Wealth Management Colorado: Taxes and Wealth Management

Wealth managers at Pillar Wealth Management have extensive experience of more than thirty years in dealing with individuals and families having $5 million to $500 million in liquid assets. We have a deep understanding of financial matters, including tax management, risk management, retirement planning, estate planning, and more. All this allows us to serve our clients and optimize their wealth, protect their assets, and guide them towards financial security and serenity. If those are the services you are looking for to manage your own wealth, you can click here to book a free consultation and get in touch with one of our trusted advisors today.

Table of Contents
What is Tax Planning? Why is Tax Planning Important for Wealth Management Colorado? Opt for Non-Taxable Bonds Limit Active Management for Brokerage Accounts Move to a No-Tax State Deal with Your Tax-Deferred Accounts in Your Lifetime Practice Tax Loss Cultivation Switch to Roth IRA

What is Tax Planning?

Whether you’re an individual or business owner, or a high net worth family, you have to pay your taxes. However, just because you are obligated to pay your taxes does not mean you have to let the IRS take away a huge chunk of your wealth for the sake of taxes. This is where you can benefit from tax planning. Tax planning or tax management involves monitoring and evaluating the tax implications of various business and individual financial decisions.

The main purpose of tax management is to minimize the tax liability and burden for individuals and businesses so that they can efficiently grow their wealth and assets. Normally, tax advisors employ various strategies to help you minimize your tax liability, such as deduction planning, tax loss cultivation, and other year-end planning strategies to help you reduce your taxable income.

Our wealth managers at Pillar Wealth Management have been working on tax management for a couple of decades, so they know all the ins and outs of minimizing tax liabilities and other expenses. To discuss your own tax management matters, you can click here to chat with us.

Why is Tax Planning Important for Wealth Management Colorado?

Wealth management itself is pretty hard. Throw taxes into the mix, and it only gets harder. Most, if not all, of the financial decisions you take for your wealth eventually incur some tax liabilities. And once you incur these liabilities, you have no choice but to pay them. If you’re not careful, these liabilities can end up leaving a big dent in your income and other returns.

If you go to certain private banks and brokerage firms, they might give you excellent returns on your investments. However, at the end of the day, if you have to pay exorbitant taxes and fees on those returns, they’re not really that fruitful. As important as performance is, cost-saving through tax management is also crucial for wealth management.

That’s why when you’re thinking of going for private banking vs. wealth management Colorado, it’s crucial that you inquire about all the hidden costs and expenses besides their fee. If they’re simply stating their fees the same as their costs, it’s a big red flag for you to reconsider your advisor. You can check out other warning signs as well as how to choose the right financial advisor for yourself from this ultimate guide.

Moreover, what makes this all even more complicated is the fact that there are multiple types of taxes out there that become applicable on different occasions. Tax management for retirement planning can be different from tax management for your investment portfolio.

Tax Strategies for Individuals and Family Private Wealth Management Colorado

What makes tax planning so difficult is that there is no one solution to it. Whatever tax plan you do come up with, you need to constantly revise it according to your financial plans and performance. That’s why you need an experienced financial advisor, such as those at Pillar Wealth Management, who knows how to leverage different financial instruments and options to minimize your tax liability.

Such an advisor will execute numerous strategies to fulfill your financial goals and protect your wealth. If you are a high net worth or ultra-high net worth investor who wants to protect and grow their wealth, we’d suggest ordering a free hardcover copy of our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies For Families Worth $25 Million To $500 Million.

Besides that, here are some of the tax strategies that financial advisors recommend.

Opt for Non-Taxable Bonds

Taxable bonds might seem safe or have excellent performance, but they aren’t always great when it comes to tax liabilities. Especially for high net worth individuals operating under a high tax bracket, taxable bonds can be deadly. Similar to equities, these bonds earn you capital gains every time you buy or sell your shares in the bond. However, every time you have a capital gain, you have to pay taxes on it. Depending on various factors, this tax amount can turn out to be a huge burden that significantly affects your wealth.

That’s why a financial advisor might suggest you drop taxable bonds and opt for non-taxable bonds instead. For instance, municipal bonds are a safe investment that pays tax-free interest. These bonds might have lower returns, but once you actually do the math and account for the return rates and tax rates, non-taxable bonds can prove to be more profitable in the long run. If you want to learn more about the truth of performance and how to really improve portfolio performance, you can check out our comprehensive guide.

Limit Active Management for Brokerage Accounts

When it comes to taxes, wealth management Colorado or even private banking vs. wealth management Colorado, another vital concept you need to consider is active and passive management. Private Banks, brokerage firms, and other similar financial institutions often employ active management that frequently carries out trades and investments on the market.

Since they play more of a guessing game by timing the market, they have to actively buy and sell securities for short-term high returns. Granted, you are able to achieve high performance immediately. But the more trading you do and the more short-term capital gains you earn, the higher your tax bill climbs. Every time your broker makes a sale and you earn something, you incur tax on it. Not to mention the exorbitant fees these managers may charge you for those services.

The high returns are tempting, but ultimately, they don’t amount to that much once you pay off the insane amount of taxes, fees, and other expenses. By restricting your active management strategies, you can significantly cut down on your tax bill by limiting your capital gains in a year. You can learn more about such strategies and shifts for maximizing your portfolio growth from this complete guide.

At Pillar Wealth Management, our wealth managers spend a lot of time with clients with $5 million to $500 million in liquid assets to understand their financial goals and aspirations. Accordingly, they design customized financial plans, using a mix of active and passive management that will best serve the investors’ needs.

Move to a No-Tax State

Moving to one of the nine no-tax states can also be a big, but effective, financial decision for minimizing your tax liability. For high net worth and ultra-high net worth individuals with an extensive investment portfolio, tax-heavy states can charge different taxes on their assets, significantly cutting down on their returns and overall wealth.

However, if they move to no-tax states, they can enjoy tax-free incomes in certain cases. This is vital if you’re planning to retire soon or are already retired and have several investments in place that provide you with a steady income in millions of dollars. Reduced tax liability can optimize your wealth and allow you to live the retired life that you desire. You can read about more reasons to move to a no-tax state here.

Deal with Your Tax-Deferred Accounts in Your Lifetime

While this does depend on various other factors as well, such as your current financial goals, your legacy plan, the financial situation of your heirs, etc., you should try to deal with your tax-deferred accounts in your lifetime. If your beneficiaries inherit your tax-deferred account before you have a chance to pay them off, it can significantly affect your estate plans as well as their financial security. Passing on tax-deferred accounts can yield much lower wealth to your beneficiaries than you might have hoped. If you want to avoid that, your advisor might suggest you withdraw your money earlier and pay your taxes on it.

Practice Tax Loss Cultivation

Practicing tax loss cultivation to reduce your tax liability is a simple yet complex strategy. Essentially, it involves balancing your losses with your capital gains in a year to reduce the tax payable amount on your overall gains. It sounds easier than it actually is. In reality, you need an efficient and competent wealth manager who carefully manages your investment portfolio and employs such strategies to minimize your tax burden. If done correctly, this strategy alone can save you tens of thousands of dollars in taxes in a year! To find such a manager, you can start a conversation with one of our advisors today.

Switch to Roth IRA

Another financial decision you can make as a tax-minimizing strategy is to switch to a Roth IRA account from a traditional IRA account. You might not see a short-term benefit, but in the long-term, you can benefit from tax-free growth and withdraw tax-free contributions. In a Roth IRA account, you contribute after-tax dollars, and you can start withdrawing without any tax or penalties after the age of 59.5 years.

Managing your taxes and wealth yourself is not only complicated but also costly. There are numerous tax strategies out there, each with their own benefits and drawbacks. Without the right tax plan for you, any high performance investments can turn out to be no better than the low performing ones. That’s why it is important to choose a suitable financial advisor that considers all aspects and then creates an appropriate tax plan for you.

Pillar Wealth Management has an experienced and dedicated team of fiduciary advisors. Our advisors and wealth managers have an extensive history of dealing with high net worth and ultra-high net worth clients and providing customized financial solutions to help them attain financial serenity. We offer a wide range of services, including investment management, risk management, estate planning, retirement planning, and tax management, to help clients grow and protect their assets. Get in touch with an advisor at Pillar Wealth Management by booking a free consultation session.

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