Wealth management primarily focuses on making prudent investments tailored to an individual’s or a family’s financial and retirement goals. The tax implications of investments can sometimes be overlooked but minimizing your taxes can help you maximize the net returns on your investments. [1]  Let’s take a look at some basic investment strategies to minimize the taxes on your investments and how a wealth management advisor can help you make the right decisions. [2]

Taxable, Tax-Deferred, and Tax-Exempt Accounts

Making sound investment decisions that yield high returns isn’t the whole story when managing your wealth. It’s important to allocate your assets wisely to boost the return on your investments. That means distributing investments into two different types of investment accounts:

  1. Taxable accounts: such as brokerage accounts that hold stocks, bonds, EFTs, and similar investments
  2. Tax-advantaged accounts: tax-deferred accounts, such as traditional IRAs and 401(k)s, and tax-exempt accounts, such as Roth IRAs

Keep in mind that many tax-advantaged accounts have annual contribution limits. Traditional and Roth IRAs have a yearly $6,000 limit ($7,000 if you’re older than 50). The maximum annual contribution for 401(k) accounts is currently $20,500 ($27,000 if you’re older than 50).

Tax-Efficient Investing

Tax-efficient investing means taking steps to minimize the amount of taxes you pay on your annual investment income. Taxes not only take a bite out of your profits, but they also eat into the growth of your funds because the taxed amount could have generated additional income.

The basic rule of thumb for tax-efficient investing has two parts:

  1. Make tax-efficient investments in your taxable accounts
  2. Make investments that aren’t tax efficient in tax-exempt or tax-deferred accounts

Tax-efficient investments are ones that lose less of their returns to taxes. Municipal bonds are a popular type of tax-efficient investment. The income they generate isn’t subject to federal taxes, and some of these bonds aren’t taxed at the state or local level. Savings bonds and Treasury bonds are also not taxed at the state or local level. Exchange-traded funds and tax-managed funds can be more tax-efficient than other stock investments because they yield lower capital gains. All of these types of investments are good candidates for your taxable accounts.

Investments that lose more of their returns – ones that yield higher levels of short-term capital — are better suited for your tax-advantaged account. For example, actively managed funds in brokerage accounts often produce capital gains distributions, which means increased taxes. It’s generally a good idea to make these types of investments through an IRA or 401(k) account.

Making the Right Investment and Tax Choices

Making the right decisions about investments and their tax implications is a challenge for most people, especially those who have a more complex financial situation due to higher income or substantial net worth. That’s where the services of a wealth management advisor can make a big difference. An advisor provides a wide range of financial services, from managing investments to providing guidance on budgeting and estate planning. They can also recommend additional specialists to build a team to meet all of your financial needs.

Most of all, wealth management advisors provide peace of mind. They remain vigilant for new investment opportunities suitable for your financial goals, react quickly to adverse market conditions to help protect your assets, and remain up to date on changes that may affect your portfolio positively or negatively.

The Advantages of a Local Advisor

If you’re looking for wealth management services, you’ll have plenty of options to choose from. The key consideration is finding the right relationship for you and your family. Choosing a local wealth management advisor provides many benefits, including convenience and personalized service. A local advisor will be readily available to meet with you in person, learning about your goals, providing advice, and building a long-term relationship. If you’re interested in investing in businesses in your own community, a local advisor is well situated to provide reliable advice on investment opportunities.

We want you to know that we’re here to help. First United takes the time to get to know you personally, and our mission is more than to just provide our suite of wealth management services. We want to become your trusted partner for life, as well as a long-term resource for your family. For more information and to learn what makes us different, schedule a consultation today.


[1] Legal or tax professionals should be sought for advice on tax implications.


[2] First United Wealth Management products and services; i) are not deposits or other obligations of, nor are they guaranteed by, First United Bank & Trust or its affiliates, 11) are not insured by the Federal Deposit Insurance Corporation (FDIC) or any other agency of the United States or by First United Bank & Trust or its affiliates; and iii) are subject to investment risks, including the possible loss of value.