Making Finances Simple. Changing Lives.
There are many strategies for retirement and investment planning. Below is a simple "hitlist" to consider when you're prioritizing which investments you'll go after first...you'll love the trick in #2!
Before going too heavy into saving for retirement, we highly suggest first paying off all non-mortgage debt, as well as ensuring your budget includes irregular and unplanned expenses (major medical, car/home maintenance, etc.). If you don’t take care of these foundational items first, you may find yourself later taking early withdrawals from retirement accounts to cover these items. It’s never fun taking one step forward, only to find yourself taking two back later. That’s why a solid foundation is critical = no debt and budgeting for irregular & unplanned expenses.
Once your foundation is solid, you can now look at investment choices. Consider the following order:
Contribute up to the employer match on your 401k. Don’t pass up on that free money!!
2) Health Savings Account, with a hook!
Max out a Health Savings Account, but don’t use the funds for medical expenses right away. That’s the kicker! If you can afford it, use other funds/savings for your medical expenses in the short-term, that way you give time for your Health Savings Account to grow tax free. That’s the best way to take advantage of the HSA triple benefit - tax deduction in, tax-free growth, and tax-free distributions. Otherwise, if you use your HSA right away for your medical expenses, you’re largely missing out on that tax-free growth!
3) Roth IRA
Next, max out those Roth IRA’s (even if your income is above thresholds, you can still contribute using a “Backdoor Roth”). We love Roth’s as it’s critical to diversify and have some tax-free distribution money in retirement!
4) 401k, again!
Go back to that 401k and max it out up to contribution limits.
5) Non-Qualified Investments
Just because you’ve used up all the “tax-advantaged” options, it doesn’t mean you should stop there if you have a desire to increase your investments. Regular mutual funds and stocks (outside retirement plans) are still a great way to build your portfolio. There are ways these accounts help diversify your distribution strategy in retirement. We’re happy to help elaborate on this…contact us any time!
Of course, every situation is unique and should be addressed as such. The above is meant to provide a simple prioritized hitlist as you consider your retirement/investment planning.