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Tax Planning Strategies

Understanding tax strategies and minimizing taxes is one of the easiest ways to maximize your return potential. How does one get started? Make tax-smart investment decisions and you can reduce the amount of loss to the IRS each year while keeping more of your income for current and future needs.

Growing need for tax relief

The average American pays more for taxes than food, clothing and housing combined1. Without the proper planning, investment earnings can make your tax burden even heavier.

 

Higher total return potential

For investors in the highest federal tax bracket, taxes can reduce an 8% annual return to as low as 4.5%. Over time, that may mean the difference between reaching a financial goal and falling short.

The Power of Tax-advantaged Compounding

Investment earnings within IRAs, 401(k)s, annuities and certain education accounts are not subject to current year taxes. Because money that would otherwise go toward taxes remains in your account, it has the potential to compound and grow faster for the future. Depending on the account, taxes are either deferred until qualified withdrawals begin or eliminated altogether. Your financial advisor can tell you more.

Favorable Tax Rules

Under current laws, tax breaks that were set to expire in 2011 have been made permanent. This allows you to avoid federal taxes on qualified withdrawals from 529 college savings plans and to make higher contributions to employer-sponsored retirement accounts and IRAs.

 
Source: “Tax Planning.” Tax Planning | J.P. Morgan Asset Management