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How to make tax-efficient withdrawals in retirement Aug 11, 2025 3:59:19 PM Thoughtful planning around retirement withdrawals can help you retain more of your money, allowing for greater comfort and freedom in retirement. Table of contents: Why tax efficiency matters in retirement How brokerage, traditional, and Roth retirement accounts are taxed Choosing your withdrawal strategy: 3 options Advanced tactics for tax-optimized withdrawals Checklist: Creating your withdrawal plan Why tax efficiency matters in retirement Taxes play a critical role in determining how long your retirement savings will last. Without a tax-aware strategy, your retirement income may not last as long as it could. Here’s what you’ll need to consider for retirement: Withdrawals from traditional retirement accounts can inadvertently push you into higher income brackets A higher tax bracket can potentially trigger steeper taxes on Social Security benefits and boost your Medicare premiums. A tax-efficient plan helps delay unnecessary taxation, potentially increasing your net income. The big takeaway: Any unnecessary taxes on your retirement withdrawals can decrease your retirement income and shorten the lifespan of your savings. How brokerage, traditional, and Roth retirement accounts are taxed Most retirees hold assets across three types of accounts, each with its own tax implications. Knowing which bucket to tap—and when—is essential to optimizing after-tax income. Taxable accounts: brokerage and savings accounts Tax-deferred accounts: traditional 401(k) and traditional IRA accounts Tax-free accounts: Roth 401(k) and Roth IRA accounts The table below outlines the differences in how the three account types impact taxes from the time of contribution to the time of withdrawal. Choosing the right mix of accounts for timing withdrawals can help shape a smoother retirement income flow and potentially minimize tax consequences. Choosing your withdrawal strategy: 3 options There are three primary retirement withdrawal strategies used to balance taxes and preserve assets: Sequential “waterfall,” Proportional, and Personalized tax-bracket-aware. These are not one-size-fits-all approaches—the right strategy depends on your finances, account types, and income goals, and can change year to year. A financial planner can help you decide what’s best for you. Option 1: Sequential “waterfall” strategy The sequential “waterfall” strategy is a simple, orderly method where you take withdrawals from one account type at a time, in this order: Taxable accounts Tax-deferred accounts Tax-free accounts This approach maximizes the growth potential of tax-advantaged funds in Roth accounts but may become rigid once required distributions begin. Additionally, retirees may end up paying more in taxes in the middle of retirement during the period when they are withdrawing from tax-deferred accounts. Remember, withdrawals from traditional 401(k)s and IRAs are taxed as ordinary income. Because of this, a proportional withdrawal strategy may be a good fit for retirees with multiple account types. Option 2: Proportional withdrawal strategy A proportional withdrawal strategy is a systematic way to take money from all of your retirement accounts each year in proportion to their current balances. Instead of draining one type of account before moving to the next, you withdraw from each account type—taxable, tax-deferred, and tax-free—based on its share of your overall portfolio. In some cases, retirees may want to draw down taxable and traditional accounts proportionally, and then withdraw from Roth accounts. A proportional withdrawal strategy may provide the following benefits: Smooths taxable income: By smoothing out your taxable income throughout retirement, you can potentially pay less tax on your Social Security benefits and lower your Medicare premiums. Controls RMD impact: Potentially reduces large required minimum distributions (RMDs) later in retirement, which can push you into a higher tax bracket. Enhances longevity: If implemented properly, a proportional withdrawal strategy can make your portfolio last longer into retirement. Here’s an example, using a $1,000,000 portfolio (in reality, more details such as Social Security payments would need to be considered). The retiree would repeat this proportional withdrawal strategy every year, recalculating the ratios as balances change over time. Option 3: Personalized tax-bracket-aware strategy A personalized, tax-bracket-aware withdrawal strategy is a custom method designed to keep your taxable income within a target tax bracket each year. The goal is to make your total tax bill in retirement more predictable and potentially lower over time. Here's how it works at a high level: Fill your target bracket—don’t exceed it: Tap tax-deferred accounts like traditional IRAs or 401(k)s just enough to reach the top of your target tax bracket (e.g., 12% or 22%), then turn to taxable brokerage or Roth accounts for any additional income needed. Revisit your strategy every year: As income from sources like Social Security or RMDs changes, adjust withdrawals to stay within your target bracket. Take advantage of low-income years: After retiring but before major income sources begin, you're often in your lowest bracket. This may be an ideal time for Roth conversions or realizing capital gains at preferential rates. This strategy requires ongoing monitoring, but it may offer strong long-term tax benefits, depending on your specific situation. A tax or financial professional can help tailor it to your needs. Pros and cons of each withdrawal strategy Strategy Pros Cons Sequential “waterfall” • Preserves tax-advantaged accounts for growth • Simple to follow in most scenarios • May trigger more taxes later in retirement from RMDs • Can lead to more taxes during mid-retirement Proportional • Smooths out taxable income over time • Reduces large year-to-year tax swings • May allow savings to last longer • More complex to manage • Does not optimize tax-advantaged accounts for growth Personalized tax-bracket-aware • Keeps income predictably within a desired tax bracket • Allows for tax optimizations using Roth conversions and capital gains in low-income years • Requires regular recalibration based on annual income, Social Security, RMDs, etc • Complex and likely requires the support of a professional tax or financial advisor Advanced tactics for tax-optimized withdrawals Depending on your situation, these advanced tactics may help you reduce your tax bill in retirement. Required minimum distributions (RMD) planning: To start, estimate your future RMD amounts based on account balances and IRS life expectancy tables to avoid unexpected tax spikes. Consider spreading withdrawals across multiple years to avoid bumping into higher tax brackets. As you plan withdrawals, it’s important to coordinate them with Social Security and Medicare to minimize taxes on benefits and avoid surcharges on Medicare premiums. Roth conversions: Roth conversions let you move money from a tax-deferred account like a traditional 401(k) to a Roth 401(k), paying taxes on the converted amount now to help reduce future RMDs and gain access to tax-free withdrawals later. Qualified Charitable Distributions (QCDs): After age 70½, you can donate up to $100,000 per year from your IRA to a qualified charity. These Qualified Charitable Distributions (QCDs) count toward RMDs but aren’t taxable, helping reduce your overall retirement tax bill. Capital gains and tax-loss harvesting: By selling appreciated assets during low-income years, you can potentially pay 0% long-term capital gains rates. Conversely, with tax-loss harvesting, you can sell investments for a loss in higher-income years to offset taxable gains or ordinary income. The more retirement accounts and sources of income that you have, the more complexity is involved. As previously mentioned, working with a tax professional or a financial advisor can help you navigate tax situations that may require a deep understanding of retirement planning. Checklist: Creating your withdrawal plan Here’s a step-by-step checklist to help you build a withdrawal plan tailored to your situation: Estimate annual spending and taxable thresholds, including Social Security and RMD timing. Take stock of your account balances across taxable, deferred, and Roth accounts Choose a withdrawal strategy, working with a tax professional if needed: Sequential “waterfall” Proportional Personalized tax-bracket-aware Plan capital gains and tax-loss harvesting, respectively, for low-income and high-income years Plan Roth conversions strategically during low-income years Schedule QCDs if giving to charity and you’re RMD-eligible Set up annual reviews to adjust for changing income, tax rules, or personal goals Be intentional and plan ahead Tax-efficient withdrawals aren’t just smart, they’re essential for sustaining retirement savings over decades. Whether you prefer a straightforward order, a balanced blend, or a highly adaptive tax-driven strategy, the key is to be intentional about when and how you access your funds. Remember, it can pay off to consult with a tax professional to learn what may work best for you, especially if you have a complex situation with multiple retirement accounts.

5 tips to plan for healthcare costs in retirement Jul 7, 2025 11:01:26 AM Retirement should be a time to enjoy life—here are five tips to ease the stress of planning for healthcare. Healthcare is one of the biggest and most unpredictable costs retirees face. While Medicare provides a foundation, it doesn't cover everything. Planning ahead can help you stay financially prepared and reduce stress later. Here are five key tips to help you plan for healthcare expenses in retirement. Tip 1: Understand how Medicare works Many people assume Medicare covers all health expenses in retirement—but that’s not the case. There are different parts to Medicare, and understanding them can help you avoid unwanted expenses. Part A covers hospital stays and is usually premium-free. Part B covers outpatient care and doctor visits. In 2025, the standard premium is $185/month—but it could be higher depending on your income. Part C (Medicare Advantage) is an all-in-one alternative offered by private insurers. Part D covers prescription drugs. Part A and B together are referred to as “Original Medicare” Medigap plans are offered by private health insurance companies that can help cover out-of-pocket expenses not covered by Original Medicare (such as copayments and deductibles) You must enroll during your initial enrollment period (3 months before and after your 65th birthday month) to avoid late penalties. You can avoid penalties by enrolling in Original Medicare (Parts A and B) during your Initial or special enrollment period (if you qualify due to certain life events)—and potentially reduce out-of-pocket costs by adding Medicare Advantage (Part C) or pairing a Medigap plan with Part D drug coverage. Also, keep in mind that Medicare premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior. Higher earners may pay significantly more. Tip 2: Estimate how much you’ll need for medical expenses Healthcare costs in retirement are much broader than just your monthly Medicare premiums—they include a wide range of expenses that can add up significantly over time. The Milliman Retiree Health Cost Index estimated that a hypothetical couple retiring in 2024 will need $395,000 to cover healthcare if they have Original Medicare plus Medigap and Part D coverage. Where does all that money go? Monthly premiums for Medicare Parts B and D (or Medicare Advantage plans), which often increase with income. Deductibles, copayments, and coinsurance, which are your share of the cost each time you receive medical care. Services not covered by Medicare, such as routine dental visits, vision exams and eyeglasses, hearing aids, and custodial long-term care (like help with bathing, eating, and dressing). Everyday health-related expenses, including over-the-counter medications, supplements, medical devices like blood pressure monitors, or home safety equipment like shower chairs or walkers. Many of these costs are easy to overlook, especially if you're healthy now. But planning for them early can help you avoid financial surprises later. A realistic healthcare budget in retirement should factor in both predictable expenses (like premiums) and variable or unexpected ones (like dental work or mobility aids). Tip 3: Plan for long-term care expenses One of the most commonly underestimated healthcare costs in retirement is long-term care. Medicare does not cover extended stays in nursing homes or full-time, in-home care if it's custodial (help with bathing, dressing, etc.). According to the Genworth 2024 Cost of Care Survey, the median cost of a private room in a nursing home is nearly $10,646 per month, and the costs of an assisted living community is $5,900 per month. To prepare, consider: Long-term care insurance, ideally purchased in your 50s or early 60s. Self-funding, by setting aside a portion of your savings for future care. Medicaid planning, if you expect to need care but may not be able to cover the full cost on your own. Tip 4: Leverage a health saving account (HSA) If you contributed to a Health Savings Account (HSA) while working, you have a valuable tool for retirement. And under certain conditions, you can still contribute in retirement (more on that below). HSAs offer a triple tax benefit: Contributions are tax-deductible Growth is tax-free Withdrawals for qualified medical expenses are tax-free Even though you can’t contribute to an HSA once you enroll in Medicare, you can use the funds tax-free to pay for a wide range of costs in retirement—like Medicare premiums, long-term care, and dental or vision expenses. Tip 5: Plan for inflation in your healthcare budget Planning for inflation is easy to forget but it can pay off, especially if costs rise even more than expected. Historically, medical care prices have generally grown faster than overall consumer prices. According to the Peterson-KKF Health System tracker: Since 2000, the cost of medical care—including doctor visits, insurance, prescription drugs, and medical equipment—has risen by 121.3%. Over that same period, the overall cost of consumer goods and services increased by just 86.1%. From 2027-2032, per capita spending growth on healthcare will increase at an average annual rate of 5.0%. As you make your healthcare budget, planning for inflation can help ensure you’re not caught off guard by rising premiums, medical bills, or care costs down the road. Plan for a brighter retirement At Betterment, we’re here to help you build the future you want. We provide financial resources to help every step of the way. Take advantage of our free educational resources to help you prepare for and navigate retirement.

8 tips for retiring in a volatile market May 27, 2025 12:32:20 PM In this guide, we walk through what to do before and after retirement to help get the most of your retirement savings, especially in a down market. Planning for retirement during a volatile market can be overwhelming—and stressful. Working with a financial professional can ease the burden, but having a solid understanding of your own plan can empower you to have the retirement you want. In this article, we share eight ways to help you make smart retirement moves in a turbulent economic landscape. Before you retire As you near retirement, there are a few proactive steps you can take to get your financial life on solid ground. Tip 1: Reevaluate your asset allocation Market volatility is a good reminder that asset allocation matters. Too much invested in stocks, and your portfolio can be vulnerable to large losses during a downturn. Too much sitting in cash and you’ll be leaving long-term gains on the table. Portfolio allocation is about balancing your needs in retirement. Take some time to think through the following concepts: Time horizon: The length of time you expect to hold an investment before needing to access the money. When you retire, you’ll likely have immediate income needs to fund. With a shorter time horizon until you need to access your retirement portfolio, you have less time to recover from market losses. Income needs: The amount of money you require from your investments to cover living expenses and financial goals. This may or may not change once you retire, and your portfolio will likely be a main source of income. Risk tolerance: As you retire, your ability and willingness to endure fluctuations in the value of your investments may decrease. You can reduce stress by having a portfolio allocation that you are comfortable with during market ups and downs. As you near or enter retirement, it’s likely time to start reducing your stock-to-bond allocation. According to Nick Holeman, CFP®, Director of Financial Planning at Betterment, investors may want to consider lowering their ratio to about 56% stocks in early retirement.. Everyone’s situation is unique, making it wise to talk with a CERTIFIED FINANCIAL PLANNER® to find the right portfolio allocation for you as you near retirement. Tip 2: Build your emergency savings AARP reported that around 30% of Gen Xers (ages 44-59) and 16% of boomers (ages 60-78) have no emergency savings. If you’re in this age range, an emergency fund can be even more important than when you were younger, because you no longer have income from a paycheck. As you think about your emergency fund, here are some tips as you near retirement: Start (or replenish) your emergency fund: If you tap into your emergency fund, slowly rebuild it, even if you are already retired. Having at least three months of expenses can help you survive unexpected events. Already funded an emergency fund? Consider building a larger cash buffer: Planning to increase your cash position before transitioning into retirement can provide peace of mind in the case you retire during a volatile market environment. If able, you may want to consider planning to save up to 12 months' worth of expenses, sometimes more, depending on your situation. Use a liquid account: Using an account that allows easy cash withdrawals, like Betterment’s Cash Reserve, is crucial for your emergency funds. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. Next steps: See the three steps to creating your emergency fund. Tip 3: Plan your Social Security timing and make a budget Deciding when to start receiving Social Security is one of the most important retirement choices, as it impacts your monthly budget for years to come. For your budget, start by figuring out what your retirement lifestyle will realistically look like and what it will cost. It helps to draw up a budget that separates “must-have” expenses (needs) from “nice-to-have” expenses (wants). Once you have an idea of your expenses, working with a financial advisor can help you plan ahead to understand your sources of income, including: Social Security payments Dividends and/or interest payments The amount of withdrawals your retirement portfolio can support over your lifetime Other forms of income (part-time work, pension income, rental income, etc) You can claim Social Security as early as age 62, but your monthly benefit will be permanently reduced. If you wait until full retirement age (~66–67) or even up to age 70, your benefit will be significantly larger. Tip 4: Stress-test your retirement plan Finally, before you step into retirement, it’s wise to give your investing plan a “stress test” to see how it may perform. A simple exercise is to simulate a market downturn right before or after you retire. For example, let’s say your plan was to retire with $2 million and withdraw 4% each month, for a total of about $80,000 per year. Now, imagine the market declines, and your portfolio is down 10%, leaving you with $1.8 million. At a 4% withdrawal rate, you’d now only have about $72,000. Playing out different scenarios of market declines can help you determine how “safe” your retirement portfolio is from volatility, especially if you are relying on it for a certain level of income. Make scenario planning easier. The Betterment app does the math for you, letting you test potential outcomes of different financial situations. And if you need more hands-on advice, our CFPs® can be your guide. Tip 5: Consider delaying your retirement date or earning part-time income If you're concerned about meeting your long-term financial needs, delaying retirement by even 6–12 months can make a meaningful difference—especially in a down market. Extra time working means: More contributions to your retirement plan More time for your investments to grow and recover in a downturn Less time in retirement that you have to fund with your savings When possible, we are trying to avoid what’s called “sequence-of-returns risk”—the danger of experiencing poor market returns early in retirement, which can drastically affect your nest egg’s longevity. By delaying retirement in a downturn, you reduce this risk. After you retire You’ve made it: Retirement. Congrats! Now, here are three tips to help you get the most out of your savings. Tip 1: Stick to your plan and don’t panic-sell during volatility When stocks are tumbling, it’s natural to feel worried. But one of the worst things a recent retiree can do is panic-sell. All it will do is lock in your losses and rob you of any chance for your portfolio to rebound. Research shows that “doing nothing” is generally your best bet during a volatile market. Dating back to 1988, if you decided to invest on any given trading day, 65% of those days would have resulted in a positive investment return over the following month. The share of days with positive returns goes up as that trailing holding period extends. Historically, no matter when an investment was made between 1988 and 2009, the market was higher 100% of the time just 15. You likely have decades ahead of you in retirement. If you planned ahead and have a well-diversified investing portfolio, your best bet is to stay the course. Tip 2: Have a tax-optimized withdrawal strategy Tax planning doesn’t stop when paychecks stop—in fact, it can become even more important in retirement. One key tip to plan for is to withdraw from your account in a tax-efficient order. Generally, tax-efficient withdrawals follow this order: Taxable accounts (Brokerage) Tax-deferred account (Traditional 401k/IRA) Tax-free accounts (Roth) Why? Using taxable investment accounts first allows your tax-advantaged accounts to keep growing sheltered from taxes. Moreover, when you sell assets from a taxable brokerage account, any long-term capital gains are taxed at a lower tax rate (0%, 15%, or 20%) as opposed to IRA withdrawals, which are taxed as ordinary income. Also, things like stock dividends and bond interest in taxable brokerage accounts are being taxed annually anyway. If you spend that cash instead of reinvesting it, you’re not incurring additional tax—you’re simply using what would be taxed regardless. That said, you may experience years of lower taxable income, during which it could make sense to prioritize withdrawals from tax-deferred accounts or consider Roth conversions to fill up lower tax brackets.. When the market is down, converting during a dip means you pay taxes on a smaller balance, and any rebound growth afterward happens tax-free in the Roth account. To understand how a Roth conversion may impact your personal financial situation, we strongly recommend consulting a tax advisor and IRS Publication 590. Tip 3: Be prepared for required minimum distributions Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. According to the IRS, you generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 73. (For more info, see the IRS’s Official RMD FAQs.) So, why are RMDs important to plan for? Simply put: RMDs can raise your taxable income. A sudden spike in income from mandatory RMDs can increase your taxable income, bumping you into a new tax bracket. Without careful planning, a higher tax bracket can potentially result in: Raising your Medicare premiums More taxes paid on Social Security and investment income Shrinking your savings faster than intended Thoughtful tax planning—such as managing withdrawals early, considering Roth conversions, and coordinating Social Security timing—helps spread out taxable income more evenly over retirement and preserves more of your wealth. Plan for a brighter retirement—with an expert At Betterment, we’re here to help you build the future you want. We provide resources and experts to help every step of the way. Education resources: See our library of articles on preparing for retirement. Talk to an expert: Partner with our team of experts for hands-on guidance backed by Betterment’s technology.

Making sense of market volatility Mar 19, 2025 12:15:00 AM During times of market turbulence, it may be tempting to move your money to safer ground. But it’s important to consider the long-term impact of your decisions. As we've seen recently, the stock market can experience significant fluctuations, rising one day and declining the next. With market swings, tariff announcements, and policy changes flying about, you may be wondering what to do and whether now is the time to take action. You’ll hear from many financial advisors, including Betterment, that volatility is natural and often something you simply need to ride out. Which is true. While the temptation to move your money to safer ground is understandable, it’s important to consider the long-term impact of your decisions. You could miss out on growth opportunities or trigger a larger tax bill. Instead of taking immediate action, take a moment to think through your investing strategy, your financial needs, and potential next steps. Start with this question: When will I need my money? It’s impossible to time the market perfectly. But having a clear timeline for your financial goals allows you to prepare for volatile moments and even take advantage of them. A longer time horizon means you can afford to ride out downturns, while a shorter one may require different considerations. We’ll walk through four different scenarios based on time horizon and how you can align your volatility strategy with your financial goals. Staying invested at every stage in life If you’re not yet in the market: Waiting for the “perfect” time to invest often leads to missed opportunities. The best time to start is now, with a diversified portfolio that aligns with your goals. If you don’t need the money for decades: Whether we’re talking retirement, education savings, or just a healthy investing portfolio, if you’ve got decades to go, time is your greatest asset. Market volatility is normal, even if it feels chaotic. Staying invested and making consistent contributions over time will allow you to benefit from long-term growth and compounding. If you need the money in the next five to 10 years: Your investments still have time to recover from a downturn, but start thinking ahead. Make sure your portfolio reflects your risk tolerance while maintaining a focus on growth. As you get closer to your end goal, you may want to plan to shift toward a more conservative allocation of stocks to bonds, or even move money into a high-yield cash account. If you’re retired or nearly retired: In this retirement-specific case, you’re already drawing down on your investments (or will soon begin to). Remember that even though you’re “using” this money, you’ll be retired for a while, so you don’t want to miss out on growth entirely. “Have a plan that includes a mix of safe and growth-oriented investments. A cash or bond ‘bucket’ can cover short-term needs, while equities can support long-term growth,” says Betterment financial planner, Corbin Blackwell, CFP®. How Betterment can help you mitigate volatility While you can’t avoid market volatility altogether, you can take proactive steps to manage your money and financial needs during market downturns. Establishing a thoughtful investing strategy now will pay dividends in the future. Here are three things to consider as you determine your approach: Invest in a well-diversified portfolio: By investing in a diversified portfolio, your money isn’t riding the wave of any individual stock, asset type, or even a country’s performance. For example, the Betterment Core portfolio is globally diversified and has delivered 9.0% annual returns (after fees) since inception.1 Consider enabling tax loss harvesting: One silver lining strategy during market downturns is tax loss harvesting—a tax-saving tool that Betterment automates. TLH is the process of selling an asset at a loss (which can happen especially during market downturns) primarily to offset taxes owed on capital gains or income. Build and maintain an emergency fund: You should work to maintain 3-6 months of expenses. These funds should be stored in an account that’s relatively liquid but still provides some level of growth to help keep up with inflation. Depending on your preferences for risk, growth, and liquidity, we offer a few options: Emergency Fund, our investment allocation built specifically for this use case, with 30% stocks and 70% bonds BlackRock Target Income, our 100% bond portfolios Cash Reserve, our 100% high-yield cash account Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. The big picture If you remember nothing else, remember this: The most important thing you can do is avoid making rash decisions based on short-term market movement. Betterment is here with you every step of the way, helping ensure you make the most of your money, whether the market’s up or down.

Taxes made simple: Getting the most out of your retirement accounts Mar 18, 2025 10:59:42 AM Practical tips to help you optimize your taxes when it comes to retirement planning. When it comes to taxes and your retirement account, a little planning and knowledge can go a long way. This guide covers key planning areas to help optimize your taxes through retirement accounts. In this guide, we cover: Reporting and filing taxes: Traditional and Roth accounts Contribution limits for traditional and Roth accounts Tax benefits of traditional and Roth contributions Reducing your tax bill with the Saver’s Credit Managing withdrawals and Required Minimum Distributions (RMDs) Reporting and filing taxes Taxes aren’t always fun, but here are a few tips to make them easier. How to report traditional and Roth contributions on your taxes When you contribute to a retirement account, whether it’s a 401(k) or an IRA, the way you report it on your tax return depends on the type of account: Traditional accounts: These contributions are generally tax deductible because they're made with pre-tax dollars, so you’ll report them on your tax return. This means that when you contribute to your traditional 401(k) or IRA, your taxable income is reduced by the amount of your contribution, which can lower your tax bill for the year. However, you’ll pay taxes on withdrawals later in retirement. Roth accounts: If you're contributing to a Roth 401(k) or an IRA, those contributions are made with after-tax dollars, so they don't lower your current taxable income. You won’t report these contributions on your tax return. Wondering if an IRA is right for you? Read our blog to see the potential benefits of an IRA in addition to your 401(k). Three practical tax filing tips When you’re ready to file, keep these tips in mind to help everything go smoothly. 1) Use tax preparation software or consult a professional Filing your taxes accurately is essential to capture all your retirement-related benefits. Whether you opt for user-friendly tax software or choose to work with a tax professional, the goal is to ensure you’re making the most of every deduction and credit available. 2) Keep detailed financial records year-round Staying organized is key! Keep a detailed record of all your contributions, receipts, and financial statements throughout the year. This practice not only simplifies tax filing but also ensures you don’t miss any valuable deductions or credits. Plus, some tax preparers will charge an extra fee for disorganized files and paperwork. 3) Use electronic filing for faster refunds If you’re looking to streamline the process even further, consider filing electronically. E-filing is fast and secure, and typically leads to quicker refunds, allowing you to reinvest your money sooner. Contribution rules and limits for 401(k)s and IRAs Each year, the IRS sets limits on how much you can contribute to your 401(k) and IRA. Staying within these limits not only helps you avoid penalties but also ensures you’re making the most of any tax advantages that are available to you. If you’re 50 or older, you’re allowed to make “catch-up contributions.” These extra contributions can boost your retirement savings and offer additional tax advantages—whether you’re in a traditional or Roth account. It’s a smart way to ensure you’re on track as retirement draws nearer. For the 2024 tax year, contribution limits are: 401(k) contributions: Under age 50: You can contribute up to $23,000. Age 50 and older (Catch-up contribution): You can add an extra $7,500, bringing your total to $30,500. IRA contributions: Under age 50: The contribution limit is $7,000. Age 50 and older (Catch-up contribution): The limit increases to $8,000. Tax benefits & savings of retirement accounts At Betterment, we help you automate much of your retirement savings. But even with automation, it’s still good to know the details about the tax benefits so you can select the account type that’s right for your goals. Tax benefits of traditional and Roth contributions There are three potential tax benefits that come from retirement plan contributions: Immediate tax savings (Traditional accounts): Because traditional 401(k) or IRA contributions are made with pre-tax dollars, they lower your taxable income for the year. If you are maxing out your contributions, you could see a significant reduction in your current tax bill, which could even move you to a lower tax bracket, depending on your income level. Tax-deferred growth (Traditional accounts): The money in your traditional 401(k) or IRA grows tax-deferred until you withdraw it in retirement. This allows your investments to compound without being eroded by annual taxes, potentially leading to a larger nest egg. Tax-free withdrawals (Roth accounts): Because Roth 401(k) and IRA contributions are made with after-tax money, qualified withdrawals in retirement are completely tax-free. This can be especially beneficial if you expect to be in a higher tax bracket later on. Reducing your tax bill with the Saver’s Credit For those with low- to moderate-income, the Saver’s Credit is a real game-changer. This credit rewards you for putting money into your retirement accounts by reducing your tax bill directly. It’s like getting a bonus just for saving for the future. You're eligible for the credit if you meet the following: Age 18 or older Not claimed as a dependent on another person’s return Not a student The amount of this credit — 10%, 20%, or 50% of contributions, based on filing status and adjusted gross income — directly reduces the amount of tax owed. Triple tax savings from Health Savings Accounts (HSAs) HSAs are often overlooked as a retirement planning tool. These accounts offer a triple tax advantage: Tax-deductible contributions: These contributions lower your taxable income, reducing the amount of income on which you pay taxes for that year. Tax-free growth: Your investments can increase in value without being taxed annually, allowing your earnings to compound more effectively over time. Tax-free withdrawals for qualified medical expenses: You can withdraw funds to cover eligible healthcare costs without incurring taxes on those amounts. This makes HSAs a powerful way to cover healthcare costs in retirement while also benefiting from significant tax savings. Withdrawals and required distributions Saving for retirement is just the start. As you get into your 50s, it's wise to start planning for how and when to take distributions. Tax implications of early withdrawals Taking money out of your retirement accounts before age 59½ can come with a hefty tax penalty. Not only will you owe regular income tax on the amount, but you might also face an extra 10% penalty. It pays to plan ahead and avoid tapping into your funds prematurely. If you’re in your 50s, check out these four practical tips to help plan for retirement. Understanding Required Minimum Distributions (RMDs) For those aged 73 and older, the IRS requires you to start taking a minimum amount from your retirement accounts each year—known as Required Minimum Distributions (RMDs). Missing an RMD can lead to significant penalties, so it’s important to calculate and plan for them. To learn more about the details of RMDs, read our blog, What is a required minimum distribution?

How auto-enrollment in a 401(k) plan works: Benefits & what it means for your retirement savings Feb 6, 2025 2:36:18 AM The best time to start saving for retirement is…now. Features like auto-enrollment and auto-escalation make it easy to save for your golden years with little effort on your part. If you’re unfamiliar with these features, keep reading to see how they can help you start saving today for tomorrow. While auto-enrollment and auto-escalation have been around for years, some employers are now required to turn on these features due to SECURE 2.0, legislation aimed at helping employees save for retirement. These features are designed to automatically enroll employees into their company’s 401(k) plan and increase contributions over time. So, how does auto-enrollment work, and what does it mean for your retirement savings plan? Scroll down to learn more about: What is auto-enrollment Benefits of auto-enrollment How to check if you've been auto-enrolled in your company’s 401(k) Changing your contribution rate How Betterment at Work can help you optimize your saving strategy What is auto-enrollment in a 401(k)? There are plenty of reasons why people hesitate to set money aside for retirement—daily expenses, not knowing how much to save, not knowing how to sign up, to name a few— but auto-enrollment can make it easy to get started. Companies will auto–enroll new hires at a default rate—typically 3-8%—which you can adjust at any time. Once your money is in the market, you’ll benefit from a little thing called compound interest: The interest your money earns also accrues interest over time. Let’s explore other ways auto-enrollment makes saving for retirement easy… Benefits of auto-enrollment in a 401(k): Automatically save for retirement: Starting a new job can be overwhelming with so many new benefits to consider (healthcare, life insurance, etc), but with auto-enrollment, you can start saving for retirement immediately without having to take any action. Employer match contributions: If your employer offers a match, auto-enrollment ensures you won’t miss collecting this sweet financial boost. Tax advantages: Good news! Since 401(k) contributions are made pre-tax, this lowers your taxable income —which can help you hold onto more of your hard-earned cash. Early and consistent long-term saving: You can stay on track with minimal effort, thanks to auto-escalation. If you’re auto-enrolled, your default rate will increase 1% each year, to a maximum set by your employer (no greater than 15%), unless you adjust the contribution rate yourself. Whenever you log in and adjust your contribution rate, auto-escalation is turned off. By incrementally upping your contribution rate, auto-escalation ensures you’re saving more over time—and simplifies the decision-making process. How to check if you’ve been auto-enrolled in your company’s 401(k): If you’ve never logged in before, you’ll first have to activate your account. Visit betterment.com/accountaccess to get started. Once you’re in, you can see the status of your account by selecting the “Retirement” goal from the left-hand side of the screen. Click on “Activity” to review your past contributions. It’s a good idea to monitor your contribution rate, and increase it when you can. Many experts recommend contributing 10–15% of your paycheck towards retirement so you have enough to live on. 10-15% may sound like a lot, so start with anything you’re comfortable with. Many auto-enrollment plans enroll employees at a low contribution rate, like 3% – but it’s important to keep in mind that that’s just a starting point. The point of auto-escalation is to keep it moving into that sweet spot of 10-15% over time. As always, Betterment is here to help you confidently plan for retirement, with the tools and resources you need to make smart decisions for your money. Remember, small, consistent contributions can really add up. With auto-enrollment and auto-escalation, you can put your savings on auto-pilot, so you can focus on the rest of your life.

How employer 401(k) matching works and why it matters Dec 5, 2024 2:03:08 PM Learn how employer 401(k) matching can boost retirement savings, and why this benefit is essential for a secure financial future. A 401(k) match is one of the most valuable benefits employers offer—yet many employees don’t really understand how it works, or how to take advantage of it. In 2023, 68% of U.S. employees surveyed in our Retirement Readiness Report received a 401(k) match—of those who didn’t, a whopping 92% named it as the benefit they’d most like to receive. So, what makes a 401(k) match so enticing? Below, we’ll explore: Different types of 401(k) matches How to make the most of a 401(k) match Vesting schedules How Betterment can help you take advantage of your employer match What is a 401(k) match? A 401(k) match is when employers contribute to your 401(k), matching a percentage of your salary—to help grow your retirement savings. But not all matches are created equal. Knowing what kind of match your employer offers is important, and there are a few variations, including: Dollar-for-Dollar Match: The employer matches each dollar contributed to the 401(k), up to a specified percentage. This amount varies by employer but typically ranges from 3-6% of the employee's salary. Here’s an example: Jack makes $80,000/ year, and puts $8,000 annually into his 401(k), which is 10% of his salary. His employer contributes up to 3% of his salary, or $2,400. Jack’s total contribution for the year, with the employer match, is: $10,400. Partial Match: The employer matches a percentage of the employee’s contributions. For example, the employer might match 50% of contributions, up to 6% of the employee’s salary. Let’s take a look, using Jack’s $80,000 salary: Jack contributes 10% of his salary, or $8,000. 6% of his salary is $4,800. If his employer contributes 50% up to 6% of his salary, the employer contribution is: $2,400/ year. Jack’s total contribution, with the employer match, is: $10,400. Tiered Match: The employer matches a percentage of contributions up to a limit, then offers a different percentage above that threshold. For example, the employer might match 100% up to 3% of the employee's salary, and then 50% on the next 3%. Jack contributes 10% of his $80,000 salary to his 401(k), which is $8,000 per year. His employer matches 100% of the first 3%, which is $2,400, plus 50% on the next 3%, which is $1,200. The employer contribution is $3,600 for the year. Jack’s total contribution, with the employer match, is $11,600. 401(k) Match on Student Loan Payments: With new SECURE 2.0 legislation, employers can now make 401(k) contributions based on qualified student loan payments. This means your student loan payments can unlock retirement savings—even if you’re not contributing directly to your 401(k). Over the last decade, student loan debt has increased by 56%, making it harder for many to save for retirement. Betterment is proud to have been the first to offer a 401(k) match on student loan payments. If Jack earns $80,000 per year and pays $500 per month toward his student loans, totaling $6,000 annually. His employer offers a 100% match on contributions up to 4% of his salary—whether he allocates contributions solely to student loan payments or splits them between student loan payments and 401(k) contributions. Based on Jack’s payments, his employer will contribute $3,200 per year directly to his retirement plan. How to maximize your employer match Once you’ve determined what type of 401(k) match your employer offers, you’ll want to make sure you’re getting the most out of it. Here are some things to keep in mind: Get started as soon as possible: First, you’ll need to claim your 401(k) if you haven’t already. The sooner you start saving, the longer your contributions will have to grow, compounding over time (think of it as a snowball rolling downhill). Contribute enough to get the full 401(k) match: Don’t leave money on the table. Although some experts recommend contributing 10–15% of your paycheck, you can start smaller, increasing when it works for you. Pro tip: If you get a raise, you might want to consider increasing your contributions. Review vesting schedules: Some employers require you to stay with the company for a certain time before the matched funds are completely yours. We’ll dig into more on that below. Traditional vs. Roth 401(k) contributions with a 401(k) match If your employer offers a traditional 401(k) and a Roth 401(k), you can choose where to put your money. With Betterment, employer matching contributions go into a traditional 401(k), but this can vary with other plan providers. These contributions are tax-deferred. You won’t have to pay taxes on them until you withdraw the funds in retirement. Understanding vesting schedules You’ll want to read up on your company’s vesting schedule, so you know when you fully “own” your employer’s contributions to your 401(k). Immediate vesting means there is no waiting period. Once the employer contributions land in your account, they are fully yours. If you leave the company, you can take 100% of the matched contributions with you. With graded vesting, you gradually gain “ownership” over the employer match contributions. For example, you might get 25% after the first year, 50% after the second, and so on. Understanding your company’s vesting schedule is critical for making long-term career decisions. If your employer contributes to your 401(k), Betterment can help you track contributions, optimize your saving strategy, and ensure you’re making the most of your match. Ready to get started? Claim your account at betterment.com/accountaccess. Want to check to see if your employer offers a match? Log in to review your account.

How to pick a 401(k) contribution rate Nov 4, 2024 9:00:00 AM Your 401(k) contribution rate - also known as a deferral rate or savings rate - is a key part of a successful retirement strategy. You’ve taken that first step and have set up your Betterment 401(k) account - well done! One important piece to consider next is your contribution rate - how much from each paycheck will go into your account? With your Betterment 401(k), you could use a percentage or a fixed dollar amount, whichever you prefer. Here are a few other things to consider: Were you automatically enrolled? Many employers choose to automatically enroll their employees in the plan with a default contribution rate of 3% – if you're not sure, please check with your employer or take a look in your Retirement goal. Keep in mind, whatever the default contribution rate is, it’s just a starting point. You can (and probably should) increase that contribution rate at any time in your account. At least a decade without a paycheck Most experts recommend contributing 10%–15% of your paycheck to have enough to last you through retirement - which could be 20-30 years considering how long people are living! If you retire at age 65, with a healthy lifestyle and no major risk factors, you could live well into your 80s or 90s. That means you'll want to set yourself up for living off your personal savings and investments for about 20 years! Starting small is better than nothing If 10-15% of your paycheck sounds absurd to you right now - deep breath, think of that as something to aim for. You can start with something smaller, maybe 5 or 6%, and slowly but surely increase your savings rate every year – your birthday? Give yourself a gift and increase it by 1%. Your work anniversary? Cheers to you, bump it up again. And those 1% increases can actually be a big deal. Go for the max Because of its tax benefits, the IRS sets a limit on how much you can put into your 401(k) every year. So you could aim to contribute as much as the IRS allows! For people 50 and over, the limit is higher, which is referred to as “catch-up contributions.” And if you really want to be an over-achiever, you can also contribute to an IRA, an individual retirement account, to save even more. Tax considerations With your Betterment 401(k), you can make contributions into a traditional 401(k) account and/or a Roth 401(k). There are tax benefits to both: Traditional 401(k): Contributions are deducted from your paycheck before taxes are withheld, which can lower your taxable income. Both your contributions and investment earnings are “tax-deferred,” meaning you won’t pay taxes on what you contributed to the account as well as any earnings until you withdraw the money at retirement. In other words, save on taxes now, pay taxes later. Roth 401(k): Contributions are made with after-tax dollars so your withdrawals—both the contributions and earnings—are tax-free once you decide to retire (minimum age, 59½), and as long as you’ve held the Roth account for at least five years. In other words, pay taxes now, no taxes later. Remember that you can use both! Say you want to contribute 10% towards your retirement? You can put 5% into a traditional 401(k) and 5% into the Roth 401(k). This is one way you can balance your tax exposure. If you already have your account set up, log in today to adjust your contribution rate or reassess your traditional and Roth contributions. Haven’t started saving in your Betterment 401(k) yet? Check your email for an access link from Betterment, or get in touch: Send us an email: support@betterment.com Give us a call: (718) 400-6898, Monday through Friday, 9:00am-6:00pm ET