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Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
Reducing Taxes through Prudent Investment and Wealth Management
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Reducing Taxes through Prudent Investment and Wealth Management

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Is your investment advisor and mutual funds costing you $ 000's in taxes over a lifetime? Find out now

Is your investment advisor and mutual funds costing you $ 000's in taxes over a lifetime? Find out now

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  • 1. Controlling Taxes How to reduce the cost of investing with a diligent and effective tax management program Tax Management creates Wealth Management Personal Financial Experiences, LLC and J.C. Corrigan, CFP® Presents www.myfinancialstrategies.com
  • 2. What can’t I control with investing and taxes?
    • Tax Rates
    • Mutual Fund Distributions and Re-balancing
  • 3. What can you control when it comes to taxes with my investments?
    • Deductible Expenses
    • Re-balancing
    • Converting from Tax Deferred To Tax Exempt
    • Impact on Return
  • 4. Deductible Expenses
    • Investment Advising Expenses are tax deductible
      • Itemized Deduction, Schedule A, Line 23
      • Amount over 2% of AGI
  • 5. Example of an annual tax benefit
    • Gross Income: $180,000
    • AGI: $140,000 (25% tax bracket)
    • Taxable Income: $115,000
    • Invested in our portfolio: $450,000
    • Annual Expense: $6750 (1.5%) – Schedule A, Line 23 Itemized Deduction
    • 2% of AGI: $2800
    • Tax Deductible Amount: $3950 (6750 – 2800)
    • New Taxable Income: $111,050
    • Realized Tax savings: $988
    • Realized Annual Expense reduced from 1.5% to 1.28%
    Mutual Fund Expenses Are NOT DEDUCTIBLE!
  • 6. Rebalancing Example Taxable (150K) Tax Deferred (300K) Total (450K) VTI $91,425 56.5% $182,850 56.5% $274,275 56.5% VEU $10,500 6.5% $21,000 6.5% $31,500 6.5% IEF $55,500 34.3% $111,000 34.3% $166,500 34.3% CASH $4,500 2.7% $9,000 2.7% $13,500 2.7% Total $161,925 100% $323,850 100% $515,775 100% TARGET WEIGHTS: VTI = 53% VEU = 7% IEF = 37% CASH = 3% Assume VTI Grows By 15%, Other Positions Are Flat, So VTI Is Now Over Weighted
  • 7. How we rebalance Taxable Tax Deferred Total VTI $91,425 56.5% $166,135 51.3% $257,560 53% VEU $10,500 6.5% $23,641 7.3% $34,141 7% IEF $55,500 34.3% $124,035 38.3% $179,535 37% CASH $4,500 2.7% $10,319 3.1% $14,819 3% Total $161,925 100% $323,850 100% $485,775 100% TARGET WEIGHTS: VTI = 53% VEU = 7% IEF = 37% CASH = 3% Simple, Lost Cost Rebalacing One Sell , Two Buys and NO Taxes, Cost = $27
  • 8. Few Managers and No Mutual Funds put in the effort to meet your needs and tax efficiency first Taxable Tax Deferred Total VTI $85,820 53% $171,640 53% $257,460 53% VEU $11,335 7% $22,670 7 % $34,005 7% IEF $59,912 37% $119,824 37% $179,736 37% CASH $4,858 3% $9,916 3% $14,774 3% Total $161,925 100% $323,850 100% $485,775 100% TARGET WEIGHTS: VTI = 53% VEU = 7% IEF = 37% CASH = 3% TWO Sells , Four Buys and $1840 in Taxes and Commissions
  • 9. Converting from Tax Deferred to Tax Exempt
    • Recent change in tax law allows converting from Tax Deferred to Tax Exempt
      • Pay Taxes above the cost basis today
      • Not always a good idea
      • Three times to use this strategy, based on your situation
  • 10. Conversion Tactic 1: Sharp Pullback
    • IRA is worth $100,000, Household income is $100,000
      • 30% Pullback and the IRA is worth $70,000
      • Convert now and you would owe taxes on the $70,000 (approximately $18,500)
      • Market rebounds to $100,000 and you have saved $9000 in future taxes and possibly more if rates went up. Tax savings increases as market goes up more.
  • 11. Conversion Tactic 2: Net Zero
    • IRA is worth $100,000, expecting a $5000 tax refund
      • Convert $20,000 of your IRA to a Roth IRA so that you don’t pay taxes out of pocket, but you don’t get a refund either
      • Over 10 years, this would save over $5000 in future taxes
      • Continue this process each year until IRA is fully converted to a Roth IRA
  • 12. Conversion Tactic 3: Tax Credits On the Table
    • $300,000 IRA, make $30,000 a year
      • Your deductions and tax credits can’t be harvested because you tax liability is 0
      • Move Traditional IRA money to a Roth IRA up to the amount so that your tax liability remains 0

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