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Saving Money

Save Money on Investing

Nine ways to maximize your returns -- and minimize taxes and costly mistakes.

Whether you're saving for retirement or college, or investing for another short- or long-term goal, we've got nine ways to maximize your returns -- and minimize taxes and costly mistakes.

We've laid out our list in text format below, or you can check them out in our slide show. Plus, you can share your favorite ways to save in our reader comment box at the end of this article.

Looking for a partner in wealth? Your company 401(k) is a smart choice because you defer paying taxes on your contributions, giving you a bigger paycheck now and allowing you to save more. For example, if you contribute $200 per month, you'll only see $150 less in each paycheck if you're in the 25% tax bracket. (This assumes you're investing in a traditional 401(k); if your company offers and you're using a Roth 401(k), you get no tax break up front but all withdrawals can be tax-free in retirement.)

Plus, you'll save even more money if your employer matches your contributions. A 50-cent-per-dollar match, for instance, is like getting an extra 50% return on your money. Learn more about 401(k)s.


Here's a thoughtful gift from Uncle Sam: Any money you put into a Roth IRA grows absolutely tax free. You won't owe a dime now, nor when you cash it out in retirement.

If a 25-year-old contributes $5,000 each year until she retires and makes an average annual return of 8% on her investment, she'll have $1.4 million saved by the time she retires at age 65. If she invested that money in a taxable account, however, she'd only have about $1 million if her earnings were taxed at 15% -- that's 28% less money. See Why You Need a Roth IRA to learn more.

Beating the market's return consistently is a very hard thing to do and few mutual fund managers can pull it off. So, if you can't beat 'em, why not join 'em? Investing in dirt-cheap index funds and exchange-traded funds can be an inexpensive way to invest wisely.

Index funds simply track broad swaths of the market, and they don't try to pick the best stocks. Yet investors come out ahead of most actively-managed mutual funds. See Own the Market With Index Funds and ETFs to learn more.

Full-service brokers can charge pricey commissions each time you trade -- around $50 to $150. Or they may offer you "free trades" in exchange for a percentage of your assets. So on an account of $50,000, a 1.5% fee costs you $750 per year.

If you don't rely on your broker's recommendations and don't trade often, you can do much better with a discount broker where transactions cost between $10 and $40 each. You could save hundreds of dollars annually. Find out which discount broker is best for you.


Trying to time the market is often a losing game. Instead, employ the simple strategy of dollar-cost averaging. By investing a fixed dollar amount at regular intervals you smooth out the ups and downs of the market over time.

Take out all the emotion and guesswork and investing becomes much less stressful, and much more successful.

Working for yourself can be a liberating experience. But don't forget that it's up to you to save for your retirement.

The good news is self-employed workers can enjoy tax-sheltered benefits just as their 9-to-5 counterparts. For example, sole proprietors can generally save the most money in a solo 401(k). Learn more about the savings power of these plans in Do-It-Yourself Retirement Plans.


The right time to unload shares is one of the toughest calls investors have to make. Hold a stock too long and it could become a loser. Sell too early and you could miss out on superior gains.

But if you know the signs to look for, you can boost your chances of making a good decision -- and saving (or making) some serious cash. For example, keep an eye out for a change in the company’s fundamentals and how the stock performs relative to its peers. For more tips, see When to Sell a Stock.

Bond investors have an escape not available to stock owners. They can buy municipal bonds and pay no federal taxes at all on the interest. And if you buy muni bonds from in-state issuers, you can avoid state and local taxes as well.

A 4% yield on a muni is the equivalent of a 5.6% payout on a taxable bond if you're in the 28% tax bracket and 6% if you're in the 33% bracket. And these yields are relatively safe. Muni defaults have been rare over the years. Learn more.


Now is a great time to open a 529 college-savings plan. The sooner your money is in an account, the sooner it starts to earn tax-free returns.

Plus, several states and the District of Columbia offer residents a tax deduction or credit for contributing to their state's own 529 plan, saving you even more. Kansas, Maine and Pennsylvania even let residents take the deduction for out-of-state 529s as well. See Everything You Need to Know About 529 Plans to learn more about the money you'll save.

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