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Prudential Investments Offers Investors Tips to Help Minimize Their Tax Bite.

NEWARK, N.J., April 6 /PRNewswire/ --

Don't wait for the U.S. Congress and the President to agree on a tax-cut program! Prudential Investments suggests 10 effective tax-wise strategies to help investors keep more of what they earn each year.

"As April 15th draws closer, everyone becomes more conscious of taxes and their effects on income and investment returns," says Mark Stumpp, senior managing director of Quantitative Management at Prudential Investments. "However, understanding the tax consequences of your financial and investment decisions, and minimizing those consequences, should be an ongoing exercise throughout the year."

Prudential Investments offers the following tips to help individuals manage their finances with tax efficiency, and possibly ease some of the sting of taxes going forward. More comprehensive information, including Tax Season Survival Guides for mutual fund investors and annuity clients, is available at

1. Make Tax-Deferred Investments: Take full advantage of tax-deferred investment opportunities, including employee-sponsored retirement plans, like a 401(k), or an IRA, if you expect to be in a lower tax bracket when you retire. If it is right for you, consider converting your traditional IRA into a Roth IRA to continue tax-deferred growth. Roth IRAs require no minimum distributions, which means assets can continue to grow tax free until the owner's death.

2. Consider Tax-Exempt Municipal Bond Funds: For those in higher tax brackets, investing in a municipal bond fund may pay off at tax time. Most dividends from municipal funds are federally tax-exempt. In most cases, they are also exempt from state taxes for investors living within the issuing state. Many states do tax the dividends of municipal bonds issued in other states.

3. Save On State and Local Taxes By Investing In U.S. Obligations: Interest earned on federal obligations, such as U.S. Treasury bond funds, is subject to federal income tax, but is generally exempt from state and local taxes. This type of investment may be right if you live in a high-tax state.

4. Invest In A Tax-Managed Fund: These funds generally attempt to earn attractive after-tax returns by minimizing taxable income to investors. Portfolio managers of such funds use a variety of methods to achieve this, including a technique called tax-loss harvesting, where the portfolio manager selectively sells stocks with losses while at the same time taking profits on stocks that have gained in value.

5. Manage Losses Strategically: Capital losses are fully deductible against capital gains. Remaining losses can offset only a maximum of $3,000 of ordinary income (salary, dividends, and interest) a year. Capital losses above $3,000 can be carried forward to future years.

6. Consider Opening A Uniform Gifts To Minors Act (UGMA) Account: This is a custodial account opened in a child's name. The funds you place into this account are permanent gifts to a child. In certain circumstances, you gain a tax benefit because some or all of the income from this account may be taxed at a child's potentially lower tax rate. In some states, this type of account is called a Uniform Transfers to Minors Act (UTMA) account.

7. Don't Shortchange Your Cost Basis: Make sure you count any reinvested dividends and capital gains in your mutual fund as part of your cost basis when you redeem fund shares. They were already taxed to you when they were reinvested.

8. Avoid Dividends On New Investments: Delay late-year mutual fund investments until after the fund's ex-dividend date. Otherwise, the most recently declared dividend will be credited and taxable to you. In effect, part of the money you invested will be returned to you immediately as taxable income.

9. Avoid Short-Term Tax Rates On Long-Term Holdings: If you plan to redeem mutual fund shares that have gone up in value, do so before any upcoming dividend payment. If you've owned the shares long enough, you'll pay tax on your gains at the more favorable long-term capital gains rate and avoid paying tax on the dividends at the higher ordinary tax rates.

10. Look For Available Tax Credits: Deductions lower your taxable income, but tax credits are even better, since they offset income taxes dollar for dollar. You may be eligible for the Hope Scholarship Credit and Lifetime Learning Credit, which are education-related tax breaks. You may also be able to claim a credit for your child's dependent care expenses. Other credits include the credit for excess Social Security withholding and foreign tax credits.

Prudential Investments urges all investors to see their tax or financial advisors to determine their eligibility for these and other deductions before making any decisions.

Prudential Investments is the investment products and wholesale distribution division of The Prudential Insurance Company of America. Providing investment management services for individuals through mutual funds, annuities and managed money programs, Prudential Investments has over $90 billion in assets under management, with more than 2.5 million shareholders investing in more than 60 funds.

Prudential, with $362 billion in total assets managed and administered as of 9/30/99, is one of the largest life insurance companies in the United States and one of the largest diversified financial institutions in the world. Prudential has a global presence in 30 countries, providing a variety of products and services in the areas of insurance, investments, securities, and real estate to more than 30 million customers.

Prudential mutual funds are distributed by Prudential Investment Management Services LLC, 100 Mulberry Street, Newark, N.J., 07102, Prudential Securities Incorporated, 199 Water Street, New York, NY 10292, and Pruco Securities Corporation, 751 Broad Street, Newark, NJ 07102. All are members SIPC and subsidiaries of The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ 07102. For more information on Prudential mutual funds, you should call a Prudential professional for a free prospectus, which contains complete information including charges and expenses. Investors should read it carefully before investing or sending money. Prudential Real Estate Brokerage Services are offered by independently owned and operated franchises of The Prudential Real Estate Affiliates, Inc., a subsidiary of Prudential. Neither Prudential nor its representatives offer legal, tax or accounting advice. Investors should consult with their own advisors regarding their particular situations.
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Publication:PR Newswire
Date:Apr 6, 2000
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