Tax-Efficient Investing: Strategies to Keep More of Your Returns

Benjamin Franklin famously said that the only two things certain in life are “death and taxes.” We can agree that death is inevitable, but when it comes to taxes, efficiency strategies can often minimize the effect they may have on you. Tax-efficient investing allows you to reduce unnecessary tax burdens while maximizing your after-tax returns. This post will explore strategies to maximize your returns by minimizing tax implications.

Use Tax-Advantaged Accounts

Retirement Accounts

Retirement accounts such as 401(k)s, IRAs, and Roth IRAs may offer tax advantages depending on your eligibility. The way contributions and withdrawals of these accounts are taxed varies, and understanding the tax implications of each can help you minimize taxes now and in the future. To learn more about how contributions and withdrawals of these accounts are taxed, contact your financial advisor.

Health Savings Accounts

Heath savings accounts (HSAs) offer several notable tax advantages. Contributions of HSAs are tax-deductible, meaning they can be subtracted from your taxable income, which reduces the amount of income that is subject to taxation. HSAs also offer tax-free growth and withdrawals for qualified medical expenses.

529 Plans

529 College Savings Plans offer tax-free growth and withdrawals for qualified education expenses. There are other potential benefits with 529 plans as well, one being reduction of the estate through accelerated gifting.

Understand the Tax Implications of Your Investment Vehicle

Using investment vehicles such as index funds, ETFs, and municipal bonds may help you maximize your investments as well. Index funds and ETFs have lower turnovers, which means fewer taxable capital gains. Municipal bonds offer tax-free income at the federal level, and potentially at the state level if you live in the state where the bond was issued.

Qualified Charitable Contributions

Using QCDs to fulfill your RMD allow you to donate directly from your IRA account and avoid taxes. To learn more about QCDs, contact your financial professional.

Being aware of tax implications on your investments throughout the year allows you to maximize your returns. Speak with your financial advisor to learn more about each of these strategies, and how they fit with your individual situation. Keeping these strategies in mind and connecting with your financial advisor can allow you to keep more of your hard-earned money.

The material has been gathered from sources believed to be reliable, however West Michigan Advisors cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through West Michigan Advisors. Advisory services are only offered where West Michigan Advisors and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place. Securities offered through Level Four Financial, LLC, a registered broker dealer and Member of FINRA/SIPC