Last year, advisor Matthew Benson’s retired clients and other Arizona retirees began noticing that their IRA distributions had increased.
“Our clients were like, ‘Hey, how come our distribution got larger?’ And we took a look and said, ‘Yeah, why did it get larger?’” says Benson, owner of Sonmore Financial in Chandler, Ariz.
The sudden change meant that the retirees had to deal with the extra burden of making estimated tax payments or withholding state income tax from other sources. And because they are not used to making these quarterly payments, many of them were at risk of being penalized for under-withholding taxes, Benson notes.
Benson, who heads the advocacy team for the Financial Planning Association’s Phoenix chapter, began to look closer at why the change had happened. He initially checked with Charles Schwab, his firm’s custodian, and state officials to try to understand who had made the change.
It wasn’t just his Schwab clients who noticed it. Most of the major custodians had suddenly stopped allowing state income tax to be withheld from IRA distributions, Benson says. The Arizona statute that governs state income tax withholding was drafted some 50 years ago with the intention of accommodating only pensions and annuity incomes, since 401(k)s and IRAs were not commonplace back then, he says, but before last year, the custodians allowed taxes to be withheld from the newer accounts too.
While it’s not clear why the custodians made the reversal, Benson and others surmised that some of the custodians may have had the same legal or legislative counsel who flagged the old law and decided IRAs were not included. “It caught us off guard, and I think it also caught the state Department of Revenue off guard,” he says.
But Benson says that once he and others learned of the old statute and how it was being interpreted, he convened a meeting last October with state officials, including Arizona state Sen. J.D. Mesnard, the state’s Department of Revenue and a legislative policy representative from Schwab. “Everyone was in agreement that this really needs to be resolved through the legislative process,” he says.
Shortly after, Mesnard drafted a bill (SB 1358), which also had input from the Arizona Society of CPAs. It was officially signed into law by Gov. Katie Hobbs in March.
“I’m proud that through the relationships we’ve built over the last three to five years, we were able to bring about a change that benefited retirees in Arizona and the financial advisory industry to better assist their clients,” Benson says.
This was not the first time he sought change to aid retirees. In 2019, he helped spearhead a bill designed to shield vulnerable seniors from financial exploitation. He said family members in many cases are the source of such exploitation, and financial planners, he notes, oftentimes are the only ones in a position to shed light on the situations because of the intimate relationships they have with their clients.
That bill (SB 1483) was also sponsored by Mesnard and became law in 2019. “What this bill does is it gives financial planners a tool to help put a temporary stop to a transaction” that could be financial exploitation and might warrant a report to the authorities, Benson says.
While Benson heads the FPA advocacy team, he credits five to seven other members who “have really done a good job of being more involved in advocacy.” He notes that none of them have policy, government or legislative affairs backgrounds, but over the past six years they have engaged with and learned from state operators and legislative officials and forged a good relationship with them.
“When we have matters that we support or oppose, they are much more receptive to hearing us out. They know who we are, and they know what our organization is about, and they know how we serve our clients,” he says.
Benson began his journey in the financial industry with Vanguard in 2014, where he spent a year before joining Next Financial Group. He left at the end of 2020 and opened Sonmore Financial in 2021.
The practice includes two other staffers and serves about 130 households including mostly preretirees and retirees in the southeastern suburbs of Phoenix. The firm focuses on financial planning, tax efficiencies and providing guidance on charitable giving strategies. Benson notes that many of the people he meets with are from the aerospace sector, a base he hopes to turn into a niche. He also caters to the area’s technology professionals.
As for his advocacy work, Benson says he will continue to be engaged in state advocacy work and bring forth more bills when appropriate both on the state and federal level. But he has no plans to pursue political office. “It’s fun and I have a lot of respect for our elected officials,” he says.