February 14, 2022
Q. I have FOMO (Fear of Missing Out)! Should I be contributing to a 401K, HSA, Roth, or a brokerage account? Should I focus on pre-tax or after-tax?
A. This is a loaded question, but an excellent one!
Often when we start working with new clients, we see that they are tax-deferred “heavy.” Meaning, they have been saving diligently into their 401k or traditional IRA accounts, but have very little saved in other account types.
When we talk about diversification, we are not just talking about asset class diversification, but also the type of accounts you are saving in.
The ideal mix is to have ⅓ in pre-tax, ⅓ in taxable (brokerage), and ⅓ in tax-free (i.e., Roth IRA). Some of today’s 401k / 403b / 457 plans do make it a little easier to get the tax-free side boosted by offering a Roth component, but not all of them are structured that way.
The best type of account for you is dependent on how much you can save, your current tax bracket, and your potential future tax bracket. Review our “What Accounts Should I Consider if I want to Save More?” guide to help you decide what might be the right mix for you.
Do your friends ask you financial questions?
Pass those questions on to us at AskRPG@rootedpg.com and we will feature them in our future newsletters under this section.