4 Smart Ways To Save No Mat­ter What Congress Does To 401(k)s

ForbesWeekly - - NEWS - BY ASHLEA EBELING, FORBES STAFF

Wor­ried that Congress still might change the rules on how much you can stash away pre­tax in your 401(k) work­place re­tire­ment plan? Stop wor­ry­ing and start sav­ing. “Put away as much as you can, wher­ever you can,” says Ed Slott, a CPA and re­tire­ment plan ex­pert based in Rockville Cen­tre, N.Y. “You want to get the ben­e­fit of the tax shel­ter.”

For most re­tire­ment savers, that means a pre­tax 401(k) and a Roth IRA. “There’s a peck­ing or­der,” Slott says. First, con­trib­ute enough to your 401(k) to get any em­ployer match. Then fill up a Roth IRA. And then go back and put more into your 401(k).

If your em­ployer of­fers a Roth 401(k) op­tion, go Roth— you’ll get less in your pay­check, but you’re build­ing a tax-free re­tire­ment kitty. You can stash $18,000 a year, or $24,000 if you’re 50 or older for 2017 in a 401(k); $18,500, or $24,500 for 2018. One-third of 401(k) savers with in­come of more than $100,000 con­trib­uted the max­i­mum al­lowed last year, ac­cord­ing to Van­guard’s How Amer­ica Saves 2017. Sixty-five per­cent of Van­guard-ad­min­is­tered plans of­fer the Roth op­tion, and 13% of em­ploy­ees in those plans con­trib­ute on a Roth ba­sis.

Are you a high earner able to save more than al­lowed in your 401(k)? A Mil­len­nial? A side gig­ger? One of these op­tions could be for you.

A Roth IRA.

Put up to $5,500 a year in a Roth IRA, or $6,500 if you’re 50 or older. Con­tri­bu­tions aren’t tax de­ductible, but all with­drawals in re­tire­ment are tax free. Plus, you can take back your con­tri­bu­tions at any time with­out taxes or penalty—flex­i­bil­ity mil­len­ni­als may need. “I look at a Roth IRA as tax in­sur­ance,” Slott says. “Once you pay in, you’re pro­tected against fu­ture tax hikes.”

A nond­e­ductible IRA.

Con­trib­ute to this tax-de­ferred ac­count if you’ve maxed out your 401(k) and earn too much to open a Roth. Hold tax­able bonds in it, or con­vert it to a Roth IRA. With a Roth con­ver­sion, you turn the IRA into a Roth IRA (where it grows tax-free, in­stead of tax-de­ferred). Keep in mind that if you don’t have a 401(k) plan op­tion and aren’t an ac­tive par­tic­i­pant in an em­ployer re­tire­ment plan, a con­tri­bu­tion to a tra­di­tional IRA re­mains de­ductible even if

you’re high in­come, notes fi­nan­cial plan­ner Michael Kitces.

A SEP-IRA.

Make pre-tax con­tri­bu­tions to a SEP-IRA from your side-gig self-em­ploy­ment earn­ings—it won’t re­duce what you can con­trib­ute to your 401(k) or to a Roth or nond­e­ductible IRA.

An HSA.

An HSA is a triple-tax-ad­van­taged ac­count that can sup­ple­ment your re­tire­ment nest egg. The catch: you must have a high-de­ductible health in­sur­ance plan to open one. You can put up to $3,400 for an in­di­vid­ual ($6,750 for a fam­ily) pre-tax for 2017. It grows tax-free, and with­drawals for med­i­cal ex­penses—in­clud­ing in re­tire­ment—are tax free. Note you must af­fir­ma­tively elect to in­vest your money. If your work­place HSA is a loser, you can trans­fer funds to an out­side HSA with lower costs and a bet­ter in­vest­ment line-up.

What about a bro­ker­age ac­count? That’s a form of af­ter­tax money, but it’s not shel­tered, so in­come is tax­able. It’s good to have some money there for easy ac­cess and tax di­ver­si­fi­ca­tion. The ac­count doesn’t have to scream “re­tire­ment” for it to help you get there. FW

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