How much should I invest for retirement? How should I invest for retirement? Is investing in a 401k smart? How do I get started with retirement savings?
I’m lost - how do I get started?
The key to investing is to get started as soon as possible, and in this case - time is your friend.
Roth IRA
The Roth IRA (Individual Retirement Account) is largely touted as the best retirement investment vehicle. It has strict requirements that you need to double check, one being you must have a Modified Adjusted Gross Income (MAGI - I know I know stay with me) under $138k for singles or under $218k if married filing jointly to be able to make the full contribution amount per year.
The maximum amount per year, which changes each year, is $6500 for younger than 50 and $7500 for 50 and older in 2024.
The magic (not MAGI 🤪) is your investments grow tax-free and when you pull it out when you’re 59 and a half and older.
Roth IRAs are very interesting for younger folks, including people in college. However, you can only contribute money that you’ve earned - e.g. if your teenager made $5k during a summer job, they would only be able to contribute $5k to their Roth IRA.
IRA
Individual Retirement Accounts are also useful accounts to know about, and if you ever move money from a 401k after you leave a job, it will be to an IRA.
IRAs are most interesting if you and/or your spouse don’t have a retirement plan at work (e.g. 401k), and your IRA contributions are deductible from your federal taxes, and in 2024 that amount is $6,500 for those under 50 and $7,500 for those 50 and older.
GG’s no-brainer: max out those Roth IRAs for as long as you can. If you don’t have a retirement plan at work, contribute as much as you can up to the maximum amount to an IRA.
GG, where do I open a Roth IRA or IRA?
Babes, I got you. Open up these brokerage accounts at a discount broker, where fees are minimal. We like Schwab, but Fidelity, M1, or other options exist.
Health Savings Accounts
Health savings accounts?? What does that have to do with investing? Well, surprise surprise they are an investment vehicle, and one of the best.
Health savings accounts are an interesting option for those who have a high-deductible health plan (HDHP). They are triple-taxed advantaged which means the contributions you put in are not taxed (if you set it up with an employer), gains on your investments are not taxed, and when you pull out money (for qualified health expenses), you guessed it-are not taxed.
GG’s no brainer: Max out your HSA if you have a high-deductible health plan. Save health expenses to be able to flexibly tap your HSA when you need it.
401k
I know it sounds like gibberish, and that’s somewhat where its name comes from: the tax code. 401k plans are work-sponsored, meaning if you work in the U.S. for a corporation, you likely have some kind of 401k plan available for you to invest in.
Typically employers will “match” some amount of your contributions - e.g. if you put in 6% of your salary, your employer will put in the same 6%, making your contributions 12%. Some companies are more or less generous, so that’s why it’s a “match”.
401k is also a method to ‘defer’ taxes, in that the money you invest lowers the taxable income you pay in the year you contribute. You will have to pay taxes on the money when you pull it out, but the idea is that you will be making less when that happens.
GG’s no-brainer: Contribute at least to the level where your company matches you, e.g. if it takes 6% for your company to match 6%, contribute at least 6%; if it takes 12% for your company to match 6%, contribute at least 12%. Take the free money babes 😍
GG’s next-best: Once you’re able to (salaries $100k and above), try your best to max out 401k contributions, which in 2024 is $23k.
Taxable brokerage accounts
Once you have your retirement accounts set up, you can start opening plain ole vanilla taxable brokerage accounts for additional investing. You can free up this money for use whenever ya need it (but GG recommends the long play 🤓).
Disclaimer: Not Financial or Legal Advice
The content provided on this blog is intended for general informational and entertainment purposes only. It is not intended to be, and should not be construed as, financial or legal advice. The information presented on this blog may not be current, complete, or accurate.