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Financial Strategies to Reduce Taxes

Here are several financial moves that can save you money and lower your tax bill

Save more and defer your income

Save more and defer your income

Due to the power of compounding, tax-deferred retirement accounts are one strategy to consider when planning to build your wealth. If you are saving in a 403(b), 457(b) or 401(k) plan, you are saving with pre-tax money, which can lower your current income and taxes due. In 2022, you can contribute $20,500. At a minimum, try to contribute as much as you can to qualify for an employer match in a 401(k).

If you can afford it, make sure that you contribute the maximum amount each year to your plan. If you haven’t taken out an IRA, do so by April 15, 2023, and you can save on your 2022 tax bill too.

Convert to a roth IRA

Convert to a roth IRA

A Roth IRA is a retirement account that allows you to contribute after-tax earnings now and keep all the appreciation tax-free. That means when you retire and start permitted withdrawals from your Roth IRA, the funds will not be taxed.

For example, if you put $10,000 of after-tax earnings into a Roth IRA at age 30, you would have $106,766 at age 75 (assuming a 7% annual return and no further contributions). A Roth IRA can make sense financially in certain circumstances. For example if you are early in your career and can generally expect your income and tax bracket to increase over time, this is an option to consider.


If you have a Traditional IRA, you may want to consider converting to a Roth IRA. If you choose to convert to a Roth IRA, you will owe taxes on the current balance of your Traditional IRA. One major factor that may drive your decision is your expected tax rate in retirement. If you expect your tax rate to increase in retirement, then it may be better to pay taxes now on the existing balance in your Traditional IRA and convert to a Roth IRA. If you expect your tax rate to decrease in retirement, then keeping your Traditional IRA may be the better decision. Another advantageous time to convert is a tax year in which you have low income because you will be in a lower tax bracket.

With tax rates likely to fall this year or next, 2020 might be the optimal time for a Roth IRA conversion. Why? Once you convert to a Roth IRA, you have until the last date, including extensions, for filing your prior-year tax return, which is typically on or about October 15, to change your mind and undo (or “recharacterize”) your Roth IRA conversion. Therefore, during this period, you can monitor the stock performance of your converted holdings and decide to recharacterize your Roth IRA to a Traditional IRA if the value of your stock portfolio declines.

Sell Portfolio Losers

Sell Portfolio Losers

Tax loss harvesting, or selling stock that has declined in value to realize a tax loss, is a strategy that some investors may consider towards year end. Why? Tax loss harvesting enables you to offset all investment losses against your investment gains, thereby lowering your tax bill.

For example, let’s say you recently sold 100 shares of Company ABC stock and made a $1,000 profit. If you owned the stock for more than one year, you would pay long-term capital gains tax on your profit. However, there is a way to offset your stock gain and not pay capital gains tax.

Information provided should not be considered as tax advice from GWN Securities, Inc. or its representatives. Please consult with your tax professional.

“Note: The examples in this article are hypothetical and for illustrative purposes only. They assume a steady 7% annual rate of return, which does not represent the return on any actual investment and cannot be guaranteed. Moreover, the examples do not take into account fees and taxes, which would have lowered the final results. Speak with a financial professional about how these examples might relate to your own investing circumstances.”

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