Investing smartly while reducing the amount of taxes paid is important for growing wealth over time. Tax-efficient investing means choosing strategies that help keep more of your money by lowering taxes on investment gains and income. This approach can make a big difference in the long run.
Many investors do not realize how much taxes can eat into their returns. By using certain accounts, picking the right investments, and planning when to buy or sell, investors can keep more of their earnings. The goal is to build and protect wealth without losing too much to taxes.
Understanding the basics of tax-efficient investing helps investors make better decisions. It can guide them in choosing where to put their money and when to take it out, all while minimizing tax bills. This article will explore key strategies that make investing more tax-friendly.
Key Takeways
- Choosing the right investment accounts can reduce taxable income.
- Planning when to buy and sell investments lowers tax costs.
- Using specific types of investments helps keep more money after taxes.
Understanding Tax-Efficiency
Tax-efficient investing helps reduce the amount of taxes an investor pays on their earnings. It focuses on timing, location, and type of investments to keep more money working in the portfolio. This approach can improve overall returns by lowering tax costs.
What Is Tax-Efficient Investing?
Tax-efficient investing means choosing investments and strategies that limit how much tax an investor owes. It involves picking assets that create less taxable income or using accounts with tax advantages.
For example, investing in stocks that grow in value but pay few dividends can be more tax-efficient than bonds, which often pay taxable interest. Using retirement accounts like IRAs or 401(k)s also helps by deferring or eliminating taxes on gains.
The goal is to keep more money invested by minimizing withdrawals for taxes. This helps investments grow faster over time.
Benefits of Tax-Efficient Strategies
Tax-efficient strategies can increase an investor’s after-tax returns. Paying less in taxes means more money stays in the portfolio, leading to larger growth.
It also helps reduce the risk of high tax bills during retirement. By planning ahead, investors can avoid selling investments at a loss just to pay taxes.
Using tax-efficient methods also allows for better control over when and how much tax is paid. This can make financial outcomes more predictable and improve long-term planning.
Key Principles of Tax-Efficient Investing
There are three main principles investors should follow:
- Asset Location: Place investments generating high taxable income in tax-advantaged accounts.
- Tax-Loss Harvesting: Sell losing investments to offset gains and reduce taxable income.
- Holding Period: Keep investments at least a year to benefit from lower long-term capital gains tax rates.
These steps help lower tax bills while maintaining or improving overall portfolio performance.
Account Types for Tax Efficiency
Investors can use different account types to reduce their tax bills. Each account type offers unique tax benefits that help grow money more efficiently. Understanding these options helps in choosing the best place to invest.
Tax-Deferred Accounts
Tax-deferred accounts let money grow without paying taxes on earnings until withdrawal. Common examples are traditional IRAs and 401(k) plans. Contributions might be tax-deductible, lowering taxable income in the contribution year.
Taxes are paid when money is withdrawn, usually in retirement. This setup helps if the investor expects to be in a lower tax bracket later. However, withdrawals before age 59½ often have penalties and taxes.
The key benefit is compounding on untaxed earnings, which can speed up growth. It is important to keep track of required minimum distributions (RMDs) that start at age 73, forcing withdrawals and taxes.
Tax-Free Accounts
Tax-free accounts like Roth IRAs and Roth 401(k)s let investors pay taxes on contributions upfront. Earnings and withdrawals are tax-free after certain conditions, such as holding the account for five years and being age 59½ or older.
This is beneficial if the investor expects to be in a higher tax bracket later. Roth accounts also do not have required minimum distributions during the owner’s lifetime, allowing more control over withdrawals.
These accounts are ideal for long-term growth since earnings are not taxed. Contributions are limited each year, and income limits may restrict eligibility for Roth IRAs.
Taxable Accounts
Taxable accounts include regular brokerage accounts with no special tax features. They offer flexibility with no contribution limits or withdrawal rules. Investors can sell investments anytime but must pay taxes on dividends, interest, and capital gains.
Capital gains taxes depend on how long the investment is held: short-term gains are taxed as regular income, while long-term gains have lower tax rates. Smart timing of sales can reduce taxes here.
Tax-loss harvesting is a strategy used in these accounts to offset gains by selling losses. Though these accounts offer less tax advantage, they are useful for easy access to money or investments beyond retirement accounts.
Asset Location Strategies
Choosing where to hold different investments can lower taxes on returns. Placing certain assets in the right type of account affects the taxes paid on interest, dividends, and gains. This strategy helps keep more money working for the investor.
Placing Taxable Assets in Tax-Advantaged Accounts
Assets that generate high taxable income, like bonds or bond funds, are often better placed in tax-advantaged accounts. These accounts include IRAs and 401(k)s, where interest and dividends grow tax-free or tax-deferred.
This helps avoid paying yearly taxes on interest income, which is usually taxed at ordinary income rates. For example, municipal bonds pay tax-free interest and might be better held in taxable accounts. Stocks or funds with qualified dividends can be more tax-efficient in taxable accounts since those dividends get taxed at lower rates.
Taxable Versus Tax-Deferred Placement
A basic rule is to put investments with high current tax rates into tax-deferred accounts. This includes fixed income or bonds that generate consistent interest income taxed at a higher ordinary rate.
Investments with lower annual tax impact, such as growth stocks or broad index funds that mostly produce capital gains (which are only taxed when sold), typically work better in taxable accounts. This allows investors to control when they pay taxes by choosing when to sell.
| Asset Type | Best Account Type | Reason |
|---|---|---|
| Bonds (taxable) | Tax-advantaged | Interest taxed as ordinary income |
| Municipal Bonds | Taxable | Interest often tax-exempt |
| Growth Stocks | Taxable | Capital gains taxed upon sale |
| Dividend Stocks | Depends on dividend type | Qualified dividends lower tax in taxable |
Tax-Efficient Asset Allocation
Tax-efficient asset allocation helps investors keep more of their returns by placing investments in accounts that minimize taxes. It involves choosing the right mix of stocks, bonds, and other assets and deciding where to hold them—taxable or tax-advantaged accounts.
Balancing Stocks and Bonds
Stocks and bonds face different tax rules. Stocks often produce long-term capital gains and qualified dividends, taxed at lower rates if held over a year. Bonds, however, generate interest income that is taxed as ordinary income, usually at a higher rate.
Because of this, bonds usually fit better inside tax-deferred accounts like IRAs and 401(k)s, where interest income can grow tax-free until withdrawal. Stocks, especially those with qualified dividends or potential for long-term gains, are often better held in taxable accounts to take advantage of lower tax rates and benefits like tax loss harvesting.
Diversifying with Tax in Mind
Diversification means holding a variety of assets to reduce risk. Tax efficiency means picking assets with tax rules that fit the account type. For example:
- Municipal bonds, which pay tax-free interest, work well in taxable accounts.
- Growth stocks are best in taxable accounts to benefit from low long-term capital gains taxes.
- Tax-inefficient assets, like taxable bonds or REITs, perform better inside tax-advantaged accounts.
A balanced tax-efficient portfolio uses this approach to place each asset where it grows with the least tax drag. This reduces taxes and improves after-tax returns over time.
Minimizing Capital Gains Taxes
Capital gains taxes can reduce the profits from investments. Understanding how to lower these taxes helps investors keep more money. Using different strategies can affect when and how much tax is paid on investment gains.
Long-Term Versus Short-Term Capital Gains
Long-term capital gains come from assets held for more than one year. These gains are taxed at a lower rate than short-term gains. Short-term gains are from assets held for one year or less. They are taxed as ordinary income, which can be higher.
For example, if someone sells stocks after holding them for 14 months, they pay the long-term rate. If they sell after 10 months, the gain is short-term. Choosing when to sell can significantly change the tax bill.
Long-term rates vary but are generally between 0% and 20%. Short-term rates can be as high as the person’s regular income tax rate.
Harvesting Tax Losses
Harvesting tax losses means selling investments that are worth less than their purchase price. This creates a capital loss that can offset capital gains. This can lower tax payments by reducing the amount of gains taxed.
If losses exceed gains, up to $3,000 of the loss can be deducted from regular income per year. Losses not used can be carried forward to future years.
Investors should be careful not to buy the same or “substantially identical” investment within 30 days of the sale. This is called the wash-sale rule and disallows the loss deduction.
Tax-Lot Identification Methods
Tax-lot identification lets investors choose which shares to sell. This decision can impact the amount of taxable gains. The three main methods are:
- First-In, First-Out (FIFO): Sells the oldest shares first.
- Specific Identification: Sells specific shares chosen by the investor.
- Average Cost: Uses the average cost of shares owned.
Specific identification often helps minimize gains by selling shares with the highest cost first. FIFO can lead to higher gains if the oldest shares were bought at a lower price. Investors should keep detailed records and inform their broker which method to use when selling.
Tax-Efficient Mutual Funds and ETFs
Certain mutual funds and ETFs are designed to reduce the tax burden for investors. They focus on minimizing taxable events, like capital gains distributions, while maintaining investment returns. Understanding their differences helps investors choose the right option for tax efficiency.
Index Funds
Index funds aim to track a specific market index, such as the S&P 500. They typically have low turnover, which means fewer trades within the fund. This low turnover reduces the chance of capital gains distributions, lowering investors’ tax bills.
Because index funds buy and hold most of their investments, they generate fewer taxable events. They usually have lower expense ratios, making them cost-effective and tax-friendly. However, capital gains taxes can still apply when investors sell their shares.
Exchange-Traded Funds
ETFs trade on stock exchanges like individual stocks. Most ETFs track an index, giving them similar advantages to index funds with low turnover and low capital gains distributions. They also allow investors to buy and sell shares throughout the trading day.
ETFs use an “in-kind” creation and redemption process. This lets the fund exchange shares for underlying assets without triggering taxable events, helping to reduce capital gains. This feature makes ETFs a popular choice for tax efficiency.
Tax-Managed Funds
Tax-managed funds actively work to limit investors’ tax liabilities by using specific strategies. They try to avoid selling securities that would create taxable gains. Instead, they prefer offsetting gains with losses, a process called tax-loss harvesting.
These funds may focus on investments with lower dividend income or hold securities longer to avoid short-term gains. Tax-managed funds often have higher fees due to active management, but they can be helpful for investors in high tax brackets seeking to reduce current tax bills.
Municipal Bonds and Tax Exempt Income
Municipal bonds offer investors a way to earn income that is often free from federal and sometimes state taxes. These bonds come in different types with specific uses and risk levels. Understanding the tax rules tied to these bonds helps investors keep more of their earnings.
Types of Municipal Bonds
Municipal bonds are mainly split into general obligation bonds and revenue bonds. General obligation bonds are backed by the full faith and credit of the issuing government, meaning they have taxing power to repay investors. Revenue bonds are supported only by revenue from specific projects, like toll roads or utilities.
Some municipal bonds are insured, which lowers risk by guaranteeing payments if the issuer defaults. Others are uninsured and may have higher yields but greater risk. Tax rules treat these types the same, focusing on the income’s tax-exempt status rather than the bond’s insurance.
Tax Benefits for Investors
Interest income from most municipal bonds is exempt from federal income tax. If the investor lives in the state that issues the bond, the interest may also be exempt from state and local taxes. This is a major tax advantage compared to taxable bonds.
However, capital gains from selling municipal bonds are taxable. Also, some bonds, especially private activity bonds, may have alternative minimum tax (AMT) implications. Investors should review each bond’s tax status carefully to understand its impact on their tax bill.
Dividend Tax Strategies
Investors can reduce taxes on dividends by understanding the types of dividends and using careful reinvestment plans. Managing these factors helps keep more income from investments.
Qualified vs. Non-Qualified Dividends
Qualified dividends get taxed at lower long-term capital gains rates. These rates can be 0%, 15%, or 20%, depending on the investor’s tax bracket. To qualify, dividends must come from U.S. companies or qualified foreign firms, and the investor must hold the stock for at least 60 days around the dividend date.
Non-qualified dividends are taxed as ordinary income, which can be higher. These often come from real estate investment trusts (REITs), certain foreign companies, and some preferred stocks.
Knowing which dividends qualify helps investors plan when to buy or sell shares. Holding shares long enough to get qualified dividend status is a simple way to lower taxes.
Reinvesting Dividends Strategically
Reinvesting dividends can grow an investment faster but may increase tax bills if dividends are taxed yearly. Choosing to take dividends as cash instead of reinvesting can give more control over tax timing.
One strategy is to reinvest dividends within tax-advantaged accounts like IRAs or 401(k)s. This avoids immediate taxes on dividends.
Another approach is to use dividend reinvestment plans (DRIPs) to buy more shares automatically but track the cost basis carefully. Accurate records help avoid overpaying taxes when shares are sold.
International Investment Tax Considerations
Investors need to understand how taxes work when investing in foreign markets. Taxes taken by other countries can affect returns, but there are ways to reduce that impact. Knowing how to handle foreign taxes and dividends is key to investing efficiently.
Foreign Tax Credits
Foreign tax credits allow investors to avoid paying tax twice on the same income. When a country withholds tax on foreign income, investors can often claim a credit on their home tax returns. This credit is limited to the amount of tax owed on the same income at home.
The credit reduces the investor’s home country tax bill dollar for dollar. Claiming this credit requires filing specific tax forms and keeping good records of taxes paid abroad. Not using the credit can lead to higher tax bills than necessary.
Some countries have tax treaties that simplify claiming credits or reduce withholding rates. It is important to check these agreements to maximize benefits and prevent overpaying taxes.
Withholding Taxes on International Dividends
Many countries charge a withholding tax on dividends paid to foreign investors. This tax is deducted before dividends reach the investor. Typical rates range from 15% to 30%, depending on local laws and treaties.
Withholding tax reduces the net dividend income for the investor. However, tax treaties between countries can lower these rates and improve returns. Investors must understand the treaty rate between their country and the dividend-paying country.
Investors may be able to recover some withholding tax through refunds or credits. Proper tax filing and documentation are necessary for this process. Being aware of withholding tax rates helps investors plan for actual income received from international stocks.
Roth Conversion Strategies
Roth conversions involve moving money from a traditional IRA or 401(k) into a Roth IRA. This choice can help manage taxes now and later. It’s important to consider the benefits of this move and when to do it for the best tax outcome.
Advantages of a Roth IRA Conversion
A Roth conversion lets money grow tax-free in the Roth IRA. Once the conversion tax is paid, all future withdrawals are free from income tax if rules are met.
It also helps reduce future required minimum distributions (RMDs). Roth IRAs do not have RMDs during the owner’s lifetime.
Additionally, converting the right amount each year may keep taxes lower by avoiding a jump into a higher tax bracket. This strategy provides tax flexibility in retirement.
Timing Roth Conversions for Tax Efficiency
Choosing the right time to convert is key. Converting during years with lower income means paying less in taxes on the converted amount.
Many consider converting after retirement but before starting Social Security or RMDs. At that time, income often drops, which can lower tax rates.
Spreading conversions over several years also helps avoid higher tax brackets. Tax planning tools or financial advisors assist in finding the best timing for conversions to save money.
Required Minimum Distributions and Tax Planning
RMDs start at age 73 for most retirement accounts. They force investors to withdraw a set minimum each year, which can increase taxable income. Careful planning helps manage these withdrawals and reduce tax burdens.
Managing Distributions from Retirement Accounts
RMDs apply to traditional IRAs, 401(k)s, and other tax-deferred accounts. The IRS calculates each year’s RMD based on the account balance and life expectancy.
Investors must withdraw the full RMD by December 31 annually. Failing to do so results in a 50% penalty on the amount not withdrawn.
Roth IRAs do not have RMDs during the owner’s lifetime, making them a useful tax shelter. However, inherited Roth IRAs do require distributions.
Tracking RMDs accurately is crucial to avoid penalties and unexpected tax hits. It also helps maintain a predictable income flow in retirement.
Strategies to Reduce RMD Impact
One method to reduce RMD taxes is to convert part of traditional IRAs to Roth IRAs before turning 73. This raises current taxes but lowers future RMDs.
Another strategy is to donate RMD amounts directly to qualified charities through Qualified Charitable Distributions (QCDs). This counts toward the RMD but is not taxed as income.
Investors can also withdraw more than the RMD early in the year to spread out income. This helps avoid large spikes in taxable income.
Finally, careful tax planning can involve delaying Social Security or using tax-loss harvesting to lower overall tax rates during withdrawal years.
Gifting and Charitable Planning for Tax Reduction
Gifting and charitable giving can lower taxable income and reduce estate taxes. Specific strategies help investors give while keeping tax benefits in mind.
Tax Benefits of Charitable Giving
Donations to qualified charities can reduce taxable income through itemized deductions. Taxpayers can generally deduct cash donations up to 60% of their adjusted gross income (AGI). Gifts of appreciated assets, like stocks, avoid capital gains tax if donated directly to charity.
This means investors do not pay taxes on the rise in asset value when gifting appreciated property. Instead, they get a deduction based on the market value.
Proper record-keeping is crucial. Receipts from charities must be kept to claim deductions. Gifts to donor-advised funds or private foundations can also qualify if rules are followed.
Donor-Advised Funds
Donor-advised funds (DAFs) are accounts that allow donors to give now and recommend grants later. Contributions to DAFs are immediately tax-deductible. This approach combines tax savings with flexibility.
Donors can contribute cash, stocks, or other assets. The fund then invests the assets, which can grow tax-free. Grants can be made to different charities over time according to the donor’s wishes.
DAFs offer an easy way to manage charitable giving and get tax benefits without the paperwork of managing a private foundation. However, once money is donated, the donor loses control of the assets.
Estate Planning and Taxes
Estate planning helps reduce tax burdens when transferring wealth. It involves strategies to minimize taxes on inherited assets and gifts. Understanding key tax rules can help preserve more value for heirs and beneficiaries.
Step-Up in Basis
The step-up in basis resets the value of an inherited asset to its market price at the time of the owner’s death.
For example, if someone bought a stock for $10,000 and it’s worth $50,000 when inherited, the new basis is $50,000. This reduces capital gains taxes if the heir sells the asset.
Without the step-up, the heir could owe taxes on the full $40,000 gain. This rule applies to many types of investments, like stocks and real estate.
It is important to note that this rule generally applies only at death, not for assets given as gifts during a person’s lifetime.
Gift and Estate Tax Exemptions
Gift and estate taxes apply to large transfers of money or property. Both have specific exemptions that shield certain amounts from tax.
In 2025, the federal estate and gift tax exemption is $12.92 million per person. This means transfers below this amount are usually tax-free.
Amounts above this limit are taxed, so planning gifts and estates carefully can reduce tax liability. Using trusts or splitting gifts among family members can help stay under these limits.
Annual gift exclusions allow giving up to $17,000 per person each year without using the lifetime exemption. This is a useful way to reduce taxable estate size over time.
Tax-Efficient Withdrawals in Retirement
Withdrawing money wisely can lower the taxes retirees pay. Choosing which accounts to pull from first and mixing different types of accounts can help keep tax bills smaller.
Order of Account Withdrawals
Knowing the right order to take money out of accounts is key. Retirees often start with taxable accounts first. This lets tax-advantaged accounts like IRAs and 401(k)s grow longer without extra taxes.
Next, they usually withdraw from tax-deferred accounts. These cause tax bills when withdrawn, so delaying them can spread out taxes over time. Lastly, Roth accounts are often used because withdrawals here are tax-free if rules are met.
This order can change based on tax rules, income needs, and health. A plan tailored to each person’s situation works best.
Blending Account Types
Using money from different accounts together can cut taxes. For example, mixing taxable, tax-deferred, and tax-free withdrawals may keep income in a lower tax bracket.
A retiree might take some from a Roth IRA and some from a traditional IRA in the same year. This balances taxable income and avoids big tax jumps.
Tracking taxes every year helps adjust withdrawals for the best tax results. Combining account types takes planning but can protect savings longer and reduce tax costs.
Passive Versus Active Investment Strategies
Investors often choose between passive and active strategies based on how much control and cost they want. The choice impacts taxes through different patterns of trading and income distribution. Understanding these differences helps investors keep more of their returns.
Tax Benefits of Passive Management
Passive management usually means buying and holding funds that track an index. This strategy creates fewer taxable events because the fund manager does not frequently buy and sell securities. As a result, capital gains distributions are lower than in active funds.
Passive funds tend to pay mostly qualified dividends, which receive favorable tax rates for many investors. They also avoid short-term capital gains, taxed at higher rates.
Because of these features, passive management helps reduce annual tax bills. Investors benefit from tax deferral and less frequent tax reporting.
Comparing Turnover Rates
Turnover rate measures how often assets within a fund are replaced. Active funds typically have turnover rates above 50%, meaning more sales and purchases each year. Passive funds often have turnover rates under 10%.
High turnover causes more realized capital gains. These gains are passed to investors as taxable income. This can result in larger tax bills even if the fund performs well.
Lower turnover in passive funds limits taxable events and helps investors keep more money working inside the fund. This difference is significant when building tax-efficient portfolios.
Tax-Efficient Investing for High Earners
High earners face extra tax challenges that require careful planning. They should understand how additional taxes on investment income work and explore less common investment options to lower tax bills.
Investment Income Surtax Considerations
High earners may owe an additional 3.8% Medicare surtax on investment income. This surtax applies if modified adjusted gross income exceeds certain limits: $200,000 for single filers and $250,000 for married couples filing jointly.
The surtax covers interest, dividends, rental income, and capital gains. It does not apply to wages or self-employment income. To reduce surtax exposure, investors can delay selling assets or use tax-advantaged accounts.
Tax-loss harvesting can offset gains and help lower taxable income. Planning the timing of income and deductions is also key. Understanding these surtax rules enables strategic decisions to minimize total tax bills.
Alternative Investment Vehicles
Certain investments offer tax advantages for high earners. Municipal bonds, for example, often provide tax-free interest at the federal level, and sometimes state tax-free income.
Real estate investments can generate depreciation deductions, which reduce taxable income. Private equity and funds that use tax deferral strategies can also help.
Investors should consider investing through retirement accounts like IRAs or 401(k)s. These accounts allow earnings to grow tax-deferred or sometimes tax-free.
Choosing the right mix of alternative investment vehicles depends on the individual’s tax bracket, financial goals, and investment timeline.
State and Local Tax Considerations
Tax rules can differ widely depending on where an investor lives or holds assets. Understanding these differences helps reduce tax bills and make smarter investment choices.
State Tax Rules on Investments
States vary on how they tax investment income like dividends, interest, and capital gains. Some states have no income tax at all, which means no tax on investment earnings. Others tax all investment income at the same rate as regular income.
Certain states offer tax exemptions or lower rates for specific investments, such as municipal bonds issued within the state. Investors need to check if these benefits apply to them to avoid paying unnecessary taxes.
It is also important to note whether the state taxes retirement income. Some states exclude pension payments or Social Security benefits from taxable income, affecting the overall tax cost of investing.
Location-Based Strategies
Where an investor lives or invests affects tax efficiency. Moving to a state with no or low income tax can reduce taxes on investment income significantly.
Another tactic is buying in-state municipal bonds, which are often tax-free on state and local levels. This can lower tax bills if the investor lives in the same state as the bond issuer.
Investors should also review how their state treats capital gains. Some states tax capital gains fully while others offer a partial or full exemption, which influences where to hold or sell assets.
Planning investments with state tax rules in mind can result in meaningful tax savings over time.
Tax-Loss Harvesting Best Practices
Tax-loss harvesting involves selling investments at a loss to reduce taxable income. It requires careful timing and attention to rules to avoid penalties and maximize benefits.
Identifying Opportunities for Loss Harvesting
An investor should regularly review their portfolio for assets that have dropped in value. Selling these investments can create losses to offset gains elsewhere.
Key points to watch:
- Losses can offset capital gains dollar for dollar.
- Up to $3,000 of excess losses can reduce ordinary income each year.
- Loss harvesting works best when an asset is unlikely to recover soon.
It’s important to compare potential tax savings with the impact on the overall portfolio. Selling just for the tax benefit can hurt long-term returns if the investment rebounds.
Wash Sale Rule Compliance
The wash sale rule disallows a loss deduction if the investor buys the same or a “substantially identical” security within 30 days before or after the sale.
To follow this rule, an investor must:
- Avoid buying the same stock or a similar one within the 61-day window.
- Consider investing in a different asset class or sector temporarily.
- Track all transactions carefully to prevent accidental wash sales.
Ignoring this rule causes the loss to be added back to the cost basis, delaying the benefit. Many investors use software or advisors to ensure compliance.
Reviewing and Adjusting Your Tax-Efficient Strategy
Investors should review their tax-efficient strategy at least once a year. This helps ensure it still fits their financial goals and tax situation.
Tax laws can change, so strategies that worked before might need updates. Regular checks help avoid unexpected tax bills or missed benefits.
When reviewing, consider these key points:
- Changes in income or financial goals
- Shifts in tax rates or rules
- Performance of investments within tax-advantaged accounts
If an investor finds that certain investments cause high taxes, they can adjust by:
- Selling some holdings to realize losses and offset gains
- Moving investments into tax-advantaged accounts, like IRAs or 401(k)s
- Using strategies such as tax-loss harvesting
A simple checklist for review might include:
| Task | Why It Matters |
|---|---|
| Check income changes | Could affect tax brackets |
| Review capital gains | Planning sales can reduce taxes |
| Assess retirement accounts | Maximize contributions and use |
| Examine investment types | Stocks, bonds, and funds have different tax rules |
Adjusting the strategy based on these points can save money over time. It also helps keep the plan aligned with investor needs.