Advisor Today - March/April 2016 - (Page 32)

FEATURE | How Tax Efficient is Your Investment and Retirement Portfolio? An annual review may unveil certain tax inefficiencies. By Brandon Buckingham, JD, LLM With tax season upon us, savvy investors will once again be reviewing the tax efficiency of their retirement portfolios. For many, the tax pain caused by the changes under the American Taxpayer Relief Act (ATRA) is still fresh in the mind. ATRA not only increased the top income tax rates, but also reduced the value of certain tax expenditures, such as itemized deductions, personal exemptions and tax credits for some taxpayers. But for many, the biggest tax increase was on their investment income. ATRA increased the tax rates for long-term 32 ADVISOR TODAY | March/April 2016 capital gains and qualified dividends from 15 percent to 20 percent for those in the top tax bracket. In addition, many are now subject to the 3.8 percent Medicare surtax introduced as part of the Affordable Care Act in 2013. An annual portfolio review may unveil certain tax inefficiencies and help investors mitigate the tax pain felt last April. The impact of taxes Many people don't think about how taxes could affect their long-term investment and retirement goals. The taxes an investor pays annually on capital gains, dividends and interest could significantly erode a portfolio's return in the future. Morningstar measures the tax cost ratio of most mutual funds, and while some funds will have a low tax cost ratio, other funds can have ratios as high as 3 percent or more each year. This means that a mutual fund with a 2 percent tax ratio will surrender 2 percent of its returns to taxes each year. The tax drag will be greater for those funds that are actively managed and have a high turnover ratio.

Table of Contents for the Digital Edition of Advisor Today - March/April 2016

From the Editor
Viewpoint
New Products
A Question of Ethics The Details Often Make the Difference
What's Ahead for Financial Advising?
Whos's Saving the Most and Why?
Making the Case for Critical Illness Insurance
Are You a Retirement Expert?
Selling the "Best Plan"
Smooth Sailing
Taking Incremental Steps Toward Success
Investment Strategies for Today’s Consumers
How Tax Efficient is Your Investment and Retirement Portfolio?
Naifa News
Ideas for a Profitable Practice
Crossing the Two Client Relationship Bridges
Working with Muslim-American Clients
Attracting and Serving Today's High-Net-Worth Clients
Becoming a Networking Success
Advertiser Index
Back Page

Advisor Today - March/April 2016

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