Strategies to Help You Keep More
of What Your Portfolio Earns
Table of Contents
Taxes are one of the most significant long-term costs investors face. Dividends, interest, and realized capital gains can reduce portfolio growth if not managed thoughtfully. While taxes cannot be avoided, a well-structured investment strategy may help improve after-tax outcomes over time. The objective is not to eliminate taxes, but to make informed decisions about when and how they are incurred.
Tax-Advantaged Accounts
Using tax-advantaged accounts appropriately remains one of the most effective ways to improve tax efficiency. Traditional retirement accounts, such as traditional IRAs and employer-sponsored 401(k) plans, generally allow contributions to grow tax-deferred until withdrawals occur in retirement. Because income taxes are deferred, investment earnings may compound without annual tax drag.
Roth accounts, including Roth IRAs and Roth 401(k) plans, offer a different tax treatment. Contributions are made with after-tax dollars, but qualified withdrawals may be tax-free if IRS holding-period and age requirements are met. This structure can provide valuable flexibility when planning retirement income, particularly in environments where future tax rates are uncertain.
For eligible individuals enrolled in qualifying high-deductible health plans, Health Savings Accounts (HSAs) may offer a combination of tax benefits. Contributions may be deductible, investment growth is generally tax-deferred, and withdrawals for qualified medical expenses are typically tax-free. Given the long-term trajectory of healthcare costs, HSAs are often incorporated into broader retirement income strategies.
Asset Location
In addition to asset allocation, which determines the overall mix of investments, asset location refers to placing specific investments in the accounts where they may be taxed most efficiently. Investments that tend to generate income taxed at ordinary rates, such as taxable bonds, certain real estate investment trusts (REITs), and higher-turnover funds, are often evaluated for placement in tax-deferred accounts.
Conversely, investments that may produce qualified dividends or long-term capital gains — including many index funds, exchange-traded funds (ETFs), and long-term equity holdings — may be considered for taxable accounts. Asset location decisions should be evaluated within the context of an investor’s projected future tax bracket, liquidity needs, and overall financial plan.
Tax-Loss Harvesting
Periods of market volatility may create opportunities to realize capital losses that can help offset realized gains elsewhere in a portfolio. If net capital losses exceed gains in a given tax year, up to $3,000 may generally be used to offset ordinary income for most taxpayers filing jointly or individually, with unused losses carried forward to future years.
Investors should be mindful of the wash-sale rule, which disallows losses if substantially identical securities are purchased within a 61-day window surrounding the sale. This rule can also apply across accounts, including certain retirement accounts, and should be carefully considered before implementing loss-harvesting strategies.
Tax-Efficient Investment Funds
Investment vehicle selection may influence overall tax efficiency. Index funds and ETFs often exhibit lower portfolio turnover than some actively managed mutual funds, which may reduce the frequency of taxable capital gain distributions. Additionally, the creation and redemption mechanism commonly used by ETFs can help manage taxable events within the fund structure.
However, tax efficiency varies across strategies, and investment selection should be based on both tax considerations and long-term investment objectives.
Long-Term Capital Gains and Investment Horizon
Investments held for more than one year are generally eligible for long-term capital gains tax treatment. For the 2026 tax year, federal long-term capital gains rates are typically 0%, 15%, or 20%, depending on taxable income. Higher-income households may also be subject to the 3.8% Net Investment Income Tax (NIIT). State taxation may further affect after-tax outcomes.
Because short-term gains are generally taxed at ordinary income rates, frequent trading may increase both tax liability and transaction costs. A disciplined long-term investment approach may help manage these factors while supporting broader financial goals.
Municipal Bonds in Taxable Portfolios
Municipal bonds are often evaluated for inclusion in taxable portfolios due to their potential tax advantages. Interest income from many municipal securities is generally exempt from federal income tax and may also be exempt from state income tax when issued by the investor’s state of residence. However, certain municipal bonds may be subject to the Alternative Minimum Tax (AMT), and capital gains from bond sales remain taxable.
When comparing municipal bonds to taxable bonds, investors should evaluate the tax-equivalent yield relative to their marginal tax bracket and overall income strategy.
Charitable Giving Strategies
For investors who intend to make charitable contributions, donating appreciated securities held longer than one year may provide tax advantages compared to donating cash. This approach may allow investors to avoid realizing capital gains on the appreciation while potentially receiving a charitable deduction for the fair market value of the donated assets, subject to IRS limitations.
Donor-advised funds can provide additional flexibility by allowing contributions in a higher-income year while distributing grants to charitable organizations over time.
The Role of Tax-Aware Investment Planning
Taxes represent a structural component of investment outcomes. Integrating tax considerations into portfolio construction, withdrawal planning, and charitable strategies may help improve long-term after-tax performance. Even incremental improvements in tax efficiency can meaningfully influence long-term wealth accumulation when compounded over time.
Because tax rules and individual circumstances vary, investors should evaluate tax-aware strategies within the context of a comprehensive financial plan and in coordination with qualified tax professionals.
Written by,
Tim Raftis, CFP®
Tim Raftis is a comprehensive, fee-only financial planner with Insight Wealth Strategies. With over 30 years in the financial services industry, Tim draws on his extensive experience to offer clients customized solutions to managing their wealth.
Tim is a problem solver who works to simplify clients’ financial lives. He assists clients in identifying and prioritizing their various goals – including investments, tax planning, retirement income, and wealth transfer – then develops strategies customized to suit their personal circumstances and their own unique feelings and attitudes.
Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.
Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
