Four Tax Truths for Investors

1.

1. Grab all the tax-free money you can. If your company matches your 401(k) contributions, sock away at least as much as it takes to get your employer's full contribution. Otherwise, it's like walking away from free money.

2. Expect tax rates to rise. If it makes sense to dump a stock or other long-term investment, sell before the tax bite gets bigger than today's low capital-gains rates.

3. Tax-deferred investments aren't always the best option. A mutual fund with low costs and smart management of its gains should beat a tax-deferred annuity with similar performance but high fees because the annuity turns its profits into ordinary income.

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4. Paying some tax now can save you far more later. The obvious example is converting from a regular IRA to a Roth IRA. You'll pay income taxes now on the amount you convert but nothing after you've retired on the earnings your Roth generates.

For more ways to make more and keep more ...

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Smart Planning

Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.