Tax Efficient Investment Strategies

Nobody likes watching their hard-earned investment gains shrink due to taxes. The good news? With the right strategies, you can keep more of your money working for you. Tax-efficient investing helps you minimize tax liabilities while maximizing your long-term growth and income. Let’s dive into some smart ways to make your investments more tax-friendly.

 

Tax-Deferred Accounts (e.g., IRAs, 401(k)s)
  • Traditional IRA/401(k): Contributions are tax-deductible, reducing your taxable income in the contribution year. Taxes are paid when you withdraw funds in retirement.
  • Roth IRA/401(k): Contributions are made with after-tax money, but withdrawals, including earnings, are tax-free in retirement (if certain conditions are met).
  • Benefit: These accounts help grow investments without the annual tax burden, either deferring taxes or offering tax-free withdrawals in retirement.

Taxable Accounts with Tax-Loss Harvesting
  • Tax-Loss Harvesting: This involves selling investments that have lost value to offset capital gains realized elsewhere. Losses can offset up to $3,000 of ordinary income annually, with additional losses carried forward to future years.
  • Benefit: Helps reduce taxes on capital gains and income, enhancing returns in taxable accounts.

Asset Location Strategy
  • What it is: The practice of placing tax-inefficient assets (e.g., bonds, high-yield dividend stocks) in tax-advantaged accounts and tax-efficient assets (e.g., index funds, growth stocks) in taxable accounts.
  • Benefit: Reduces the overall tax burden by minimizing taxes on interest income and dividends in taxable accounts.

Long-Term Capital Gains vs. Short-Term Capital Gains
  • Holding Period: Investments held for more than one year qualify for long-term capital gains tax rates, which are lower than short-term rates (taxed as ordinary income).
  • Strategy: Buy and hold investments to benefit from long-term capital gains tax treatment.

Municipal Bonds
  • What it is: Bonds issued by state or local governments, whose interest income is generally exempt from federal income tax and, in some cases, state taxes.
  • Benefit: Attractive for high-income earners, as the interest is tax-free at both the federal and sometimes state levels.

Dividends and Qualified Dividends
  • Qualified Dividends: These are taxed at long-term capital gains rates, which are generally lower than ordinary income tax rates.
  • Strategy: Invest in stocks that pay qualified dividends to benefit from lower tax rates on dividend income.

Tax-Efficient Mutual Funds and ETFs
  • Low Turnover Funds: Funds with low turnover tend to generate fewer taxable capital gains, making them more tax-efficient than high-turnover funds.
  • ETFs: Typically more tax-efficient than mutual funds because they generate fewer taxable events due to their structure.

Index Funds
  • Low Turnover: Index funds track a market index and typically have low turnover, meaning fewer transactions that trigger taxable events.
  • Benefit: Reduced capital gains distributions and, therefore, lower taxes on your investment returns.

Gifting and Charitable Contributions
  • Gifting: Gifts to family members can help reduce your taxable estate, and gifts of appreciated securities can avoid capital gains taxes for the donor while benefiting the recipient.
  • Charitable Contributions: Donating appreciated securities directly to charity avoids capital gains taxes on the appreciation, and you may be eligible for a charitable deduction.

Tax-Deferred Growth in Annuities
  • Annuities: Certain annuities allow for tax-deferred growth. The earnings in these accounts are not taxed until you begin withdrawing funds.
  • Benefit: Defers taxes, allowing your investments to grow faster over time.

Municipal Bond Funds
  • These funds primarily invest in municipal bonds, providing tax-free income for investors in high-tax brackets.

 

By combining these strategies, you can create a diversified portfolio that minimizes taxes and maximizes after-tax returns over time. It’s important to consult a tax advisor to tailor these strategies to your specific financial situation and tax bracket. For more information or to start a discussion on what may be the best strategy for your situation, contact us at in**@ve************.com.

 

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company. Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions and it may not achieve its investment objective.

ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF’s net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

 

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Peter M. Babilla, CFP®, CRPS®

PARTNER

Peter Babilla brings 40 years of experience in investment management and fiduciary* financial consulting to Vertex Planning Partners, LLC.

Pete graduated from Indiana University in Bloomington, Indiana with a Bachelor’s of Science in Finance.

He began his career in 1983 with a focus on institutional fixed-income portfolio management, primarily working with community banks. After a decade serving institutional clients, Pete shifted his focus to working with individuals, families and business owners, providing guidance and education in all areas of Wealth Management.  Among his areas of focus are accumulation and retirement planning, investment management, risk management, and estate and wealth transfer.

Pete’s planning philosophy allows him to create a personalized program for clients, based on their own unique goals and circumstances.  The extensive investment and planning platform offered by Vertex enables him to create a highly customized program, tailored to each individual client.

Pete and his wife Suzanne have two children, and have resided in Wheaton, Illinois for the past 30 years.  He enjoys golf, reading, and traveling with his family.  Pete gives back as a past Board Member of the Epilepsy Foundation of Greater Chicago, where his focus is on improving the lives of those living with epilepsy.

Pete works as fiduciary for his clients and holds the CERTIFIED FIANANCIAL PLANNER™ (CFP®) designation and the Chartered Retirement Plan Specialist (CRPS®) designation.

JUSTIN J. D'AGOSTINO, CFP®, ChFC®, CRPC®, AIF®

PARTNER

Justin D’Agostino joined Vertex Partners in 2019 and serves a select group of business owners and affluent families. He specializes in investments, financial planning, and succession planning. His interest and knowledge in providing comprehensive financial planning and wealth management services to clients was sparked when he worked at a boutique tax and wealth management firm in Michigan. He has nine years of experience in the financial services industry, and his mission is to provide every client with targeted, comprehensive financial advice and to help them implement customized strategies designed to move them closer to accomplishing their unique goals.

Justin attended Hillsdale College where he earned his BA in Accounting and Financial Management and was a member and captain of the football team. Justin is a CERTIFIED FINANCIAL PLANNER™ Professional, holds the Chartered Financial Consultant®, Chartered Retirement Planning Counselor™, and Accredited Investment Fiduciary™ designations.

Justin and his wife, Alexandra, reside in Chicago, Illinois. He is an avid sports fan and enjoys golfing, playing soccer and spending summer weekends with his family.

Scott A. Sandee CFP®, CIMA®, CPWA®, CEPA

MANAGING PARTNER

Scott Sandee brings over 20 years of experience as Managing Partner. He is responsible for leading the firm’s efforts in assisting middle-market business owners and seven and eight-figure families to plan and realize financial goals based on their unique aspirations and situations.

With a privately held family business background, Scott has helped owners prepare for and execute a successful transition. In addition, he works with business owners and their advisors to develop financial strategies to maximize sales proceeds and minimize future taxes.

Before joining Vertex, Scott served in financial planning and investment strategy roles at Oxford Financial Group, Capital Group, and The Northern Trust Company, working with Chicago’s HNW/UHNW families clients.

Scott holds the Certified Financial Planner®, Certified Private Wealth Advisor®, Certified Investment Management Analyst®, and Certified Exit Planning Advisor designations. Scott earned his B.S. in Computer Science from Northern Illinois University, and his family resides in Wilmette, IL.

Julie Hupp CFP®, MBA

PARTNER

Julie Hupp, CERTIFIED FINANCIAL PLANNER™ professional, has worked in the accounting and corporate finance field since 1987. She began her career as a CPA with Deloitte & Touche, specializing in the financial needs of small businesses. Then spent the next 13 years in corporate financial planning and business development at Baxter and TAP Pharmaceuticals. Recognizing her passion for personal financial planning, Julie started her business in 2006 where she focuses on comprehensive financial planning strategies and implementation.

Julie graduated from University of Illinois with a BS in Accountancy. She received her Master’s in Management with a concentration in Finance from Northwestern University’s Kellogg School of Management in 1994.

Outside the office, Julie is the co-founder of the 12 Oaks Foundation, which has merged with Cal’s Angels, and is a former Board member. Julie enjoys cooking, reading, running, triathlons and doing almost anything outdoors. A great weekend is spending time with her husband and two adult kids boating at their lake house in Wisconsin.

Steven P. Franzen, CPA, PFS, CGMA

MANAGING PARTNER

Steven P. Franzen, CPA, PFS, CGMA is a public accountant and consultant with more than 23 years of experience helping individuals and businesses reduce their tax liability.  He began his career under the guidance of Patrick M. De Sio, CPA, CGMA and in 1996 became Mr. De Sio’s partner in De Sio, Franzen & Associates, Ltd. Steve’s expertise include entity design, complex tax strategies and multigenerational wealth transfer.  As Managing Partner, Steve conducts his practice under the philosophy that the client’s investment in their CPA should yield a return on that investment – most of the time that return is realized when working with clients on planning for their future. In an effort to increase the planning capabilities of the firm,  Steve formed Vertex Accounting Partners, LLC to ensure their guiding philosophy will continue well into the future.

Steve is a certified public accountant and has earned the professional designations of Personal Financial Specialist and Chartered Global Management Accountant.  He is a member of the American Institute of Certified Public Accountants and the Illinois CPA Society.  Steve earned a B.S. degree in accounting from Millikin University.  He and his wife Kristie live in Sugar Grove, IL with their three children.

Gregory P. Benner, CPWA®, CFP®, CLU®, ChFC®, AIF®, RMA®

MANAGING PARTNER

Gregory P. Benner, CPWA®, CFP®, ChFC®, CLU®, AIF®, RMA® has over twenty-two years of experience as a financial advisor. Greg’s practice is based on developing holistic financial plans that help his clients integrate sophisticated retirement, tax, risk management and estate planning strategies into an actionable plan, then stay the course as their behavioral coach.

Prior to founding Vertex Planning Partners, LLC, Greg spent four years as a founding partner of a Registered Investment Advisory firm affiliated with LPL Financial. He also spent seven years with JPMorgan Chase as a Senior Financial Advisor and was a Financial Representative with Northwestern Mutual Life.

Greg holds the Certified Private Wealth Advisor® designation and is a CERTIFIED FINANCIAL PLANNER™ Certificant. He also holds the Chartered Financial Consultant®, Chartered Life Underwriter®, Accredited Investment Fiduciary™, and Retirement Management AdvisorSM designations. He earned a B.S. in Finance from Miami University.

He and his wife Lindsey reside in Naperville, IL with their daughter and twin sons.

Michael D. Bellis, CFP®, CLU®

MANAGING PARTNER

Michael D. Bellis, CFP®, CLU® began his career as a financial planning professional in 1994. His practice is centered on holistic financial planning, astute risk management strategies and empirical, research-driven portfolio construction. He began his career in partnership with his father under the name Bellis & Associates. Together, their practice and reputation for excellence dates back more than 40 years and includes multiple generations of the same families. After his father’s retirement several years ago, Mike continued to build a client-centric, consultative practice before forming Vertex.

Mike holds the CERTIFIED FINANCIAL PLANNER™ certification and is also a Chartered Life Underwriter. He has been an active member of both the Society of Financial Services Professionals and the National Association of Insurance and Financial Advisors. He earned a B.S. in Business & Marketing from Illinois State University. Mike is a lifelong resident of Naperville, Illinois. He and his wife Tanja have three children.