Benefits of Choosing an Integrated Wealth Management Team

By Kristine McHugh, CFP® | Mar 08, 2022 |

Most wealth management firms stop at investments. Whether people have lost out on tax savings in their estate plans or missed advantages after selling a significant property, the aftermath of poor tax planning can be costly.

A diverse panel of advisors—including those with expertise in today’s ever-changing tax laws and the complexities of tax liabilities—can be an advantage. They can help reduce your tax liability, optimize the value of your retirement accounts and assets, and support your future goals, including a comprehensive estate plan.

Make tax-conscious investments

If your wealth management team isn’t up-to-date on tax planning, you could be missing out on important strategies to optimize your portfolio. For example, in addition to asset allocation your financial advisor should practice asset location, which involves assessing each of your security holdings to make sure it’s held in the best type of account for tax purposes. Depending on the asset, it may be most appropriately placed in a 401(k), IRA, Roth, HSA, brokerage account, or trust account to reduce your annual taxable income as much as possible. If an asset or investment decreases in value during the tax year, you can use tax-loss harvesting to offset up to $3,000 of income and/or any amount of capital gains within the same year.

Maximize retirement withdrawals

Smart wealth management also requires an understanding of how to time withdrawals from your retirement funds to minimize tax consequences. Input from a professional in this arena can help you balance and diversify streams of income from various investment accounts, tax-deferred 401(k) and IRA accounts, and Roth IRAs.

Sell assets strategically

If your portfolio includes real estate, you can maximize your holdings with smart tax strategies.

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Let’s return to the example we referenced in the intro of an individual who sold a property without professional tax advice. As a result, he missed out on the 1031 exchange, a valuable tax savings strategy.

With this so-called like-kind exchange, you can defer paying capital gains tax on real estate profit by exchanging one eligible property for another, potentially reducing your tax bill by tens of thousands of dollars or more.

Access annual tax savings

Reducing your income taxes represents an important component of comprehensive wealth management. Having a tax advisor on your team ensures that you can stay abreast of ways to save, such as:

  • Selecting index funds that support your long-term investment goals
  • Identifying and qualifying for health insurance premiums and other tax credits
  • Creating a tax-efficient charitable donation strategy, such as a qualified charitable distribution or donor-advised fund
  • Maintaining a favorable adjusted gross income level
  • Calculating and managing estimated tax payments and withholdings
  • Converting Roth IRAs in years with lower-than-average taxable income
  • Advising on the use of indirect Roth contributions, such as backdoor Roth conversions, and other after-tax contribution strategies

Optimize company equity

If your compensation package or portfolio includes equity in your company such as RSUs, stock options, or ESPP, your tax planning professional along with your advisor can help you make the most of this potentially valuable benefit. For example, an integrated wealth management team has the expertise to help you understand the tax implications of your stock options. They can also help you avoid or minimize an overly concentrated position of company stock in a tax efficient manner, thus reducing risk.

Tax-proof your estate

Passing your wealth to the next generation can come with complex tax consequences, especially if your estate includes business holdings, real estate, securities, and other asset categories. Wealth management teams with tax expertise help ensure that your beneficiaries won’t have a hefty financial burden associated with your estate.

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For example, they can advise you about lifetime giving strategies to minimize the size of your taxable estate, which can also be favorable for probate depending on your estate. In 2022, you have an annual gift exclusion of $16,000 per person or $32,000 per married couple that has no affect on your lifetime gift tax exemption amount. A tax-seasoned team can also help you create and fund trusts that support your estate planning goals.

No matter which advisor you choose, make certain they provide expertise and specialists across your entire balance sheet, with a major focus on tax planning.

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