Roth IRA, regular IRA, 401(k), SEP, HSA, 529 Plan — when it comes to savings accounts, it really is an alphabet soup. Add in all the different features of each account, and no wonder many people get confused and contribute only to their 401(k) plan at work. But that’s likely a mistake, say LNWM Tax Expert Kristi Mathisen and LNWM Client Advisor Sam Craig. They advise everyone to “mix and match,” using as many of the savings vehicles they can. Click on the following one-page chart to help you decide how to allocate your savings.
1. Pressing new demands, from home renovation to business ventures to private tuition.
2. Confusion about how much money to put into which account;
3. Unwillingness to lock away money for decades.
This is why you need a Savings Budget, Sam and Kristi say. A Savings Budget specifies how much you’ll put into each tax-advantaged account each year, and how much you’ll keep on hand as easy access regular savings. You want to use (in varying amounts) all the tax-advantaged options you qualify for, balancing their pros and cons (taxes on withdrawals, mandatory withdrawals, etc.). Click to enlarge the chart at left to compare account features.
Do You Qualify for an HSA (Health Savings Account)?
If you have a high-deductible health insurance plan, take advantage of the option to open an HSA. Keep in mind that a 65-year-old couple is likely to need $220,000 for health care in retirement, in addition to expenses covered by Medicare. The HSA can be a great source of tax-free money to pay some of those bills
The above chart is excerpted from an article Sam Craig and Kristi Mathisen co-wrote in April 2016. It’s a summary of LNWM’s best (financial) advice for each decade of life.