Financial Touchdown: Wealth Management Strategies for Pro Athletes

Professional athletes sometimes struggle financially and frequently declare bankruptcy as a result of avoidable errors. Financial losses can be considerable in the absence of professional financial planning counsel. Because athletes’ earning potential is focused in their early 20s to early 30s, long-term financial preparation is essential. To reduce tax liability and increase wealth potential, Certified Financial Planning specialists, CPAs, and founders provide playbooks on financial and tax planning for athletes.

Strategies for Tax Planning & Financial Planning for Professional Athletes

Wealth Management

Professional athletes’ financial well-being is intricately tied to their substantial earnings, brief earning windows, elevated risk factors, and the tantalizing potential for substantial rewards. In light of the frequent changes in residence driven by free agency and heavy trading dynamics prevalent in major sports leagues, pro athlete wealth management plays a pivotal role. Consequently, meticulous financial planning and assembling a formidable team of financial advisors and experts are imperative for their overall success.

1. Follow Up on Your Duty Days to Reduce Jock Tax

Athletes that make a high wage are liable to the jock tax in some states since the 1970s and more so in the 1990s. However, legal issues, like Pittsburgh’s “usage fee,” have impacted how it is implemented. The Duty Days Calculation may result in lower tax obligations and thousands of dollars in yearly financial savings for athletes.

2. Maximize the use of retirement accounts

During their playing careers, athletes frequently pay high tax rates, thus retirement planning is essential. To reduce tax liabilities and increase future savings tax-free, they should think about tax and retirement savings options like solo 401k contributions and back-door Roth IRA contributions.

3. Reduce State Income Tax by Remaining in One Place

Consider your current state of domicile, the ownership of any properties, and any prospective state income tax exposure while making plans for your financial future. Sports contracts should be discussed with a licensed CPA because California has the highest marginal income tax rate. For a contract to have value, residency is essential.

Also See: Top Tips for Managing a Loan for Self-Employed

4. Rethink the structure of your signing bonus.

Signing bonuses make up a major portion of professional athletes’ income contracts, but because they are paid upfront, they might raise tax concerns. It is advised to speak with knowledgeable wealth advisors and their representatives to handle these talks. The bonus’s after-tax value is directly influenced by the bonus’s structure, which may include abandonment clauses, distribution options, and residential conditions.

5. Create strategies for sustainable investment

A sustainable investment plan that includes a specialized portfolio of premium fixed-income, public market, and private investments is essential for athletes. A seasoned financial advisor offers thorough, unbiased guidance while assessing opportunities and giving recommendations.

6. Through Donor Advised Funds, You Can Effectively Reduce Your Tax Burden and Support Charity.

Athletes are permitted to donate to charities with tax deductions, but they must make sure the organizations are 501(c)3 entities. A simple and efficient method of giving, donor-advised funds (DAFs) enable donors to make charitable contributions, qualify for immediate tax deductions, and choose donation sites. The impact is increased by working with a wealth advisory.

7. Purchase disability insurance.

For the generating of money, physical capabilities are essential, and injuries can have serious financial repercussions. Pro athletes must have disability insurance because it safeguards their financial future and human capital. The most comprehensive form of insurance is permanent total disability, while accidental injury and temporary total disability insurance are more affordable alternatives. For the best protection, speak with a certified CFP®.

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8. Ensure Your Business Is Set Up Correctly.

Especially in a town where there is a high level of name recognition, starting a formal business can be a source of income after retirement. However, obstacles like license problems, unbalanced cash flows, and debt can prevent success. Working with wealth experts like AWM can help clients assess prospects, create the best ownership structures, and choose the amount of risk for novel business concepts while taking their financial situation into consideration.

9. Do not disregard family law

Professional athletes in particular should think about family law if they earn a lot of money. Even in relationships with no major assets, prenuptial and premarital agreements are popular and advantageous. These agreements offer transparency, and assurance, and guard against upcoming monetary conflicts in the union.

10. Make an estate tax plan.

Making a will is only one aspect of estate planning; other aspects include managing estate taxes, utilizing life insurance, and family trusts, and rearranging assets. Planning for intergenerational wealth is essential, as is making sure your family has access to reliable experts and is capable of managing significant assets. By doing this, you may be certain that your wealth will endure.

Engage a Financial Team That Is Aware of Your Tax Situation

The wealth advice team should train the following generation on how to continue their family’s financial legacy and incorporate it into their work. It is possible to put yourself up for long-term financial success through financial planning and tax strategies with the correct methods and techniques.

Also See: Dedicated IBAN Accounts: A Tailored Approach to Financial Management


Sumit Kumar Yadav has experience analyzing business and finance of big to small companies. Loan, Insurance, Investment data analysis are his key areas.