Invest with Taxes in Mind

16 min read
June 19, 2018

Invest with Taxes in Mind


Invest with Taxes in Mind!, by Dan Andrews

Let’s talk about how to invest with taxes in mind!

To remind clients to keep saving for their future selves, we try to make the investing process fun. Instead of solely announcing numbers at clients with multiple pages of legal paperwork, we remind clients to focus on what they can control with their investment accounts. To see how we do this, check out this sneak peek below of a Quarterly Email which we send to clients.

We mix up the themes each quarter, and also personally tailor recommendations for the client’s unique situations. My favorite part of these Quarterly Emails is that we attach a Paid Invoice so clients can understand how Well-Rounded Success gets paid and the amount of money which was taken out of their accounts for our services. As you can read in a previous blog post, the smoke-and-mirrors nature of the Personal Finance industry really grinds my gears, so we try to be as transparent as possible.

If you wish to explore a business relationship so you can receive this type of help, learn more at Well-Rounded Success’ Services.

Email Subject Line: 1st Quarter of 2018: Your Quarterly Email from Dan & Well-Rounded Success

Greetings <Insert Name>!

<Personal Note>

Please allow me to put on my ‘Financial Planner hat’ to discuss the below points as well as personalized recommendations for your investment account. Don’t forget to scroll down to the Tweaks For You section as well as your paid invoice.


You can’t control the markets so we encourage you to focus on what you can control with your investment portfolio. We created a process to address the below themes when we opened your investment account and we’ll discuss all these bullet points in future Quarterly Emails.

      • Consistently invest (2017 Third Quarter)
      • Keep your money invested during fearful moments (2017 Second Quarter)
      • Keep your costs low (2017 Fourth Quarter)
      • Be diversified
      • Position your portfolio to your risk tolerance and time horizon
      • Systemize your portfolio to sell high and buy low
      • Efficiently invest with taxes in mind (This Quarter’s Theme) 

Let’s discuss Invest with Taxes in Mind!

The model of Well-Rounded Success comprises of five pillars: Bedrock, Community, Career, Relationships, and Soul. In addition to being a model for personal development, these five pillars also include money topics for your financial life. Please allow me to show you and I also will give you a friendly challenge: which pillar includes Taxes?

Bedrock: Manage your responsibilities, take care of your health, and prepare for your future.

  • Money topics include: cash flow management and budgeting, emergency savings, health savings, basic insurance, retirement planning, credit score, debt management, banking and automatic saving, etc.

Community: Give back to people and greater good causes. Live in harmony with others and the environment. Lead by example.

  • Money topics include: charitable giving, philanthropic efforts, estate planning, etc.

Career: Contribute to your workplace. Consistently gain new skills. Take pride in your work.

  • Money topics include: career development, income source planning, salary negotiation, side hustles, employee benefits, continuing education, etc.

Relationships: Own the relationships in your life. Proactively reach out to others. Love those closest to you.

  • Money topics include: life insurance, beneficiaries on accounts, college savings, estate planning, aging loved ones, will & advanced directives, etc 

Soul: Consistently learn and self-improve. Gain confidence and self-satisfaction. Feel like you’re on the right path.

  • Money topics include: fun money, vacations, hobbies, psychology with money, life stages, financial goals, behavioral finance, etc.

So, which pillar do you think includes Taxes? Bedrock, Community, Career, Relationships, or Soul?

According to PBS, 59% of your federal income taxes fund social insurance programs to help others. These programs include Social Security for the elderly to have money in their non-working years, Medicare to help the elderly pay for health care in their non-working years, Medicaid to assist low-income people with health care, and CHIP to help children with health care.

With these social insurance programs in mind, your Taxes fall into the Community pillar of the Well-Rounded Success model. In addition to helping pay for others who need assistance, you can also enjoy paved roads, the salaries of our legal system’s representatives to help maintain order, National Parks to visit, our country’s military defense, and the many other government programs out there.

No one likes paying taxes but you can think of them with a more positive mindset when reframing your thoughts to know you’re paying for the community which you and your family rely on and enjoy.

Yet, even though it’s your civic duty to pay taxes, the complicated tax code exhibits cultural values by providing incentives with tax deductions and tax breaks. To keep more money in your family’s Net Worth instead of the government’s budget, look into ways to have your investments help limit your taxes. The following information focuses on how to structure your investments with taxes in mind.


The government wants you to save for retirement and medical expenses so they don’t have to be on the financial hook for you later through those aforementioned social insurance programs. The government provides tax breaks to reward you for doing so. Here are some simple ways to capitalize on tax deductions when saving for your future self.

  • Many IRS recognized retirement accounts allow you to lower your taxable income for the year you fund your account. These accounts include a Traditional IRA, SEP IRA, 401(k), 403(b), etc. You don’t pay taxes on this contributed money until you take the money out which will hopefully be in your retirement years.
  • If you’re in a high-deductible health insurance plan, you’re allowed to contribute money into a Health Savings Account (HSA) so you can save up for your future medical expenses. Most accounts insist that you have a minimum amount in cash and you’re then allowed to invest the extra money into the financial markets to grow over time.
    • These accounts are known as one of the best tax strategies available since you get a tax deduction for the money you contribute for the year and you can let the money grow tax deferred. You then don’t have to pay taxes on the money you contribute – plus it’s growth – if you pay for qualified medical expenses. 
  • Gain interest on municipal bonds to invest in your local community and/or other areas of need. The interest from these bonds are typically exempt from Federal, State, and Local taxes. The ‘pros’ of this strategy are the tax benefits, the ‘cons’ are generally lower bond yields. Learn more in this short video: What are Municipal Bonds?
    • Best used when investing in taxable accounts like your Betterment Build Wealth account and when you’re in a high tax bracket. Betterment’s portfolios use Municipal Bond ETFs in all of your accounts that aren’t tax-deferred accounts.


When building your savings inside tax-deferred accounts, the government doesn’t make you pay taxes on the growing money every year. You only pay taxes when you take the money out of the account. This is the government giving you an incentive to save for your future self and not see these accounts as a Piggy Bank. There are ways to access the money but I train clients to see these accounts as their “grey-haired money” plus the government can inflict a penalty in addition to paying taxes for accessing the money before its intended use.

Ramit Sethi, the author of I Will Teach You to be Rich, says in his book,

“Invest as much as possible into tax-deferred accounts like your 401(k) and Roth IRA. Because retirement accounts are tax advantaged, you’ll enjoy significant rewards… You won’t have to worry about the minutiae, including picking tax-efficient funds or knowing when to sell to beat end-of-year distributions. By taking this one step of investing in tax-advantaged retirement accounts, you’ll sidestep the vast majority of tax concerns.”

  • Retirement Accounts and HSAs as mentioned above as well Roth IRAs and Roth 401(k)
    • Roth features towards retirement accounts are great because instead of taking a tax deduction in the year you contribute, you contribute with your after-tax money and then aren’t forced to pay taxes on the contributed money as well as the growth in your retirement years. Learn more about the difference between Roth and Traditional IRAs.
      • These Roth features are best used if you feel that your tax bracket will be more in the years you anticipate taking the money out and you also want your money to be free from taxes.
  • Saving for College with 529 Plans
    • Most states give a state income tax deduction for funding these College Savings accounts but not all do (Use Vanguard’s calculator to find out about your situation). However, you can save for future education expenses by leveraging these accounts with tax-deferred growth as you can invest in the financial markets. Similar to an HSA, you don’t pay taxes on the growing money if you use it for the right purposes. In this case, you have to use the money on qualified education expenses like tuition, room, board, textbooks, etc
      • With the recent tax law changes in 2018, you can now use some of this money on K-12 expenses in addition to college expenses. Politicians are still figuring this out so be sure to do your research on your situation. 


Here are some preventable mistakes and some simple strategies to help your investments in regards to taxes. 

  • The government wants you to treat your investments as long term strategies instead of as a “get rich quick” scheme. So much so that if you hold your investments for one year and one day, your Long Term Capital Gains tax rate for the investment you sell at a profit is most commonly 15%. If you sell your profitable positions within a year of purchasing, your profits wills be taxed at your ordinary income tax rate which is classified as Short Term Capital Gains. This can be up to 37% for the highest tax bracket in 2018. 
  • Leverage Tax Coordinated Portfolios to limit your tax burdens by optimizing your accounts with tax minded asset allocation.
    • From Betterment’s website, “Tax-Coordinated Portfolio optimizes and automates a strategy called asset location. It starts by placing your assets that will be taxed highly in your IRAs, which have big tax breaks. Then, it places your lower-taxed assets in your taxable accounts.” 
  • Enable Tax-Loss Harvesting for your taxable accounts so you can have technology work for you to minimize your tax liabilities. This strategy is especially beneficial with your Betterment account since you don’t pay for transaction costs to do these portfolio changes. Another reason why we like to keep your costs low like we explained in our last Quarterly Email: Passive vs. Active Investing: Keeping Your Costs Low.
    • From Betterment’s website about Tax Loss Harvesting, “Tax loss harvesting is the practice of selling a security that has experienced a loss. By realizing, or “harvesting” a loss, investors are able to offset taxes on both gains and income. The sold security is replaced by a similar one, maintaining an optimal asset allocation and expected returns.”
  • When possible, don’t bump yourself into a higher tax bracket when taking distributions.
    • When taking money out of tax deferred investment accounts like a Traditional IRA, a 401(k), and/or an Inherited IRA, you want to ensure you don’t bump yourself into a higher tax bracket.
    • With back door and/or regular Roth conversions, chat with your CPA to ensure the dollar amount you convert from your Traditional IRA to your Roth IRA doesn’t bump you into a higher tax bracket since you have to claim the converted amount as ordinary income.

To finish, by working together as an Investment Management client, we’re nudging you take advantage of your retirement accounts to help invest with taxes in mind. Be prepared for more nudges so we can help you accomplish what Burton Malkiel said in his book, A Random Walk Down Wall Street,

“Millions of taxpayers are currently missing out on what is one of the truly good deals around. My advice is to save as much as you can through these tax-sheltered means. Use up any other savings you may have for current living expenses, if you must, so you can contribute the maximum allowed.” 

Some General Stats: As of the end of the first quarter (03/31/2018), the broad-based Morningstar US Market Index was slightly down 0.61% for the first quarter. The broad bond market (Vanguard Total Bond Market) was down 2.01% for the first quarter. International Markets (MSCI ACWI Ex US NR USD) was down by 0.52% for the first quarter. For more numbers, check out this link: MorningStar Quarter-End Insights. 

Please let me know if you want to check-in about your goals or to refresh anything with your portfolio. I’d be thrilled to chat. I nerd-out about this stuff and it’s an honor to help you.


When looking over your account, I identified some tweaks.

  • [Personalized Recommendations]
  • Please update me and your Betterment profile if any of these have changed:
    •  Address
    • Beneficiaries
    • Estimated 2018 taxable income
    • If life situations occurred where you need to replenish your Emergency Fund and/or tackle new debts


To be as transparent as possible, attached to this email is a Paid Invoice breaking down the money that came out of your account for our Investment Management services. This is for your reference only and there is no need for any action.


[Personalized Recommendations]


We’re getting settled into our new Fort Collins lifestyles and home. I’m getting to know more people in our new community by building rapport with our neighbors (who are luckily guiding me on how to maintain a lawn), joining local tennis leagues to make new pals, and also getting to know the local Financial Planners so we can nerd-out about money together. The Andrews family also visited to do some skiing in Vail which provided a nice break from unpacking.

On the career end, the Colorado Financial Planning Association sent me to participate at the Colorado Attorney General’s office alongside other brilliant minds to brainstorm how to better K-12 financial literacy education as well as how to create systems to limit elder financial abuse. It was a cool experience to contribute towards public policy to help people in our community and to also meet other dedicated people who are passionate about helping others in the many areas of personal finances.


It’s a privilege to help you and please let me know if you have any questions!


Dan Andrews


Thanks for reading and if you want guidance on how to navigate your personal finances or you want help with your investment strategies so you can receive these personalized quarterly emails, please get in touch with me or learn more at Well-Rounded Success’ Services on the website.


Dan AndrewsAbout the Authors
Dan Andrews, the Leader and CERTIFIED FINANCIAL PLANNER™ of Well-Rounded Success, enjoys guiding and encouraging millennials through their 'adulting' responsibilities. His behavioral-finance style focuses on helping individuals in the Well-Rounded Success community define his/her own definition of success, make good decisions, and to also be philanthropic while along their journeys.






Britton GregoryBritton Gregory is a fee-only, fiduciary financial planner and investment manager with Seaborn Financial, LLC in Austin, Texas. As an engineer-turned-financial planner, he shies away from suits and commissions, and instead tends towards blue jeans, data-driven analysis, and a fee-only approach to financial planning.







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