The best way to prevent financial assets from being removed from one’s estate is to put into place various tax savings strategies. One authority on financial planning stated that “most people don’t think about how taxes affect their long-term portfolio.” Boosting after-tax investment returns is something that we can at least to some degree control.
It is important to remember that different forms of investment are not necessarily taxed the same. For example, investments are taxed in a different manner depending on whether it is a tax-deferred IRA or 401(k), a taxable brokerage account or a Roth IRA. The trick is to place the correct kind of investments in the right type of accounts to minimize the tax consequences.
It is easy to over think such a strategy, however. We still need to put money away into retirement accounts rather than be too concerned about tax efficiency because the money in a 401(k) or IRA could grow tax deferred for a number of years. It is good to do as much as is possible within an IRA where various transactions will have no tax consequences.
Whatever manner one wishes to distribute their estate at the end of their life, maximizing the amount we will be able to distribute is a primary goal for most individuals and therefore asset protection is a must. The rules of asset protection are complex, however. Structuring of trusts, ensuring that retirement funds cannot be penetrated or protecting offshore assets is not something that most of us do on a daily basis. It’s therefore a good idea to consult with attorneys who understand the various strategies that can be used because it’s a difficult task to understand the positives and negatives of each strategy we may wish to try.
Source: NASDAQ, “Boost Your After-Tax Investment Returns,” April 15, 2014