If you’re not choosing your investment accounts wisely, you could be paying thousands more in taxes than necessary – and that’s a very common mistake.
Bernadette Joy, a financial coach and self-made millionaire, writes in her book, “Looking at hundreds of people’s finances, I see them putting money into investment accounts, causing them to spend more than they need to pay taxes.”crush your money goals“
Read more: 5 Ridiculous Purchases You Won’t Believe Are Tax Deductible
Be aware: Start Growing Your Net Worth with Better Tracking
Apart from choosing the wrong accounts, choosing the wrong investment strategy can also lead to you paying more taxes. To lower your tax bill, Joy recommends following these two tips.
Use dollar-cost averaging
dollar-cost averaging is a investment A strategy that involves investing a fixed amount of money in a particular asset or at regular intervals regardless of the asset’s price. Using this strategy can reduce the taxes you pay.
“Dollar-cost averaging occurs automatically when you contribute to an employer-sponsored retirement account like a 401(k),” Joy explains. “Instead of trying to time the market, you invest consistently over time, which helps reduce risk and smooth out market fluctuations.”
“Plus, your contributions now reduce your taxable income while increasing the tax-deferred amount for the future,” she adds.
Invest in tax-advantaged accounts
Choosing the right investment accounts will also boost your income taxes.
“Use every tax-advantaged account available to you,” Joy said. “Max out your 401(k), IRA, and HSA before investing in a taxable brokerage account. I refer to them as ‘real luxury bags’ in my book, and I’ve seen a lot of people make the mistake of opening a brokerage account before they’ve filled out their retirement accounts and waste a lot of money on taxes.”
This article was provided by MoneyLion.com For informational purposes only and should not be construed as financial, legal or tax advice.
More from MoneyLion: