Wealth management is not just about maximizing returns on investments. It is also about minimizing your tax burden. By understanding the tax implications of your investments and financial decisions, you can keep more of your hard-earned money and build wealth faster. Here are some wealth management tips to help you minimize your tax burden.
Maximize Contributions to Tax-Advantaged Accounts
Tax-advantaged accounts, such as 401(k)s, traditional IRAs, and Roth IRAs, can help you save money on taxes. Contributions to these accounts can be tax-deductible or tax-free, and the earnings grow tax-free or tax-deferred. Maximize your contributions to these accounts to take advantage of these tax benefits to the fullest.
Consider Tax-loss Harvesting
Tax-loss harvesting is a strategy that involves selling investments that have lost value to offset gains from other investments. This can reduce your tax bill by lowering your overall taxable income. However, be careful not to violate the IRS’s wash-sale rule, which prohibits investors from claiming investment losses if they buy back the same or similar securities within 30 days of selling them.
Invest in tax-efficient Funds
Some funds are more tax-efficient than others. For example, index funds and exchange-traded funds (ETFs) tend to generate fewer taxable events than actively managed funds. They also have lower expense ratios, which means more of your money goes toward investment returns rather than fees. When selecting funds, look for those with low turnover and low capital gains distributions.
Hold Investments for at least One year
Short-term capital gains are taxed at a higher rate than long-term capital gains. If you hold an investment for at least one year before selling it, you will pay the lower long-term capital gains tax rate. This can save you a significant amount of money on taxes.
Donate Appreciated Securities to Charity
If you have appreciated securities, consider donating them to charity rather than selling them. You will receive a tax deduction for the full market value of the securities. Also, you will not have to pay capital gains taxes on the appreciation. In this way, both you and the charity can benefit.
Be mindful of required minimum distributions (RMDs)
If you have a traditional IRA or 401(k), you will need to start taking required minimum distributions (RMDs) at age 73. These withdrawals are taxable, so plan to minimize their impact on your tax bill.
Consider converting some of your traditional IRA or 401(k) assets to a Roth IRA to reduce your future RMDs. However, the money you convert will be taxed, so be sure to consider this in your tax planning.
Customized Tax Planning Strategy
Of course, everybody’s situation is different with varying financial circumstances and wealth management goals. This is why tax planning is not a one-size-fits-all endeavor. Therefore, be sure to create a customized tax planning strategy that is tailored to fit your specific circumstances.
This will likely mean you need to consult with a financial planning professional who has the knowledge and experience to provide you with your best viable options for wealth management tax planning. One of the best in the business is Robert Emmer with Silversage who has helped many clients achieve their goals for legacy wealth management. Contact us today and get started on building your wealth in the most tax-efficient manner possible.
DISCLOSURE:
Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. For version 8.1 only, please add: The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The NASDAQ-100 (^NDX) is a stock market index made up of 103 equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results.