By deferring taxes, your clients may accumulate more after-tax wealth over time through compounding.
Did You Know?
Effective tax rates vary by state, so the impact of tax deferral depends on where your client pays taxes.
Prefer to save for later?
Key Takeaway
When you help clients understand the potential benefits of tax deferral, you can guide them in the direction of investments that can best support compounding growth.
Compare an After-Tax Investment to Tax-Deferral*
This example shows the hypothetical diversification of a client's concentrated stock valued at $1,000,000 with a cost basis of $200,000. It further assumes an 8% growth rate over both diversified portfolios for a period of 10 years.
Diversifying the concentrated stock position on a tax-deferred basis would enable your client to increase the net liquidation proceeds at the end of the holding period—a considerable difference of $168,143.
Effective Federal Tax Rate
Upfront Liquidation and Payment of TaxUpfront Liquidation and Payment of Tax 23.8%
Deferred Liquidation and Payment of TaxDeferred Liquidation and Payment of Tax 23.8%
Total to Invest in Year 1
Upfront Liquidation and Payment of TaxDeferred Liquidation and Payment of Tax $809,600
Deferred Liquidation and Payment of TaxDeferred Liquidation and Payment of Tax $1 million
Value After 10 Years
Upfront Liquidation and Payment of TaxUpfront Liquidation and Payment of Tax $1.75 million
Deferred Liquidation and Payment of TaxDeferred Liquidation and Payment of Tax $2.16 million
After-Tax Value Assuming Liquidation in Year 10
Upfront Liquidation and Payment of TaxUpfront Liquidation and Payment of Tax $1.52 million
Deferred Liquidation and Payment of TaxDeferred Liquidation and Payment of Tax$1.69 million
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