Investing and Tax: A Match made in Heaven!

Managing the tax implications is a hallmark of good investing. But let’s face it, investing can be complicated and taxes are always complicated. Putting them both together doesn’t make it any easier. Here let’s cover the basics, so you can keep as much of your investment earnings as possible — always a good thing.

Tax efficiency is simply how much of an investment’s return still remains after all the tax obligations have been taken care of.

A good general rule to remember is that the more an investment’s return is dependent on income rather than an increase in share price, the worse the tax burden usually is, or the less tax efficient it is.

Taxable or Non-Taxable

Investment accounts are classified as either taxable or non-taxable. If an account is taxable, then the taxes must be paid on investment income in the same year in which it is received. This would include bank accounts, money market mutual funds, and your basic individual or joint investment account.

Non-taxable accounts are free from taxes as long as the money stays in the account. When you start taking money out, your tax liabilities kick in. This would include any type of retirement account, like your 401(k), IRA, Roth IRA, or Roth 401(k). By the way, in today’s world you can even combine the Roth tax free element and a 401(k), which is called a Roth 401(k). Making it even sweeter, you can invest cryptocurrency in such things with companies such as www.cryptoKplan.com.