter tax deductions for retirement plan contributions such as Individual Retirement Arrangements (IRAs) and 401(k) plans. However, not wanting to let high-income earners take too much advantage, the IRS sets annual contribution limits for these plans.

      For 2026, the IRA contribution limit is $7,500 ($8,600 if you’re 50 or older). If you or your spouse are covered by a workplace retirement plan, there are limits on how much you can earn and still deduct your traditional IRA contribution. For 2026, deductibility phases out if your Modified Adjusted Gross Income (MAGI) is above $81,000 if you’re single or head of household, reaching zero deductibility at $91,000 MAGI. If you’re married filing jointly and the contributing spouse is covered by a workplace plan, the phase-out range is $129,000–$149,000. If you’re married filing separately and lived with your spouse at any point during the year, the deduction phases out starting at just $1 of MAGI and is completely eliminated at $10,000 — one of the most restrictive limits in the tax code and an easy one to miss. If neither you nor your spouse is covered by a workplace plan, your traditional IRA contribution is fully deductible regardless of income.

      For married filing jointly or qualifying widow(er), deductibility starts phasing out at $218k MAGI and reaches zero at $228k MAGI.

      The 2026 limits for 401(k) plans are a bit more complicated because there are three separate limits.

      • Employee deductible contribution limit of $24,500 ($32,500 if you’re 50 or older; or up to $35,750 if you’re between ages 60–63 and your plan allows the SECURE 2.0 super catch-up)
      • Employer deductible contribution limit of 25% of employee compensation (on compensation up to $360,000)
      • Total contribution limit of $72,000 ($80,000 if you’re 50 or older; up to $83,250 if you’re between ages 60–63 and your plan allows the super catch-up)

      Once you reach your employee deductible contribution limit, if that plus your employer match is less than the total limit (if the plan allows it), you can add an after-tax contribution up to your total limit.

      A person feeling overwhelmed while doing taxes crumples up a receipt in frustration, with a calculator, pencil, and tax documents spread out on a table.

      The Retirement Accounts at the Center of the Pro-Rata Rule

      According to the Investment Company Institute (ICI), there are 60 million active 401(k) participants. There are also about 10 million 403(b) participants and about 7 million 457(b) participants (these are the nonprofit/government version of the 401(k)).

      US Census data shows about 52.6% as many IRAs as 401(k)/403b)/etc. accounts, so there are likely about 41.5 million IRAs.

      Roth IRAs and Roth 401(k) Plans

      A new type of IRA, the Roth IRA, was introduced in 1998.

      Eight years later, in 2006, the Roth 401(k) was introduced.

      The difference between Roth and traditional accounts is that Roth contributions are done with after-tax dollars. Instead of the traditional IRA (or 401(k)) contribution deduction, the Roth’s tax benefit is that no taxes are ever owed on any withdrawals, including on earnings.

      Another benefit of the Roth IRA is that once the account has been open for five years, you can withdraw your contributions tax- and penalty-free, no matter your age.

      According to ICI, about 1/3 of IRAs are Roth IRAs, so we can estimate that’s about 14 million Roth IRAs.

      Per CNBC, about 28% of 401(k) participants make Roth contributions, so if the same holds for 403(b) and 457(b) plans, there are about 22 million Roth plans of these types. 

      Income Limits on Roth IRA Contributions

      The same contribution limits apply to the Roth versions as to the traditional IRA and 401(k).

      However, Roth IRAs are limited in another way. You cannot contribute directly to a Roth IRA if your MAGI is too high. The income limits for 2026 are $168,000 for single filers (with the phase-out beginning at $153,000) and $252,000 if married and filing jointly (phase-out beginning at $242,000).

      The Backdoor Roth Conversion: How It Works

      With millions of tax professionals, it wasn’t long before someone figured out a clever and elegant workaround called the “backdoor” Roth conversion.

      Since you’re precluded from making a Roth contribution and/or a deductible traditional IRA contribution, you follow this two-step process:

      1. Make a non-deductible, after-tax contribution into a traditional IRA.
      2. Immediately roll the money over from the traditional IRA to a Roth IRA (since you do this immediately, there are no earnings, so all the money transferred is after-tax)

      However…

      How the Pro-Rata Rule Defeats the Backdoor Conversion

      Uncle Sam isn’t one to take such shenanigans lying down.

      The IRS has a counter to this backdoor trick called “the pro-rata rule.” 

      What this rule does is treat all money you have in however many IRAs you own as if it were in a single account. 

      Then, when you roll money over from a traditional to a Roth IRA, the IRS treats the rollover as if it has a proportional fraction of pre-tax and after-tax money as your overall IRA holdings, i.e., only a pro-rata amount is considered after-tax.

      The calculation goes like this: 

      (Presumed After-Tax) = (Rollover Amount) x (Total After Tax)/(Total Pre- and After-Tax)

      The following table shows some examples if all your IRA money is pre-tax.

      Table 1 — Pro-Rata Impact: All IRA Money Is Pre-Tax

      Assumes a $7,500 non-deductible after-tax contribution (2026 limit) and immediate rollover to Roth IRA. All existing IRA money is pre-tax.

      Pro-rata rule impact on backdoor Roth IRA conversion when all existing IRA money is pre-tax, showing presumed pre-tax and after-tax portions of a $7,500 rollover at various pre-tax IRA balance levels using 2026 contribution limits
      Pre-Tax Total in All IRAs After-Tax Total Incl. New Contrib. Presumed Pre-Tax Portion of Rollover Presumed After-Tax Portion of Rollover
      $0 $7,500 $0 $7,500
      $50,000 $7,500 $6,522 $978
      $100,000 $7,500 $6,977 $523
      $250,000 $7,500 $7,282 $218
      $500,000 $7,500 $7,389 $111

      Calculated using the pro-rata formula: Presumed After-Tax = $7,500 × $7,500 ÷ ($7,500 + Pre-Tax Total). Updated for the 2026 IRA contribution limit of $7,500.

      If you already have some pre-tax and some after-tax IRA money, the results change for the better:

      Table 2 — Pro-Rata Impact: Mixed Pre-Tax and After-Tax IRA Balances

      Assumes a $7,500 non-deductible after-tax contribution (2026 limit) and immediate rollover. Existing IRA balances include both pre-tax and after-tax money.

      Pro-rata rule impact on backdoor Roth IRA conversion when existing IRAs contain a mix of pre-tax and after-tax money, showing how the presumed after-tax portion of a $7,500 rollover changes with mixed IRA balances using 2026 contribution limits
      Pre-Tax Total in All IRAs After-Tax Total Incl. New Contrib. Presumed Pre-Tax Portion of Rollover Presumed After-Tax Portion of Rollover
      $0 $7,500 $0 $7,500
      $30,000 $27,500 $3,913 $3,587
      $60,000 $47,500 $4,186 $3,314
      $150,000 $107,500 $4,369 $3,131
      $300,000 $207,500 $4,434 $3,066

      Calculated using the pro-rata formula: Presumed After-Tax = $7,500 × After-Tax Total ÷ (Pre-Tax Total + After-Tax Total). Updated for the 2026 IRA contribution limit of $7,500.

      The silver lining is that by paying taxes in the present on the large fraction of the backdoored money, you’re reducing the number of pre-tax dollars in your IRAs.

      Four Ways to Avoid the Pro-Rata Rule Trap

      Just like with any other arms race, here too, each advance made by one side is soon negated or worked around by the other.

      Tax pros have come up with four ways to avoid the pro-rata rule. As you’ll see, however, none provide a complete solution for everyone.

      1. Contribute only to Roth IRAs: If you know in advance that you’ll end up wanting to make Roth IRA contributions and will likely earn too much, you could make all your IRA contributions into Roth accounts. The drawbacks are that (a) this requires very early planning, and (b) you give up IRA-contribution tax deductions throughout your career in return for having all your IRAs be tax-free Roths.
      2. Convert traditional pre-tax IRAs to Roth IRAs: Before trying a backdoor Roth conversion, you can convert all your pre-tax IRA money into Roths. The problem here is that every dollar you convert counts as income in the year you convert it, leading to potentially extremely high tax bills (due to the higher income your taxable income is higher, and you may even be pushed into higher tax brackets).
      3. Contribute to Roth 401(k) instead: Since Roth 401(k) contributions are allowed regardless of your income, you can make Roth 401(k) contributions instead of the backdoor IRA conversion. Here the problem is that if you already max out your 401(k) contribution you can’t do this.
      4. Roll pre-tax IRAs into pre-tax 401(k) plan: If your 401(k) plan allows rolling IRA money over into it, this is the most elegant solution. Since the IRS does not lump 401(k) and IRA money together for the purpose of the pro-rata rule, you roll all your pre-tax IRA money into a pre-tax 401(k) (which isn’t a taxable event). Then, make the two-step backdoor Roth conversion described above.

      Taxes

      What Financial Advisors Recommend: Real Strategies from CFPs and CPAs

      Angela Dorsey, CFP®, MBA, Financial Planner, Dorsey Wealth Management, says, “I’m super conservative with backdoor conversions – I don’t want clients to get in trouble with the IRS! I only do backdoor conversions if there are no pre-tax IRAs so there’s no issue. If clients do have pre-tax IRAs, I suggest starting with a tax-efficient Roth conversion strategy that doesn’t push them into a higher tax bracket.”

      Matt Pruitt, CFP®, CFA®, Exhale Wealth Management emphasizes, “Rolling your pre-tax IRAs into your pre-tax 401(k) is a massively under-utilized strategy, and not all advisors are motivated to tell you about it. That’s because it reduces “assets under management” or AUM, which reduces fees for many advisors. If working with such a financial advisor, you may need to bring this to their attention proactively.” 

      Christopher Johns, Wealth Advisor, Spark Wealth Advisors, agrees, “For clients who have pre-tax IRAs, I recommend rolling those IRAs into their 401(k) as mentioned above. I also advise high-earning clients who transition to a new job and don’t already have pre-tax IRAs to keep their old 401(k) where it is or roll it into their new 401(k), avoiding the creation of pre-tax IRA balances.”

      Cobin Soelberg, MD, JD, Founder and Principal Advisor, Greeley Wealth Management, expands, “I work primarily with physicians who, as a rule, earn too much to contribute to Roth IRAs directly. They’re also in high tax brackets, so Roth 401(k) plans tend not to make the most sense during their highest-earning years. However, as noted above, getting some money into post-tax Roth accounts is a huge win. For almost every client, we discuss backdoor Roth IRA contributions each January. The first year is when we align everything. If they have moderate balances in pre-tax IRAs, we convert those into Roths. If the balances are too large, we move them into a workplace or solo 401(k). Then, once the pre-tax IRA balance is $0, we start making annual backdoor Roth conversions.”

      The Bottom Line: Which Strategy Is Right for You?

      There’s a lot to like about Roth IRAs.

      This is why people try to get around the income limits imposed on direct Roth IRA contributions through the so-called backdoor conversion.

      The problem is that if you have a lot of money in pre-tax IRAs, you’d be trapped by the pro-rata rule and have to pay taxes on much (or nearly) all of the backdoored money. If you roll pre-tax 401(k) money into a pre-tax IRA, this problem becomes worse.

      The above provides four ways to avoid falling into this trap, though each path has its own limitations and conditions.

      Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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      Opher Ganel

      About the Author

      Opher Ganel, Ph.D.

      My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals. Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.


      Learn More About Opher

        What this article covers

        Retirement is one of the most financially complex transitions most people will ever navigate — and it’s one you only get to do once. The Chartered Retirement Planning Counselor (CRPC) designation identifies financial advisors who have completed specialized training focused exclusively on pre- and post-retirement planning: Social Security optimization, Medicare decisions, income distribution strategies, long-term care insurance, tax-efficient withdrawals, and estate planning. This guide explains what the CRPC designation is, what distinguishes it from a generalist financial planner, what it takes to earn it, and how to find a CRPC on Wealthtender who can help you retire confidently.

        A Chartered Retirement Planning Counselor (CRPC) is a financial professional focused on retirement planning. The CRPC program is designed for new and experienced advisors who seek to define a “road map to retirement” for their clients. There is a focus on clients’ pre-and post-retirement needs and issues related to asset management and estate planning.

        Key Takeaways

        1

        The CRPC is the industry benchmark for retirement planning credentials — recognized by top financial firms and designed for advisors who specialize in helping clients navigate the transition from work to retirement.

        Administered by the College for Financial Planning (now part of Kaplan), the Chartered Retirement Planning Counselor designation focuses on pre- and post-retirement planning, covering Social Security, Medicare, investment strategies, distribution planning, long-term care insurance, tax efficiency, and estate planning. It goes substantially deeper into retirement-specific topics than generalist credentials, making it the right credential to look for when your primary need is retirement income planning rather than broad financial planning.

        2

        Social Security and Medicare planning are among the most complex — and most costly to get wrong — decisions most retirees will face, and a CRPC specializes in both.

        A single misstep in Social Security timing — claiming too early, or missing a spousal benefit strategy — can cost tens of thousands of dollars over a retirement. Medicare decisions, including the interaction between income levels and IRMAA surcharges, add another layer of complexity. A CRPC who handles these federal program decisions daily can deliver meaningful financial value that easily exceeds the cost of their services, particularly for clients approaching or just entering retirement.

        3

        The CRPC credential requires no prerequisites but demands a rigorous self-study or instructor-led course, a proctored exam, and 16 hours of continuing education every two years — ensuring the designation reflects current retirement planning knowledge.

        Candidates must pass the final exam with a score of 70% or higher within two attempts, and the exam grade serves as the overall program grade. Ongoing renewal requires reaffirming professional conduct standards in addition to continuing education — a structure that ensures CRPC holders remain current on Social Security, Medicare, tax law, and investment strategy as they evolve over time.

        How the CRPC Designation Works and What Sets It Apart from Other Credentials

        Financial professionals who hold the CRPC demonstrate expertise in retirement planning beyond standard industry testing and licensing programs. According to the College for Financial Planning, the credentialing organization, and sponsor of the CRPC designation, individuals must complete an online instructor-led or self-study course program, pass a final designation exam (online and timed), and complete 16 hours of continuing education every two years to earn the right to use the CRPC marks.

        CRPCs specialize in a complex niche – retirement planning. Those seeking guidance on preparing for life after full-time employment should consider working with a CRPC since they are retirement planning specialists rather than financial planning generalists.

        Advisors holding the CRPC have done the groundwork so they can help retirees and pre-retirees in areas such as Social Security, Medicare options, investment strategies, retirement account distribution strategies, long-term care insurance planning, and even the Affordable Care Act’s rules. The College for Financial Planning states that “the CRPC designation program is designed for both intermediate and experienced advisors who wish to provide more comprehensive retirement planning advice to individual clients and families.“

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        Should You Hire a CRPC?

        Consider hiring a CRPC for specific assistance with retirement planning. A CRPC helps tailor plans for clients and ensures goals are being met and risks are appropriately managed in retirement. A CRPC designation can complement the Certified Financial Planner (CFP) designation.

        The College for Financial Planning boasts that the CRPC designation is recognized as the industry benchmark for retirement planning credentials and is endorsed by top financial firms. The College administers many other professional designation programs, so an advisor with the CRPC marks has a strongly-regarded institution cosigning their prowess.

        Individuals and couples should look to the help of a CRPC on such issues as:

        Social Security and Medicare Planning 

        Few areas of retirement planning are more complicated than navigating the world of Social Security and Medicare. One misstep can mean thousands of dollars (or more) of lost income or increased expenses. A CRPC that handles issues with these federal programs daily can deliver significant value.

        Preparing for Retirement

        Many individuals and couples underestimate the importance of making the right moves in the years leading up to retirement. Bridging the gap between late career and early retirement helps build the foundation for a secure and long-lasting retirement.

        Reducing Financial Risks

        Developing new income streams during retirement helps mitigate longevity risks and market risks. Researching and buying the right insurance policies is also critical to reducing financial risks. A CRPC can help in these areas.

        Tax and Estate Planning

        Leaving a legacy is important to many retirees. A CRPC can work with clients to outline the most effective charitable giving plan and strategies to leave the most money to heirs.

        There are many facets to retirement. It’s not as simple as calling it quits from the 9-5 working world and then relaxing on a beach. Careful planning and strategy are required. An experienced financial planner who holds the CRPC designation can help design and manage the right retirement plan.

        What Does it Take to Earn and Maintain the CRPC?

        The CRPC professional designation program includes coursework, an exam, successful completion of continuing education, and an ethics component. Candidates begin by taking classes—either live online or in person. There are no prerequisites.

        The CRPC’s coursework covers the following areas:

        • Maximizing the Client Experience throughout the Retirement Planning Process
        • Principles and Strategies When Investing for Retirement
        • Making the Most of Social Security Retirement Benefits
        • Bridging the Income Gap: Identifying Other Sources of Retirement Income
        • Navigating Health Care Options in Retirement
        • Making the Emotional and Financial Transition to Retirement
        • Designing Optimal Retirement Income Streams
        • Achieving Income Tax and Estate Planning Objectives in Retirement
        • Fiduciary, Ethical, and Regulatory Issues for Advisors


        Upon completion of the coursework, candidates must pass a final exam with a score of 70% or higher. There is a 3-hour time limit, and candidates have a maximum of two attempts to pass the exam. The grade earned on the final exam reflects a candidate’s overall grade for the designation program.

        After passing the exam, the candidate may apply for authorization to use the CRPC marks. The application includes committing to Standards of Professional Conduct and disclosing criminal events and investigations into professional conduct.

        The certification also requires continuing education. A CRPC professional must apply for renewal of the designation every two years. 16 hours of CE credits are required, along with reaffirming the professional conduct policies mentioned earlier.

        FAQs

        How Can I Confirm the Financial Professional I’m Working with Holds the CRPC?

        Visit the Find a Financial Advisor page on the Kaplan Financial website to see if an advisor has the CRPC designation. Using the search tool, you can find an advisor with the CRPC designation in your area.

        What if I Have a Complaint About the CRPC I Hired?

        Visit this page to contact the College of Financial Planning regarding issues with an advisor holding the CRPC designation. The Grievances section provides a link to the form to submit a complaint against a designee.

        I’m a Chartered Retirement Planning Counselor interested in joining Wealthtender. How should I get started?

        Thanks for your interest in joining Wealthtender. We’re excited to help CRPCs connect with people interested in the specialized experience and services you offer to help them achieve their retirement goals. You can learn more about Wealthtender by visiting this page: Modern Advisor Marketing with Wealthtender

        Where can I learn more about other professional designations held by financial advisors and coaches?

        Refer to this list of popular financial certifications prepared by Wealthtender to help you learn more about each designation. You’ll find a brief description of each certification, plus links to in-depth articles if you want to learn more about a particular designation.

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        Mike Zaccardi CFA

        About the Author

        Mike Zaccardi

        Mike is a freelance writer for financial advisors and investment firms. He’s a CFA® charterholder and Chartered Market Technician®, and has passed the coursework for the Certified Financial Planner program. 

          What this article covers

          As a business owner, you’ve invested years building something valuable — but without a thoughtful exit plan, you may not capture that value when it matters most. The Certified Exit Planning Advisor (CEPA) designation identifies financial professionals who have completed specialized training in helping business owners maximize value, minimize taxes, and plan for a successful transition on their own terms. This guide explains what the CEPA designation is, what it takes to earn it, whether you should hire one, and what CEPA-credentialed advisors and the Exit Planning Institute say about the process — along with a directory of CEPAs featured on Wealthtender.

          As a business owner, you’re used to wearing multiple hats every day to ensure your customers are happy and your bottom line is growing. Thinking about selling your business may seem far off, but taking the time now to begin thinking about what a transition might look like ensures you’ll be prepared when you’re ready to sell and can help you maximize the value of your business along the way.

          If you’re unsure where to turn for help, you’ll be glad to know there’s an organization dedicated to this very topic with thousands of members you can turn to with the experience and knowledge business owners need to plan for a successful transition.

          The Certified Exit Planning Advisor (CEPA) is a unique designation for financial professionals who advise business owners on how to sell or transition their business successfully, a strategy referred to as ‘exit planning’.

          The CEPA designation was established in 2007 by the Exit Planning Institute (EPI), a company focused on educating professional advisors globally on how they can support the success of business owners to maximize value and sell on their terms through a business transition.

          Let’s take a closer look at what this financial certification is, what it takes to earn it, and how you may benefit from working with a CEPA as a business owner.

          Key Takeaways

          1

          Between 70% and 80% of businesses offered for sale each year don’t sell — making early exit planning one of the most financially critical decisions a business owner can make.

          Most business owners wait too long to begin exit planning, leaving little time to maximize valuation, structure the deal tax-efficiently, or prepare emotionally and financially for life after the business. A Certified Exit Planning Advisor (CEPA) helps business owners build and preserve wealth while simultaneously implementing best business practices — ideally beginning three to five years before a planned transition, not the year before.

          2

          The CEPA designation requires five years of direct experience working with business owners, a rigorous four-day course, and a proctored exam — making it the most widely recognized exit planning credential in the world.

          Established in 2007 by the Exit Planning Institute, the CEPA trains advisors in the Value Acceleration Methodology — a framework that integrates business value maximization, personal financial planning, and life-after-business planning into a single cohesive strategy. More than 2,500 professionals hold the designation, drawn from financial advisory, accounting, legal, banking, and insurance backgrounds.

          3

          You don’t need to be planning an imminent sale to benefit from working with a CEPA — the earlier you start, the more value they can help you build and protect.

          A CEPA can help you maximize business value, minimize taxes through provisions like the QSBS exemption, and prepare for unplanned events like disability, divorce, or death — regardless of when you ultimately intend to exit. Research shows 76% of business owners feel regret after their exit; working with a CEPA who plans for both the financial and personal dimensions of a transition significantly improves outcomes on both counts.

          Table of contents

          Find a CEPA on Wealthtender

          With more than 2,500 CEPA designation holders, you’ll likely find several who may be a good fit for your business planning needs and unique circumstances.

          You’ll find a growing number of CEPAs featured on Wealthtender listed below, and you can also search the directory of CEPA designation holders on the EPI website.

          Find Certified Exit Planning Advisors on Wealthtender

          📍 Click on a pin in the map view below for a preview of financial advisors who have earned their CEPA designation and can help you reach your money goals with a personalized plan. Or choose the grid view to search our directory of financial advisors with additional filtering options.

          📍Double-click or pinch pins to view more.

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          What is a Certified Exit Planning Advisor (CEPA)?

          The CEPA designation is for financial advisors and other professionals (e.g., attorneys, business brokers, Certified Public Accountants, etc.) who wish to support business owners with exit planning. At its core, exit planning allows business owners to maximize value and successfully transition their business on their own terms. 

          Professionals who hold the CEPA designation learn how to blend exit strategy into the business as well as the personal and financial goals of business owners. They use the Value Acceleration Methodology, a proprietary framework developed by EPI, which focuses on three major components including:

          • Maximizing Business Value
          • Personal Financial Planning
          • Life After Business Planning

          Through the Value Acceleration Methodology, advisors are able to educate business owners on how to build and preserve their wealth while simultaneously implementing the top business practices into their day-to-day operations.  

          CEPAs are often financial advisors, accounting, banking, insurance, or legal professionals who have undergone a rigorous four-day course, which is taught by experts in exit planning and held several times a year in various cities throughout the U.S. 

          In addition to completing four days of courses, CEPAs have passed a proctored exam.  The CEPA is known as the most widely accepted and recognized exit planning program in the world. 

          “We work with a number of business owners, and there is a slew of issues to address,” said Joe Dunat MBA, CEPA Sturkie Wealth Management Group of Stratos Wealth Partners. 

          “From properly valuing the company, to tax planning around the liquidity event (several strategies available prior to the sale to minimize tax impact), to the final use of the proceeds to replace the business owner’s income, a financial advisor skilled at serving business owners is key.”

          Should You Hire a CEPA?

          A CEPA has the advanced exit planning expertise and depth of financial knowledge that may help you if you own a privately held business.

          If you’re a business owner, a CEPA can guide you through the process of transitioning out of your business. You can expect them to help you figure out your goals on a professional, financial and personal level.

          Once you’ve determined your goals, they’ll work with you to design a strategy to help you meet them by the time you transfer your business. You’ll find that a CEPA has greater knowledge of exit planning than a traditional financial advisor more knowledgeable in the general financial planning needs of business owners. 

          Even if you’re just preparing to launch your business or don’t have plans to exit your business in the near future, a CEPA can help ensure you’re prepared in the event of an unplanned event like disability, divorce, or death. Their support may allow you to maximize the value of your business, minimize your taxes through special provisions for small business owners like the QSBS exemption, and pursue a happy exit that satisfies your goals, regardless of what they may be. In addition, a CEPA may reduce uncertainty for your key stakeholders, employees, and family. 

          Find Financial Advisors for Business Owners

          What CEPAs and Exit Planning Experts Say About Why Early Planning Matters

          A man with short brown hair and a beard is smiling at the camera. He is wearing a white shirt beneath a mauve blazer. The background is abstract with blurred patterns and shades of blue and grey.

          Larry Sprung, CFP® CEPA®

          Mitlin Financial

          “For many business owners, their identity is deeply intertwined with the company they have built. That’s why helping them plan for what comes next is so meaningful to me.


          The CEPA® designation gives me the tools to support that full journey, from increasing the value of the business to creating a personal plan for life beyond it. Because it isn’t just about an exit, it’s about designing the next chapter that brings you JOY. With 76% of owners feeling regret after their exit, we focus on making sure the transition reflects what matters most to them, their values, and their ideal version of life after the sale.”  


            Deb Meyer WorthyNest

            Deborah Meyer, CFP®, CPA/PFS, CEPA

            WorthyNest

            “Selling a business that you built from the ground-up isn’t cut and dry.  You have many options as a business owner, and it’s wise to get strong counsel from an experienced advisor who can help you navigate the complexities of a business sale.  In fact, between 70% and 80% of privately held businesses that are offered for sale each year do not ultimately sell.  

            A Certified Exit Planning Advisor (CEPA) is specially trained to help you maximize the value of your business as you prepare to sell.  Some CEPAs are focused on optimizing business operations, but a financial advisor who is also a CEPA can help you figure out an optimal sales price to ensure your personal cash flow and legacy goals are met during retirement.  And if you’re charitably inclined, there are advanced strategies you can take as the business owner to give the most to charities of your choice.”

              What Does it Take to Earn and Maintain the CEPA?

              Those who hope to earn a CEPA designation must fulfill certain requirements set forth by the EPI. Here’s a brief overview of what they are.

              CEPA Experience Requirements

              To be eligible for the CEPA, candidates must have at least five years of full-time work experience working with business owners directly. They often come from industries such as banking, insurance, accounting, estate planning, and law. 

              CEPA Education and Affiliation Requirements

              CEPA candidates are required to hold at least an undergraduate degree and be a member in good standing with the Exit Planning Institute. In addition, they must complete an intense four-day course taught by exit planning experts. 

              The course focuses on a variety of topics, such as estate planning, private equity, and Value Acceleration Methodology. It’s held six times a year and offers an interactive, collaborative environment where participants are encouraged to share their experiences and learn from one another. 

              Here’s an example of what is discussed during each day of the course:

              Day 1

              • Exit Planning Reinvented
              • The Need for Exit Planning
              • Value Acceleration Methodology™
              • Financial Planning for Business Owners
              • Advanced Estate Planning Concepts• Integrating Charitable Intent

              Day 2

              • Introduction to Value Enhancement
              • Exit Planning Deliverables
              • Basics of Business Valuation
              • Ignition Controls Case Study

              Day 3

              • Goals and Objectives
              • Creating Action Plans
              • Delivering Action Plans
              • Importance of Teams
              • Exit Options Analysis

              Day 4

              • Understanding Private Equity
              • Third-Party Sales and the M&A Process
              • ESOPs as an Exit Strategy
              • Family Transitions

              CEPA Exam

              At the end of the four-day course, candidates must take and pass a proctored final exam. The exam is a closed book and takes about three hours to complete. 

              CEPA Continuing Education Requirements

              To maintain their designation, CEPA holders are required to complete 40 hours of continuing education every three years. 

              Slide Show: What is a Certified Exit Planning Advisor (CEPA)?
              What is a Certified Exit Planning Advisor (CEPA)? story

              Why the Exit Planning Institute Says Business Owners Shouldn’t Wait

              We asked EPI President, Scott Snider, to offer his perspective on the value of hiring a CEPA as a business owner.

              Scott Snider Exit Planning Institute EPI

              Scott Snider

              President, Exit Planning Institute

              “For business owners thinking about how to rapidly grow value in their company and even integrate some of their personal financial goals into that growth plan, hiring a financial advisor who is trained with in the Value Acceleration Methodology, a CEPA, is critical.

              Certified Exit Planning Advisors bring a different perspective. They bring a holistic mindset. To have not just a successful company, and a successful exit where you harvest that value, you need to have a significant one.

              I think many of us as owners have successful companies, but when we go to grow or go to sell, we fall short on significance.

              A CEPA Financial Advisor allows us to see the full picture and build a strategy and plan to achieve all goals in the business, personal and personal financial aspects of our company and life. This allows us not only to have a successful company and exit but have a significant one.”

                7 Ways Your Small Business May Benefit from a Financial Advisor Story

                FAQs

                How can I confirm the financial professional I’m working with holds the Certified Exit Planning Advisor designation?

                You can confirm the status of a CEPA designation holder in the member directory on the EPI website.

                What if I have a complaint about the Certified Exit Planning Advisor I’m working with?

                If you have a complaint about a CEPA, submit your matter in writing to EPI President Scott Snider at the following address:
                14701 Detroit Avenue, Suite 430
                Lakewood, OH 44017

                I’m a Certified Exit Planning Advisor interested in joining Wealthtender. How should I get started?

                Thanks for your interest in joining Wealthtender. We’re excited to help CEPAs connect with business owners interested in the specialized experience and services you offer to help them optimize the value and efficiency of their business.

                As a member of the Exit Planning Institute, you’re eligible to choose any subscription plan and enjoy a lifetime discount when you join Wealthtender.

                Learn how in this article published by the Exit Planning Institute: How CEPAs Can Utilize Wealthtender

                Where can I learn more about other professional designations held by financial advisors and coaches?

                Refer to this list of popular financial certifications prepared by Wealthtender to help you learn more about each designation. You’ll find a brief description of each certification, plus links to in-depth articles if you want to learn more about a particular designation.

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                About the Author
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                About the Author

                Brian Thorp

                Brian is CEO and founder of Wealthtender and Editor-in-Chief. He and his wife live in Austin, Texas. With over 25 years in the financial services industry, Brian is applying his experience and passion at Wealthtender to help more people enjoy life with less money stress. Learn More about Brian