Whether you are using your investment income to support current lifestyle expenses, planning for future income, or focused on capital accumulation, MacNaughton & Associates LLC can help you develop a tax-aware investment strategy.
Are you setting money aside while working toward retirement? Consider Roth IRA accounts that can build tax-free income; conversion of traditional tax-deferred retirement accounts to Roth IRA accounts; insurance contracts that can guarantee lifetime income. Do you have investment income that you don’t need now? Consider gifting that cash flow to a trust that benefits a favored charity and generates a current tax deduction; then later, your capital can return to provide income when you might need it.
Different types of investments are subject to various taxation rules. Municipal bond income may be tax-free. Qualified dividend income may be taxed at a lower rate than ordinary interest income. Certain insurance policy distributions may be tax-free. If you are subject to annual Required Minimum Distributions (“RMDs”), are your IRA accounts invested to generate enough distributable income to satisfy your RMD obligations without risking forced liquidations in down markets? How are you hedging against sequence of return risks? Do you have investment assets that you need for income now but want to transfer to a favorite charity later? Consider making that future gift now, retaining that income while you need it, and generate a current tax deduction.
Whether you are focused on capital appreciation, income planning, or wealth transfer, tax-efficient placement matters. Which type of investment belongs in what type of account? Except for Roth IRA accounts, retirement distributions usually are fully taxable and can incur penalties. Inside a tax-deferred retirement account like an Individual Retirement Account (“IRA”) or an employer-sponsored plan, earnings ordinarily are tax-free until distributed. And investment income that would be tax-advantaged or tax-free if earned in a non-retirement account is fully taxable when distributed from a traditional retirement plan.
MacNaughton & Associates LLC can help you develop a plan for income now or later, using suitable placement strategies.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply. If sold prior to maturity, capital gains tax could apply.
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
MacNaughton and Associates, LLC and LPL Financial do not offer tax advice or tax preparation services.