Allocating Your Assets The "Right Way"

Risk management is one of the fundamental drivers to achieving your long term financial objectives. However, allocating stocks and bonds to the correct type of account (taxable vs tax sheltered) will help you keep more and give up less in taxes.

Put as Much of Your Equity Allocation in Your Taxable Accounts:

Having as much of your stock allocation to your taxable accounts provides the most flexibility for your financial picture. You can gift securities to a charity, realize losses to offset capital gains tax, and upon death have a step up in cost basis to pass on the investments tax free.


Roth IRAs & 529 College Savings Accounts

Don’t wait on opening these. These are great investment vehicles because under current tax law they are funded with after tax money, but the gains are tax sheltered, and the withdrawals are tax free. If appropriate for your situation, these should be the second option to allocate equities if you have stuffed your taxable accounts to the max.


Contrary to Popular Opinion, Your Bond Allocation Should be in Your Tax Sheltered Accounts (TSA):

Yes your investments in a tax sheltered account grow tax free. With the exception of the Roth and 529 accounts, the contributions are tax deferred (taxed on the withdrawals). Interest income on bonds are taxed are you ordinary income rate. If bonds are held in your tax sheltered account, then this is no issue. Also, many retirees spend their working years stashing away as much cash as possible in their TSAs only to wake up in retirement swimming in income.


Why Are IRA BDAs Last?

An IRA Beneficiary Distribution Account is a traditional IRA inherited when a family member dies. Regardless of your age, the recipient is required to take an annual withdrawal from the account. If you already have a high household income, the tax bite on this required distribution is going to hurt. If the account is not growing fast, the annual withdrawal will not be as large.
 

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Point View Wealth Management, Inc.
382 Springfield Avenue, Ste. 208
Summit, NJ 07901-2707
Phone: 800-252-7854 / 908-598-1717
Fax: 419-844-0922
Email: firm@ptview.com
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