Investors in alternative investments—and the advisors who guide them—need to carefully assess the many tax considerations that can materially affect long-term portfolio growth and wealth preservation. By using tax strategies such as exchange funds, tax-loss harvesting, and insurance-based structures, investors are taking advantage of powerful levers that can reduce current tax liabilities, defer future taxes, and optimize estate transfers. Employed deliberately, they can enhance after-tax returns and improve the durability of wealth for current and future generations.
Key Takeaways:
- Investors can improve after-tax returns by reducing marginal tax rates, deferring tax liabilities, and by generating investment losses to offset taxable gains.
- Tax liabilities can vary by the location of assets, including tax-free distributions from Roth IRAs and distributions from taxable accounts, which can take advantage of lower qualified dividend and long-term capital gains tax rates.
- Certain strategies, such as exchange funds, tax-loss harvesting, and life-insurance products can also be used to reduce or defer tax liabilities.