Tapping into tax-deferred income

Different forms of distributions come with different levels of taxation, which can have a major impact on the after-tax value of your clients’ withdrawals. A valuable tax management strategy involves taking an investment that offers the most tax-advantaged type of distribution.

Various types of income are taxed differently

Return of capital (ROC) provides the most tax-effective form of distribution since it is not immediately taxable. Tax is deferred until the investor’s capital is depleted or the shares are sold.

Benefit from Return of Capital with Dynamic Series T

Series T is designed to help your clients achieve their monthly cash flow needs in the form of return of capital¹, while providing their portfolio the opportunity for capital appreciation. The chart below illustrates how return of capital withdrawals from a Series T investment works.

Income from an investment in Series T will primarily consist of a return of capital distribution but may also consist of net income and/or net realized capital gains. The return of capital withdrawals will lower the capital of the investment over time. What remains in the account is any growth the investment has achieved over the years on the original investment. Any subsequent withdrawals after the capital reaches $0 are taxable in the form of capital gains, which is currently taxed at a lower rate compared to dividend or interest income.

A Series T investment allows your clients to defer the taxes on return of capital distributions they receive, and pay those taxes at a more advantageous time in the future. When your client decides to sell the investment, they will realize a larger capital gain than if they had not received return of capital distributions. However, capital gains are taxed at a lower rate than other income and your client can choose to sell when they may fall into a lower tax bracket, potentially reducing their overall tax bill.

Distributions on Series T may also consist of net income (or dividends in the case of Series T of Dynamic Corporate Class Funds) and/or net realized capital gains.

Series T for Various Growth Scenarios

The charts below illustrate what happens to a Series T Investment over 20 years using three different hypothetical scenarios. Eventually, your clients’ capital will become $0, and what will remain in the account is the growth, or any appreciation, on the investment. However, depending on the scenario, the length of time before your capital reaches $0 will vary.