Investing can be a powerful tool to help you reach your financial goals. When you make an investment decision, start by thinking about your goals, financial situation, and timeline. Once you've done that, it can also be important to consider the role of taxes. The 2024 Wells Fargo Money Study* shows that 60% of Americans think now is a good time to invest,* but taxes can take a big bite out of your returns. Before you make any investment moves, consider strategies that may help minimize your tax burden.

Choose your account carefully
The kind of account you use to save and invest can impact your tax situation. Traditional IRAs, along with pre-tax salary deferral accounts like 401(k)s, 403(b)s, or 457(b) plans, can offer tax-deferred growth, which means you may not pay taxes on contributions or earnings until you withdraw the funds, provided you meet certain guidelines.

Roth IRAs and designated Roth accounts, however, provide tax-free growth potential. Withdrawals from these accounts are tax-free as long as the account has been open for over five years and you meet certain age or condition requirements. Keep in mind that contributions to Roth accounts are made with after-tax dollars, so there’s no immediate tax deduction.

If you hold an investment in a taxable account, like a brokerage account, you may have to pay taxes on any income, such as dividends or interest, you receive while you own it.

Timing matters
When it comes to your investments, how long you own a security can make a big difference. When you sell an investment you hold in a taxable account with capital assets, you may be subject to taxes on any gain realized—the difference between your basis (purchase price and any adjustments) and sales price. Federal tax rules favor long-term investments, meaning those you own for more than one year.

Make the most of your losses
Sometimes investments lose value. If you sell an investment at a loss in a taxable account, you can use those capital losses to offset capital gains, potentially lowering your tax bill. If your losses exceed your gains, you can use up to $3,000 of those losses to offset ordinary income on your taxes and carry over any remaining losses to future years. Keep in mind that some investments may not generate capital losses, this tax benefit only applies to capital assets.

Finding support
Deciding which investments to keep in what type of account can get complicated. Explore Wells Fargo's investing resources or consider consulting a financial advisor to help you better understand your investing options and what types of accounts make sense for your situation. For tax-related questions, be sure to consult your tax advisor for guidance.  

*On behalf of Wells Fargo, Versta Research conducted a national survey of 3,403 U.S. adults and 203 U.S. teens age 14 to 17. Sampling was stratified and data were weighted by age, gender, race, ethnicity, income and education to achieve accurate representation of the current population based on estimates from the U.S. Census Bureau. The survey was conducted from September 5 to October 3, 2023. Most findings are reported based on the full sample of adults. Comparisons and data from teens are noted separately.