Kelly Chambers

Taxes made simple: Getting the most out of your retirement accounts Mar 6, 2026 2:15:00 PM 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 2026 tax year, contribution limits are: 401(k) contributions: Under age 50: You can contribute up to $24,500. Age 50 and older (Catch-up contribution): The limit increases to $32,500. IRA contributions: Under age 50: The contribution limit is $7,500. Age 50 and older (Catch-up contribution): The limit increases to $8,600. 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 to plan for the cost of living in retirement Sep 16, 2025 9:00:00 AM Follow these three steps to plan the retirement lifestyle you want. Key takeaways for planning your retirement lifestyle: Retirees typically need 55-80% of their pre-retirement income, though actual costs vary based on lifestyle, location, and healthcare needs. The largest expenses in retirement can be where you live, travel and activities, and healthcare. It’s important to understand your income sources and create a plan for withdrawals from retirement accounts. A flexible three-category budget system can help retirees plan ahead and should include: fixed essential costs, discretionary expenses, and irregular one-off expenses. Don’t forget to factor in inflation when budgeting for expenses during retirement. What is the average spending in retirement? Retirement spending varies, but the average is almost $59,000 per year for a retired household, according to the Federal Reserve Bank of St. Louis. Keep in mind, that’s just an average. Your retirement spending could be higher or lower depending on your lifestyle choices, where you live, and your health needs. Planning tip: If you know your annual income today as a preretiree, expect to spend between 55 percent and 80 percent of that amount every year throughout retirement. That range is intended to be an estimate for planning purposes and can help you quickly gauge if you’re savings and Social Security income is large enough to cover retirement. Three steps to retirement-lifestyle planning Understand your retirement expenses. Plan your retirement income. Establish your baseline retirement budget. We’ll walk through each, then give you a simple checklist at the end. Step 1: Understand your retirement expenses It’s common for the following three items to be the largest expenses in retirement: Where you live: Housing is often one of the biggest expenses. You may need to consider downsizing or moving to a lower-cost area depending on your needs and the amount you have saved. Travel and activities: Retirement is the perfect time to explore new places and hobbies. Consider creating a “fun fund” (or a goal on Betterment’s platform) for trips and activities with a spending ceiling you can dial up/down based on markets. Healthcare: Healthcare costs can rise with age. You’ll need to factor in Medicare premiums, out-of-pocket expenses, and potential long-term care needs. (For tips, read: 5 tips to plan for healthcare costs in retirement.) In addition to housing, travel, and healthcare, you’ll want to take into account your daily living expenses for things like food, clothing, and transportation. Step 2: Plan your retirement income Income in retirement can come from many different sources. Review what is available to you and how to combine income from different sources to make your funds last as long as possible. This can get complex pretty quickly, so it could be good to work with a financial planner. Social Security payments: Social Security is a reliable income source. Decide when to start claiming benefits to maximize your payout. (See the 7 questions every retiree should ask about claiming Social Security.) Annuities: Annuities can provide a steady income stream. Consider fixed or indexed annuities to supplement your retirement income. If you’re uncertain, talk to your financial advisor to see if annuities make sense for you. Pensions: If you have a pension, understand how it fits into your retirement income. You’ll need to know your payout options and any spousal benefits. Create fixed income ladders: Use CDs, T-bills, or bond ladders to avoid selling stocks in a downturn. Laddering is an investment strategy that entails purchasing multiple financial products with different maturity dates to deliver income over time. Plan withdrawals from retirement savings: Use a retirement withdrawal strategy that balances income, taxes, and asset preservation. The right strategy can help your savings last longer and reduce your tax burden. (For more info, read: How to make tax-efficient withdrawals in retirement.) Step 3: Establish your retirement budget Now that you know your retirement cost drivers and income sources, you can create a budget to fit your lifestyle. To start, separate your retirement costs into three buckets using the table below. Begin with your fixed essential costs to make sure you can cover must-have expenses.Each year, take the time to review your three budget buckets to make sure your retirement income aligns with your expense needs and expectations. Budget pro tips: Keep these in mind to get the most out of your budget. When calculating expenses, remember to factor in inflation of around 2 to 3 percent. Consider keeping a “cash buffer” in cash-like assets (CDs, T-bills, short-term bonds), or a Cash Reserve account, that is large enough to cover 1 to 2 years of living expenses. Be flexible and adjust your discretionary spending based on markets—it’s okay to spend a bit more in good years and cut back when the market underperforms. Create a three-year plan for large travel activities to ensure your trips have funding ahead of time. Conduct an annual “retirement lifestyle audit” to refresh next year’s budget and consider potential changes to your long-term needs. Plan today to enjoy tomorrow Retirement lifestyle planning is about creating a sustainable and enjoyable future. By estimating your expenses, planning your income, and establishing a solid budget, you can navigate this new chapter with confidence. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. 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Claiming Social Security: 7 questions every retiree should ask Jul 10, 2025 9:00:00 AM A short guide to understanding how Social Security works. If you’re like many Americans, Social Security is one of the most important pieces of your retirement planning. You’ve worked hard, paid into the system, and now it’s time to figure out how and when to claim the benefits you've earned. But with so many rules, options, and trade-offs, deciding when to start can feel overwhelming. Don’t worry — Betterment has you covered. This short guide breaks down seven questions to help you make sense of claiming Social Security benefits. Am I eligible for Social Security benefits? If you’ve worked and paid into Social Security for at least 10 years, you’re most likely eligible to receive benefits. The Social Security Administration tracks your work history using “credits.” You can earn up to 4 credits per year, and most people qualify for retirement benefits after earning 40 credits. You can start collecting benefits as early as age 62, but the longer you wait (up to age 70), the bigger your monthly checks will be. When can I claim Social Security? You have three main options when it comes to timing: Early retirement (age 62): You can start collecting in your early 60s, but your monthly benefit will be permanently reduced up to 30% less than if you wait until full retirement age. Full retirement age (FRA): This is between the ages of 66 and 67, depending on when you were born. You’ll get 100% of your benefit if you wait until your FRA. Delayed retirement (up to age 70): Social Security benefits increase by a certain percentage each month you delay receiving payments beyond full retirement age. These are called Delayed Retirement Credits. Quick Tip: Not sure when your FRA is? If you were born in 1960 or later, it’s age 67. Should I wait to claim Social Security? Timing your claim isn’t just about the numbers. It’s about what’s best for your life. Here are a few things to think about: Health: If you’re in poor health, it might make sense to claim early. Longevity: If you expect to live into your 80s or beyond, waiting could be a worthwhile strategy. Other income: Do you have a 401(k), pensions, IRAs, or rental income? You might not need Social Security right away, so waiting could make sense. Everyone’s situation is unique. It’s important to balance short-term needs with long-term security as you make your decision. How much will I get from Social Security? Monthly benefit amounts vary widely from person to person.. The Social Security Administration looks at multiple factors and plugs them into a formula to determine your payment. What you get depends on: Earnings history: What you earned during your 35 highest-earning years of work. Age at claiming: You can claim Social Security benefits as early as age 62, but benefits are permanently reduced if you start before your full retirement age. Delaying benefits: If you delay starting benefits beyond your full retirement age, your benefit will increase by a certain percentage each year until age 70. Other factors: Your marital status and whether you are claiming as a worker, spouse, or survivor also affect your benefit amount. Want a rough estimate? The Social Security Administration has a benefits estimator you can use to see what your checks might look like. How does Social Security work if I’m married, divorced, or widowed? If you're married, divorced, or widowed, there may be additional options to consider: Spousal benefits: If your spouse earned significantly more than you, you might be eligible for up to 50% of their benefit, even if you’ve never worked. If a spouse is also eligible for benefits based on their own work record, they will receive the higher of the two amounts. Divorced spouses: Divorced individuals can potentially receive Social Security benefits based on their ex-spouse's earnings record, even if they remarry, provided certain conditions are met. For instance, the marriage must have lasted at least 10 years and the divorced spouse must be at least 62 years old. Survivor benefits: If your spouse passes away, you may be eligible if you are age 60 or older (age 50–59 if you have a disability), were married for at least nine months before your spouse's death, and didn’t remarry before age 60 (age 50 if you have a disability). Learn more about Survivor Benefits. There are also strategies like one spouse claiming early while the other delays to boost long-term income. Will I owe taxes on my Social Security benefits? Maybe. Social Security benefits can be taxed, depending on your total income. This surprises many people, so it’s worth factoring into your retirement planning. The IRS looks at something called provisional income, which includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. Here’s a quick look at the thresholds: Percentage of Social Security income taxed? Single filers combined income thresholds Married couples filing jointly combined income thresholds 0% is taxed Less than $25,000 Less than $32,000 Up to 50% is taxed $25,000–$34,000 $32,000–$44,000 Up to 85% is taxed Greater than $34,000 Greater than $44,000 These calculations can be complex, so you may want to speak with a tax professional to better understand your specific situation. Can I work and claim Social Security? If you’re still working and claim your benefits before your full retirement age, there’s an earnings limit that, once reached, will reduce your payment. In 2025, that limit is $23,400. If you go over the limit, the SSA withholds $1 in benefits for every $2 you earn above the limit. In the year you reach full retirement age, the Social Security Administration deducts $1 in benefits for every $3 you earn above a different limit. Once you reach your full retirement age, that earnings limit goes away, and you’ll get any withheld benefits back over time. Takeaway: If you're planning to work part-time in your early retirement years, pay attention to how much you're making. Plan for a brighter retirement At Betterment, we know planning for Social Security and retirement can be challenging. But that’s why we’re here—to help you build the future you want. We provide financial resources every step of the way. Take advantage of our free educational resources to help you prepare for and navigate retirement.

Start small: A 3-step roadmap to building your 401(k) savings Mar 25, 2025 9:00:00 AM Building your 401(k) savings is about putting yourself first. Here are the steps you can take to start today. For many people, saving for retirement feels hard. It’s easy to put off saving when there are more pressing financial needs or when retirement feels far away. That’s totally normal to feel. Here’s the thing: You don’t have to choose between financial stability today and retirement security tomorrow. You can do both with the right plan in place. The 3-step roadmap to start saving for retirement It all starts with putting yourself first. But that’s often not what happens. Instead, many of us put our money towards: Spending on monthly purchases (groceries, bills, entertainment, etc) Paying off some debt with anything left over Saving for retirement with what’s left after that The problem with that is clear: by the time one covers monthly expenses and pays off some debt, they might not have anything left to save. The easiest way to remedy the situation? Flip that list on its head. Here’s a 3-step roadmap to start actively building your 401(k) savings: Start with a 2% contribution to your 401(k) Prioritize your high-interest debt payments Build a budget around your 401(k) savings and debt payments You may be thinking, “What if I don’t have enough money left to pay for expenses?” That’s a fair question, and in some cases, that may be true. But if you start by putting yourself in a position to save, you can always make adjustments as life changes. Let’s walk through each step… Step 1: Start small and build up your 401(k) contributions It's a common misconception that you need a substantial income to begin investing. In reality, starting with small, consistent contributions can lead to significant growth over time. Try starting with just a 2% 401(k) contribution rate: If you earn $60,000 per year, contributing 2% means setting aside just $1,200 annually—or about $100 a month ($50 per pay period). At first glance, $100 a month may feel like a lot. But if you break it down, it might be the cost of a couple of takeout meals or a few streaming subscriptions each month. Small, manageable changes can help you build a strong financial future without overwhelming you today. Let’s assume Natalie and Nathan both make $60,000. Natalie starts contributing 2% to her 401(k) today. After 10 years of consistent saving, she needs to stop making contributions (because of a life event). She reduces her rate to $0/month. During the previous 10 years, she contributed $12,000 out of her paycheck, and with an 8% rate of return on her investments, her balance grew to $300,173 by the time she was ready to retire. . On the other hand, Nathan put off contributing to his 401(k) for 10 years. He then saved $100/month over the course of 35 years, or $42,000 out of his paychecks. When it was time to retire, his account balance was $230,524. It may seem unlikely that Natalie ends up with more money after only contributing for ten years, but that’s the power of time in the market. As your financial situation changes, you can always adjust your contribution rate. If 2% feels like too much, start with 1%. It’s important that it feels manageable now. You can always increase when you’re ready if you get a raise or a promotion or pay off a debt. Step 2: Prioritize your high-interest debt payments OK, after deciding how much to contribute to your 401(k), step 2 is all about being strategic with paying off debt while investing. It’s about finding the right balance between immediate financial needs and long-term security. You can follow these steps: Prioritize high-interest debt first: For example, if you have credit card debt with a higher interest rate, it makes sense to prioritize paying it down. Take a close look at any debt with an 8%-plus interest rate. Next, pay lower interest debt: Lower interest debt may be things like a mortgage, student loans, or potentially a car loan payment. Here are some additional important considerations when it comes to debt: Make at least the minimum debt payments. This will help pay off debt faster and avoid issues like penalty fees or going into collections. Take a close look at high-interest debt: In some cases, if you have too much high-interest debt, you may want to hold off on saving for retirement until it feels manageable to you. If that’s the case, once you’ve paid off enough high-interest debt, you can begin investing for the long term. But if you mainly have low-interest debt, your 401(k) investment returns can outpace your lower-interest debt. Bonus: If you’re making qualified student loan payments, your employer may be able to contribute to your 401(k) on your behalf, even if you’re not contributing directly. Login to your Betterment account to see if your employer offers a match on your student loan payments. Step 3: Build a budget around your 401(k) savings and debt payments Now that you have an idea of how much you want to contribute to your 401(k) and how much debt you need to pay off, let’s build a budget around that. Budgeting is very personal and looks different for everyone. But to help start, you can use a budget framework like the 50/30/20 rule: 50% of income goes to essentials (housing, food, bills, etc) 30% goes to discretionary spending 20% goes to financial goals (a mix of debt repayment and retirement savings) The exact percentages may look different for you, but the 50/30/20 rule serves as a solid guideline. Here’s how to create your budget: To build a monthly budget around your 401(k) savings and debt payments: Add up your monthly 401(k) contribution and debt payments Next, add up all of your monthly living essentials like housing, food, and bills Finally, estimate your monthly discretionary spending, like entertainment and going out to eat Once you have a total budget, compare that to your monthly take-home income. If your budget is more than your take-home income, look for areas in your discretionary spending to cut first. If you can’t cut enough discretionary income, then review your debt payments and 401(k) contribution amount to rework them into a manageable budget. The goal isn’t to stretch yourself too thin—it’s to take small steps forward in saving for retirement and paying off debt while still being able to enjoy life. Start small today With the uncertainty of Social Security and rising inflation, relying solely on traditional savings accounts may not be enough. Your 401(k) helps you take control of your financial future—so instead of seeing it as an expense, think of it as paying your future self—there’s a good chance it will be your main source of income in retirement. Betterment is here to help you As always, we’re here to help you confidently plan for retirement with the tools and resources you need to make smart decisions for your money. Ready to start saving? Claim your account at betterment.com/accountaccess.