Tax-Efficient Investment Strategies for High-Income Families

John and Mary Smith are a married couple in their early 50s with a combined annual income of $300,000. They have two children, aged 15 and 18, and plan to send their oldest child to college in two years. The couple has a portfolio valued at $1.5 million, which consists of a mixture of taxable accounts, tax-deferred accounts (like IRAs), and a sizable investment in municipal bonds that yield tax-free income.

Given the current tax laws, the Smiths are contemplating several investment strategies to maximize their after-tax returns. They are particularly interested in understanding how their choices may affect their tax liabilities, especially concerning capital gains, dividends, and the potential tax implications of liquidating assets in the future.

As their financial advisor, outline a comprehensive tax-efficient investment strategy, taking into consideration their current financial situation, risk tolerance, and the long-term goals of funding their children's education while preparing for retirement.