News At-A-Glance
Brighton, Colorado
Continued...Financial Advice: Are You a “Tax-smart” Investor?
Article Offered By Richard Bonitz, Edward Jones
• Keep fixed-income investments inside your 401(k). If you keep bonds, CDs and other fixedincome vehicles inside your 401(k) or other employer-sponsored plan, you won’t pay taxes on the interest income until you start making withdrawals, so this income becomes, in effect, tax-deferred. At the same time, you might want to keep growth stocks and dividend-producing stocks outside your 401(k), because these stocks can produce long-term capital gains and dividends, both of which are currently taxed at a maximum rate of just 15 percent. (Be watchfulof upcoming tax legislation, however, as both the capital gains rate and dividend tax rate are scheduled to expire at the end of 2010 and revert to earlier, higher levels.)
• Become a “buy-and-hold” investor. You need to hold investments at least one year to earn the most favorable capital gains rate when you sell. But the longer you keep your investments, the more you can push these capital gains taxes off into the future. Furthermore, by avoiding frequent trading, you may be able to reduce some of the other costs associated with investing.
Remember that investment decisions should be made on investment merit, not on tax considerations alone, even though tax effects are critical to achieving a desired after-tax return on an investment. A dividend can be increased, decreased or totally eliminated at any point without notice. You should consult with your tax advisor regarding your particular situation. Also work with your financial advisor to determine which of these moves make sense for your individual situation. Who knows? You could make investing a much less “taxing” experience.