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Do you want a tax problem or an income problem?


I know that taxes are so prevalent in our lives that we rarely make any decision without thinking of what kind of effect that decision will have on us from a tax perspective. I think this makes good sense to consider. However, I have run into people lately (I guess because it is tax season) that can only think of taxes and not returns, risk, longevity or anything else. I know people are still worried about the potential loss of there capital due to the most recent market downturn from October 2007 through March of 2009. And I think the concern about what this administration will due concerning healthcare, taxes, etc. has got people thinking of everyway they can to protect themselves and I get it. But please do not abandon good, prudent and proven asset allocation strategies for what are the most recent tax saving strategies.  

As always if you have non-qualified accounts (taxable accounts) you should consider having your stock holdings in that account and keep as much of your fixed income holdings in your tax-deferred accounts. The reason for this is that stocks held for more than a year are taxed at long term capital gains rates where income from some bonds and bond funds are taxed as ordinary income. Of course that depends on whether or not the bonds are tax-free or not. My point is be smart with what makes common sense but don’t try and shift all your money to one approach i.e. all municipal bonds, tax deferred annuities, etc. Remember when you focus on protecting yourself from one type of risk you may potentially open yourself up for many more i.e. interest rate risk, default risk, inflationary risk and such. Be prudent but not paranoid. Diversify, diversify diversify because you may live a long time and you don’t want to run out of money. I realize that how dividends and capital gains are taxed may change and it always pays to revisit your plan and approach but don’t be afraid to make a little money and pay taxes on it. I would rather have a tax problem than an income problem.


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Comment   |  7 years, 10 months ago from Loveland, OH