Tax Efficient Investing

Professional investment advisors look at many different strategies when they incorporate tax efficient investing principles into a plan:

• Selection of investment products. This includes, for example, considering the benefits of exchange traded funds (ETFs); investigating whether tax-free bonds offer advantages over other debt instruments; and balancing products that emphasize cash flow with others that aim for long-term growth.
• Timing of buying and selling. Investment products that are held for longer periods of time might qualify for lower capital gains tax rates. On the other hand, selling an underperforming asset before the close of the tax year might produce losses that can be used to offset gains. Further, an investor who owns a fund on a record distribution date can incur tax liabilities regardless of how long the investor has invested in that fund. The timing of the buying and selling of investment assets is critical for proper tax efficient investing.
• Account selection. Investors cannot overlook the benefits of tax-free growth in traditional or Roth IRA plans. A complete tax savings investment plan will generally include a mix of taxable and tax-free accounts.
• Special Circumstances. Investors can make tax savings investments through charitable donations and 529 college savings plans. Again, each individual investor’s circumstances will define whether these options are appropriate for them at any given time.