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What is Asset Location Planning? 

Asset Location Planning is a strategy aimed at maximizing after-tax wealth by placing assets in the most tax-efficient locations based on your life stage and tax situation. It helps you not only reduce taxes during your accumulation and distribution phases but also preserve wealth for future generations.

How Does it Work? 

When you liquidate or sell an asset, it can be taxed in 3 ways: as capital gains, ordinary income, or tax-free. Your personalized Asset Location Plan will identify the optimal allocation for each asset, ensuring you benefit from reduced taxes during the accumulation, distribution, and wealth transfer phases.

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Asset Location Planning can help you save on taxes when it matters most, giving you more freedom to do what you love

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Asset Allocation vs. Asset Location 

Asset Allocation

This involves diversifying your portfolio across asset classes like stocks, bonds, real estate, and cash to reduce investment risk.

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Asset Location

This focuses on placing investments in the most tax-efficient locations to minimize tax liability.

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Note: Diversification and rebalancing do not guarantee profits or protect against losses.

Steps To Creating an Asset Location Plan 

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1. Determine the ideal mix of tax-favored benefits
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The IRS offers 3 tax-favored benefits: tax deductions on contributions, tax deferral on growth, and tax-free income on distribution. Your personalized plan will help you decide on the most tax-advantageous mix:

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  • Tax-deductible contributions

  • Tax-free income

  • Tax-deferred accumulation

 

2. Invest in the optimal tax quadrants

Capital gains or ordinary income locations

After-tax contributions that are taxable during accumulation and at distribution.

  • Stocks

  • Bonds

  • Mutual funds

  • ETFs

Ordinary income location

Pre-tax contributions that are non-taxable during accumulation and taxable at distribution.

  • 401(k) 

  • Pension plans 

  • Profit-sharing plans 

  • Tax-sheltered annuities 

  • SIMPLE IRAs

Capital gains or ordinary income locations

After-tax contributions that are non-taxable during accumulation and taxable at distribution.

  • Business interests 

  • Real estate 

  • Annuities (fixed or variable)

Tax-free location

After-tax contributions that are non-taxable during accumulation and at distribution.

  • Some municipal bonds

  • Roth IRAs

  • Roth 401(k)s 

  • 529 qualified plans 

  • Properly structured cash-value life insurance

3. Tax bracket planning​
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Evaluate the tax impact of your distributions and strategize to minimize taxes. This involves understanding your tax brackets and planning withdrawals accordingly.

Michael H. Tootle, Esq. has a license to sell insurance. Securities and advisory services are offered through Centaurus Financial, Inc., Member FINRA and SIPC, a Registered Investment Advisor.  Supervisory Branch: 2300 East Katella Avenue, Suite 200, Anaheim, CA 92806 Phone: (714) 456-1790.  H.T. Young Wealth and Centaurus Financial, Inc. are not affiliated.  Both H.T. Young Wealth and Centaurus Financial, Inc., do not offer tax or legal advice.  This message is intended for residents of the United States of America in certain States only.  Please check with us to ensure we are registered in your state. We are proud to be a Broker’s Check registered financial advisor firm.  FINRA’s BrokerCheck. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by H.T. Young Wealth to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. We take protecting your data and privacy very seriously. We do not sell or share your personal information.

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