Single Point of View

Single Point of View is our way to occasionally share planning ideas relating to personal finance. Our goal is to pass along concepts that you may not be exposed to on a daily basis.

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Big Planning Opportunity with Health Savings Accounts

In short: fund it and invest it, don't use it.   Potentially, the best way to use your Health Savings Account (HSA) is to maximize the funding of it, but, instead of using the funds year-by-year to cover your out-of-pocket health care expenses, invest the funds and allow them to grow for the future.  The reason this strategy makes sense is the unique tax benefits of HSA's:  tax deductible contributions, tax-free growth & tax-free distributions.  Do you know what other types of accounts have all of these long-term features? NONE! IRAs & 401ks are tax deductible in the year you make the contribution, but you are taxed when you take the money out. Roth IRAs grow tax-free and are tax-free upon distribution, however, you do not get a tax-deduction when you make the contribution. The HSA combines the tax benefits of these two types of accounts. In fact, a good retirement...
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NerdWallet: Maximizing Contributions

imageI am 32 and max out my retirement savings every year through 401k and IRA. I also save an equivalent amount that I put into savings/investment accounts. How should I think about trading off between maximizing my contributions to retirement accounts versus putting less in my retirement accounts so I have more liquid assets to put towards a downpayment? The bottom line is my net worth is now divided equally between liquid and illiquid (retirement) accounts. I would like to buy property, and I need more cash for a downpayment on my dream home.   2 people found this answer helpful Shaun Erickson CFP® Boston, MA It's all about priorities.  If the dream home is a priority for you, you will need to calculate out how long it will take you to get there under your current savings plan vs. how long it will take you if you diverted funds from retirement savings.  The...
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NerdWallet: 401(k)

imageWhat happens to your 401k if you quit your job/move to another company?   Shaun Erickson CFP® Boston, MA When you leave, you will typically be given information on your options for your 401k plan.  Generally, you have a few options: 1) Leave it in the plan (not all companies allow this option) 2) Cash out (pay tax and potential penalty if under certain age) 3) Roll over to an IRA or your new company retirement plan (if it allows rollover contributions) You will need to check your specific plan rules to determine how things like company profit sharing contributions are handled (it is possible there is a vesting schedule on these which means you could forfeit that value if you leave prior to vesting).  You can get a lot of info on your plan's specific rules in the Summary Plan Description which your employer should provide to you.
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NerdWallet: Traditional IRA

imageIf I'm around the limit for a Roth IRA (110k single I believe), should I open a traditional IRA as well? I'm starting to max my 401k and want to open an IRA as well and start maxing it. 1 person found this answer helpful Shaun Erickson CFP® Boston, MA You should discuss the benefits of this with your tax advisor.  If you are contributing to a 401k plan, you are probably not eligible to deduct any contributions to an IRA account. Some people who are over the Roth contribution income limits will make a non-deductible IRA contribution, then immediately convert it to a Roth IRA (sometimes referred to as a "backdoor" Roth IRA Conversion.  You should research all of the pros and cons of this technique prior to implementing, especially if you have other traditional IRA accounts which could make a portion of this conversion taxable to you.
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