Tax Planning
"Avoid tax drag, gain tax alpha"
Taxes are one of the biggest drags on long-term investment returns. It’s important to utilize tax-efficient and tax-minimizing strategies to keep more for yourself and pay less to Uncle Sam. Our wealth management and portfolio strategies are designed to deliver clients a tax-efficient solution while potentially increasing after-tax returns. Our tax planning strategies include:
Tax-loss harvesting is trading made with a long-term view of reducing future taxes in a performance neutral fashion. Tax-loss harvesting is a way to increase the real return of a portfolio, not just in generating investment returns, but also generating tax savings.
Tax-loss harvesting works by taking advantage of investments that have declined in value since your initial purchase date. By selling these investments at a loss, a tax deduction is gained. The position sold at a loss is then replaced with another highly correlated investment. The result is a portfolio risk and return profile that is unchanged, even as tax savings are created. These tax savings can then be reinvested to further grow the overall value of the portfolio.
Asset location is the process of placing certain types of assets in certain types of accounts in an effort to minimize taxes. Various investments are treated differently from a tax perspective. Therefore, careful placement of different asset types into accounts such as Roth IRAs, Traditional IRAs, and taxable brokerage accounts is important to minimize taxes.
Product selection is choosing the right types of assets to invest in when constructing a portfolio. Exchange traded funds (ETFs) and individual stocks and bonds are typically our preferred method. ETFs are selected because they can have lower turnover and trade only when the makeup of the underlying index changes. Thus, there is little or no capital gains at the end of the year. Individual stocks and bonds are used because of the ability to control when gains and losses are harvested and taxes paid. Mutual funds are usually avoided as they typically have higher turnover, which often creates a taxable event.
Minimizing taxes in retirement with a tax efficient withdrawal strategy is important to either lengthen and/or continue to grow your retirement nest egg. The sequence of withdrawals from either a 401k, Traditional IRA, Roth IRA, or taxable brokerage account is important in minimizing taxes. Careful, detailed tax planning of your withdrawal strategy can amount to significant tax savings over the rest of your retired life.
