Beyond 401(k) & Roth IRAs

The maximum you can contribute to your 401(k) is $15,000 and the maximum you can contribute to a Roth IRA is $4,000 – so where should you put your money afterwards? Well, my personal opinion is that if you’re able to save $19,000 towards retirement and are still eligible to contribute to a Roth IRA ($95k in income) then you should enjoy life a little bit more (just kidding!). Seriously though, and this applies to those who are ineligible to contribute to a Roth, you should contribute it towards a traditional IRA because the recent retirement law changes made it possible for anyone to convert a traditional into a Roth IRA! From a CNN Money article:

Come 2010, you can then convert whatever money you’ve accumulated in your nondeductible IRA to a Roth. And you can continue to contribute to a nondeductible IRA and convert it year after year, in effect skirting the income limitations for doing a Roth.

What if you don’t want to put it into retirement? You don’t have any other options but that same article recommends tax-efficient mutual funds and ETFs because it reduces your tax bill on the sell side. With tax efficient mutual funds, you’re tax liability is lowered because the fund will make moves that reduces your tax liability. With ETFs, the same is also true.

Two things they recommend against? Variable annuities and variable universal life. Variable annuities usually have high fees and variable universal life policies are billed as insurance policies and investment vehicles.

As with variable annuities, high fees are a hitch, but variable universal life also carries a risk that the money you borrowed could become taxable late in life.



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