Are Your Savings Just Going to Taxes?
Don't give away more than you have to. Put tax-efficient investing strategies to work.


There’s a quote from an old Morgan Stanley ad that gets passed around a lot at tax time: “You must pay taxes, but there’s no law that says you gotta leave a tip.”
Savers, especially, should pay heed to this advice.
Taxes already take a chunk of your earnings — the more you make, the more you pay (in most cases). But that burden can be even heavier for those who save and invest.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
For example, if you have investments such as mutual funds that aren’t in an IRA/Roth IRA and are generating annual income, that money, in most situations, is 100% taxable. If you didn’t know that, and were surprised when a 1099-DIV showed up in the mail, you may have some re-evaluating to do.
How much of a difference can a tax-efficient portfolio make?
Let’s say there’s a 20-year-old with $100 received from a mutual fund dividend, and he pays 30% (25% federal and 5% state) in taxes. He’s left with just $70.
Next, let’s look at his twin brother’s account. He has assets in the same amount, but it’s been structured in a way so that 50% isn’t taxable. He’s paying $15 in taxes — 30% of $50 — and ends up keeping $85 instead of $70.
For a younger person, that tax savings is important because of the compounding interest; if you’re keeping more, you’re likely investing more, and you’re probably earning more.
Even if these brothers got the exact same rate of return on the exact same dollar amount, the one with the tax-efficient portfolio is going to likely end up with more money in retirement.
Now, let’s go bigger — and older.
Recently, we had a woman come in with a $1.5 million portfolio — all stocks, bonds and mutual funds, no municipal bonds or any tax-advantaged vehicles. All of the money was non-qualified (or non-retirement), and therefore all of the income being created was taxable. Her adviser told her that when she reaches retirement, her portfolio will provide $40,000 in income each year.
But that isn’t a complete picture. I ran the numbers and showed her: With that $40,000 in income, and paying 30% in taxes ($12,000), she’ll really be living on only $28,000.
If she had a 50% tax-efficient portfolio, she’d keep $34,000 instead of that $28,000. Which one would you rather be living on?
Unfortunately, this seems to be the message a majority of the population doesn’t hear. Instead, much of their focus goes to rate of return or that big number at the bottom of those quarterly statements.
But even if the rate of return on your mutual fund is 7% or more, you’re not getting all of that. That’s not the net. And if that big dollar amount is bumping you into a higher tax bracket, you’re not keeping as much as you could.
In the end, it isn’t about how much you make, it’s about how much you keep.
Your financial adviser can help you find tax-wise ways to help shield your assets and still use income-producing assets such as municipal bonds, interval funds, alternative investments, IRAs, real estate and other strategies. Get an analysis of your portfolio to help ensure the money you’ve put away to build a better future doesn’t end up costing you at tax time.
Kim Franke-Folstad contributed to this article.
The article and opinions in this publication are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult with your tax and/or legal adviser for such guidance.
Examples are for illustrative purposes only and may not be indicative of your situation. Your results will vary.
Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), Member FINRA & SIPC. Advisory services offered only by duly registered individuals through Brighter Financial Capital Management, LLC, a SEC Investment Advisor. Insurance products and services are offered through Clark & Associates, Inc. Financial Solutions, an affiliated company. Brighter Financial Capital Management, LLC and MAS are separate entities, independently owned.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Megan Clark is CEO an Executive Wealth Manager at Clark & Associates Inc. Financial Solutions and is an Investment Adviser Representative and Insurance Professional. As a financial adviser, she is passionate about helping families create a holistic financial plan and she often holds "For Women By Women" informational seminars to reach out and help assist women in pursuing their goals. Clark is a graduate of the University of Virginia. (Securities offered only by duly registered individuals through Madison Avenue Securities, LLC (MAS), Member FINRA & SIPC. Advisory services offered only by duly registered individuals through Brighter Financial Capital Management, LLC, a SEC Investment Advisor. Insurance products and services are offered through Clark & Associates, Inc. Financial Solutions, an affiliated company. Brighter Financial Capital Management, LLC and MAS are separate entities, independently owned.)
-
Are You a Retirement Millionaire Too Scared To Spend?
If you are too scared to spend money in retirement, you may be saddled with regret. Here are three ways to safely enjoy your sizable retirement nest egg.
By Donna Fuscaldo Published
-
U.S. Treasury to Eliminate Paper Checks: What It Means for Tax Refunds, Social Security
Treasury President Trump signed an executive order forcing the federal government to phase out paper check disbursements by the fall.
By Gabriella Cruz-Martínez Published
-
Seven Questions to Ask When Evaluating Personal Loan Options
Taking out a personal loan too hastily could lock you into unfavorable terms with an untrustworthy lender. Ask these questions before signing anything.
By David Kimball Published
-
The Three Biggest Fears Keeping Retirees Up at Night
Here are the steps you can take to put those fears to rest and retire with confidence so you can relax and enjoy the life you've planned.
By Pam Krueger Published
-
What Can a Donor-Advised Fund Do for You? (A Lot)
DAFs and private foundations go about helping charities (and those who donate) in different ways. Each comes with its own benefits and restrictions to navigate.
By Julia Chu Published
-
Estate Planning When You Have International Assets
Estate planning gets tricky when you have assets and/or beneficiaries outside the U.S. To avoid costly inheritance mistakes, it pays to understand the basics.
By Kelsey M. Simasko, Esq. Published
-
Three Essential Estate Planning Steps to Protect Your Nest Egg
After dedicating years to building your wealth and securing your future, make sure your assets are protected and your loved ones are provided for in the future.
By Nicole Farbo, CFP® Published
-
Is Chasing the American Dream Ruining Your Financial Life?
Too many people focus on visible affluence as a marker of success. Here's how to avoid succumbing to the pressure and driving yourself into debt.
By Anthony Martin Published
-
Retiring With a Pension? Four Things to Know
The road to a secure retirement is slightly more intricate for people with pensions. Here are four key issues to consider to make the most out of yours.
By Joe F. Schmitz Jr., CFP®, ChFC® Published
-
How to Teach Your Kids About the Tax Facts of Life
Taxes are unavoidable, so it's important to teach children what to expect. Also, does your child need to file a tax return for 2024? Find out here.
By Neale Godfrey, Financial Literacy Expert Published