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Tax efficiency doesn't always dictate investment decisions, but it can certainly help. Despite the fact that investors don't realize how different their returns are depending on the type of account they're in, deciding to invest in a taxable account might be an important step for your financial future. The key differences between traditional and Roth accounts so you can decide which is best for you and your goals. Learn about the risks and benefits of your options when considering taxable vs non-taxable investments.
Every investor with a long-term financial plan should consider tax efficiency when making investment choices because it affects investment returns for every single dollar that's put into an account. That's because "taxes aren't only collected when you invest, they're just not paid at the time of sale," says Jeff Reeves, managing editor of InvestorPlace.com and author of The Frugal Rules.
Taxes are collected at each tax bracket as a percentage of your earnings, and they range from 0% to 35%, depending on whether you're single or married filing jointly and in which state you live. For example, if your adjusted gross income is $100,000 and you invest $1,000 in an IRA for the year, that's a taxable event for the year because it pushes $1 million into your taxable income.
Every investor with a long-term financial plan should consider tax efficiency when making investment choices because it affects investment returns for every single dollar that's put into an account. That's because "taxes aren't only collected when you invest, they're just not paid at the time of sale," says Jeff Reeves, managing editor of InvestorPlace.com and author of The Frugal Rules.
Taxes are collected at each tax bracket as a percentage of your earnings, and they range from 0% to 35%, depending on whether you're single or married filing jointly and in which state you live. For example, if your adjusted gross income is $100,000 and you invest $1,000 in an IRA for the year, that's a taxable event for the year because it pushes $1 million into your taxable income.
