Tax moves today for the tomorrow your clients have planned

As the headlines show, we’re thinking about taxes and wondering what the future holds. At times like this — when the world around us feels unpredictable — it can be empowering to focus on the things we can control.

An area of financial planning where you can take some control over taxation is within your investing strategy and portfolio construction. Tax-smart investing today does more than help your clients control their tax outcomes for next year’s tax bill — it helps them maximize growth so they can better reach their long-term income goals.

Helping clients reduce tax drag

Your clients may not be aware that taxes can take a bite out of their investment growth. Show them what they can do about it with our new infographic,  "Control What You Can."

It's what you keep that matters

All too often, investors focus on how much their investments earn, but it’s what they keep after taxes that counts. After factoring in federal income and capital gains taxes, and any applicable state and local taxes, your clients’ investment returns in any given year may be reduced by 40% or more.

Client scenario: Roger earned an average 8% return annually on an investment taxed at 28%. This means his after-tax return would be 5.76%. A $50,000 investment earning 8% annually would be worth $107,946 after 10 years. After taxes, it would be worth only $87,536.

Preserving gains, avoiding drains: An action plan

By helping clients take steps toward building a tax-smart portfolio, you help them feel more in control and confident about their income and long-term plans. Here are some ways to help your clients minimize taxes and maximize investment returns:

  • Think outside the 401(k) plan. It’s likely many of your clients are taking advantage of compounding, tax-deferred growth by investing in a 401(k) or employer-sponsored plan. For those who have maxed out their contributions, investing in a tax-deferred account, such as an annuity, helps them reduce tax exposure on their investment portfolio for potentially higher returns over the long-term.
  • Rebalance without regret. While it’s good to keep your clients’ portfolios in balance, it’s important to pay attention to the consequences. Capital gains taxes and transaction costs could make reallocating a costly move. Harness the  power of tax deferral to help your clients keep more of what their investments have earned while you’re helping them manage risk and stay on track to reach their income goals. 
  • Keep investment approach intact. Some investors hold more tax-efficient investments to help reduce taxes. That could mean avoiding investments such as actively managed strategies because their frequent trading tends to generate higher transaction fees and a higher tax bill. Yet, this same portfolio turnover is designed to enhance returns. With tax-deferred investing, your clients can make investment decisions that may be right for them — without having to weigh the tax impact.
Every dollar saved is another dollar invested for your clients’ future.

You can play a major role in proactively addressing your clients' concerns and helping them feel they have more control over their tax outcomes.  Consider this approach to help them reduce tax exposure while preserving their market exposure for potentially higher returns over the long-term.

Partner with us

To learn more about helping your clients plan for a more stable income retirement, contact your Lincoln representative today at 877-533-0265. And follow us on LinkedIn and Twitter for regular insights and tips on retirement income planning conversations.

Chris Price

For more than 26 years, Christopher H. Price, JD, LLM, CLU®, ChFC®, AVP, Advanced Sales, Lincoln Financial Distributors, has helped financial professionals and their clients accumulate, distribute and transfer annuity assets by using a holistic approach. In 1983, he began his career as a trust officer with Sovran Bank (now Bank of America). Chris moved into financial planning and followed that by managing an insurance agency that served some of the wealthiest families in the country. In 1994, Chris joined Delaware Investments, formerly a member of Lincoln Financial Group, where he was responsible for the product management of Delaware mutual funds and eventually Lincoln variable annuities. From 2000 to 2004, Chris used his expertise to help financial professionals and their clients with advanced case issues. In 2005, he transitioned to the Lincoln Advanced Sales team. Chris holds a BA in history from Vassar College, and law and master’s degrees from the Marshall-Wythe School of Law at the College of William & Mary.