With political change comes the potential for new approaches and potentially new tax legislation. Turnover in the White House and Congress increases tax policy risk, or the potential for changes in tax laws that might adversely affect advisors and investors.

Tax policy risk can present hazards for investors saving for retirement – the longer the time horizon, the greater the potential for tax law changes. Managing a portfolio proactively from a tax perspective can often help mitigate this challenge.

Working in collaboration with their adviser and a tax professional, tax diversification and tax loss harvesting are two strategies that can potentially help provide retirees with additional flexibility during the distribution phase of retirement.

Tax Diversification
When advisors and investors work in conjunction with a tax professional to practice tax diversification, they can diversify investments by tax treatment. This strategy is typically effective for a retirement portfolio, which involves balancing the tax needs of two different phases of life: saving for retirement and spending during retirement.

Here are some different types of accounts and investments that can undergo tax diversification with retirement savings:

For retirees, qualified distributions from traditional IRA and company-sponsored retirement accounts tend to have the most significant tax impact because distributions are treated as ordinary income. Retirees 70.5 and older must take required minimum distributions from their traditional accounts based on their lifespan.

After that distribution has been taken, advisors and investors working with a tax professional may be able to use funds from other accounts to help minimize tax bills. Funds from a Roth IRA are typically tax-free and funds from a taxable account may have more favorable tax treatment than traditional accounts. If this is the case, using funds generated from a capital gain in a Roth IRA or taxable account could result in a lower tax bill than distributions from a traditional IRA or 401(k).

Tax Loss Harvesting
Employing tax loss harvesting as a long-term strategy in anticipation of future gains can help provide tax flexibility for an investment portfolio in retirement. Advisors and investors can work with a tax professional to devise a strategy to help offset gains. They can then account for those losses in retirement to offset gains from a business sale, home sale, sale of employee stock, or other capital gain event when taking a qualified distribution in retirement.

While investors and their advisors don't have any control over election results, they can work with a tax professional to help manage investments from a tax perspective. Advisors who can help clients work with an expert to implement an ongoing strategy of tax diversification and tax loss harvesting can increase their client’s potential for financial flexibility in retirement.

Our Taxes page provides more information on tax management and investing.


Natixis Global Asset Management does not provide tax or legal advice. Please consult with a tax or legal professional prior to making any investment decisions.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed above may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted.

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