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Does my portfolio fit me?

Compound Taxation

In this episode, John discusses the “evil twin” of compound interest — compound taxation.

John has lectured extensively on financial planning and is the author of 5 Ways Your Wealth is Under Attack and It’s Your Wealth – Keep It.

John’s strength is his ability and commitment to improve the level and quality of the financial planning process.

His dedication to his clients’ growth involves an evolving strategy. His focus is to meet the demands, desires, and needs of his clients in a changing economic environment.

What you’ll learn from John in this episode:

  • How compound taxation is eroding your wealth and its potential.
  • How to appropriately predict and plan for compound taxation in your portfolio.
  • Creating strategies to reduce this taxation over the period of wealth creation.

John illustrates a compound taxation scenario:

  • $300,000 in capital, invested at 5% interest, will earn you $15,000 after the first year.
  • With compounded interest, 30 years out, your $300,000 has gained almost a million dollars.
  • But that first year’s interest of $15,000 will generate a 1099, which will go on a line on your tax return and create taxable income.
  • Assuming a 30% tax bracket, after paying the tax you only have $11,000 to reinvest in that first year. Each year you have less and less capital to compound as you pay the tax from that account.

This is especially important in retirement. You may have fewer outside sources of income from which to pay the taxes generated in your portfolio.

We’d love to help you prevent the “miracle” of compound taxation from eroding your wealth potential. We want to reduce both your current taxes and your future taxes. Give us a call at 732-542-1565 and schedule a time to have a conversation. You can also go to our website and click “Contact us,” or “Schedule an appointment.”

If you are new to Smallwood Wealth schedule a Wealth Curve Conversation here.

We look forward to speaking with you.


Talk to a Smallwood Wealth Management Financial Advisor

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compound taxation episode



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