The end of the year is a good time to start thinking about your tax strategy, and there are several moves that you can make prior to year-end that will put you in the best possible position for 2020. In this article, we'll dive into 4 tax management tips that most investors should consider...\r\n\r\nImproper tax management can cost you more than a quarter of your long-term return, severely limiting spending power in retirement. The good news is that taxes can be managed. There are four key areas where investors can place their tax focus:\r\n\r\nTax Efficiency\r\nThousands of potential investment vehicles exist today, each with radically different tax implications. Choosing and using tax-efficient investments is a vital first step toward keeping more of your money. Here are some general guidelines when it comes to common investment vehicles:\r\n\r\n \tMutual Fundsare notoriously bad in terms of tax management.\r\n \tExchange Traded Funds (ETFs) are generally more tax efficient than mutual funds.\r\n \tIndividual Stocks can be the most tax-efficient way to gain exposure to equities.\r\n \tBond ETFs and passive bond mutual funds are generally more tax efficient than actively managed bond mutual funds, but the tax treatment of income generated from bonds differs from that of equities.\r\n \tReal Estate Investment Trusts (REITs) dividends are generally taxed as ordinary income to shareholders.\r\n\r\nTax Location\r\nIf you have multiple investments, do you consider the most appropriate account for each of your assets? If not, you should. Each of your accounts has unique tax characteristics, and if you understand these characteristics, you can place your assets in the most advantageous accounts, thereby minimizing your tax liabilities. This is called tax location. Depending upon the underlying characteristics of the investment, strategically placing it in either a taxable, tax-deferred, or tax-exempt account may improve your annual return.\r\n\r\nSo what securities go where? One general rule is to place high-yield stocks in tax- deferred or -exempt accounts, like IRAs and Roth IRAs, and low-yield or no-yield\u2028stocks in taxable accounts. Fixed income investments are a little trickier. It\u2019s good to keep in mind, optimizing around long-term growth rates and tax rates can get very complicated, so you should consult a professional.\r\nTax Loss Harvesting\r\nTax loss harvesting is the process of intentionally realizing losses to offset realized gains. It\u2019s slightly counterintuitive \u2014 after all, you\u2019re supposed to sell high, right? But the idea is not to eliminate exposure entirely; it\u2019s only a temporary sale to reduce your tax bill, after which you buy back the same stock.\r\n\r\nTax-loss harvesting works even if you want to maintain exposure to the stocks that have lost value, but there are some rules. To avoid the \u201cwash sale\u201d rule, you cannot repurchase the same or a substantially identical stock within 30 days before or after selling at a loss. Even if you don\u2019t have any gains to offset, you can deduct up to $3,000 in losses from your taxable income, resulting in a higher net after-tax return.\r\n\r\nTo learn more, read our free Guide to Tax-Loss Harvesting:\r\n\r\nRead the Free Guide\r\nRoth Conversions\r\nStarting in 2010, it became possible for high-income people to convert their traditional IRA accounts to Roth IRAs. This can be an important decision, and it\u2019s worth spending the time to figure out if it is right for you. Generally speaking, if you expect your tax rate to be higher, then you may want to consider converting. If you expect it to be about the same, a more detailed analysis is required. Often there is still an advantage to the Roth conversion because the converted money will be able to grow tax free while the opportunity cost from the taxes paid from post-tax accounts will be subject to taxes on dividends and capital gains along the way.\r\n\r\nA Roth conversion can also generate a large tax bill, and it matters how you go about paying it. A Roth conversion only makes sense if you can pay the tax bill with funds from an outside non-retirement account.