Just as compounding returns can deliver large gains for investors over time, compounding flaws can frustrate their aims. For high earners especially, multiple layers of taxation can become a collective “silent fee” on long-term wealth. While some inefficiencies are small individually, they can add up to a significant drag over time.
The key is to consider the whole picture: Are assets held in the most tax-efficient vehicles? Are investments structured to minimize unnecessary tax exposure? Is estate planning positioned to simplify things for future heirs? There are several strategies to explore.
One of the simplest ways to strengthen after-tax returns is ensuring assets are held in the right type of account. Two factors drive that decision: the purpose of those assets within a broader wealth plan, and how they would be taxed in a standard taxable account.
Traditional individual retirement accounts and 401(k)s are tax-deferred, while Roth IRAs are tax-free —
