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Get Smart!

Last week, I highlighted the importance of leveraging Roth IRAs and other tax-free opportunities as examples of how to apply tax strategies to a portfolio. As we continue our summer school series, let's discuss asset location within your asset allocation.

After you have determined your asset allocation, the challenge is to divide your investments into the three tax buckets of tax-free, tax-deferred, and taxable, mindful of the growth opportunities AND tax sensitivities of each investment. Remember, the goal is to maximize your after-tax returns in all buckets throughout retirement.

It’s what you keep that matters.

Building a tax-smart portfolio can help you keep what you earn.

Building a Coffeehouse Investor portfolio during your working years is straightforward, a reason so many of you are drawn to its simplicity and success.

However, when approaching retirement and pressed on these tax strategies, too many investors draw a blank. 

Tax-smart investing should begin before you start drawing from your portfolio. Consider the following elements:

  1. Increasing investments in tax-favored assets depending on your tax bracket: For example, in your taxable account, will corporate bonds or municipal (tax-free) bonds yield a higher after-tax return? 
  2. Deferring capital gains: Is the turnover in your portfolio causing you to pay capital gains that could be deferred through ownership of more tax-efficient securities? 

The time to get smart about taxes during retirement is now.

Next week, we'll dive into tax bracket management as a strategy for reducing taxes throughout your lifetime.