Framework stage 3: Optimize
Tax basics for early-career professionals
Learn how taxes shape your accounts, investments and paycheck, so you can ask better questions.
Why it matters
You don’t need to become a tax expert, but a few concepts change which accounts you use and how you invest. Learn how tax-advantaged accounts, capital gains and contribution choices work at a high level.
Questions this topic answers
- How do tax-advantaged accounts work?
- How should I think about Roth vs. traditional?
- What are capital gains, and when are they taxed?
- What is tax-loss harvesting?
- Why does it matter which account holds which investment?
Key ideas
The taxes essentials.
The concepts that come up again and again, in plain English.
- Marginal vs. effective rate
- Your marginal rate applies to your next dollar of income. Your effective rate is total tax divided by total income. Contribution decisions usually hinge on the marginal rate.
- Tax-advantaged accounts
- Accounts like 401(k)s, IRAs and HSAs that offer tax benefits in exchange for rules on contributions and withdrawals.
- Capital gains
- Profit from selling an investment for more than you paid. Assets held longer than a year generally qualify for lower long-term rates.
- Tax-loss harvesting
- Selling an investment at a loss to offset gains elsewhere, subject to rules like the wash-sale rule.
- Asset location
- Choosing which account holds which investment based on how each is taxed.
Lessons
Go deeper.
The first lessons for this topic are in development. Until they publish, start with the key ideas and trusted sources on this page.
In development
- Marginal vs. effective tax ratesPlanned
- Roth vs. traditional: a decision frameworkPlanned
- Capital gains basicsPlanned
- Tax-loss harvesting, explainedPlanned
- How HSAs are taxedPlanned
- Asset location basicsPlanned
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Trusted sources
Primary sources worth bookmarking. They open in a new tab.
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