Thanksgiving is just around the corner, and a lot of people will be wishing you a happy turkey day. We think that’s rather fowl.
Imagine sitting down for Thanksgiving dinner and your host sets down the bird and … That’s it. No mashed potatoes and gravy, no stuffing, no candied yams, not even that weird, keto-friendly salad your cousin always insists on bringing. You might still give thanks. But you’d feel empty inside.
Just as the side dishes make the meal, your investment “side dishes” are instrumental to your retirement plan. They are vital to making sure you are properly diversified, that you are taking advantage of the full suite of incentives available to investors, and that you have enough to meet your financial goals in retirement.
For most people, your tax-deferred employer retirement plan is the center of your retirement. That’s the turkey. Of course, you should be maximizing your contributions, or at least taking full advantage of your employer match, if available.
But a traditional 401(k) or IRA alone will leave your table pretty barren. For those who have maxed out their employer retirement contributions, tax-advantaged investment accounts can complete the meal. Think of them as the mashed potatoes and stuffing.
A Roth IRA, unlike a traditional IRA, is not tax deductible, but allows your contributions and investments to grow potentially tax free. This means there may be no taxes on your withdrawals in retirement. Further, there is no required minimum distribution (RMD), so you only have to take out what you need and avoid an unnecessarily large tax bill.
If you have student-age children, educational saving plans are the gravy that makes everything tastes that much better. Like Roths, 529 plans are tax advantaged, and a great way to pay for tomorrow’s education at today’s prices as your investment gains can more than offset even educational inflation.
As an investment vehicle, Health Savings Accounts are a bit more like cranberry sauce. They aren’t for everyone, but if you’re in good health and looking for a versatile investment, they are pretty sweet. They can be used to pay health costs down the road tax free, but after age 65, they can be used for any purpose and are taxed like a traditional IRA.
Of course, there’s traditional savings and investments. These are your bread and butter. You don’t get a tax benefit, but they continue to grow as investments and, more important, they are always there in a pinch. Making sure you have enough in your savings for a “rainy day” is an important part of your investment strategy.
We won’t wade into the pumpkin vs. apple pie debate. But your dessert is having more than enough money in your retirement than you need to meet your financial goals throughout your lifetime.
Happy side dishes day!
The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59½ or prior to the account being opened for five years, whichever is later, may result in a 10 percent IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax adviser before investing.
No strategy assures success or protects against loss.
This article originally appeared in the Pioneer Press. You can view the article here.
Series 7 & 63 Securities Registrations,1 Series 66 Advisory Registration, † Insurance License Bruce has been in the financial services industry since 1983 and is one of the founders of Wealth Enhancement Group. Since 1997, he has hosted the “Your Money” radio show, a weekly program that focuses on delivering financial advice in a straightforward, jargon-free manner. Bruce also hosts with the "Mid-Morning" crew on WCCO-TV each Tuesday morning to...Read More