Smart investors use all the tools at their disposal to make informed financial decisions. Key considerations include tax-smart investment and planning, individualized financial planning and advice, custom portfolio allocation, investment selection, and rebalancing. By working with a professional on its financial landscape, Russell Investments identified up to an additional annualized investor portfolio result of +4.83%. As we enter a new year, here are 10 strategies to consider for long-term financial success.
During the distribution years
1. Defer and convert to early retirement. A coordinated retirement plan creates an opportunity to minimize taxes for life, increase fixed cash flow, and maximize tax-free income and growth. When a portfolio has an adequate tax structure during the working years, retirees before RMD (required minimum distribution) can defer paying Social Security while converting the pre-tax money to Roth and spending the taxable money.
2. Donate wisely: Most donations do not earn a tax deduction. Tax reform reduced the number of households itemizing deductions, prompting taxpayers to find creative new strategies. The use of retirement plans to fund charitable contributions emerged quickly, with many taxpayers adopting pooling strategies and/or qualified charitable deductions (QCDs).
3. Seek the minimization of generational taxes, even during retirement.. Lifetime tax minimization often requires choosing to pay taxes during lower income years as a form of tax arbitrage by accelerating income that might otherwise have been deferred to a later date. You can further strengthen this strategy by allocating capital (risk) assets into tax-free Roth accounts.
Intentional and personalized investment management
Four. Don’t settle for a one-size-fits-all investment management approach. Investment management decisions should always result from the outcome of your plan and complement your balance sheet, personal goals, liquidity needs, and tax situation.
5. Understand the role of fixed income and why it fits into your portfolio. Owning the right mix of bonds accomplishes important goals: liquidity, income generation, liability equalization, and diversification. Bond incorporation is crucial for many investors, especially those who need income from their portfolio soon.
6. Eliminate uncompensated risk from your portfolio. Diversifying a portfolio across uncorrelated asset classes reduces volatility. Professional portfolio construction decreases unnecessary risk without sacrificing performance by limiting exposure to catastrophic, single-company, or industry-specific failures.
During the years of accumulation
7. Evaluate investments and job opportunities wisely. Maximize your lifetime business value when making employment and capital decisions. Seek a professional to help you understand the differences between a W2 position and an independent contractor, the benefits, and understanding the time value of money.
8. Use debt correctly – Not all debt is created equal. We are not in favor of debt on depreciated assets that facilitate excessive spending. However, business, real estate, and educational debt can add to wealth when properly structured and with profitability in mind.
9. Organize household finances to benefit from variable income. Using behavioral finance principles to design an automated cash flow process creates discipline to save while boosting spending. Stable processes can be established to smooth out variability around spending, saving, and withholding taxes.
10 Accumulate investments in multiple tax categories, not just before taxes. Many investors save predominantly in pre-tax retirement accounts. Not considering tax treatment Roth is short-sighted and may increase the tax paid over your lifetime, limit flexibility, and increase the risk of reduced purchasing power imposed by tax increases.
Cousin! Plan your legacy. Substantial benefits can be created by planning for a beneficiary’s tax scenario and properly structuring account types during both the original owner’s and beneficiary’s lifetime.
Ballast Inc. is an SEC registered investment adviser. Registration with the SEC does not indicate that the adviser has achieved a particular level of skill or ability, nor is it an endorsement by the SEC. All investment strategies have the potential for profit and loss. Ballast Inc. is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. For more information, visit ballastplan.com.