3 Financial Moves To Make

It’s also usually recommended that individuals set up an individual retirement account (IRA for short) so they can make retirement contributions outside of just their 401(k). IRA’s have a contribution limit of $6,000 per year, which can really boost your overall cushion of retirement savings. Plus, you don’t have to work with an employer to open up an IRA — you can set up an account for yourself through Fidelity or Charles Schwab, or through robo-advisors like Wealthfront and Betterment.

But if you’ve addressed those accounts and still have some discretionary income, you can take your contributions to another level. Malani recommends beginning to invest your money beyond just your retirement accounts.

You might consider opening a taxable brokerage account to invest in stocks, ETFs, index funds or mutual funds. If you don’t want to put in too much work to manage your additional investments, or if you’re still new to investing, you might consider putting your money in index funds. This type of asset is a passively managed fund that allows you to put money into a basket of the largest US companies with low fees and minimal risk. Mutual funds, by comparison, are actively managed by a fund manager and usually carry higher fees.

Select narrowed down some of the best investing apps and Betterment made it out on top for its automated investing features, and Robinhood was recommended for those who want a more hands-on approach to their investing.

“Work with your accountant to find the ways in which you can lower your taxable income,” Malani says. “One big way [to do that] is by investing in your 401(k), especially up to your company match.”

Generally, contributions you make to retirement accounts — like your 401(k), 403(b), or IRA — can be deducted (partially or fully) from your taxable income. Just keep in mind that there are limits for which levels of income and tax filing statuses qualify for such deductions, so you might want to work with an accountant to figure out whether or not you’re eligible.

Another way to lower your taxable income is to contribute to a Health Savings Account (HSA, for short). HSA accounts allow you to contribute a portion of your paycheck (pre-tax) to save for qualifying medical expenses — but the money in an HSA can also be invested and the growth is tax-free. After age 65 you can withdraw your HSA funds for non-medical expenses, although you will have to pay regular income tax on those withdrawals.

For more personalized strategies for lowering your taxable income, you should speak to a certified financial planner. A CFP would be able to make recommendations based on your entire financial picture and your goals.

According to Malani, some high-earners actually save more money for retirement than they actually need to. While it’s always nice to know that you have enough money and won’t outlive your retirement savings, stashing away too much money and not being able to spend it all means you’ll need to figure out how to divvy up the remaining cash amongst your beneficiaries. But you might also realize down the line that you could have afforded to spend more for enjoyment prior to retiring.

“We see HENRYs over-saving for retirement all the time,” Malani explains. “Remember that retirement looks different for everybody so there is no one size fits all advice. If you are a HENRY looking for a more traditional retirement, there are ways you can prepare for the lifestyle you’d like in your last 30 years without compromising your lifestyle today.”

Individuals who are high earners and have extra discretionary income may be in a place where they can begin to make financial moves beyond basics like having a fully funded emergency account and investing in their workplace 401(k).

High earners might consider investing in non-retirement brokerage accounts and working with a professional to find ways to lower their taxable income. They can also benefit from getting advice from a CFP when it comes to ensuring they don’t over-save for retirement.