Tax Aware Investing           -It’s the after Tax Return that Counts!                                                  Adv...
Tax-Deferred Annuity/Life Insurance                    Key Assumptions •      Beginning Age: 30 •      Ending Age: 65 (i.e...
Scenarios 1. Tax-Deferred Annuity vs. Taxable Investment Account    (Bond Portfolio) 2. Tax-Deferred Annuity vs. Taxable I...
Tax-Deferred Annuity vs. Taxable          Investment Account (Bond Portfolio)                                             ...
Tax-Deferred Annuity vs. Taxable           Investment Account (Stock Portfolio                   w/100% Turnover)         ...
Tax-Deferred Annuity vs. Taxable           Investment Account (Stock Portfolio                    w/10% Turnover)         ...
Life Insurance vs. Taxable Investment                Account (Bond Portfolio)*                                            ...
Life Insurance vs. Taxable Investment            Account (Stock Portfolio w/100%                      Turnover)*          ...
Life Insurance vs. Taxable Investment            Account (Stock Portfolio w/10%                      Turnover)*           ...
Tax-Deferred Annuity/Life Insurance  Observations (What Have We Learned?) • Bonds (or other ordinary income producing asse...
Comparison of Passive Stock Investment              vs. Active Equity Investment           ASSUMPTIONS           Initial I...
Breakeven Rates of Active Equity                                      Investment vs. Passive Equity Investment            ...
Breakeven Rates of Active Equity                                      Investment vs. Passive Equity Investment            ...
Comparison of “Real” Capital Gains                 Rates (Present Value)                                                  ...
Tax Aware Investing Observations-        What have We learned?• Life Insurance is an Extremely Efficient “Tax Asset  Class...
Understanding the Tax-Law    • Deductions upon Funding    • Recovery of Basis    • Taxation upon Withdrawal© 2011 Keebler ...
Understanding the Tax-Law    •      IRAs and Pensions    •      Nondeductible IRAs    •      Roth IRAs    •      Capital G...
IRAs and Pensions    • Deductible Contributions    • Taxable Withdrawals© 2011 Keebler & Associates, LLPAl Rights Reserved...
Nondeductible IRAs    • Nondeductible Contribution    • Taxable Withdrawals (except for basis)© 2011 Keebler & Associates,...
Roth IRAs    •      Nondeductible Contributions    •      Tax-free withdrawals    •      No RMD at age 70 ½    •      Roth...
Capital Gains Incentives    • Lower Rates    • Deferral on Passive Investments              – “Buy and Hold” strategies© 2...
Tax-Deferred Annuities    • Tax-Free Growth    • Taxable Distributions    • Strategy is based on Deferral© 2011 Keebler & ...
Life Insurance Strategies    •      Tax-Free withdraw of Basis    •      Borrowing on a Tax-Free Basis    •      Extremely...
Preparing for Retirement    • Common Questions:              – How much Capital do I need?              – How much Capital...
Tax-Aware Retirement Planning    • The optimal retirement plan would include:              – Contributions that are tax de...
Your Retirement Savings Tax Options    • Tax Treatment              – Contributions: Tax deductible, After tax            ...
Is Tax Deferral Always the Best                                  Strategy?    • Under the new tax law, the tax leverage   ...
Your Retirement Savings Tax Options                                                                Tax Rate – Distribution...
Your Retirement Savings Tax Options                                                Total Retirement Funds @ Death (i.e. Ag...
The Benefits of Tax Diversification                                           Retirement Income of $150,000               ...
Retirement Income of $80,000              100% 401(k) and                IRA Strategy                A Balanced Strategy  ...
Understanding Tax Adjusted Asset                         Allocation    • Currently Most Asset Allocation Models Use      S...
Beyond Asset Allocation                    Understanding “Asset Location”    • Concept:              – Begin with “Tax-adj...
Tax Aspects of Fixed Income                                   Investments    • In general, fixed income assets produce:   ...
Tax Aspects of Location of Equities    • 15% Long-Term Rate    • No Gain Realized until Property is Sold    • Step-up in B...
Ideal Assets for Qualified Plans and                             IRAs    •      Taxable Bonds    •      REITS    •      Hi...
Ideal Assets for Taxable Accounts    •      Low Turn-Over Gain Strategies    •      Qualified Dividend    •      Long-Term...
Tax-Sensitive Withdrawal Strategies • Consider the tax structure of the account as you allocate assets          – Income p...
Tax-Sensitive Account•                              Allocation         Orange = position the investor would be at under th...
•           Effect of Capital Gains Incentives          Example:           – $100,000 beginning cash to invest and 28% tax...
Assets for Roth Accounts    •      High Turnover Equity Strategies    •      Small Cap Growth and Value Strategies    •   ...
CIRCULAR 230 DISCLOSURE            Pursuant to the rules of professional conduct set forth in Circular 230, as            ...
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Tax-Efficient Investing: Comparing The Results (Part 2 of Tax-Efficient Investing Webinar Series)

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This webinar, "Tax-Efficient Investing: Comparing The Results" was the second of a four-part series with Advisors4Advisors.com on tax-efficient Investing.

You can view the on-demand webinar replay and receive CFP and IMCA CE credit at http://bit.ly/taxefficient2

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Tax-Efficient Investing: Comparing The Results (Part 2 of Tax-Efficient Investing Webinar Series)

  1. 1. Tax Aware Investing -It’s the after Tax Return that Counts! Advisors4Advisors Presented by: Robert S. Keebler, CPA, MST, AEP (Distinguished) Stephen J. Bigge CPA, CSEP Peter J. Melcher JD, LL.M, MBA Keebler & Associates, LLP 420 S. Washington St. Green Bay, WI 54301 Phone: (920) 593-1701 Robert.Keebler@keeblerandassociates.comCircular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice containedin this communication, including attachments, was not written to be used and cannot be used for the purpose of (i) avoiding tax-related penaltiesunder the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. If youwould like a written opinion upon which you can rely for the purpose of avoiding penalties, please contact us.
  2. 2. Tax-Deferred Annuity/Life Insurance Key Assumptions • Beginning Age: 30 • Ending Age: 65 (i.e. retirement) • Initial Investment: $50,000 • Ordinary Income Tax Rate: 25% • Long-Term Capital Gains Tax Rate: 15% • Annual Income/Growth Rate: 6% • Annual Yield Rate (Tax-Deferred Annuity): 6% • Annual Yield Rate (Life Insurance): 6%© 2011 Keebler & Associates, LLPAl Rights Reserved. 2
  3. 3. Scenarios 1. Tax-Deferred Annuity vs. Taxable Investment Account (Bond Portfolio) 2. Tax-Deferred Annuity vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) 3. Tax-Deferred Annuity vs. Taxable Investment Account (Stock Portfolio w/10% Turnover) 4. Life Insurance vs. Taxable Investment Account (Bond Portfolio) 5. Life Insurance vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) 6. Life Insurance vs. Taxable Investment Account (Stock Portfolio w/10% Turnover)© 2011 Keebler & Associates, LLPAl Rights Reserved. 3
  4. 4. Tax-Deferred Annuity vs. Taxable Investment Account (Bond Portfolio) Total Investment Balance $350,000 COMMENT: Tax-deferred $300,000 growth over time allows for $250,000 more wealth to accumulate. $200,000 $150,000 $100,000 $50,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Tax-Deferred Annuity Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 4
  5. 5. Tax-Deferred Annuity vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) Total Investment Balance $350,000 COMMENT: Tax-deferred growth over time $300,000 allows for more wealth to accumulate. $250,000 However, without any income tax deduction and lower capital gains tax rates, the tax-deferred $200,000 annuity barely breaks even with a taxable investment. $150,000 $100,000 $50,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Tax-Deferred Annuity Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 5
  6. 6. Tax-Deferred Annuity vs. Taxable Investment Account (Stock Portfolio w/10% Turnover) Total Investment Balance $400,000 COMMENT: Even with tax-deferred $350,000 growth, the taxable investment is $300,000 better over time because of the $250,000 lower capital gains tax rates. $200,000 $150,000 $100,000 $50,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Taxable Investment Account Tax-Deferred Annuity© 2011 Keebler & Associates, LLPAl Rights Reserved. 6
  7. 7. Life Insurance vs. Taxable Investment Account (Bond Portfolio)* Total Investment Balance $450,000 $400,000 COMMENT: Tax-free growth over time allows for more $350,000 wealth to accumulate. $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Life Insurance Taxable Investment Account * Assumes only the cash value of the life insurance policy© 2011 Keebler & Associates, LLPAl Rights Reserved. 7
  8. 8. Life Insurance vs. Taxable Investment Account (Stock Portfolio w/100% Turnover)* Total Investment Balance $450,000 $400,000 COMMENT: Tax-free growth over time allows for more wealth to $350,000 accumulate, even with lower $300,000 capital gains tax rates. $250,000 $200,000 $150,000 $100,000 $50,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Life Insurance Taxable Investment Account * Assumes only the cash value of the life insurance policy© 2011 Keebler & Associates, LLPAl Rights Reserved. 8
  9. 9. Life Insurance vs. Taxable Investment Account (Stock Portfolio w/10% Turnover)* Total Investment Balance $450,000 $400,000 COMMENT: Tax-free growth over time allows for more wealth to $350,000 accumulate, even with lower capital $300,000 gains tax rates and low turnover. $250,000 $200,000 $150,000 $100,000 $50,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Life Insurance Taxable Investment Account * Assumes only the cash value of the life insurance policy© 2011 Keebler & Associates, LLPAl Rights Reserved. 9
  10. 10. Tax-Deferred Annuity/Life Insurance Observations (What Have We Learned?) • Bonds (or other ordinary income producing assets) should be held in a tax-deferred annuity or life insurance • Low turnover equity investments should be held in a taxable investment account • Life insurance is much better than taxable investment accounts with ordinary income producing assets) because of the tax-free nature of the income© 2011 Keebler & Associates, LLPAl Rights Reserved. 10
  11. 11. Comparison of Passive Stock Investment vs. Active Equity Investment ASSUMPTIONS Initial Investment $100,000 Growth Rate 8.8% (i.e. S&P 500 compounded annual growth rate (CAGR) since 1988) Turnover Rate (Passive Investment) 10% Turnover Rate (Active Investment) 100% Capital Gains Tax Rate 15% Total Investment Balance $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Passive Equity Investment Active Equity Investment© 2011 Keebler & Associates, LLPAl Rights Reserved. 11
  12. 12. Breakeven Rates of Active Equity Investment vs. Passive Equity Investment Passive Equity Investment Turnover %Active Equity Investment Turnover % 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 10% 8.93% 20% 9.07% 8.94% 30% 9.21% 9.08% 8.94% 40% 9.36% 9.22% 9.08% 8.84% 50% 9.51% 9.37% 9.23% 8.98% 8.94% 60% 9.67% 9.53% 9.38% 9.13% 9.09% 8.95% 70% 9.83% 9.68% 9.54% 9.28% 9.24% 9.09% 8.95% 80% 10.00% 9.85% 9.70% 9.44% 9.40% 9.25% 9.10% 8.95% 90% 10.17% 10.02% 9.87% 9.61% 9.56% 9.41% 9.26% 9.11% 8.95% 100% 10.35% 10.20% 10.04% 9.77% 9.73% 9.58% 9.42% 9.27% 9.11% 8.96% ASSUMPTIONS Growth Rate 8.8% (i.e. S&P 500 compounded annual growth rate (CAGR) since 1988) Capital Gains Tax Rate 15%© 2011 Keebler & Associates, LLPAl Rights Reserved. 12
  13. 13. Breakeven Rates of Active Equity Investment vs. Passive Equity Investment Passive Equity Investment Turnover %Active Equity Investment Turnover % 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 10% 9.12% 20% 9.46% 9.13% 30% 9.83% 9.49% 9.14% 40% 10.23% 9.87% 9.52% 9.16% 50% 10.67% 10.29% 9.92% 9.55% 9.17% 60% 11.14% 10.75% 10.36% 9.97% 9.58% 9.19% 70% 11.66% 11.25% 10.84% 10.43% 10.02% 9.62% 9.21% 80% 12.22% 11.79% 11.37% 10.94% 10.51% 10.08% 9.66% 9.23% 90% 12.85% 12.40% 11.95% 11.50% 11.05% 10.60% 10.15% 9.70% 9.25% 100% 13.54% 13.06% 12.59% 12.12% 11.64% 11.17% 10.70% 10.22% 9.75% 9.27% ASSUMPTIONS Growth Rate 8.8% (i.e. S&P 500 compounded annual growth rate (CAGR) since 1988) Capital Gains Tax Rate 35%© 2011 Keebler & Associates, LLPAl Rights Reserved. 13
  14. 14. Comparison of “Real” Capital Gains Rates (Present Value) COST OF CAPITAL 2% 4% 6% 8% 10% 0 15.00% 15.00% 15.00% 15.00% 15.00% 5 13.59% 12.33% 11.21% 10.21% 9.31% YEAR 10 12.31% 10.13% 8.38% 6.95% 5.78% 15 11.15% 8.33% 6.26% 4.73% 3.59% 20 10.09% 6.85% 4.68% 3.22% 2.23% 25 9.14% 5.63% 3.49% 2.19% 1.38% 30 8.28% 4.62% 2.61% 1.49% 0.86%© 2011 Keebler & Associates, LLPAl Rights Reserved. 14
  15. 15. Tax Aware Investing Observations- What have We learned?• Life Insurance is an Extremely Efficient “Tax Asset Class” for Bond Type Investments• Tax-deferred Annuities are more Efficient then Bond Type Investments• Passive Low-turnover Investments provide a Higher After-tax Return on Investment than more Active Strategies generating Short-term or Long- term Capital Gains• The Real Capital Gains Rate on a Present Value Basis is Substantially less than the 15% Statutory Rate
  16. 16. Understanding the Tax-Law • Deductions upon Funding • Recovery of Basis • Taxation upon Withdrawal© 2011 Keebler & Associates, LLPAl Rights Reserved. 16
  17. 17. Understanding the Tax-Law • IRAs and Pensions • Nondeductible IRAs • Roth IRAs • Capital Gains Incentives • Tax Deferred Annuities • Life Insurance • Real Estate© 2011 Keebler & Associates, LLPAl Rights Reserved. 17
  18. 18. IRAs and Pensions • Deductible Contributions • Taxable Withdrawals© 2011 Keebler & Associates, LLPAl Rights Reserved. 18
  19. 19. Nondeductible IRAs • Nondeductible Contribution • Taxable Withdrawals (except for basis)© 2011 Keebler & Associates, LLPAl Rights Reserved. 19
  20. 20. Roth IRAs • Nondeductible Contributions • Tax-free withdrawals • No RMD at age 70 ½ • Roth 401(k) – RMDs at 70 ½© 2011 Keebler & Associates, LLPAl Rights Reserved. 20
  21. 21. Capital Gains Incentives • Lower Rates • Deferral on Passive Investments – “Buy and Hold” strategies© 2011 Keebler & Associates, LLPAl Rights Reserved. 21
  22. 22. Tax-Deferred Annuities • Tax-Free Growth • Taxable Distributions • Strategy is based on Deferral© 2011 Keebler & Associates, LLPAl Rights Reserved. 22
  23. 23. Life Insurance Strategies • Tax-Free withdraw of Basis • Borrowing on a Tax-Free Basis • Extremely effective for High Income Taxpayers • Tax Free Death Benefit© 2011 Keebler & Associates, LLPAl Rights Reserved. 23
  24. 24. Preparing for Retirement • Common Questions: – How much Capital do I need? – How much Capital will I have? – How much do I need to save? • For “Outside Capital”, the common questions are: – Where do I invest my Capital? – How will the earnings be impacted by income taxes?© 2011 Keebler & Associates, LLPAl Rights Reserved. 24
  25. 25. Tax-Aware Retirement Planning • The optimal retirement plan would include: – Contributions that are tax deductible – Accumulations that are tax free – Distributions that are tax-free • Such a plan does not exist, but you can have any two of these tax benefits • A balanced approach is required to avoid high tax brackets during retirement© 2011 Keebler & Associates, LLPAl Rights Reserved. 25
  26. 26. Your Retirement Savings Tax Options • Tax Treatment – Contributions: Tax deductible, After tax – Accumulation: Tax deferred, Tax deferred – Distributions: Taxable, Tax free • Financial Vehicles – Traditional IRA, Roth IRA – 401 (k) or pension plans, tax-free municipal bonds – Profit sharing plans, cash value life insurance – Keogh© 2011 Keebler & Associates, LLPAl Rights Reserved. 26
  27. 27. Is Tax Deferral Always the Best Strategy? • Under the new tax law, the tax leverage benefits of deferring may not always exist • Lower tax rates and narrower tax brackets may require balanced strategy • Too much Deferral creates the “Disproportionate IRA” problem© 2011 Keebler & Associates, LLPAl Rights Reserved. 27
  28. 28. Your Retirement Savings Tax Options Tax Rate – Distribution Year Tax Rate – Contribution Year 10% 15% 25% 28% 33% 35% 10% 15% 25% 28% 33% 35%© 2011 Keebler & Associates, LLPAl Rights Reserved. 28
  29. 29. Your Retirement Savings Tax Options Total Retirement Funds @ Death (i.e. Age 84) 15% Tax Rate @ 25% Tax Rate @ 35% Tax Rate @ 45% Tax Rate @ Distribution Distribution Distribution Distribution $ % $ % $ % $ %15% Tax Rate @ Contribution $ - 0.00% $ 131,649 10.74% $ 263,298 22.13% $ 394,947 34.25%25% Tax Rate @ Contribution $ (131,649) -10.43% $ - 0.00% $ 131,649 11.07% $ 263,298 22.83%35% Tax Rate @ Contribution $ (263,298) -20.86% $ (131,649) -10.74% $ - 0.00% $ 131,649 11.42%45% Tax Rate @ Contribution $ (394,947) -31.29% $ (263,298) -21.48% $ (131,649) -11.07% $ - 0.00%AssumptionsCurrent age of IRA owner: 35Age of IRA @ retirement: 65Annual IRA contribution (Age 35 – 49): $5,000Annual IRA contribution (Age 50 – 65): $6,000Pre-tax growth rate (IRA): 6%After- tax growth rate: 5%% of after-tax IRA distributions reinvested: 100%© 2011 Keebler & Associates, LLPAl Rights Reserved. 29
  30. 30. The Benefits of Tax Diversification Retirement Income of $150,000 Without Tax Diversification With Tax Diversification Client accesses $75,000 from her 401(k) Client accesses $150,000 from her 401(k) and $65,000 from her cash value life insurance policy and/or Roth IRA Only the $65,000 from her 401(k) is The full $150,000 is taxable at an average taxable, and it’s taxed at the lower average tax rate of 30% or $45,000 tax rate of 15% or $11,250 Leaving client $105,000 to spend in Leaving client $138,750 to spend in retirement retirement© 2011 Keebler & Associates, LLPAl Rights Reserved. 30
  31. 31. Retirement Income of $80,000 100% 401(k) and IRA Strategy A Balanced Strategy $80,000 $80,000 $40,000 $40,000 401(k) /Qualified Cash Value Life 401(k) IRAs Approach Plans Insurance/Roth 100% Taxable IRA 100% taxable $80,000 taxed at Tax Free $40,000 taxed at 25% $0,000 taxed at 15% 0% =$20,000 Tax =$6,000 =$0 tax $60,000 to spend $74,000 to spend after taxes after taxes© 2011 Keebler & Associates, LLPAl Rights Reserved. 31
  32. 32. Understanding Tax Adjusted Asset Allocation • Currently Most Asset Allocation Models Use Standard Pre-tax Return and Standard Risk Assumptions • Income Tax “Drag” should be Taken into Account • Income Tax Rates vary by Taxpayer • Capital Gains are Taxed at Different Rates • Conflicts with the Current Practice(s)© 2011 Keebler & Associates, LLPAl Rights Reserved. 32
  33. 33. Beyond Asset Allocation Understanding “Asset Location” • Concept: – Begin with “Tax-adjusted” asset allocation – Once you know the proper asset allocation, then you need to select “Asset Location” – Asset Location is driven by: • Tax benefits associated with the proper location of equities and fixed income – General Rule: Fixed income should be held in Retirement Accounts, Annuities or Life Insurance – General Rule: Equities should be held in taxable accounts© 2011 Keebler & Associates, LLPAl Rights Reserved. 33
  34. 34. Tax Aspects of Fixed Income Investments • In general, fixed income assets produce: – Ordinary income – Taxed on an annual basis – Heavy annual “Tax Drag” • Exceptions: – Bonds in Tax-deferred accounts – I bonds – Tax-exempt Bonds© 2011 Keebler & Associates, LLPAl Rights Reserved. 34
  35. 35. Tax Aspects of Location of Equities • 15% Long-Term Rate • No Gain Realized until Property is Sold • Step-up in Basis at Death© 2011 Keebler & Associates, LLPAl Rights Reserved. 35
  36. 36. Ideal Assets for Qualified Plans and IRAs • Taxable Bonds • REITS • High Turnover, Short-Term Gain Strategies • Nonqualified Dividends • High yield Stocks • Option Strategies© 2011 Keebler & Associates, LLPAl Rights Reserved. 36
  37. 37. Ideal Assets for Taxable Accounts • Low Turn-Over Gain Strategies • Qualified Dividend • Long-Term Capital Gain Strategies • Real estate Investments • Oil and Gas Investments • I Bonds • Tax-Exempt Bonds • Master Limited Partnership© 2011 Keebler & Associates, LLPAl Rights Reserved. 37
  38. 38. Tax-Sensitive Withdrawal Strategies • Consider the tax structure of the account as you allocate assets – Income producing assets in traditional IRA – Capital gains assets (especially those you intend to hold for a long period) in a taxable account – Roth IRA Rapid Growth The illustration is NOT Bonds Stock intended to be a recommendation, but to IRA $250,000 $250,000 $500,000 provoke thought. As you know, asset allocation should be determined according to Taxable Account risk tolerance and time $250,000 $250,000 $500,000 horizon. Tax sensitivity would be considered secondarily.© 2011 Keebler & Associates, LLPAl Rights Reserved. 38
  39. 39. Tax-Sensitive Account• Allocation Orange = position the investor would be at under the original 50% stock / 50% bond investment mix• Blue = additional $63,890 of additional growth the investor would achieve by placing 100% bonds in IRA• Assumptions: Bonds and the stock both generate a 7% return on a pre-tax basis. The stock earnings are deferred until the time of sale, then taxed as long-term capital gains. The amount of any tax savings from a deductible IRA contribution is invested in a taxable investment account earning the same yield as the IRA. The values shown for the IRA include the value of the taxable investment account. The client is in the 25% ordinary income tax bracket (15%* for capital gains purposes) Integrating Account Tax Structure with Asset Allocation (100% Bonds in IRA vs. 50/50 Mix of Stock and Bonds in IRA) 2,800,000 Option A - 100% Bonds in IRA Option B - 50/50 Mix in IRA 2,550,000 $63,890 of additional assets (2.6% increase) 2,300,000 * The 15% long-term capital gain rate is only effective 2,050,000 under current law through 2010. It is not certain that the Congress will extend the 15% rate. 1,800,000 10 11 12 13 14 15 © 2011 Keebler & Associates, LLP Al Rights Reserved. 39
  40. 40. • Effect of Capital Gains Incentives Example: – $100,000 beginning cash to invest and 28% tax bracket (15% long-term capital gains bracket) – Options: • Corporate bonds (6% annual interest) • Municipal bonds** (4.5% annual interest) • Stocks (1% annual non-qualified dividends, 5% growth [100% asset turnover])After-Tax Balance of a Taxable Account (Invested in Stock, Municipal Bonds and Corporate Bonds) $400,000 Stock (50% Turnover) Stock (100% Turnover) $65,732 of $300,000 additional assets Municipal Bonds Corporate Bonds (23% difference) $200,000 $100,000 $- 1 3 5 7 9 11 13 15 17 19 21 23 25 Year•The 15% long-term capital gain rate is only effective under current law through 2012. It is not certain that the Congress will extend the 15% rate.•**Municipal bounds may not be suitable for a person in this low of a tax bracket.© 2011 Keebler & Associates, LLPAl Rights Reserved. 40
  41. 41. Assets for Roth Accounts • High Turnover Equity Strategies • Small Cap Growth and Value Strategies • Option Strategies • Certain Hedge Funds© 2011 Keebler & Associates, LLPAl Rights Reserved. 41
  42. 42. CIRCULAR 230 DISCLOSURE Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication in promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party. For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayer is advised to and should rely on their own advisors.©2011 Keebler & Associates, LLPAll Rights Reserved. 42

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