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Taxes and Your Investments
Here at One Bridge, we talk a lot about tax-efficiency and your investments. Add value to your overall portfolio and overall net worth by controlling what you pay in taxes as much as you can.
But what does that mean and how do we do it?
Here’s a summary:
Strategy | Benefit |
Withdrawal Strategies | Reduce the amount of taxes owed by withdrawing in an optimal order of taxable, pre-tax, and tax-free accounts |
Qualified Charitable Distributions | Reduce the amount of taxes paid by donating part of your RMD to charity |
Securities Backed Lines of Credit | Avoid selling and realizing gains by taking out a loan using your investments as collateral |
Exchange Funds | Diversify concentrated holdings without realizing gains |
Asset Location | Potential higher return assets placed inside Roths, while balancing other return assets like bonds depending on tax-brackets and income needs |
Strategize to have years in a lower capital gains tax bracket and realize gains in those years | |
Tax Loss Harvesting | Offset your taxable income and realized gains with tax losses, while reinvesting the assets right away – optimal in drawdowns |
Net Unrealized Appreciation Rule | Allows the lower capital gains tax rate to be used instead of the income tax rate |
No AUM Fees out of Roth IRAs | Reduces the drag on your tax-free investments – the fees come out of a taxable account |
Roth Conversions | Convert pre-tax money to after-tax Roth money – optimal in a drawdown |
Backdoor Roths | Contribute to a Roth regardless of income limits potentially |
Increase the amount of tax-free investments beyond the IRS Roth IRA rules | |
401ks | Frontload contributions before retirement to reduce current taxes |
Exchange Traded Funds vs. Mutual Funds | Utilize tax-advantaged traits of ETFs inside taxable accounts and mutual funds inside pre-tax and tax-free accounts |
Intentionally Defective Grantor Trusts | Utilize tax rules to minimize estate taxes |
10 Yr Rule vs. Eligible Designated Beneficiaries | Consider all withdrawal options and tax-consequences for inherited traditional IRAs – rule of thumb is to defer as long as possible, but the 10 Yr rule also provides added flexibility within 10 years. |
529s | Tax-deductible and tax-free investments accounts when used for qualified education expenses for college and currently k-12 |
The triple tax-advantaged account for qualified medical expenses | |
Qualified vs ordinary dividends | Qualified dividends are taxed at capital gains rates while ordinary dividends are taxed at federal income tax rates |
Long term gains vs short term gains | Hold investments longer than one year to avoid federal income tax rates and apply it towards capital gains tax rates |