Developing a Strategic Holistic Approach
Being tax efficient is not the same as attempting to avoid all taxes. Instead this involves a long- term evaluation and integration of both investment and spending strategies. Just as all investments have different risk and return profiles, they also have the potential for different tax treatment. Understanding the tax treatment of particular investment vehicles is critical to determining their overall net return potential. While some investment strategies may offer greater potential returns than others, they may also come with tax and expense consequences that greatly reduce the net investment return. Furthermore, it is important to evaluate the tax implications of investments as they relate to a clients overall financial picture. There are important regulations and thresholds to consider, and taxes are an important component of the evaluation process.
Leveraging existing assets and account types
Aligning a clients expected expenses with their available assets, and deploying them through particular account types when available can be very beneficial, and greatly reduce potential taxes. For example, projecting future college expenses, funding a 529 account, then using the proceeds of that account to cover educational costs, greatly reduce tax expenditures when compared to other funding sources for the same expense. Another common tax consideration is the proper sequencing of spending tax-deferred, versus tax-exempt accounts during retirement. Making the right decisions when it comes to pulling assets from these accounts to fund their retirement can provide clients with greater total asset longevity.
BrightPath Financial Advisors believe it is important for our clients to receive proper advice from tax professionals. At BrightPath, we integrate the suggestions of those tax professionals with our client’s overall investment strategy to ensure a holistic and successful approach.