I am looking to begin to invest into an IRA but I don't know where to begin. I'm familiar with the basics of a traditional IRA, roth, 401k, etc., but don't know the pros/cons of each

For reference, I am a 25yr old. My company offers a 401k matching.

Please excuse my ignorance but do I just keep the contributions to the 401k and then set up a side Roth IRA account? Or are there better alternatives?

TIA appreciate the advice and suggestions

6k a year(tax year have until April)



6.5k beg next year

1. contribute 401K up to match %
2. max Roth IRA (and HSA if avail) contribution
3. increase 401K contributions to lower tax basis

my question: I already maxed my Roth this year but took a new job that will put me over the income limit for 22, is correcting/avoiding penalty as simple as moving my 22 Roth contribution amount into a Traditional IRA for a few days then moving it back to Roth?

If you have the money, try maxing out your HSA and 401k to lower your AGI below the threshold.

Otherwise, you would recharacterize your Roth to a non deductible traditional IRA and do a roth conversion. This will be best if you don't have any SImple IRAs, SEP, IRAs or rollover/traditional IRAs.

already maxed HSA/401K will still be over Roth limit, Roth is in Vanguard where I also have an empty Traditional IRA acct, do I just need to move the 6K from this year to Traditional for a bit then back to Roth? how long does it need to stay in Traditional? seems super pointless

https://www.thebalancemoney.com/what-to-do-if-you-contributed-too-much-to-your-roth-ira-3192888

EliteZags said:

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already maxed HSA/401K will still be over Roth limit, Roth is in Vanguard where I also have an empty Traditional IRA acct, do I just need to move the 6K from this year to Traditional for a bit then back to Roth? how long does it need to stay in Traditional? seems super pointless

https://www.thebalancemoney.com/what-to-do-if-you-contributed-too-much-to-your-roth-ira-3192888

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Just make sure you talk with Vanguard to make sure you get the correct wording so it doesn't mess up your taxes.

You will want to recharacterize your contribution. That is like saying oops, I contributed to the Roth and I meant to contribute to the trad IRA.

You will want to then convert the IRA to the Roth. Legally, there is some time frame you have to wait to convert, but I know of some large investment firms that don't wait or warn people to wait. If you likely go over next year, you may want to wait to convert till next years contribution and do two years at once.

It is silly to have to move this back and forth, but you do to make the IRS happy.

I commend you for asking at such an early age. The habits you start now will be very impactful.

With the assumption health is solid, enrolling in a HDHP will (i) save you monthly premium costs so that's extra $ in your pocket each month and (ii) allow you to invest in an HSA which is my favorite "retirement" savings tool.

*Save some cash into a high yield online savings account, a few months expenses worth as an emergency fund.

1) Invest in company Roth 401(k) up to company match. I love tax free growth of the Roth. The match essentially gives you a 100% rate of return right off the bat.

2) Max out your HSA through payroll deductions. This saves you the ~7.65% fica taxes, saves you on income taxes, and grows tax free if used for qualified health expenses. Which we all certainly will have in retirement. This is triple tax savings. Pay healthcare expenses out of pocket and save/file those receipts.

3) Max out Roth IRA or if close to income limits do backdoor Roth. Nondeductible traditional IRA contribution then immediately rollover into Roth IRA. Only taxes would be on any interest, dividends, or gains made before the conversion.

4) Max out the rest of your company Roth 401k.

That's really all retirement focused. Investing in a normal taxable brokerage account has plenty of advantages too. I'm just obsessive about the HSA and Roth savings tools out there.

If you are risk tolerant which I hope you are at 25, keep your investment allocations simple and 100% stock 0% bonds. I like simple ETFs like Vanguards total stock market (U.S) which is VTI and gives you mostly large cap exposure with some mid cap and small cap; and International fund like VXUS (no U.S. stocks). These are well diversified, no fund overlap, and extremely low cost. Maybe 80-90% US and 10-20% International (max, I'm lower on international).

Curious what everyone's take is on HSA with young families?

Tried it this year and I'm able to save exactly $0 for it to grow.

And with another on the way I don't see how the math works out if every dollar into the HSA comes out immediately

AgsMyDude said:

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Curious what everyone's take is on HSA with young families?

Tried it this year and I'm able to save exactly $0 for it to grow.

And with another on the way I don't see how the math works out if every dollar into the HSA comes out immediately

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Pay for expenses out of pocket, save receipts, and reimburse yourself at a later date when the funds have had time to grow.

Not exactly easy on a single income after maxing 401k and Roth. I'm looking at probably $10K in medical expenses next year with HSA.

10k damn. Well it then it aint for you. Thats a high spend.

AgsMyDude said:

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Not exactly easy on a single income after maxing 401k and Roth. I'm looking at probably $10K in medical expenses next year with HSA.

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The HSA advantage is if you can pay for all medical expenses out of pocket and leave your HSA contributions alone. HSA is the only triple tax advantaged account available to you. Tax deduction for your contributions, tax deferred growth, tax free distributions if used for medical expenses. Restrictions also come off at age 65 and you can use the funds for anything you want, except now the tax deferred growth would be taxable as ordinary income like a traditional IRA.

The idea is that you will inevitably have higher medical expenses in retirement, so now you have this huge bucket of tax free money to pull from to pay for all of that.

AgsMyDude said:

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Not exactly easy on a single income after maxing 401k and Roth. I'm looking at probably $10K in medical expenses next year with HSA.

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I'd pull back on 401K contributions enough to where you don't have to touch the HSA at all, 401K you'll eventually have to pay income taxes on contributions + cap gains, HSA is completely untaxed in/out/gains

though at 10K expected med expenses may be worth evaluating if a lower deductible plan + FSA would save enough to outweigh HSA

Bizarro Jerry said:

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AgsMyDude said:

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Not exactly easy on a single income after maxing 401k and Roth. I'm looking at probably $10K in medical expenses next year with HSA.

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Restrictions also come off at age 65 and you can use the funds for anything you want, except now the tax deferred growth would be taxable as ordinary income like a traditional IRA.

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should never have to come to that if you save all major med receipts for later to take out the reimbursement amounts out tax free, then use it for anything you want

Math works even with no growth. Tax free in and tax free out. Look at is as you are a drug dealer!

Not particularly. HDHP + labor/delivery + newborn visits + procedure to get snipped.

And that's all before the other 2 kids have their random stuff, etc.

I'm running the numbers and a standard plan might be worth it this year.


Also sorry OP, I didn't mean to derail.

Yea, if you have those same costs next year or consistently, analyze the increased premium costs each pay check vs lower out of pocket of switching to a standard plan from HDHP.

With that said the HSA still has tremendous benefit even if you put it all in cash and spend it that year while earning no rate of return. You're reducing your taxable income by $7,750 now I think (so call that $1,500+ income tax savings) and if being deducted from your paycheck you're Avoiding those FICA/social security taxes (7.65% or whatnot which is another $600). So you're getting close to $10,000 worth of after tax equivalent funds.

you can put up to $3,050 in an FSA and save the taxes as well, but it is use it or lose it (all but $610 that can be carried over).

You have to look at premium costs of PPO vs HDHP + out of pocket costs for medical expenses for each + tax savings on HSA/FSA to get a true comparison.

For me HDHP comes out ahead, but my out of pocket max is only $3k.

Yeah those are the numbers I'm running and would definitely max out FSA of I went with a PPO plan.

Max out of pocket for HSA is $12,700 vs $10K. But PPO hits 0% coinsurance after only a $3,000 deductible so it's pretty damn tempting with a birth next year. Vs 10% after $6,000 deductible with HSA.

Use your Roth to buy an LLC

Use LLC to trade options on real estate.

Retire with tax free millions

itsyourboypookie said:

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Use your Roth to buy an LLC

Use LLC to trade options on real estate.

Retire with tax free millions

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What does this mean? Do you mean set up your own LLC inside of your Roth and then trade through your LLC?