For CRE brokers, saving for the future is more difficult because cash flow is erratic. To help normalize cash flow and savings, it can be a good practice to establish a systematic deposit into various retirement or investment accounts. As deals close and cash is available, it is already earmarked toward payroll, taxes, and expenses. Consider adding to those obligations at least one automatic contribution to a retirement or investment account.
We suggest you start with any amount because it will provide momentum and help to form the habit. Plus, it will give us a framework to evaluate yearly and hopefully increase the amount being contributed.
We are often asked, “What is the right amount I should be saving?” We have the tools to precisely answer this based on your long-term goals, but often the best answer to this question is, “More than you saved last year.”
Several investment accounts should be part of your long-term savings strategy. Among them are a 401(k), Roth IRA, HSA, and an after-tax brokerage account. Building an after-tax brokerage account will help diversify your account types from a tax perspective.
An after-tax brokerage account does not provide an upfront tax deduction for contributions, but the tax characteristics create opportunities for tax planning in the future. This account can also become a source for future contributions to a retirement account, especially during a year where cash flow was more challenging, but it was advantageous to contribute to a 401(k).
Establishing a recurring deposit into the brokerage account will help build what can be considered a safety net account.
The brokerage account could become the primary savings account and from it, you could make other retirement account contributions when those are due. It can also be an account to use for short-term cash needs, to save for a house, or for cash flow if your goal is to retire before age 59.5 when other retirement accounts still have an early withdrawal penalty. It is often this account that helps retirees before Medicare age qualify for subsidized health insurance.
Tax differences between all the accounts used for saving will provide us more opportunities for tax planning and strategy. Saving money for the future is much easier if you set it on autopilot. We’re here to help you determine where and how much to save and to encourage you to save more to reach your long-term goals.
