Investing fees and tax basics (the US)
Plain-English basics for people in the US. This explains how things work and where to check the official rules. It never picks a product for you.
Why small fees matter
A yearly fee is taken every year from the whole amount, so it adds up. On US$10,000 a 1% yearly fee is US$100 a year, and over 20 years the difference between a 0.2% and a 1.2% fee can be a large share of the final amount, because the fees also stop earning anything.
The fees to look for in the US
the expense ratio of a fund, sales charges (loads), advisory fees (often a percentage of your money each year), trading commissions and account fees. Ask for all fees in money, not only in percent.
Tax basics in the US
Interest is generally taxable income (interest on Treasuries is exempt from state and local income tax). Gains on investments held more than one year are long-term and usually taxed at lower rates than short-term gains, which are taxed like ordinary income. Retirement accounts have their own rules. Check IRS.gov or a tax professional for your case.
Keep records
Keep every buy, sell, dividend and interest statement. Tax on gains is worked out from what you paid and what you received, including costs.
Regulator guide: the SEC's Investor.gov.
General information, not a recommendation. This page explains how things work. It does not pick a product for you or say where to put your money, and it does not consider your goals or situation. For personal advice talk to a licensed adviser in the US - a registered investment adviser or a broker registered with FINRA.
Frequently asked questions
- What fee is 'low'?
- It depends on the product. Compare like with like and always ask for the total cost in money.
- Do I pay tax on investments?
- Usually on interest, dividends and gains, with allowances and special accounts that differ by country. Check the official tax site or a tax professional.
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