Integrated Wealth Management is the phrase we use to describe our approach to helping our clients. A key component of integrated wealth management is tax planning – also referred to as tax efficiency or tax minimization. While your ability to change the tax laws is limited, understanding them may help save you money now and over multiple years.

Let’s take a look at how integrated wealth management and tax planning created opportunities for investors over the last few years.

In the fourth quarter of 2018, the stock markets had a steady decline resulting in some unrealized capital losses for investors. For some of our clients, this created an opportunity to tax-loss swap those investments and lower their tax bill, a strategy which was particularly good for clients who had higher than average taxable implications for the year.

By 2019, the stock and bond markets had recovered, leaving little opportunity to tax-loss swap, but many opportunities for other tax strategies. For example, those with lower overall taxable income, we were able to realize capital gains in their portfolios to fully use the 0% capital gains bracket. Additionally, investors could execute Roth IRA conversions to fully utilize the low 12% tax bracket and in some cases to fully utilize the relatively low 22% and 24% tax brackets. While Roth conversions do require paying taxes today (at relatively low rates), the result is that the investments in the Roth IRA will grow tax-free, have no required minimum distribution into retirement and withdrawals are tax-free. Further, assets held in a Roth IRA are more efficient for transferring to next-generation upon death.

For those investors who were charitably inclined, changes in the Tax Cuts and Jobs Act of 2017 created an opportunity for “charitable bunching” and/or utilizing Donor Advised Funds to maximize the multi-year tax benefit of a higher standard deduction. And for those over age 70 ½, changes to Qualified Charitable Distributions allowed for investors to give directly and tax efficiently to charities from their IRA--a beautiful strategy for investors who didn’t need their otherwise required minimum distribution for cash flow.

More tax law changes are coming down the pipe as I write this blog post with the signing and implementation of the SECURE Act of 2019. At Vector, we believe that using an integrated wealth management approach provides the best opportunity for clients to navigate and benefit from tax law changes specific to their unique financial situation.

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We recommend that clients speak with a qualified tax professional to confirm the strategic benefit and tax implications of any investment plan. Vector does not provide professional tax or legal services.