Tom Sedoric and Casey Snyder

Taxes are typically our greatest lifetime expense and we make every effort to mitigate their drag on our clients’ retirement portfolios. During our three decades of helping families in their quest for retirement security, it appears that what is known as tax efficiency – or “tax alpha” -- has played out nicely for those who listened to our message early on. 

Each client is dealt their own unique hand of tax-advantage cards, thus the reason a collaborative effort is needed on an annual basis to analyze everything from current and projected tax brackets to the turnover rate of an investment solution. 

Tax efficient planning may help determine which type of account is most suitable for the stock-heavy portion of a portfolio; it may help someone decide to strategically pay taxes early in the form of a Roth conversion so they have tax-free withdrawals down the road. Or, whether to suspend contributions within a traditional 401k if there is a likelihood of paying higher future income tax rates. 

These choices represent a small portion of smart portfolio construction. As investing and retirement security are long-term endeavors, investors should be counseled on their choices and the long-term implications of tax efficiencies early on. Choices like using high yield debt instruments in deferred accounts and growth and tax exempt assets in taxable accounts can have a profound impact. 

In reality, what feels like the ‘right’ strategy during the accumulation phase can often prove counter-productive during the distribution phase. 

With this in mind, we are working harder than ever to help the multiple generations of investors properly manage their largest lifetime expense. As baby boomers retire in ever-increasing numbers and the next generation strives to create their own financial security, we wonder how many have had a frank talk about taxes with their advisors. How many of those who did not are now faced with unplanned tax liabilities that significantly reduce the value of their nest eggs?

We believe this kind of vital conversation, which was once rare, has become more mainstream. However, it still lacks consistent execution.

We must ask ourselves: Are we doing everything we can to help our families manage their greatest lifetime expense? Below are examples of some questions you may want to ask your advisor: 

  • How might tax rates evolve, and how can we best prepare for potential rising future tax rates?
  • Are the topics of tax diversification or tax alpha intertwined within client reviews, goal setting and portfolio discussions?
  • As a 65 year old client is barely 6 years from taking their RMDs, are you having discussions with your client and their tax counsel on how to most efficiently take their mandatory distribution at the lowest possible tax rate?
  • Do you have candid discussions with clients who are overweight in deferred assets how this may impact their estate planning for the next generation?
  • Is tax planning and the avoidance of tax surprises a central theme to your practice? 

In our practice, we embraced and employed the concept of tax alpha long before it became fashionable. As our team continues to work with the next-generation of young planners and savers, we ask them to be realistic about the uncertainty regarding future tax rates. Establishing intelligent savings strategies early on may be all that stands between paying 15% vs. 40% on future nest egg distributions. No matter one’s age, that seems like a pretty easy decision. 

What is your advisor doing to generate tax alpha?

This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. The views expressed are those of Tom Sedoric – Partner, Executive Managing Director and Wealth Manager and D. Casey Snyder, CFP® - Partner, Senior Vice President and Wealth Manager and are not necessarily those of Raymond James. Steward Partners Global Advisory LLC and The Sedoric Group maintain a separate professional business relationship with, and our registered professionals offer securities through, Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Steward Partners Investment Advisory LLC. 2985754