It’s Not What You Make, It’s What You Keep

We all invest to make money, right?  Many investors watch the market on a regular basis to ensure their portfolio is moving in a positive direction. Although we know we have no control over the market, we still watch in hopes of getting that good feeling of progress towards our financial goals. While we can’t control the market, we can control our investment choices to some extent. 

Another area of limited control is the tax we pay on our investments. We have little say over what Congress does about tax law, because all we can seemingly do is vote or write our members of Congress. However, we have significant control over how we setup our investment accounts and how they’re taxed.  

For example, did you know you have very different tax rates that apply to your investments?  You have an ordinary income tax rate and also two lower tax rates that apply to your investments. They’re known as the qualified dividend tax rate and the long-term capital gain tax rate.  For purposes of this article, let’s call these lower rates your “investment” tax rates.  They can be quite different from your ordinary rate. For example, someone with the highest 37% ordinary income tax rate can have an investment tax rate of 20%. Someone with a 24% ordinary income tax rate can have an investment tax rate of 15%, and someone with a 12% ordinary income tax rate can have an investment tax rate of 0%!

As you can see, most of the time your ordinary income tax rate can be almost double your investment tax rate. Here’s the application for you: certain investment types are still taxed at the higher ordinary tax rates. Yet others are taxed at the lower investment tax rates, and income from municipal bonds are generally exempt from federal income taxes altogether. Annuities are always taxed at your higher ordinary income tax rates, but for many other investments, you only have to hold them for one year to obtain the preferred investment tax treatment. 

The issue is even more important as it relates to retirement accounts like 401ks and IRAs, as well as Health Savings Accounts. Some of these accounts give you an ordinary income tax break on the front end, some on the back end, and one even gives you a tax break on both ends!

That’s why it’s important to sit down with your tax advisor to determine how each investment is taxed and analyze potential opportunities to shift investments into lower tax situations. It can also be very helpful for retirees to analyze their retirement tax shelter accounts to determine the benefits of withdrawing from some before others. 

We can’t control the market, and we don’t have much control over Congress, but by having a better understanding of how your investments are taxed, you can be better prepared to keep more of what you make. 

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Jeffrey T. Dobyns

CFP®, CLU, CHFC

President, SageSpring | Financial Advisor, RJFS 
615-861-6102

Jeffrey T. Dobyns

President, SageSpring | Financial Advisor, RJFS

Beyond crunching numbers and investment strategies, at SageSpring, we’re about building relationships. When you encounter Founder & President of SageSpring, Jeff Dobyns, it’s easy to understand why this is at the very heart of who we are as a firm. You won’t find stuffy formalities with Jeff; instead, you can expect to find him sharing a warm smile, communicating a compelling vision, or patiently untangling life’s complex challenges with clients. He believes in truly getting to know clients, understanding their aspirations and priorities, and navigating their financial plans with a tailored, comprehensive approach. Our team members have often been caught taking notes on Jeff’s effortless relationship skills from a distance, and we admire them for striving to learn from one of the best. 

Jeff’s financial expertise and wisdom are the perfect match to his innate people skills. Jeff holds the prestigious CERTIFIED FINANCIAL PLANNERTM certification, Chartered Life Underwriter (CLU®), and Chartered Financial Consultant (ChLU®) designations, and has held executive positions with financial planning firms for more than two decades. 

His dedication extends beyond the office to the boardroom and the local community, where Jeff is passionate about giving back. He serves as Chairman of the Board of Men of Valor, a prison ministry and mentoring program. Jeff also serves on the board of Send Musicians to Prison, which shares hope, healing and restoration with the imprisoned through musicians & artists. Jeff actively supports other initiatives in the community by sitting on the board of The Signatry of Middle Tennessee and the Halftime Institute of Nashville. 

Witnessing his four children, Gracyn, Hunter, Tanner, and Logan, excel on the field is almost just as rewarding, if not more, than celebrating the victories of seeing his clients overcome obstacles and build wealth. Spending weekends boating on the lake, hiking mountain trails, and fishing with his family are the moments Jeff cherishes most. It’s this grounded perspective that reveals the true meaning of wealth for Jeff: not just numbers on a page, but the freedom to create experiences that enrich your life and the lives of those you love. When you choose the Dobyns McMillin Wealth Team, you choose more than financial expertise. You choose a partner who champions your dreams, celebrates your victories, and walks besides you on the path to achieving your unique goals.

**Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER TM, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.