3 Quick Retirement Investment Tips

I wanted to touch on a few quick investing tips today. This will be a fast one, so hold on.

First, you know how I love the Roth 401k option. This is something available to more and more employees as over 60% of employers now offer the Roth 401k option. There are a few keys of why I like it so:

• There is NO income limitation to participate in the Roth 401k. Feel free to go back and read that fact again. While you may make too much to participate in a Roth IRA directly, you cannot be phased out of the Roth 401k based on your income level.
• The contribution amounts for the Roth 401k are so much higher than the Roth IRA. They are the same as for a regular 401k.  For 2020, these numbers are $19,500 for employees and another $6,500 if you are 50 years old. This is compared to $6,000 and $1,000 for the regular Roth IRA.
• If you already have a lot saved up in traditional tax-deferred accounts (IRAs and regular 401ks) the Roth 401k may be a great option to consider. Also, if you think your taxes will be higher in retirement you may want to think about the Roth 401k to generate that tax-free withdrawal income in retirement. You know, maybe you are earlier in your career and expect your income to rise.

Next, one more point with the Roth 401k and something most people are not aware of. If you have a Roth 401k and you leave it at your old job, there are RMDs attached to it. As a reminder, RMDs stand for Required Minimum Distributions as this is when Uncle Sam says it is time for you to take money out of the retirement-focused accounts. The new RMD age is 72.

While there are RMDs with a Roth 401k, the distributions are not taxable. I really have no idea why there are RMDs with Roth 401ks. Maybe Uncle Sam is hoping you take the RMD and spend it to keep the economy going. Regardless, there is an easy way to avoid RMDs with the Roth 401k (besides working past age 72). You just roll the Roth 401k balance to a Roth IRA. That’s it. Continue to enjoy the tax-free growth and distribution and not worry about RMDs anymore.

Your final tip is an age-related one. I’m sure you never forgot when I wrote previously about taking advantage of the 50-year old catch-up for 401ks, 403bs, IRAs, Roth IRAs, etc. This is when Uncle Sam allows you to sock a bit more away toward retirement. This tip is related, but has a different age connected to it.

If you have an HSA (Health Savings Account) and are turning 55, you can put away an extra $1,000 in it. The HSA may be my single favorite investment vehicle for retirement. Remember, it is the triple crown. No taxes on contributions. No taxes on growth. No taxes on distributions as long as they are for medical expenses.  What’s not to love!?!

Alright, that’s it for today. Now, don’t forget these tips. In the words of Brad Hamilton from Fast Times at Ridgemont High – “Learn it. Know It. Live it.”