How to Save Taxes on Your Investments

Want to LIMIT TAXES while INVESTING 💸 for the future?

Jim Zahansky, AWMA® explains how in the latest #YouAndYourMoney podcast. 👉 

#PlanInvestLiveWell #taxsavvy 
#taxplanning #investing

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Transcript

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Welcome to You and Your Money. Empowering you to reach your goals with tips to help you Plan Well, Invest Well and Live Well. I'm Jim Zahansky, principal managing partner and chief gold strategist at Weiss, Hale and Zahansky Strategic Wealth Advisors. Now on to today's topic. All right. So let's get to our big topic today, which is taxes top of mind for many of our listeners with tax season coming up as you mentioned. So when it comes to taxes on investment and retirement savings accounts, what are some of the key principles people should understand? Yeah, I mean, the first the first thing to think about is there are two essentially, you know, tax deferred accounts and then there there are or tax, you know, exempt accounts. And then there are taxable accounts. So what are these tax deferred accounts? Well they're probably ones you're all using like 401ks IRAs. And then you've got taxable accounts. You put money in a taxable account like a Roth IRA or you know, a brokerage account. And I would just say the only difference, right. If you're using a 401k, say you're making $100,000 a year and you're deferring 20% into your 401k, well, your taxable income is now 80,000. Yeah. So you see right off the bat you're essentially reducing your taxable income just by saving that amount of money into your 401 K. And obviously an IRA, a traditional IRA could work the same. The limits annually are different, you know, by the IRS. But essentially those tax deferred or tax free accounts are ones that reduce your taxable income. And then the ones that are taxable accounts, a brokerage or a Roth you're funding with post tax money. All right. So again to minimize taxes which account should be utilized for. Yeah I mean if you're trying to minimize taxes and you can afford to defer some of your income into it, use the use the tax deferred accounts. I mean essentially they grow. And the beautiful thing about like 401 KS and IRAs is the money you're putting in there are generally pretax and they grow tax deferred. You really don't have to depending on what your age is. You know, you're not taking that that money until after your age 70 at which at which time it's likely that your tax, your ordinary tax rate is lower. And therefore, you know, essentially it's grown your entire life, tax deferred, and you're taking, money out later. you know, when your tax rate is lower. So, some people, they also save and invest additional money outside of their formal retirement accounts. What moves can they make to optimize taxes for that kind of stuff? I mean, so. Right. You're exactly right. I mean, if you're fully funding up to the $23,000 limit in your 401 K, you know, per year, that's what the IRS allows you to save personally in your 401 K. You know, if you're looking to fully fund that first and save taxes, then after tax money can be put in things like brokerage accounts and in those, you know, one of the things that's important is, is tax loss harvesting. So we do this for clients annually. We look at, you know, how do you if you've had a big gain in a certain holding, you know, if you've if you've held a company that has really had a big gain, how do we offset that with some losses? You have, in a given year and help you reduce future tax gains. And we think about that at the portfolio level. It sounds complex, but at the end of the day, really what you're doing is looking at these accounts that are, post-tax. You funded them with post-tax money. certain holdings have made money. some haven't. And we're selling those that haven't to offset some of the gains you've had. All right. good ideas here, but let's dig into specifics on on how to put this in action. Walk us through your top early moves for taxpayers, focused on reducing their burden. Yeah. I mean, so first thing to think about, right on the tax side of this is if you're trying to reduce taxable income, fund your 401 K to the highest degree you can. As I mentioned, the IRS limit for 2024 is $23,000 pretax savings into your 401 K. that's that's the first. And I would also say look and pay attention to what your employer is matching. Right. If they're matching 4% of your income or 3% of your income. At least defer that. At least defer 3 or 4% because that's free money from your company. They're matching you. They're sort of enticing you to save for retirement and at least match that. And I'd also add to that, you know, a lot of people get raises this time of year. If you get a 34% raise, tack on 1% to your 401 K, pay yourself first In that scenario, and be sure you're at least saving to what the company's matching. What else should we prioritize? The other thing to think about is if you're in a high deductible health care plan, you you, you know, if you can use a health savings account, this is triple tax free money that essentially can be saved, pre taxed, used, used to pay medical expenses now or in the future. those are really obviously very good. And you could also defer if you're fully maximizing your 401 K, you still could fund a traditional IRA. and so, you know, these are sort of the sort of pretax and, tax efficient investments that you should think about in relation to your income and should prioritize those first. What about college savings plans? Yeah. Great question. So if you've done all of the things I just said, and it's really important for you to sort of reduce the burden if you have children in your family that wants to help them pay for college, then what is your college strategy? Do you want to reduce the entire payment for your child? Do you want to reduce half? What? Think about that strategy and then how do you save for it? One of the key vehicles in doing that are 529 college savings plans. You know, in the state of Connecticut, they offer the Connecticut Higher Education Trust 529 and you're funding these for your kids. That allows tax deferred savings in 529 if used for educational expenses that are qualified. So basically, any secondary school or even, you know, prior to going to college and those things you could use, use money up to 10,000 a year for private school. All right. So again, we got a lot a lot of great information here. And we appreciate that. And the phones are ringing off the hook because people want to talk to Jim for some great ideas. So let's wrap let's wrap up some best overall advice on this topic. Go ahead. Yeah. I mean, think this time of year, every time you're sort of going to your accountant or you're filing online at TurboTax or something, you're thinking about how do I reduce these taxes? Well, one of the ways to do it is to pay yourself using either an IRA or using your 401 K and optimizing how much you're saving in there. The takeaway there is at least save, at least save what they're giving you for free at the employer. If they're matching you 4%, save at least that and then try to increase it. Every year you get a raise. The second one is if you're funding all of those accounts, consider, you know, and you have, college age kids or someone you want to go to college. Consider saving in 529 accounts. These are a tax advantage as well. And then lastly, pay attention in the non retirement accounts. if you've got, you know, holdings that have had really big earnings, talk to whoever is helping advise you and see if you can offset some of those gains by doing some tax loss harvesting. All right. great topics as usual. we're kind of out of time here today, but thank you for, this great information. Awesome to see you, Gary. If you like, help planning your strategy so you can put more of your money toward living well instead of paying more taxes, you could request a complimentary consultation on the Weiss, Hale and Zahansky website, whzwealth.com, or call live at (860) 928-2341. And again, great information. That's it for today. Thanks for listening to You and Your Money. Find even more episodes, videos and other resources at our website, whzwealth.com. Be sure to come back next week for more tips to help you live fearlessly and pursue your financial and life goals. Until then, live well. Weiss, Hale and Zahansky Strategic Wealth Advisors offer securities and advisory services through Commonwealth Financial Network member, FINRA/SIPC, a registered investment advisor. Fixed insurance products and services offered through CES Insurance Agency. They practice at 697 Pomfret Street, Pomfret Center, Connecticut, 06259 and can be reached at 860-928-2341. Weiss, Hale and Zahansky Strategic Wealth Advisors do not provide legal or tax advice. The tenured financial services team strive to support clients in achieving their financial life goals. more information regarding wealth management and customized financial planning with Weiss, Hale and Zahansky Strategic Wealth Advisors, please