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Education | May 09, 2017

There are Options for Those Who Have Extra Money in Savings

Steven Kohler


In our last blog, we spoke about what to do if you have too much of a safety net parked in your low yield savings account or investment. Here are four suggestions to help you grow the extra money you have available for long term benefit:

1. Max out your company retirement plan

How much you contribute to your retirement account today makes a big difference over time. Contributions to a traditional 401(k) and 403(b) are tax-deductible and are tax-deferred. The more you put in, the more you end up with in accrued interest and appreciation for a more comfortable retirement. Younger savers may consider a Roth 401(k) that is tax deferred, and may provide tax free income in retirement.

2. Check if your plan allows an after-tax option

Although very few employers offer it, there is potential of contributing significantly more to your retirement plan as part of an after-tax option. The IRS pre-tax limits are $18K if under 50 years of age and $24K if you’re over 50. However, the maximum that may be contributed to any-and-all tax-deferred employer retirement plans is $54,000 (or $60,000 if you are age 50 or older). That could mean an additional $36,000 to your 401(k) plan whether you are under or over 50.

3. Roth or other IRA contributions (if allowable)

Note that Roth IRAs are limited to those with income of $196K or below for married couples filing jointly and $133K if filing as an individual. If your income is too high and restricts you from this option, consider a non-deductible traditional IRA contribution and conversion to a Roth IRA. To many, this can represent the best of both worlds: tax deferred growth and tax free distributions.

4. Research deferred annuities

A deferred annuity can be a great way to continue your retirement saving if you’ve already contributed the maximum to other retirement accounts. You can defer taxes on your earnings until you make withdrawals.

Basically, you give a lump-sum payment to an insurance company and in return, you get a guaranteed stream of income for life. In this respect, deferred annuities can be similar to immediate annuities.

However, with immediate annuities, the income kicks in right away. With deferred annuities, the benefit payments don’t start until you choose them to down the road. Because the payments take place so far in the future, you may be able to buy a bigger benefit with a deferred annuity compared to an immediate annuity.

The ideas I’ve outlined above are just a few that are worth considering. However, it’s important to stress that these suggestions may not be right for everybody. I encourage you to speak with a financial planner, your accountant or an HR professional in your business to determine the right opportunities for you.

This material has been provided for general, informational purposes only, represents only a summary of the topics discussed, and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice or recommendations. Rather, they simply reflect the opinions and views of the author. D. B. Root & Company, LLC. does not provide legal, tax, or accounting advice. Before making decisions with legal, tax, or accounting ramifications, you should consult appropriate professionals for advice that is specific to your situation. There can be no assurance that any particular strategy or investment will prove profitable. This document contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information derived from such sources, and take no responsibility therefore. This document contains certain forward-looking statements signaled by words such as "anticipate," "expect", or "believe" that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. As such, there is no guarantee that the expectations, beliefs, views and opinions expressed in this document will come to pass. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. All investment strategies have the potential for profit or loss. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses. The impact of the outbreak of COVID-19 on the economy is highly uncertain. Valuations and economic data may change more rapidly and significantly than under standard market conditions. COVID-19 has and will continue based on economic forecasts to have a material impact on the US and global economy for an unknown period.

Steven Kohler


Chief Planning Officer

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