Tax-Efficient Investing & Distribution Planning

Join Matthew del Junco, Wealth Advisor at Liberty Group, as he delves into the essential components of working toward smarter financial growth through savvy tax management and strategic asset distributions. This insightful video explores key strategies that can help you not only grow your assets but also do so in a tax-efficient manner while strategically managing distributions of your retirement income.

Why does tax efficiency matter? Imagine taxes as termites slowly eating away at the structure of your financial home. Now picture smart tax planning as the most effective exterminator in town. It helps protect your hard earned money from taxes, so you keep more of what’s yours. Let me give you three tips to look for when considering tax efficient investing while you’re in your accumulation phase of life.

Number one, investment turnover.

High investment turnover means the portfolio has a lot of activity. There’s a lot of trading, buying, selling. And all of that buying and activity that’s going on creates costs, and those costs go to you. And that can be costs associated to the investments, that can be taxes that get exposed to you as the investor. So, be careful when investing in funds or ETFs that are exposed to high investment turnover.

Number two, the power of tax deferral.

Think about fine wine or a classic car. They often get better with age. That’s tax deferral. With accounts like 401(k)s or traditional IRAs, your money has the potential to age by accumulating value without being taxed every single year. And when you finally uncork that bottle at retirement, not only could it taste better, but it could also be taxed at a lower rate.

Now, number three, which is my favorite, tax-free.

Tax-free, is tax-free. No matter what happens as you grow that account, you do not pay taxes. Interest, dividends, capital gains, tax-free. That’s huge. So, you’re not paying money to Uncle Sam for things that you don’t need. So, you keep more, your family keeps more, and you earn more. So, take advantage of tax-free, where you can.

Now let’s shift our focus to distribution.

How do you make the most out of your money during retirement without handing more away? Well, you need to be cognizant of how you take it. The way in which you receive money from your accounts can create tax implications to you. So, let me give you three tips.

Number one, strategic withdrawals.

The timing of what accounts you’re taking money from, when, is very important. Think of various accounts that you’ve accumulated as the ingredients when you’re making a dinner. So, each ingredient has its own flavor. I like to think about Taco Tuesday. Most people like tacos, but not everyone wants habanero on their taco, but some people may. So, think about what makes sense and when and talk to a trusted financial professional or tax professional for help there.

Number two, required minimum distributions.

After reaching a certain age, the government will force you to start taking money out of those tax deferred accounts. Now remember, you have the advantage of growing these accounts tax deferred all of these years. There is a catch, and that catch is the government wants a piece of that. So, when it comes time to start taking those distributions, make sure you know what that will do to your tax footprint.

Number three, taxable accounts and timing gains in those taxable accounts.

Timing is your best friend here. In a taxable account, you have more control over when you realize capital gains and losses. So, strategize when to sell to offset the gains with losses and effectively doing your best to reduce your tax bill.

Tax efficiency is not a one-off task.

It’s a marathon requiring a blend of preparation, endurance, and strategy. But you don’t have to go at it alone. Financial advisors are here to assist you. Tax professionals are here to assist you to figure out what fits you best. Being tax savvy is not just a short-term strategy. It’s also about building a long-term plan for a more financially secure future. It’s about keeping more in your family’s pocket. It’s about allowing you to do more, because you’ve been able to retain more. After all, tax optimization is a personalized journey, and a one-size solution doesn’t work. It requires continuous conversation and monitoring on an annualized basis.

Do you have questions on tax efficient investing and distribution planning? Schedule a complimentary appointment with a member of our advisory team.