Want to Make More Money Investing? Try Maximizing Your After-Tax Return

Ways investors can save money on taxes.

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Saving money on taxes has the effect of compounding, giving you more to invest.
Benjamin Franklin famously said, “A Penny Saved is a Penny Earned” and we couldn’t agree more. Investors are always looking for ways to grow their account balances. Reducing their tax bill might be the simplest way.
Here are a few ways to get more out of your investments by paying less in taxes:

  1. Long-Term Capital Gains – Hold investments a year or longer and gains are given favorable tax treatment over short-term gains (less than 1 year) which are taxed as ordinary income.
  2. Qualified Dividends – Many investors like to hold dividend paying stocks or mutual funds but pay close attention to what type of income your investment generates. Qualified dividends are taxed at a lower rate than ordinary dividends. For example, many REITs and partnerships pay ordinary dividends which are taxed at your marginal (highest) tax bracket.
  3. Asset Location – Consider buying high dividend/high yield investments in a retirement account where the tax is deferred each year. On the other hand, be very careful what you buy in non-retirement accounts because the interest, dividends and capital gains make their way onto your tax return.
  4. Municipal Bonds – We have seen even well known money managers invest in bonds that pay taxable interest without any regard for taxes when there may be similar tax-free alternatives.
  5. Index Funds and/or Exchange Traded Funds (ETFs) – Many index funds and ETFs have low turnover and as a result don’t typically pass on as many capital gains distributions to shareholders.
  6. Look Ahead at Your Income for Tax Bracket Changes – Low income years may be good for intentionally taking on more income (would you pay 15% now to avoid a 25% tax later?) and high income years should be planned around by taking losses, deductions or deferring income to other years.
  7. Use Roth IRAs – You don’t get a tax deduction on the small amounts going into these accounts, but typically, whatever large amounts they grow to can be withdrawn tax-free.
    Learn to pay attention to what you will pay in taxes so you can keep more of what you earn!

Will Your Money Last Through Retirement?

No one wants to run out of money. But without goals and a solid plan,
how can you know for sure whether you’re on the right track?

Will I be able to maintain my current lifestyle?

What will my monthly income be in retirement?

Can I protect my hard-earned savings and still
have the income I want?

Rodgers & Associates answers questions like these every day.

Get Personalized Answers
2025 Lititz Pike, Lancaster, PA 17601
Phone: 717-560-3800, Toll-Free: 888-876-3437