Are your Investments Tax Efficient?

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How to invest tax-efficiently 

Create a strategy to help manage, defer, and reduce taxes

Tax Smart Investment strategies you should consider

While tax rules and rates may change over time, the value of keeping taxes in mind when making investment decisions does not. The reason? Taxes can reduce your investment returns from year-to-year, potentially jeopardizing your long-term goals. The higher your current marginal income tax rate, the more beneficial it may be for you to consider the impact of taxes when making changes to your investments. Be sure to consult with your professional advisor before making any decisions that could affect your taxes.

The following are six strategies that can help:

1. Contribute to tax-efficient accounts

2. Diversify your account types

3. Choose tax-efficient investments

4. Match investments with the right account type

5. Hold investments longer to avoid unnecessary capital gains

6. Harvest losses to offset gains

Key takeaways

  • Taxes shouldn’t be the primary driver of your investment strategy—but it makes sense to take advantage of opportunities to manage, defer, and reduce taxes.
  • Manage income taxes by considering the role of losses, the timing of investments, and investment selection.
  • Using tax-deferred accounts when appropriate can help keep more of your money invested and working for you—and then you can pay taxes on withdrawals in the future.
  • Reduce taxes by considering strategies like donating appreciated securities to charity, and funding education expenses.
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