Why Consider a Roth IRA Conversion?
• Tax-free growth – Your investments can grow without future tax burdens.
• Tax-free withdrawals – You and your heirs can enjoy tax-free distributions in retirement.
• No required minimum distributions (RMDs) – Unlike Traditional IRAs, Roth IRAs do not require withdrawals during your lifetime.

Key Considerations Before Converting

Do you need these funds within the next 5 years?
• Withdrawals of converted funds within five years may be subject to taxes and penalties. If you’ll need access to the money soon, this may not be the best option.

Will the conversion push you into a higher tax bracket?
• The amount converted is taxed as ordinary income. A large conversion could push you into a higher tax bracket. To manage this, consider converting smaller amounts over several years.

How will you pay the taxes on the conversion?
• Using cash from outside your IRA to pay the tax bill helps maximize tax-free growth.
• If you use IRA funds to cover taxes, your investment balance shrinks.

Will your tax rate be higher now or in the future?
• If you expect to be in a higher tax bracket later, converting now at a lower rate may save money in the long run.
• If your current tax rate is higher than your expected future rate, conversion may be less beneficial—unless you have a long time horizon for growth.

Who is your Roth IRA for?
• If you don’t anticipate needing these funds for your own lifestyle, a Roth IRA conversion can be earmarked for the next generation, allowing up to 10 additional years for tax-free growth.
• However, this remains your asset first and can support your needs if circumstances change.

Final Thought: No Do-Overs
Once you complete a Roth IRA conversion, it cannot be reversed. You must pay taxes on the converted amount in the year of the conversion.

A Roth conversion isn’t inherently “good” or “bad”—it’s a timing decision. The right answer depends on your current tax situation, future expectations, and how this move fits alongside the rest of your financial plan. Thoughtful planning, often done over multiple years, can turn this into a powerful tool rather than an expensive mistake.

The post Basics of a Roth IRA Conversion appeared first on MainStreet Financial Planning.

The truth is, figuring out retirement spending doesn’t start with a magic formula. It starts with looking closely at the life you live today — and the one you imagine for the future. That process is simpler than most people think, but it requires a willingness to pull out the numbers and see them for what they are.

Step 1: Look at today’s spending

The best predictor of your retirement lifestyle is how you spend money right now.

Begin by asking:

• What do I spend each month on housing, food, transportation, and healthcare?
• Which costs are essential versus optional?
• How consistent is my tracking — do I actually know what I spend?

This step may feel basic, but it’s powerful. Using credit card and bank statements to ground your answers in reality helps you “feel” the numbers, not just guess at them. If you need tools to make that easier, see 3 Alternatives to the “Mint” Budgeting App.

Step 2: Separate fixed and variable expenses

A simple but powerful way to think about money is to split your expenses into two buckets:

• Fixed expenses: Mortgage or rent, property taxes, insurance premiums, utilities, basic groceries. These are your non-negotiables — they don’t go away just because you retire.
• Variable expenses: Travel, dining out, hobbies, gifts, entertainment. These are the lifestyle choices that make retirement fun, and they can flex up or down depending on your circumstances.

To get a sense of balance between these categories, many clients also find the 50-30-20 Rule of Thumb helpful — it’s a quick way to compare essentials, lifestyle, and saving against what you’re currently spending.

Step 3: Ask what carries over into retirement

Not all expenses disappear when you stop working. Some shrink, some grow, and others surprise you.

Ask yourself:

• Will I still have a mortgage, or will the house be paid off?
• How will healthcare costs change once I’m on Medicare?
• Will I travel more — or spend less on commuting and work clothes?
• What new hobbies, family support, or giving might I want to add?

You don’t need perfect answers. Even rough estimates highlight what will stay the same, what will change, and what could catch you off guard.

Step 4: Don’t forget the surprises

Even the most careful planners underestimate certain costs:

• Healthcare and long-term care: Premiums, prescriptions, and in-home or assisted care can be significant. Genworth estimates median costs at $5,000–$10,000+ per month.
• Home maintenance: Roofs, HVAC systems, and other big-ticket repairs don’t vanish in retirement.
• Lifestyle creep: More time can mean more spending on hobbies, entertainment, or family experiences.

Step 5: Put it all together with a worksheet

After walking through these steps, the next move is to put your numbers in one place. A Retirement Spending Worksheet helps you:

• Capture today’s fixed and variable expenses.
• Decide which ones continue into retirement.
• Estimate how your costs shift — higher in some areas, lower in others.
• Create a simple snapshot you can revisit every year.

You don’t need perfect answers — even ballpark numbers bring clarity and confidence.

FAQ

Here are some of the most frequently asked questions I hear from clients — they’ll help you gauge if you’re on track as you work through this exercise with the worksheet.

Q: How much does the average retiree spend per month?

A: According to the U.S. Bureau of Labor Statistics, consumer units with a reference person aged 65 or older reported average annual expenditures of about $49,872 in 2020–2021. That works out to roughly $4,150/month.

Q: Will my expenses go down in retirement?

A: Some will (commuting, payroll taxes), but others rise (healthcare, hobbies, travel). That’s why separating fixed and variable expenses matters.

Q: How often should I update my plan?

A: At least once a year, or after big life changes such as paying off a mortgage or a health shift.

Q: What if I don’t know exact numbers?

A: Use ranges or estimates. Clarity, not perfection, is the goal.

Figuring out retirement spending starts with looking at today, separating fixed from variable, and asking which expenses carry forward. From there, you can begin to see your future life with more clarity.

At MainStreet, the clients we work with often find this exercise to be a turning point. What feels vague and overwhelming at first becomes tangible once the numbers are laid out side by side. And while the worksheet itself is simple, the act of doing it is where the real value lies. Pulling out credit card and bank statements, writing down real spending categories, and comparing them to what life might look like in retirement helps make the numbers real.

That’s exactly what the Retirement Spending Worksheet is designed to do — take your best guesses and your real numbers, and turn them into a snapshot you can build on with confidence.

Next step: Download our worksheet and sketch out your numbers. The moment you see them on paper, you’ll feel more in control of your retirement.

Fill out the form to get the worksheet link sent to you and to join our MainStreet Inbox Club

The post How Do I Figure Out What I’ll Really Spend in Retirement? appeared first on MainStreet Financial Planning.

Thanks to the SECURE Act 2.0, the starting age for RMDs has recently changed:

• If you were born between 1951 and 1959, your RMDs begin at age 73
• If you were born in 1960 or later, they begin at age 75

This gives many retirees a bit more time to plan—whether that’s converting to a Roth IRA, using taxable accounts first, or simply letting your money grow a little longer. We covered this in more detail in our article, SECURE Act 2.0 May Change Your RMD Age.

How do RMDs work?

Each year, the IRS uses your prior year’s December 31 account balance and a life expectancy factor to calculate your required withdrawal. You can withdraw more if you’d like, but not less. If you don’t take your RMD by the deadline, you could face a steep penalty—50% of the amount you were supposed to withdraw (though recent law changes now allow for more leniency if corrected promptly).

And keep in mind, RMDs are taxable as ordinary income, so they can impact your overall tax picture, Social Security taxation, and even Medicare premiums. That’s why we always encourage building RMDs into your broader retirement income strategy.

Charitable Giving Strategy: QCDs

If you’re charitably inclined, there’s a smart way to meet your RMD and support a cause you care about: the Qualified Charitable Distribution (QCD). This allows individuals age 70½ or older to donate directly from their IRA to a qualified charity—up to $100,000 per year. QCDs count toward your RMD and don’t increase your taxable income.

We go deeper on how this works in our article, Give Your Way: Exploring the Many Paths to Charitable Giving.

3 Tips to Stay Ahead of RMDs:

1. Track your age and know when your RMDs begin—missing one is costly.
2. Set a reminder for the December 31 deadline each year (except for your very first RMD, which can be delayed to April 1).
3. Work with your financial planner to coordinate withdrawals with your other income sources and tax planning opportunities.

The truth is, RMDs aren’t just about following IRS rules—they’re a key part of managing your retirement income wisely. With the right strategy in place, you can turn RMDs into a tool for reducing taxes, supporting causes you care about, and staying in control of your financial future.

The post Understanding Required Minimum Distributions (RMDs) appeared first on MainStreet Financial Planning.

These small, intentional moves aren’t just about staying organized in the short term—they also help you protect your long-term financial health, including your ability to continue building toward retirement.

1. Plan Ahead for Seasonal Spending

Think about what’s coming: back-to-school shopping, Halloween, Thanksgiving travel, holiday gifts. These expenses can quickly throw off your monthly cash flow—and may even lead to pausing retirement contributions or dipping into savings.

Take a few minutes to map out expected costs and start setting aside a small amount weekly. Even $25–$50 per week can ease pressure later. Look for early deals, repurpose gift cards, and make use of any unused credit card rewards. For more ideas, read our article on Joyful Holiday Spending.

2. Explore Extra Income Opportunities

If your summer schedule allows, consider bringing in a little extra income now to help offset upcoming expenses, without sacrificing your retirement savings goals. This could mean selling items you no longer use, offering a skill-based service, or trying out a small side project.

Even a few hundred dollars can go a long way in preserving your regular savings plan. Check out our tips on Using Credit Card Cashback Rewards for Holiday Spending for additional ways to stretch your money further.

3. Organize and Update Key Documents

Summer is also a great time to review the paperwork side of your financial life. Make sure your beneficiary designations are current, check your insurance coverage, pull your credit report, and revisit estate planning documents. These foundational pieces are essential to protecting the retirement future you’re working toward—and they’re often overlooked during busier seasons.

Final Thought

A quick summer check-in doesn’t require an overhaul. These thoughtful steps—planning seasonal spending, exploring flexible income options, and staying organized—can help you feel more in control today while staying aligned with your retirement goals.

If you’d like to review your progress or make sure your short-term decisions are supporting your long-term plans, we’re here to help.

The post 3 Smart Summer Moves to Keep Your Financial Plan (and Retirement Goals) on Track appeared first on MainStreet Financial Planning.

While AUM advisors may seem appealing, they often come with high lifetime fees and potential conflicts of interest. In contrast, a fee-only, flat-fee financial planner provides transparent pricing, unbiased advice, and comprehensive financial planning—without taking a percentage of your investments.

If you’re searching for a fiduciary financial planner, flat-fee financial planning, or the best alternative to AUM-based advisors, this article will help you decide which model is right for you.

Fee-Only, Flat-Fee Financial Planners: Transparent, Unbiased, and Cost-Effective

A fee-only financial planner charges a fixed fee for financial planning services, regardless of the size of your portfolio. Unlike AUM-based advisors, they do not earn commissions or take a percentage of your investments. Instead, they provide objective, conflict-free financial advice at a predictable cost.

Why a Fee-Only, Flat-Fee Financial Planner is the Better Choice

✔️ Transparent & Predictable Costs – You know exactly what you’re paying, making it easier to budget for financial planning services.
✔️ Unbiased Advice from a Fiduciary – Fee-only financial planners are fiduciaries, meaning they are legally required to act in your best interest. Unlike AUM advisors, they don’t have an incentive to keep assets under management, so their recommendations are truly objective.
✔️ Comprehensive Financial Planning is Included – Many AUM advisors charge extra for estate planning, tax strategies, and retirement planning. A flat-fee financial planner includes these services in a transparent pricing model.
✔️ More Cost-Effective Over Time – Instead of paying an ongoing percentage of your investments, a fee-only financial planner charges a fixed amount for their services—often saving clients hundreds of thousands of dollars over time.
✔️ Best for High-Income Professionals & Retirees – A flat-fee financial planner is ideal for business owners, young professionals, high-net-worth individuals, and retirees looking for financial planning without hidden fees.

AUM-Based Financial Advisors: The Hidden Costs of Percentage-Based Fees

AUM-based financial advisors charge a percentage of the assets they manage for you. A standard fee is 1% annually, meaning that if you have $500,000 under management, you’d pay $5,000 per year—even if you don’t need much ongoing advice.

Why AUM Advisors May Not Be the Best Choice

❌ High Long-Term Costs – A 1% AUM fee may seem small, but over decades, it can cost hundreds of thousands of dollars in lost investment growth.
❌ Conflicts of Interest – Since their fees are based on assets, AUM advisors may hesitate to recommend paying off debt or making large withdrawals for major life goals.
❌ Financial Planning May Cost Extra – Many AUM advisors charge separately for estate planning, tax optimization, and retirement planning—so your total costs could be even higher than expected.

Are There Any Benefits to AUM-Based Advisors?

✔️ Hands-Off Investment Management – If you prefer a professional to handle asset allocation, rebalancing, and investment selection, an AUM-based advisor can actively manage your portfolio.
✔️ Ongoing Portfolio Monitoring – AUM advisors continuously review your investments and adjust strategies based on market conditions and economic trends.

Side-by-Side Comparison: MainStreet’s Fee-Only, Flat-Fee Model vs. AUM Advisors

The Bottom Line: Why a Fee-Only, Flat-Fee Financial Planner is the Best Choice

💡 A Fee-Only, Flat-Fee Financial Planner is the Smarter Choice If:
✔️ You want cost transparency and predictable expenses.
✔️ You prefer a fiduciary financial planner who isn’t incentivized to keep assets under management.
✔️ You want comprehensive financial planning included—without extra fees.
✔️ You want to keep more of your money growing for your future instead of paying it to an advisor.
✔️ You’re a do-it-yourself investor, pre-retiree or retiree, or business owner looking for a fee-only fiduciary advisor.

Find the Best Fee-Only, Flat-Fee Financial Planner Today

🔹 Looking for transparent, fee-only financial planning? MainStreet Financial Planning offers a flat fee structure with no hidden charges, ensuring you receive expert financial guidance without percentage-based fees eating into your savings.

📍 Explore our Money Roadmap Service today and take control of your financial future!

The post How a Fee-Only, Flat-Fee Financial Planner Can Save You $114K+ appeared first on MainStreet Financial Planning.

Inflation – The rate at which prices for goods and services rise, decreasing purchasing power. Moderate inflation is normal, but high inflation can be problematic.

An example of inflation is the U.S. inflation surge in 2021-2022 following the COVID-19 pandemic. During this period:

• Prices of goods and services rose rapidly, with inflation peaking at 9.1% in June 2022, the highest in over 40 years.
• Supply chain disruptions from the pandemic led to shortages, increasing costs for goods like cars, electronics, and food.
• Government stimulus programs and low interest rates boosted consumer demand, adding to price pressures.
• Energy prices soared due to geopolitical factors, including the Russia-Ukraine war, making transportation and heating more expensive.

The Federal Reserve responded by raising interest rates aggressively to slow inflation, eventually bringing it down in 2023.

Deflation – A decrease in the general price level of goods and services, often indicating weak demand and economic trouble.

An example of deflation is the Great Depression (1929–1939) in the United States. During this period:

• Prices of goods and services fell significantly.
• Wages declined, leading to lower consumer spending.
• Businesses reduced production and laid off workers.
• The money supply contracted due to bank failures, reducing available credit.

Deflation is dangerous because it can lead to a downward economic spiral where people delay purchases expecting lower prices, further reducing demand and slowing economic growth.

Disinflation refers to a slowdown in the rate of inflation, meaning prices are still rising, but at a slower pace than before. It’s different from deflation, which is when prices actually drop.

An example of disinflation is the U.S. economy in the early 1980s under Federal Reserve Chairman Paul Volcker. During this period:

• Inflation was high in the late 1970s, exceeding 10% annually due to oil price shocks and loose monetary policy.
• The Federal Reserve raised interest rates aggressively, peaking at around 20% in 1981, to slow inflation.
• Inflation gradually declined from over 10% in 1981 to around 3-4% by 1983, but prices still increased—just at a slower rate.
• Economic growth slowed briefly, leading to a recession (1981-1982), but inflation was successfully controlled.

This period is a classic example of disinflation because inflation was reduced without turning into deflation (where prices actually decrease).

Stagflation – A rare combination of stagnant economic growth, high unemployment, and high inflation.

An example of stagflation is the 1970s oil crisis in the United States. During this period:

• High inflation: Oil prices surged due to OPEC’s oil embargo (1973), leading to increased costs for goods and services.
• High unemployment: Economic growth slowed, and businesses struggled, leading to job losses.
• Stagnant economic growth: Despite rising prices, GDP growth was weak, creating an unusual combination of inflation and recession

Stagnation – A prolonged period of slow or no economic growth, often with high unemployment.

An example of stagnation is Japan’s “Lost Decade” (1990s-2000s). During this period:

• Economic growth was sluggish: Japan’s GDP growth was minimal despite various government stimulus efforts.
• Low consumer and business confidence: People and companies were hesitant to spend or invest.
• High debt levels: The banking system was burdened with bad loans from the burst of Japan’s 1980s asset bubble.
• Mild deflation: Prices remained stagnant or slightly declined, discouraging spending and investment.

This stagnation persisted for years, leading to prolonged economic weakness despite low interest rates and government intervention.

These terms can be quite similar, so I hope this list helps clarify their meanings and enhances your understanding of the articles you read.

The post What is Inflation, Deflation, Disinflation, Stagflation and Stagnation? appeared first on MainStreet Financial Planning.

1. Reflect on the Past Year – Celebrate the wins and learn from the challenges

Before you dive into setting new financial goals, take a moment to reflect on the year that’s passed. What worked well in 2024, and what could have gone better? Reflecting on past goals—whether you hit them or fell short—can help identify areas of strength to build on and weaknesses to address. Research shows that acknowledging even small accomplishments fosters a growth mindset, which boosts motivation and performance. Consider journaling about your key wins and challenges, then use these insights to set more realistic and achievable goals for 2025.

2. Set Clear, Measurable Goals

According to Harvard Business Review, breaking large goals into smaller, measurable milestones increases the likelihood of success. Instead of vague goals like “save more money,” be specific. For example, aim to save $5,000 for an emergency fund or reduce debt by $2,000. The more specific and measurable your goal, the easier it will be to track progress. Break down large goals into smaller, manageable milestones, and celebrate each achievement along the way.

3. Write Down Your New Goals

Don’t just think about your goals—write them down! A study from the Dominican University of California found that people who wrote down their goals were 33% more successful in achieving them than those who didn’t. When you write your goals, you commit to them. Keep them visible—on your desk, refrigerator, or bathroom mirror—to reinforce your dedication and remind you of your priorities every day.

4. Create a Realistic Budget

A budget is telling your money where to go instead of wondering where it went,” says leadership coach and author, John Maxwell. This is one of the most essential steps in building a successful financial strategy. Start by evaluating your income and monthly expenses, then allocate funds toward your savings, investments, and debt repayment goals.

But remember, flexibility is key. Life is unpredictable, so allow room for unexpected costs, while also being realistic about your spending habits. A well-crafted budget isn’t about restriction; it’s about making sure every dollar works toward your bigger financial goals.

5. Prioritize Your Financial Goals

It’s easy to feel overwhelmed by a long list of financial objectives, but research shows that prioritizing goals significantly increases the likelihood of success. Focusing your energy on fewer, high-impact goals allows you to make faster, more meaningful progress.

Start with the essentials, like building an emergency fund or paying down high-interest debt. Once these are under control, gradually shift your focus to long-term goals like saving for retirement or buying a home. By addressing the most urgent goals first, you’ll build the financial security necessary to tackle larger ambitions down the road.

6. Track Your Progress Regularly

Peter Drucker famously said, “You can’t manage what you don’t measure.” Tracking your progress is crucial to staying on track and adjusting your approach when needed. Whether you use a budgeting app like Monarch Money, a spreadsheet, or even a simple journal, monitoring your income, expenses, and savings will help you stay focused and motivated.

Studies have shown that tracking progress increases your chances of success. Regular check-ins allow you to celebrate small wins, stay motivated, and tweak your strategy if things aren’t going as planned. By checking in monthly or quarterly, you can course-correct and make sure you’re always moving toward your goals.

2025 is a year full of opportunities to take control of your finances and build a strong foundation for the future. By setting clear, measurable goals, sticking to a budget, and regularly tracking your progress, you can make this year your most financially successful yet. Stay committed, stay focused, and enjoy the journey toward financial freedom!

The post New Year, New Financial Goals: Five Tips for Setting Yourself Up for Success in 2025 appeared first on MainStreet Financial Planning.

1. Maximize Your Retirement Contributions:

Enhancing your retirement savings not only secures your future but also offers immediate tax benefits. For 2024, the IRS has increased contribution limits:

– 401(k), 403(b), and most 457 plans: You can contribute up to $23,000. If you’re 50 or older, you can make an additional catch-up contribution of $7,500, bringing the total to $30,500.

– Traditional and Roth IRAs: The contribution limit is $7,000, with an extra $1,000 catch-up contribution for those 50 and above, totaling $8,000.

While IRA contributions for 2024 can be made until April 15, 2025, contributing before year-end allows you to benefit from tax-deferred growth sooner.

2. Harvest Tax Losses

If you have investments that have declined in value, consider selling them to offset capital gains from other investments—a strategy known as tax-loss harvesting. You can use up to $3,000 of net capital losses to offset ordinary income, with any excess carried forward to future years. Consult with a tax professional to navigate the complexities and avoid wash-sale rules.

3. Prepay Deductible Expenses

If your itemized deductions are close to the standard deduction thresholds—$14,600 for single filers, $29,200 for married filing jointly, and $21,900 for heads of household in 2024—prepaying certain expenses can help you exceed the standard deduction and maximize your tax benefits. Consider:

   – Mortgage Interest: Making an extra mortgage payment to increase deductible interest.

   – Medical Expenses: Scheduling and paying for medical procedures or expenses before year-end, especially if they exceed 7.5% of your adjusted gross income.

 – Property Taxes: Paying property taxes due in early 2025 before December 31, 2024, keeping in mind the $10,000 cap on state and local tax deductions.

– Tuition Payments: Prepaying college tuition for the upcoming semester may qualify you for education credits, such as the American Opportunity Tax Credit, worth up to $2,500 per eligible student. Be aware of income phase-out ranges for these credits.

4. Bundle Charitable Contributions

If your charitable donations don’t typically exceed the standard deduction, consider “bunching” multiple years’ worth of contributions into one year to maximize your itemized deductions. Establishing a donor-advised fund allows you to make a large charitable contribution in one year, receive the tax deduction, and distribute funds to charities over time. This strategy is particularly effective if you have appreciated securities, as donating them can help you avoid capital gains taxes.

5. Contribute to a 529 College Savings Plan

Contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses are also tax-free. While there’s no federal tax deduction for contributions, many states offer tax benefits. For example, California does not provide a state tax deduction for 529 contributions, but the tax-free growth and withdrawals still offer significant benefits. Check your state’s specific rules to understand the potential tax advantages.

By implementing these strategies before December 31, you can optimize your tax situation and set a strong financial foundation for the upcoming year. Always consult with a tax professional, (we happy to help you as well) to tailor these strategies to your personal circumstances and ensure compliance with current tax laws.

The post Save on Taxes with These 5 Year-End Financial Tips appeared first on MainStreet Financial Planning.

Median emergency savings: $600

An Empower study shows Americans have accumulated a median emergency savings of just $600. This varies by age with older individuals saving more.

• Gen Z median savings $200
• Millennials median savings $500
• Gen Xers have median savings $868
• Baby Boomers median savings $1,000

Average credit score in the US: 715

While credit scores tend to be higher for older individuals, according to Experian, the average score in 2023 is 715 which is considered Good credit.

• Poor credit: 300 to 579
• Fair credit: 580 to 669
• Good credit: 670 to 739
• Very good credit: 740 to 799
• Excellent credit: 800 to 850

Retirement savings at age 67: 10x income

Fidelity estimates that you need to save 10 times your income by age 67 to maintain your current lifestyle in retirement.

Fidelity’s guideline:

• Age 30 1x salary
• Age 40 3x salary
• Age 50 6x salary
• Age 60 8x salary

Note that the success of these estimates actually depends on how much you spend as well as factoring in your other income sources.

401(k) account contribution: 8.0% 

In 2023, Capitalize found the average employee-only contribution was 8%; the average dollar amount of employee-only contributions of $5,993.

Average net worth: $1.06 million

The Federal Reserve 2022 Survey of Consumer Finances report found that the average net worth among all households was $1.06 million among U.S. families.

• Ages 18-34, net worth $183.380
• Ages 35-44, net worth $548,070
• Ages 45-54, net worth $971,270
• Ages 55-64, net worth $1.56 million
• Ages 65-74, net worth $1.78 million
• Ages 75+, net worth $1.62 million

Percentage of Americans with a Will: 32%

Caring.com’s 2024 Wills Survey indicates that only 32% of people in America have a will. This is 6% fewer than in 2023

How did you do? Comparing your financial situation to national averages can provide insight into where you stand, but these are not benchmarks or guidelines of where you should be, just where others are. Your personal goals, values, and circumstances play a much larger role in shaping your financial journey. Rather than focusing solely on how you measure up to others, use these averages as a tool to identify areas for improvement or growth. Ultimately, success in personal finance is about creating a plan that works for you and continually adjusting it to meet your evolving needs and aspirations.

The post How Do You Compare to National Averages? appeared first on MainStreet Financial Planning.

What is an HSA?

A Health Savings Account (HSA) is a special type of savings account that allows individuals with a high-deductible health plan (HDHP) to save money pre-tax for future medical expenses. The funds can be used for qualifying medical costs like doctor visits, prescription medications, dental care, and vision services.

The real beauty of HSAs lies in their triple tax advantage:

1. Tax-deductible contributions: The money you contribute to your HSA is pre-tax, which lowers your taxable income.
2. Tax-free growth: Any interest or investment earnings grow tax-free.
3. Tax-free withdrawals: When used for qualified medical expenses, withdrawals are also tax-free.

How Does an HSA Work?

To open an HSA, you must be enrolled in a high-deductible health plan (HDHP). Contributions to the HSA can be made by both individuals and employers. In 2024, the annual contribution limits are:

– $4,150 for individuals.

– $8,300 for families.

– Those over 55 can make an additional $1,000 catch-up contribution.

One great feature of HSAs is that the funds roll over year after year, unlike Flexible Spending Accounts (FSAs) where unused funds can expire at the end of the year. This makes HSAs a great tool for both short-term healthcare costs and long-term financial planning.

How to Invest Your HSA

Beyond just saving for medical expenses, HSAs offer investment opportunities. Once you’ve built up enough savings, many providers allow you to invest your balance in mutual funds, ETFs, and stocks—much like you would with a retirement account. This allows the funds to grow over time, providing an additional cushion for future medical costs, especially during retirement.

For example, if you can cover your medical expenses out of pocket now, you can let your HSA balance grow tax-free for decades. After age 65, you can even withdraw the funds for non-medical expenses without penalty, although the funds will be subject to regular income tax.

Top HSA Providers

Choosing the right HSA provider is key to maximizing your account’s benefits. Here are three top providers to consider:

1. Fidelity – Best for Investment Options

Fidelity offers a wide range of investment opportunities with no account fees and no minimum balance required to start investing. It’s ideal for those who want to actively grow their HSA funds.

2. Lively – Best for Low Fees

Lively is known for its fee-free structure and flexibility. It partners with Schwab platform for investment options, offering a simple yet robust platform for HSA management.

3. HealthEquity – Best for Automated Investment Help

HealthEquity provides robo-advisor options for those who prefer a hands-off approach to investing their HAS, Vanguard funds as an option. It’s also a great option for employer-sponsored HSAs, offering seamless integration with payroll systems.

What Can You Use an HSA For?

HSAs can be used for a wide range of qualified medical expenses, such as:

– Doctor visits and co-pays.

– Prescription medications.

– Dental and vision care.

– Acupuncture and physical therapy.

After age 65, HSAs become even more flexible, allowing you to use the funds for non-medical expenses without facing a penalty. However, non-medical withdrawals will be subject to regular income tax, similar to traditional IRA withdrawals.

HSAs as a Long-Term Planning Tool

While HSAs are great for covering immediate medical expenses, they also serve as a powerful tool for retirement planning. Medical expenses often rise in retirement, and having a dedicated account that grows tax-free can help ease the burden. Many people use their HSA as a supplemental retirement fund, tapping into it during their golden years for healthcare costs, which are tax-free.

Even if you don’t use all the funds for medical purposes, HSAs remain one of the most tax-advantaged savings accounts available, making them an excellent part of any long-term financial strategy.

Health Savings Accounts offer a unique opportunity to save for medical expenses while also benefiting from long-term tax advantages. Whether you’re looking to reduce your current healthcare costs or build a nest egg for future needs, an HSA can be a key component of your financial strategy.

Take action today:

Look into opening an HSA if you haven’t already, and consider maximizing your contributions to benefit from this powerful financial tool. For those with existing HSAs, it may be time to start thinking about how you can invest those funds for even greater growth.

The post Unlocking the Power of Health Savings Accounts (HSAs) appeared first on MainStreet Financial Planning.