It’s easy for investors to focus most of their attention on investments, but securing your retirement is about more than just accumulating assets; it’s about making smart, strategic decisions that ensure your savings last. One key strategy to achieve this is tax diversification, which involves spreading your investments across different accounts with varying tax treatments. This approach not only helps minimize the impact of taxes on your savings but also provides flexibility and control over your financial future.

Understanding Tax Diversification

Tax diversification is a strategy that involves considering the different tax treatments of various investment accounts. By spreading your investments across taxable, tax-free, and tax-deferred accounts, you can optimize your tax efficiency and potentially extend the life of your assets. This method allows you to manage your tax liability more effectively, especially when combined with a tax-efficient withdrawal strategy during retirement.

The Three Tax Treatments

• Taxable Accounts: These include brokerage accounts where investment earnings such as interest, dividends, and capital gains are taxed in the year they are received. While taxable accounts don’t offer immediate tax benefits, they provide significant flexibility. You can withdraw funds at any time without facing penalties or specific tax rules governing distributions.
• Tax-Free Accounts: Examples include Roth IRAs and Roth 401(k)s. Contributions to these accounts are made with after-tax dollars, but the earnings grow tax-free, and qualified withdrawals in retirement are also tax-free. These accounts are highly beneficial if you anticipate being in a higher tax bracket during retirement.
• Tax-Deferred Accounts: These accounts, such as traditional IRAs and 401(k)s, allow contributions to be made with pre-tax dollars, reducing your current taxable income. The earnings in these accounts grow tax-deferred, meaning you won’t pay taxes on them until you withdraw the money in retirement. This can be advantageous if you expect to be in a lower tax bracket in the future.

Implementing Tax Diversification

To effectively implement tax diversification, you need to strategically allocate your assets across these different types of accounts. Here are some steps to consider:

1.      Evaluate Your Financial Goals and Time Horizon

Your investment strategy should align with your long-term financial goals and the time you have until retirement. We can help you assess your current situation and make personalized recommendations.

2.      Contribute to Tax-Efficient Accounts

Maximize your contributions to tax-efficient retirement accounts. For instance, contributing to a traditional IRA or 401(k) can lower your current taxable income, while Roth accounts can provide tax-free income in retirement. Ensure you understand the contribution limits and eligibility criteria for these accounts.

3.      Diversify Account Types

Using a combination of taxable, tax-free, and tax-deferred accounts allows you to mix and match income sources in retirement. This approach provides flexibility in managing your tax liability. For example, you can withdraw from taxable accounts to take advantage of lower capital gains rates and then draw from Roth accounts to avoid pushing yourself into a higher tax bracket.

4.      Choose Tax-Efficient Investments

Certain investments are more tax-efficient than others. For example, municipal bonds are often tax-exempt at the federal level and sometimes at the state and local levels. Tax-managed mutual funds and ETFs are also designed to minimize taxable distributions. Ensure you hold these investments in the appropriate accounts to maximize their tax benefits.

5.      Rebalance Regularly

Regularly rebalancing your portfolio helps maintain your desired asset allocation and manage risk. However, be mindful of the tax implications of selling investments in taxable accounts. Whenever possible, focus rebalancing efforts in tax-advantaged accounts to avoid triggering unnecessary taxable events.

6.      Harvest Losses to Offset Gains

Tax-loss harvesting involves selling investments that have lost value to offset gains from other investments. This strategy can help reduce your taxable income and is particularly valuable for higher-income investors subject to higher long-term capital gains rates. Be aware of wash sale rules, which can disallow the loss if you repurchase the same or a substantially identical investment within 30 days.

Planning for the Future

Tax diversification should ideally be a long-term strategy, with adjustments made as early as possible to maximize benefits. For example, a young investor might prioritize contributions to a Roth IRA to take advantage of lower current tax rates and benefit from tax-free withdrawals in retirement.

It’s also important to consider the role of tax diversification in estate planning and charitable giving. For instance, appreciated securities in taxable accounts can be donated to charity, allowing you to avoid capital gains taxes while receiving a full fair market value deduction. Similarly, Roth IRAs are excellent for bequests, as beneficiaries receive distributions free from income tax.

Consulting a Professional

This guide can provide a solid foundation for successfully diversifying your taxes, but it’s essential to consult with us to tailor these strategies to your specific situation. Tax laws and rates can change, and a professional can help you navigate these complexities, ensuring your investment decisions align with your overall financial goals.

Maximize Your Savings with Tax Diversification

Spreading your wealth across different accounts with varying tax treatments is a powerful strategy to minimize your tax burden and maximize your retirement savings. By understanding the benefits of taxable, tax-free, and tax-deferred accounts and implementing a well-rounded tax diversification plan, you can take control of your financial future, reduce taxes, and ensure your assets last longer. Start planning today to secure a financially stable and tax-efficient retirement.

If you have any questions, give us a call, or read chapter 5 of “Wealth on Purpose” by Bryan Ballentine.

Have a great weekend!




Sources: Located at the bottom of the article.

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Golf Tip of the Week

Tour Short-Game Guru: Instead of a Flop Shot, Try This Simple Shot

We know the temptation well: The ball is sitting up nicely in the greenside rough. There isn’t a lot of green between you and the pin. And the thought sneaks into your mind, I should hit a flop shot. I’ve seen tour players do it, how hard could it be? Pretty hard, actually. If you’re an average player who hasn’t dedicated a lot of time to practicing this difficult shot, attempting the flop is going to hurt you more than help. Gareth Raflewski, a short-game coach trusted by over 65 tour players, says to try this shot instead.

Take your sand wedge and set up to the ball. “Put 80% of your weight on the front foot, this will steepen the angle of attack,” Raflewski says.

“Take a full swing back and then stop the swing through at about halfway, making sure the face is pointing up.”

By stopping halfway and holding the face open, Raflewski says you’ll get higher launch. By putting your weight forward, you’ll get better contact: “You’ll hit closer to the ball not catching the rough,” Raflewski says.

As tempting as it may be, don’t try to do anything fancy when you’re in a situation where you need to chip the ball up in the air and have it stop quickly on the green. Follow Raflewski’s advice and just take your normal swing and cut it off halfway with the clubface pointing up. You’ll be surprised how easily the ball pops up high, and then lands softly on the green. It’s not as glamorous as the flop, but it will help you save par much more frequently.




Tip adapted from golfdigest.comⁱ

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Recipe of the Week

Fried Chicken Caesar Sandwich

Ingredients

Fried Chicken

• 1 c.  (120 g.) all-purpose flour
• 1/2 tsp. freshly ground black pepper, plus more
• 1/2 tsp. garlic powder
• 1/2 tsp. ground cumin
• 1/2 tsp. kosher salt, plus more
• 1/2 tsp. smoked paprika
• 1 large egg
• 2 (6- to 8-oz.) skinless, boneless chicken breast
• 1 1/2 c. vegetable oil

Sandwiches

• 10 to 12 large romaine lettuce leaves, sliced into ribbons finely sliced
• 7 Tbsp. store-bought or homemade Caesar salad dressing, divided
• 4 brioche buns, halved, toasted
• 1 red onion, thinly sliced
• 1 medium tomato, thinly sliced
• 2 Tbsp. finely grated Parmesan

Instructions

Chicken

• In a shallow dish, whisk flour, pepper, garlic powder, cumin, salt, and paprika until combined. In another shallow bowl, beat egg to blend.
• Place chicken breasts on a cutting board. Using a sharp chef’s knife held parallel to cutting board, slice into thickest side of breast, cutting three-quarters of the way through. Fold top piece back (as if you were opening a book) and continue to cut until breast is divided into 2 thinner cutlets. Repeat with remaining breast for a total of 4.
• Season chicken all over with salt and pepper. Dip each chicken cutlet into egg, letting excess drip off. Dip and coat each piece of chicken into flour mixture. Place on a wire rack set in a baking sheet.
• In a large, heavy, high-sided skillet over medium-high heat, heat oil until hot. Fry chicken, turning halfway through, until crust is golden brown, 4 to 5 minutes per side. Transfer to paper towels and let drain.

Sandwiches

• In a medium bowl, toss romaine and 3 tablespoons dressing until coated.
• Spread remaining 4 tablespoons dressing on cut sides of bottom buns. Top with one piece of fried chicken, then pile on onion, tomato, Caesar-dressed romaine, and Parmesan. Close with top buns.

 

 

 

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Travel Tip of the Week

10 Common Travel Mistakes to Avoid in Paris, According to a Local

  

First things first: Even the French — meaning non-Parisians — don’t always get it right when visiting the country’s capital. Why? Because in southwest France, pain au chocolat is called chocolatine, and in Alsace, they start their bisous (double-kiss greeting) on the left cheek, not the right. That means you likely won’t be alone in making a faux pas when visiting. You’re a tourist, after all. We know, we know — you want to avoid being pegged as one.

I’d say to leave the fanny pack and sneakers at home, but both are back in style these days, and Paris is known for its trendsetting ways. I learned this the hard way when moving here from New York in 2014. Since Parisians don’t prance around in their gym clothes like Americans, I wore jeans to the yoga studio, only to arrive and realize I left my leggings back at chez moi. Thankfully, this always-be-dressed-to-impress rule has lightened up a bit due to the pandemic, although a few other steadfast rules remain.

Here are 10 ravel mistakes to avoid on your next trip to Paris.

Not Saying “Bonjour” Upon Entry or “S’il Vous Plait” and “Merci” Enough

It’s one of the first things we’re taught in grade school: Mind your Ps and Qs. In Paris, it’s also imperative to say “hello” (bonjour if it’s daytime, bonsoir if it’s nighttime) upon entering a store or restaurant. Eye contact is encouraged, too. Acknowledge your fellow humans. It took me a while to get used to this one, and I’ll never forget the time I walked up to someone at a store and launched directly into a question before saying bonjour. Madame, understandably, was not happy. When in doubt, simply start with bonjour.

Waiting for Water and the Bill at Restaurants

Let’s start with dining out, as eating and drinking in Paris is a favorite pastime and one to be taken seriously — so seriously, in fact, that you won’t be rushed out the door upon finishing your meal. Eating is a time to savor both the flavors of the food and the company you keep. This is why the bill won’t arrive as soon as your plates have been cleared and you’ve had your last sip of water. (Speaking of, you’ll likely have to ask for water — une carafe d’eau, s’il vous plait, if you just want tap — unless you’re at a super-fancy restaurant). The bill will only be dropped on the table when you ask for it (l’addition, s’il vous plait).

Forgetting to Book Ahead at Restaurants

Most reputable restaurants require bookings. For some, that means the night before; for others, it means a week or a month ahead. Either way, it’s important to put your name on the list. Dining rooms are significantly smaller in Paris, and unlike American cities such as Los Angeles or New York, they’re not as interested in turning tables and increasing head count as they are in making something delicious during their set kitchen hours. Generally, this time frame falls between noon and 2:15 p.m. for lunch and 7 p.m. and 10:30 p.m. for dinner, though there are all-day restaurants and cafés (look for signs that say service continu).

Not everyone travels to eat, but if you do, plan ahead and make a reservation. Many restaurants have online systems so you don’t have to worry whether to use tu or vous when addressing the person on a phone call. (To be safe, always go with vous.)

Visiting in August or December

If you’re traveling to eat at a specific Michelin-starred spot or the new pop-up from a chef you follow on Instagram, avoid visiting in August or December when many restaurants close for vacation. If you’re a first-timer or don’t care much for croissants and think all baguettes are created equal (see next section), monuments, museums, and parks will all still be open. But, in general, the city does have a quiet, closed-up vibe during these two months. Some love it, while others, like me, thrive on the buzz.

Of course, thanks to the 2024 Olympics, this August will be busier than usual, though things should calm down toward the end of the month.

Getting a Coffee at a Corner Cafe

If you haven’t already noticed, in France, food is la vie. It may be your dream to visit Paris, sit on one of those wicker chairs facing the street, and order a café crème. It was mine, too. And yes, there is nothing quite like people-watching or reading the likes of Hemingway or Sartre from one of these corner cafés. But if I may, let me remind you of two things: Smoking is still permitted on terraces, so expect whatever you order to come with a side of secondhand smoke. And the coffee at such places is arguably not good. You’re better off ordering wine or a beer if all you want to do is imbibe and take in the scene. Quality bean lovers should seek out any number of the newer craft coffee shops that now proliferate Paris for a true filtre (long, black drip coffee) or a crème where the foam isn’t the equivalent of overly soapy bath bubbles.

Buying a Baguette Instead of a Tradition

At the bakery, meanwhile, ask for a tradition (tradi if you really want to seem like a local) rather than a baguette. The latter is white inside, can be made with any ingredients, and is often mass-produced, so it’s not quite as delicious. A tradi can only contain flour, salt, water, and yeast and is usually made by hand on the premises; therefore, it’s much tastier. If you’re lucky to get one straight out of the oven, I dare you not to devour the entire thing on the way to your destination.

Eating or Drinking on the Go

Speaking of eating or drinking on the go, Parisians don’t really do it. Again, food and beverages are meant to be enjoyed and ingested slowly — not in a rush, over your computer, or on the metro. The only thing I’ve ever seen people eating on the street while walking is a sandwich or baguette (likely because it’s hot — and yes you can still call it a baguette colloquially even if you order a tradition). Coffee is rarely ordered to-go or had en route; even eating apples or bananas on the street may cause people to scoff. And while there are certain dos and don’ts at the table, too — like proper ways to cut cheese or pour wine — Parisians are ultimately an international bunch, so if you want to eat a hamburger or slice of pizza with your hands while they cut theirs with a fork and knife, go ahead.

Touching Anything Without Asking

When it comes to getting handsy, just don’t. Or, as the French say, ne touchez pas! At food markets, it’s best to ask before you grab something. The same rule applies at any of the weekend brocantes (flea markets) dotting neighborhood streets. Many of the items for sale are valuable and fragile, so it’s better to catch the seller’s attention and point rather than caressing the porcelain salt and pepper set like it’s already yours.

Buying a Weeklong Pass and Throwing Away Metro Tickets

There’s a range of metro ticket options available, including single-journey paper tickets and extended-use passes that you can reload.

If you plan on sticking with the paper tickets, it’s important to keep your used ticket until you exit the station at your destination. You may be tempted to throw it away immediately, but the metro is highly monitored and you will get fined if you don’t have a ticket to show that you paid for your ride. That said, many popular Parisian sites are so close together that you may want to walk and enjoy the attractions along the way. Unless you’re here for an extended stay or will be commuting to and from a specific place regularly, don’t bother buying a weeklong pass.

Hailing a Taxi in the Middle of the Street

If you’re not up for walking or taking the metro, car services are everywhere — and that includes old-school taxis. (Official taxis say “Taxi Parisien” or “G7” on the vehicle.) There are designated taxi stands from which you can hop in and go. That said, Uber is widely used, so you can also order one from wherever you are. Fares range depending on the destination, but rates from the airport are always the same: From Charles de Gaulle, it’s €56 for a Taxi Parisien to the Right Bank and €65 to the Left Bank; from Orly, it’s €36 to the Left Bank and €44 to the Right Bank.




Tip adapted from travelandleisure.comⁱⁱⁱ 

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Copyright (C) 2024.  Ballentine Capital Advisors.  All rights reserved.

 

Our mailing address is:  

Ballentine Capital Advisors
15 Halton Green Way
Greenville, SC 29607

 

Sources:

Tax diversification: A tax strategy to help your assets last

Tax-Efficient Investing: Why Is It Important?

Tax-aware investment strategies you should consider

 

Disclosure:

Ballentine Capital Advisors is a registered investment adviser. The advisory services of Ballentine Capital Advisors are not made available in any jurisdiction in which Ballentine Capital Advisors is not registered or is otherwise exempt from registration.

Please review Ballentine Capital Advisors Disclosure Brochure for a complete explanation of fees. Investing involves risks. Investments are not guaranteed and may lose value.

This material is prepared by Ballentine Capital Advisors for informational purposes only. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation or any particular security, strategy, or investment product.

No representation is being made that any account will or is likely to achieve future profits or losses similar to those shown. You should not assume that investment decisions we make in the future will be profitable or equal the investment performance of the past. Past performance does not indicate future results.

 

Advisory services through Ballentine Capital Advisors, Inc.

ⁱ https://www.golfdigest.com/story/tour-short-game-guru-instead-of-a-flop-shot-try-this-simple-shot
ⁱⁱ https://www.delish.com/cooking/recipe-ideas/a60198643/fried-chicken-caesar-sandwich-recipe/
ⁱⁱⁱ https://www.travelandleisure.com/travel-tips/mistakes-travelers-make-in-paris