Don’t assume neighbors and other acquaintances are well versed in tax avoidance.

A Spectrem study of individuals who have $500,000 or more in investable assets indicates 70% have little or no knowledge of tax shelters. Further, the majority of those individuals have little or no understanding of many of the most common ways to reduce income taxes.

The study found a high level of ignorance about Keoghs (72%), Section 529 educational savings plans (68%), in-kind charitable contributions (64%) and annuities (62%). Other blind spots include tax-exempt bonds (58%), tax-free annual gifts (55%), cash value insurance (52%) and SEPs or IRAs (51%).

Affluent investors expressed a high level of understanding only of company-sponsored retirement plans, 401(k) plans or 403(b) plans (73%) and financial charitable contributions (58%).

Contrary to popular belief that the wealthy are more knowledgeable about tax shelters than is the general populace, the study shows that even affluent investors have a substantial lack of understanding when it comes to tax avoidance strategies.

Among affluent investors, business owners and senior corporate executives are the most likely to understand tax shelters, possibly because their business dealings provide greater exposure to these concepts.

The need for tax planning advice may explain why 28% of affluent investors choose accountants as their primary financial advisors, second only to full-service brokers (29%) and ahead of investment advisors (22%) and financial planners (16%).

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