Help! Which Accounts Should I Put My Extra Savings In?

Help! I have extra money to invest and don’t know where to put it. 401k, IRA, Roth IRA, taxable brokerage account, what do I do? Is it better to get the tax deferral now, or tax-free income later? If this is something that’s stressing you out or is delaying you funding your long-term investment accounts, read on.

Worrying and analyzing is completely natural when dealing with long-term financial planning. After all, we don’t want a misstep to threaten our financial stability and future, and we don’t want to leave money on the table if there’s a better option. The danger comes when this worry and pursuit of perfection overwhelms us and turns into the inability to act. It feels safe because you’re not actively doing anything to jeopardize your situation, but not doing anything is a decision, and it can be a dangerous one for your finances.

I’m not saying that you shouldn’t think deeply about your financial decisions or make the best decisions you can – you should. But if the internal debate of what accounts to contribute to, the “ideal” allocation between tax buckets, and the search for the perfect plan of action delay saving for your long-term goals, you’ll be worse off than if you had just invested the money somewhere.

For example, even if you find yourself unable to contribute to a Roth IRA but you do it anyway, IRS-imposed penalties are designed to discourage abuse and allow for timely corrections, not punish honest mistakes. Of course, don’t do it intentionally since the correction process can be a pain – I just use that as a “worst-case” saving example where you put your money where it isn’t allowed. The safest move would be to put money in your taxable account since there are no income or contribution limits.

So, if you’re stuck in paralysis-by-analysis mode, take a step back and a deep breath, and just do something. Your future self will thank you for making a solid but imperfect decision now. Send me an email or schedule a time to talk if you want to explore how we can help offload some of these stressful financial decisions.