“You must pay taxes. But there’s no law that says you gotta leave a tip.”
~ Morgan Stanley
It’s what you keep that matters!
Although many of the following tax-efficient income strategies are not well known, they can help you to keep more of your money in your pocket. Sometimes, these strategies may be combined to reduce or even avoid claw backs of some government pensions.
Here are eight highly effective tax strategies for taxable accounts:
- Tax Holiday Funds – Funds that have a considerable tax advantage because they took over a previous fund with capital losses that can be carried forward.
- New Funds, Same Manager – Funds managed by a known manager with no previous capital gains.
- Corporate Class Funds – Refers to a group of funds that are treated as a single corporate entity that can effectively offset gains in one fund with losses in another fund.
- Tax-Efficient Distributions – Funds that pay out a high monthly income, mostly in the form of capital gains which is a very tax-efficient type of income.
- Systematic Withdrawal Plan – A systematic withdrawal plan (SWP) provides tax-efficient cash flow by taxing only the profit portion of each withdrawal, leaving the principal amount untaxed.
- T-Series Funds with Return of Capital – Funds that qualify at retirement to distribute income largely as return of capital, which lowers taxes for a significant time period. This process lowers your cost basis over time to defer paying taxes on gains.
- Capital Gains/Losses Harvesting – Similar to corporate class funds, you can manually sell down gains and losses (if available) in your account to offset your taxable income.
- Personal Tax Harvesting – Another way to offset your taxable gains is to realize capital gains at a time in your life when your total income may be lower.
Bonus Strategy: You may also be able to strategically drawdown income from your different types of investment accounts (tax-free, tax-favoured, and fully-taxed) to lower your taxable income. This may put you in a lower tax bracket and even avoid pension claw backs.
The goal is always to invest in quality investment vehicles first and foremost!
The good news is that certain funds that we already recommend within our optimized, “pension-style” portfolios are amenable to these various tax-efficient strategies!
We always keep in mind that the cart (tax decisions) should not be put in front on the horse (investment decisions).
- For tax strategies, you should rely upon a certified tax advisor
- For investment recommendations, you should rely upon qualified investment advice
Planning for a low tax retirement income starts now.
Call us to review which of our quality investment funds may also provide a combination of these significant tax advantages for you!
Your CommonWealth Team
Anyone may arrange his affairs so that his taxes shall be as low as possible…
~ Judge Learned Hand
