Top Tax Tip Worth $372,220

By in Automatic Saving, Investing, Mutual Funds, Taxes, Tips | 16 comments

US News & World Report: Smarter Investor Blog-Top Tax Post

“Good morning,

I think we’re heading in the right direction as far as content goes. We’ve had some great tax planning advice stories, which have proven popular and we’re providing readers with more specific investment advice, which makes it more likely that your pieces are picked up by places like MSN Money.” ~editor, Smarter Investor Blog, US News and World Report

Every month I get an email from my editor at The Smarter Investor Blog at US News and World Report. I anxiously await the monthly rankings to find out how my posts fared. The editor does an awesome job of telling us what the readers want and which posts are doing well.

top tax US News & World Report Better Investor Blog Post
My post was ranked #4 this month on US News & World Report Better Investor Blog

Now I’m  a bit extremely competitive. Not only do I love to compete but I especially like to win. Of course, who doesn’t like to win?

My highest US News and World Report Better Investor post ranking was the #7 post, so you can imagine my delight when out of the top 25 posts for the month of March, my “17 Legal Secrets to Reducing Your Taxes” placed #4.

I must admit, these top tax tips were quite good and who doesn’t want more money in their own pockets and less in the pocket of the IRS? (legally)

How I Became Tax Savvy

As a girl, my dad started training me early about the tax system and how to reduce my income taxes legally. From having my own business and thereby deducting all related business expenses to making certain to keep a log of non-commuting business mileage, I am always thinking about how to keep more of the money my husband and I earn.

Every year I review the site for new tax information and usually pick up a copy of J.K. Lasser’s Your Income Tax.

And just like I want you to learn to invest and grow your wealth, I also want you to keep more of your earnings with smart tax planning. Please understand that you don’t need to be an accountant to understand saving money and reducing taxes.

Tax Help-Top Tax Tip

I’m so committed to helping you build wealth and keep more of what you earn that I’d pay you to listen to this top tax tip if I could!

Anyhow, it is not too late to save on your taxes.

Tax Tip Worth $372,220

There is 1 tip which will put over $300,000 in your retirement portfolio, even if you are 40 years old.

Contribute to a Roth IRA before April 15th. If you’ve already filed and received a refund, plow that money into an IRA account at a discount investment broker now.

Set up a new IRA account or contribute the maximum of $5,500 into an Roth IRA existing account at a discount broker.

By letting that money compound tax free until retirement, you are giving yourself a gift of thousands of dollars. See how this top tax tip works.

tax tip-more money for retirement

Joaquim’s Story

Joaquim does not have a retirement account and he’s 40 years old. He’s worried and afraid he’ll have to rely only upon Social Security in his old age. He earns a decent salary and decides to contribute to a Roth IRA account.

He still has a few days (until April 15th) to make a Roth IRA contribution for the prior year. Even though he doesn’t get a tax deduction for contributing to the Roth IRA, he understands that the money in the account will grow tax free until he decides to withdraw it. And when the money is withdrawn, there is no tax to pay.

The Roth IRA gives him many options for the money in the future. He can begin withdrawing his funds at age 59 1/2 without a penalty (if he takes the money out before that time there’s a 10% penalty) or he can leave the money invested indefinitely. Unlike a Traditional IRA, there is no required minimum distribution at age 70 1/2.

Joaquim commits to investing $5,500 each year in his Roth IRA until his 65th birthday.

He chooses several index stock and bond mutual funds and earns an average return of 7% per year. At age 65, Joaquim’s annual $5,500 dollar investment annual investment or $137,500 total Roth IRA Contributions (total contributions of $5,500 * 25 years) grows to $372,220.

That’s right, Joaquim contributed nothing for retirement up until age 40. At age 40 he decided to contribute $5,500 per year for 25 years to a Roth IRA in an investment account. At age 65 he has $372,220.

If you are 40 years old and you believe you missed the chance to save for retirement, it is not too late. Start investing for retirement today and you still have several decades for your money to grow and compound.

(a version of this article was previously published)


  1. I learned all about taxes in college when I took a tax accounting course. It could have been the most boring class ever, but the professor did a good job at keeping things interesting. A lot of what I know about taxes comes from that class and I tend to try to stay up to date on the new laws myself. I have no problem paying taxes, but I want to pay as little as I legally should.

    Jon @ Money Smart Guides

    April 4, 2014

  2. @Jon, You are correct. The more you know about the tax system, the easier it is to find ways to legally reduce your taxes. It becomes less boring when you see your tax bill shrinking.

    Barbara Friedberg

    April 4, 2014

  3. Hello Barbara,
    While enjoying your site I notice that your “17 Legal Secrets” is listed as number 4, but also listed as number 13? Anomaly?

    Jacklyn Grupa

    April 5, 2014

  4. Hi Jacklyn,

    You are quite thorough. Only my editor knows the answer to that one:).

    Barbara Friedberg

    April 6, 2014

  5. We’ve had a huge thing here in the UK about legal tax avoidance schemes or ‘loopholes’. While they are ‘legally’ verifiable and OK to use, they have sparked some moral outrage in the press, given the current austerity measures that are in place.

    Of course I think those of use out of the public eye are just miffed that we hadn’t unearthed these loopholes for ourselves first!


    April 8, 2014

  6. @Phil,You’re take is on point. If a loophole is “legal” there’s little room for debate. Who wants to pay more than required? Now that’s immoral.

    Barbara Friedberg

    April 9, 2014

  7. Government tells you the ways you can avoid paying taxes. You just have to listen, read, ask and learn.

    What is really impressive here is the compounded returns. Total investment of only $5500 a year can roll like a snowball and pay you handsomely at the end. It is nearly 3 times in your example. that is impressive.


    April 10, 2014

    • @TC, I never tire of the “compound returns” examples. It’s hard to believe how small amounts, invested over time can really explode.

      Barbara Friedberg

      April 11, 2014

  8. Every year I learn more and more about the tax system which makes it easier for me to save money on my taxes, as I find out about different deductions and tax advantages I can use. My favorite way to save on taxes is by contributing to retirement accounts. After all, not only are you saving money in the short term, but you’re also earning in the long term, and who doesn’t want to earn money? Especially passive income.


    April 11, 2014

    • HI Daisy, I’ve maxed out our retirement accounts for decades, and the payouts are well worth the short term sacrifices. If I could give one piece of advice, it would be to start saving and investing as soon as you can, and if you think it’s too late for you, then start now.

      Barbara Friedberg

      April 11, 2014

  9. Hi Barb. I love tax tips! I read your article and it gave me some tips I can use right away. The website looks awesome. All the best!


    February 3, 2015

  10. This is refreshing. Many have the misconception that retirement investment is only a good idea if you start young. So it’s really comforting to know there is still time to set myself up for a comfortable life a few years forward. Thanks so much for this inspiring story.


    February 8, 2015

    • Hi Kad,

      Never give up, no matter what your age. It’s better to save something than quit trying because you don’t think you have enough time.

      Barbara Friedberg

      February 11, 2015

  11. How does this fare for someone on the higher end of the 25% tax bracket? I max out all tax advantaged accounts first, then the Roth IRA last. I have read some blog posts lately that are almost anti-Roth IRA and am starting to wonder about it.

    I think either way using a mix of 401k/403b, Roth, and taxable accounts may not be mathmatically optimal, but hedges against potential tax changes in the future.


    February 12, 2015

    • Hi Vawt, In our family we max out any available retirement fund options. My spouse maxes his 401(k) and we both have funded a Roth IRA (during years where our income allows) every year since the investment was created. The only reason I can see not to fund a Roth IRA is if you can’t leave the funds in the account until you are able to withdraw them penalty free (at age 59 1/2 or other special circumstances). I wouldn’t over think the issue. That said, with the likelihood of taxes increasing in the future, a Roth seems like a sound strategy to maximize your lifetime after tax wealth.

      Barbara Friedberg

      February 18, 2015

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