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Retirement Planning & Saving For Your Future
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Retirement Planning & Saving for Your Future is a Requirement in Today's Economy

Over the years many consumers have asked the questionhow should they start their saving for their future?

I have often referred many to—a non-profit site that provides resources for saving, budgeting tools and other helpful tips for the novice investor.

The Smart Asset Budget Calculator  has also become a favorite of visitors who desire to create a budget and plan more effectively—over the last several years!

For those who are technology savvy I have referred to and the site has been very helpful for consumers who want to plan their future and save more effectively—do just that.

If you have “excel software” on your computer you  can download an interactive budget and net worth statement from the site so that you can at least begin the process of organizing your finances and see where you are currently at—financially!

You can then put yourself in position to move forward and plan your future in a more effective manner.

It is also important that you have a system in place that allows you to come up with your “retirement number” or the amount of money that you will need that will provide you a comfortable retirement or a retirement where you can live in abundance and not have to worry about whether your life expectancy will exceed the savings that you have.

On many occasions I have recommended that consumers contact their payroll department to have automatic deductions from their payroll—directly deposited into their retirement accounts (IRA, 401k, 403b, Thrift Plan etc.).

This is usually done in conjunction with an overall assessment of their total financial condition.  In addition, many consumers now pay their monthly bills online in an attempt to add convenience and eliminate postage costs. 

If you are considering this option just go to your banks online site and look for the online banking section and your bank will usually provide easy to follow directions for setting up online bill pay (now free at most banks).

For those who like to organize their insurance—there is now a helpful site  that can aggregate all of your data from multiple health care and insurance providers and it is worth considering if you would like to manage all of your medical, dental, vision, pharmacy and other health care spending in one location.

Keep in mind that while you add convenience with the online features mentioned above—you can also increase the risk of online security threats—so use caution.


How to Ease Your Tax Burden


When it comes to completing taxes you can now purchase receipt scanners ($200-$400) that will help you as you prepare your tax return or organize other data. 

The IRS now accepts digitized receipts as an acceptable form of proof for deductions that you take on your tax return—therefore you could technically toss the printed receipts if you were to digitally scan them.

If your taxes are not that difficult or complex you can now choose from a number of low cost software vendors that will help you prepare your taxes effectively and efficiently.

If you live in the Metropolitan Atlanta area and you earn less than $52,000 annually you may qualify for free tax preparation through the United Way VITA program!


Also be sure to use the following strategies to reduce or eliminate your taxes:


  •        It is wise to avoid short-term capital gains as they have an unfavorable tax position at this time compared to long-term capital gains.


  •       Use your capital losses to offset your capital gains (up to $3,000) and carry forward any unused portion to future tax years


  • When you purchase mutual funds be aware of the timing—and you must know upfront whether it is best to have your investment—inside or outside of your retirement account.

  • if you purchase just before your fund makes a distribution and the fund is "outside" of your retirement account—the distribution will be taxable in the year of distribution


  •       Consider donating your stocks or mutual fund to charities as the appreciated value will not be taxable and you can gain a tax deduction for the full value (i.e. you purchase a mutual fund for $5,000 and it doubles—you can deduct $10,000 on your tax return)


  •       Consider your tax bracket (if you are in the lower tax brackets your long-term capital gains rate may be as low as 0%—if you are in the higher tax brackets your capital gains rate may be as high as 20%—which still beats ordinary income tax rates


  •       Consider stock appreciation and the stepped-up basis treatment that it will receive as it allows you to pass along your stock after your transition at the current market value at the time of your transition—thus reducing or eliminating taxes for you—and possibly your heirs

If you have maxed out your retirement accounts (or contributed up to the match) such as IRA’s, 401k, 403b, Thrift Plan etc.—be sure to consider taxable accounts outside of your retirement accounts as they have the potential to provide you additional income for retirement and/or other purposes.



It is important that you know the ramifications of investing outside of your retirement accounts as some types of investments are more tax–efficient inside of your retirement account and therefore more beneficial to you and your family in the long run.

It is also important that you know how to invest in a manner that serves your and your family’s best interest! 

Be sure to go to our Investments & Personal Finance page prior to starting your investment or retirement plan or go to that page right now if you have already started your investment or retirement plan.

It is also critical that you understand that when we speak of investing outside of your retirement accounts in this discussion—we are not talking about investing or funding in an emergency fund.

Investing outside of your retirement account often provides you added flexibility (you control the choice of your investment and when you cash in your capital gains) that you need to improve your returns and get the cash when you need it without penalty—both now—and in the future.


If your retirement account is cashed in before you reach age 59 ½ you will pay a 10% penalty and will be taxed at your ordinary income rate—unless an exception was to apply. 

In addition, you “must” start taking required minimum distributions (RMD’s) from those accounts when you reach age 70.5—even if you have no need for the money at that time.


Long-term capital gains and qualified dividends in a taxable account get more favorable “tax treatment” (taxed at your capital gains tax rate) than withdrawals from your retirement account (taxed at your ordinary income tax rate).



By having money both inside and outside of your retirement accounts you can maximize your income during your retirement years by tapping into the taxable account during the early years and utilizing the favorable long-term capital gains rate—as opposed to ordinary income.

By doing so you can allow your income to continue to grow tax-free inside of your retirement accounts up to the time that you desire or up until the RMD’s are required.


Therefore, it is imperative that you plan effectively on the front end so that you can live your retirement in abundance.



Why “Asset Location” is So Important



Asset location—often used by those in the financial industry but rarely understood by those outside of the industry consists primarily of locating your assets where they receive the biggest bang for your buck—based on your tax position.

Keep in mind that tax considerations are one of many factors that you need to consider when deciding whether or not to invest inside or outside of your retirement account (however, it is generally one of the most important—therefore, be sure to get a real understanding of this discussion).



Below we will list asset types that are generally best suited for inside or outside of retirement accounts and end with a further discussion of how you can effectively analyze whether the investment that you are considering (or now own) is best suited inside or outside of your retirement account.  

It is important that you get a real grasp of this discussion as we have seen many consumers blindly invest in a manner where they had no concern as to whether an account that they owned was inside or outside of their retirement accounts—and that lack of knowledge worked against their best long-term interest—without them even realizing that it was working against them.



Unless you have a very high net worth and have high investment amounts with them—investment and brokerage companies will normally not inform you of the best approach to take. Therefore, it is your responsibility to invest in a manner that serves your and your family’s best interest.



Investments that are best—inside of a Retirement Account:


  • Taxable bonds and bond funds

  • Stocks that pay high dividends

  • Stock mutual funds that concentrate on high dividends

  • Real Estate Investment Trusts or REITS—often pay dividends that are taxed as ordinary income

Investments that are best—outside of a Retirement Account:


  • Municipal bonds and Municipal bond funds (federal and possibly state income tax-free—if you pay AMT (Alternative Minimum Tax)—it may be wise to avoid these bonds)

  • Taxable bonds and bond funds—only if you are in the lower tax brackets

  • Stocks that do not pay high dividends

  • Tax-efficient stock mutual funds

  • Tax-efficient Exchange Traded Funds (ETF’s)


The rationale as to the best place to locate (inside or outside of your retirement account) the above assets are readily understood by many consumers, however tax-efficient mutual funds and tax efficient ETF’s  often cause confusion for many. 

Most consumers do not have an effective system that they can utilize to determine if a fund that they want to select is tax-efficient or whether it is tax-inefficient.


In the discussion that follows we will try to eliminate the confusion that you now have or that you may have had in the past—or might have in the future and give you a clear and precise way that you can determine the tax-efficiency of a stock, mutual fund or an ETF—so that you can increase your future earnings for yourself and your family.



Stock Mutual Fund Basics:


1)    You pay taxes if you sell or exchange shares for capital gain


2)    You pay taxes on any income and capital gains that the fund makes each year whether you reinvest those gains or you cash inif the account is not in your retirement account


3)    In a taxable account you want to choose funds that will minimize your income and capital gains distributions (index funds with low turnover normally fit the bill as they usually have appreciation—but low dividend income and they  distribute capital gains only when stocks in the fund are sold)


4)    Annualized means to convert to an annual basis.  For example if a mutual fund earned 1% per month, it would earn 12% on an annualized basis.  It is simply calculated by multiplying the monthly return by 12.


5)    Sales Load (Charge) is a fee paid to a brokerage house by a buyer of shares in a load Mutual Fund or a Limited Partnership.  Normally the sales charge starts at 4.5 to 5% of the capital invested (some companies start lower and some go even higher) and decreases over time as the size of the investment increases

6)  No-Load is a fund that does not charge a commission, either up front or on the back end that winds up in the pocket of the broker.  If you redeem your fund within a month or two you will have redemption fees and that is to be expected.

12b-1 fees are fees that mutual funds charge fund holders for advertising and marketing or promotion expenses and are normally .25% in the case of a no load fund to as high as 8% or so in load funds.

7)    Expense Ratio is the amount, expressed as a percentage of total investment—for example an expense ratio of .2 on $100,000 invested in a mutual fund means $200 in expenses and normally include the marketing expenses

Shareholders pay this expense ratio fee annually for mutual fund operating expenses and management fees and the fee generally range from .2 to 2% annually.


How do I determine if a fund has the appropriate income and capital gains distributions that are tax-efficient and therefore appropriate for investing in"outside" of my retirement account?


1)    You must measure a funds turnover rate


2)     You must measure a funds tax-adjusted return


3)     You must measure a funds tax cost ratio


4)     You must measure a funds “potential capital gains exposure”



Where can I go to get those measurement tools?


Many online investment sites provide that information for a fee, however, my favorite over the years has been (you can sign up for 14 day free membership and check the mutual funds that you own or plan on owning outside of your retirement account(s)) as Morningstar provides all of the above information—and more. 

Don’t be intimidated by the site—as once you get a feel for the navigation it is quite easy to get the needed information.

Other sources include and you can go there and plug in the fund's name or symbol.

You must then click on Lipper Leader Ratings—to see the fund's tax efficiency rating5 is best.

You can click on the Performance Tab to look at after-tax returns and how those returns compare with similar funds.  The difference would be the amount that you would pay—per share—in taxes on capital gains, dividends and interest income.

In addition, you can use the search engines such as google, yahoo and bing by asking:

Is          stock mutual fund tax efficient—along with the other criteria listed above as separate questions. 

Fill in the name of the stock mutual fund or ETF that you own—or anticipate owning in the blank space area. 

Keep in mind the results that you get may be outdated, inadequate or right on target—but at least it will give you a starting point where you can then decide if you want to pay for more definitive advice about the mutual fund or ETF or go with the data from the results that you received or do further research altogether.


For turnover rate on—click on the CHART tab to find the other measurement indicators listed above—click on a fund’s TAX tab—it’s just that simple!



1)    Turnover rate measures how frequently a fund manager trades his or her entire portfolio.  A 25% turnover rate indicates that a manager trades the entire portfolio every 4 years. 

A 10% rate means that the turnover is less frequent. Look for a turnover rate below 10% and you are 1/4th of the way through your needed analysis.


Many large-cap index funds have low turnover rates and most index funds in general have low turnover rates because most index managers only change their portfolio if an index adds or drops a stock.




2)    Tax-adjusted you can compare a fund’s tax-efficiency with others in that group by checking its tax-adjusted returns for the same periods.



3)    Tax cost ratio shows how much of a fund’s annualized return a shareholder in the “top” tax bracket has lost to taxes on the fund’s distributions. 

If a fund has an “annualized” return of 10% and a tax cost ratio of 1.9% during a 5 year period—investors lost 1.9% of their return on average to taxes each year—which may not seem like much but quickly adds up. 



4)    Potential Capital Gains Exposure gauges a funds future tax friendliness—that number is an estimate of the percentage of a fund’s assets that represent capital gains embedded in its portfolio. 

If exposure is 30% or higher and the fund has a high turnover rate it will more than likely distribute gains the next year—exactly what you want to avoid if you are investing in a taxable account—because it will increase your taxes for that year.

Other Key Points:

When it comes to investing both inside and outside of your retirement accounts you must have a mental telescope of your future that allows you to see your finances well into your future. 

That means that you must properly designate your insurance beneficiaries, invest in a manner that serves your and your family's best interestknow your tax position and know how to use "stepped-up basis" to your and your family's best advantage.

You must also know how to properly fund your or your children's educational needs and have a "retirement system in place" that allows you to  live in abundance and not at a level where you just merely exist!

To avoid taxes be sure to put the investments that generate the most taxable income inside a Traditional IRA, a ROTH IRA or your Employer provided retirement plan.

In your ROTH IRA account be sure to utilize growth stock funds and other investments that provide a high return and keep in mind that with a ROTHyour investments grow tax-freeand you don't have to take required minimum distributions and you can generally withdraw your "contributions" tax-free at any time!

Keep in mind you can control the choice of investment when you utilize your IRA'showever your employer provided options may limit your investment choices.

Real-Estate Investment Trusts, Taxable Bonds and Bond Fundsif you are in the higher tax brackets (including high-yield junk bonds and and inflation protected securities) are usually best suited for your Traditional IRA. 

Always realize that the Interest on the above mentioned assets that are best suited for your Traditional IRA would be taxed at your ordinary income tax rate annually if they were held in a taxable account!

In addition, you must also be aware that if you save for your or your childrens educational expenses inside of a 529 Savings Plan, a Coverdell Education Account, an IRA for Educational Purposes or any other tax advantaged education saving account.

The same concept applies as mentioned above for saving or investing inside your retirement account—as you would pay no taxes annually if the savings were held inside those tax-advantaged educational accounts.

Your navigation of this site and your clear understanding of this site will help give you the clarity that you need as you move forward—step by step—if that is what you desire.

Unlike others who make serious mistakes along the way (and now suffer tremendously from those mistakes because they never had the opportunity to utilize this or any other highly effective site to guide them along the way) you have an opportunity to manage your credit and finances and save in a manner that they never imagined!

Final Thoughts on Retirement Saving & Investing

It is important to realize that investing primarily consists of knowing your risk level, knowing your available options and choosing among  the options that you are most comfortable with.

It is important that you know how to shelter your income from taxes so that you can reach the goals that will serve your and your family's best interest in a more efficient manner!

It is also important that you re-balance your portfolio inside your taxable accounts first and then your taxable accounts.

Be sure to use caution as to timing and other factors when dealing with your re-balancing in your taxable accountsso that you can avoid or reduce your taxes.

Taking long-term as opposed to short term gains and offsetting your gains against losses are just a few ways that you can do so!

Many consumers now use target-date funds where the time horizon and their risk tolerance level is utilized to come up with stock, bond, money market, mutual fund and other mixes—that are designed to coincide to help meet their designated goals at a particular time in their life (education, retirement, travel etcetera).

By organizing your finances effectively and having a system that gives you the "mental working knowledge" that you need to succeed—you significantly reduce the stress in your life.

You also put yourself and your family in position to not make excuses and not let other distractions determine your future outcomes.


The key to investing in a winning manner is to address your credit, emergency fund and all of the major areas of your finances—"prior to"—investing outside of your retirement accounts. 

Investing inside your retirement account should be started as soon as practical and it is a major area of your finances that you should addressalong with the other major areas.

Be sure to max out your retirement account at least to the company match level and if your income and lifestyle allows it—the maximum amount allowed by law—on an annual basis. 

If your company offers a 401k ROTH—be sure to contribute as much as possible—you can earn any amount and contribute to a 401k ROTH—however the contribution limit in 2014 is the same as for a Traditional 401k ($17,500—or $23,000 if age 50 or over).

You must also be aware that if you convert from a traditional 401k to a 401k ROTH—that change is final and you can't go back in the same manner as you would be able to if you had a conversion from a Traditional IRA to a ROTH IRA!

Employer Matching is only allowed in the Traditional 401k and you must consider your unique income and tax position to determine whether a 401k or 401k ROTH or a combination will work best for you and your family!

In addition, be sure to consider maxxing out your annual IRA contributions (ROTH or Traditional) if you are in financial position to do so!

Another key point is that you must have patience whether investing insideor outside of your investment accounts.  Once you address all areas of your finances appropriately and you get your investment plans in placebe patient and let compounding work for you and your family!

In the end it will be your patience and your approach to investing and doing what you need to do upfront and investing in a manner that serves your and your family's best interestand not really how much knowledge you have of the market or how skillful you are at market timing.  By having patience and investing appropriately for your risk-tolerance level you will move toward the success that you desire!


By doing the above you will be well ahead of most consumers when it comes to investing in and/or outsideof your retirement accounts.

You now have adequate knowledge to get your retirement accounts and investment accounts properly funded so that you can live at the level that you desire.

Now let’s do it for yourself—your family and your future generations!

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About This Article:


The above article was written by Thomas (TJ) UnderwoodThomas (TJ) Underwood is a former fee-only financial planner, a former top producing loan processor and is currently a licensed real estate broker in the state of Georgia. 

He is the writer behind The Real Estate & Finance 360 Degrees Series of Books that include The Wealth Increaser, Home Buyer 411 The Smart Guide to Buying Your Home, Home Seller 411 The Smart Guide to Selling Your Home, and  Managing & Improving Your Credit & Finances for this MILLENNIUM.

In addition he is also the writer who created The 3 Step Structured Approach to Managing Your Finances, and CREDIT & FINANCE IMPROVEMENT MADE EASY—NEW GUIDE that you can download right now "(at MIMIMAL cost $3.95)" to learn more about his writing style and how you can achieve "more" success in the current economy.

He is the creator of where he regularly blogs about helping consumers improve their credit, finance and real estate pursuits in an intelligent, consistent and proactive manner. 

He’s always looking for ways to make intelligent finance improvement happen for those who “sincerely desire” success in their future. He was the first financial planner to coin the phrase "financially alert mind"  and he consistently writes in a style that is designed to provide consumers the ability to take control of their lives and achieve great results.

You can contact him from a number of sources but the most direct way is to contact him through the contact us block that can be found at the bottom of this page.  You can also get highly relevant tips on "living your life more abundantly" and link to and possibly earn revenue by logging on to

He is also an IRS registered tax planning professional with over 30 years of tax experience and can be reached at:



Atlanta South Location:

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77 Prestwick Lane

Peachtree City, GA 30269

770-719-4550 (Direct)

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Atlanta, GA 30349

404-952-9284 (Direct)

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