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Balancing the growth of assets while trying to reduce taxation

While there are many strategies to prevent an estate from being depleted due to taxes, too many individuals fail to understand the consequences that taxes can have. One financial planner called taxes "the biggest drag on returns."

Tax shelter strategies can be complex, however. Each investment is taxed differently and will require different handling - whether it's a taxable brokerage account, a tax-free Roth IRA or tax-deferred IRA.

Fortunately, boosting after-tax investment returns is still something that we can control. While it sounds simpler than it really is, this can be done by placing investments into the right kind of accounts.

Still, eliminating tax consequences cannot be our only focus. It doesn't make sense keeping tax liabilities down while at the same time we are not contributing enough money to our accounts to begin with. Money placed away into an IRA can grow substantially. We want to balance growth along with tax reduction considerations.

Texas residents may wish to speak to experienced estate planning lawyers concerning the setting up of trusts. These trusts can be used when providing for loved ones while at the same time protecting assets used for that individual’s educational or living expenses. There are also many kinds of trusts available (including revocable or irrevocable trusts and living trusts), but these trusts may not be necessary in every circumstance.

Still, regulations can govern how much we can put away in the trusts, how the trusts operate, etc. Trusts can be used for a variety of purposes besides reduction of tax liability or protection of assets. 

Source: NASDAQ, "Boost Your After-Tax Investment Returns," April 15, 2014

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