Broker Check
A Look at Your Portfolio Mix

A Look at Your Portfolio Mix

July 25, 2023

With the onset of higher taxes, taxpayers in the upper brackets may want to reposition their portfolios. Even those in lower tax brackets may benefit from portfolio review and reallocation of funds.

Consider the following: For a taxpayer in the 31% bracket, a tax-free investment yielding 6% is producing the equivalent of a taxable 8.7% yield. When the taxpayer jumps to a 36% bracket, the equivalent taxable yield of the same investment is 9.4%. If he or she leaps even further into the 39.6% bracket, the equivalent taxable yield rises to 9.9%!

Tax-free municipal bond funds may offer an excellent alternative for a portion of your portfolio. If you expect interest rates to be volatile, short-term or intermediate-termbonds may be more appealing to you than long-term bonds. You should also consider other investments that generate tax-deferred income. Cash value life insurance and annuities are worth investigating as possible additions to your financial planning package.

Permanent Life Insurance Offers Variety and Advantages

Permanent life products, including variable and universal life products, accumulate cash values that are not taxed unless and until withdrawn. The type of policy that suits your financial requirements will depend on your future needs, such as college funding, retirement, or other savings goals, in addition to your investment personality, whether you are more conservative or aggressive.

You may want a traditional whole life insurance policy or an interest-bearing or investment-sensitive policy. All offer savings growth that enjoys tax deferral, as well as a guarantee that, if the policy remains in force, your beneficiaries will be provided for in the event of your death.

Is an Annuity for You?

An annuity can also accumulate cash on a tax-deferred basis. It can offer a further advantage in that income payments made from an annuity are only partly subject to federal income taxation. Current federal tax law holds that a fixed part of each annuity income payment, once payments commence, be designated as a “return of capital,” and as such is nontaxable. This will hold true until it is determined that all capital has been fully recovered, at which time the entire annuity payment becomes taxable. Annuity payments are also exempt from inclusion as income used to determine taxation of Social Security benefits.

There are ways to protect your current income and future earnings from higher taxation. Your financial professional can help you investigate your options and determine which avenues can help you pursue your goals and needs. 

Important Disclosures

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.  If sold prior to maturity, capital gains tax could apply.

Variable Universal Life Insurance/Variable Life Insurance policies are subject to substantial fees and charges.  Policy values will fluctuate and are subject to market risk and to possible loss of principal.  Guarantees are based on the claims paying ability of the issuer. 

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing.  Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.  Variable annuities are subject to market risk and may lose value.

This article was prepared by Liberty Publishing, Inc.

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