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Tax Tips for Your Investments

Posted by Shanna Tingom, AAMS® on Sep 19, 2018 6:32:00 AM

There are two things you can count on in life – death and taxes. In either case, what you do today can save you later. While I don’t know the secret to living forever, I do know about planning a financial future that meets your goals. Whether you’re ready to retire or are getting your first job, you can save for retirement. The younger you start saving, the better for your portfolio.

Start Saving Now for Retirement

When I was younger I remember having a savings account that came complete with a bank book. Each time I saved money, the bank printed my deposit and interest earned into the bank book. I could literally watch my money grow. While it wasn’t much, it was a lesson for me to keep saving because the bank was giving me money.

It’s the same for you and your retirement savings.

No one is too young to start saving for retirement.

In fact, the younger you start saving, the longer your money has to gain interest and grow tax-free.

Each month investments earn interest and dividends based not only on the principal investment, the money you add to the account, but on the total. It’s called compounding interest and over time it adds up to quite a nest egg for your future.

Maximize 401k Contributions

Retirement savings often begins with an employer sponsored 401k.

Find out what percentage of income you need to contribute to your 401k to earn the employer match.

If your employer matches $.50 for every dollar you save, you can turn a $6,000 investment into $9,000 ($6,000 by you + $3,000 employer match) just by meeting the minimum requirement for the plan.

It’s free money that grows in a tax-deferred investment account until you’re eligible to withdraw funds without penalty, typically 59.5 years old.

Rebalance and Pay Off Debt

When interest rates are low, it may be a good option to rebalance your investments and purchase bonds but that’s not always the case. If you have a sum available to invest in a bond paying 2% but you owe on your mortgage that is at 5% or more, it might be time to think about paying down the mortgage. It may not make sense to buy a 2% bond if you’re paying 5%+ in mortgage interest.

Required Minimum Distributions

When you reach the age of 70.5 years old, you are required to take distributions from your IRA and most 401k plans. Failure to do so could cost you in the form of a hefty penalty from the IRS. Make sure you’re taking at least the required distribution to avoid the penalty.

Saving for retirement or understanding investments can be confusing. At Heritage Financial Strategies, it is my goal to make money fun. I want you to understand how your money works and plan a financial future that meets your goals.