Taxes and Your Investments

Here at One Bridge, we talk a lot about tax-efficiency and your investments. Add value to your overall portfolio and overall net worth by controlling what you pay in taxes as much as you can.

But what does that mean and how do we do it?

Here’s a summary:

Washington, D.C. - Abraham Lincoln statue at the Lincoln Memorial

Strategy	Benefit
Withdrawal Strategies	Reduce the amount of taxes owed by withdrawing in an optimal order of taxable, pre-tax, and tax-free accounts
Qualified Charitable Distributions	Reduce the amount of taxes paid by donating part of your RMD to charity
Securities Backed Lines of Credit	Avoid selling and realizing gains by taking out a loan using your investments as collateral
Exchange Funds	Diversify concentrated holdings without realizing gains
Asset Location	Potential higher return assets placed inside Roths, while balancing other return assets like bonds depending on tax-brackets and income needs
Capital Gains Tax Management	Strategize to have years in a lower capital gains tax bracket and realize gains in those years
Tax Loss Harvesting	Offset your taxable income and realized gains with tax losses, while reinvesting the assets right away – optimal in drawdowns
Net Unrealized Appreciation Rule	Allows the lower capital gains tax rate to be used instead of the income tax rate
No AUM Fees out of Roth IRAs	Reduces the drag on your tax-free investments – the fees come out of a taxable account
Roth Conversions	Convert pre-tax money to after-tax Roth money – optimal in a drawdown
Backdoor Roths	Contribute to a Roth regardless of income limits potentially
Roth 401Ks	Increase the amount of tax-free investments beyond the IRS Roth IRA rules
401ks	Frontload contributions before retirement to reduce current taxes
Exchange Traded Funds vs. Mutual Funds	Utilize tax-advantaged traits of ETFs inside taxable accounts and mutual funds inside pre-tax and tax-free accounts
Intentionally Defective Grantor Trusts	Utilize tax rules to minimize estate taxes
10 Yr Rule vs. Eligible Designated Beneficiaries	Consider all withdrawal options and tax-consequences for inherited traditional IRAs – rule of thumb is to defer as long as possible, but the 10 Yr rule also provides added flexibility within 10 years.
529s	Tax-deductible and tax-free investments accounts when used for qualified education expenses for college and currently k-12
Health Savings Accounts	The triple tax-advantaged account for qualified medical expenses
Qualified vs ordinary dividends	Qualified dividends are taxed at capital gains rates while ordinary dividends are taxed at federal income tax rates
Long term gains vs short term gains	Hold investments longer than one year to avoid federal income tax rates and apply it towards capital gains tax rates