Choosing the Right Investment Vehicles to Save for Retirement, Ep #140

So you’ve maxed out your 401k. Now what?

It’s at this point where you feel like you’re doing a lot of the right things to save for retirement, but you’re not sure where to go next.

In this episode, we explore a framework for deciding where to save more if you’ve reached the limit in you 401K.

You’ll learn what each type of account is used for, how you should save in each one, when is the best time to save, and how to withdraw.

Retirement Investment Vehicles

If you’ve been maxing out your 401K, you are ready to move onto the next step in retirement savings, but with so many different types of accounts to choose from, it can be hard to know which one to choose.

To make the various types of accounts more memorable, we are equating these investment vehicles to actual vehicles. Listen in to hear how to select the right set of wheels to drive you to retirement.

The Health Savings Account

The health savings account can be compared to a Jeep Wrangler. Like the Jeep Wrangler, the health savings account has a specific purpose, but it also has added benefits. The purpose of a health savings account is to be used for medical expenses, however, it also has a triple tax advantage. You must be enrolled in a high deductible health insurance plan to qualify for a health savings account, but if you can use one, this is a fantastic way to save and invest for future healthcare expenses.

The Backdoor Roth

The backdoor Roth we’ve coined the Rolls Royce of retirement savings. Like the Rolls Royce (which has suicide doors that open from the back), the backdoor Roth is unique and specifically designed for high-income earners. A regular Roth IRA maxes out at $6000 per year for those under age 50 ($7k for those over 50).

Using this account, goes a long way in building your tax-free bucket of savings. In turn, this account can help lower your lifetime tax rate throughout retirement.

The Mega Backdoor Roth

The mega backdoor Roth can be compared to the Koenigsegg Gemera. Similar to the Koenigsegg Gemera, you may not have heard of the mega backdoor Roth.

You’ll need to buckle up to drive both of these vehicles because the mega backdoor Roth will turbocharge your retirement savings, which was slightly reminiscent of the 0 to 60 speed in 1.9 seconds with the Gemera.

The mega backdoor Roth allows you to contribute an extra $35,000 in a Roth. You won’t see any tax savings upfront, but you’ll see it in retirement, since this is a tax-deferred account. For super savers, this account provides an supercharged strategy to pile up their tax-free savings. Doing this consistently over decades will provide a huge impact on your long-term saving for retirement. Check out the link to episode 91 below to learn more on this option.

The Brokerage Account

Many people don’t consider this account a retirement savings account, but like the trusty Honda Accord, a common brokerage account can be just as dependable.

You can use a brokerage account like a super-charged savings account. Yes, there are more tax-efficient accounts, but the benefit of a brokerage account is that there are no restrictions which gives you more flexibility. If you feel restricted by the other retirement accounts, you may want to consider saving for retirement in a brokerage account.

You won’t want to miss our last comparison, the DeLorean. Listen in to hear which type of account we compared to this unique car.

Which investment vehicle sounds right for you?

Outline of This Episode

  • [2:13] The health savings account
  • [5:22] Backdoor Roth
  • [9:05] Mega backdoor Roth
  • [13:45] Brokerage account
  • [17:27] The 529 account
  • [20:08] The progress principle

Resources & People Mentioned

Connect With Chad and Mike

Subscribe To This Podcast

More Like This

Download our 5 Questions to Ask Your Financial Advisor eBook

We break down some of the most important questions we are asked on a regular basis.

  • Hidden
  • This field is for validation purposes and should be left unchanged.

Blog Categories