Make Tax-Efficient Savings A Priority In 2025 | Ben Rosbach

Make Tax Efficient Savings A Priority In 2025

By: Ben Rosbach

When investing towards your financial goals, it's crucial to understand how different types of accounts are taxed, so we can save your money in the most efficient way possible. The tax treatment of different accounts can ultimately impact how much you keep in your pocket both now and in retirement. To make a more informed decision on where to put your money, let’s break down the tax implications of the three most common investment accounts: Roth IRAs, Traditional IRAs, and Taxable Investment Accounts.?

Roth IRA: Pay Taxes Now, Enjoy Tax-Free Growth

A Roth IRA is a retirement account where you contribute after-tax dollars, meaning you’ve already paid taxes on the money before contributing. The biggest advantage? Your money grows tax-free, and withdrawals in retirement are completely tax-free.

Tax Treatment of a Roth IRA:

• Contributions: Not tax-deductible, so they won’t lower your taxable income today.
• Investment Growth: No taxes on capital gains, interest, or dividends while the money is invested.
• Withdrawals:

Who Benefits Most from a Roth IRA?

• Roth IRA’s are most beneficial for younger investors or those in a lower tax bracket now, who expect to be in a higher tax bracket during retirement.
• Individuals who may need access to their contributions before retirement (without penalties).

2024 Contribution Limits:

• Up to $7,000 per year ($8,000 if age 50+).
• Income limits apply – if you make too much, you may need to use a Backdoor Roth IRA strategy

Traditional IRA: Get a Tax Break Now, Pay Taxes Later

A Traditional IRA allows you to contribute pre-tax dollars, reducing your taxable income today. However, withdrawals in retirement are taxed as ordinary income.

Tax Treatment of a Traditional IRA:

• Contributions: May be tax-deductible, lowering your taxable income for the year. Deductibility depends on income and access to a workplace retirement plan.
• Investment Growth: Grows tax-deferred— meaning you pay no taxes while your investments grow in the account.
• Withdrawals:

Who Benefits Most from a Traditional IRA?

• Those in a higher tax bracket today who expect to be in a lower tax bracket in retirement.
• Individuals looking to reduce taxable income now.

2024 Contribution Limits:

• Up to $7,000 per year ($8,000 if age 50+).
• No income limit to contribute, but deductibility phases out at higher incomes.

Taxable Non-Retirement Investment Accounts: No Tax Breaks, But More Flexibility

Unlike IRAs, a taxable non-retirement account has no special tax advantages, but it offers greater flexibility since there are no contribution limits or withdrawal restrictions.

Tax Treatment of a Taxable Account:

• Contributions: Made with after-tax dollars, just like a Roth IRA.
• Investment Growth:
• Withdrawals: No penalties or restrictions, but selling assets may trigger capital gains taxes.

Who Benefits Most from a Taxable Account?

• Investors who max out their IRA or 401(k) and want to continue investing.
• Those who need liquidity and want to avoid early withdrawal penalties.
• Investors looking to use tax-efficient strategies, such as holding investments long-term for lower capital gains taxes.

Final Thoughts: Take the Next Step

Understanding how different investment accounts are taxed is crucial to making smart financial decisions. Whether you’re planning for retirement, saving for a big goal, or just getting started, choosing the right account can significantly impact your long-term wealth.

Have questions? Let’s chat! Everyone's situation is unique, and working with an advisor can help ensure you’re making the right decisions. Reach out to discuss your options and create a financial plan that best works for you! To book some time for a meeting, click HERE.

SOURCE:

https://www.irs.gov/retirement-plans/traditional-and-roth-iras

Gerber Kawasaki Wealth & Investment Management is an investment advisor located in California. Gerber Kawasaki Wealth & Investment Management is registered with the Securities and Exchange Commission (SEC). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. Gerber Kawasaki only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Gerber Kawasaki Wealth & Investment Management 's current written disclosure brochure filed with the SEC which discusses, among other things, Gerber Kawasaki Wealth & Investment Management's business practices, services and fees, is available through the SEC's website at: https://www.adviserinfo.sec.gov .?

Ben Rosbach is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$3.36B billion in assets under management as of 12/31/24.? The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."?