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How to Use a Roth IRA to Become a Millionaire

As a financial coach, I’ve seen countless clients struggle with their finances because they thought they were “bad at money”.

Really they were just lacking a basic financial education. 

Investing feels intimidating because of a lack of knowledge and the financial jargon that makes it sound harder than it is. If you want to start learning key investing terms that will help you build wealth, you can check out my free investing term resource guide here.

Let’s talk about why you should invest in a Roth IRA, who can and should invest, how to get started, what you should invest in, and where to open a Roth IRA. 

By the end of this post, you’ll have all the knowledge you need to start investing in your future and ultimately how you could become a millionaire, just by investing in a Roth IRA.

Why You Should Invest in a Roth IRA and Why It’s Easier Than You Think

A Roth IRA is a retirement savings account that allows you to invest after-tax dollars into a variety of investments, such as stocks, bonds, and index funds.

The biggest benefit of a Roth IRA is that your money grows tax-free, meaning you won’t have to pay taxes when you withdraw your money in retirement. This is different from traditional IRAs, where you pay taxes on your withdrawals.

One of the biggest misconceptions about Roth IRAs is that they’re only for the wealthy or experienced investors. This couldn’t be further from the truth. In fact, anyone can open a Roth IRA and start investing with just a few dollars a month. You don’t need to be an expert investor to start building wealth with a Roth IRA.

Who Can and Should Invest in a Roth IRA?

Anyone with earned income can contribute to a Roth IRA, regardless of their age. This means that even teenagers with part-time jobs can start investing in their future. However, there are income limits for Roth IRA contributions. 

For 2023, the maximum contribution limit is $6,500 for individuals under 50 and $7,500 for those over 50. If your income is above a certain threshold, your contribution limit may be reduced or eliminated altogether. You can find the income limits right here.

If you’re looking to build long-term wealth and achieve financial freedom, a Roth IRA is a great way to do so. The earlier you start, the more time your money has to grow. Even if you have a 401(k) already, adding a Roth IRA to your investing strategy can be a great way to take advantage of tax advantaged investing.

How to Get Started Step by Step

Opening a Roth IRA is a simple process. First, you’ll need to choose a brokerage firm to open your account with. Some popular options include Vanguard, Fidelity, and Charles Schwab. Once you’ve chosen your brokerage firm, you’ll need to provide some basic information, such as your name, address, and social security number. You’ll also need to choose your investments.

When choosing your investments, it’s important to consider your risk tolerance and investment goals. Low-cost index funds, which provide a diversified portfolio at a low cost, are a great choice for new and experienced investors. 

After you’ve opened your account and chosen your investments, you’ll need to set up automatic contributions. This is the key to building long-term wealth with a Roth IRA. By contributing a small amount of money each month, you’ll be able to take advantage of compound interest and watch your money grow over time.

What You Should Invest In?

As mentioned earlier, low-cost index funds are a great option for beginner investors. These funds provide a diversified portfolio at a low cost, which is important for long-term growth. Some popular options include the Vanguard Total Stock Market Index Fund and the Fidelity Total Market Index Fund, which are funds that invest in thousands of stocks within just one fund.

Bonds are also an important part of a diversified portfolio. Bonds provide stability and help to reduce risk. Some popular bond funds include the iShares Core U.S. Aggregate Bond ETF and the Vanguard Total Bond Market Index Fund.

Where to Open a Roth IRA

There are many brokerage firms that offer Roth IRAs. Some popular options include:

  • Vanguard
  • Fidelity
  • Charles Schwab
  • TD Ameritrade
  • E*TRADE

When choosing a brokerage firm, it’s important to consider factors such as fees, investment options, and customer service. You’ll also want to make sure the firm you choose is reputable and has a strong financial history.

How much do you need to invest to become a Roth IRA millionaire?

Assuming an 8% annual return, here’s a rough estimate of how much you would need to invest in a Roth IRA to become a millionaire in different timeframes, along with the monthly investment amount:

  • Investing for 10 years: Approximately $424,664.82 (or $3,253.87 per month)
  • Investing for 20 years: Approximately $191,735.12 (or $1,378.14 per month)
  • Investing for 30 years: Approximately $86,419.81 (or $497.25 per month)

Note: The earlier you start contributing, the less you may need to invest in total due to the power of compounding.

Please note that these estimates are based on historical performance of the stock market being roughly 10% and subtracting a couple percent for inflation. 

Investing in a Roth IRA is one of the best ways to build long-term wealth and achieve financial freedom. Anyone can open a Roth IRA and start investing with just a few dollars a month.

By choosing the right investments and setting up automatic contributions, you’ll be on your way to building real wealth.

If you’re ready to take the next steps towards financial independence, download my free financial independence checklist. This checklist will help you identify what you need to do next to start building wealth and reach financial independence.

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How your investing accounts are taxed and how to minimize your taxes

Discovering ways to make my hard-earned money work harder for me brings me immense satisfaction and I’m passionate about helping people do the same.

Which is why I encourage everyone to learn how to invest in multiple retirement accounts because you are building wealth over time through investing AND receiving significant tax savings now or in retirement.

Retirement accounts aren’t the only place to invest, and for many people a taxable brokerage account can make a ton of sense. It’s super flexible and you can pull your invested money out anytime you want.

That said, I strongly recommend you plan to invest for the long haul in a taxable brokerage account because of market fluctuations and short-term capital gains tax if you sell investments you’ve owned less than a year (more on this below.)

In this article we will cover:

  • Retirement accounts
  • Taxable brokerage account taxes
  • Tax loss harvesting
  • What you should expect during tax season

Retirement Accounts

1. If you contribute to retirement accounts like IRA’s or 401(k)’s, as long as you’re not retired and using your retirement funds, you don’t need to be concerned about taxes. 

These investment vehicles offer tax advantages where you’re not taxed on the growth in those accounts every year like you are with taxable accounts. This means that you can buy, sell, and earn dividends and interest inside these accounts without worrying about paying taxes annually on any gains. 

Essentially, if you only invest within retirement accounts, you don’t need to worry about investment taxes. 

2. How long do you have to contribute to an IRA? 

You can contribute to a Roth IRA for 2022, up until you file your taxes in 2023. You do not need to make your contribution to an IRA during the calendar year for it to count towards the year in which you are filing taxes for.

If you have a business or made side hustle income, you still have time to contribute to SEP IRA, which is a retirement account that will reduce your taxable business or side hustle income. 

Taxable Brokerage Accounts

If you have taxable brokerage accounts (basically any investing account that’s not a retirement account), it is, well, taxable. 

There are two main types of taxes. 

  1. Capital gains refer to the increase in an asset’s value over time. For example if you bought an investment for $5 and sold it at $10, you would have a capital gain of $5 and would be obligated to pay taxes on that gain. 
  2. Dividends are payments made by the company to shareholders for investing in their company. Some companies offer higher dividend yields than others. For instance, if you invest $20 in a company with a 5% dividend yield, you’ll earn $1 per share.

Capital gains and dividends are taxed differently from earned income. If you’re investing regularly in your account and not selling anything, you won’t have to pay taxes on capital gains. 

You only pay taxes on capital gains when you sell an asset at a profit. However, selling an asset triggers a tax event, even if you’re reinvesting the money within the confines of the brokerage account and not withdrawing any money.

How are capital gains calculated?

The tax rate on your capital gains is determined by how long you held the investment and your total income from all sources (this includes your salary, side hustles, and investment income.) 

If you sell your investment after holding it for fewer than one year, your marginal tax rate applies to the gain. This is not ideal because it will likely be higher than the capital gains tax rate. 

If you hold your investment for more than one year, you pay the capital gains tax rate on the gain, which is typically far more favorable than your marginal tax rate.

For example, if you’re single and have a total income of $41,675 or less in 2022, you don’t pay taxes on your long-term capital gains. For married couples filing jointly, the 0% bracket applies to total incomes of up to $83,350.

If your income is between $41,676 and $459,750 (yes, that’s correct) in 2022, you’ll pay 15%. For married couples filing jointly, the range is $83,351 to $517,200. If your income is $459,751 or more, you’ll pay 20%, and for married couples, the total income above $517,201 is taxed at 20%.

Most people fall into the 15% capital gains tax rate. 

How are dividends taxed?

Whether you reinvest them or withdraw them, your dividends are taxed annually, as they are considered income for the year you earned them. There are two types of dividends: ordinary and qualified. 

Ordinary dividends are taxed at your regular tax rate, whereas qualified dividends, which meet certain requirements, are taxed similarly to capital gains at more forgiving brackets. Your 1099-DIV statement from your brokerage firm will clearly outline both types of dividends.

If you reinvest your dividends, you’re technically being taxed on income that you never withdrew as cash. This is different from how you’re taxed on the income you receive on your paycheck, as you’ll need money from another source to pay the tax bill associated with your dividends. 

Tax Loss Harvesting

If your stocks have lost value, you can use tax loss harvesting to offset gains from other investments. Here’s how it works: You sell a holding that has decreased in value and recognize a capital loss. You can use this loss to offset gains from other investments. 

The key is to reinvest your remaining money in something similar but not “substantially identical”. You want to avoid a wash sale, which is when you sell an investment at a loss and buy a substantially identical stock within 30 days before or after that sale. 

You can typically deduct up to $3,000 of losses per year, and if you have losses in excess of $3,000, you can carry them forward into the future to offset future gains. This is only a benefit in taxable accounts – it doesn’t apply to tax-deferred accounts like 401(k)s.

You must complete this by the end of the calendar year so if you have not done this yet it is too late for 2022, but something to consider for 2023.

What you should expect during tax season

Around mid-February, most investment firms will send you a 1099-DIV (or 1099 Composite) that lists your capital gains, ordinary dividends, and qualified dividends. You can then upload this form to your tax software or give it to your CPA. 

If you invest with a robo advisor, they may have automatic rebalancing and tax loss harvesting features that you can activate so that you don’t have to do everything manually.

Also, your 1099-DIV forms will provide you with an account summary, so familiarize yourself with them! While it’s relatively simple to input the numbers into tax software, it’s also okay to hire a CPA to take care of everything for you—they can answer questions and provide advice that could reduce your tax liability.

And don’t forget the best part: if you’re earning enough income from your investments to be taxed, that means you’re making money. Virtual high five. 

Ready to take control of your finances but not sure where to start? Grab my free financial independence checklist to figure out where to begin. 

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Financial progress is a mixed bag for women in 2023

Women’s History Month is full of stories about progress.

Yes, some progress has been made.

It was not that long ago when banks could refuse women a credit card. That is, until the Equal Credit Opportunity Act of 1974 was signed into law. 

Prior to that, a bank could refuse to issue a credit card to an unmarried woman, and if a woman was married, her husband was required to cosign.

Some progress doesn’t mean we can stop shedding light on the state of women’s financial health.

Because when it comes to things like investing, inflation, women in leadership, etc. — progress is more of a mixed bag. 

Here’s 5 things we need to be talking about:

1. Most Women Are Not Actively Investing

The GOBankingRates survey found that 57% of women are not actively investing. When asked why they are not investing, one-third of women (33%) cited a lack of money. This is unfortunately because you don’t need a lot of money to get started! 

The most popular investment vehicle among women are work sponsored retirement plans like a 401(k) or 403(b). Less than 10% utilize a brokerage account, IRA or investing app.

Getting starting investing doesn’t need to be complicated or take a ton of time. If you want to learn how to get started, but find the financial jargon overwhelming, check out my free guide 26 need to know investing terms right here.

2. Inflation Hit Women Particularly Hard

Over the past year, women had to face the challenge of dealing with inflation in addition to the “pink tax,” which refers to the extra costs that women bear for personal care items, clothing, and other products. As the ones who are usually responsible for household purchases, many women found it increasingly difficult to manage their budgets.

Considering these circumstances, it’s not surprising that women were more mentally affected by inflation than men. According to a recent survey by Stash, 60% of women reported that inflation was impacting their mental well-being, compared to 52% of men. 

3. Women Weren’t Able to Save Enough

According to a survey by Betterment conducted earlier this year, women did not save enough money in 2022. The survey revealed that 41% of women do not have any emergency savings, whereas only 28% of men reported the same.

Another survey conducted by GOBankingRates found that 40% of women have $100 or less in their savings accounts, compared to only 26% of men. Furthermore, women are more likely than men to report having less in their checking accounts, with 40% of women stating that they allow their minimum checking account balance to drop to $100 or less.

4. Women are Missing Out On and Leaving Leadership Positions

Despite modest gains in representation in leadership, only 1 in 4 C-Suite leaders is a woman (Women in the Workplace Report, 2022). Far fewer women than men are being promoted to managerial roles: For every 100 men who are promoted from an entry-level to a manager position, only 87 women and 82 women of color are promoted. 

What’s more, women leaders are twice as likely as men leaders to be mistaken for someone more junior — and 37% of women leaders have had a co-worker receive credit for their idea, compared to 27% of men leaders.

5. Roe v. Wade 

The U.S. became one of just four countries to roll back abortion rights in the past 25 years. U.S. girls and women now have fewer rights than their mothers and grandmothers did in some US states. 

It’s not just a reproductive rights issue. One study found that abortion restrictions led to a drop of between 5 percent and 6.5 percent in average monthly salaries of women of childbearing age compared with the rest of the population. This is an economic issue too. 

For these reasons and many more, I’m committed to help everyone, regardless of how they identify, build knowledge that will help people make, keep, and grow their money. 

Feeling like you need some next steps but you aren’t sure where to start? 

Grab your free financial independence checklist right here to figure out your next steps.

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7 reasons to start investing in your 30’s and 40’s that have nothing to do with retirement

Investing is often viewed as a tool to prepare for retirement, but there are many important reasons to start building investing knowledge in your 30s and 40s that have nothing to do with retirement. Here are seven reasons why investing should be an essential part of your financial strategy.

#1 Staying Ahead of Inflation

Inflation is the rate at which the cost of goods and services increases over time. If you keep your cash in a regular savings account, it’s probably not going to keep up with inflation. This means that your hard-earned money won’t get you as far as when you originally earned it. Investing can help you beat inflation over time by earning returns that exceed the rate of inflation.

#2 Passive Income

Your job or business likely requires you to trade your time and energy for money. Investing can help you generate income passively, putting your hard-earned money to work for you without much additional effort.

Dividend-paying stocks, rental properties, or even certain types of bonds can generate passive income that can supplement your salary or other sources of income.

#3 Achieving Goals

While it’s not recommended to invest any money you need in the next 3 to 5 years due to normal fluctuations in the stock market, investing can help you reach important life goals.

If in the future you have the goal of buying a house someday, going on your dream trip in the future, or supporting your kids you’ll want to start investing now. Investing can help you get there much faster than just saving.

#4 Building Generational Wealth

Contributing to an investment account like a 529 or Custodial Roth for your kids is a great way to help them get started building wealth. It can also be an opportunity to teach them the basics of investing at an early age.

Getting your children involved in the process early on can be life-changing for them and set them on a path to financial independence and success.

#5 Confidence

When you take control of your finances and start investing for your future, you’ll not only trade your financial anxiety for confidence, but it will also create more security, safety, and optionality in your life.

By taking ownership of your financial future, you’ll feel more empowered to pursue your goals and dreams.

#6 Impact

A donor-advised fund, or DAF, is a charitable investment account for the sole purpose of supporting charitable organizations you care about. This account allows you to allocate and grow a portion of your wealth with the goal of supporting causes you care about most.

By investing in a DAF, you can create a lasting impact on the world and make a difference in the lives of others.

#7 Reducing the Gender Wealth Gap

Women not only make less than men, but as a group, we invest less as well contributing to a significant gender wealth gap. By investing more in our financial futures, we can reduce the wealth gap and have a bigger impact on the issues we care about most.

Investing can be a powerful tool for women to take control of their financial futures and pave the way for future generations.

In conclusion, investing is not just for retirement planning. It can be a crucial part of your financial strategy at any stage of life. By investing in stocks, bonds, real estate, or other assets, you can achieve your financial goals, build generational wealth, create a lasting impact on the world, and reduce the gender wealth gap.

Take control of your financial future and start building your investing knowledge today.

Ready to get started? Check out my signature beginner investing program for busy professionals and entrepreneurs, right here.

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7 Biggest Investing Mistakes 30 and 40 Somethings Make

I am not shy about sharing my big investing mistakes because I want others to learn from my mistakes. 

Investing decisions made on my behalf by a certified financial planner cost me at least $80,000 in fees and a bad financial product.

I don’t want that to happen to anyone.

That money lost doesn’t include what that $80,000 would’ve grown to over the next 30 years (I don’t even want to think about how much money I left on the table.)

The most annoying part about the investing mistakes I made? Completely avoidable.

Most investing mistakes are completely avoidable with an education.

Here are the most common investing mistakes I see 30 and 40 somethings make:

1. Not Knowing How Much you Need to Retire.

Most people have no idea how much $$ they will actually need in retirement.

One rule of thumb is to have enough invested so that you can live off 4% of those investments. This is called the 4% rule.

This is a good ballpark estimate, not a perfect strategy so be sure to understand your needs on a yearly basis and plan for the worst.

2. Not Investing Because You’re Not Living Below Your Means.

If you aren’t on track to hit your retirement goals, this is when you really need to buckle down and make sure you aren’t spending money you don’t have. 

Create an emergency fund with enough money to cover your non-negotiable living expenses for at least 3 to 6 months and make sure you understand how money is coming in and out of your life with a budget. 

If you don’t know what your personal cash flow looks like, you’ll never be able to figure out how much you can be investing to truly grow your wealth.

3. Not Earning As Much As You Can and Should Be.

If you can make and invest more in your 30’s, your money will have more years to be invested and to benefit from compound interest. 

It’s worth learning how to negotiate your salary, leveling up your skills, or starting a side hustle to make sure you are earning what you are worth during this time.

4. Investing Too Conservatively or Not At All

If you’re not investing at all, you’re running out of time to take advantage of time in the market. It’s not impossible, but it gets harder every year you wait.

If you’re investing too much in bonds or bank account savings, it’s not going to help you grow your wealth in the long run. If you have 20 or 30 years ahead of you, you might want to considering investing mostly in stock based index funds. 

5. Not Talking Money With Your Partner

You need to talk about money with your person regularly, not just one time in the beginning of your relationship. If you are not on the same page financially it can impact your relationship and your finances. If you just started dating, pay attention to your partner’s money habits. 

6. Trying to Time the Stock Market

No one knows what the stock market will do next.

Most of the time, major financial institutions can’t agree on what’s up and coming for the economy or the stock market.

Investing consistently over a long period of time is the best way to grow your money, knowing that it’s impossible to know what will happen next.

7. Opening a Roth IRA but Forgetting to Select Investments

Your Roth IRA is a container for your investments, not an investment in and of itself. You have to make sure you have actually selected investments (like index funds) or you are just parking your money in a glorified savings account.

This is a super sad mistake I see people make all the time. If you don’t invest your money you are missing out on compound interest. I recently I had a client who had $20,000 sitting in a Roth IRA. If that money would have been invested, it would be worth over $80,000 today, assuming the historical average return of the stock market at 10%.

Ready to Take Control of Your Finances?

If you want to take control of your finances and build real wealth, then I want to invite you to my

FREE workshop: HOW TO BUILD WEALTH THE EASY WAY (even if you’re short on time or have some debt):

You’ll learn:

  • 2 ways to fast track your wealth
  • 3 keys to making money in the stock market (even now)
  • How to build wealth with a low-maintenance investing strategy anyone can do

If you want to learn the easy way I’ve been able to build wealth, you won’t want to miss this workshop. Save your seat right here.

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4 Financial Changes in 2023 That Will Help Your Money Go Further

As we continue to experience the effects of inflation, various government and financial regulations are being altered in an attempt to combat the increasing prices that have decreased their purchasing power. 

The good news for us is that these changes often aim to lower taxes and increase savings for individuals. 

Here’s are a few financial things that are changing in 2023: 

1. 401k Contribution Limits

The IRS is setting new, higher limits on how much employees and employers can contribute toward retirement plans. For 2023, individual employees will be able to contribute up to $22,500 to their 401(k) retirement accounts, up from $20,500 in 2022. Combined with employer contributions, employees will see a total annual limit of $66,000 in 2023, up from $61,000 in 2022. 

2. IRA Contribution Limits

The maximum annual contribution to a Traditional or Roth IRA will be raised to $6,500. The catch-up contribution limit for individuals over 50, which is not subject to a yearly cost-of-living adjustment, will remain at $1,000.

3. Taxes 

Due to inflation, the IRS tax brackets linked to your marginal tax rates will also be increasing by 7% in 2023.

In October, the IRS also stated that it will be raising the standard deduction for the 2023 tax year. The standard deduction for married couples filing jointly will increase by $1,800 to $27,700, while single taxpayers and married individuals filing separately will see a $900 increase to $13,850. The standard deduction for heads of households will be $20,800, a $1,400 increase from the prior year.

4. Higher interest rates on savings, CD accounts, and I-bonds

As interest rates have increased, financial products like mortgages, auto loans, and credit cards have become more expensive.

However, some banks, particularly online-only institutions, are offering higher interest rates on high-yield savings accounts and CD accounts. It’s important to note that some banks may not automatically raise the interest rate on your current savings account, and may require you to switch to a higher yielding account instead.

Find a list of top High Yield Savings Accounts for 2023 right here.

If you’re ready to take control of your finances and build real wealth and save on taxes at the same time, don’t miss my next free beginner investing workshop. Save your seat here!

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Is a Roth 401(k) Better than Regular 401(k)? 

Your 401(k) is one of the best and most powerful tools at your disposal to help you to prepare for retirement.

The first step is to make sure you are making the most of this account is by understand the basics of how 401k contributions and matching works and ensuring that you are taking your employer match if your employer offers one.

The better option between a traditional 401(k) or a Roth 401(k) will depend on your financial goals and tax preferences.

Let’s clear up the confusion between these two 401(k)’s right here.

Both accounts have the same contribution limit. In 2023, you can invest up to $22,500 per year in your 401(k). The opportunity to invest that much is a huge perk of either type of 401(k), especially when compared to an IRA’s contribution limit of $6,500 per year.

There is one big advantage of the Roth 401(k).

A Roth 401(k) is that it allows you to contribute after-tax dollars to your retirement savings, and to withdraw your contributions and earnings tax-free in retirement.

I personally love the idea of getting taxes out of the way now so I don’t have to deal with them in retirement.

This can be beneficial if you expect your tax rate to be higher in retirement than it is currently, since it allows you to pay taxes on your contributions at your current rate and then withdraw them tax-free in the future.

There are some disadvantages to consider to a Roth 401(k).

Another potential disadvantage of a Roth 401(k) is that it may not be available through all employers. Some employers may only offer a traditional 401(k) plan, and may not offer the option to participate in a Roth 401(k) plan at all.

On the other hand, one potential disadvantage of a Roth 401(k) is that it does not provide an immediate tax benefit. With a traditional 401(k), you can contribute pre-tax dollars and reduce your taxable income in the current year. 

Overall, whether a Roth 401(k) is a better option than a traditional 401(k) will depend on your specific goals, tax situation, and investment horizon. It is important to carefully review the features and benefits of both types of 401(k) plans.

If you’re ready to learn more about how to make the most of your 401(k) plan, check out your free 401(k) checklist and learn how to make the most of this valuable account.

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5 Smart Investing Moves You Need to Make Before 35

5 smart investing moves to make before you turn 35

If you’re getting into your 30’s and still haven’t started investing much, you aren’t as far behind as you think. Around 61% of adults don’t start saving for retirement until their 30’s. 

The promising news is that if you start saving in your early 30s, you still have roughly 30 years to build your retirement savings. If you wait longer than that until your late 30’s or 40’s, you’ll have to save much more aggressively each month to reach a comfortable amount for retirement. 

If you’re reading this and you’re older than 35, you can still save enough to retire but you want to start immediately. 

For anyone that’s getting started investing or deciding to dedicate more time and energy to start building their investments, there’s some basic financial boxes everyone needs to check regardless of your age. 

Here are 5 investing moves to make before you’re 35:

1. Make the most of your 401(k)

If you have a 401(k), you are an investor and this is a great place to start to ensure that you are setting yourself  up for success.

There are a few ways to optimize your 401(k), including reducing the fees you are paying on the account. The average American will spend $138,000 in fees which can increase your retirement age by a few years!

To reduce those fees, I recommend learning how to invest in index funds. Index funds have lower expense ratios (fees) and allow you to keep more of your money. They also often perform just as good or better than funds actively managed by money managers.

Another way to reduce fees to rollover old 401(k)’s. If you’re investing in your 30’s, you likely have at least one old 401(k). Leaving this account with your former employer will cause you to pay administrative fees that you can easily get rid of by rolling over the account. There are free services like Capitalize that will help you rollover your old 401(k)’s quickly and easily. 

Learning how to make the most of your 401(k) can help you protect your 401(k), even in a recession.

2. Add a Roth IRA

A Roth IRA is an investment vehicle that you can use to grow your wealth tax free and get tax free withdrawals in retirement. 

While there isn’t any tax benefit when you contribute your money, once it’s in there it grows tax free, meaning that you don’t have to pay taxes on capital gains and you won’t be taxed when you take your money out once you’re over 59 ½. 

You can open a Roth IRA on your own without an employer through any bank, brokerage, mutual fund or insurance company, and you can invest your retirement money in stocks, bonds, mutual funds, exchange-traded funds and other investments. 

If you make more than $153,000 (or if you’re married filing jointly $228,000) as of 2023, you can’t contribute to a Roth IRA directly at all. You can, however, use a strategy called the back door Roth that can help you get your money into a Roth IRA through another avenue. 

3. Consider Investing in Low Cost Index Funds

An index in this is a group of stocks grouped by a person or organization. They were created for measuring stock market performance. 

For example, S&P 500 is an index and the common thread of these stocks is its the top 500 largest traded companies in the US. 

An Index fund is just a fund that tries to mirror the performance of a particular index like the S&P 500. 

Index funds are often better for the average investor because they perform just as well or better than professionally managed funds and have low fees. 

Since these funds are just tracking an index, they don’t require active management which means they are way cheaper to own than traditional mutual funds. 

Many people in their 30’s will go straight fora financial advisor to pick their investments for them, but this could cost thousands in fees. Managing your own investments can add hundreds of thousands of dollars to your retirement.

4. Learn About Stock Market Cycles So You Can Handle More Risk

When you understand that no one can accurately predict whether the stock market will go up or down, you realize that the best way to invest is consistently over a long period of time.

Historically the stock market’s annualized return is 10% (roughly ~8% after inflation). The more you can comfortably invest in stocks knowing that the stock market will fluctuate, the more you will increase the likelihood of a strong return. 

It’s also important to understand that the longer you invest, the more you decrease the likelihood of experiencing negative returns on your portfolio. The likelihood of a negative stock market return after 20 years of investing is less than 1%. If you aren’t retiring soon, you can handle more fluctuations in the market.

5. Prioritize Paying Yourself First

In your 30’s it can be hard to prioritize retirement savings, particularly if you have children, mortgages, car payments, and more. With the cost of food going up dramatically over 2022, things are getting more challenging economically.

That said, your greatest asset as an investor is time. The more time you spend in the market, the higher likelihood that the value of your investments will compound over time. 

For example, if you start investing at 35, you’ll have to contribute `$750 a month (assuming an 8% interest rate) to have 1 million in your account at 65.

If you wait until you are 40 and still want to have 1 million by the time you are 65, you’ll have to contribute $1150 a month. That’s over $400 more! 

You can not underestimate the power of time in the market. 

Getting started as soon as possible can make you much more likely to have a comfortable retirement.

If you’re ready to get started download my free guide on 26 need-to-know investing terms.

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Exactly How to Pick Investments in Your 401(k)

How to Pick 401k Investments

If you have no idea what your 401(k) is invested in without looking at it, you’re not alone. According to a NerdWallet study, well over 50% of professionals don’t know what investments they hold in their retirement accounts and 401(k)’s. 

If you do take a look at your 401k and you still don’t know what your investments actually mean, you’re also not alone. 63% of Americans don’t understand how their 401(k)’s work from an investment or a tax perspective.

You can easily learn exactly how to pick investment in your 401(k) that can help you retire years earlier.

Why Is It So Important To Learn How To Pick Investments for your 401(k)?

Learning how to choose and change your 401(k) investments overtime can help you make and save thousands of dollars over your lifetime.

Make no mistake, if you have a 401(k) you are an investor. 

When I first learned how to properly pick investments for my 401k rather than just selecting a default target date fund, I was honestly a bit embarrassed and I felt ashamed that I had thousands of dollars in an account and really had no idea what investments I held in my 401(k).

I also was really unclear of which option would be best for me. 

Once I learned how to pick investments in my 401k, I increased my returns and now will be able to retire years earlier. You can learn how to do this too!

Here’s How Your 401(k) Actually Works

Before we dive into choosing investments, let’s get on the same page about how your 401(k) account actually works. Your 401(k) is an investment account that your employer provides for you. There are two types of 401(k)’s your employer can offer. Both of these types of 401k’s allow you to contribute money but impact your taxes differently. 

A traditional 401(k) will allow you to reduce your taxable income but whatever amount of contributions you make to your 401k.

A Roth 401(k) which some employers offer, allows you to contribute after-tax money. So while you don’t get a tax break right now, your investments will grow tax free and you get tax free withdrawals in retirement.

At the end of the day, your 401k is an investment account. You contribute money and then you invest it in stocks or bonds.

For 2023, the 401k contribution limits have increased! An individual can contribute up to $22,500 in a 401(k), 403(b), and most 457 plans, up from $20,500 in 2022.

Choosing Your investments for Your 401(k)

Learning the basics of exactly how to pick investments for your 401k is something that should be at the top of your list for two main reasons:

  1. If you don’t learn how to choose your own investments you could be automatically invested in target date funds, which can carry very high fees. 
  2. Target date funds can often be too conservatively invested for young people, significantly reducing their returns, meaning they will have less money in retirement.

There are two main routes you can take for your 401(k) investment strategy. The first one is target date funds and the second one is to select a few of your own investments. 
Most people end up choosing the 401k default investment, which most of the time is going to be a Target Date Fund.

What is a Target Date Fund?

A target date fund is a mutual fund made up of other mutual funds and holds a mix of stocks and bonds. This investment will automatically rebalance investments for you and reduce your risk over time as you near retirement. The benefit of this investment is it truly is a “set it and forget it” strategy.

Target date funds are meant to carry more stocks and therefore more risk when you are younger, and then as you age the amount of stocks will decrease and the amount of bonds in the fund will increase to reduce your overall risk as you near retirement.  

For example, if you are looking at Fidelity’s target date funds, they are labeled Fidelity Freedom Fund 2030 or 2050 and that number refers to the date in which you are looking to retire. 

If you are looking to retire in 2030, your target date fund will have less stocks and more bonds to make sure the risk is lower since you are retiring earlier.

In contrast, if you are looking to retire in 2050, your target date fund will have more stocks and less bonds, a mix that will produce higher returns but carries more risk.

While these funds are great in theory, they can be very expensive and will eat into your returns over time.

Why Target Date Fund Fees Matter in Your 401K

Let’s pretend two different people invest $500 a month for 30 years.

Nancy invests this $500 into a target date fund with a fee (expense ratio) of .75%. Over 30 years, assuming an 8 % annualized return, she will have ~$649,000. 

Lisa on the other hand invests in index funds that have low fees of .03%. Assuming an 8% annualized return, her balance after 30 years will be worth ~$755,000. 

Lisa will have $106,000 MORE than Nancy just by selecting funds with low fees!

Warning, you may not always have the option to choose index funds with low fees in your 401(k) but more and more 401k plans are offering better investment options so it’s important that you at least check!

What’s An Index Fund and Why Is It A Good Pick For My 401(k)?

An index fund is an investment that tries to mirror the performance of a particular index.

An example of an index is the S&P 500. This is just a group of the top 500 largest US stocks. So an S&P index fund would hold all 500 of the top US stocks. 

Since these funds are just tracking an index, they don’t require active management which means they are way cheaper to own than traditional mutual funds and target date funds. 

So instead of investing in a target date fund, you can select a couple index funds and create your own diversified portfolio.

What Type of Index Funds Can I Pick For My 401(k)?

One really easy way to create an index fund portfolio for your 401k is to use 3 types of index funds: 

  1. A US or total market index fund
  2. An international index fund
  3. A bond fund

This portfolio will ensure you are invested in a diversified mix of US and international stocks and bonds. 

With this portfolio, you’ll have to make the choice of how much of your contribution should go to bonds versus stocks. Bonds typically have lower returns but help us reduce risk. Typically, you will want to invest heavier in stocks at a younger age and over time invest more in bonds.

A good rule of thumb to figure out how much you should invest in stocks is to subtract your age from 110. So if you are 30 years old, you could start by investing 80% of your contributions in stocks (in this example US and internationally) and 20% in bonds. 


This might seem complicated at first but it’s actually really easy to learn! If you want to learn more, check out my youtube video for more information on exactly how to pick investments in your 401(k). 

I am not a licensed financial advisor. Tessitory LLC, Wealth with Tess, and Tess Waresmith will never provide financial advice of any kind. This article and everything on the website is for educational purpose only. I offer education, not prescriptive advice. The information that is found here are my opinions and the opinions of other readers/contributors, and should be taken as such. Some content may contain affiliate links or sponsored content — I will never work with a brand or showcase a product that I don’t personally use or believe in.

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