Where to Save Retirement Money in Your Financial Planning Process

Congratulations! You’ve recently come into a little money, perhaps through a promotion or new job, or a gift or inheritance or tax refund, and you’d like to do something with it. You’re starting to think about being a better steward of your money and planning for the future. What should you do with it?

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Most experts agree there’s one thing you should absolutely do first before any financial planning process starts. And that is to pay down high-interest debt such as credit cards or personal loans.

With interest on credit cards running 14–18% or more, you can save yourself money in the long run by tackling them now. Plus, since the rates are higher than you’d expect to earn investing, you get a better return on your money.

Once that is under control, you’re ready to start concentrating on developing your financial planning process to reach your future goals. What will that look like? You’ll want to consider a mixture of the following types of accounts to help you get to where you want to be.


See the pros and cons of where to put your money for your savings goals.

High Yield Savings Accounts

A high yield savings account is similar to a traditional savings account except it pays 20 to 25 times the national average in earnings as compared to a traditional savings account. This can accumulate into a significant amount over a lifetime of savings.

Pros of a high yield savings account:

  • Money can be accessed when needed
  • No limits on contributions
  • The money is insured up to the FDIC limits

Cons of a high yield savings account:

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  • While they offer stability, returns will likely be quite modest compared to more growth-oriented investments
  • You are taxed yearly on the interest earned

Taxable Investment Accounts

A taxable investment account is where you can buy and sell investments like stocks, bonds, exchange-traded funds (ETFs), and mutual funds, usually through a retail brokerage account (including online) or a financial advisor who directs trading in the brokerage account. You can open an individual account (for yourself), or a joint account (shared with someone else).

Pros of a taxable investment account:

  • Can be cashed out at any time
  • Not subject to retirement account rules
  • No contribution or withdrawal limits
  • You have a variety of investment options
  • Greater opportunity for higher long-term results depending on how you invest

Cons of a taxable investment account:

  • They don’t enjoy tax-deferred growth
  • You are taxed yearly on the interest earned

Tax-Deferred Retirement Accounts

A tax-deferred retirement account such as a traditional IRA, 401(k), and 403(b) plan lets you save money for retirement with pre-tax dollars, which reduces your yearly taxable income. The contributions grow tax-deferred until withdrawn (generally not until retirement) when they are taxed at your ordinary-income rate.

Pros of a tax-deferred retirement account:

  • Immediate tax advantages in the year you make the deposit
  • You will potentially withdraw funds when you’re in a lower tax bracket in retirement (and you won’t incur tax as long as the assets stay in the account up until then)
  • You have a variety of investment options

Cons of a tax-deferred retirement account:

  • There are limits on how much you can contribute
  • There are mandatory required minimum distributions (RMDs) when you hit a certain age
  • There are penalties if you withdraw earlier than age 59 ½
  • The funds withdrawn are taxed as ordinary income

Tax-Exempt Retirement Accounts

A tax-exempt retirement account such as a traditional Roth IRA, Roth 401(k), and Roth 403(b) plan lets you save for retirement with after-tax dollars and the contributions grow tax-free. Once you hit retirement age, you can withdraw the money tax-free, too.

Pros of a tax-exempt retirement account:

  • You will have a variety of investment options
  • You pay no taxes on the growth of the account
  • You pay no taxes in retirement whether you keep the money in the account or withdraw it
  • There are no mandatory required minimum distributions (RMDs)
  • You get greater flexibility in withdrawal options, especially after age 59 and a half

Cons of a tax-exempt retirement account:

  • You cannot deduct the amount you contribute for taxable purposes
  • People whose modified adjusted gross income is too high may not be eligible for a Roth IRA contribution

Each of these four options discussed above has specific laws, rules, regulations, and procedures. As you go through your financial planning process and develop your plans and goals, it’s wise to talk to a financial advisor such as Stonecrop Wealth Advisors to ensure you’re making the best decisions for your situation.

Stonecrop Wealth Advisors Strives To Help You Find A More Prosperous Future

We are a full-service financial and investment advisory firm that works with individuals, families, and non-profit institutions to help you connect your money to your purpose. Then we guide you on how to utilize your resources and put them on a path towards a more prosperous future.

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Our mission to help you is what motivates us. We seek new clients because we believe you will benefit from what we do and how we do it. And nothing makes us happier than when our clients can do more than they thought they could, and their ability to do good and to be generous toward their families and communities is expanded.

Would you like to find out more about Stonecrop and our financial planning process and services? Sign up for our weekly eNewsletter, MacGray Matter, from our president, Douglas MacGray or connect with us here. Either way, we look forward to sharing more about our ‘wholistic’ methods to help you develop your unique investment strategy.

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    Amy Weir

  • DATE

    March 15, 2022


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