It may even be possible to avoid capital gains taxes altogether<\/a>.<\/p>\n\n\n\nHow to Take Advantage of Long-Term Capital Gains Tax Rates<\/b><\/h2>\n\n\n\n Holding stocks is a great way to take advantage of long-term capital gains tax rates. The value of stocks can rise, but you will not \u201crealize the gain\u201d until <\/span>you decide<\/b> to sell the stock. You could potentially see a very large increase in the value of your stocks and continue to hold them for a long time. The key here is that it is up to you when you sell, so you are in full control of when you realize the gain. <\/span><\/p>\n\n\n\nPassive index ETF\u2019s are another great way to take advantage of long-term capital gains. The principle is the same since there is by definition very little trading activity within a passive ETF. This is one of the advantages of using passive ETF\u2019s.<\/span><\/p>\n\n\n\nBack to Asset Location<\/b><\/h2>\n\n\n\n For the retirement saver who has a portion of your assets outside of tax-advantaged retirement accounts, think about your asset <\/span>allocation<\/b> – your mix between stocks and bonds.<\/span><\/p>\n\n\n\nConsider the difference in taxation of retirement accounts and brokerage accounts. Retirement account withdrawals will be taxed at income tax rates. Brokerage accounts are potentially taxed at rates that are significantly lower than your income tax rate. <\/span><\/p>\n\n\n\nWith that in mind, it makes sense then to locate investments where they will make the best use of the applicable tax structure.<\/span><\/p>\n\n\n\nWhich investments go in which account? <\/b><\/h2>\n\n\n\n As noted above, investments that allow you to control when gains are realized are good choices for brokerage accounts. You can strategically take your gains to maximize their after-tax value by holding investments for at least one year.<\/span><\/p>\n\n\n\nInvestments that provide a regular stream of payments are less efficient in brokerage accounts because the income will be taxed along the way. <\/span><\/p>\n\n\n\nBonds are a good example. Most bonds make interest payments to the holder every six months. You will owe taxes on these payments at your marginal tax rate. <\/span><\/p>\n\n\n\nThe planning factor here is, if you are going to pay income tax on the interest payments anyway, why not hold your bonds in your retirement account? This will allow you to hold your stocks in your brokerage account where you can take advantage of a lower long-term capital gains tax rate.<\/span><\/p>\n\n\n\nThere is a second effect here as well. If you are reinvesting your interest payments then you get to reinvest the full amount if they are inside the retirement account. Held in a brokerage account, interest payments would be taxed when received. If you collect a $100 interest payment, then you will incur a tax liability at your marginal tax rate. This creates a significant drag on your portfolios growth over the long term.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"That\u2019s not a typo. While asset allocation is a common investment term, asset location is an often overlooked aspect of retirement planning. That is unfortunate because asset location can significantly affect the after-tax value of your retirement income. I\u2019ll explain what asset location means and how you can use that information to increase your retirement […]<\/p>\n","protected":false},"author":4,"featured_media":26579,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,6,5],"tags":[12,10,13],"yoast_head":"\n
Asset Location is Important Too - Belonging Wealth Management<\/title>\n \n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n \n \n \n\t \n\t \n\t \n