Income Planning for Taxable Non-Qualified Accounts

Taxable non-qualified accounts, such as brokerage accounts and individual investment portfolios, are key sources of income but require careful planning to minimize tax liabilities. Unlike tax-advantaged accounts like IRAs or 401(k)s, these accounts don’t have contribution limits or early withdrawal penalties, but they are subject to capital gains taxes and dividend taxation.

A major factor in income planning is understanding the difference between short-term and long-term capital gains. Investments held for less than a year are taxed at higher ordinary income tax rates, whereas investments held for more than a year qualify for lower long-term capital gains rates.

Key strategies for tax-efficient withdrawals:

• Tax-Loss Harvesting: Offset gains by selling underperforming investments to reduce taxable income.

• Managing Dividends: Consider reinvesting dividends or utilizing tax-efficient funds to control taxable distributions.

• Withdrawal Sequencing: Strategically withdrawing from taxable accounts before tax-deferred accounts can minimize overall tax impact.

• Gifting Appreciated Assets: Donating stocks instead of cash can reduce taxable capital gains while supporting charitable causes.

• Municipal Bonds: Investing in tax-exempt bonds can generate income while avoiding federal taxes.

Additionally, working with a financial advisor can help create a plan tailored to your specific tax bracket and income needs.

By carefully managing withdrawals and investment strategies, you can keep more of your earnings, maintain financial stability, and optimize your non-qualified taxable accounts for long-term success.