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How Should You Handle Roth IRA, HSA, and 401k Savings? – Doug’s Quiz Corner

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

September 14, 2018

Saving for Retirement and Potential Health Care Costs

Your friend Jody has recently started a new job and she has several options for saving for her retirement and future health care costs.

Jody’s new employer offers a 401(k) with a match of up to 3% of her salary. They also offer a Health Savings Account (HSA) option. Jody lives in a state that does not tax withdrawals from HSAs for qualified medical expenses and contributions to HSAs may be deducted from taxable income for state income tax purposes.

In addition, Jody also has a Roth IRA which she is using to save for her retirement.

Jody is in very good health and would prefer to have a health plan that limited her upfront health care costs while allowing her to save for future expenses. She is comfortable with a high deductible plan. She is financially secure and doesn’t plan on touching the money in her Roth IRA until retirement.

Assume Jody meets the eligibility requirements to participate in her employers 401(k) program, enroll in a Health Saving Account, and simultaneously has enough to contribute to a Roth IRA.

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Doug's Quiz Corner Saving for Retirement

Investing Isn’t Always About Retirement Planning

September 5, 2018
When we talk about saving and investing for the future, the conversation usually steers quickly towards retirement planning – IRAs, 401(k)s, pensions, Roth IRAs, and so on. After all, retirement is when all of your careful saving, well-intentioned investing, and hard work pays off. It’s when you’re finally supposed to be able to live the good life. But investing isn’t always about retirement planning. Nor should it be. While it’s true that many people share the same goal of retiring with financial security, there are myriad of other life goals that require careful saving, planning, and investment returns. J.P. Morgan Asset Management created a graphic that effectively illustrates this point: [+] Read More

4 Healthy Financial Habits Everyone Should Have

July 25, 2018
Oftentimes when it comes to investing, there are habits/tasks we know we should do, and habits/tasks that we’d maybe prefer to do. Saving 20% of every paycheck and keeping cool during volatile markets are examples of things we should do. Splurging on a trip to Europe and selling stocks to “wait out” the downside volatility might be examples of things we’d prefer to do. For many savers and investors, there is a constant tension between these two, even though we know that the clearest path to long-term success is saving more, spending less, and investing prudently. Much like losing weight, the formula for success is fundamentally simple – but the execution and follow-through can be painstakingly hard.   The fundamental question, then, is: what can we do to shift our behavior? What can we do to form better, lasting habits that lead to long-term financial success? [+] Read More

Is it Better to Save for Retirement or Pay Off Student Loans? – Doug’s Quiz Corner

July 20, 2018
Determining Priorities When Saving for Retirement and Paying Off Student Debt Consider this Scenario: Your friend Stanley has recently completed college and has just started a new job. Stanley has $40,000 in student loans to pay off at an interest rate of 7%. Stanley’s starting salary at his new job is $50,000 per year. Additionally, his employer offers a 401(k) match of 2% of salary. Stanley understands the importance of saving for retirement and would like to save as much as possible toward his future. Stanley also understands that he is $40,000 in debt and he would like to pay off his student loans as quickly as possible. He isn’t certain how he should prioritize his budget though, and he’s heard a lot of conflicting advice. When he asks you, what would you recommend: Should he focus on paying off his student debt before investing for his retirement? Or should he save as much as he can toward retirement before paying off his student loan debt? What is the probably the best way to prioritize investing versus paying off student loan debt? [+] Read More

Avoiding Slow Failure in Retirement Planning

May 30, 2018
Editor’s Note: This article was written for the WrapManager Wealth Management blog by guest author Justin Sibears, a Portfolio Manager at Newfound Research. More information about Justin and Newfound can be found at the bottom of the article. Slow failure in investing happens when portfolio returns are insufficient to generate the growth needed to meet your objectives. No one event causes this type of failure. Rather, it slowly builds over time. Think death by a thousand papercuts or your home slowly being destroyed from the inside by termites. Traditionally, this type of slow failure was probably the result of taking too little risk. Oversized allocations to cash, which as an asset class has barely kept up with inflation over the last 90 years, are particularly likely to be a culprit in this respect. [+] Read More

The Quick and Easy Guide to Roth IRAs

May 2, 2018
With Tax Day just behind us, it seems like a good opportunity to focus on the type of retirement income the IRS almost never meddles with: tax-exempt income! Tax-exempt income is any income that is not subject to federal, state, and/or local income. In this case, income sources that are considered to have been previously taxed and therefore, not subject to further taxation. So, here’s your “what you need to know” guide for Roth IRAs. What is a Roth IRA? A Roth IRA is a retirement account that has three essential features: The owner’s contributions are not tax-deductible; BUT, the assets in the account grow tax free over time; AND, the distributions taken from the account, generally speaking, are also tax-free once the owner reaches retirement age. [+] Read More

Rethink your Retirement Strategy with Goals-Based Wealth Management

April 17, 2018
An axiom you hear often in the financial world is that “every person’s financial situation is different.” That’s undoubtedly true. What you don’t hear often enough is that every person’s financial goals are different. Goals often tend to get stripped down and over-simplified in the planning process. For example, having a goal of “long-term growth” or “to retire at 65” is useful, but it is not specific enough to build a comprehensive plan around. The end result is that over-simplified goals often result in over-simplified retirement plans. Goals-based wealth management is designed to help investors avoid the over-simplification trap. The idea is try to be as specific as possible about each outcome you want in retirement. Just about everyone wants long-term growth. But does everyone want a mountain home in Colorado and to help with the down payment on their grandchildren’s homes? Probably not. Digging into the details matters, and usually reveals quite a lot about what your goals really are for retirement. Once you’ve made a list of goals that’s unique to you, your financial advisor can work backwards to make sure your investment plan addresses each one head-on. [+] Read More

Managing Health Care Costs in Retirement

March 28, 2018
It’s the retirement planning topic that, candidly, cannot be overstated or discussed enough: planning for healthcare costs. Crucial as this subject is, it arguably does not receive a proportionate amount of attention in retirement planning conversations around the country – which is ironic, given that retirees over the age of 65 are likely to spend a sizable percentage (~13% according to J.P. Morgan) of their total retirement income on healthcare. Let’s jump right into the numbers. AARP has created a useful calculator for estimating healthcare costs in retirement, which you can access here: Estimate Your Healthcare Costs in Retirement. [+] Read More

How Living Longer Should Impact Retirement Planning

March 7, 2018
If your financial advisor insisted on creating an investment plan that projected you and/or your spouse to live past 100, you might be skeptical. Few people at or near retirement expect to live to be 100. But retirees would be wise to start thinking that way! The Social Security Administration finds about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. There’s also a 4% chance one person in a couple will live past 100. That’s a low percentage, sure. But it is still a possibility very much worth planning for.  [+] Read More

The Pros and Cons of Target Date Funds in Retirement Planning

February 28, 2018
Target date funds have been around for over 20 years, but over the last several years they have seemingly become a mainstay of 401(k) plans. For novice investors and those just starting out, the ‘target date’ feature of choosing a retirement date and “setting and forgetting” an investment strategy has understandable appeal. But for investors with larger amounts of assets under management and more complex financial situations and retirement needs, target date funds may not do the trick. Below we’ll explore some of the positive features and drawbacks of target date funds. [+] Read More