In this blog post, we’ll explore how tax-efficient investing fits into an IMA portfolio strategy and how to optimize investments for your benefit. Tax-efficient investing is a core component of any Investment Management Account (IMA) strategy. Tax-efficient investments provide an added layer of control against volatile markets, helping to ensure that investment strategies remain aligned with their long-term financial objectives such as retirement savings or passing wealth to future generations.

What is an IMA?

An Investment Management Account (IMA) is a powerful investment tool that allows investors to hold a variety of financial assets in a single account, managed by experienced investment managers. This service is ideal for individuals and institutional investors who wish to simplify their portfolio management while gaining access to an extensive range of investment options.
IMAs offer a broad range of investment options, including equity positions, mutual funds, bonds, derivatives, and real estate investments. This flexibility allows investors to diversify their portfolios according to their risk tolerance and investment goals. As a result, this type of account is an excellent tool for building a well-rounded, balanced investment portfolio.
One of the biggest advantages of an IMA is its low cost, which is achieved through the economies of scale offered by consolidation. This means that investors can benefit from lower fees for investment management, which can improve the overall performance of their investments.

Furthermore, IMAs often provide investors with access to additional services such as financial planning, tax management, and reporting. IMAs also offer consolidated reporting across multiple accounts, which can help simplify the management of finances. With all investments held in one place, investors can easily monitor their investment performance and track their progress against their financial objectives. This feature further adds to the convenience of an IMA and makes it a preferred choice for investors.

Overall, the range of investment options, low cost, tax efficiency, additional services, and consolidated reporting make an IMA a very attractive investment option for individuals and institutional investors seeking high-quality professional services with minimal overhead.

Understanding Tax Efficient Investing and Its Benefits

Tax-efficient investing is a strategy employed by savvy investors who want to minimize their tax liabilities while maximizing their returns on investment. The goal of this strategy is to make strategic investments that will help preserve and grow capital over the long-term, while also minimizing the taxes paid on investment income. One of the key benefits of tax-efficient investing is the potential tax savings that come with the preferential tax treatments of capital gains and dividends.

Furthermore, tax-efficient investing allows for increased diversification, potentially outperforming the market. Rather than focusing on a single asset class, investors can diversify their portfolio across various asset classes to reduce risk and generate better returns. This approach can help investors achieve long-term financial goals by reducing the impact of market volatility on their portfolio.

Reduced trading costs are another benefit of tax-efficient investing. This is because investors who employ a long-term investment strategy can minimize trading activities, which in turn reduces trading costs. By holding investments for longer periods, investors can take advantage of compounding returns, which can significantly enhance their overall investment returns.

Identifying Opportunities for Tax Efficient Investing in an IMA Strategy

An IMA is a great choice for those looking to invest in a tax efficient way. One of the most common tax-efficient strategies used by investors is the utilization of tax-deferred investment accounts, such as 401(k)s or IRAs. These accounts provide an opportunity for investors to defer paying taxes on their contributions until they retire or withdraw funds. By utilizing these accounts, investors can potentially reduce their current tax burden, build wealth over time, and ultimately secure a more comfortable retirement.

Another strategy to consider in an IMA strategy is the utilization of capital gains treatment on certain stocks or index ETFs. By holding these investments for an extended period, investors can benefit from long-term capital gains tax rates, which are generally lower than short-term rates. Investors can also take advantage of tax-loss harvesting, whereby they sell an investment in a losing position to offset capital gains realized elsewhere in their portfolio.

In addition to these strategies, many advisers suggest utilizing income generated from investments and passing the savings onto other investment choices to maximize long-term growth. For example, investors may choose to reinvest dividends or interest earned on their investments back into their portfolio, potentially taking advantage of compounded returns over the long term.

Developing a Plan to Incorporate Tax Efficient Investing into an Existing IMA Strategy

Developing an investment plan which incorporates tax-efficient elements into an existing investment management account (IMA) strategy involves several key steps.  It involves evaluating the client’s current tax rate, investment objectives, and time horizon, in order to determine the best investment vehicles and strategies to achieve their goals while minimizing the impact of taxes on their returns.

The first step to developing a tax-efficient IMA strategy is to assess the client’s current holdings and identify areas of potential tax efficiency. This requires a thorough analysis of the existing portfolio, including each security’s cost basis, returns, and tax implications. Here, the focus must be on identifying areas where the client may have exposure to unnecessary taxes, such as through high turnover or excess capital gains.

Once the analysis is complete, investment advisors can then develop a customized plan for the client that incorporates tax-efficient investment vehicles and strategies. This may include asset location, where investments are placed in different account types based on their tax efficiency, and tax loss harvesting, where losses are realized to offset capital gains.

The creation of a tax-efficient IMA strategy also requires ongoing monitoring and adjustments to reflect changes in the client’s tax situation and market conditions. Given the ever-changing tax landscape and market fluctuations, a comprehensive approach is essential to optimize tax efficiency and minimize the impact of taxes on investment returns.

Implementing Your Tax Efficient Investment Plan Within Your IMA Strategy

Working with a financial advisor, investors can create a tax-efficient investment plan that is tailored to their goals and investment objectives. A sound investment plan will take into consideration asset allocation and diversification strategies, while balancing the investor’s time horizon against investment fees. In some instances, investors may decide to use certain instruments such as an annuity or life insurance policy in order to provide potential capital growth and retirement income benefits. When implementing your investment strategy within an IMA, it’s important to ensure that all security transactions are compliant with regulatory standards for greater protection of funds. Each investment decision should also be made with consideration of the ever-changing investment landscape and economic environment.

Ultimately, the goal of incorporating tax efficient investing into an IMA strategy is to improve returns and minimize the overall taxes paid. The combination of these two benefits provides investors with greater control over their tax liabilities and, ultimately, more financial freedom. It all starts with understanding the basics of an IMA and tax efficient investing and developing a strategy for utilizing it within your existing portfolio. From there, financial products and services can be utilized to further enhance the effectiveness of tax efficient investing. By taking a thoughtful approach when constructing your IMA and exploring new opportunities to reduce your tax burden, you can make strides toward achieving your financial goals.

Tax-Efficient Investment Management Accounts with Members Trust Company

In 2004, our Investment Team adopted the strategy of using Exchanged Traded Funds (ETFs) in portfolio design, making us one of the first trust companies in the United States to recognize their lower cost and tax efficiency. We offer seven different models to meet your particular objectives and needs. Our Investment Team monitors each model against benchmarks and rebalances to maintain target allocations — including trading in response to market and industry changes.

For information about how to get started with an IMA, give us a call at (888) 727-9191.

Non-deposit investment products available through Members Trust Company are not deposits of or guaranteed by the trust company, a credit union or credit union affiliate, are not insured or guaranteed by the NCUA, FDIC or any other governmental agency and are subject to investment risks including possible loss of the principal amount invested. Members Trust Company, owned and managed by America’s credit unions, is a special purpose federal thrift regulated by the Office of the Comptroller of the Currency. Past performance is not indicative of future results. This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant. Any opinions expressed are those of the presenter and do not necessarily reflect the position of Members Trust Company. The information above is obtained or compiled from sources we believe to be reliable. We Do Not Guarantee that such information, will be free from errors, omissions, whether human or mechanical, nor do we guarantee their timeliness, accuracy, or completeness.