Camila Chia72639

In this modern age, we are renowned for failing to save money. To get your financial house in order, you need to start doing it and doing so in ways where you get tax advantages.

Whether you like it or not, saving money is something you should be doing. Eventually, life is going to throw a curve at you. It might be something relatively soft like paying for a child to go to college [prepare to faint when you see the tuition bills!]. On the other hand, it might be something more acute like suddenly being out of a job. Regardless, you can expect something to happen that will require money unless you are one of the truly lucky!

Saving money makes sense, but saving it in ways that avoid taxes or defer them makes even more sense. Fortunately, there are plenty of ways to do this. Lets take a look at a few.

One of the best strategies is also the simplest retirement accounts. Nearly all retirement accounts have some tax saving characteristic. Some of them save you money on taxes when you initially contribute money while others save you on taxes when it is distributed. Either way, you should be taking advantage of these savings vehicles. They include everything from simple individual retirement accounts [IRA] to 401(k)s to Keoghs and so on.

The advantage of all these plans can be summed up in one word compound. What is compound? It is simply a term used to explain that the gains you make within the retirement vehicle accumulate tax free over time. If I invest $4,000 in an IRA this year and make 10 percent on my money, I will have $4,400 next year and owe no tax on it. Over 20 years or so, this compounding of gains can really add up to a significant amount of money.

While the traditional IRA may sound great, it has one problem. I have to start taking money out of it eventually and I will be taxed on those distributions. The solution? The Roth IRA. When making contributions to a Roth, I get no tax deduction. What I do get, however, is tax free distributions from it when I retire. It is somewhat of an either/or situation, but the point is both plans give you an ability to accumulate wealth.

The 401(k) is a popular retirement plan with most employers and employees. If your employer offers one, you should be stuffing away as much money as possible. This is a great tool for saving money. You can put sizeable amount into it, which means the compounding gains are much more over time. You have to pay taxes on distributions, but you should have such a sizeable nest egg that it really shouldnt be too bad.

At the end of the day, the particular retirement vehicle you choose is dependent upon your particular situation. Make sure to talk with your financial advisor about creating a plan to save money in the most tax efficient manner possible.

Learn more about financial planning at UFCAmerica.com.