Tax Efficient Investing Tips

As Tax Day approaches, it's a great time to review your financial strategy and ensure your investment plans align with your long-term goals. While we can’t provide tax advice, we can offer insights into investment strategies that may help you optimize your financial plan for the year ahead.

Taxes shouldn't be the primary driver of your investment strategy—but it makes sense to take advantage of opportunities to manage, defer, and reduce taxes. Understanding how tax-efficient investing fits into your overall financial strategy can be a valuable part of your planning process.

1. Maximize Retirement Contributions

One of the most effective ways to build long-term wealth is by contributing to tax-advantaged retirement accounts like 401(k)s and IRAs.

• 401(k) Contributions & Employer Matching – Contributions to a traditional 401(k) reduce taxable income, and employer matching contributions provide an additional boost to your retirement savings. If your employer offers a match, contributing enough to maximize this benefit is a smart strategy.
• Catch-Up Contributions – If you’re age 50 or older, you can take advantage of catch-up contributions, allowing you to contribute beyond the standard annual limit. For the 2025 tax year, eligible individuals can contribute an additional $7,500 to their 401(k) and an extra $1,000 to their IRA, helping to accelerate retirement savings.¹
• Traditional & Roth IRA Contributions – A Traditional IRA allows tax-deductible contributions (subject to income limits), with withdrawals taxed in retirement. A Roth IRA, funded with after-tax dollars, offers tax-free withdrawals in retirement. While there’s no tax deduction, it can be a valuable tool for long-term tax diversification. The deadline to contribute to an IRA for the 2024 tax year is April 15, 2025.²

Being aware of annual contribution limits and deadlines ensures you’re making the most of these retirement savings opportunities.

2. Review Your Investment Portfolio and Rebalance if Needed

It’s important to regularly review your investment portfolio to ensure it aligns with your long-term goals and risk tolerance. Market fluctuations can shift your asset allocation over time, and rebalancing may help maintain your intended investment strategy. Consider:

• Rebalancing Your Portfolio – If your asset allocation has drifted due to market performance, adjusting your investments can help keep your portfolio aligned with your financial objectives.
• Diversification – A well-diversified portfolio can help manage risk by spreading investments across different asset classes. Reviewing your holdings annually can ensure you maintain a mix that supports your investment strategy.
• Tracking Long-Term Investment Goals – Whether you’re saving for retirement, education, or another major financial milestone, tracking your progress to ensure you’re on track to meet your financial goals is crucial.
• Capital Gains Considerations:
  • Harvesting Losses to Offset Gains – Investors sometimes use a strategy called tax-loss harvesting to offset capital gains, but it’s important to consult a tax professional to determine if this is appropriate for your situation.
  • Short-Term vs. Long-Term Capital Gains – Investments held for over a year are typically subject to long-term capital gains treatment, which may have different tax implications than short-term gains.
• Reinvesting Dividends – Some investors reinvest dividends to help grow their portfolio over time. Reviewing whether this strategy aligns with your goals is a valuable part of your annual investment check-in.

3. Consider Other Tax-Advantaged Investment Accounts

While tax considerations shouldn’t drive investment decisions, understanding how different investment accounts function can help you make informed choices.

• Health Savings Accounts (HSAs) – If you have a high-deductible health plan, an HSA allows for tax-advantaged savings that can be used for qualified medical expenses now and in retirement.
• 529 College Savings Plans – These plans allow for tax-advantaged growth when funds are used for qualified education expenses. If education savings is part of your financial plan, a 529 plan can be a useful tool.

4. Plan for the Year Ahead

Tax season is also a great time to reflect on your financial goals and make adjustments for the year ahead.

• Setting Financial Goals – Whether you want to increase your savings, adjust your investment strategy, or explore new financial opportunities, having a clear plan in place is important.
• Meeting with a Financial Advisor – A financial professional can help assess your investment strategy, ensure it aligns with your long-term goals, and provide guidance on market trends and financial planning strategies.

A well-structured investment plan is key to building and preserving wealth over time. If you’re ready to review your financial strategy and ensure you’re making the most of your investment opportunities, we’re here to help. Schedule a complimentary, no-obligation appointment to discuss your financial goals today.