Want to Keep More of Your Investment Returns? Consider These Moves - Conway Center for Family Business

Want to Keep More of Your Investment Returns? Consider These Moves

Taxes can shrink your realized returns from your investment portfolio, and yet, most investors don’t have a strategy in place for tax-efficient investing.

Comprehensive tax reform passed late last year means many taxpayers are now in a lower tax bracket and will see higher take-home pay. Still, because of the tax law’s cap on state and local tax deductions, some taxpayers are likely to experience an overall increase in their tax bill for 2018.

However, those changes shouldn’t affect your 2017 returns.

Though you can’t control tax policy, you can establish an active and updated tax management strategy for your investments. Even small reductions in tax payments today can have a big impact on your wealth tomorrow. Consider putting in place some or all of the potential solutions below to help you retain more of your assets.

What Kinds of Accounts Do You Have?

Different kinds of accounts are taxed differently. Employing a tax-aware asset allocation strategy can take those differences into account to potentially increase your after-tax returns. By allocating high-yield assets to tax-deferred and tax-exempt accounts, such as Individual Retirement Accounts, you can help minimize your exposure to taxes. Your Financial Advisor can assist you in structuring your asset allocation across your accounts.

Consider Tax-Favorable Investment Options

Many investments allow you to save for a variety of goals while also offering tax benefits. Municipal bonds, the interest on which is typically free from federal, state and local taxes can be one of the most efficient investments available for defending against current and potentially higher tax rates. Beyond municipal bonds, consider tax-efficient mutual funds or separately managed accounts that aim to limit the number of taxable events within your portfolio.

Diversifying your retirement portfolio with a variable annuity may provide tax-deferred growth potential, guaranteed lifetime income, increased retirement savings, equity upside potential, and a death benefit for named beneficiaries. A 529 college savings plan is a tax-advantaged way to save for college expenses. Donor-advised funds for charitable giving provide potential tax advantages while helping you support your favorite causes.

Employ Tax-Loss Harvesting

Current U.S. tax law permits tax-loss harvesting, a process by which you can offset capital gains with capital losses that you’ve incurred during that tax year, or carried over from a prior tax return, to possibly lower your tax bill. Capital gains are generally the profits you realize when you sell an investment for more than you paid for it, and capital losses are generally the losses you realize when you sell an investment for less than you paid for it. If your losses exceed your gains, they can also be used to offset up to $3,000 of ordinary income each year.

When engaging in tax-loss harvesting, be sure you don’t inadvertently participate in a ‘wash sale,’ which can occur when you sell or trade stock or securities at a loss and buy substantially identical stock or securities 30 days before or after the sale. Talk to your Financial Advisor to learn about your options.

Max Out Retirement Plans

If your taxes may rise, it may make sense to fully fund your employer-sponsored retirement plan, such as your 401(k), since contributions can be made on a pretax basis. If your taxable income is lower, the amount of income tax you owe for that year might also be reduced. Because this is a tax-deferred account, you generally won’t pay income taxes on any earnings from your investments until you withdraw funds. For 2018, you can contribute up to $18,500 to your 401(k)plan, with up to $6,000 in additional contributions for those over 50.

Engage in Legacy Planning and Gifting

For 2018, the federal estate tax exemption has increased to $11.8 million per individual. Regardless of whether your estate will generate estate taxes, all investors should have an estate plan that reflects their wealth-transfer goals and objectives. Trusts can be an effective tool to reduce estate taxes or assure a fair distribution of wealth among family members. Taxpayers with taxable, or potentially taxable, estates who are in an economic position to do so and would like to leave money to their heirs should consider making lifetime gifts to those heirs now, which can also be a tax-efficient wealth-transfer strategy. Also, consider making gifts under the annual gift tax exclusion ($15,000 for 2018) and charitable gifts before year-end. Morgan Stanley’s Donor Advised Fund may be a good solution to help you achieve your charitable giving strategy.

These investment strategies can help minimize your overall tax bill. Contact our team to determine which strategies might be appropriate for you.


Article provided courtesy of




Senior Vice President
Financial Advisor
Corporate Retirement Director

4449 Easton Way, Suite 300
Columbus, OH 43212

(P) 614.269.3401
(E) Michael.Beers@morganstanley.com
(W) fa.morganstanley.com/fortis


1 Restrictions, tax penalties and taxes may apply. For a distribution to be an income-tax-free qualified distribution, it must be made (a) on or after you reach age 59 1/2, due to death or qualifying disability, or for a qualified first-time homebuyer purchase, and (b) after the five tax year holding period, which begins on January 1 of the first year for which you made a regular contribution (or in which you made a conversion or rollover contribution) to any Roth IRA established for you as owner.

The author(s) and/or publication are neither employees of nor affiliated with Morgan Stanley Smith Barney LLC (“Morgan Stanley”). By providing this third party publication, we are not implying an affiliation, sponsorship, endorsement, approval, investigation, verification or monitoring by Morgan Stanley of any information contained in the publication.

The opinions expressed by the authors are solely their own and do not necessarily reflect those of Morgan Stanley.  The information and data in the article or publication has been obtained from sources outside of Morgan Stanley and Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of information or data from sources outside of Morgan Stanley. Neither the information provided nor any opinion expressed constitutes a solicitation by Morgan Stanley with respect to the purchase or sale of any security, investment, strategy or product that may be mentioned.

This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this material may not be suitable for all investors. Morgan Stanley Wealth Management (“Morgan Stanley”) recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Tax laws are complex and subject to change. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by Morgan Stanley and/or as described at www.morganstanley.com/disclosures/dol. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

Asset allocation and diversification do not assure a profit or protect against loss in declining financial markets.

Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one’s state of residence and, if applicable, local tax-exemption applies if securities are issued within one’s city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability.

Mutual funds and variable annuities are sold by prospectus. The prospectus contains the investment objectives, risks, fees, charges and expenses, and other information regarding the mutual fund or variable annuity contract and its underlying investments, which should be considered carefully before investing. Prospectuses for the mutual fund or the variable annuity contract and its underlying investments are available from your Financial Advisor. Please read the prospectus carefully before investing.

Variable annuities are long-term investments designed for retirement purposes and may be subject to market fluctuations, investment risk and possible loss of principal.

All variable annuity guarantees, including optional benefits, are based on the financial strength and claims-paying ability of the issuing insurance company and do not apply to the underlying investment options.

Variable annuities are offered in conjunction with Morgan Stanley’s licensed insurance agency affiliates.

The 529 Plan Program Disclosure contains more information on investment options, risk factors, fees and expenses, and potential tax consequences. Investors can obtain a 529 Plan Program Disclosure from their Financial Advisor and should read it carefully before investing.


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