Major milestones are parts of a well-lived life. However, many American families struggle to balance important goals like housing and college tuition with staying financially viable. For them, financial planning can be a challenge, but it’s one that ultimately pays off.
It may take some creative investing, but it’s entirely possible to afford big-ticket items without draining your retirement fund. Let’s take a look at some approaches to financial planning and wealth management that can support your savings goals.
Prioritizing Retirement Savings and Finding Creative Options
Many financial advisors recommend funding your retirement account as the number-one priority. This includes contributions to your IRA or 401(k) and starting a healthy emergency fund with six months of living expenses. Wherever possible, saving for retirement is non-negotiable.
After attending to retirement planning, start using a dedicated savings account to fund major purchases down the road. For certain purposes, you may be able to leverage a tax-advantaged account.
For example, opening a 529 account for qualifying college expenses allows you to grow funds so your student can take withdrawals tax-free. Your student could look for opportunities for scholarships and grants to limit the amount of their student loan. You can take a similar approach to buying a second home: make gradual contributions to a separate fund and consider renting out a property for additional income.
Be as consistent as you can about funding your retirement. Automating contributions is a great convenient way to instill this discipline.
Use Investments to Fund Major Purchases
Some people looking to make a major purchase leverage their investment accounts to raise capital. That makes sense in a few ways; many investments are highly liquid and can be quickly accessed. Given the volatility of the investment market, this can be risky, but there are a few financial planning strategies that could help.
Stagger Withdrawals
Don’t liquidate all investments in the same year. If you’re planning on withdrawing a large amount, split withdrawals over multiple years to avoid shifting into a higher tax bracket.
Sell Under-Performing Stocks First
You may be able to use realized losses to offset your capital gains (this is called tax-loss harvesting), which can lower your tax bill dramatically.
Use Income From Dividends or Interest
If you have any dividend-issuing stocks or interest income, use it to pay for expenses. Many dividends have lower tax rates, and returning bond principal usually isn’t taxed. Turn off automatic dividend reinvestment in your brokerage account if you haven’t already done so.
Rebalance Your Portfolio Periodically
Taking a big withdrawal from your investments changes your asset mix. Consider selling positions that are a little overweight—even winning ones—and taking underweight positions to diversify and mitigate risk.
Tax-Efficient Borrowing and Withdrawal Strategies
How and where you access money for major expenses can affect your tax bill. Here are some tips for tax-efficient strategies.
Tap Into Home Equity
Home equity loans and credit lines are generally available at lower interest rates, and borrowing from them is safer than taking from your 401(k). Interest may even be tax-deductible if you use the loan for home improvements.
Leave Retirement Accounts Alone Until Later
Taking withdrawals from 401(k)s or IRAs before age 59½ results in a 10% penalty plus income tax. That undercuts the first maxim: Saving for retirement is most important.
Sequence Withdrawals for Tax Efficiency
A popular rule of thumb is to withdraw from taxable accounts first and tax-deferred accounts second. Make tax-free Roth withdrawals last. This allows your pre-tax accounts to grow faster and longer.
Give a Lump Sum to Grandchildren’s 529 Plan
Up to a limit, your contribution can grow tax-free, and the kids won’t be responsible for taxes when withdrawing for qualified expenses.
Get a Jump Start on Financial Planning
Major purchases aren’t out of your grasp. They just demand more detailed financial planning. Truvium Wealth Management can help. After you contact us, we’ll work on a strategy to afford big-ticket items.
To get started, schedule a meeting by calling (877) 277-2751 or booking here: https://calendly.com/scott-gegerson-truviumwealth. We look forward to hearing from you!
About Scott
Scott Gegerson is the President of Truvium Wealth Management, a holistic financial planning firm based in Garden City, New York, serving individuals and business owners nationwide. He develops personalized financial plans and builds lasting client relationships grounded in trust and education. Since starting his career as a financial planner in 2001, Scott has been dedicated to helping clients grow and preserve their wealth. His passion stems from personal family experiences with poor financial planning, inspiring him to help his clients avoid similar pitfalls.
With a bachelor’s degree from Villanova University and the CERTIFIED FINANCIAL PLANNER® designation, Scott leads Truvium’s comprehensive approach to wealth management. He brings together advisors, attorneys, CPAs, and other professionals to create cohesive, streamlined financial strategies. His clients appreciate the firm’s white-glove service, personalized guidance, and commitment to alleviating financial stress.
Based in Rockville Centre, NY, Scott is a devoted father and active community member, helping out with his kids’ sports and volunteering locally. He enjoys golf, skiing, surfing, and leading a healthy lifestyle. Scott is also committed to cancer research through the Leukemia & Lymphoma Society, honoring his parents’ memory. To learn more about Scott, connect with him on LinkedIn.