What Saving Accounts Should You Have?

By Steven M. Rogé
Managing Director & Chief Investment Officer

You did it! You’ve tilted the tables and have some additional cash flow. But where or how should you prioritize what to save for, and where should you save it? We have some helpful tips that should set you in the right direction. Think of your saving options as a version of the old nutrition food pyramid. Foundational nutrition at the bottom and treats at the top.

Level 1:

In our example your foundation would be your checking, savings, and emergency fund. If you tapped into one of these accounts over the past year, it’s essential to replace the funds based on your revised expenses. Remember that having 3-6 months of expenses within an emergency fund is a moving target, especially when inflation is running at 7%.

Level 2:

The next level of the pyramid should be related to healthcare savings. There are two primary healthcare savings vehicles.

The first is a Flexible Spending Account (FSA). An FSA is usually managed by your human resources department, so check and see if one is offered to you. Contributions to an FSA are made on a pre-tax/tax-deductible basis and should be used by year-end to pay for things like medical, dental, and vision care. In some cases, they may even be used to pay for a gym membership.

The second option is the granddaddy of all savings vehicles know as the Health Savings Account (HSA). An HSA is quite powerful. Your contributions go in pre-tax/tax-deferred, however, they may stay in the account and grow tax-free. They also come out tax-free to pay for medical expenses. The idea is to max this account out and grow it to pay for medical expenses many years ahead in retirement, taking advantage of the tax-free growth over time. An HSA can also act as an additional emergency fund since you may use it to pay premiums for COBRA in case of a sudden job loss.

Level 3:

Here is where guiding dollars into savings accounts can get tricky. You’ve shored-up your emergency funds to cover basic needs including health care expenses. Now what? The answer is highly dependent on your needs and goals. But one thing is certain, you need to take advantage of any company sponsored retirement plans that offer a match. The most popular is a match of 100% of contributions up to 3% of an employee’s compensation, and then 50% of an employee’s additional contributions up to 5% of pay. In essence, 100% of your contributions up to 4% will be matched. This is free money and a return on your investment that no other venture could possibly offer.

Level 4:

At this point you need to start prioritizing your future liabilities and allocating your excess savings accordingly. Do you have your heart set on buying a house in ten years? Distribute your savings toward an account dedicated to this goal with investments that have an appropriate time horizon. Perhaps your nicely settled in but have a newborn baby. Take advantage of additional tax-deductions1 by putting some money away into a 529 plan.

Level 5:

The final concept is to pay yourself first. Consider traditional or ROTH IRA accounts if no company plan is provided to you. As for the icing on the cake? Two strategies take the cake … pun intended.

The first would be backdoor ROTH contributions. If your modified gross income (MAGI) is greater than $144k (or $214k if married, filing jointly) you can contribute to a traditional IRA and then instantly move it directly to a ROTH IRA. You are paying more in taxes today when you have the extra cash to benefit yourself in the future.

The second is a Mega Backdoor ROTH contribution. After maxing out your employer’s retirement plan you may be able to contribute non-deductible, post-tax dollars into your plan. This amount of post-tax dollars may be able to convert directly to a ROTH 401k.

If you still need help deciding what accounts to use for additional savings, download our free checklist to guide you through the process.

If you are interested in learning more about how our team of knowledgeable CERTIFIED FINANCIAL PLANNERS™ (CFP®) can help you decide which saving accounts you should consider, please contact us at 631.218.0077 or info@rwroge.com. We would be happy to go into further detail and answer any questions you may have.

R.W. Rogé & Company, Inc. is a fee-only financial planning and wealth management firm serving clients locally and virtually across the country, with Long Island, New York, Beverly, Massachusetts, and Naples, Florida office locations. We help clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, click here.


1 529 contributions may or may not be tax-deductible depending on your State.

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