Tax Planning

Overview Tax Form Table Taxes and FAQs
Why consider tax-advantaged investing?
Growing need for tax relief

The average American pays more for taxes than food, clothing and housing combined1. Without the proper planning, investment earnings can make your tax burden even heavier.

Higher total return potential

For investors in the highest federal tax bracket, taxes can reduce an 8% annual return to as low as 5.2%. Over time, that may mean the difference between reaching a financial goal and falling short.

The power of tax-advantaged compounding

Investment earnings within IRAs, 401(k)s, annuities and certain education accounts are not subject to current year taxes. Because money that would otherwise go toward taxes remains in your account, it has the potential to compound and grow faster for the future. Depending on the account, taxes are either deferred until qualified withdrawals begin or eliminated altogether. Your financial advisor can tell you more.

Favorable tax rules

Under current laws, tax breaks that were set to expire in 2011 have been made permanent. This allows you to avoid federal taxes on qualified withdrawals from 529 college savings plans and to make higher contributions to employer-sponsored retirement accounts and IRAs.




















1. Source: Tax Foundation, 2007

2. For investors in the two lowest tax brackets, the tax rate on qualified dividends is 5% through 2007 and 0% from 2008 through 2010.

Strategies for cutting taxes
Offset taxable gains with losses

If your advisor recommends it, consider realizing investment losses before year-end to reduce capital gains taxes.

Donate and deduct

When donating an investment to charity, you can generally take a tax deduction for the full market value, meaning you avoid capital gains taxes on any appreciation.

Consider tax-free municipal
bond funds

Interest income from municipal bonds is not typically taxed by the federal government or state in which a bond is issued.

Invest for dividends

While interest income is taxed at rates as high as 35%, taxes on qualified dividends top out at just 15% through 2010.2

Maximize tax-advantaged accounts

Contribute as much as possible to tax-advantaged accounts for retirement or education. If you're 50 or older, you can make additional catch-up contributions to employer-sponsored retirement plans and IRAs.

Invest for the long term

Investments sold at a profit after more than one year qualify for favorable tax rates as long-term capital gains.

Consult an advisor

A financial professional or tax advisor can tell you if these or other strategies meet your individual needs.

Learn more about taxes and your investments
 
Ready to get started?

For more specific information, you can visit www.irs.gov, and refer to Publication 17 - Your Federal Income Tax. Consult your advisor or click here for helpful tips on building an investment portfolio to meet your tax management needs and other financial goals.

The information above is not intended to provide and should not be relied on for accounting, legal and tax advice or investment recommendations. The views and strategies described may not be suitable to all readers. Please contact your financial professional or tax advisor for additional information.