Can someone please explain saving and investing to me very simply? I am completely new to this. My partner and I recently started making more than we have ever dreamed, and I want to make sure we are utilizing our income effectively. Our savings goals are for our retirement as well as our children’s college/tradeschool/etc. I recently started a HYSA. It currently has $12k. I add minimum $400 to that account per month ($200 per paycheck). Household income of around $175k per year. One young child, and we will probably have one more. Our current expenses total approx $4k per month.
Would anyone be able to answer any of these questions please… what a Roth IRA is, should I start one, what do I do once I start one, are there risks associated, should I do a 529 account as well, should I do 401k with my employer…..?
Any advice would be appreciated. My partner and I both grew up in poverty and have never experienced living any way other than paycheck to paycheck.
Posted by cheezit789
7 Comments
I’d recommend starting with the personal finance wiki sidebar located below:
[https://reddit.com/r/personalfinance/wiki/index](https://reddit.com/r/personalfinance/wiki/index)
For tax type questions
r/tax should be able to help
for risks with investing the wiki or r/bogleheads or r/investing should be able to explain, wiki can probably help also
Follow the flowchart in the wiki.
The simplest way to invest is starting a 401k with your employer and take advantage of the match and tax savings. You can put money in the target date index fund that is offered in your 401k. Just leave it alone and it will grow.
Congrats to you on making more $ than you had ever dreamed. Stick to basics of saving and investing. Keep at least 6 months of living expenses in high yield savings acct. Contribute to 401k, if available, to get full employer match. Then max out Roth IRA. Read this: [https://www.fidelity.com/learning-center/smart-money/what-is-a-roth-ira](https://www.fidelity.com/learning-center/smart-money/what-is-a-roth-ira)
if you have HDHP contribute to HSA. If you have $ left over contribute more to 401k. Choose low cost stock index funds for instant diversification. Stay the course no matter what market news you hear.
Do your retirement planning before you start 529 plans.
The funny thing is, there really is a book called “Investing for Dummies”, and it’s actually very good: https://www.dummies.com/book/business-careers-money/personal-finance/investing/general-investing/investing-for-dummies-9th-edition-282306/
Or you might find “Personal Finance for Dummies” useful too. Both by Eric Tyson, who knows what he’s talking about.
One thing to say, aside from the advice you already received, is know the MAGI. Above $242,000 and you have to contribute to a Traditional IRA. A couple good promotions and you may have to stop contributing to a Roth. You’re young, so I assume at some point your earnings will grow.
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Roth IRA is a retirement account where you place after taxed money into and invest. You can do all the same things with it as you can a regular brokerage account. Big difference is that it’s meant to be a retirement account and that everything is tax free once you turn 59 and a half. You and your wife can both have one and should. Yearly contribution limit is $7500 and increases to $8600 once you hit 50. Luckily you make below $236,000 which allows you both to fully contribute $7000 each. Highly recommend both of you do this. If you don’t want to pick individual stocks, just throw it into an ETF. An etf is basically a basket of stocks and you can buy them for any sector or just broad ETFs like VOO or SPY.
529 is an account specifically for education purposes. There are no limits on contributions. Withdrawals are tax free as long as they are for educational purposes. You can Google more on what is allowed Highly recommend this one. If your child chooses not to go or if there is more money than they need, you can switch the beneficiary to your grandchildren if you want.
401k is an employer retirement investment account. Only available through an employer. Investment options are limited to a few dozen options from the brokerage who runs the 401k. This is a good idea to have too. Employers will often have contribution matching. The average is like 6% so they will match 6% of whatever you put in. Recommend this too