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January/February 2022
Invest with Income Taxes in Mind
While taxes alone should never drive your investment decisions, minimizing their impact matters.
What Goes Where
Holding tax-efficient investments in taxable accounts and taxable investments in tax-advantaged accounts is a useful strategy. Generally, when individual stocks, tax-managed stock funds, ETFs, dividend-paying stocks and mutual funds* are in a brokerage account, you’ll pay taxes annually on dividends and any realized investment gain.Alternatively, when assets are invested in tax-advantaged accounts, such as 401(k) plans and traditional individual retirement accounts (IRAs),** taxes are deferred until you make withdrawals, when the money is taxed as ordinary income.
*Investors should consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. Contact the issuing firm to obtain a prospectus which should be read carefully before investing or sending money. Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Past performance won’t guarantee future results. An investment in mutual funds may result in the loss of principal.
**Distributions from traditional IRAs and employer-sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.
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