As the years go by and you manage to advance in your career, you feel that you can start saving some more money and start looking for some of the best savings accounts.
And this is something to appreciate, but the questions come in when you actually start wondering what to do with your money, especially if you’re maxing out an IRA or contributing to a 401(k).
According to Yahoo Finance, it simply doesn’t make sense to keep stockpiling money if you have a decent emergency fund and no short-term savings goals.
Ok, what to do now?
Many people consider investing in a savings account, which can be split into two categories: save now (traditional) or save later (Roth). No matter upon which on these you will decide, you will be able to max out one of each type of account. Specifically, we’re talking about a 401(k) and an IRA.
You can check out more details in the graphics below, courtesy of Skye Gould/Business Insider:
A lot of experts claim that when it comes to savings accounts, a Roth IRA is the best option. However, if your income isn’t that high, it will be pretty hard for you to contribute directly.
If you’re in the second situation, you can contribute to a non-deductible traditional IRA, eventually converting that amount into a Roth IRA. Indeed, there are a few additional steps you need to follow, but the outcome is the same: tax-free savings and no taxes when you want to take your money out.
Thinking of relocating later?
If you decide to invest in a Roth 401(k), you should know that it’s similar to a Roth IRA, in terms of tax benefits, but, obviously, the differences shouldn’t be ignored.
You don’t have any income limits, so as long as your employer offers one, you can use this savings account, no matter how much you earn. However, if you’re living in a high-tax area and plan to move to a state with no income tax, you should consider taking the tax savings now, using a 401(k).