Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Do your investments have a mind of their own? It may seem that they do if you don’t take time to rebalance your portfolio. Financial professionals Joe Anderson and Alan Clopine explain how to be tax efficient and get the most out of your portfolio. To hear a more in-depth discussion watch Your Money Your Wealth Show #509 on Investor Boot Camp.


Alan: We call this our tax triangle, and you can’t have a discussion about taxes without going over this, and we’ve got three different tax pools. We got the tax free, so that’s going to be the Roth IRA. That’s the best right. You take money out of here, and there is no tax. But what’s the problem? The problem is most of our assets are here, in tax-deferred. Which means when we take the assets out of our retirement accounts they’re taxed at the highest of rates, ordinary income rates. So, it really doesn’t matter taxation because all your assets are in this pool taxed at the highest ordinary income rate which by the way right now is 35% plus state.

Joe: 37.

Alan: 37. Thank you. Thank you for that correction.

Joe: You got it, buddy.

Alan: Yes.

Joe: I know, we’ll get e-mails.

Alan: Right! So, what do we do about it? Well, we want to start looking at this pool. We want to start converting some of these assets over here that’s called the Roth conversion. And yes, you can still do a Roth conversion. You cannot do a re-characterization. So, last year you could do a conversion, change your mind, whoops I don’t really want to convert that, I don’t really want to pay the tax. You could put it back. Not this year, 2018 and in the future, re-characterizations are gone, but you can still do the Roth conversion. And as a matter of fact, you probably should because the tax rates are lower, so you want to get the money up here when you’re paying a lower tax. Pay the taxes while it’s on sale. So, now you’ve got assets up here, when you take those assets out it’s taxed at zero rate.

Joe: So, when you look at the tax efficiency scale, this is where it’s key. It’s like all right well where my assets held? How much do I have in each of these different pools? Because when it comes time to take dollars out, then this is where you can control your brackets. I’m going to pull a little bit from my tax-deferred, a little bit from my taxable, and a little bit from my tax-free so I can blend all those together to keep myself in the lowest rate possible. So, tax efficiency Al, I think is a missing link in a lot of peoples’ strategy.

Alan: It is, and really when it comes to your non-retirement accounts now you got to be concerned with how they’re invested, and there’s more. There’s less efficient, and there’s more efficient. So, let’s talk about that. Less efficient would be things like bonds. Because bonds generally produce ordinary income, interest, income taxes, ordinary rates, REITs, real estate investment trust, tax generally at ordinary income. Mutual funds, ETF, stocks, they’re all somewhat similar. Mutual funds probably have the least amount of tax efficiency. If the advisor inside of them, the money manager, is buying and selling, buying and selling, and you’re going to have to pay taxes on that gains. And that of course, municipal Bonds, those are tax-free. Problem with those is they don’t pay very much, so you don’t necessarily want to load up on them but just be aware different asset classes have different taxation when it’s outside of your retirement account.

Joe: Yeah, so, it’s looking at the asset allocation, and then it looks at the efficiency of the overall tax and as you’ve just got to start blending some of these strategies together. They overlap.

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