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  • Writer's pictureSteven Schoenberger

Value Add Through Tax Planning

Earlier this month we requested copies of tax returns from all of our clients. If you’re reading this and you did not send us your most recent return, please let us know and we will resend the secure link.

We have requested this information because tax planning is an integral part of how we, financial advisors, can add value for clients. From strategic retirement contributions, to capital gains planning, to asset locating within a portfolio, to distribution order and timing, the use of tax efficient strategies can create significant added value in the planning process.

For example, according to Vanguard, asset location, which is the allocation of assets between taxable and tax-advantaged accounts, can potentially add as much as 0.6% to an investor's return, depending on a number of factors. Other tax related planning such as withdrawal order and timing can add even more. (See

The factors that drive tax planning are often unique to each individual client, and can even vary from year-to-year. For example, a business owner who is able to keep a modest income and contribute to a Roth 401(k) may need to switch her strategy in a year when a large distribution takes place. Retirees who have not started taking Social Security, may want to take larger distributions from their traditional retirement accounts in order to avoid future tax surprises such as IRMAA, which can increase their cost of Medicare.

The reason we request to review all of our clients’ tax returns is that this gives us the best picture of what tax planning we can do. On top of this we can make certain tactical and strategic decisions based on what a client expects to happen in the future, with respect to their income, and what we project could happen (or what is scheduled to happen) with tax rates. While this can create real value for our clients, we also make sure to understand how this planning relates to larger stated goals and shared values.

While we cannot predict the future, we can plan for today, and create scenarios that will best suit your outcomes as tax laws and income amounts change. While some of this can be done by building efficient investment strategies and some can be done with back-of-the-napkin math, the real heart of the planning is in the details. By looking at returns on an annual basis, we can glean these details and make more informed recommendations.

If you have questions about the tax efficiency of your plan, or want to know if there are strategies that you could be incorporating, please do not hesitate to reach out.

-Open Door

DISCLAIMER: You should always consult a financial, tax, or legal professional familiar about your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost.

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