Tax Strategy In the NFL | Zach Miller | NFL Players' Podcast #12
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Episode Summary
As an NFL Player you are in the top tax bracket. Your biggest expense is income tax. The more income you can delay and defer to the future where your tax rates will be lower means more money in your future pocket.
In this episode, I explain some of the basic tax forms you will receive as an NFL player and discuss some of the advanced strategies to build generational wealth. These include
Individual 401(k) for endorsement income
Backdoor Roth IRA
Donor Advised Fund
Asset Location
Safe Harbor Strategy
If you don’t feel like you are getting the best advice, give us a chance to discuss your personal tax strategy. I wish I would have searched out more second opinions when I was a player.
+ Read the Transcript
Zach Miller (00:06): Welcome back to the NFL Players Podcast. I'm your host, Zach Miller. And how about that Super Bowl last night? I'm recording this on Monday, so watching the game last night. Congrats to Tom Brady and the rest of the Buccaneers for that impressive performance. When we play as a team like that, you deserve to win the Super Bowl because it was just a total team effort. And I said it last week in the podcast, obviously, it's a team game and as much as Mahomes and Brady was hyped as kind of the headliner, it came down to the defenses. They they showed up to play. The Bucs, they got after Mahomes. He didn't have time, he was getting hit, he was rushed, he was running for his life back there. And that made Tom Brady's job so much easier. And so is good to see that. The run game for the Bucs also really set the tone. They were the more physical team.
Zach Miller (01:05): The Chiefs are a good football team. Before last night, they had only lost one game. So it's not like they got lucky getting to the Super Bowl. They are the defending champs. So for Brady and the Bucs to peak at the right time, to be playing the best football when it mattered most, I mean, that's what makes the game so special is to see that. And it reminds me of when we won Super Bowl XLVIII when I was with the Seahawks. I think Russell Wilson had a similar stat line to Tom Brady and just was super efficient while the defense just controlled the game. That's the saying, when defense wins championships, and we saw that again in this Super Bowl.
Zach Miller (01:48): The other great thing to see was just the tight end play, to see Gronkowski with a couple of touchdowns and be the leading receiver for the Bucs. And then on the other side, Travis Kelce, the leading receiver for the Chiefs. The tight end spot is so important in a Super Bowl and I feel like if you don't have a good tight end core, it's tough to get to the Super Bowl. And so I think every time there's a Super Bowl winner, take a look at the tight ends and you'll see a good group.
Zach Miller (02:19): So this week as we enter off-season here, on this podcast, as NFL teams are kind of entering the off-season and they are evaluating their teams, I think you should do the same thing for your wealth team. The advisors that are there to grow and manage your wealth, as the NFL teams evaluate who's on their team, I think you should evaluate who's on yours as well. I think this is a perfect opportunity to explore that entire part of your life and really know who's qualified and who should be on that team. If you're using family or if using friends, you're using buddies to manage your wealth, or you have no advisor at all, I caution that you're just not being as optimal and as efficient as you should be. And you're really sacrificing your future wealth by not having those right kind of professionals.
Zach Miller (03:13): So I know as as a player, I actually had a broker, a broker that was at that Merrill Lynch. And so all these brokers are the same. They're UBS, they're at Morgan Stanley, they're at Merrill Lynch. And the problem, if you have one of these people, they call them financial advisors, and really, all they are is an investment portfolio manager. They just manage a public investment portfolio. So they're not allowed to give tax advice. They're not allowed to give advice on your NFL 401k, your pension, your NFL benefits. They're not allowed to give advice on that. And then they're also not allowed to give advice on really anything that's private equity. Anything that's outside of investments, they're not allowed to advise on. So that's really something that you really should understand.
Zach Miller (04:02): And I think that I wish I knew that as a player because there's so much more to your wealth than just your public investment portfolio. And while that's important and should be the core component of building your wealth, especially once you have a sizable amount of assets, you have to understand that there's more to it than just that small section of your wealth. And so I think as you evaluate your financial team, it's just like an NFL team owner, you want to have the best people in place, and it can't just be one person; it has to be a team. One person can't have all the knowledge and all the changes in the tax code, changes in investment strategy, being able to evaluate private equity deals. It really has to be a team of professionals, whether that's on the tax side, a certified public accountant, a CPA that really evaluates your tax projections. And so I'll get into kind of how to go through each segment, whether that's investments, taxes, insurance.
Zach Miller (05:02): But you really have to understand that there's certain groups, and that's what we do here at AWM; it's own your wealth, is what we say because you have to have the right team in place if you want to win in the wealth game. And it's something that I had to learn the hard way, but I know it's going to change for the better for the future here. So as you're evaluating your wealth strategy and your wealth team, really focus when you do your investment review this off-season. You have probably a couple of months here before OTAs, unless you have a new head coach. So when you're sitting down with reviewing your investments, you want to know, am I allocated to being a long-term investor? As my investment advisor, is he just chasing short term returns? Because that's not sustainable over the long run. And the data really bears that out of short-term thinking in investment markets has always led either to losses or under performance.
Zach Miller (06:02): And so really, you want to have your allocation to compensated risks. And there's a comparison that floats around, especially with the recent GameStop talk, that markets are a casino, and that's just totally false because casinos have a negative expected return. You expect to lose money when you go to Vegas. And investing in the markets in a diversified portfolio actually has a positive expected return. It grows wealth over the longterm. So it's really bad comparison, but something that I think should be mentioned.
Zach Miller (06:36): And then when it comes to portfolio allocation, there's a lot of stock picking that goes on. And stock picking is not where the value's at when it comes. You can definitely go for out performance of the markets, but that really comes down to allocating to high confidence in expected returns going forward and where they're persistent. So have they outperformed over long periods of time across all markets globally? And so you really need to look at your investment strategy, see if it's just a random compilation of stocks that eventually just ends up being the S&P 500, or are you actually allocated to higher expected returns that have evidence that they've done it in the past and it has persistence to continue going forward in the future.
Zach Miller (07:32): And so that includes private equity. Venture capital has shown the highest persistence for the top decile of managers to outperform over the longterm. So you really have to be careful in the private equity space, whether that's vetting deals, and your advisor, you should be able to give him a deal and he should be able to vet it for you. That's what we do here. And if we don't have the right expertise for it, we know someone who does, and we can get the right eyes to look at it and tell you if this is a good investment or not, because I've seen so many guys I've played with put money into private equity deals that just were not worth the return that they ended up getting. And there's that opportunity cost of having that money stuck in that investment for so many years. So those need to be evaluated by a real professional, and a CFA, a chartered financial analyst, is a minimum and we have that on our investment team here and I think anything less there for investments.
Zach Miller (08:29): And your financial structure should be overseen by a certified financial planner. I think that's the bare minimum. A CPWA, a certified private wealth advisor, is also an important one to really understand the strategy of building wealth. Those are just designations. They don't mean everything, but they at least give you the indication that the person is seeking more knowledge. And in the wealth game, the more knowledge you have, the more you can help athletes or anyone grow their wealth.
Zach Miller (09:07): Tax planning. This is just such an important part, that brokers can't give advice. You're big UBS, you're big Morgan Stanley's, Merrill Lynch's, they can't give advice on taxes. It says at the bottom of their website. So this is such a huge part. And it gets pushed to the side, but when you're in the top tax bracket, like every NFL player is, and you're most likely to be in the high brackets when you're done playing as well, you have to take into account the amount of taxes you're going to pay and use things like a tax projection. You're not just worried about your tax return or your tax refund, how much money am I getting back? That's just your own money given back to you. What you want to do is use the safe Harbor strategy we use, where you're not giving the IRS an interest free loan. You're actually on the other side of that. And you want to use the tax code to not overpay on taxes because that's money that could have more impact, whether that's for charity, whether that going back to the community you grew up in. That's more money you can allocate and argue you can do a better job than the federal government and state governments of where that tax money goes.
Zach Miller (10:12): Tax loss harvesting is a huge one. With COVID and market selling off, that was huge opportunities to save hundreds of thousands of dollars in future taxes, just by doing tax loss harvesting. And really, it comes down to tax projections. We do about four of them a year per athlete and it really adds the value of knowing how much you're going to pay. Because you know ahead of time, you know early in the year, what your contract is or how much you might get paid, you're doing tax projections to kind of estimate exactly how much you're going to pay, and that can then help you drive investment decisions, whether or not you take huge capital gains or whether or not you reallocate or what you can do with your endorsement income and putting that into individual 401k or using Roth accounts. That's such an important part of the tax projection that just not very many people do and it's why a family office like we are at AWM that matters so much to have that entire financial structure, that entire financial picture evaluated and not just looking at a public investment portfolio.
Zach Miller (11:22): And then an insurance review is also something you just got to have during the off-season to make sure you're covered whether it's property and casualty or umbrella to make sure your liabilities covered. Because there's just so many lawsuits. We talked about a little bit last week and you want to make sure that's all reevaluated. And then life insurance, take care of your family if something bad were to happen. And that goes into estate planning and making sure your dependence and wife and kids are taken care of in the event of something bad happens.
Zach Miller (11:47): So those are things that all should be reviewed in the off-season here, before you get back into off-season mode where you're training and workouts and getting back together with your team and really something to dial in, reevaluate, own your wealth, reevaluate who's on your financial team. If you don't have someone, the value add ... And I learned this as a player, I kind of assumed every financial advisor was the same, and it's truly not the case. There's really good, smart people that earn a family office model and they can do the whole picture. And it would have benefited me so much to have that entire financial structure evaluated and gone through in the off-season to make sure I was optimized so that I could use my wealth for greater impact.
Zach Miller (12:35): So that's it for this week and I'll see everyone next week.
Zach Miller (12:53): The information in this podcast is educational and general in nature and does not take into consideration the listeners' personal circumstances. Therefore, it is not intended to be a substitute for specific individualized financial, legal, or tax advice. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a final decision.