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How To Create an Investment and Savings Plan

As a kid, you saved quarters to buy a new toy. Now you’re saving for bigger things like a house, college, or the rest of your life. Saving as an adult gets complicated quickly. Here’s what to know for building the best savings or investment plan for you.

When is the right time to start a savings plan?

Diving into a savings or investment plan, start with this question. Depending on your lifestyle, there are two methods to consider: routine investments or goal-oriented savings.

Invest often, invest soon 

Invest early and often is a common adage and it’s true, especially for retirement savings. Start as soon as possible so your money will be there for you when you need it most.

Investing early allows for more risk taking and potentially a larger payoff. As retirement looms closer, you won’t have the same flexibility to invest in higher-risk strategies because you’ll be more affected by short-term market swings.

Regular contributions are a sustainable way for anyone to save for retirement. Build a foundation with whatever amount you can afford and set goals to steadily increase over time.

Investing toward a goal

Sometimes the impetus to invest comes from a new situation. More immediate goals like a wedding or a house mean focusing on a goal-oriented savings plan. 

While you still want to save early and often, you’ll likely have less time with less ability to take risks. Goals and timeline will always inform your investment strategy. College savings for your 15 year old? Stay conservative with investments. College savings for your future grandchildren? You can be much more aggressive. 

What kind of savings plan is right for you?

Not all savings or investment strategies are the same. Consider each type to find the best savings plan for you.

Retirement plans

Most full-time jobs come with an employee-sponsored retirement plan. Often employers will even match a certain contribution amount. Additionally, individual retirement accounts (IRAs) are tax-advantaged to help your savings grow. Retirement plans put the decision of when to stop working in your hands.

Goal-based plans

Goal-based savings plans go right along with goal-oriented investment. Whatever you need money for — a new car or a necessary surgery — set a timeline for when you need those savings. Build a plan for how much and how often you need to save for that goal.

Safety nets

Many investment funds can’t be easily accessed. A safety net savings plan is one you can pull from at a moment’s notice, but don’t touch outside of an emergency. Experts recommend saving three to six months worth of expenses.

Tips for reaching your savings plan goals

  • Save a set amount as soon as you get paid rather than saving after you spend.
  • Rather than rely on your own self-discipline, set up an automatic bank transfer into your investment account.
  • Target a routine source of unnecessary spending. Put that money toward your savings instead. 
  • Don’t let headlines about the market make you nervous. Stick to your long-term investment plan.
  • If you’re saving for a person or charity, invest up to $17,000 a year per person without owing federal gift tax. Trusts are also tax efficient options here.
  • If you’re saving for college tuition, use a 529 savings plan, a tax-advantaged account specifically for certain educational expenses.

Tax-efficient investing

However you chose to save or invest, taxes will always be a factor. Over time, experts have determined how best to keep savings in your pocket within existing tax code.

Taxable accounts and tax-advantaged accounts

There are two main investment account types: taxable and tax-advantaged. Knowing account types lets you consider tax-aware asset locations, putting tax-efficient investments — like stock funds or municipal bonds — in taxable accounts and higher yielding ventures in your tax-advantaged account.

Taxable accounts don’t come with tax benefits, but they also don’t come with rules for withdrawing money, like tax-advantaged accounts do. Money made within taxable accounts is subject to long- and short-term capital gains rates.

Tax-advantaged accounts can be tax-exempt or tax-deferred. Traditional IRAs and 401(k)s are tax-deferred, meaning you pay taxes on money withdrawn. With tax-exempt accounts, like Roth IRAs and 401(k)s, you contribute after-tax dollars. As that money grows, you’ll pay no future taxes.

Talk to a tax pro about the right investments for you

Rather than wading through difficult tax code to find the best investment strategy, rely on 70 years of experience. At SME CPAs, our team of financial professionals will analyze your specific situation to target a savings plan right for you. Contact us today to start saving for your future.

Investment advisory services are offered through Avantax Planning PartnersSM. Commission-based securities products are offered through Avantax Investment ServicesSM, Member FINRA, SIPC. Insurance services offered through licensed agents of Avantax Planning Partners. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. The Avantax entities are independent of and unrelated to SME CPAsAlthough Avantax does not provide or supervise tax or accounting services, our Financial Professionals may offer these services through their independent outside business. Not all Financial Professionals are licensed to offer all products or services. Financial planning and investment advisory services require separate licenses.

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