Financial Planning for High-Income Earners: 6 Costly Mistakes You Don’t Know You’re Making

When You’re Winning at Everything Else, Your Financial Plan Can Fall Behind

by Alexis Grason, CFP^®, RICP^®

You’re at the top of your game and to-do list. Then life gets overly complex and overly scheduled. Even the most detail-oriented professionals can end up postponing financial to-dos that don’t feel urgent, until they are.

At Spark Financial Advisors, we help high-achieving women across Richmond and Williamsburg, VA claw back their time and brain share. Despite best efforts, high organization, and sharp instincts, action items get pushed aside for too long and costly financial mistakes can happen without you realizing it.

These 6 mistakes could be stealing your wealth and undermining the prudent planning approach you bring to every other area of your life:

Mistake #1: High-Fee Investments Are Eroding Your Returns

What is Often Missed About Fund Fees

In recent years, fees became more visible and compressed in the financial services industry. This is a positive for individual investors because a lot of retail investments are now available at lower fees. This is partly due to the elimination of trading costs within many financial institutions.

Even though Vanguard offered low-cost index funds since the late 1970s, they may not have been recommended to you. High expense investments continue to bring in big commissions for sales-oriented brokers.

The investment landscape changed with the option of institutional share classes, but there are still investments lying within portfolios with high expenses. They go unrecognized because it can be hard to decipher hazardous fees, or you simply didn’t know you needed to go digging. Unfortunately, these higher expense share classes were never switched out for similar, lower cost options.

Morningstar Descriptions of Share Class Types

Here is a common example: a “C” share class mutual fund can have underlying expense ratios of approximately 1-2%. This high cost creates a significant hurdle for your investments to even get close to what the stock market returns. These share classes were originally popular for short-term investments and broker commissions. In fact, the ongoing costs are significant enough that some major financial institutions now automatically convert C shares to lower-cost A shares after a set holding period.

Most likely, there is no reason for you to still be holding these. You can find something much cheaper that provides diversification and exposure to market performance.

What to do: Check for a “C” in the title of any investment fund in your accounts. If you find one, it is worth having a conversation with a fiduciary financial advisor about whether a lower-cost alternative may be appropriate for your situation.

Mistake #2: Old Insurance Policies That No Longer Fit Your Life

The Policy You Bought as a Favor Might Be Costing You Thousands

Your friend, neighbor, or friend of a friend sold you a whole life insurance policy. Perhaps they were starting out in the insurance world and needed to reach a quota or make a sale to build their business. You did them a favor and bought a small life insurance policy.

And then… you kept paying premiums and never really thought about it. Now that individual is no longer in the business and your situation has completely changed.

Maybe you sometimes think you should cancel and there is no need to pay those ongoing premiums. Maybe you do not need it or you could get it cheaper. Either way, the thought crosses your mind occasionally and then it evaporates because you need to get the kids to soccer practice, make dinner, or prepare for that big presentation tomorrow.

Now is the time to evaluate it. Ask yourself:

• What is your current life and/or disability insurance need? How much economic impact would your loss of earnings have on your loved ones?
• What is the cost of the policy?
• Are there other options for this same coverage, if you need it?
• Should you keep it but make changes to the underlying policy?

A term life policy for a healthy high-income earner can sometimes be obtained at a significantly lower cost than a policy that was sold years ago under different circumstances. Comparison shopping is worth the effort, and the savings could add up to thousands of dollars over time.

This is really important- don’t cancel your life insurance policy without consulting with a financial planner and insurance agent first. 

It is also worth noting that insurance regulations and options can vary by state. Working with a local advisor who understands how insurance integrates into your financial plan is critical and can help you make a more informed decision.

Spark Financial Advisors is a fee-only firm so we don’t sell insurance but we can connect you with insurance brokers to help you explore your options. As a fee-only retirement planning advisor, we can review your full insurance picture alongside your retirement goals so nothing gets left on autopilot.

Mistake #3: Stock Compensation Without a Diversification Plan

RSUs, Stock Options, and the Risks Often Overlooked

Managing RSUs and stock options within a diversified financial plan is one of the most impactful things a wealth management advisor can help with.

When you received your first big promotion or job change years ago and were given stock as part of your compensation, did you create a plan around it? Oftentimes employees receive RSUs and then each chunk vests and they hold on to the individual shares of stock.

Restricted Stock Unit Primer – 2-4 minute video series

It is like getting a bonus and then turning around and choosing to buy your company’s stock with your full bonus.

Flash forward and now this has been happening for years and you hold quite a bit of one stock.

You still believe in your company (you work there, don’t you?) but you may have what is known as a concentrated stock position, meaning you are overly exposed to one company’s success… or failure. Most financial professionals consider a stock position concentrated once it exceeds 7-10% of your overall portfolio. Not to mention the tax implications.

The risks here are real, even for strong companies. Research from J.P. Morgan found that over a 40-year period, nearly 42% of individual stocks in the Russell 3000 suffered a negative absolute return. And in 2023 and 2024, when the S&P 500 was up more than 25% each year, roughly 68-72% of individual stocks still experienced drawdowns of at least 15%.

In a worst-case scenario, an employee could lose both their income stream and the value of their company stock at the same time. We have seen this play out with well-known companies throughout history, and it is a risk that can be managed with proper planning.

Warning: A Concentrated Stock Position Can Be Hazardous to Your Wealth

What to do: Work with your financial advisor to unravel the concentrated position in a tax-efficient way and diversify your wealth. You know you need to diversify your 401(k) and brokerage account. This is no different.

At Spark, we work with a lot of clients with stock compensation. We develop a plan for when to sell the stock and how to pay the taxes. If you merely continue to hold the stock, then you are making a decision, but it may not be the one that serves your best interests.

Mistake #4: Tax-Inefficient Saving That Costs You More Than You Think

Your Retirement Balance Might Not Be What You Think It Is

We must be joking, right? It is possible to save in the “wrong place.” Well, not if you are merely counting the dollars. But when you start to look at the impact of your after-tax return, you could be losing money to taxes.

We often see clients come to us with a huge pre-tax retirement plan balance and very little in taxable or tax-free accounts. It is important to fill all the buckets. There are real downsides to being too good at saving and putting too much into your employer retirement plan.

Can you save too much money in pre-tax retirement accounts?

Consider this: your total retirement account balance is actually approximately one-third less because you owe taxes on every dollar you take out. That $1 million total could be closer to $700,000 after taxes. That is a potential $300,000 gap between what you see on your statement and what you actually get to keep.

Here is what being too heavily pre-tax can look like:

• You do not have a smart place to access money prior to age 59½ without penalties.
• You do not have a tax-free account to pay health insurance premiums before Medicare eligibility.
• You have not leveraged tax-advantaged accounts to compound more of your returns and keep them as part of your wealth.
• You may be missing opportunities to save for college costs in tax-advantaged accounts like 529 plans.

Do not underestimate the power and impact of knowing where to save.

Many people think if they are over the income threshold for Roth IRA savings, then there is no way they can build tax-free accounts. This is not true. The Backdoor Roth IRA strategy remains a legal and viable option for high-income earners. The basic concept: you contribute after-tax dollars to a traditional IRA and then convert those funds to a Roth IRA, where they can grow tax-free. 

For 2026, single filers with modified adjusted gross income over $168,000 and joint filers over $252,000 are phased out of direct Roth IRA contributions. But the Backdoor Roth gets around this. The contribution limit for 2026 is $7,500 per year, or $8,600 if you are age 50 or older. There are important rules to understand, including the pro-rata rule if you have existing pre-tax IRA balances, so it is best to work with a qualified advisor before executing this strategy.

You may also want to consider switching a portion of your employer savings to a Roth 401(k), if your plan offers one. Unfortunately, the decision on pre-tax vs. Roth 401(k) savings involves looking at your tax picture today and in retirement. Fortunately, at Spark Financial Advisors we can help you model your future tax rates to make a more informed decision. Building multiple tax buckets (pre-tax, after-tax, and tax-free) gives you more flexibility and control in retirement. 

Mistake #5: Costly Annuities That No One Has Revisited With You

That “Free Dinner” Seminar May Have Cost You More Than You Realize

This one can be similar to the old insurance policy. Maybe someone sold it to you or you went to a complimentary fancy dinner and it seemed like a really good idea at the time.

One of the biggest issues with old annuities is that no one revisits them with the client.

The representative who sold you the product is no longer in the business and you are left with a statement and an 800 number. Annuities are expensive, complex products to begin with, and each one has different flavors and features. That does not even begin to describe fee structures, riders, and underlying sub-account options. It can feel like learning a different language to understand what you own, and then it is an entirely different exercise to decide if you should make a change.

Here are three scenarios to consider:

Scenario 1: Some older annuities can be powerful retirement planning tools. Watch out if the company has contacted you trying to get you to switch to a newer product. The newer option may have higher fees and the benefits may not be as attractive. Do not feel pressured to make a change without understanding the full picture.

Scenario 2: It might be worth keeping the same product but making a few adjustments. Changing the investment sub-account allocation and/or turning on the income feature (if it has a living benefit rider) are worth exploring. You want to get the most out of the product you have been paying for all these years.

Scenario 3: It could be more beneficial to surrender the annuity completely. Watch for surrender costs, but if your annuity has caps or restrictions on potential growth, investing the funds in a brokerage account with lower fees and potentially higher growth may be worth evaluating.

What to do: Regardless of which scenario fits, someone needs to actually review the policy with you. Do not let it sit on autopilot year after year.

Mistake #6: Estate Planning Documents That Are Not Doing Their Job

You Signed the Trust. But Did You Fund It?

If you took the time and money to finalize estate planning documents (Powers of Attorney, Advanced Medical Directives, Wills, and possibly a trust), good for you. Now please put them to work.

Your Will & Trust won’t matter if you make this critical (but common) mistake

Your trust may need to be “funded.” This means you may need to change the ownership of certain assets, such as real estate and taxable brokerage accounts, to put them into the trust. This happens during your lifetime, not after. The other recommendation your estate planning attorney may have told you is to make sure you name your trust as beneficiary of certain assets.

Here is where things tend to break down: you could have started to do this and then it was too hard to find the financial institution’s form. Or maybe you did submit the form but the company never processed it. That never happens, right?

This matters more than most people realize. Beneficiary designations override your will and your trust. If the form on file at your financial institution says one thing and your trust document says another, the form wins. That means retirement accounts, life insurance policies, and other assets can end up going to unintended recipients if the paperwork is not aligned.

The SECURE Act also changed the rules for inherited retirement accounts. Most non-spouse beneficiaries must now deplete the account within 10 years, and in some cases are required to take annual distributions during that window. This has meaningful tax implications for your heirs.

For this reason, it may make sense for your IRA beneficiary to be different from your life insurance policy or taxable account beneficiary. The tax treatment varies by account type, and coordinating these designations with your overall estate plan is important.

What to do: Go back and check all your assets and saved confirmations of the beneficiaries so you know exactly who gets what. Request “funding instructions” from your estate planning attorney. These are conversations to have with your estate planning attorney and your financial advisor, ideally together.

Take Control of Your Financial Plan

Spark Financial Advisors Helps High-Income Women in Richmond and Williamsburg, VA

As a high-income, driven woman, do not fall prey to these financial planning mistakes. You can get ahead of them. Working with a planner will help you uncover more opportunities to capture and pitfalls to avoid.

You are a driven woman and a disciplined investor. You would not be where you are if you were not. We get that. Life just tends to get too messy, overly complicated, and overly scheduled. Claw back your time and mental load by having a financial planner organize your financial house and make a plan that serves your situation. Keep and control your own wealth.

Some of these decisions can be difficult or costly to reverse. It is always important to work with a CFP® professional and fiduciary financial advisor who is legally required to act in your best interest.

Spark Financial Advisors serves high-income professionals in Richmond, VA and Williamsburg, VA. If any of these mistakes sound familiar, we would welcome the chance to have a conversation.

Is it time to hire a financial planner? Read why we think so!

Frequently Asked Questions About Financial Planning for High-Income Earners

What are the most common financial mistakes high-income earners make?

Some of the most common financial planning mistakes we see include holding high-fee investments without realizing it, paying for insurance policies that no longer match your needs, carrying a concentrated stock position without a diversification plan, saving too heavily in pre-tax accounts, holding costly annuities that no one has reviewed, and not following through on estate planning documents like trust funding and beneficiary designations.

Can high-income earners contribute to a Roth IRA?

It depends. Even if your income exceeds the direct contribution limits, you may be able to pursue a backdoor Roth IRA strategy. The Backdoor Roth IRA strategy allows you to contribute after-tax dollars to a traditional IRA and then convert them to a Roth IRA. For 2026, the contribution limit is $7,500 ($8,600 if you are 50 or older). There are rules and potential tax consequences to be aware of, so working with a qualified advisor before executing this strategy is recommended. Don’t make any changes without talking to your CPA.

How do I know if my investment fees are too high?

Look at the expense ratio of each fund in your portfolio. If you see a “C” in the fund name, that is a red flag. C share class mutual funds can carry expense ratios of 1-2% annually, which is significantly higher than many lower-cost alternatives available today. A fiduciary financial advisor can review your holdings and identify where you may be overpaying.

What does it mean to “fund” a trust?

Funding a trust means transferring ownership of your assets (such as real estate, brokerage accounts, and bank accounts) into the trust, and/or updating beneficiary designations on accounts like IRAs and life insurance policies to name the trust as beneficiary. Without this step, assets may have to go through probate even if you have a trust document in place.