Investing is a lot like baseball. The primary goal is to earn more returns or score more runs. But doing that requires more than a big bat. You need to pay attention to the strategic details—the inner game—to set yourself up for success. This is especially true when it comes to tax-aware investing.
Think of taxes as the opposing team. Their job is to deprive you of runs by catching you unaware of certain tax responsibilities. However, you can overcome them by focusing on defensive and small-ball strategies that can wind up as game-changers.
Here’s some insight into three tax-aware investing strategies that can turn your investment portfolio into a winning lineup.
Tax-Loss Harvesting: A Defensive Play
Every baseball team hits rough patches once in a while when they can’t seem to buy a run. That makes defense more crucial—a lot like tax-loss harvesting.
In tax-loss harvesting, the investor sells an underperforming stock at a loss. This loss is counted against any taxable capital gains you might have made in selling other investments at a profit.
If your net losses overtook your capital gains in a given tax year, you’ll have no income to report from your investment sales. You can then write off up to $3,000 of your net losses against any other sources of income—salary, interest, taxable dividends—for the year.
Tax-loss harvesting is like turning a double play. It doesn’t add runs, but it gets your team out of a jam with runners on base. It can mitigate or even compensate for your losses and keep you in the game.
Roth IRA Conversion: Taking One for the Team
In a sacrifice bunt or fly, the batter sacrifices their at-bat to move runners on base ahead—potentially scoring if there’s a runner on third. It’s similar to converting your 401(k) or traditional IRA into a Roth IRA.
Contributions to a Roth IRA are made with after-tax income—only after income and payroll taxes have been withheld from your paycheck. However, when you hit retirement age and need to start taking distributions from your Roth IRA, your withdrawals are entirely tax-free. That’s the opposite of how a traditional IRA works, where contributions are tax-free but retirement withdrawals are taxed.
This tax-aware investing strategy is like a sacrifice hit. The batter gives up the opportunity to get on base but generates a positive at-bat by putting the ball in play strongly enough to advance others. If you can withstand the minor inconvenience of after-tax Roth contributions, you can enjoy future rewards.
Timing Asset Sales: Waiting for the Breaking Point
Stealing a base involves more than just being speedy. The player must show patience and wait for the right second to make their break. If they move too soon, they’ll get thrown out. But if they time their break perfectly, they safely slide into the next base.
In tax-aware investing, if you keep your assets in hand long enough, you can “steal” lower tax rates. When you sell your shares before you’ve held them for one full year, it’s considered a short-term capital gain and is taxed at your ordinary tax rate. That can run anywhere between 10% and 37%.
However, if you wait until at least the first day of the second year to sell, your capital gains are considered long-term. Those profits are taxed more favorably, anywhere from 0% to 20%. It’s not exactly “stealing”—but it is gaining a competitive edge by moving you forward.
Rack Up Wins With Tax-Aware Investing
Unlike baseball, tax-aware investing has no off-season. D’Angelis Wealth Management can coach you all year long with our total wealth management approach. When you get in touch with our team, our specialists will take a deep look at your financial makeup and try to build a strategy that works—game in, game out.
To schedule a meeting, call (201) 839-0370 or email michael.dangelis@lpl.com.
About D’Angelis Wealth Management
D’Angelis Wealth Management is a family-owned, independent financial advisory firm located in Bergen County, New Jersey, just 16 miles from New York City. With over 85 years of combined experience, the firm specializes in comprehensive financial planning for pre-retirees and retirees. D’Angelis Wealth Management offers tailored strategies to help clients balance asset growth with stability as they seek to preserve their wealth while pursuing their ideal financial future.
Founded on the principles of trust, integrity, and personalized service, D’Angelis Wealth Management is committed to treating each client like family. Their mission is to create strong, lasting relationships while guiding clients toward financial clarity and independence. By employing a disciplined and precise advisory process, the firm develops customized financial plans that incorporate downside capture strategies to balance growth and safeguard retirement assets. This step-by-step approach includes understanding clients’ unique goals, crafting tailored solutions, implementing strategies, and continuously monitoring progress.
Leveraging the expansive resources of LPL Financial, D’Angelis Wealth Management provides a full spectrum of services, including financial planning, income planning, asset management, tax strategies, estate planning, and more. Through their family-oriented and accessible service model, they empower clients to preserve wealth, gain financial confidence, and enjoy a stable and fulfilling retirement.
To learn more about D’Angelis Wealth Management, visit their website or call 201-218-9504.