Tag Archives: IRS

Saving Through the Ages

Guest post by Contributing Editor, Matthew Amster-Burton, Mint.com.

Saving through the agesReputable financial advisors, websites and your mom say to save for retirement, college, a down payment for a home and emergencies.

  • A typical response might be, “Yeah, but how much?” and “When?”

Libraries of books have been written on this subject. The implication is that determining your proper savings rate involves solving differential equations, brushing up on Excel functions, and reading the entire US tax code. If you’re not ready to do that, just turn everything over to an expert. Right? Not really.

Let’s talk about three things that may get in the way of people saving—and then set those obstacles aside and make it easy to do on your own, no matter your age or stage of life.

  • It’s hard. Perhaps you don’t make enough money to save aggressively or it’s psychologically difficult to set aside money instead of spending it. For most of us, it’s a combination.
  • 401(k). IRA. Roth IRA. 529 college savings plan. Savings account. Savings bonds. Why do we have so many boxes to put our money in? In three letters: the IRS. The government encourages us to save by giving us a tax break when we do.  Unfortunately, we now have so many savings vehicles to choose from that the easiest option is to just say, “I’ll think about it next month.” And we haven’t even talked about investment options yet!
  • Nobody knows the future. What if I save for college and my kid has other plans?  What if I max out my 401(k) and then need the money before I retire? Again, the easiest response is, “I’ll figure this out later.”

Pick a number

But here’s one thing to realize: choosing the wrong type of account or making a wrong guess about the future is a small mistake. Failing to save anything is a big mistake. Here are a few rules of thumb when it comes to saving through the ages.

  • If you’re young, save 25%. That’s 25% of your gross pay, before taxes. You can count debt repayment as savings, and repaying student loans should be a priority. The rest of the money can go toward a down payment fund, college fund, and retirement savings.
  • If you have kids in college, you probably can’t afford to save unless you’re exceptionally wealthy. Get your 401(k) match, avoid parent loans, and send the rest of your money to the bursar’s office.
  • If you’re 50 to 65, save 30% or more. This is the age when most people do most of their retirement savings. Tuition bills are a bad memory. The kids are out of the house. You can downsize. Plenty of families squander this opportunity. But not you, right?

These numbers are probably higher than you’ve seen elsewhere. That’s because they’re not designed for the best-case scenario. They’re designed with enough of a cushion that if everything goes right, you’ll end up with even more money that you’ll need for retirement.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

Disclosure:

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Mint.com is not affiliated with FOLIOfn or The Portfolioist.

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Tax Loss Harvesting Season is Here

Believe it or not, year-end is right around the corner which means that it’s time for investors to start thinking about their tax implications. In order to help you make sense of it all, we wanted to share this article originally published last year by guest blogger Steve Thorpe. Enjoy–

Would you invest a few short hours to reduce this year’s taxes by $1,000 or more? For investors with taxable investment accounts, this is often possible by taking advantage of tax loss harvesting (TLH). This perfectly legal strategy makes lemonade from lemons, allowing Uncle Sam to share part of the pain of the losses inevitably experienced by investors at some points during their investing career

Between now and the end of the year is a good time to review your portfolio to see if any of your holdings are in the red. If so, you might be able to use those losses to help lower your 2010 tax bill.

In this article I’ll review:

  1. How to harvest a tax loss and under what circumstances you might want to.
  2. Why you need to keep track of what your investments cost in the first place.
  3. How to properly rebalance your portfolio after a sale, without triggering undesirable tax consequences.
  4. The way investments look from a tax perspective: short-term losses can be more valuable than long-term losses. But hold onto gains at least a year and a day.

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