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What is the Best Financial / Retirement Plan for Professional Athletes?
Financial Planning is necessary for professional athletes who have been known to spend their six, seven, and even eight-figure salaries. Many pro athletes earn in a single year or a few years what the average worker may not see in a lifetime, but this can provide a false sense of security.
Pro athletes make the same mistakes that others often do:
- helping struggling friends & family members,
- buying to many toys, clothes, and restaurant meals,
- purchasing more real estate than they need,
- starting a new business without analyzing the risks properly, and not saving for the future.
Financial Management Strategies for Professional Athletes
Pro athletes may receive a large paycheck, but that paycheck is only large for a few years or, at best, a decade or two, depending on what sport they play, their contract terms, how well they perform, and how injuries affect their career.
Many athletes have been given good financial advice, however, ultimately cave into pressure from friends and con artists to invest in crazy businesses that promise them unrealistic returns.
NFL, NHL, NBA & MLB have done a great job over the years trying to seperate Sports Agents from providing or getting paid for financial advice, and offering pro athletes educational seminars about the importance of Saving & Investing.
Professional sports leagues want players getting objective financial advice from Credited Financial Advisors, however, players ultimately do what they want, and do business with who they want. This opens the door for them receiving bad advice from Unlicensed Individuals.
Many pro athletes have been scammed by their own Friends & Family, the type of people they thought were trustworthy. IFM’s advice to them, any time a friend or family member asks for money or for them to invest in their latest great idea, tell them to contact your Financial Advisor who will ask for a Business Plan. In most cases, a plan in very rarely sent. This allows the athlete to avoid being the one to tell them NO.
Athletes who are only paid during the season need a plan to make those paychecks last all year. One of the worst mistakes high-earning professional athletes make is to immediately use their massive paycheck to buy luxury sports cars or a mansion in cash.
At IFM, we are seeing many athletes today want to do the right thing by investing in small businesses to help build their net worth, however, we read about many athletes now wanting to get paid in things like Bitcoin.
As a VERY VERY small percentage of their income it may make sense, however, how many people get paid at their job with a financial product that can drop 30% in a couple days. Bitcoin may be a fad, who knows, but any professional athlete who has around 3-4 years to earn money in their pro career, getting paid in a source like Bitcoin is irresponsible, at least in IFM’s mind.
Tax-Minimizing Strategies for Athletes
Although I, nor Independent Financial Management, LLC, provide Tax Advice, there are a few Tax Strategies which can help athletes keep as much of their earnings as possible. Tax Strategies to consider:
- Choosing a proper domicile. Does the team’s home state have Tax Advantages for high-income earners? If not, residing in a No-Tax state like Florida, Texas, or Tennessee can mean significant Tax Savings.
- Mitigating the Jock Tax. This involves projecting the tax impact of playing in various states and paying tax to those states. Players have to pay withholding tax to the visiting state for road games, but they also receive a Tax Credit in their home state for taxes paid in other states. If their home state has a higher tax rate, players may owe more tax than they expected.
- Understanding the impact of taxes on signing bonuses. A player’s signing bonus is only allocated to their state of domicile. If that state does not levy Income Tax, it can mean huge Tax Savings.
- Allocating Professional Athlete Tax Deductions to Earned Wages vs. Earned Income from Endorsements, Appearance Fees, and Residuals. Certain deductions can be taken as Itemized Deductions or as Business Expense Deductions. A Certified Public Accountant (CPA) can help an athlete determine which method is most advantageous.
It is also important for athletes to claim all the Tax Deductions they are entitled to. These include Business Expenses such as Agent’s Fees, Workout Clothing, Gym Memberships, Massages, Nutritional Supplements, Athletic Equipment, and more.
Tax Planning for Retirement is Required. Retirement contribution limits to 401(k) and IRA accounts are so low relative to what many professional athletes earn each year that athletes must do the bulk of their investments for retirement in Taxable accounts.
This type of account does not have the Tax Advantages of 401(k)s and IRAs. Choosing Tax-Efficient Investments & Strategies is Essential.
Managing Personal Relationships
Unfortunately, one of the biggest challenges for professional athletes is managing relationships with friends and family. Many athletes feel an obligation to give back to those who have helped them achieve success.
We have all read stories about wealthy athletes or entertainers being very generous with their money on others, only to find those people they helped abandon them when their earning ability has been eliminated.
Building A Financial Team
It is important for all individuals to have a trusted financial team which they can turn to when specific needs arise. IFM will sit down with each athlete, help them complete a Financial / Retirement plan, and when necessary build a financial team consisting of an Estate Attorney, Realtor, Tax Advisor, CPA, Insurance, Mortgage, and Credit Specialist.
IFM representatives has been working in the financial services industry since 1996, and over the past 27 years we always try to start every new relationship by completing a Financial / Retirement plan. We have found, however, many people are reluctant to share their intimate detailed financial situation with a professional they are meeting for the first time.
We understand this reluctance completely, however, meeting with a Financial Advisor is like meeting a Doctor for the first time, the more information you share about your personal situation, the more they are able to help you.
IFM’s job is to help structure a plan which helps you understand what you need to do today in order to meet your future retirement desires.
Whether we are meeting with an athlete, which can have a few good earning years, a business owner who recently sold their business and received a lump sum amount of money, it is crucial to structure a plan on how future expenses will be paid, since the high paying earning years could be over.
After understanding what the future goals are, it’s our job to come up with the best plan which can meet those future expenses, and how investments in Stocks, Bonds or Real Estate can generate income to meet those expenses.
If you are interested in setting up a consultation and learning more about IFM and the services we can provide, please contact us or have your agent contact us at 1-855-546-9443.
