Money & Investing - Banks.com

Today, I read something profound over at Bargaineering. I guess it’s not super profound, but it really made me think. And served as a good reminder of smart investment planning. Here is what a guest post, Neal Frankle, pointed out about tax-advantaged accounts:

In my experience, people often accumulate most of their wealth in tax-advantaged accounts - not tax-advantaged investments. This isn’t an accident. Within tax-advantaged accounts, most folks evaluate investments on their own merits so they invest smarter. It also doesn’t hurt that the tax penalty for invading these accounts acts as a barrier and keeps you from spending the money.

Tax-advantaged accounts are those with special tax policies that allow you to keep more of your money. Most retirement accounts — 401k, IRA, SIMPLE, 403b, etc. — are tax-advantaged. You either get to put money into them before you are taxed, lowering your taxable income, or they grow tax-free. In any case, you can keep more of your cash when you take advantage of these types of investment accounts.

If you want to maximize your tax advantages with your investment accounts, it is a good idea to max out your retirement accounts. Get both an IRA and a 401k. Also, when possible, get these accounts for your spouse. You can get some help in deciding which to fund first. But if you can, max out all of your tax advantaged retirement accounts before turning to individual tax advantaged investments and investments without tax advantages.

Even with tax advantaged investment accounts, there are other fees to pay. This means that you need to carefully consider your investments, and choose funds and other investments that come with low costs and commissions. Check any funds you add to your accounts for turn over (since fees can come when a stock is sold out of a fund), and double check other costs. Just because Uncle Sam is getting less of your money doesn’t mean that someone else isn’t trying to get some more of it.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.