Next Wednesday is April 15th. All of us in the U.S know that’s tax day, but it’s also another very important date to remember. April 15th is the last day to fund an IRA or Health Savings Account for 2014. I was on the fence whether to put money into a Roth IRA or into my solo 401k, but we have the rest of the year to work on the 401k and only a few days left to add to our 2014 holdings, so that’s what I did.
Sometimes It’s OK To Invest By Emotion
I have no idea what the tax rates might be when I retire. I do know taxes are high right now because we are considered high earners. In theory, I should have put money into the 401k to defer income taxes, but I didn’t.
I’ve always been drawn to Roth IRA’s because no matter how much they earn in interest over the years, you never have to pay another cent in taxes on any of this money. Yes, I know there are ways to roll money into Roth’s at a later date. Yes, I understand the math behind tax deferred accounts, but emotion made me put money into a Roth this month, and I’m OK with that. Whatever tax rates do down the road, investing in index funds today with just about any modality is smarter than missing out on deadlines because of not being able to decide.
Fund the HSA First
I will take one exception to the declaration in the above paragraph. If you have a health savings account or are eligible for one, get it funded now if at all possible. Even if that means eating beans and rice for a month or not buying any clothes this year, go ahead and fund that account with as much as you can up to the limit.
HSA’s are the only way you can potentially never pay income tax on invested money used for qualified medical expenses. If you are the in the 0.00097% of people who will never have an out of pocket medical expenses, you can still use your HSA as a regular retirement account after age 65 where it’s taxed just like a 401k.
Remember the Deadline
Remember to get your contributions in soon. It generally takes a couple of business days to process. Don’t be that person who waits until the last minute and misses out on great retirement savings. I’ve had experience with Betterment and Vanguard for retirement and HSA Administrators for a health savings account, and all were really easy. Do it today or Monday. Your retired self with thank you a million times over.
Are you waiting until the last minute for 2014 contributions? Would you invest in a Roth IRA or a 401k first?