The Tax-Smart Portfolio: Helping to Keep More of What You Earn

Taxes may significantly influence the amount of money you accumulate throughout your life. Let’s look at some of the methods that might assist you in maintaining a steady flow of more funds.

Some investors contemplate delaying retirement or increasing investment risk in an effort to enhance returns when faced with a discrepancy between their lifestyle choices and their money growth. Tax efficiency can play an essential role in increasing long-term returns—which may or may not increase risk.

Using a Wide Variety of Strategies

Tax-deferral vehicles like 401(k)s and IRAs are well-known for their advantages, so starting a tax plan with them is a no-brainer. An efficient tax deferral method for many people involves making pre-tax contributions to their retirement plans (such as a 401(k) or an IRA) or making tax-deductible contributions to their retirement accounts (such as a Roth IRA).

High net worth investors can also benefit from insurance and annuity products, which can lessen the impact of taxes on their long-term wealth. Among them:

Investment-Only Variable Annuities (IOVA)

After-tax funds can be sent to a non-qualified IOVA, where investment gains are not taxed until they are withdrawn, and assets are not subject to the mandatory minimum distributions of qualifying retirement accounts such as 401(k)s (RMDs).

Unlike other variable annuities, which have more expensive features like guaranteed withdrawal benefits, this relatively new product is focused on wealth generation and offers a broader range of investment alternatives. Long-term investors benefit the most from it in terms of increasing their net worth.

Index / Variable Universal Life Insurance

The combination of wealth creation and death benefit protection offered by these plans makes them an attractive option for those who have already reached the maximum amount of money in their eligible retirement accounts.

An investor’s cash balance can grow tax-deferred if, under certain conditions, a policyholder pays early premiums that are primarily invested in the stock market or linked to an index of stock market performance.

The tax-free cash value can be withdrawn from an index/variable universal life policy’s principle and then borrowed against its death benefit, subject to certain limits.

Each of these items can assist enhance tax efficiency in its own right, but only when they are used as building blocks in a more complicated, integrated tax strategy can they achieve their full potential.

Using “tax-efficient asset location,” which places investments within an overall strategy into different account types based on their growth potential and relative tax efficiency, you can increase the impact of tax-advantaged accounts when you have a mix of accounts and products with different tax treatments.

A retirement income plan, which arranges asset sales in a tax-efficient manner, is one way the many elements of a tax strategy may complement one another.

Contact Information:
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Bio:
I have worked with Deloitte Partners, Directors and Principals for approximately 30 years, saving them considerable amounts of money on their Group Term Life Insurance Premiums. We have also addressed Long Term Care within Life Insurance and Fixed Index Annuities. The Annuities Guarantee fixed interest rates and Long Term Care doubling. Protected from any corrections in the stock market. Great for retirement planning.