Top Tax Efficient Investment Strategies for High-Net-Worth Investors

For high-net-worth individuals, managing returns is only half the equation. The other half is working to preserve those returns from unnecessary taxes. Capital gains, dividends, and interest income can all erode long-term growth if left unchecked. By applying tax-efficient strategies, investors can keep more of what they earn and allow wealth to compound more effectively.

1. Tax-Loss Harvesting

Selling investments at a loss to offset gains can reduce taxable income. Harvested losses first offset gains of the same type (short-term vs. long-term), and remaining losses may offset up to $3,000 of ordinary income annually, with the rest carried forward.

Key Considerations:

• Avoid the wash-sale rule (repurchasing the same security within 30 days).

• Focus only on taxable accounts, not IRAs/401(k)s.

• Maintain meticulous records for IRS reporting.

2. Asset Location

Different assets belong in different account types:

• Tax-inefficient assets (corporate bonds, REITs, high-turnover funds) → tax-deferred or tax-free accounts.

• Tax-efficient assets (index funds, municipal bonds, long-term stocks) → taxable accounts.

• High-growth assets → Roth accounts for tax-free future withdrawals.

3. Index Fund and ETF Investing

Low-cost index funds and ETFs reduce taxable distributions by minimizing turnover. ETFs can be even more tax-efficient due to their unique creation/redemption process.

Best Practices:

• Favor broad market ETFs in taxable accounts.

• Automate dividend reinvestment for compounding.

• Use active funds sparingly—and ideally in tax-advantaged accounts.

4. Roth IRA Conversions and Ladder Strategy

Converting pre-tax accounts into Roth IRAs allows for tax-free accumulation and withdrawals later. A ladder strategy—converting gradually over multiple years—can prevent moving into higher brackets.

Tips:

• Convert during low-income years or market downturns.

• Track the five-year rule for penalty-free withdrawals.

• Spread conversions to manage tax brackets.

5. Municipal Bond Investing

Interest income from municipal bonds is typically federal tax-free, and sometimes also exempt from state/local taxes.

Tax Equivalent Yield Formula:

Municipal Bond Yield ÷ (1 – Tax Rate)

For investors in the highest bracket, a 4% muni bond may outperform a 6% corporate bond after taxes.

6. Tax-Managed and Tax-Efficient Mutual Funds

Actively managed funds designed for tax efficiency help mitigate capital gains distributions and prioritize after-tax returns.

Considerations:

• Review after-tax performance, not just pre-tax returns.

• Weigh expense ratios against tax savings.

• Best suited for taxable accounts.

7. Health Savings Account (HSA) Triple Tax Advantage

HSAs offer a triple tax advantage:

• Contributions are deductible

• Funds can accumulate tax-free

• Withdrawals for qualified medical expenses are tax-free

After age 65, funds can also be withdrawn for non-medical purposes (taxed like a traditional IRA).

Final Thoughts

Tax efficiency is about integration—blending strategies like tax-loss harvesting, asset location, and Roth conversions into a unified wealth plan. When applied consistently, these tools transform taxes from a drag into a lever for long-term compounding.

Disclosure

Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Advisors, LLC and Parkview Partners Capital Management are separate entities. Neither Stratos nor Parkview Partners Capital Management provides legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation. There is no guarantee that tax-loss harvesting saves tax dollars. Past performance is not a guarantee of future results. To discuss how these strategies might apply to your specific situation, contact Parkview Partners Capital Management for a personalized consultation. https://www.parkviewpcm.com