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Minimize Your Investment Taxes

When you're choosing how to invest and save your hard earned money, you want to consider the tax consequences when the money is invested, when you divide the assets (divorce or give as gifts), and when you will sell the investments.

There are a number of events that are considered “common taxable events” when it comes to your investments. Knowing what they are can help you minimize the taxes on your investments and make better decisions about how to handle your funds. Tax laws change frequently, so make sure to check with a tax professional or financial counselor for up to date information regarding investment taxes.

Taxable Accounts

Selling a security held 12 months or less for profit. This is considered a short-term capital gain and is subject to income tax at the regular rate.

Selling a security held for more than 12 months for profit. This is considered a long-term capital gain and is subject to a minimum tax rate of 15%.

Security pays a dividend. The dividend may be paid cash to you or automatically reinvested into the security, and both are considered taxable events. Most dividends are taxed at the minimum rate of 15%, but some may be taxed at regular rates.

Selling tax-exempt bond before it fully matures. This is considered the sale of a capital asset, and you have to report the capital gain or loss even if the bond may pay tax-exempt interest.

Tax Advantages Accounts

Withdrawal of money from a retirement account (not a Roth IRA) When you are 59 ½, the withdrawal is subject to the regular income tax rate. If you are younger than 59 ½, most tax laws impose a 10% penalty for the withdrawal.

Transfer of money from retirement account from employer to IRA when changing jobs Qualified rollovers result in no taxes or penalties until you start taking withdrawals from the IRA.


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