A woman, while searching on her phone, discovers 4 year-end tax tips to get on track for 2024.
Financial management

4 year-end tax tips to get on track for 2024

4 tax-saving tips you can do now to help you get on track for 2024
4 minute read
  •  
September 13, 2023
Financial management
Tax tips
Article
Page
Taxes
IRAs

The end of the year is a great time to start thinking about your taxes for the upcoming year.

 

Here are 4 tax-saving tips you can do now to help you get on track for 2024.

Max out your IRAs

IRAs are a great way to save for retirement and reduce your taxes. For 2023, the maximum contribution for both traditional and Roth IRAs is $6,500 ($7,500 if you're age 50 or older).

Investing in a traditional IRA and contributing the maximum can help reduce your taxable income, which can lower your tax bill.* And while your contributions to a Roth IRA aren't tax-deductible, you can save money on taxes later because Roth IRAs allow you to make tax-free withdrawals as long as you're age 59½ or older and you've owned the account for at least 5 years.**

Offset gains by harvesting your losses

If you have investment losses in 2023, you can use them to offset your investment gains and up to $3,000 of ordinary income. This strategy is called tax-loss harvesting, and it's one more way to help reduce your taxable income. In short, you can sell investments at a loss to offset your gains in other investments.***

If you buy the same investment or any investment the IRS considers "substantially identical" within 30 days before or after you sold at a loss, the loss will be disallowed. If you need guidance on whether an investment would be considered substantially identical, consult a tax advisor.

Learn the implications of changing your filing status

Your tax-filing status can have a significant impact on your tax liability. If you're considering making a change to your filing status, be sure to understand the possible tax implications.† For example, if you're married and filing jointly, you'll have a higher standard deduction and a lower tax bracket than if you file separately. However, if you have high income, you may be able to save money on your taxes by filing separately. Considering your options now can make for a smoother tax season in 2024.

Seek tax-efficient investments

When you choose tax-efficient investments, you can help reduce your tax bill for 2024 and beyond. Here are some examples:

  • Tax-deferred accounts, such as traditional IRAs and 401(k)s, allow you to defer your investment gains until you start withdrawing your money.
  • Tax-exempt investments, such as municipal bonds, are exempt from federal income tax.
  • Tax-advantaged investments, such as 529 plans and health savings accounts (HSAs), offer tax benefits that can reduce your tax liability.

Here's how Vanguard can help

If these tax-saving strategies seem like a lot to handle, we can help. Our award-winning robo-advisor, Vanguard Digital Advisor®, can create a personalized investment plan for you, which includes managing your portfolio automatically, implementing certain tax optimization strategies, providing ongoing support, and more.††

Awarded January 2023, based on data as of October 2022.

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*The amount you can contribute to a traditional (or Roth) IRA depends on your income and IRS limits.

**Withdrawals from a Roth IRA are tax-free if you're age 59½ or older and have held the account for at least 5 years; withdrawals taken prior to 59½ or 5 years may be subject to ordinary income tax or a 10% penalty tax, or both. The 5-year holding period for Roth IRAs starts on the earlier of: (1) the date you first contributed directly to the Roth IRA, (2) the date you rolled over a Roth 401(k) or Roth 403(b) to the Roth IRA, or (3) the date you converted a traditional IRA to the Roth IRA. If you're under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you're required to keep track of the 5-year holding period for each conversion separately.

***Tax-loss harvesting involves certain risks, including, among others, the risk that the new investment could have higher costs than the original investment and could introduce portfolio tracking error into your accounts. There may also be unintended tax implications. We recommend that you consult a tax advisor before taking action.

We recommend that you consult a tax advisor if you have questions about your tax-filing status. Additionally, Vanguard Digital Advisor considers your personal circumstances to determine which of the available tax strategies best fits your personalized investment plan. 

††Vanguard Digital Advisor received the top rating for "Best Robo-Advisor for Low-Cost Investing" for 2023 among 16 other robo-advisors selected by NerdWallet. NerdWallet evaluated each provider across the following weighted criteria as of October 1, 2022, to determine the winner for low costs: management fees (50%), expense ratios on investments (40%), and account fees (10%). NerdWallet also selected Vanguard Digital Advisor for the 2021 award based on November 16, 2020, data and the 2022 award based on October 1, 2021, data. Additional details about NerdWallet's methodology are available on their website. Current fees may vary for Digital Advisor and the other robo-advisors considered. Although Vanguard compensates NerdWallet for marketing services, NerdWallet's opinions and evaluations are independent and unrelated to the selection of Digital Advisor for this award. ©2017-2023 and TM, NerdWallet, Inc. All Rights Reserved.
 

All investing is subject to risk, including the possible loss of the money you invest.

Vanguard does not provide tax or legal advice. This information is general in nature and should not be considered tax or legal advice. We recommend you consult with a tax or legal advisor about your individual situation.

Although tax-exempt mutual funds usually produce lower yields, you generally don't have to pay federal taxes on earnings from tax-exempt money market and bond funds.

Although the income from municipal bonds held by a fund is exempt from federal tax, you may owe taxes on any capital gains realized through the fund's trading or through your own redemption of shares. For some investors, a portion of the fund's income may be subject to state and local taxes, as well as to the federal alternative minimum tax.

Vanguard's advice services are provided by Vanguard Advisers, Inc. ("VAI"), a registered investment advisor, or by Vanguard National Trust Company ("VNTC"), a federally chartered, limited-purpose trust company.

The services provided to clients will vary based upon the service selected, including management, fees, eligibility, and access to an advisor. Find VAI's Form CRS and each program's advisory brochure here for an overview.

VAI and VNTC are subsidiaries of The Vanguard Group, Inc., and affiliates of Vanguard Marketing Corporation. Neither VAI, VNTC, nor its affiliates guarantee profits or protection from losses.