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This chapter is from the book

Taxes: Taming the Inevitable

One other factor to keep in mind when structuring your portfolio is the impact of taxes. Taxes can derail your financial strategies now, down the road, and for your heirs. Fortunately, there are a variety of approaches that can help you preserve more of your assets for yourself and your family.

  • Tax-deferred investment vehicles. These investments provide a double benefit. They postpone the tax you pay now, allowing more earnings to compound, tax-deferred. Additionally, since it's likely you'll be in a lower tax bracket when taxes are due, you'll probably have less of a tax bite overall. Retirement assets are among the more common tax-deferred vehicles.
  • Tax-exempt investments. Theses investments are an especially popular choice for those in higher tax brackets. These investments most frequently include municipal bonds and bond funds. They traditionally yield substantially lower rates than taxable investments such as stocks and mutual funds. However, they tend to be exempt from federal, state, and local taxes. So for those in the highest brackets, they can result in tax savings as high as 39.6%, more than offsetting their lower yield.
  • Estate planning. A will is one of the single most important documents you can prepare for the protection of your loved ones. It is essential for two reasons. (1) It makes certain that your assets are handled according to you specific wishes. And (2) it allows you to formulate a strategy that preserves from taxes the greatest amount of your assets for your heirs. There are many strategies and techniques to successful estate planning that, without the help of a professional, can be easily overlooked. Make sure you have a will and one that is drafted by an attorney.
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