Maximizing tax-advantaged investment accounts beyond your 401(k) and HSA/FSA 💰

A checklist for opening a Roth IRA

Illustration by NerdWallet.

What’s a Roth IRA? An individual retirement accounts that we set up on our own to save for retirement outside of our 401(k).

What’s the benefit? 1) Unlike your 401(k), you can withdraw your contribution (not investment gains) at any point for any reason without being taxed or penalized. You pay taxes on the money you into the account upfront and your investment earnings grow tax-free. In a typical investment account, your earnings are taxable.

1. Calculate how much you’re qualified to contribute based on income. In 2020, if you make <$124K, you can contribute a maximum of $6,000.
2. Set up a Roth IRA. If your company invests your 401(k) with Vanguard or Fidelity, you can open a Roth IRA with them. There are also plenty of other brokers you can sign up with Ameritrade, Charles Schwab, etc.
3. Contribute up to $6,000 depending on your income. If you’re not ready to invest, you can fund it and let the account sit in cash until you’re ready to invest.
4. Invest in whatever you’d like. Recommend considering a broad ETF or index fund (more on investments in future blog posts).

Hot tip: if you haven’t funded your 2019 Roth IRA, it’s not too late even if you’ve already filed your taxes. You have until the tax deadline (July 15th) to contribute for 2019.

Disclaimer: All investment decisions are made at your own risk. Personal situations may vary significantly.