Managing your investments in a tax-smart way can really boost your overall returns. But figuring out the mix of investment strategies and U.S. tax rules can be tricky, leaving many people unsure about how to minimize their tax bills.
First, you need to know the type of investment accounts you have—whether they’re taxable, tax-deferred, or tax-exempt. For taxable accounts, be prepared to pay taxes on your investment gains in the year they happen.
A recent survey by E*TRADE found that even though many experienced investors are aware of taxes, most aren’t fully using all the available tools and resources to cut down their yearly tax payments on investments.
With tax season in full swing, E*TRADE has looked into investors’ tax habits and provided various tools to help manage taxes now and in the future. Taxes can really cut into your long-term investment gains, so it’s important to stay on top of them.
If you like managing your own finances, E*TRADE’s Education Center offers a range of easy-to-use tools and resources to help both investors and traders understand and handle their taxes better. This center is useful for everyone, not just E*TRADE customers, offering a wide range of educational materials even for non-registered users.
E*TRADE also has a dedicated Tax Center, which is packed with tools and resources for customers, covering everything from cost basis reporting and managing gains and losses to frequently asked tax questions.
Many people invest through Tax-Advantaged Accounts, and they may not even realize it. Accounts like 401(k)s are inherently tax-efficient, but you can also look into Roth IRAs for tax-free growth of investments after using post-tax dollars, withdrawable after age 59 and 1/2.
According to another E*TRADE survey, investors recognize the benefits of tax-advantaged accounts like IRAs, 401(k)s, 403(b)s, and Health Savings Accounts (HSAs), with 45% of investors citing them as the best way to cut annual investment taxes. About 50% of all trading happens in tax-advantaged accounts, jumping to 60% among younger investors.
Other effective strategies to minimize investment taxes include selling underperforming investments to offset gains, holding investments for at least a year for tax breaks on gains, investing in tax-free municipal bonds, tax-deferred annuities, and low turnover funds.
Using these strategies well can save you significant money. As we approach Tax Day, your online broker can help guide you on tax-efficient investing, offering tools accessible to everyone, not just their customers. Just remember, while tax savings are great, they shouldn’t be the only reason behind your investment decisions.