What does a financial advisor do?

What is it like to work with a financial advisor? Many people who work with an advisor feel better about their financial future. In fact, 90% of Ameriprise clients who have had the Confident Retirement® conversation feel more confident about retirement.1

To help illustrate how a relationship with an advisor works and the benefits that may result from personalized advice, here are some answers to commonly asked questions about advisors and financial advice. 

What if I only need advice in one specific area of my finances?

Financial advisors provide a spectrum of financial advice, ranging from simple strategies that focus on one aspect of your finances to taking a more comprehensive approach through more complex strategies. 

Some people don’t have the time to manage their investments or they want to feel more confident about making financial decisions. Others like to do some research themselves but want to work with an advisor to gain more control over their investment strategy as conditions change. 

Advisors will deliver personalized advice based on your unique goals, investment time horizon and risk tolerance, to name a few factors. 

What are the advantages of an ongoing relationship with a financial advisor? 

In addition to understanding the analytical side of pursuing financial goals, financial advisors also consider how events in your personal life, the economy and the markets impact your overall strategy. 

In delivering personalized advice, an advisor brings together three valuable elements: 

  1. Insight into your specific situation;
  2. The ability to develop an investment strategy for today while factoring in measures to adjust to changing circumstances; and 
  3. Knowledgeable advice and guidance to help you achieve your personal goals. 

Can an advisor help me manage emotional reactions to unexpected or unforeseen circumstances?

A financial advisor can help you maintain a long-term perspective on market-driven or current events without losing sight of the bigger picture. Similarly, personal events that can impact your ability to stay on track with financial goals, like disability, job loss, or health issues, can prompt emotional reactions and decisions that could derail your progress.  An advisor can help streamline and prioritize decision-making during turbulent times so that you can stay the course financially.

What resources do Ameriprise financial advisors rely on when delivering personalized, goal-based advice?

In addition to their own skills and experience, advisors at Ameriprise have access to a depth and breadth of expertise. The Ameriprise Investment Research Group (IRG) provides ongoing commentary and longer-term perspective and analysis of the domestic and global economies as well as the condition of the capital markets. 

These market and economic experts support advisors and clients with an objective view of market events, enabling our advisors to work with their clients in reviewing their investment portfolios regularly and while tracking progress toward goals, help them make real-time adjustments as needed.

Can an advisor help me navigate tax strategies?

Whether you’re focused on saving for retirement or a child’s college education, there are a variety of tax strategies and solutions that can help. A financial advisor, along with your tax advisor, can help you incorporate tax-advantaged products and investments into an overall, long-term investment strategy.

 How can advisors help me if I’ve fallen behind in reaching my financial goals?

The Ameriprise Confident Retirement approach is designed to help clients feel more confident, connected and in control of their financial future. Through personalized advice and digital tools to help you stay on track with your goals, you and your advisor can devise a strategy that can help you “catch up” to where you want to be, and when you want to get there. 

How much does a financial advisor cost? 

Just as with other professional services, the fee you will pay for personalized financial advice based on your goals will depend on the degree of advice right for you.  

Together with your advisor you’ll discuss the financial advice you’ll receive and the related fees, before you pay anything.

Find out more

Financial advisors take the time to understand what’s truly important to you so they can help you achieve your financial goals, today and tomorrow. By offering professional tools and advice, your advisor can help you feel more confident about your financial future. Meet with an Ameriprise advisor today to learn how they can help you meet your financial goals, today and tomorrow.

Disclosures

Ameriprise Financial Confident Retirement Client Survey results from May 2012 through May 2018. All results are reflective of top-two box responses (strongly/somewhat agree). The Confident Retirement approach is not a guarantee of future financial results. 
Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser.
Ameriprise Financial Services, Inc. Member FINRA and SIPC

Understanding retirement accounts

There are many types of accounts that can help you save for a lengthy retirement — and most people rely on more than one account to reach their retirement goals. Understanding the features and benefits of each will make it easier to choose the right ones.

Employer-sponsored plans with employee contributions

A good starting point for retirement saving is your employer-sponsored plan. Employer plans usually accept automatic contributions from your paycheck, and the money you contribute has the potential to grow tax-deferred.

In addition, if your employer offers to match your plan contributions, you should consider taking full advantage of this opportunity. An employer match will supplement your savings without any extra effort on your part. If you’re not sure if you have an employer match, you can ask your HR or benefits department for your employer summary plan description.

 
401(k) plan
403(b) plan
Governmental 457(b)
SIMPLE IRA
Which type of employer can offer the plan?
For-profit or nonprofit organizations
501(c)(3) nonprofit organizations and public schools
Any state or local government entity
For-profit, nonprofit or government organizations with fewer than 100 employees
Who is eligible to participate? (Some employers may be less restrictive)
Employees age 21 or above, with at least one year of service
Generally, all employees are eligible
Eligibility is generally at the employer’s discretion
Employees with at least $5,000 of compensation in any two previous years of service and who anticipate compensation of at least $5,000 in the current year
How much of your salary can you contribute for 2020?
$19,500, or $26,000 if you are age 50 or above
$19,500, or $26,000 if you are age 50 or above (additional catch-up contributions may also be available)
$19,500, or $26,000 if you are age 50 or above (additional catch-up contributions may also be available)
$13,500, or $16,500 if you are age 50 or above
Additional considerations
May have a loan provision
May have a loan provision
May have a loan provision
No loan provision
 
Roth 401(k) contributions may be allowed
Roth 403(b) contributions may be allowed
Roth 457 contribution may be allowed
No Roth contribution option
 
Employer match may be available
Employer match may be available
Employer match may be available
Additional employer contributions required
 
10% IRS penalty on early withdrawals (exceptions apply)
10% IRS penalty on early withdrawals (exceptions apply)
No penalty on early withdrawals
25% penalty on early withdrawals for the first two years, 10% penalty thereafter (exceptions apply)

Pre-Tax vs. Roth deferrals

Some employer plans offer you the option to make Roth 401(k) or Roth 403(b) contributions instead of the standard pre-tax contribution to your 401(k) or 403(b) account. Determining which contribution option to choose depends in part on your tax bracket now and in retirement, in addition to the amount of time you have before you retire.

  • Pre-tax contribution. When you make a pre-tax contribution to a retirement plan, you receive a tax benefit right away, but you will have to pay taxes on the money when you withdraw it. In general, a person in a higher tax bracket who anticipates being in a lower tax bracket at retirement may find a pre-tax deferral more favorable.
  • Roth contribution. You won’t receive a current tax benefit, but qualified distributions are tax-free in retirement. In general, a person in a lower tax bracket who anticipates being in a higher tax bracket in retirement may find a Roth contribution more favorable.

There are other factors to consider as well so be sure to talk with your Ameriprise financial advisor and tax professional before making a decision.

Employer-funded plans

Some employers offer plans where all eligible employees automatically benefit, without having to make contributions from their salary. Even though you do not need to personally contribute to these plans, you’ll still need to select beneficiaries, may need to choose the investments and will want to factor them into your overall plan for retirement.

 
Profit sharing
SEP
Pension/defined benefit
Which type of employer can offer this plan?
Primarily for-profit organizations, though nonprofits and government employers may also establish
For-profit, nonprofit or government organizations
For-profit, nonprofit or government organizations
Who is eligible to participate?
(Some employers may be less restrictive)
Employees with two years and at least 1,000 hours of service per year, if there is immediate vesting (with a vesting schedule, one year and 1,000 hours of service)
Employees age 21 or above who perform service in at least three of the prior five plan years, and who receive at least a required minimum amount of compensation in the current year ($600 in 2020)
Employees with one year and 1,000 hours of service
What is the maximum that can be contributed for 2020?
100% of compensation, up to $57,000 (employer’s deduction is capped at 25% of eligible payroll)
25% of compensation, up to $57,000
Contributions must not exceed the amount required to fund the maximum annual benefit (For 2020, the lesser of $230,000 or 100% of average compensation for highest three consecutive years)
Additional features
Loans may be available
No loan provisions
Loans are allowed but typically not available
 
May have a vesting schedule
Immediate vesting
May have a vesting schedule
 
Employer contributions are discretionary
Employer contributions are discretionary
Employer contributions are mandatory
 
Employee typically directs investments
Employee always directs investments
Employer directs investments

Individual retirement accounts (IRAs)

If you’re already participating in an employer-sponsored plan but are able to save more, or if you don’t have access to an employer plan, you should consider contributing to an IRA. IRAs allow you to hold a wide variety of investment and offer different tax benefits depending on your income level and the type of IRA you select.

Traditional IRAs can offer a particular tax advantage if you expect to be in a lower tax bracket when you retire. If you qualify for pre-tax contributions, your current taxes may be reduced and the taxes you pay when you withdraw the money may be less than you would pay now. However, as you consider a traditional IRA, keep in mind that at age 72 you must take required minimum distributions (RMDs)

A Roth IRA may be an advantageous way for you to invest if you are in a lower tax bracket, especially if you anticipate being in a higher tax bracket in retirement. The earnings in your Roth IRA are tax-free upon withdrawal (if certain requirements are met). This can be a powerful advantage. Assuming that you expect your tax bracket to be higher in retirement than it is now, there may be a significant benefit to giving up the current tax deduction and making do with less today in order to gain the tax-free growth and withdrawal.

 
Traditional IRA
Roth IRA
Who is eligible to make contributions?

Individuals with earned income

Non-working spouses of individuals with earned income

There is no age limit for contributions made for the 2020 tax year or later due to the SECURE Act changes

Individuals of any age with earned income (subject to modified adjusted gross income limits)

Non-working spouses of individuals with earned income (subject to modified adjusted gross income limits); no age limits

What is the maximum you can contribute for 2020? (Limits apply to combined Traditional and Roth contributions)
Lesser of $6,000 ($7,000 if you are age 50 or above) or 100% of earned income
Lesser of $6,000 ($7,000 if you are age 50 or above) or 100% of earned income
How are contributions and distributions (withdrawals) taxed?

Contributions may be tax-deductible, depending on whether or not you or your spouse have a retirement plan at work and your modified adjusted gross income.

Any growth from contributions will be tax-deferred until withdrawn.

Distributions of pre-tax contributions and earnings are taxed at your ordinary income tax rate, but are not subject to the 3.8% tax on net investment income.

Contributions are non-deductible.

Earnings are income tax- and penalty-free if:

  1. Distributed five years or more from the first day of the first year that funds were first contributed or converted to any Roth IRA for the individual, and
  2. At least one of the following applies: age 59½, death, disability, first-time home purchase (up to $10,000).
Additional considerations

Required minimum distributions beginning at age 72.

Distributions to an individual who has non-deductible contributions in any of his or her IRAs will consist of taxable and non-taxable amounts on a pro rata basis.

Distributions of taxable amounts prior to age 59½ are subject to a 10% IRS penalty (exceptions apply).

No required minimum distributions.1

Contributions are distributed first and are always non-taxable.

Early withdrawals of earnings may be subject to tax and a 10% IRS penalty if distributed prior to age 59½ (exceptions apply).

1Inherited Roth IRAs are subject to required minimum distributions

There are other factors to take into account as well so be sure to talk with your financial advisor and tax professional before making a decision about what IRA is right for you.

More ways to save

While employer-sponsored plans and IRAs offer important opportunities for retirement savings, they may not be enough to provide the retirement you want. Personal savings will likely play a critical role in funding your retirement as well. It is important to think about all of the vehicles available as you plan for a secure retirement.

Take the next step

An Ameriprise financial advisor can help identify which accounts are right for you, and allocate investments to each account. As your needs and circumstances change over time, your financial advisor will adjust your plan to help ensure you stay on track.

Disclosures

Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.

Determining your retirement age

Being aware of key retirement ages can help you prepare for the future.

Catch-up contribution age. You can make catch-up contributions to many retirement plans beginning in the year you turn 50.

 

403(b) and 401(k) withdrawal age. You can start taking penalty-free withdrawals from qualified retirement plans such as 401(k)s, 403(b)s and profit sharing plans after you left your employer in the year you turned 55 or later.

IRA withdrawal age. You can begin taking withdrawals without penalty from IRAs and qualified retirement plans.

 

Social Security benefits age. You can start taking reduced Social Security benefits.

 

Medicare sign up age. You should sign up for Medicare hospital insurance (Part A) 3 months before your 65th birthday, whether or not you want to begin receiving retirement benefits.

 

Social Security benefits age. You can start taking full Social Security benefits depending on your birth year. Any delay in applying for Social Security benefits, up to age 70, can qualify you for increased retirement benefits.

RMD age. You must begin taking Required Minimum Distributions (RMDs) from most retirement accounts.

 

Disclosures

Investment advisory products and services are made available through Ameriprise Financial Services, Inc., a registered investment adviser.
The initial consultation provides an overview of financial planning concepts. You will not receive written analysis and/or recommendations.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.