Broker Check

Practical Planning Tip: Mistakes Affluent Investors Make - Mistake # 5

May 22, 2024

Today’s mistake is Not factoring in tax planning: 

It’s surprising how many wealthy families completely neglect tax planning within their financial strategy. If you’ve been fortunate to have accumulated a large sum of assets, ensuring that you can pass that money tax efficiently to your beneficiaries should be a top consideration. There is really no reason for Uncle Sam to take more than necessary upon your passing. That is why it’s important to explore various estate planning techniques, including gifting, utilizing trusts, and proper structuring of assets, with your advisors.

Additionally, many HNW clients don’t consider taxes when it comes to day-to-day investing. They seem to be more focused on hot investment ideas or gaining access to boutique alternative investment strategies that they can discuss with their friends on the golf course. While none of those strategies are guaranteed to live up their potential, one sure way to provide value for them is proper “asset location.”

Asset location is the process of allocating tax inefficient investments to tax deferred accounts, like IRAs or 401(k)s, and tax efficient investments to taxable accounts. Investors should carefully examine their investment vehicles. If a particular strategy involves a high level of trading, generates non-qualified dividends or income payments, it may be tax inefficient and should be held in the appropriate account. There are no free lunches in the markets; proper tax planning is as close as you can get.

Tomorrow I will discuss the sixth mistake many affluent investors make.


You can WATCH the full video here.