News At-A-Glance
Brighton, Colorado
Financial Advice: Are You a “Tax-smart” Investor?
Article Offered By Richard Bonitz, Edward Jones
Preparing your 2007 tax returns? Pay especially close attention to those items, such as the “1099” forms, that may deal with interest payments, dividends and capital gains distributions - anything related to investments and investment-related taxes. If you think you may have paid too much in these taxes in 2007, you may want to take steps to become a “taxsmart” investor for 2008 - and beyond.
How do you become a tax-smart investor? Here are a few suggestions:
• Boost your 401(k) and traditional IRA contributions. Before investing in anything else, put in as much as you can afford (within contribution limits) to your tax-deferred investments, such as your traditional IRA and your 401(k) or other employer-sponsored retirement plan. Within your IRA and 401(k), your money potentially will grow faster than it would if placed in an investment on which you paid taxes every year. Plus, you may get other tax breaks. For example, you typically contribute pre-tax dollars to your 401(k), so the more you invest, the lower your taxable income may be. And, depending on your income level,some of your traditional IRA contributions may be tax deductible.
• Consider tax-free investments. If you’re eligible to contribute to a Roth IRA, strongly consider doing so. Your Roth IRA earnings grow tax-free, provided you’ve had your account for at least five years and you don’t begin taking withdrawals until you’re 59-1/2. If you’re in one of the upper tax brackets, you also might want to invest in municipal bonds. When you own a “muni,” your interest payments are free from federal taxes, and, if the municipality that issues the bond is located in your state, the interest also may be exempt from state and local taxes. However, some munis - particularly airport and housing bonds - might be subject to the alternative minimum tax (AMT). If you think you may have to pay the AMT, see your tax advisor before investing in these types of bonds...Read More