Financial PlaFnning for Professional Athletes: An Inside Look

What Is the Best Financial Planning for Pro Athletes?

Financial planning is a must for professional athletes who are famous for burning through their six-, seven-, and even eight-figure salaries. Many pro athletes earn what the average worker may not see in a lifetime in a single year or a few years but this can give a false sense of security.

Pro athletes make the same mistakes that others often do. They help struggling friends and family members, buy too many toys, clothes, and restaurant meals, purchase more houses than they need, and they don’t save for the future. Some also fall behind on their taxes or they divorce and end up with expensive alimony and child support obligations. A compounding factor is that athletes tend to be young when they suddenly find themselves with plenty of money.

Key Takeaways

• Pro athletes must stretch out high short-term earnings over a lifetime.
• Many athletes spend frivolously while they’re young and at their peak both financially and career-wise.
• Pro athletes should save for retirement just like everyone else.
• Tax strategies such as living in a no-tax state can help athletes retain as much of their earnings as possible.

Here’s an inside look at what financial planners recommend for high-earning professional athletes who want to manage their incomes wisely and make it last beyond their playing years.

Financial Management Strategies for Pro Athletes

Pro athletes may receive a large paycheck but that paycheck is only large for a few years or, at best, a decade or two. It depends on what sport they play, their contract terms, how well they perform, and how injuries affect their career.

Ryan Kwiatkowski recommends instead saving as much as possible from day one. Kwiatkowski earned a college education while playing Division I men’s volleyball and worked as a professional volleyball player for two years in Belgium after graduation. He now works as a financial advisor for the firm his parents founded and runs, Retirement Solutions in Naperville, IL.

“If you don’t see it, you won’t spend it, and you can still have a great lifestyle on a fraction of what you earned during a season,” Kwiatkowski says. “If you jump into a lavish lifestyle as soon as you sign but get injured during your second game of the season and don’t have a guaranteed contract, what will you do?”

Kwiatkowski also notes that athletes who are only paid during the season need a plan to make those paychecks last all year. He says that one of the worst mistakes high-earning professional athletes make is to immediately use their massive paycheck to buy a Lamborghini or a mansion. 

Important

Professional athletes may earn high salaries during their careers but their careers are often short-lived. They should carefully plan for their future financial security at a time when the money may not be rolling in quite so steadily.

Tax-Minimizing Strategies for Athletes

Tax strategies can help athletes keep as much of their earnings as possible, says certified public accountant Steven Goldstein, former partner in charge of the sports and entertainment practice of Grassi & Co., a public accounting firm in New York City. Goldstein says that the following tax strategies can help.

• Choosing a proper domicile: Does the team’s home state have tax advantages for high-income earners? Residing in one of the seven no-tax states can mean significant tax savings. They include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming.
• Mitigating the jock tax: This involves projecting the tax impact of playing in various states and paying taxes to those states. Players must pay withholding tax to the state they’re visiting for road games but they also receive a tax credit in their home state for taxes paid to other states. Players may owe more tax than they expected if their home state has a higher tax rate.
• Understanding the impact of taxes on signing bonuses: A player’s signing bonus is only allocated to their state of domicile. It can mean huge tax savings If that state doesn’t levy income tax,
• Allocating professional athlete tax deductions to earned wages vs. earned income from endorsements, appearance fees, and residuals: Certain deductions can be taken as itemized deductions or as business expense deductions. A certified public accountant (CPA) can help an athlete determine which method is most advantageous.

It’s also important for athletes to claim all the tax deductions they’re entitled to. These include business expenses such as agent’s fees, workout clothing, gym memberships, massages, nutritional supplements, athletic equipment, and more, according to Goldstein.

Tax planning for retirement is required, too. Retirement contribution limits to 401(k) and IRA accounts are so low relative to what many professional athletes earn each year that athletes must do the bulk of their investments for retirement in accounts that don’t have the tax advantages of 401(k)s and IRAs. Choosing tax-efficient investments is essential.

Plan for the Long-Term

“What seems like a very high income may not be when it’s amortized over the time frame of a typical career,” says certified financial planner Derek Tharp, a fee-only financial advisor and the founder of Conscious Capital. “This is particularly true given the high taxes experienced by individuals with income concentrated over a short time horizon.”

Paul Ferrigno, a certified financial planner with Ferrigno Financial in Washingtonville, NY, recommends that professional athletes prepare a goal-based financial plan. A goal-based plan encourages athletes to focus on what’s important for their future life. Such a plan is a road map to ensure that early success doesn’t lead to poor financial habits that are detrimental in the long run.

“Creating the plan and monitoring their progress will help them obtain the financial freedom they want after their playing days are done,” Ferrigno says. “A financial plan can also serve as a road map to a second career since most players will be out of work by age 30, with much lower incomes on the horizon.”

Financial planner Lauryn Williams, a four-time Olympian champion and founder of Worth Winning, a fee-only, completely virtual, comprehensive financial planning firm focused on serving millennials and professional athletes, suggests planning for two retirements. The first is from pro sports and the second retirement is from working altogether.

“Not all athletes earn at a rate that will allow them to retire forever when their sports career is over,” Williams says. One strategy Williams recommends is setting aside money to gain time to figure out what an athlete wants to do next. “The transition is extremely emotional. You don’t want to have to jump into something to make a living while trying to get closure.”

Managing Personal Relationships

“Unfortunately, one of the biggest challenges for professional athletes is managing relationships with friends and family,” Tharp says. “Many athletes feel an obligation to give back to those who have helped them achieve success.” But this should be done in a responsible manner that doesn’t interfere with the athlete’s financial security. Tharp recommends quickly establishing boundaries with friends and family and involving third-party professionals to handle requests for money.

It’s best to do so with clear guidelines in place if the athlete wants to assist others. They might include steps such as determining a specific sum that will be deposited into the recipient’s bank account on the first of each month.

Choosing the Right Financial Advisor

Tharp says determining which professionals to work with is tricky for young athletes, not only because of the complexities of their contracts, investments, insurance, estate planning, and tax planning but also because they’re bombarded by slick-talking salespeople. Such influences can make it difficult to identify knowledgeable advisors who have their best interests at heart.

Tharp suggests looking for a fee-only professional such as a certified financial planner (CFP) who has experience working with other athletes and who always serves as a fiduciary. Tharp says pro athletes should be wary of would-be advisors who act too much like fans because these advisors won’t be able to objectively consult with the athlete as a client.

Professional athletes must understand how an advisor is compensated and what their outside conflicts of interest might be, says fee-only financial advisor Carlos Dias Jr., founder and CEO of Dias Wealth LLC, dedicated to working with current and former professional athletes as well as their agents.

Dias points to the example of Ash Narayan, a financial advisor who was approved to manage assets for NFL players but was accused of cheating several clients and has had his assets frozen by the Securities and Exchange Commission. Narayan was ordered to pay over $18 million in restitution and was sentenced to over three years in prison in 2020.

Note

Many professional athletes have a hard task ahead of them. They must develop a wealth management strategy and a retirement plan when they’re young and when a large proportion of their lifetime earnings will be received during a short time frame.

“There has to be involvement on the part of the professional athlete to make sure their earnings are invested wisely and managed correctly,” Dias says. “I always say no one is more responsible or accountable for their own money except for themselves.”

Williams also says that it’s important that professional athletes stay engaged with their money. “Athletes often think it is cool to say, ‘I have people that handle that stuff for me.'” Athletes should expect their financial advisors to help them understand what they have, according to Williams.

What’s a Withholding Tax?

Anyone who pays you for labor or services is generally obligated to subtract the taxes you’ll owe on that money. They’ll forward the tax money to the government on your behalf. Those who work as independent contractors are an exception so it pays to understand the nature of the service you provide to ensure that no withholding tax is subtracted if it’s not required.

This doesn’t mean you won’t pay taxes on the money, however. You’re obligated to remit them yourself.

How Does Itemizing Tax Deductions Work?

Some of the expenses you pay may be tax deductible, including home mortgage interest and some medical and dental expenses. You can add up what you spent on all such expenses during the tax year and subtract the total from your income. You would only pay tax on the remaining balance.

There’s a caveat here, however. You can’t claim both itemized deductions and the standard deduction for your filing status so you’ll want to be sure you select the option that most reduces your taxable income.

What Are the Limitations of IRAs and 401(k)s for Professional Athletes?

Federal law limits how much anyone can contribute to an IRA or 401(k) annually regardless of their career. These limits can be a mere pittance of what a pro athlete earns, however, so it’s not likely that these types of retirement savings will ultimately match the incomes they enjoyed while playing. The limits are $23,500 for 401(k)s and just $7,000 a year for IRAs in 2025.

The Bottom Line

Professional athletes face some of the same financial challenges that the average person faces, such as not saving and investing properly for retirement, being tempted to overspend, and wanting to help struggling family members and friends. They also face the unique challenge of receiving a large percentage of their lifetime earnings over a short time frame. This requires special tax planning and wealth management strategies.

Understanding what the potential pitfalls are and knowing how to hire a trustworthy advisor can go a long way toward helping pro athletes turn a huge but short-term paycheck into a lifetime of financial stability.

Disclosure: Investopedia does not provide tax, investment, or financial services and advice. This information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal. Investors should consider engaging a financial professional to determine a suitable retirement savings, tax, and investment strategy.