Reducing your taxes should not drive your investment plan, but thinking strategically about taxes can help improve your investment results. The following suggestions may help lower your tax liability:
- Contribute to an IRA. Help secure a comfortable retirement by contributing to an individual retirement account (IRA):
- For tax year 2015, individuals may contribute (through 4/18/16) up to either $5,500 or eligible earned income for the year, whichever is less.
- Investors who are age 50 or older in 2015 may contribute a "catch-up" contribution of up to $1,000 for tax year 2015 (through 4/18/16).
- These dollar limits include combined contributions to both a Traditional IRA and a Roth IRA.
- Fund a college savings account. Help a child prepare for the future by contributing to a 529 college savings plan.
- Offset capital gains with capital losses. If certain investments, in taxable accounts, no longer fit your investment strategy and the current value is less than the purchase price, you may offset capital gains with capital losses.
- Give to a qualified charity. Support your favorite causes by donating appreciated securities you’ve held for more than one year. You may deduct the full fair market value and avoid any federal capital gains tax.
- Consider tax-free and tax-efficient funds.1 Because these funds typically distribute fewer taxable earnings, your taxable income potentially could be lower. Of course, all funds are subject to the risk of declining share prices.
Please note the college savings plan's disclosure document includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing.
Be sure to review the college savings plan offered by your home state or your beneficiary's home state, as it may offer state tax or other benefits only available in the home state's plan.