Monitor how tax laws change as you review your investments.
A: There is a strong possibility that starting in 2011, the tax rate on dividends and long-term capital gains will increase to at least 20%, and maybe as high as 23%, due to changes in the tax law. In addition, many higher income taxpayers will, for the first time, have to pay Medicare tax on some unearned income. Furthermore, one proposal would replace the current exemption for interest on new municipal bonds with a tax credit, reducing the attractiveness of such bonds. In short, once it is clear how the tax laws will change, it will be prudent to review your mix of after-tax investments.