Yours, Mine and Ours: Investment Strategies with the Whole Household in Mind

| May 20, 2019
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In client meetings, I have often been asked why one spouse’s IRA is doing better than the other’s. For some clients, it is a contest to see whose investments can outperform the other. Who doesn’t enjoy a little friendly competition!

However, if you share your assets with your spouse, we take into consideration your household’s complete picture as we manage your investments. When we plan for your retirement or look at your goals, we factor in the income, savings, investments and expenses of both spouses to plan for your shared goal. In our annual meetings, we review your goals as well as performance results based off your investments as a household instead of comparing one account vs. another.

The FinPlans investment team analyzes your household’s total assets and often we use different mutual funds within different accounts not only to help provide diversification as a household but also to help minimize tax liability. Take for example clients who have Traditional IRAs (rolled over from employer 401ks), a Roth IRA and a taxable investment account (TOD): one strategic asset location tactic would be to put the most aggressive investments in the Roth IRA since it grows tax-free. Another strategy is to put investments that are less volatile in taxable accounts so that this money can be accessed first (regardless of your age) and are typically taxed at a lower rate.

When it’s time to start taking distributions from your investments, we also keep in mind the tax implications of distributions from various investment vehicles so we can advise you on which of your household accounts is the best option for your individual circumstances.

  • Distribution from Traditional, SEP or SIMPLE IRA: Typically, the entire amount of the distribution is added to your ordinary income for the year of distribution, and taxes are based on your income tax bracket.1
  • Distribution from Taxable Investment Account: The capital gains of your investment are taxed at the 0%, 15% or 20% rate depending on your annual taxable income.2
  • Distribution from Roth IRA: If you have held the account for at least five years and are 59 ½ or older all distributions from Roth IRAs are tax-free.

Many factors go into determining how we take these distributions, but we are ever mindful of your tax situation, and evaluating asset location helps us distribute the income you need from your portfolio.

At Financial Plans & Strategies we take a unique approach on investing and monitor your investments daily.3 To learn more about this process please read our blog “The Rebalancing Act.”

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  1. If you have a non-deductible IRA, your distributions will be taxed on a pro-rata basis.
  2. https://www.forbes.com/sites/jrose/2018/12/05/tax-brackets-and-rates-2019/#4d917f803ec5
  3. In certain circumstances, this rebalancing approach is not suitable. In these cases, we work with clients to make sure the approach we use fits their needs.
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