Putting Too Much into Qualified Plans

Putting all your money into IRAs, 401(k)s and 403(b)s may sound like a great idea. After all, you’re saving money, right? So there’s no way this would be a disadvantageous move, right?

Wrong! Most financial advisers see this more often than they’d like. The problem here is that there’s no tax diversification. What can you expect if you do this? Well, you’ll most likely jump in a higher tax bracket, meaning that your spending income will be reduced significantly. So even if you planned on having a certain amount of cash on hand when you retire, a big chunk of it will go straight back to Uncle Sam.

If you’re in your 50s, talk to your employer about Roth contributions. There are Roth options for both 401(k)s and IRAs. Additionally, start looking into health savings accounts as they are free of income tax as long as you spend the money on medical expenses, tax deferred and the contributions are pre-tax.