14 February 2009

Investing Step #6: College Saving

The next event or investing horizon is College. Obviously in some cases a first house may be sooner than college, or even in more rare cases retirement may be further off. In general however money that is invested in College Savings Plans will be tied up the second longest, next to your Retirement Accounts.

Due to the wide variety in the plans there can be many key details, but ultimately the primary consideration in these plans is the likelihood that this money will be used for college. If it is not, then the money will be taxed when withdrawn, as well as a 10% penalty, similar to early withdrawal in a retirement account. At the same time, college can be a major expense in a family’s life and the tax benefits of these accounts can be huge.

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10 February 2009

Investing Step #4: Tax-Advantaged Accounts

Why pay taxes? A lot of people claim they wouldn’t if they didn’t have to, however many of us are voluntarily paying taxes on money would could be earning tax free. You probably know already what I’m talking about, tax-deferred accounts. These are investment accounts where your taxes are either paid when you take the money out, or sometimes not at all. Many people are familiar with retirement accounts like 401(k)s or IRAs, but there are other options that are often overlooked entirely. Many times if you know you’re going to have an expense in the near future you can pay for that expense tax-free. This many not seem like a big deal to you but let’s do some simple math.

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