Tom Speeder is a new client. From reviewing his client questionnaire, you were able to gather the following facts. He is 50 years old and was recently hired as a middle-level manager with a car manufacturer. Tom's salary for the current year is $200,000. In his initial meeting with you, Tom indicates that he would like you to look into an idea he has that will help him maximize his investment portfolio. He tells you that his new company offers its employees the ability to participate in a Section 401(k) plan. He believes it would be to his benefit to maximize his contribution to the company's 401(k) plan that provides for matching employer contributions up to $3,000 annually. The plan provides for a maximum annual employee contribution of no greater than that provided by the IRC.
It is January, and Tom has indicated to you that he would like to accelerate the maximum contributions to the plan by contributing his entire monthly paycheck until he funds the entire amount. He believes that such an arrangement will maximize the growth of his portfolio since the earnings are tax free from an earlier time frame than if he spreads the contributions out over the year.
a. Are there any additional questions you should ask the client before you begin your research?
b. What additional potential sources of information might you want to ask for?
c. Which of the preceding facts are relevant? Which are irrelevant?
d. Is there a chance that you will need to ask more questions at a later point? Why or why not?
e. What is the first question you will try to answer in your research? Are there any additional issues that you can identify at this time?
f. What is the taxpayer's desired result? Why is this important? How does it affect your role as tax advisor?
g. Is this a planning research type of situation? How do you know?