This document discusses strategies for managing taxes on investments. It outlines how to control deductible expenses and rebalancing to reduce taxes, and provides examples. It also discusses converting tax-deferred accounts to tax-exempt Roth IRAs when markets are down, to offset taxes, or using tax credits to do conversions with no tax liability. The key is controlling what you can with taxes through expenses, rebalancing efficiently, and tactically converting accounts when it makes financial sense.
Reducing Taxes through Prudent Investment and Wealth Management
1. Controlling Taxes How to reduce the cost of investing with a diligent and effective tax management program Tax Management creates Wealth Management Personal Financial Experiences, LLC and J.C. Corrigan, CFP® Presents www.myfinancialstrategies.com
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6. Rebalancing Example Taxable (150K) Tax Deferred (300K) Total (450K) VTI $91,425 56.5% $182,850 56.5% $274,275 56.5% VEU $10,500 6.5% $21,000 6.5% $31,500 6.5% IEF $55,500 34.3% $111,000 34.3% $166,500 34.3% CASH $4,500 2.7% $9,000 2.7% $13,500 2.7% Total $161,925 100% $323,850 100% $515,775 100% TARGET WEIGHTS: VTI = 53% VEU = 7% IEF = 37% CASH = 3% Assume VTI Grows By 15%, Other Positions Are Flat, So VTI Is Now Over Weighted
7. How we rebalance Taxable Tax Deferred Total VTI $91,425 56.5% $166,135 51.3% $257,560 53% VEU $10,500 6.5% $23,641 7.3% $34,141 7% IEF $55,500 34.3% $124,035 38.3% $179,535 37% CASH $4,500 2.7% $10,319 3.1% $14,819 3% Total $161,925 100% $323,850 100% $485,775 100% TARGET WEIGHTS: VTI = 53% VEU = 7% IEF = 37% CASH = 3% Simple, Lost Cost Rebalacing One Sell , Two Buys and NO Taxes, Cost = $27
8. Few Managers and No Mutual Funds put in the effort to meet your needs and tax efficiency first Taxable Tax Deferred Total VTI $85,820 53% $171,640 53% $257,460 53% VEU $11,335 7% $22,670 7 % $34,005 7% IEF $59,912 37% $119,824 37% $179,736 37% CASH $4,858 3% $9,916 3% $14,774 3% Total $161,925 100% $323,850 100% $485,775 100% TARGET WEIGHTS: VTI = 53% VEU = 7% IEF = 37% CASH = 3% TWO Sells , Four Buys and $1840 in Taxes and Commissions
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