Most people know that their financial future requires a smart strategy with savvy investing and tax planning. What they may not realize is that they could be throwing money away simply because their team of advisors is not on the same page. Instead, strategic investors require an integrated team that knows how to coordinate all of the moving pieces.
An integrated financial strategy recognizes one fundamental truth: It is not about what you earn. It is about what you keep.
If you are ready to keep more money in your pocket with tax-efficient wealth planning, here is why you need an integrated team to help you maximize what you already have.
Move from Reactive Reporting to Proactive Planning
The downside of most traditional tax preparation is that the outcome is reactive. By the time your CPA files your taxes, the best they can do is respond to the situation at hand. Most of the time, it’s already too late to change the outcome and alter the course you might be on for a better and more tax-efficient outcome.
Instead of chasing your tail each tax season, an integrated team can leverage strategies such as multi-year tax projections to look ahead. This glimpse into the future, enabled by new models, allows a team to transform your tax strategy from reactive to a year-round wealth-preservation tool thatminimizes tax liability.
Optimize “Asset Location” (Not Just Allocation)
Most investors are already familiar with the idea of asset allocation—the practice of dividing their investments into different categories, such as stocks, bonds, and cash in a savings account. But asset location is equally important for long-term outcomes. Asset location refers to where assets are placed, whether in taxable or tax-deferred accounts.
Why does asset location matter just as much as allocation?
Eventually, you may want to change your holdings and will need to consider the after-tax returns on your current portfolio. Depending on where those assets are held, you may face more taxes, eating into your potential profit.
Don’t forget to consider capital gains taxes with your integrated team when deciding on asset location!
Coordinate Tax-Loss Harvesting
Not every asset in your portfolio is going to be a winner, even if you have the most skilled team of financial advisors at your disposal. Instead, you will want to choose advisors skilled intax-loss harvesting. This refers to the process of strategically selling underperforming investments in order to offset taxes owed on capital gains from higher-performing assets.
Of course, there are complexities to tax-loss harvesting that your investment advisor should know. They would ideally work in tandem with your tax preparer to avoid wash sale violations. In these scenarios, you cannot sell your asset for a deduction while owning the same asset or one that is substantially identical within a certain time window.
They should also work to avoid missing out on carry-forward loss limits, which allow you to carry any capital loss forward (up to $3,000 for individuals per year). Carry-forward limits on capital loss apply to both short-term and long-term investment assets.
Make Smarter Withdrawals in Retirement
Pulling money from the wrong retirement account at the wrong time could cost you thousands in unnecessary taxes. Your team should help you create a strategic plan for when and how to access the funds that you worked hard to save for these precious years. Ensure your team has a complete understanding of what accounts you have from the start.
Work with your entire team to withdraw funds as needed, in the optimal order. For example, your team might suggest living off taxable accounts early in retirement while executing strategic Roth conversions for later. This may enable more tax-advantaged accounts to continue growing, compounding the funds that you squirreled away for future use.
Maximize Philanthropic Impact
Many people want to leave a legacy that extends beyond their immediate family, which means factoring charitable giving into the integrated plan. Unfortunately, giving cash directly to an organization you care about is often the least efficient way to donate. A charitable vehicle is almost always the better long-term solution.
An integrated team will assess your portfolio and suggest alternatives to cash donations. One such suggestion is todonate highly appreciated stock instead of making a direct gift. This allows you to skirt capital gains tax on the growth and offers you a full tax deduction for the market value of the shares. Meanwhile, the charity gets the full value of the stock.
You could also choose a vehicle, such as a charitable remainder trust, that removes assets from a larger estate for charitable giving. Charitable remainder trusts also allow you to draw income for yourself or for your beneficiaries, with the remainder of the trust being donated to charity years down the road–perhaps more than 50 years.
And for retirees over age 73, Qualified Charitable Distributions (QCDs) can satisfy RMDs without adding to your taxable income.
Chart a New Course with Your Team at Magellan
Instead of sticking with the status quo and reacting to your financial situation, it might be time to let Magellan help. Unlike using a band of rogue advisors from different firms to try to cover all your financial needs, Magellan offers seamless coordination among financial, tax, and legal experts. Our integrated approach means that we provide all these services under a single roof, ensuring you get the seamless communication and coordinated strategy that you deserve.
When you’re ready to start planning your wealth in a new, more tax-efficient way,schedule your consultation with our team!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group.