2. Multi-Account Tax Harvesting
This typically involves selling investments at a loss or identifying appreciated assets to donate to charity or legacy planning. Often, it’s outsourced to an asset management specialist without considering what an investor owns in other accounts.
A multi-account approach avoids the risk of wash sales and allows the advisor to appropriately spread gains over several years, taking advantage of lower tax rates on gains in retirement.
Software can also suggest what stocks to isolate in a separate account set up for a household member who appears likely to predecease a spouse. This allows the survivor to take advantage of the step-up in basis at the time of death and the lower capital gains tax rate.
3. Tax-Aware Transitions
As clients approach retirement, they go through a transition phase with their investments. Concentrated positions may have infused a portfolio with more risk than is advisable for clients who are trying to “lock in” values as they prepare to cash their last paycheck.
Clients need their advisors’ help evaluating the risk of their total portfolio and not just the risk of each single account. Clients may need to adjust their asset allocation across accounts in their portfolios to reduce their risk exposure and minimize large swings in portfolio values in retirement.
Tax-aware transitions allow clients to have their cake and eat it, too: Reducing the risk in their portfolios while minimizing taxes so they can meet their financial goals.
4. Multi-Account Rebalancing
In an ideal world, one manager coordinates all asset management for a household, mindful of how investment costs, risk and taxes factor into overall after-tax returns.
However, we all know most investors have several advisors, accounts and custodians. As a result, rebalancing usually only happens within discrete accounts. It’s almost inevitable that clients’ asset allocation swerves from their target risk tolerance.
Household-level rebalancing corrects for that. It can keep a client’s desired asset allocation on track across accounts while taking advantage of asset location, tax harvesting and any transitions to achieve tax efficiency and the best possible results.
5. Optimal Retirement Income Sourcing
As clients transition into retirement, they have many questions:
• Which accounts should I draw from first? Next?
• When should I take Social Security? If I wait, how do I fill the gap?
• Should I take income from my annuity?
• What about Roth conversions?
• How will required minimum distributions (RMDs) affect me?