Intro to efficient tax investing

Intro to efficient tax investing

On Behalf of | Apr 12, 2022 | Tax Planning

In New York and other states, a major part of investing money is doing so in a way that minimizes the tax burden on the investor. There are many ways to do this, and it is a somewhat complex topic because there are many different forms of tax that can apply to an investment.

Strategies to minimize taxes

The process of investing can involve many different kinds of assets and techniques, but the most important thing to keep in mind is the existence of tax-advantaged accounts. These are special investment accounts that are designed to help you save for retirement, and they have a reduced tax burden. Anyone can open an IRA, or individual retirement account, and some people will also have access to a similar account through their job, like a 401(k) or 403(b) account. These accounts can be configured as traditional or Roth, which allows you to either deduct contributions to the account from your current taxes or avoid having to pay any taxes on the withdrawals you make in the future.

Minimizing taxes means maxing out on contributions to these accounts. There are annual limits to how much you can contribute, and any further investments need to go into a taxable account like a standard brokerage account. The most efficient approach is to put anything that involves frequent transactions, like actively managed funds, into the tax-advantaged accounts because those have a higher tax burden normally.

The most important move is to max out contributions to tax-advantaged accounts and then move on to taxable accounts because that minimizes the total tax burden for the investments overall. By using these kinds of strategies, you can minimize the taxes due for your investments.

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