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You may know your federal income tax bracket. But that’s not really what you pay. In fact, the average American pays about 11% of income in federal income taxes. But that average hides a great deal of variation: Some Americans pay nothing, and others pay more than 30%. 1

What determines the percentage you will pay? A lot of it is based on how much you make, but you can affect your tax bill by knowing the rules, managing how you generate income, choosing what accounts you invest in, and taking advantage of potential deductions. In general, there are three strategies you can use to try to manage your federal income taxes:

• Defer taxes with tax-advantaged accounts or investing strategies, such as 401(k)s, 403(b)s, IRAs, health savings accounts (HSAs), and products such as deferred annuities.
• Manage your tax burden by employing strategic asset location, investing in lower turnover funds, understanding mutual fund distributions, and taking advantage of charitable gifts and capital loss deductions.
• Reduce taxes now with federal-income-tax-free municipal bond income, or reduce taxes in the future with a Roth IRA or 529 college savings account.

“Taxpayers have levers they can pull to try to reduce their overall tax bill,” says John Sweeney, executive vice president of retirement income and investment insights. “By creating an investing strategy that looks at all the options, and incorporates the elements that make sense for your own circumstances and goals, you may be able to end up with a better outcome.”

Here are a few educational ideas that can help you enhance your investing strategy. These general ideas are not advice,  but could help you begin to construct a tax strategy.

Defer taxes.

Saving for retirement is a big job. Savings accounts that offer tax advantages can help, and can be a key part of an overall tax strategy because they allow you to put off paying taxes. For savers, the key is to maximize the potential tax benefits of these accounts, if you and your adviser decide that attempting to defer taxes makes sense for you.

Take advantage of retirement accounts.

Among the biggest tax benefits available to most investors are the deferral benefits offered by retirement savings accounts such as 401(k)s, 403(b)s, and IRAs. These accounts can offer a double dose of tax advantages—the contributions you make may reduce your current taxable income, saving you cash this year, and any investment growth is tax deferred, saving you money while you are invested. In the case of HSAs, withdrawals used for qualified medical expenses could be triple tax free: tax-free contributions, earnings, and withdrawals. What’s more, saving in these accounts can help lower your adjusted gross income, and that could help you avoid income limits for additional tax credits and deductions, like the student loan interest deduction or personal exemption. “That’s a reason why we think a top financial priority for most investors should be to take advantage of IRAs, 401(k)s, and other workplace saving plans,” says Sweeney.

Generally, the first step to tax-advantaged savings should be through workplace savings plans, IRAs, or both. But those accounts have strict annual contribution limit rules. If you are looking for additional tax-deferred savings, you may want to consider deferred variable annuities, which have no IRS contribution limits.

Tax-advantaged accounts can help your money grow. 2

Saving in a tax-deferred account has the potential to let your balance grow faster, and taking advantage of an employer match makes workplace retirement savings an important part of a tax strategy. This hypothetical scenario compares the value of saving $10,000 a year for 25 years in a taxable account, a tax-deferred 401(k), and a tax-deferred 401(k) with an annual match of $3,000. (This scenario assumes a 7% annual return.)