In the past an IRA would be the next account I would recommend, but the HSA has taken 2nd place in my hierarchy of investment vehicles. An HSA, or Health Savings Account, is similar to a 401K or IRA in the sense that you can use it for investment/retirement purposes. The difference is an HSA requires a health insurance plan in order to open this account type. Your insurance plan must be a High Deductible Health Plan (HDHP) to meet HSA eligibility requirements. For 2016, you can contribute up to $3,350 per year as an individual, and $6,750 as a family, if all are covered by this account. A great site to keep up with HSA maximums, as well as other Tax Related concerns, is Fairmark.com . The reason I recommend an HSA over an IRA is for access reasons. If you were to try and access your 401K or IRA for medical reasons, there would be a penalty for withdrawal in most cases (medical hardship withdrawal)...but not for an HSA! Your HSA account is made for this reason, so save some withdrawal paperwork and take advantage.
If you don't go to the doctor a lot, and don't have any major health issues at the moment, then an HDHP may be right for you. Be sure to consult your Doctor. I am not a Doctor, nor do I play one on T.V.. However, I do know that you WILL get sick before you retire!!! And if you don't, then please email and comment below about your fountain of youth potion and magical hand sanitizer!
Plus your employer may even contribute funds to your HSA, decreasing the amount you will have to personally contribute in order to reach your maximum for the year. This will vary for each employer, and some may not have an HSA available in their healthcare package. See your benefits representative at your company to confirm a HDHP is available for you. Another great thing about HSA's is that it is not locked to your insurance provider, like 401K's are locked to your current employer. You can, and many individuals do, shop around for a trustee/custodian with better fees or more investment options. So if your health insurance company has HDHP options, but no HSA option, all is not lost!
Now once you have contributed to your HSA, there will be an account minimum you will need to reach, in order to be eligible to invest these funds. This may be $1K or more, so be sure to check with your account provider. Just like a 401K account, you may have the ability to self-direct these funds in order to make individual stock purchases.
If so, you can use the Share Repurchase Newsletter strategy within this account as well! But if not, and you don't want to shop around for an alternate custodian, you can invest your contributed dollars into low cost mutual funds. After you have maxed out your HSA, the next account you will want to setup is an Individual Retirement Account (IRA).
IRA's - Roth and Traditional
With an IRA you can currently contribute up to $5,500 per year. This may change from year to year, so be sure to check the IRS website, or sites like Fairmark for any updates to contribution limits. Anyone with earned income can contribute to an IRA, but your contributions cannot exceed your income. As an example: Lets say you have a child who earns $4,000 a year, whether working for you (thumbs up to entrepreneurship) or has a summer job. Your child can contribute ALL of their income to an IRA, since it is below the $5,500 maximum. If they make $6,500 then they can contribute the max of $5,500, just like any other adult.
There's no minimum age limit to contribute, only a maximum. For Traditional IRA's, the maximum age limit is 70.5, but there's no maximum age limit for Roth IRA's. However, there are income limitations which may prevent you from being able to contribute to a Roth. I will discuss the differences between a Roth vs Traditional IRA in the future, but the major differences are tax related.
You contribute to a Traditional IRA with pre-tax dollars, and a Roth IRA with post-tax dollars. IRA's have more investment options available than your 401K or HSA account will have, in most cases, if you're not able to self-direct your contributions. You can setup an IRA account with many of the trading platforms out there, including: Motif Investing, TD Ameritrade, E*Trade, etc... If you would like a referral to any platform, visit my links page and enter your information (potential sign-up bonuses!). With an IRA there's no need to request a self-directed account, it's self-directed by default, and you can select from a large list of mutual funds available as well. So you can immediately start investing into individual stocks of your choosing, or using the Share Repurchase strategy of course! Another great thing about an IRA account is that if you leave your employer, you can move the funds from your employers 401K or HSA account to your IRA. You may want to keep your HSA account as is, for medical purposes. There are no fees or penalties for using your HSA for medical reasons as mentioned above, but there are if you use your IRA for medical reasons.
In a future post we will dive further into the differences between Roth and Traditional investment accounts. Don't forget to Subscribe to our Blog for email updates when a new post is released! Subscribe to the Share Repurchase Newsletter to keep up with our monthly picks! The Share Repurchase Newsletter is up 7% so far this year! Feel free to leave any questions or comments below, like, and share this page!
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Akeem The Dream
I enjoy discussing and learning about technology, stocks, sports, and beating my wife at Dominoes! As I learn, I love to share with family and friends so that we can share our knowledge. Thanks for being apart of the journey!