In your 30s, there are lots of exciting things to look forward to. You may save enough to buy a first home. Or, you may decide to have children. It’s also a big decade for your career. With ten years of experience, you may have more responsibility. Sometimes, this comes with a bigger paycheck, to boot.
Keeping up with your friends’ spending habits may be tempting. But it won’t get you any closer to your family’s long-term financial goals. Tax planning is one way to keep your priorities in check. Here are a few things you should focus on.
Lower your taxable income while saving for retirement
During tax season, you may be eager to reduce your bill. An experienced tax professional may find deductions or credits you may have missed. But this isn’t a proactive approach. There is only so much they can do once the tax year is over. Here are a few ways to lower your taxable income throughout the year, while saving for retirement at the same time.
- Contribute to your company’s 401(k) or 403(b) – These retirement plans work for a couple of reasons. Your savings are automatic. Every time you get paid, part of the money goes into your retirement account. It’s also easy to increase your contributions. Consider revisiting your percentage a few times a year, especially after getting a raise.
- Save with an individual retirement account (IRA) – If you are looking to save even more, open an IRA. You can reduce your taxable income with a traditional IRA. Or, you can choose an after-tax Roth IRA and pay no taxes on your withdrawals in retirement. Either way, it’s a great tool to boost your nest egg.
- Set aside money with a health savings account (HSA) – There is no way around it, healthcare is expensive. This is especially true as you get older. One way to plan for future healthcare expenses is by saving and investing money in your HSA. You can take the money out whenever you need it, tax-free, for qualified healthcare expenses.
Whether you choose one or all these tactics, the key is to be proactive all year round. If you are serious about lowering your tax bill, and you should be, it’s important to start early.
Start saving for your kids’ college education
One of the biggest expenses every parent faces is paying for college. It’s more costly than ever, with no signs of slowing down. If you plan to contribute, start saving as early as you can.
529 savings plans are one of the popular ways to save and for good reason. You may be eligible for both state and federal tax breaks. As you invest the money, you won’t owe taxes on earnings you use for qualified education expenses.
Also, you aren’t tied to your state’s 529 plan, so shop around to see which one you like best. Start with Morningstar’s annual list of the best 529 plans if you aren’t sure where to begin.
Create good tax planning habits now
Chances are, you probably won’t enjoy tax planning any more with age. It’s punishing, tedious, and often expensive. But with 30+ years of your career ahead of you, now is the perfect time to form better tax planning habits.
Start by creating an annual tax planning checklist. Do whatever it takes to stick with it. If you haven’t already created a system to stay organized with paperwork, you should focus on that, too. It’s never too early, or too late, to form better tax habits. You will be a lot happier when it’s time to file next year’s tax return.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.