The Tax Planning Strategy That Many NFL Players Miss | Zach Miller, Aaron Goldberg | NFL Players' Podcast #6

Zach Miller (00:01):

Welcome back to the NFL Players' Podcast. I'm Zach Miller and I'm lucky enough to be joined by Aaron Goldberg, who is a CFP, and one of my fellow colleagues here at AWM. So first off, just a little bit about Aaron. He was on the PGA Tour and the Canada Tour, the... Which one is this?

Aaron Goldberg (00:21):

The Korn Ferry Tour.

Zach Miller (00:22):

The Korn Ferry Tour.

Aaron Goldberg (00:23):

Every tour out there.

Zach Miller (00:24):

Good. Yeah. I'm an NFL guy and a part-time golfer that I don't swing very well, but I definitely try to hack it up out there. I appreciate you being on the podcast. Like myself, Aaron has so much experience as an athlete and he's turned advisor, a wealth advisor here at AWM. He's a CFP. That's the thing I'm really going for is I've passed the exam, but I don't have the experience requirements like he has.

We just kind of want to go over a tax planning strategy that a lot of athletes miss out on, and it's called the individual 401(k). For NFL athletes, we have endorsement income. So endorsement income can mean anything from trading card deals, appearances, Nike money, Under Armour money. All that money they give you, they're going to send you a 1099 for that. And I know in the golf world, that's all your income.

Could you expand on that, Aaron?

Aaron Goldberg (01:17):

Yeah. Just, as you said, for golfers, all your income is 1099. You're an independent contractor. We're not an employee of a team like an NFL player. So when a athlete or golfer... loose term "athlete" there, when they get paid, one of our best strategies to try to defer some of the taxes, because if we're playing well out on tour, we're going to be in those highest tax brackets just like you guys are, and we want to defer that tax if we can. So we're going to use what's called an individual 401(k) so we can maximize how much money we can put in, also take advantage of something called a backdoor Roth IRA that I'm going to let Zach explain, and then and take advantage of any other, some other strategies that we have with those.

It sounds like, from a NFL player standpoint, there's only so much you can do with your W-2 income. But on the endorsement income, that's where you can really optimize your plan and make a difference there, where if you have an advisor that maybe just does the bare minimum or just gets by is probably going to miss these types of things where you're not optimizing your plan.

Can you tell me a little bit about that?

Zach Miller (02:24):

Yeah. The NFL, even the rookie minimums, you're in the top tax brackets, you're in the highest rate. So your endorsement income, that money you make doing those appearances, doing all those things that sometimes you don't want to do, you're going to get 40 to 50% of that money is going to go to the IRS. That's money taken by the tax man. What a wealth advisor does is, and it's why you have a CFP as a wealth advisor, is they evaluate your whole financial structure and that includes tax planning. We've thrown the term around "tax alpha," and so many of the advisors they just show you returns, and those aren't after-tax returns. Your broker, he doesn't want to do any tax planning. He doesn't get to bill on that, so he's not going to do tax planning.

And I know from my personal experience, I had a broker at Merrill Lynch and I had a CPA. and the broker thinks it's the CPA's job and the CPA, they don't really want to get into that. They just want to file your taxes. So the fact that you can have a coordinated strategy that actually brings home money, there's real tax savings, and you can defer that into that individual 401(k).

And so I want any NFL athlete to really just stop, check your financial accounts. NFL players, look, do you have an individual 401(k)? If you don't have an individual 401(k), it's a type of account, your advisor is really not doing a good job for you. And if you see a SEP IRA in there, as Aaron was talking about earlier, he's not being the most optimized he can for your situation. Because with the SEP IRA, you can't do a backdoor Roth, which is something, both these things I missed out on as a player, which would be... This value of these things would be hundreds of thousands of dollars. Currently, I would have from in these accounts that I would've saved in taxes that I ended up just basically overpaying in taxes. You don't get any special treatment from the government for overpaying taxes.

Aaron, is there anything you want to add about individual 401(k)s as it relates to a golfer?

Aaron Goldberg (04:18):

No, I think as it relates to a golfer, it's a pretty similar situation. Our income fluctuates, so there's one other way that we can optimize it in terms of if we have a down year maybe. Maybe this comes into play if you're an NFL player, that maybe you get hurt and you're not under contract, so you don't have much income that year. Maybe you do have an endorsement contract that's still valid for the year. You can do what's called a Roth 401(k) that year where you're paying your taxes, but now that money is tax-free. So in the future, you have a big account that's growing that's all tax-free. So it gives us a little bit more flexibility than the SEP IRA does, and that's why when we say, a SEP IRA's okay, but it's just not the optimal way to do this for an athlete. That's where we see the generic advice kind of carry over if your advisor's not doing best practices for an athlete.

You mentioned that you had a broker at Merrill Lynch and a CPA. So did you actually have an individual 401(k)  or a SEP IRA back then?

Zach Miller (05:18):

No, I essentially missed out on tax savings. It's real, I mean real value that had a chance to use compounding to grow into even bigger values. Because all that money, the earlier you can do it in your career as an NFL player, take that endorsement income, you can defer large amounts every year of that endorsement income, save on the taxes, invest it the right way. And that's what a wealth advisor really should be doing. That's what you're not going to get at Morgan Stanley, Merrill Lynch, UBS. They're not going to be doing this kind of integrated tax planning, and it's something I would've benefited from as a player that once you miss out on it for the year... End of the year is the deadline to be able to open one of these individual 401(k). So if you miss out the end of the year deadline, you don't have a chance to contribute for that year.

So it's really something that's time-sensitive. It requires an expert and a team of experts, which you have to gather that team of experts like we have here at AWM. We implement that in the golf side, the baseball side, the football side, and we really tailor that expertise to the individual needs of our athletes. I think with that, we'll just go ahead and we'll see you next week. Glad you could join us. I do want to say if you have any comments, any critiques, I love them. Send me an email, whatever it takes. Until next time.

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