Why Your CPA and Financial Advisor Should Be Talking

Imagine this. Your financial advisor suggests moving money out of a taxable brokerage account to fund a Roth IRA contribution. The advice is sound in isolation. But the same year, your business had an unusually strong quarter, your income crossed a threshold that affects your Roth IRA eligibility, and a sale of the appreciated investments in that account would generate a capital gain that changes your tax picture considerably. None of these facts were part of the conversation because your CPA and your financial advisor do not communicate with each other.

This is not an unusual situation. Most people with both a CPA and a financial advisor have professionals who are doing their jobs well in separate lanes, each with only part of the picture. The decisions that seem straightforward from one professional's vantage point can look quite different once the full financial picture is in view. That is the case for coordination, and it is more important now than most people recognize.

What Each Professional Brings to the Table

A CPA's primary focus is on your tax position. That includes preparing and filing your returns, projecting your tax liability for the current year, advising on decisions with tax consequences, representing you before the IRS when necessary, and helping structure your business finances in a way that keeps your tax obligations manageable and compliant.

A financial advisor, depending on their credentials and the scope of their practice, typically focuses on investment management, retirement planning, insurance analysis, and longer-term financial strategy. The services, qualifications, and regulatory frameworks vary significantly. A registered investment advisor (RIA) has a fiduciary duty to act in your interest. A broker-dealer operates under a suitability standard. An advisor who holds the CFP designation has demonstrated a specific body of knowledge. Neither title alone tells you everything about what someone does or what responsibilities they carry.

What this means in practice is that your CPA sees your tax return and your business financials, but may not have visibility into your investment accounts or retirement plan balances. Your financial advisor sees your portfolio and your retirement goals, but may not have access to your most recent tax return or any insight into how business cash flow is actually working. Each professional is working from an incomplete picture, and the gap between those pictures is exactly where costly decisions tend to happen.

Where Disconnected Advice Can Create Problems

The most obvious example is investment timing. If your financial advisor recommends selling a position that has appreciated significantly, the realized capital gain affects your taxable income for the year. Depending on your income, the rate applied to that gain could be zero, fifteen, or twenty percent at the federal level under current law, with an additional 3.8 percent net investment income tax potentially applying if your modified adjusted gross income crosses certain thresholds. Whether that sale makes sense in the current tax year versus next year, or whether tax-loss harvesting elsewhere in the portfolio could offset the gain, are questions that require both professionals to share information before the transaction occurs.

Retirement contributions offer another example. Roth IRA contributions phase out for single filers at modified adjusted gross income between one hundred fifty thousand and one hundred sixty-five thousand dollars for 2025, and between two hundred thirty-six thousand and two hundred forty-six thousand dollars for married filers. A business owner whose income varies significantly year to year may be eligible in some years and not others. A financial advisor who is not looking at current-year income projections from the CPA may recommend a contribution that is later found to be ineligible, requiring corrective action. The fix is not complicated, but it is preventable.

Business cash flow is a third area where these gaps appear. A financial advisor might recommend a particular retirement plan contribution level or an investment outside the business that looks appropriate based on recent income. But if the business is carrying a large equipment purchase, managing a slow receivables cycle, or preparing for a hiring expansion, the cash that looks available on paper may not actually be available without creating stress in the operating business. Revenue, taxable income, and cash available to invest are three different figures that require someone looking at the full picture to interpret correctly.

Balancing Reinvestment, Owner Compensation, and Retirement Savings

For business owners, the tension between reinvesting in the business, paying themselves adequately, and saving for retirement is one of the most persistent financial planning challenges. It does not have an automatic answer because the right balance depends on the business's stage, its cash flow stability, its growth needs, and the owner's personal financial situation and retirement timeline.

What makes this conversation particularly important is the risk of over-relying on the business itself as a retirement plan. Many business owners operate for years with the assumption that they will eventually sell the business and that the proceeds will fund their retirement. That expectation is not unreasonable, but it is also not guaranteed. Business valuations are affected by factors outside the owner's control. A sale is not always timed to coincide with the owner's preferred retirement date. And the after-tax proceeds from a sale are not the same as the headline number on the purchase agreement.

Building retirement savings outside the business, consistently and over time, creates a financial cushion that does not depend entirely on a future transaction. This is a conversation that belongs in both the CPA's office and the financial advisor's, with both professionals understanding what the business is generating, what the owner is taking home, and what is being set aside for the long term.

Which Retirement Plan Fits the Business and Its Owner

Choosing a retirement plan is one of the decisions that most benefits from input from both a CPA and a financial advisor. The options available to a business owner vary significantly in their contribution limits, their administrative requirements, their treatment of employees, and their deadlines.

A Simplified Employee Pension, or SEP IRA, allows contributions of up to twenty-five percent of eligible compensation, capped at seventy thousand dollars for 2025. For a self-employed individual with no employees, a SEP IRA is administratively simple and offers a high contribution ceiling. The contribution is made entirely by the employer, and if you have employees, you must contribute the same percentage of compensation for eligible employees that you contribute for yourself. The deadline for contributions is the business's tax filing deadline, including extensions.

A SIMPLE IRA works differently. It allows employees to contribute through salary deferrals, up to sixteen thousand five hundred dollars for 2025, with a catch-up contribution of three thousand five hundred dollars for those age fifty and older. The employer must either match employee contributions dollar for dollar up to three percent of compensation, or make a nonelective contribution of two percent for all eligible employees. SIMPLE IRAs carry lower administrative costs than full 401(k) plans but also lower contribution limits for the owner.

A solo 401(k) plan, sometimes called an individual 401(k), is available to self-employed individuals with no employees other than a spouse. It allows both employee contributions, up to twenty-three thousand five hundred dollars for 2025, and employer profit-sharing contributions of up to twenty-five percent of compensation, with a combined maximum of seventy thousand dollars. The higher effective contribution limit compared to a SEP IRA makes the solo 401(k) particularly attractive for self-employed individuals with moderate to high net income.

The right choice depends on whether you have employees, how much you want to contribute, what your taxable income looks like, and what the administrative costs and obligations of each plan are relative to your business. A CPA evaluates the contribution amounts and their effect on your tax liability. A financial advisor evaluates where those contributions fit within the broader retirement strategy. A plan administrator may be needed for more complex qualified plans. These decisions work best when they are made together.

Hypothetical Example: A Business Owner Preparing to Hire Employees

Suppose a sole proprietor has operated as a single-person consulting business for several years, using a solo 401(k) and making substantial contributions. She has decided to hire her first employee this year. Once she does, the solo 401(k) is no longer available. Her CPA knows the tax implications of switching plan types and the contribution levels she can support based on projected income. Her financial advisor knows her retirement savings targets and what contribution level she needs to stay on track. Together, they evaluate whether a SEP IRA or a SIMPLE IRA fits the business's needs, taking into account the cost of extending plan benefits to the new employee and whether the employer contribution obligation affects the business's cash flow planning for the year. Neither professional can answer this question well without the other's input.

When Tax Planning Should Influence Investment Decisions

Tax considerations are one part of an investment decision, alongside risk, diversification, liquidity, and personal goals. But they are a part that is easy to underestimate or ignore when the conversation stays within a single professional relationship.

Realized capital gains occur when you sell an investment for more than you paid. The gain is taxable in the year of the sale, and the rate depends on how long you held the investment and your overall income level. Tax-loss harvesting is a strategy that involves selling investments that have declined in value to generate losses that can offset gains, potentially reducing the overall tax on investment activity for the year. The wash-sale rule requires attention here: if you sell a security at a loss and purchase a substantially identical security within thirty days before or after the sale, the loss is disallowed. If harvesting is happening across multiple accounts, coordination is essential to avoid inadvertently triggering the wash-sale rule in a different account.

Asset location is another concept that benefits from coordination. The general principle is that investments generating ordinary income, such as bonds or certain actively managed funds, are often better suited to tax-advantaged accounts, while investments that generate qualified dividends or long-term capital gains may be more efficiently held in taxable accounts. The specifics depend on the investor's circumstances, their tax rate, and the composition of their accounts. A financial advisor who knows your tax situation, and a CPA who understands your investment structure, can work together to make better decisions about where different assets are held.

How to Evaluate a Roth Conversion

A Roth conversion involves moving money from a traditional IRA or other pre-tax retirement account into a Roth IRA. The converted amount is included in your taxable income in the year of the conversion. The benefit, when the strategy makes sense, is that future growth and qualified withdrawals from the Roth account are tax-free, and Roth IRAs are not subject to required minimum distributions during the owner's lifetime.

Whether a conversion makes sense depends on several factors that require both professionals to evaluate together. Your current marginal tax rate, your expected tax rate in retirement, the availability of cash or other funds to pay the tax on the conversion without drawing down the converted amount, and your time horizon all factor into the analysis. A conversion that makes sense for someone in a low-income year before retirement may not make sense for someone already in a high bracket.

There is also a Medicare consideration that many people do not anticipate until it arrives. Medicare Part B and Part D premiums are subject to income-related monthly adjustment amounts, commonly referred to as IRMAA. In 2026, IRMAA surcharges begin for single filers with modified adjusted gross income above one hundred nine thousand dollars and for married filers above two hundred eighteen thousand dollars, based on income from two years prior. A Roth conversion that pushes income above an IRMAA threshold can increase Medicare premiums for an entire year, because the thresholds are cliff-based rather than gradual. A dollar over the threshold triggers the full surcharge for that tier. This is the kind of interaction that a CPA and a financial advisor working together can model in advance, as opposed to discovering after the fact on a premium notice.

Hypothetical Example: A Roth Conversion During a Lower-Income Year

Suppose a business owner sells a portion of her business and takes a year off before starting her next venture. Her income for the year is significantly lower than usual. Her financial advisor identifies this as a potential window for a Roth conversion. Her CPA calculates how much she can convert while staying within her current tax bracket and below the IRMAA threshold that would affect her Medicare premiums two years later. Together they identify a conversion amount that takes advantage of the lower-income year without creating unintended consequences in future years. Without that coordination, the financial advisor might recommend a larger conversion that inadvertently crosses a threshold, and the CPA might not know the conversion was being considered until the tax return is prepared the following spring.

What Changes as Retirement Approaches

The years just before and after retirement are when the interplay between tax planning and investment planning becomes most consequential. Several decisions converge around this period, and each one affects the others.

Social Security claiming decisions involve tradeoffs that go beyond the monthly benefit amount. Claiming at sixty-two reduces the benefit permanently. Delaying to age seventy increases it significantly. The right timing depends on health, life expectancy, whether a spouse's benefit is also involved, and how the timing interacts with other income. Social Security benefits become taxable when combined income, which is adjusted gross income plus tax-exempt interest plus fifty percent of Social Security benefits, exceeds twenty-five thousand dollars for single filers or thirty-two thousand dollars for married filers filing jointly. Up to eighty-five percent of benefits can be taxable for higher-income retirees. These thresholds have not been adjusted for inflation since they were established, which means more retirees are affected by them each year.

Required minimum distributions begin at age seventy-three for those born between 1951 and 1959, and at age seventy-five for those born in 1960 or later under SECURE 2.0. The distributions are calculated based on account balances and a life expectancy factor from IRS tables, and they are taxed as ordinary income. Missing an RMD triggers a twenty-five percent excise tax on the amount not withdrawn, reduced to ten percent if corrected within two years. RMDs increase your taxable income and can affect the taxable share of Social Security benefits, the rate applied to investment income, and Medicare premiums through the IRMAA calculation described above.

The order in which retirement accounts are drawn down is a question without a universal answer. The conventional advice to spend taxable accounts first, then traditional accounts, then Roth accounts is a starting point but not a rule. For some people, drawing modestly from pre-tax accounts in the early years of retirement, before RMDs begin, reduces the size of future mandatory distributions and smooths income across retirement. The right approach depends on the specific balances, income needs, tax situation, and goals of the individual. That determination is best made with a CPA who understands the tax implications and a financial advisor who understands the investment implications working from the same set of facts.

Why a Business Sale Requires an Early Conversation

For business owners planning to sell, the transaction deserves its own dedicated planning conversation well before any deal is in motion. The headline sale price and the after-tax funds available for retirement are very different numbers, and the gap between them depends on decisions that are made before the sale closes.

The structure of the sale affects how the proceeds are taxed. An asset sale and a stock sale can produce different tax outcomes for the same transaction. The allocation of the purchase price among different asset classes affects which portions are taxed as ordinary income, which as capital gain, and what depreciation recapture may apply. Installment sales can spread the tax liability across multiple years in some circumstances. Each of these structures involves legal, financial, and tax considerations that require coordination among a transaction attorney, a CPA, and the financial advisor who will be managing the proceeds after the sale.

The business owner also needs to understand what they are retiring into. What will their income look like in the years after the sale? What investment strategy will the proceeds support, and how does that interact with any pension, Social Security, or other income sources? These are financial planning questions that belong in the conversation before the sale agreement is signed, not after the check clears.

Beneficiary and Estate Planning Coordination

Retirement accounts and other financial assets pass to beneficiaries through account designations, not through a will. A beneficiary designation that has not been reviewed in years may name an ex-spouse, a parent who has since passed away, or a combination of people that no longer reflects the account holder's intentions. This is a practical matter that gets overlooked until it matters most.

Estate planning documents, including wills, trusts, and powers of attorney, should be consistent with the beneficiary designations on retirement accounts and investment accounts. A CPA can identify tax implications of different estate planning arrangements. A financial advisor can evaluate the effect of different ownership structures on the overall financial plan. An estate attorney is needed for the legal documents themselves. None of these professionals can do this work in isolation.

What Coordinated Planning Actually Looks Like

Effective coordination between a CPA and a financial advisor does not happen automatically. It requires the client's permission to share relevant information, a clear understanding of what information each professional needs, and an agreed structure for how and when they communicate.

In practice, this might mean an annual meeting or call where both professionals review the client's tax projection alongside the retirement plan strategy, checking for conflicts or opportunities before the year-end. It might mean a call before a significant transaction, such as a business sale, a large investment decision, or a Roth conversion, to evaluate the tax and financial implications together. The client remains the decision-maker throughout. The professionals' job is to ensure that the decision is being made with a complete picture.

Information sharing should happen through secure channels and should be limited to what is actually needed for the specific conversation. A financial advisor reviewing a Roth conversion decision needs the client's projected income for the year, not the full business financial statements. A CPA evaluating the tax implications of a proposed asset allocation shift needs to understand which accounts are involved, not a complete portfolio analysis. The exchange is targeted, not comprehensive.

A checklist of what to bring to a joint planning conversation:

Recent tax returns and a projection of current-year income. Business financial statements and owner compensation information. Retirement plan details and contribution records for the current year. Investment account information, including cost basis where it is relevant to a potential sale. Expected major transactions, purchases, or life changes. Retirement timing, expected spending needs, and available cash reserves. Relevant beneficiary information and estate documents.

Questions worth asking both professionals at the start of the conversation include: Which decisions should we review together before I act on them? What assumptions are each of you using about my income and retirement timing? Who will calculate the tax impact of a proposed strategy and who will carry out the steps? Does this coordination involve additional fees on either side? When should we revisit the plan, and what events should trigger an earlier conversation?

This article provides general education and is not a substitute for advice tailored to your individual circumstances. Appropriate strategies depend on your income, your business structure, your retirement timeline, and rules that can change over time. If you want to bring your tax planning and your financial planning into better alignment, call (561) 214-2561 to start that conversation.