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 2012, individuals may contribute up to either $5,000 or their taxable compensation for the year, whichever is less.
- Investors who are age 50 or older prior to 2012 may contribute a "catch-up" contribution of $1,000 for tax year 2011 (through 4/17/12) to accelerate the accumulation of assets in their IRAs. Individuals turning age 50 in 2012 may contribute the catch-up amount for tax year 2012.
- 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 less taxable earnings, your taxable income potentially could be lower. Of course, all funds are subject to the risk of declining share prices.
1Income from tax-free funds may be subject to state and local taxes and the federal Alternative Minimum Tax.
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.
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