Hanna Atala (Kaufman), CFP®

Traditional vs. Roth: Should you take your tax break now, or later? Sep 23, 2025 12:15:12 PM Picking up where the standard guidance leaves off There can be endless decisions to make when investing. Chief among them: Whether to save for retirement through a traditional IRA and/or 401(k), or the Roth variety. With traditional accounts, you typically invest with pre-tax money, then pay taxes on withdrawals later in retirement. This lowers your taxes today and frees up more money to invest. With Roth accounts, you contribute money that's already been taxed, then enjoy tax-free withdrawals once you turn 59½, with no required minimum distributions. When it comes to which is better, here’s the advice you’ll often hear: Traditionals make more sense if your current tax bracket is higher than where you expect it to be in retirement. And vice versa with Roths. It's a start, but not always helpful in practice. Tax brackets can be confusing, for one, and nobody knows what they'll look like decades from now. People's incomes also ebb and flow with age, as do their tax brackets. Luckily, data from the U.S. Bureau of Labor Statistics can help us eyeball these shifts and plot out when each account type tends to shine brightest. The upward and downward slopes of spending When we look at American's average spending by age, we see it often peaks in middle age and declines as we approach our traditional retirement years. Connecting the dots, this means that traditional contributions often make more sense during the middle portion of workers’ careers. They’re likely earning and paying more in taxes than they will in retirement, so it makes sense to shift some of that tax obligation to a lower bracket down the road. For those with lower incomes, pairing those tax-deductible deposits with the standard deduction can also help squeeze more of their taxable income into the 12% tax bracket. The next bracket takes a big step up to 22%. As one’s income rises, however, another wrinkle may come into play. The IRA income limit exception If your income grows to a certain point (see the table below), you’ll face one of those so-called “champagne problems”: the tax deductions of a traditional IRA will begin to phase out, meaning it’s Roth or nothing if you want at least a partial tax break. Earn even more, and your Roth access will eventually dry up too, although there’s a handy “backdoor” option that’s worth checking out. A 401(k), as a side note, has no income restrictions for either contribution type. 2025 IRA income limits Traditional IRA* Modified Adjusted Gross Income (MAGI) Roth IRA Modified Adjusted Gross Income (MAGI) Full tax deduction $0-$79,000 (single) Full contribution $0-$149,999 (single) $0-$126,000 (married) $0-$235,999 (married) Partial tax deduction $79,001-$88,999 (single) Partial contribution $150,000-$164,999 (single) $126,001-$145,999 (married) $236,000-$245,999 (married) No tax deduction** $89,000 and up (single) No contribution $165,000 and up (single) $146,000 and up (married) $246,000 and up (married) *If covered by a retirement plan at work **Anyone is eligible to make taxable contributions to a traditional IRA Source: IRS This is why blanket statements like “Roths are better” don’t hold much water. The decision boils down to your personal income situation, and that’s subject to change. With Betterment, however, our Forecaster tool does much of the work for you. Simply scroll down to its “How to save” section, and we’ll use your self-reported financial information to suggest not only the optimal order of retirement account types, but whether traditional or Roth contributions make more sense based on your projected future tax bracket. Just be sure to update your info as needed (raises, marital status, etc.) for the most accurate estimates. Now or later? Now that’s one less call to make The traditional vs Roth debate will likely rage on for years. But between content like this, and tools like Forecaster, we do our best to help you quickly clear this common investing hurdle. If your income is trending anything like the averages above, traditional deposits may make more sense, but the advantage will be slight, and it never hurts to hedge. Having both Roth and traditional funds gives you more flexibility when managing your income in retirement. Plus, you can spend less time stressing over the two, and more time building momentum toward your goal.

Save more, sweat less with recurring deposits Feb 3, 2025 10:00:00 AM How one click—and the power of dollar cost averaging—can boost your returns Healthy habits like exercising, eating well, and saving are hard for a reason. They take effort, and the results aren’t always immediate. Except in the case of saving, there’s a simple hack that lowers the amount of willpower needed: setting up recurring deposits. So kick off those running shoes, because you barely have to lift a finger to start regularly putting money into the market. $2, $200, it doesn’t matter. This one deposit setting, along with a little help from something called dollar cost averaging, can lead to better returns. Our own data shows it: Betterment customers using recurring deposits earned nearly 3% higher annual returns. *Based on Betterment’s internal calculations for the Core portfolio over 5 years. Users in the “auto-deposit on” groups earned nearly an additional 2.5% over the last year and 2% annualized over 10 years. See more in disclosures. Three big reasons they fared better than those who rarely used recurring deposits include: When you set something to happen automatically, it usually happens. It's relatively easy to skip a workout or language lesson. All you need to do is … nothing. But the beauty of recurring deposits is it takes more energy to stop your saving streak than sustain it. When you regularly invest a fixed amount of money, you're doing something called dollar cost averaging, or DCA. DCA is a sneaky smart investment strategy, because you end up buying more shares when prices are low and fewer shares when prices are high. A steady drip of deposits helps keep your portfolio balanced more cost-effectively. Instead of selling overweighted assets and triggering capital gains taxes, we use recurring deposits to regularly buy the assets needed to bring your portfolio back into balance. Now it’s time for an important caveat: The benefits of dollar cost averaging don't apply if you have a chunk of money lying around that’s ripe for investing. In this scenario, slowly depositing those dollars can actually cost you, and making a lump sum deposit may very well be in your best interest. But here’s the good news: While DCA and lump sum investing are often presented in either/or terms, you can do both! In fact, many super savers do. You can budget recurring deposits into your week-to-week finances—try scheduling them a day after your paycheck arrives so you’re less likely to spend the money. Then when you find yourself with more cash than you need on hand, be it a bonus or otherwise, you can invest that lump sum. Do both, and you may like what you see when you look at your returns down the road.

The savvy saving move for your excess cash Aug 6, 2024 2:37:52 PM And why taking the “lump sum” leap may be in your best interest We're living in strange financial times. Inflation has taken a huge bite out of our purchasing power, yet investors are sitting on record amounts of cash, the same cash that's worth 14% less than it was just three years ago. High interest rates explain a lot of it. Who wouldn't be tempted by a 5% yield for simply socking away their money? But interest rates change, and we very well could be coming out of a period of high rates, leaving some savers with lower yields and more cash than they know what to do with. So let's start there—how much cash do you really need? Then, what should you do with the excess? How much cash do you really need? Cash serves three main purposes: Paying the bills. The average American household, as an example, spends roughly $6,000 a month. Providing a safety net. Most advisors (including us) recommend keeping at least three months' worth of expenses in an emergency fund. Purchasing big-ticket items. Think vacations, cars, and homes. Your spending levels may differ, but for the typical American, that's $24,000 in cash, plus any more needed for major purchases. If you're more risk averse—and if you're reading this, you just might be—then by all means add more buffer. It's your money! Try a six-month emergency fund. If you’re a freelancer and your income fluctuates month-to-month, consider nine months. Beyond that, however, you're paying a premium for cash that’s not earmarked for any specific purpose, and the cost is two-fold. Your cash, as mentioned earlier, is very likely losing value each day thanks to inflation, even historically-normal levels of inflation. Then there's the opportunity cost. You're missing out on the potential gains of the market. And the historical difference in yields between cash and stocks is stark, to say the least. The MSCI World Index, as good a proxy for the global stock market as there is, has generated a 8.5% annual yield since 1988. High-yield savings accounts, on the other hand, even at today’s record highs, trail that by a solid three percentage points. So once you've identified your excess cash, and you’ve set your sights on putting it to better use, where do you go from there? What should you do with the excess? Say hello to lump sum deposits. Investing by way of a lump sum deposit can feel like a leap of faith. Like diving into the deep end rather than slowly wading into shallow waters. And it feels that way for a reason! All investing comes with risk. But when you have extra cash lying around and available to invest, diving in is more likely to produce better returns over the long term, even accounting for the possibility of short-term market volatility. Vanguard crunched the numbers and found that nearly three-fourths of the time, the scales tipped in favor of making a lump sum deposit vs. spreading things out over six months. The practice of regularly investing a fixed amount is called dollar cost averaging (DCA), and it’s designed for a different scenario altogether: investing your regular cash flow. DCA can help you start and sustain a savings habit, buy more shares of an investment when prices are low, and rebalance your portfolio more cost effectively. But in the meantime, if you’ve got excess cash, diving in with a lump sum deposit makes the most sense, mathematically-speaking. And remember it’s not an either-or proposition! Savvy savers employ both strategies—they dollar cost average their cash flow, and they invest lump sums as they appear. Because in the end, both serve the same goal of building long-term wealth.

Three ways to put your bonus to work Feb 9, 2024 9:15:00 AM Cash windfalls can have the power to supercharge your savings goals. Year-end bonuses are a blessing. And while there’s no guarantee you’ll get one—just ask Clark Griswold—if you do, they can have the power to supercharge your savings goals. So while you wait for that bonus cash, read up on three ways to handle small cash windfalls such as these. Go 50/50: Treat yourself now and save for the future Let’s address the elephant in the room: A lot of us spend the bulk of our bonuses. But there’s a psychological workaround to this temptation: Think of yourself as two people. There’s “present-day” you, flush with cash and eyeing a few items on your wish list. Then there’s “future” you and all of their dreams for major purchases or financial freedom. Since both of you can rightly lay claim to your bonus, the only fair thing to do is split it 50-50. So go ahead: Splurge guilt-free with one half of your bonus, and save the other half. Tax-savvy saving: Use your bonus to get a tax break A lot of companies withhold taxes on bonuses at the IRS-recommended rate of 22%. Less commonly, some companies lump it in with your regular paycheck, and your regular withholding rate applies. Either way, and contrary to popular belief, bonuses aren’t taxed at a higher rate. But seeing your bonus shrink due to any amount of taxes is still rough. Thankfully, you may able to minimize your tax hit with the help of a tax-advantaged retirement account: Boost your 401(k) contributions. In some cases, companies allow employees to make 401(k) contributions with their bonuses. If that’s the case for you, consider funneling “future” you’s half of your bonus into your traditional or Roth 401(k), up to the IRS limits. Traditional for a tax break now, Roth for a tax break later. Max out your IRA. Depending on how much income you make, you may be eligible to deduct traditional IRA contributions from your taxes and/or contribute after-tax dollars to a Roth IRA for a tax break later. Better yet, you have until Tax Day of 2025 to max out your 2024 IRA! Stash the cash: Start earning interest today Tax breaks aren’t the end-all, be-all, of course. In some scenarios, saving your bonus in a high-yield cash account like our Cash Reserve account might take priority. If you lack an emergency fund, for example, or if you’re planning for a major purchase in the near future. However you save or invest your bonus, rest easy knowing you’re striking a good balance between today and tomorrow. Unless your bonus came in the form of jelly, in which case you’re on your own, Clark.

Your year-end investing checklist Dec 1, 2023 12:22:40 PM As the year comes to a close, it's a good time to check in on your investing plan and set yourself up for the year ahead. Checklists make life easier. But if they get too long, they become overwhelming. That’s why our year-end checklist only has five items on it. How to use this checklist: Take five minutes to review the checklist. For each relevant item, schedule an hour of time to sit down and start completing the task. Your future self will thank you. Here's your 5-point checklist: Max out retirement account contributions: Various retirement accounts like 401(k)s and IRAs have different maximum contributions with different benefits. If you have a traditional 401(k), every dollar you invest lowers your taxable income. Keep in mind the deadline to contribute is December 31. For IRAs on the other hand, you have until tax day, allowing you more time to invest. And in a Roth IRA, these dollars grow tax-free once invested. Plan next year's retirement account contributions: Examine your current 401(k) or IRA contributions. Experts typically recommend saving 10% to 15% of your income for retirement. This can be difficult, so we recommend saving as much as you can and automating it ahead of time using scheduled deposits or contributions. At the very least, if your employer offers a 401(k) match, see if you’re able to contribute enough to get what is essentially free money. Consider a rollover: If you have retirement accounts at other providers, review your fees and investment options. If you find higher-than-average fees or limited investment choices, consider if a rollover is right for you. Additionally, rolling over other retirement accounts into a Betterment IRA can streamline your finances by consolidating investments on one platform. Double-check your beneficiaries: Beneficiaries are the people who receive your money if something happens to you. It’s important they stay updated on each account, especially given that beneficiary designations normally take precedence over what’s listed in a will. We recommend reviewing beneficiaries annually or as life changes. Review your goals for next year and beyond: A new car, a vacation, a home renovation, child care—the list goes on. Taking just a small amount of time can set you up to save the money needed to reach your goals (and needs). For short-term goals, we recommend a high-yield cash account to keep your money safe as it grows. For long-term goals, we recommend a diversified portfolio of stocks and bonds. Or both! It’s a new year and a chance to put your financial plans first. Remember: Tackling just one item from the checklist above can make a big difference in your financial life. You got this!

Compound interest: The 8th wonder of the world Dec 1, 2023 11:30:31 AM We show you the power of compound interest and how to visualize projected compound interest on your Betterment accounts. In this article, we show you the power of compound interest and teach you how to use our tools to see how your investing accounts may grow over time. The main idea: Compound interest is when your earnings from investments are reinvested, growing even more earnings or “compounding” over time. It’s one of the ways your savings grow. How it works: Don’t worry, we won’t get into the complicated math. Let’s look at a scenario instead. But first, we need to know that three things go into creating value with compound interest: Rate of return on your investment or savings. Usually listed as a historical annualized return for stock investing or an annual percentage yield (APY) for savings and cash accounts. Frequency of compounding. For stock investing, this means how often you earn dividends and for a savings or cash account, this means how often you are paid interest. Time period for which your money is invested. The longer this is, the more time your money has to compound. Now let's look at a hypothetical scenario. Pretend two people each have $5,000 of savings. Over a five-year period, from August 2018 to July 2023, they each manage their money differently. Person 1: Keeps the $5,000 in a checking account that earns 0% interest. They still have $5,000 in July 2023 because there was no chance for their money to experience compound interest. Person 2: Invested $5,000 into an investing portfolio on August 1, 2018. With dividends reinvested, they averaged 7.4% annualized returns after fees, and on July 31, 2023, their account was worth $7,145. Compounding works the same way in savings or cash accounts that pay interest. For example, our Cash Reserve account allows you to earn a variable rate APY to compound your savings. You generally pay taxes on earnings in both investing and cash accounts, but even with taxes, your money has the potential to grow over the long term due to compound interest. Visualize compound interest on your Betterment investing account: Our mobile app and desktop platform both offer simple tools to help you see how compounding could impact your goals. Mobile app: Navigate to your investing account and view the Projection graph to see a visualization of how your account may compound over time. Desktop platform: To use the goal forecaster, navigate to your investing goal. Select the “Plan” section, then click the “Open goal forecaster” button. Our goal forecaster tool allows you to enter scenarios for deposit and target date inputs. The projection graph will show you the estimated impact of compound interest on your investment portfolio along with the chance of reaching your goal based on your inputs.