In building wealth, many consumers don’t think about, or wholly appreciate, the impact taxes can have on their portfolios. In the U.S., the overall financial environment invokes higher taxes, especially when it comes to financial products. This is why it is important—now more than ever—to incorporate tax planning into your portfolio strategies and all of your financial decisions.
Misunderstanding your tax burden can lead to unnecessarily losing significant portions of your assets, which, if you are accumulating toward retirement, can drain on precious resources.
Although taxes are unavoidable, there are strategies, rules, and processes that allow you to keep more of your accumulated wealth so that your retirement resources stretch longer and help you achieve your ideal quality of life.
Seek Out Tax-Advantaged Products
Many financial products, such as fixed interest annuities and cash value life insurance policies, provide tax-deferred growth. These types of financial products provide opportunity for greater growth, as the accumulated value within these accounts is generally not taxed until distribution.
This may not seem like that big of a difference, but deferred products allow for compounded growth, so that even if the amount taxed upon distribution seems like a big portion, it will likely be a smaller proportion relative to the larger accumulated value.
Structure and Sequence The Pieces of Your Portfolio
You may have multiple types of assets currently, such as investments, bonds, CDs retirement accounts, annuities, life insurance and so forth. Not only it is prudent to consider when to trigger these accounts for distribution but it is also important to structure and sequence your accounts as you pivot into retirement. This tax minimization strategy can be somewhat complicated so it’s best to seek out a trusted financial advisor, such as Tremont Street Financial Group, who can design a financial plan that helps you maximize growth and lessens the impact of taxes.