Introductory Video - Featuring Nick Perini, CFA, Vice President

For high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and families, actively managed portfolios provide a tailored, tax-efficient approach to building wealth that passive investment vehicles like mutual funds and ETFs cannot match. At Beese Fulmer Private Wealth Management, we employ comprehensive strategies designed to optimize after-tax returns and protect wealth for future generations.

Below are ten key techniques we use to accomplish this:

1. Smart Rebalancing for Tax Efficiency

Rebalancing your portfolio to stay aligned with long-term goals is essential, but selling assets too frequently can create unwanted taxable events. We focus on tax-efficient rebalancing by using new contributions and dividends to adjust portfolio weightings rather than selling appreciated assets unnecessarily.

Example: Rather than selling stocks to maintain your desired asset allocation, we may allocate new cash contributions to asset classes that are underweight, avoiding capital gains taxes while still achieving balance.

2. Strategic Tax Bracket Management

One of the keys to long-term tax efficiency is taking advantage of fluctuations in income levels. We strategically time certain transactions, such as realizing gains or executing Roth IRA conversions, to fit within lower tax brackets.

Example: During a gap year or an income dip, we can sell appreciated assets to lock in gains at lower tax rates, while also converting pre-tax assets to Roth IRAs, minimizing future tax liabilities.

3. Loss Harvesting with a Long-Term View

Tax loss harvesting is more than just selling assets at a loss to offset gains—it’s a way to create future tax savings while keeping your investment strategy on track. We systematically harvest losses and reinvest in similar assets to maintain your portfolio’s integrity.

Example: When the market dips, we sell underperforming assets to capture losses, which we then use to offset gains. Meanwhile, the proceeds are reinvested in similar stocks, ensuring your overall portfolio strategy remains intact.

4. Location-Based Asset Allocation

Where you hold your assets matters. Placing the right investments in the right accounts—whether taxable, tax-deferred, or tax-free—ensures tax-efficiency over the long haul. Taxable bonds or high-dividend stocks might be better suited for tax-deferred accounts, while growth stocks often work best in taxable accounts.

Example: Holding a volatile or higher-risk stock in a taxable account allows any potential losses to offset other gains. Bonds and other income-generating assets, which are taxed at higher ordinary income rates, are held in tax-deferred accounts to defer taxes.

5. Timing Charitable Contributions for Maximum Impact

We help clients integrate charitable giving into their tax planning by donating appreciated securities to avoid capital gains taxes while still receiving a charitable deduction. Timing and strategy are key to optimizing the benefits of philanthropic efforts.

Example: Instead of selling a stock with significant appreciation and paying capital gains tax, a client can donate the stock directly to charity, eliminating the tax on the gain and taking a deduction for the full fair market value.

6. Optimizing Tax-Efficient Income Streams

Managing different income streams—such as qualified dividends, municipal bond interest, or capital gains—can have a substantial impact on taxes. We focus on generating income that qualifies for favorable tax treatment while avoiding exposure to ordinary income tax rates whenever possible.

Example: We invest in municipal bonds in taxable accounts, providing clients with tax-exempt interest, which can offer a better after-tax return than taxable bonds, particularly for those in higher tax brackets.

7. Deferring Gains Strategically

In certain situations, deferring capital gains by holding onto investments rather than selling can provide significant tax advantages. We look for opportunities to delay taxable events, allowing investments to continue compounding without immediate tax consequences.

Example: A client with an appreciated stock portfolio might defer selling, instead using strategies like holding until retirement to capture gains when they’re in a lower tax bracket.

8. Customized Withdrawal Strategies for Retirement

The sequence in which you withdraw assets from taxable, tax-deferred, and tax-exempt accounts during retirement can dramatically impact your tax bill. We design personalized withdrawal strategies that consider future tax liabilities and RMDs (required minimum distributions) to ensure tax-efficient retirement income.

Example: By withdrawing from taxable accounts first, we allow tax-deferred assets to continue compounding, while managing distributions from IRAs to reduce overall taxable income and avoid pushing the client into higher tax brackets.

9. Minimizing Tax Drag on Investments

We minimize the tax drag on your portfolio by carefully managing turnover and focusing on investments that provide tax advantages, such as qualified dividends or municipal bonds. This ensures your wealth compounds more efficiently, with less eroded by taxes.

Example: For high-net-worth clients, we avoid frequent trading in taxable accounts and focus on tax-efficient investments such as municipal bonds or qualified dividends to minimize taxes on returns.

10. Managing Alternative Minimum Tax (AMT) Exposure

For clients subject to the AMT, we incorporate strategies that minimize exposure. This includes avoiding certain investments that trigger the AMT, such as private activity bonds, and planning deductions carefully to manage AMT liabilities.

Example: A client heavily invested in private activity bonds might switch to AMT-exempt municipal bonds, reducing their AMT exposure while still benefiting from tax-free income.

Why Active Management is Superior for HNW Investors

While mutual funds and ETFs offer broad market exposure, they lack the personalization needed to manage taxes effectively for high-net-worth families. Our active management approach offers:

  • Greater control over the timing of taxable events
  • A focus on optimizing the location and timing of withdrawals
  • Tailored investment and tax strategies designed to meet long-term financial goals

At Beese Fulmer Private Wealth Management, we work closely with our clients to ensure their portfolios are positioned to maximize after-tax returns while meeting their unique needs.

Disclosure: The information provided in this article is for informational purposes only and should not be construed as tax or investment advice. Strategies mentioned may not be suitable for every individual or situation. Beese Fulmer Private Wealth Management does not provide tax advice. We recommend that you consult with a tax professional before implementing any tax or investment strategies mentioned here.