Return to List of Tax Articles
Savings Strategies
Studies show that fewer Americans are saving money. At the same time, personal
debt levels are increasing. If you are behind the curve on your savings goals,
consider setting up an automatic savings plan. Here are three ideas:
- Make a monthly contribution to your individual retirement account (IRA).
Pick an investment vehicle, such as a mutual fund. Then arrange to have
$166.67 per month automatically transferred from your bank account to your
IRA investment.
You may find you're more likely to make the maximum $2,000 annual contribution
if the amount is broken down into smaller chunks. An added benefit: A monthly
contribution can accumulate more earnings than if you wait until the end
of the year (or until April 15 of the following year) to make your contribution.
- Contribute the maximum amount you can afford to your employer's retirement
plan, such as a 401(k) or SIMPLE plan. Retirement plan contributions
are withheld from your paychecks. That means you'll pay yourself first, before
you receive
your take home pay. Also, you won't have to pay income tax on those wages
until you withdraw the money from your retirement plan. For 2001, you can
contribute
up to 15% of your wages or a maximum of $10,500 to a 401(k) plan. You
can contribute
up to $6,500 to a SIMPLE plan this year.
- Save consistently. Establish a short term emergency fund outside of
your retirement account. For example, automatically transfer a set amount
each
month into a money market account. Because the amount you invest remains
constant,
you can more easily budget for it. And by building an emergency cash
cushion, you may be able to avoid borrowing on high interest rate credit
cards.
Once your money market balance reaches your emergency cushion, you can
diversify into other investments.
For other ways to get your savings plan on track, give us a call. We can
help you determine how much you need to accumulate for a specific purpose and
help you set a course to achieve your goal.
Return to List of Tax Articles
