As the end of the calendar year approaches, it’s a good time for investors to think about strategies that can set them up for a successful future. Some of the strategies deal with tax efficiency. Others deal with keeping a portfolio properly diversified.

Max Out Your Retirement Accounts

It’s a good idea to start planning for taxes by the end of the year. This means that the best time to max out a 401(k) plan is December 31. Traditional 401(k) plans cut adjusted gross income in the current year. An investor would need to see how much room is left to reach the contribution limit and then divide that dollar amount by the number of pay periods that are left to determine how much to contribute. Putting any annual or end-of-year bonuses toward your retirement account is another option that could help you max out your contributions.


Rebalancing a portfolio periodically is a good idea. When stocks are doing well, bonds will tend to lag. When stocks do poorly, bonds tend to outperform. This can cause your portfolio to become unbalanced. If you want to maintain 70% of your portfolio in stocks, you’ll want to sell some bonds and purchase a few shares if the stock portion of your portfolio reaches 65%.

Take Advantage of Capital Losses and Gains

It’s possible to deduct up to $3,000 from your income when you sell an investment for a loss. Any losses above the $3,000 limit can carry over to future years to offset gains. Additionally, it’s possible to harvest capital gains. If your adjusted gross income is in the 10% or 12% tax brackets, you’ll owe no taxes on any long-term capital gains. Therefore, you could sell some stocks or mutual funds up to the maximum income limit for those brackets and owe nothing if you’ve held the investment for at least a year. Additionally, you’ll have a stepped-up cost basis that could cut your capital gains taxes for years into the future.

Utilizing the tax code to your benefit is a perfect option for keeping more of your money over the long run. By using tax-advantaged retirement accounts and strategically taking advantage of capital gains and losses, it’s possible to minimize your tax liability. The less you pay in taxes, the sooner you can reach your financial goals. The end of the year is the perfect time to think about these strategies.