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Budgeting and saving are skills many Americans learn late in life, if at all. Only 36 states require high schools to offer personal finance courses. While that’s a marked increase from seven states in 2000, it still leaves many Americans adrift. Many consumers benefit from setting up regular automatic deposits to each of the four key savings and investment accounts, either through paycheck withholding or via their bank. With this system, growing their savings requires no conscious effort. Start an emergency fund. Deposit 2% of your paycheck into an emergency fund, either a high-yield savings account or a money market fund. These accounts currently yield about 4% annual interest or more, so your money will be working for you. Work toward setting aside enough to cover at least three months’ expenses to avoid using high-interest credit cards. Automate retirement savings. If possible, put 10%–15% of your paycheck into a retirement account, such as a 401(k), Roth IRA, SEP-IRA, or another investment account. To help you meet this lofty goal, take full advantage of any matching program your employer offers. That’s free money! Open a brokerage account. A regular investment account gives you access to stocks, bonds, and other instruments. Most advisors recommend a low-cost index fund as an initial investment, but if you are uncomfortable with stock market volatility, consider certificates of deposit or bonds. If you hold investments for at least one year, your earnings will be taxed at the long-term capital gains rate — far less than the tax on your ordinary income. Set up a health savings account. Health savings accounts (HSAs) are a powerful way to set aside income tax-free to pay medical bills. They offer a triple tax advantage in that deposits, earnings, and withdrawals are tax-free if you use withdrawals for eligible medical expenses. You can sign up for these plans through an employer or HealthCare.gov by opting for an HSA-eligible health insurance plan. To determine how much to deposit, search online for “HSA Contribution Calculator.” Unlike other tax-sheltered savings vehicles, HSAs do not have a “use-it-or-lose-it” requirement, so you can accumulate funds for the future. Lock in a Fail-Safe Savings Plan
The season of gratitude has arrived! Giving back through charitable donations is a powerful way to support meaningful causes, and it can be a strategic way to reduce your tax liability. In recent years, the tax benefits associated with charitable contributions have made donations an even more effective tool for your tax planning. Let’s look at four examples. Maximizing Deductions With Charitable Donations If you itemize your deductions, charitable donations can significantly reduce taxable income. When you donate cash, property, or other assets to a qualifying nonprofit, you may be able to deduct the fair market value of your contribution. Cash donations to qualified organizations can be deducted up to 60% of your adjusted gross income (AGI), while contributions of appreciated assets, like stocks, are typically limited to 30% of AGI. If you have stocks or assets that have appreciated over time, donating them directly can allow you to avoid paying capital gains taxes. SEASON OF G HOW CHARITABLE DON CAN BOOST YOUR TAX S
Bundling Donations With a Donor-Advised Fund If you’re considering a more substantial charitable impact, a donor-advised fund (DAF) could be a beneficial option. With a DAF, you make one contribution to the fund in a high- income year and immediately receive a tax deduction for the full amount.
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