Wealth Management in San Diego

Wealth management in San Diego, in plain terms

San Diego households tend to build wealth through one of three doors: equity pay at a life sciences or technology company, a home that has gained value over decades, or a business or practice started locally. Wealth management is the work of coordinating what comes after: investments, taxes, insurance, estate documents and giving, handled by one advisor or one team that talks with your accountant and attorney. The advisors we connect you with serve the San Diego area by phone or video, so a meeting never depends on a drive on the 5 or the 805.

According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, the median household income in the city is $108,077 and the median home value is $906,700. Those are middle figures. Many households sit well above them in Carmel Valley, La Jolla, Point Loma and Scripps Ranch, and a lot of those households hold most of their net worth in one house or one employer’s stock.

Who tends to need a wealth manager here

Minimums vary widely. Some firms start at a few hundred thousand dollars of investable assets and others at a million or more, while certain planners work hourly with anyone. If a firm turns you away, ask whom it recommends. The referral is often worth more than the call.

Biotech and life sciences equity

The Torrey Pines mesa, Sorrento Valley, Sorrento Mesa and the area around UTC hold labs, research institutes and companies of every size, many tied to UC San Diego, Scripps Research and the Salk Institute. Pay there often mixes salary, bonus and equity, and the equity is where mistakes get expensive.

Incentive stock options create no regular income at exercise, but the spread counts toward the federal alternative minimum tax, and California runs its own version. Nonqualified options are taxed as wages on the spread the day you exercise. Restricted stock units are taxed when they vest, and the default withholding is often lower than the rate you will actually owe at California income levels.

Consider Priya, 41, a senior scientist in Sorrento Valley. She holds options on 20,000 shares with a strike price of $4, and the company’s latest valuation puts shares near $19. The spread is $15 a share, or $300,000. Exercising everything in one year could create a large tax bill on shares she cannot yet sell. An advisor would model spreading exercises across years, checking the alternative minimum tax each time, and weigh the risk of tying up cash in a private company that could be acquired, or could not.

Concentrated stock and diversification

Large local employers include Qualcomm, Illumina, UC San Diego, Sharp HealthCare, Scripps Health and Kaiser Permanente, along with the Navy. Employees at public companies often accumulate shares through purchase plans and vesting. When one stock makes up a third or more of net worth, the household bets its paycheck and its savings on the same company.

A primer on diversification and risk explains why. Common tools for reducing that risk include selling on a calendar rather than on feelings, using a prearranged trading plan if you are an insider, giving appreciated shares to charity instead of selling them, and, for larger holdings, exchange funds. California gives no break on gains, so each sale carries state tax in addition to federal tax. The 3.8 percent federal net investment income tax can apply at higher incomes. Spreading sales across tax years can matter as much as the investment choice itself.

California taxes for high earners

San Diego has no city income tax, but the state’s graduated rates are among the highest in the country, and California adds a surcharge on income above a million dollars. Capital gains, interest and dividends are all taxed as ordinary income. Social Security is not taxed by the state. The basics of tax planning apply here, with higher stakes.

A few planning points follow:

• California does not follow the federal exclusion for qualified small business stock, so a gain that is tax free on a federal return can still be taxed by the state.
• Municipal bonds issued in California are generally exempt from state tax, which can help in a taxable account, though yields vary.
• Health savings account contributions are not deductible on a California return, which changes how some people rank their savings accounts.
• Business owners may be able to use California’s elective pass-through entity tax. Eligibility and rules change, so confirm with a tax professional.
• The federal limit on deducting state and local taxes means much of California’s tax cost has no federal offset.

Prop 13, Prop 19 and the house

Only 47.3 percent of San Diego households own their home, and owners with a mortgage pay a median of $3,252 a month, according to the same Census survey. For those who do own, the property tax rules are a major part of wealth planning.

Prop 13 sets a home’s taxable value at its purchase price and limits yearly increases, so long-time owners often pay far less than a neighbor who bought last year. Proposition 19 changed two things. Owners who are 55 or older, severely disabled, or displaced by a wildfire or other disaster can carry their tax base to a replacement home in California, within limits. And when a parent leaves a home or rental to a child, the old base transfers only if the child makes it a primary residence, and only up to a value cap. A North Park duplex left to adult children who live in Denver would generally be reassessed at market value.

Those rules change what an estate plan looks like. Some families sell a rental while the owner is alive, some restructure ownership, and some decide the property tax increase is worth paying. Run those numbers before signing documents. The San Diego County Assessor and an estate attorney can confirm how rules apply to you.

ADUs, rentals and property income

California has loosened rules on accessory dwelling units, and the City of San Diego has encouraged them through its own bonus program. A backyard unit in Clairemont or Kensington can house a parent, an adult child, or a tenant. With the median gross rent at $2,313, according to the Census survey, rental income can matter.

The tax side deserves care. Rent is taxable income, depreciation can offset part of it, and a sale later can recapture that depreciation. Under Prop 13, the new construction is generally reassessed while the rest of the property keeps its old base. A wealth manager helps compare an ADU against other uses of the same cash.

Military and federal wealth

Naval Base San Diego, Naval Air Station North Island, Marine Corps Air Station Miramar and the Marine Corps Recruit Depot make military service a large part of the local economy, and many retirees stay after service. Senior officers and enlisted leaders often leave with a lifetime pension, a Thrift Savings Plan balance and VA benefits, then take a defense contractor or civil service job at high pay.

That stack of income works against a tidy tax plan. Retired pay is ordinary income federally, and California taxes it with a limited, income-tested exclusion that has changed in recent years. VA disability compensation is generally not taxable by either. A wealth manager can plan the order of withdrawals, decide whether the Survivor Benefit Plan fits, and keep a second career’s salary from pushing the household into a higher bracket than necessary.

Wealth that crosses the border

Families in San Ysidro, Otay Mesa and Chula Vista often have relatives, businesses or property across the border in Tijuana or Baja California. That brings issues most advisors never see.

• A U.S. person with foreign bank accounts above a modest combined total must file a report with the Treasury each year, and some accounts require a second form with the tax return.
• Foreign nationals generally cannot hold title directly to land within 50 kilometers of the coast in Mexico, so a bank trust is typically used.
• Estate documents may be needed in both countries, drafted by lawyers who know each system.
• Mexican mutual funds can be taxed harshly under U.S. rules, so check before buying.

The advisor you choose should say plainly whether they have handled these cases or will coordinate with a cross-border tax specialist.

Insurance gaps in a fire and earthquake region

Wildfire has repeatedly touched the canyons of Scripps Ranch, Rancho Bernardo and Rancho Penasquitos, and some insurers have cut back or stopped writing policies in higher-risk areas. Homeowners who cannot find private coverage can turn to the California FAIR Plan, which typically offers basic fire protection and often requires a second policy for other perils. Standard policies exclude earthquakes, and the Rose Canyon fault runs through the city, from La Jolla toward downtown. Earthquake insurance is sold through the California Earthquake Authority and some private carriers. Flood is also excluded, and low areas along the San Diego River in Mission Valley are among those that may need a separate policy. Along the bluffs at Sunset Cliffs and Torrey Pines, erosion is often not covered at all.

Because a house may be the largest asset in the household, these gaps belong in a wealth plan. The California Department of Insurance publishes consumer guides and takes complaints.

Trusts, probate and community property

California probate fees are set by statute and based on the gross value of the estate, which is why revocable living trusts, covered in our retirement guide for beneficiary planning, are so common among San Diego homeowners. A trust keeps the estate out of court, and it lets you name who steps in if you become incapacitated. The state has no estate or inheritance tax, though the federal estate tax can apply to very large estates.

California is a community property state. Assets acquired during marriage are generally owned equally, and when one spouse dies, both halves of community property usually receive a new tax basis at the date of death. That can erase large gains and is a strong reason to review how married couples title accounts and real estate before moving or retitling anything.

Giving with a plan

Giving to Balboa Park institutions, research centers, schools or the San Diego Foundation can be more efficient when planned. Gifting appreciated stock, rather than cash, avoids the gain on those shares. A donor advised fund lets you take the deduction in a high-income year and recommend gifts over time. After a company sale, these tools can offset part of the tax on the deal.

What wealth managers charge

Most charge a percentage of assets, with the rate falling on each additional tier of balance. Flat retainers, often several thousand dollars a year, suit households with high income but modest assets. Our guide to life insurance covers the protection side that these fees do not. Add fund expenses, trading costs and any custodian fees to get the all-in cost, and ask for it in writing as a yearly dollar figure. A difference of half a percent on $1 million is $5,000 a year, every year.

Questions to ask each firm

1. Are you a fiduciary on every account and every recommendation?
2. Who will I talk to day to day, and how often do we meet?
3. What happens to my plan if you retire or sell the firm?
4. How have you handled stock options, military retirement or cross-border assets before?
5. Which tax and legal professionals do you work with, and do you charge for the coordination?
6. What is the full list of fees, including fund costs?

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Your first ninety days

1. Week one: an introductory call and a list of documents to gather.
2. Weeks two to four: the advisor reviews tax returns, account statements, equity grants and insurance policies.
3. Weeks five to eight: a written plan is presented, with a list of actions in order.
4. Weeks nine to twelve: accounts are opened or transferred, beneficiaries are updated and a review schedule is set.

What to bring to the first meeting

• Your last two tax returns, including California forms
• Statements for every retirement, brokerage and equity account
• Option and restricted stock agreements with vesting dates
• Your military leave and earnings statement or pension letters, if relevant
• Current insurance policies and declarations pages
• Existing trust, will and power of attorney documents

Frequently asked questions