All clients at Farther are set up with an Emergency Fund, Traditional IRA, and Long-term Savings Fund. In addition, you can set up Roth IRAs, Large Purchase Funds, 529s (coming soon), and Donor Advised Funds (coming soon) depending on your personal savings goals. Here’s a little more information about each:
- Emergency Fund - An emergency fund is money you can count on to quickly withdraw and pay for an unexpected financial burden. We recommend keeping between 3-6 months worth of expenses in these accounts.
- IRA – Individual Retirement Accounts – IRAs are usually your first choice account for retirement saving. They allow you to save up to a maximum amount each year for your retirement nest egg, and invest that money into most types of investments. Depending on the type of IRA you invest in, you’ll either pay taxes before you contribute (Roth) or when you withdraw (Traditional). There are limits that prevent you from saving into Roth accounts above a certain income level, and a 10% penalty applies if you withdraw before you’re 59.5 years old.
- Long-term Savings Fund - A taxable account for funds that are not otherwise allocated to specific goals.
- Large Purchase Fund - A taxable account specifically managed to grow and be there for a large purchase like a house down payment in the future.
- 529 – State sponsored college savings plans – State-sponsored plans that allow individuals and families to save for college in tax-advantaged accounts. Most states create a government-sponsored investing authority that pools assets and invests for those that save into the plan. Investments grow tax-free and earnings can be withdrawn tax-free if used to pay for qualified educational expenses – usually college and grad school. Some states provide an extra bonus by allowing you to deduct contributions from your income to reduce state taxes as well.
- Donor-Advised Fund - Accounts that allow investors to reduce their taxable income now while saving for charitable causes in the future. Any funds you decide to allocate to a DAF can be deducted from your current taxable income in the tax year that you make the contribution. You then can take your time to decide how to donate your funds and invest your funds as you want to grow the value of your charitable contributions in the future.
If you have an old 401(k) or other employer-sponsored retirement account, you can also transfer that into a Farther IRA. You can read more about how to rollover your 401(k) here.