Avoiding Capital Gains Long Term
Yes, you could avoid capital gains tax altogether, however, capital gains are used in determining your tax bracket even though they are not taxed at that rate.  This would only work in situations where your total capital gains and ordinary income kept you in the 0% longterm capital gains bracket. You can't realize a million dollars in capital gains and have no tax burden due to lack of ordinary income. You can potentially save some money by realizing capital gains strategically. Giving up income in an attempt to save on taxes rarely makes sense. "It's correct.   Be sure of your personal opportunity cost and not that you're letting the tax tail wag the dog just to score ""tax free"".  Your upside is $3,700 (single) or $7,000 (married) in taxes saved until you're out of the 0% zone.  Is that worth not receiving an income? Even if your savings are such that you don't need to work for income for a fiscal year, how would this affect the rest of your career and lifetime total earning prospects?  Now, maybe: Otherwise, I'd hope you have solid contacts in your network who won't be fazed by a resume gap and be delighted to have a position open for you in 2019 (and won't give you the ""mother returning to the workforce"" treatment in salary negotiations)."
"Long-term capital gains, which is often the main element of investment income for investors who are not high-frequency day traders, are taxed at a single rate that is often substantially below the marginal rate they would otherwise be taxed at, particularly for wealthy individuals. There are a few rationales behind this treatment; the two most common are that the government wants to encourage long-term investments (as opposed to short-term speculation), and that capital gains are a kind of double taxation (from one point of view) as they are coming from income that has already been taxed once before (as wage or ordinary income).  The latter in particular is highly controversial, but this is one of the more divisive political issues in the taxation front - one party would eliminate the tax entirely, the other would eliminate the difference. For most individuals, the majority of their long-term capital gains are taxed at 15% up to almost half of a million dollars total AGI, which is a fairly low rate - it's equivalent to the rate a taxpayer would pay on up to $37,000 in wage income (after deductions/exemptions/etc.).  You can see from this table in Wikipedia that it is much preferred to pay long-term capital gains rates when possible - at every point it's at least 10% lower than the tax rate for ordinary income. Ordinary income includes wages and many other sources of income - basically, anything that is not long term capital gains. Wage income is taxed at this rate, and also subject to some non-income-tax taxes (FICA and Medicare in particular); other sources of ordinary income are not subject to those taxes (including IRA income).  Short term capital gains are generally included in this bucket. Qualified Dividends are treated similarly to long-term capital gains (as they are of a similar nature), and taxed accordingly. The ""Net Investment Tax"" is basically applying the Medicare tax to investment income for higher-income taxpayers ($125k single, $250k joint).  It's on top of capital gains rates for them.  It came about through the Affordable Care Act, and is one of the first provisions likely to be repealed by the new Congress (as it can be repealed through the budgeting provision).  It seems likely that 2017 taxes will not contain this provision." In the United States investing towards donation is a great idea because you can donate appreciated securities directly rather than donating cash.  Notice how much this can benefit you: So you get to both (a) donate untaxed money and then (b) deduct that unrealized money from your income total on your tax return. With the above in mind, a good strategy for investing towards this type of donation would be to pick securities that are likely to increase in market value but not likely to produce any other sort of income.  So bonds (which produce lots of interest income), or stocks with dividends, or equity mutual funds (which distribute dividends as capital gains) would all be suboptimal for this purpose. Of course, an even better strategy would be to establish a widely diversified investment portfolio without thought to future donations.  Then, once a year (or whenever), evaluate all your investments and find some where the market value has increased.  Then donate some of those shares.  No special advance planning necessary. Note that your tax consequences could be more complicated depending on your exact situation.  Read the section about Capital Gain Property in IRS Pub. 26 for all the details.  There may be special limits on the amount you can deduct.  Also, donations of short term capital gains are treated much less favorably, so make sure you donate only long term capital gain property. "As I recall from the documentation presented to me, any gain over the strike price from an ISO stock option counts as a long term capital gain (for tax purposes) if it's held from 2 years from the date of grant and 1 year from the date of exercise. If you're planning to take advantage of that tax treatment, exercising your options now will start that 1-year countdown clock now as well, and grant you a little more flexibility with regards to when you can sell in the future. Of course, no one's renewed the ""Bush tax cuts"" yet, so the long-term capital gains rate is going up, and eventually it seems they'll want to charge you Medicare on those gains as well (because they can... ), soo, the benefit of this tax treatment is being reduced... lovely time to be investing, innnit?" Start with the tax delta. For example, you'd hope to deposit at 25% bracket, but take withdrawals while at a marginal 15%. In this case, you're 10% to the good with the 401(k) and need to look at the fee eating away at this over time. Pay an extra 1%/yr and after 10 years, you're losing money. That's too simple, however. Along the way, you need to consider that the capital gain rate is lower than ordinary income. It's easier to take those gains as you wish to time them, where the 401(k) offers no flexibly for this. Even with low fees, this account is going to turn long term gains to ordinary income. (Note - in 2013, a couple with up to $72,500 in taxable income has a 0% long term cap gain rate. So, if they wish, they can sell and buy back a fund, claim the gain, and raise their cost basis. A tiny effort for the avoidance of tax on the gains each year.) First paragraph, don't forget, there are the standard deduction, exemption, and 10% bracket. While you are in the range to save enough to create he income to fill the low end at withdrawal, there's more value than just the 10% I discussed earlier.  Last, there's a phenomenon I call The Phantom Tax Rate Zone when one's retirement withdrawals trigger the taxation of Social Security.  It further complicates the math and analysis you seek. "You don't state a long term goal for your finances in your message, but I'm going to assume you want to retire early, and retire well. :-) any other ideas I'm missing out on? A fairly common way to reach financial independence is to build one or more passive income streams.  The money returned by stock investing (capital gains and dividends) is just one such type of stream.  Some others include owning rental properties, being a passive owner of a business, and producing goods that earn long-term royalties instead of just an immediate exchange of time & effort for cash.    Of these, rental property is probably one of the most well-known and easiest to learn about, so I'd suggest you start with that as a second type of investment if you feel you need to diversify from stock ownership.  Especially given your association with the military, it is likely there is a nearby supply of private housing that isn't too expensive (so easier to get started with) and has a high rental demand (so less risk in many ways.)   Also, with our continued current low rate environment, now is the time to lock-in long term mortgage rates.  Doing so will reap huge benefits as rates and rents will presumably rise from here (though that isn't guaranteed.) Regarding the idea of being a passive business owner, keep in mind that this doesn't necessarily mean starting a business yourself.  Instead, you might look to become a partner by investing money with an existing or startup business, or even buying an existing business or franchise.  Sometimes, perfectly good business can be transferred for surprisingly little down with the right deal structure. If you're creative in any way, producing goods to earn long-term royalties might be a useful path to go down.  Writing books, articles, etc. is just one example of this.  There are other opportunities depending on your interests and skill, but remember, the focus ought to be on passive royalties rather than trading time and effort for immediate money.  You only have so many hours in a year.  Would you rather spend 100 hours to earn $100 every year for 20 years, or have to spend 100 hours per year for 20 years to earn that same $100 every year? .... All that being said, while you're way ahead of the game for the average person of your age ($30k cash, $20k stocks, unknown TSP balance, low expenses,) I'm not sure I'd recommend trying to diversify quite yet. For one thing, I think you need to keep some amount of your $30k as cash to cover emergency situations.  Typically people would say 6 months living expenses for covering employment gaps, but as you are in the military I don't think it's as likely you'll lose your job!  So instead, I'd approach it as ""How much of this cash do I need over the next 5 years?""  That is, sum up $X for the car, $Y for fun & travel, $Z for emergencies, etc.  Keep that amount as cash for now. Beyond that, I'd put the balance in your brokerage and get it working hard for you now.  (I don't think an average of a 3% div yield is too hard to achieve even when picking a safe, conservative portfolio.  Though you do run the risk of capital losses if invested.)  Once your total portfolio (TSP + brokerage) is $100k* or more, then consider pulling the trigger on a second passive income stream by splitting off some of your brokerage balance.  Until then, keep learning what you can about stock investing and also start the learning process on additional streams.  Always keep an eye out for any opportunistic ways to kick additional streams off early if you can find a low cost entry.   (*) The $100k number is admittedly a rough guess pulled from the air.  I just think splitting your efforts and money prior to this will limit your opportunities to get a good start on any additional streams.  Yes, you could do it earlier, but probably only with increased risk (lower capital means less opportunities to pick from, lower knowledge levels -- both stock investing and property rental) also increase risk of making bad choices." When it comes down to it, long-term investments pay better than short-term ones.  If nothing else, there's less administration and less financial risk for the provider.  That's why 2, 3 or 5 year savings accounts pay better than instant access ones. Higher-risk investments pay more interest (or dividends) than low-risk ones.  They have to, or nobody would invest in them. So by locking yourself out of any long term and/or risky investments, you're stuck with a choice of low-interest short term ones. There are plenty of investment funds that you can sell at short notice if you want to.  But they are volatile, and if you cash out at the wrong time, you can get back less than you invested.  The way you lower risk is either to invest in a fund that covers a broad range of investments, or invest in several different funds. "Sorry but you already provided the answer to your own question.  The simple answer is to 'not day trade' but hold things for a longer period and don't trade a large number of different stocks every week. Seriously, have a look at the rules and see what it implies.. an average of 20 buys and sells of longer term positions PER DAY is a pretty fair bit of trading, that's really churning through the positions compared to someone who might establish positions with say 25 well picked stocks and might change even 5 of those a week to a different stock.  Or even a larger number of stocks but seeking to hold them for over a year so you get taxed at the long term cap gains rate. If you want to day trade, be prepared to be labeled as such and deal with your broker on that basis.  Not like they will hate you given all the fees you are likely to rack up.  And the government will love you also, since you'll be paying short term gains taxes.  (and trust me, us bogelheads appreciate the liquidity the speculative and short term folks bring to the market.) In terms of how it would impact you, Expect to be required to have a fairly substantial balance ($25K) if you are maintaining a margin account. I'd suggest reading this thread My account's been labeled as ""day trader"" and I got a big margin call. What should I do? What trades can I place in the blocked period?" Investing is really about learning your own comfort level.  You will make money and lose money. You will make mistakes but you will also learn a great deal. First off, invest in your own financial knowledge, this doesn't require capital at all but a commitment. No one will watch or care for your own money better than yourself. Read books, and follow some companies in a Google Finance virtual portfolio. Track how they're doing over time - you can do this as a virtual portfolio without actually spending or losing money.  Have you ever invested before? What is your knowledge level? Investing long term is about trying to balance risk while reducing losses and trying not to get screwed along the way (by people).  My personal advice: Go to an independent financial planner, go to one that charges you per hour only. Financial planners that don't charge you hourly get paid in commissions. They will be biased to sell you what puts the most money in their pockets. Do not go to the banks investment people, they are employed by the banks who have sales and quota requirements to have you invest and push their own investment vehicles like mutual funds. Take $15k to the financial planner and see what they suggest. Keep the other $5K in something slow and boring and $1k under your mattress in actual cash as an emergency. While you're young, compound interest is the magic that will make that $25k increase hand over fist in time. But you need to have it consistently make money. I'm young too and more risk tolerant because I have time. While I get older I can start to scale back my risk because I'm nearing retirement and preserve instead of try to make returns.