There’s an old saying in the investment business, “It’s not what you earn, it’s what you keep.” Unfortunately too many investors take that to the extreme and end up paying far more in taxes in the long run.
Take, for example, a married couple who thinks they’re pulling a fast one on Uncle Sam by investing their personal money in tax-free muni’s and their retirement funds in stocks. They may pay little or no tax now, but when they turn age 70-1/2, and are forced to take fully taxable required minimum distributions, their tax bill could soar. And when one of them passes away, the survivor files an individual not a joint tax return. As a result, they’ll end up paying even more in taxes. A much better strategy may be to buy stocks and income producing real estate in the taxable account, and get special dividend and capital gains tax treatment, and purchase bonds and other interest-bearing accounts to add to their retirement portfolio.
They may pay a little more in tax today, but the long term bill for themselves and their heirs may be significantly less.