Tax Efficient Investing

By definition, tax-efficiency measures how much of the income and returns generated by your investments reach your pocket after paying taxes. At Dodds Wealth in Denver and Colorado Springs, we use a four-pronged approach to tax-efficient investing:

 

1. Investment Selection

2. Long Term Investing

3. Taxable vs. Tax-Deferred/Tax-Exempt Accounts

4. Tax Loss Harvesting

 

 

Investment Selection

Different types of investments vary in terms of tax efficiency. For example, junk bonds or actively traded mutual funds generate more taxable income compared to municipal bonds or index funds. At Dodds Wealth, we review the tax efficiency of each investment for our clients to optimize for after-tax returns.

 

Taxable vs. Tax-Deferred/Tax-Exempt Accounts

With tax-deferred accounts like 401Ks, 403Bs, IRAs you don't need to pay taxes until you begin withdrawing funds. With tax-exempt accounts like Roth IRA or Roth 401Ks, you won't owe taxes on distributions or gains. For comparison, taxable investments require you to pay taxes on any taxable income earned and capital gains taxes on realized profits in the account. We recommend making non-tax-efficient investments in a tax-deferred or tax-exempt account and making tax-efficient investments in your taxable account.

 If you are looking to invest, call our experienced team to schedule your first meeting. If you live in Denver, call (303) 539-3900 or if you are located in Colorado Springs, call (719) 260-9200.