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ASK A FINANCIAL PLANNER: What’s the next best place to put retirement savings after maxing out my 401(k)?


Ask a financial planner 4x3

Summary List Placement
A Roth IRA is a good complement to a 401(k) for retirement savings. 
Though annual contribution limits are lower, investment options abound and your money grows tax-free.
There’s a “backdoor” strategy for anyone who makes too much to qualify for a Roth IRA.
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Question: What’s the next best place to put retirement savings after maxing out my 401(k)?

Answer: First of all, nice work prioritizing your 401(k). You’re making the most of one of the best wealth-building tools available, especially if your employer matches your contributions. 

But step back for a moment and look at how much you’re paying in fees. 401(k)s are expensive for companies to maintain and some of that cost trickles down to the investor. “Maxing out” a 401(k) has become a sort of gospel in personal finance, but throwing every last dollar at yours might not be the most cost-effective strategy.

You can’t avoid fees charged by the investment funds themselves, but if your 401(k) administrator charges more than 2% just to “manage” your account, you might want to direct some savings elsewhere (just make sure you’re still saving enough to score the match).

Enter: IRAs. IRAs are tax-advantaged accounts operated by banks and brokerages, rather than your employer, and come in two forms — traditional and Roth. The main difference between the two is tax treatment.

Here’s a quick rundown of the popular retirement accounts:

 
Traditional IRA
Roth IRA
401(k)

Max contribution if you’re 49 or younger in 2021
$6,000*
$6,000*
$19,500

Max contribution if you’re 50 or older in 2021
$7,000*
$7,000*
$26,000

Do you pay income tax on withdrawals after age 59.5?
Yes
No
Yes

Can you get an income tax deduction this year for contributing?
Maybe
No
Yes

Are there restrictions on who can contribute?
No — amount you can deduct varies based on income, marital status, and whether you or your spouse have a work retirement plan
Yes — to contribute the full amount in 2021, you must earn …read more

Source:: Business Insider

      

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