Is your client in debt to the IRS? If they have an IRA, the answer is “yes.”

Is your client in debt to the IRS? If they have an IRA, the answer is “yes.”

If you’ve followed this blog (or ever heard me speak), you undoubtedly know I’m a big fan of message frames.

Message frames are quick, targeted frameworks for communicating a complex topic. And they are incredibly useful in marketing for financial advisors. They can be used in so many ways, from client conversations to seminar content to radio ads.

In our blog last month, I shared one of my favorite message frames about retirement savings, and the response has been overwhelming. 

You want more message frames! You demand more message frames! Heads will roll unless you get more message frames!

Okay. I’m over-exaggerating. But I did hear from scores of advisors asking if I had other message frames to recommend when talking about taxes in retirement. 

Boy, do I ever.

So, this week, I’m sharing another one of my favorites. I call it: Debt to the IRS.

Setting the Stage 

Near $38 trillion are currently saved in U.S. retirement plans - the vast majority of which is housed in tax-deferred vehicles. These tax-deferred plans include the uber-popular 401(k)s and IRAs that nearly all of our clients have used to save.

Savers know by putting money in a 401(k) or IRA, they have deferred paying taxes on those funds until they’re accessed in retirement. 

But what many savers don’t realize is that deferring their taxes has created a debt… and it’s one they’ll soon have to pay off.


Message Frame: Debt to the IRS 

Let’s say you have an IRA. Each month, you get a statement showing the funds in your IRA account.

This month, your statement came, and it showed you had $800,000 saved in that account. 

Great, you think. I have $800,000 to spend in retirement. 

Except you don’t. 

You can not cash out that account and go buy a new $800,000 vacation home. (If you didn’t realize that when you withdrew the money, you’d certainly realize it come April 15!) 

So why don’t you have $800,000 as your statement claims?

The truth is, every IRA statement is an illusion

The value listed on that statement? It’s not all yours. You have a silent partner in that account - and that partner is the IRS. 

The IRS has first rights to a portion of your tax-deferred retirement assets. As you withdraw funds from your account, you owe the IRS its share in the form of taxes. 

If you have an effective tax rate of 20%, it essentially means the IRS (and its state partners) owns 20% of your IRA. 

Let’s go back to your $800,000 IRA statement. 

At a 20% effective tax rate, you actually have $640,000 of spendable money in your retirement account. 

What happened to the other $160,000?

It’s $160,000 debt to the IRS. 

And what’s more, it’s a debt you’ll be paying with interest. 

After all, as your retirement assets grow in your 401(k) or IRA, the IRS also gets a part of that growth. You own a debt of taxes not only on your contributions but on all the growth that occurs in the account. 

Many savers don’t want to be in debt to the IRS for a portion of their hard-earned and hard-saved retirement. They want to buy out the IRS now, either through a Roth conversion or simply saving in a tax-free vehicle going forward. 

Tax-free saving can help you feel confident that the amount listed on your account balance is the amount you get to keep - no debt payment needed.

Why I Love This Frame

Taxes in retirement is a complex topic, but one that can have a significant impact on your clients and prospects. 

The “Debt to the IRS” story uncovers the risk associated with having all (or even the majority) of your retirement assets in tax-deferred vehicles. It opens the door for a conversation around tax diversification. 

This story frames up an important topic - but one that your clients may not have considered before. What’s more, it gives the topic a simple framework that clients can easily understand. 

And - of course - after understanding the concept, your client’s next question should be: “How much am I in debt to the IRS? And can you help me do something about it?”

RTB_Icons_DisplayThe answer, of course, is “YES, I can help.” If you’re looking for an easy tool to quantify and reduce retirement taxes for your clients, check out Stonewood’s Retirement Tax Bill program.


You can use the “Debt to the IRS” message frame across your marketing efforts:

  • In a seminar, workshop, or webinar, as a way to engage the audience and uncover a new risk they hadn’t considered

  • On radio or TV to tell a story that motivates listeners to learn more about tax diversification

  • In email marketing, to grab a reader’s attention 

  • As a consumer video on social media or your website to show the kinds of problems you help savers address

  • In your client meetings, to help relate tax diversification to something the client can easily understand

  • And on and on

Give this message frame a try, and let me know what you think. You can connect with me here, or on LinkedIn.