Principles in Practice: Be Diversified

Why your Asset Location is just as important as your Asset Allocation.

In light of all of the recent tax changes for 2013 and beyond, you need to be keenly aware of the current and long-range tax treatment of your various investment accounts.  The effects of the American Taxpayer Relief Act, combined with 2 new Obamacare taxes, will definitely begin to impact those Americans that have incomes over $200,000 for single filers and $250,000 for married couples filing jointly.  You may experience a higher income tax bracket, a higher capital gains rate and dramatically reduced itemized deductions than you “enjoyed” in 2012.  On the flip side, families earning below those levels should also be aware of the tax treatment of their various investments and how to minimize your tax bite over time.

Once you’ve determined the appropriate allocation of stocks, bonds, real estate and natural resources for your portfolio, the next step is to determine asset locationA recent whitepaper by Total Rebalance Expert uncovered that having the right investments in the most tax-favorable account types could increase your average rate of return for your portfolio by about 1% annually.

At Sound Stewardship, we have identified 5 different account types and we refer to our “Asset Location” strategy as the Tax Planning PentagonTM.  The account types are:

  1. Tax Deferred with a Tax Bomb
  2. Tax Deferred with Tax Freedom
  3. Capital Gains at Your Command
  4. Hybrid Helpers
  5. Charitable Champions

We would be happy to go over this planning process with you in greater detail at a future consultation or seminar. Click Here to contact us. Do you know where you stand with your Tax Planning Pentagon?

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