# Education Expert-driven articles and videos about saving and investing. Submit search - [Investing](https://www.betterment.com/resources/all?genre=investing) - [Cash](https://www.betterment.com/resources/all?genre=cash) - [Planning](https://www.betterment.com/resources/all?genre=planning) - [Help Center](https://www.betterment.com/help) - [Videos](https://www.betterment.com/video) Go to topic Please selectInvestingCashPlanningHelp CenterVideos \\ Free financial advice, for the busiest season of your life\\ \\ For households with $100k+ at Betterment, our advisory fee includes complimentary live chat with a licensed financial specialist.\\ \\ Free financial advice, for the busiest season of your life true For households with $100k+ at Betterment, our advisory fee includes complimentary live chat with a licensed financial specialist. Key takeaways Mid-career comes with competing financial priorities, but you don't have to figure out the order alone. Households with $100k or more at Betterment unlock free access to live chat with a licensed financial specialist. Not AI, not a bot—a real person. Higher earners often leave money behind by staying in "default mode.” Use live chat to size up advanced strategies like asset location, backdoor Roth IRAs, and tax-loss harvesting. Transferring investments from outside Betterment can be a simple way to reach $100k and unlock live chat, while also bringing more of your financial life under one roof. If life is one long series of challenges, those in their 30s or 40s are somewhere in the messy middle of it all. Maybe you just bought a house, or you're trying to. Maybe there's a kid on the way, an expensive wedding behind you, and a college fund somewhere on the horizon. Your income is real now, your finances are getting complicated fast, and the old advice ("just max out your IRA") stopped covering it a while ago. The good news? You don't have to untangle everything by yourself. Households with $100k or more at Betterment now have free access to live chat with a licensed financial specialist—someone who can look at your specific situation and help you figure out what to do next. So let's set the table for your first conversation. Too many goals, not enough dollars? You’ve got a lot going on, so much that your cash flow can’t cover everything. Free live chat can help you quickly prioritize and start knocking out money goals. Because the sooner you start, the sooner you can start enjoying the financial freedom that comes with stacking milestones. Here’s a sampling of the life goals we can help you sort through: Buying a home. Whether you're ready to make an offer or still saving for a down payment, a home purchase reshapes your whole financial picture. A $100k Betterment balance not only lets you size up your strategy with the help of a specialist, it can score you a discounted rate on a mortgage. Building (or rebuilding) an emergency fund. Life has a way of getting expensive at the worst moments. Three to six months of accessible cash is the foundation everything else sits on. At the same time, it’s also possible to overdo it. So size up exactly how much cash you need to sleep better at night, and what to do with the rest. Saving for your kid's college. This one isn’t a pass-fail proposition. Saving even a little, especially while your kids are little, can lighten their financial load when college or trade school come knocking. The question is where to save, and how this goal fits against everything else you're juggling. Charitable giving. The great thing about building the foundation for long-term wealth is it empowers you to give with an abundance mindset. And by donating and replacing appreciated shares instead of dollars, you can effectively reset the tax bill on a slice of your taxable investing as an added bonus. Move beyond the basics of investing Once your finances mature a little, you hit a different category of question. Not "Am I saving?" but "Am I set up the right way?" This is where a lot of investors quietly wonder if they're missing something. And often, they are—not because they've done anything wrong, but because default settings don't always age well. A few advanced settings worth exploring include: Asset location (aka Tax Coordination). It's not just what you invest in, it's where you hold it. You may now have a mix of account types (tax-deferred, tax-exempt, and/or taxable), and strategically dividing up your portfolio between them can meaningfully reduce the potential tax drag on your returns over time. Backdoor Roth contributions. Make more money, and the tax benefits of a traditional IRA will quickly phase out. Make a little more, and the same goes for Roth IRAs. But there’s a perfectly legit workaround that high earners use to get money into a Roth anyway. It takes a couple of steps, so live chatting with our team (and a tax advisor) is highly recommended. Tax-loss harvesting. When your taxable investments dip below their initial purchase price, you can jump on the opportunity to “harvest” the theoretical loss and potentially snag similar benefits as tax-deferred accounts. None of these are hacks. They're just what a well-kept portfolio and automated investing can look like once you've moved past the basics. Help has entered the chat If your household has more than $100k at Betterment, you've reached the point where some money questions are worth asking out loud—and you can do exactly that, for free, with a licensed financial specialist via live chat. Not a chatbot. Not an FAQ page. A real human who can act as a sounding board, take a look at how you're set up, and tell you honestly whether anything deserves a second look. Think of it as a gut-check from someone who's seen a lot of portfolios. The kind of conversation where you can ask: Is a backdoor Roth right for me? How can I grow my charitable giving right along with my wealth? Does my particular mix of assets and accounts make sense? If you're already at $100k, you're already in—simply open a new support chat and select “Talk to a financial specialist.” And if you're not quite there, transferring existing investments from external accounts can be a straightforward way to get there. It can mean bringing more of your financial life under one roof, with the fuller picture in view. So consider transferring your investments to Betterment, and get a second set of eyes for your nest egg.\\ \\ \\ 5 min read](https://www.betterment.com/resources/free-live-chat-financial-goals) ### Featured ### Most Recent Posts - [Backdoor Roths and beyond: The four camps who can benefit from a Roth IRA conversion](https://www.betterment.com/resources/roth-ira-conversions) Backdoor Roths and beyond: The four camps who can benefit from a Roth IRA conversion A Roth conversion isn't for everyone, but it can unlock tax savings if you're a high earner, facing RMDs, retiring early, or in a low-income year. Key takeaways A Roth conversion means moving money from a traditional retirement account into a Roth IRA, where you pay taxes now in exchange for tax-free qualified withdrawals. It can be a smart move in several scenarios: your income exceeds the eligibility limits for IRAs, you want lower required minimum distributions in retirement, you're planning an early retirement, or you're temporarily in a low tax bracket. Done right, a conversion can lead to savings over time, but timing and tax planning matter enormously. We recommend working with a financial and/or tax specialist before converting. Households with over $100k at Betterment can kick the tires on a Roth conversion with the help of a professional. Roth IRAs and their tax-exempt perks are pretty great—so great that in some scenarios, it can make sense to convert pre-tax dollars from traditional IRAs and 401(k)s into post-tax dollars in a Roth IRA. This is what’s known as a Roth IRA conversion. You’re taking those pre-tax funds and telling Uncle Sam you’d rather pay taxes on them now in exchange for the benefit of tax-free qualified withdrawals down the road. So what scenarios are Roth conversions ideal for? Four in particular: High earners and the “backdoor” Roth conversion – The IRS blocks direct Roth IRA contributions above certain income limits, but there's a workaround. Recent retirees and unwelcome RMDs – Converting traditional retirement account funds now shrinks the mandatory withdrawals that can inflate your tax bill in retirement. Early retirees and the Roth conversion “ladder” – A little advance planning can unlock your retirement savings years before the IRS’s minimum age of 59 ½ for penalty-free withdrawals after a 5-year holding period for each conversion. People experiencing temporary income dips – Take advantage of low (or no) income tax years. High earners and the “backdoor” Roth conversion Did you know the IRS restricts access to Roth IRAs based on income? Shut the front door! Yes, if your income exceeds these limits, you can’t contribute directly to a Roth IRA. But as the saying goes, when one door closes, another door opens. A “backdoor,” more specifically. A “backdoor” Roth entails contributing after-tax dollars first to a traditional IRA, then converting those funds to a Roth IRA. It’s fairly straightforward in two scenarios: You’ve never contributed to a traditional IRA before. Betterment makes it easy to not only open both a traditional and Roth IRA, but to convert those traditional funds with only a few clicks. You’ve made only pre-tax contributions to a traditional, SEP, and/or SIMPLE IRA(s). Thanks to the IRS’s pro rata rule, you’ll need to first move those pre-tax dollars out of their respective accounts and into a traditional 401(k) or 403(b) before you can use the IRA for a backdoor. Now, things can get tricky if you have a mix of both pre- and post-tax funds in any traditional IRAs (Side note: the IRS treats any and all traditional IRAs you have as essentially the same bucket). So before going down the road of a backdoor Roth, or any Roth conversion really, we highly recommend seeking out both financial and tax guidance. In the case of the former, households with $100k at Betterment can get free guidance on a backdoor Roth via live chat. Already a customer and clear that mark? You're already in—just open a chat. Considering making the move? Our Licensed Concierge team is here to help. Recent retirees and unwelcome RMDs The IRS doesn’t let you keep pre-tax funds in your traditional IRAs and 401(k)s indefinitely. Those dollars are meant to be spent, after all. And Uncle Sam wants (or needs) that tax revenue at some point. So starting in your 70s (75 for those born after 1960, 73 for those born 1951-1959), annual required minimum distributions (RMDs) from these accounts kick in, and the withdrawals are taxed accordingly. RMDs aren’t inherently a bad thing, but if your expenses can already be covered from other sources, RMDs can needlessly raise your tax bill. You can get ahead of this and lower your future amount of RMDs by converting traditional funds to a Roth IRA, which is exempt from RMDs, before you reach RMD age. This can be especially beneficial when your income is low and you have extra space in a low tax bracket you can take advantage of. Another benefit is you’ll minimize taxes on Social Security benefits and Medicare premiums later on in retirement. Early retirees and the Roth conversion “ladder” If you want to retire early, even by just a few years, you might encounter a problem: Most of your retirement savings are tied up in tax-advantaged 401(k)s and IRAs, which slap you with a 10% penalty if you withdraw the funds before the age of 59 ½. A few key exceptions to this early withdrawal rule exist, however: Regular contributions to a Roth IRA (not the growth from those contributions) can be withdrawn any time without taxes or penalties. Once regular contributions are exhausted, Roth IRA conversions can be withdrawn penalty-free as well provided you let each conversion sit for at least five years. So with a little advance planning, early retirees can create a “ladder” of penalty-free Roth IRA funds. They convert funds each year, pay income taxes on them at that time (or not, if they play their cards right), wait five years, then withdraw each conversion scot-free. People experiencing temporary income dips Say you find yourself staring at a significantly smaller income for the year. Maybe you’re taking some time away from work, or you work on commission and had a down year. Whatever the reason, that dip in income means you’re currently in a lower tax bracket, and it may be wise to pay taxes on some of your pre-tax investments now at that lower rate compared to the higher rate when your income bounces back. Roth conversions can be powerful, but plan carefully If you find yourself in one of these scenarios, a Roth conversion could be a real opportunity for you. But the difference between a smart conversion and a costly one often comes down to timing, tax planning, and knowing the rules. Before you pull the trigger, it's worth reading up on the most common Roth conversion mistakes—and even better, talking it through with an advisor who can look at your full picture. Betterment Premium gives you access to a team of CERTIFIED FINANCIAL PLANNER® professionals who can help you figure out the right amount to convert, in the right year, for your situation. - [The hidden cost of holding too much cash](https://www.betterment.com/resources/how-much-cash) The hidden cost of holding too much cash How to size up your actual cash needs, and find a high-potential home for the rest Key takeaways Cash is great for short-term needs, but inflation steadily eats away at its value over time. Size up those short-term needs like paying the bills and providing a safety net. Then consider investing your excess cash for the long run to make your money work harder. Cash feels safe, but that sense of safety comes at a cost: inflation steadily eats away at the value of your money over time. Take recent history as a harsh example. Since 2021, cash has lost roughly 20% of its purchasing power due to inflation. Parking your money in a high-yield cash account can help ease the blow, but interest rates ebb and flow. Savers may very well find themselves with lower yields in the near future and more cash than suits their needs. So let’s start there: exactly which needs is cash best suited for, and how much do you really need on hand? Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. The average American’s calls for cash Inflation risks aside, cash has the advantage of being highly “liquid,” meaning it’s easy to access at a moment’s notice. This makes it ideal for short-term needs like paying the bills, providing a safety net, and purchasing big-ticket items. Let’s put some hypothetical numbers to these to help quantify the average American’s cash needs. Paying the bills — The average American household, based on the latest available numbers from 2024, spends roughly $6,500 a month. Providing a safety net — Most advisors (including us) recommend an emergency fund with at least three months' worth of expenses ($19,500 using the average monthly spend above). Your spending levels may differ, but for the average American, that calls for about $26,000 in cash, plus any more needed for major purchases. Saving for a home and/or car purchase, for example, will change your calculus. If you're more risk averse, then consider adding a little more buffer. Try a six-month emergency fund. If you’re a freelancer and your income fluctuates a lot, consider nine months. Beyond that, however, you're paying a premium for cash not earmarked for a specific purpose, and the cost is two-fold. Your money, as mentioned earlier, is very likely losing value each day. Not the big swings of the stock market, but a slow yet steady leak. 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. Global stocks, as represented by the MSCI World Index, have generated nearly a 9% annual return since 1988. Even the highest-yield cash accounts come nowhere near that. So once you've identified your excess cash, where do you go from there? Take a big leap forward on your long-term goals And say hello to investing by way of a lump sum deposit. It can feel like a leap of faith. Like diving into the deep end instead of slowly wading in. And it feels that way for a good reason—all investing comes with risk. But when you have extra cash lying around, historical and simulated market data suggests that investing it all at once outperforms spreading it out, even when accounting for market volatility. Spreading out your deposits over time is called dollar cost averaging, and it’s generally a good fit for investing your regular cash flow, not lump sums you already have on hand. But savvy savers can employ both strategies—they dollar cost average their income as it comes in, and they invest excess dollars or cash windfalls in lump sums. Because in the end, both serve the same goal of building long-term wealth. - [The powerful potential of the tax swap](https://www.betterment.com/resources/tax-swaps) The powerful potential of the tax swap Your top tax rate will likely ebb and flow over your lifetime. Tax-savvy investing can help you pay when the tide is low. Key takeaways Your tax rate often ebbs and flows over your lifetime, and the gap between your highest- and lowest-earning years represents an opportunity. Tax-deferred investing lets you swap taxes today for a potentially smaller bill in retirement, while keeping more capital compounding in the market. In low-income years, you can do the opposite: pay a lower rate up front, then enjoy tax-free qualified withdrawals down the road. Betterment automates much of the heavy lifting on both strategies. And for more personalized planning, our advisors can help you find the right moves at the right time. Most investors fixate on their returns. But there's a second stat that can quietly work against them: their tax bracket. And unlike market returns, your tax bracket is something you can actually influence. Investors accomplish this by way of tax arbitrage—a tax “swap” of sorts. The core insight is simple: your tax bracket isn't fixed. It changes over your lifetime, and in response to the choices you make. Sometimes the opportunity arises to swap a tax for a lower (and/or later) one, and these moves can make a meaningful difference in how much of your investing returns you actually keep in the long run. First, a quick tour of how taxes work The U.S. tax system is progressive, meaning income is taxed in layers. Each slice is taxed at a higher rate than the one below it, so while it’s common to hear about your tax bracket (as in, singular), your income often falls into multiple brackets (as in, plural). Tax swaps are all about maneuvering around your top tax bracket and its associated tax rate. As your income grows over time, your last few dollars earned will sometimes break into a higher bracket. And vice versa, when you earn less in a given year—say in retirement or in between jobs—you may slide down a bracket or two. These movements present an opportunity. Two common types of tax swaps Tax deferral: Reducing taxable income today, and buying time for compound interest to do its thing The first example is also the most straightforward: swap a tax today for one down the road. For many people in their peak earning years, that future point is retirement. Let’s say you're hypothetically in the 22% income tax bracket today, but expect to be in the 12% bracket in retirement. In this scenario, every dollar you defer is a dollar that gets taxed nearly half as much, although individual results will vary. Just as importantly, however, this frees up more capital that can potentially benefit from decades of compound growth. Traditional IRAs and 401(k)s are the workhorses here, letting you invest more than $30,000 of income before it gets taxed. In the case of traditional IRAs, it should be noted, those tax benefits phase out at certain income levels. Beyond capped retirement accounts, two strategies can help you maximize the benefits of deferring taxes: Tax-loss harvesting can sprinkle the same advantages on a portion of your taxable investing, with theoretically no limits—and as a side benefit, any leftover harvested losses can offset a higher tax on up to $3,000 of ordinary income each year. Asset location, also known as Tax Coordination at Betterment, can help shield more of your tax-heavy assets in tax-deferred accounts. Both features are fully-automated at Betterment and just a few of the ways it can pay to automate your investing. Filling up low brackets: Take advantage of low or no(!) tax rate years If deferring taxes is about pushing taxes into the future, the second type of tax swap is its polar opposite: pulling them forward into the present when your cash flow dips below its normal cruising altitude. Think early in your career, a gap year between jobs, or early retirement. Filling up low brackets strategically requires advance planning, which is why we recommend talking things through with both a financial and tax advisor. Broadly-speaking, you have a few strategies at your disposal: Roth IRA/401(k) contributions \| Paying taxes on your investing now so future growth can be tapped tax-free via qualified withdrawals. Roth IRA conversions \| Converting pre-tax traditional IRA/401(k) contributions to a Roth IRA and paying taxes now. Tax-gain harvesting \| Strategically selling appreciated investments in a taxable account to realize gains without owing federal income tax, then reinvesting the proceeds. If you play your cards right here, you could pull off the most impressive tax swap of all: a 0% tax rate. That's thanks to the favorable treatment of long-term capital gains, the profits from selling investments held longer than a year. Unlike short-term gains, which are taxed as ordinary income, long-term gains have their own brackets, which are both lower and fewer in number: Tax year 2026 long-term capital gains tax rates Tax rate Single filers Married filing jointly 0% $0-$49,450 $0-$98,900 15% $49,451-$545,500 $98,901-$613,700 20% $545,501 or more $613,701 or more Source: IRS This means investors, assuming they have no other sources of income, can enjoy tens of thousands of dollars in qualified tax-free profits from their taxable investing accounts each year, and even more when factoring in the standard deduction. How Betterment makes it easy You could map all of this out yourself—figuring out your current bracket/s, projecting where you'll land in retirement, deciding which accounts to prioritize, and revisiting it all every time your life changes. It's doable. It's also a lot. Or you can let us do the lion’s share of the work. Tell us your household pre-tax income and tax filing status, and we’ll recommend whether it makes sense to lean into tax-deferred accounts. And for even more personalized guidance, there’s Betterment Premium. Our team of advisors can help you think through the timing of Roth conversions and other strategies that benefit from a human eye. We also recommend looping in a tax advisor, who can pressure-test the plan from a tax filing perspective. A savvy trade hiding in plain sight Tax swaps aren’t about gaming the system. They’re about using the tax code the way it was designed to be used—strategically, patiently, and with an eye on the long game. Most investors leave this opportunity on the table not because it's out of reach, but because it feels complicated. It doesn't have to be. Whether you're just starting to think about tax-smart investing or looking to get more intentional about your retirement strategy, Betterment can help you find and act on the opportunities that make sense for you. [See all articles](https://www.betterment.com/resources/all) ## Explore our article library ### Cash [See all Cash](https://www.betterment.com/resources/all?genre=cash) - \\ The hidden cost of holding too much cash\\ \\ The hidden cost of holding too much cash How to size up your actual cash needs, and find a high-potential home for the rest Key takeaways Cash is great for short-term needs, but inflation steadily eats away at its value over time. Size up those short-term needs like paying the bills and providing a safety net. Then consider investing your excess cash for the long run to make your money work harder. Cash feels safe, but that sense of safety comes at a cost: inflation steadily eats away at the value of your money over time. Take recent history as a harsh example. Since 2021, cash has lost roughly 20% of its purchasing power due to inflation. Parking your money in a high-yield cash account can help ease the blow, but interest rates ebb and flow. Savers may very well find themselves with lower yields in the near future and more cash than suits their needs. So let’s start there: exactly which needs is cash best suited for, and how much do you really need on hand? Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. The average American’s calls for cash Inflation risks aside, cash has the advantage of being highly “liquid,” meaning it’s easy to access at a moment’s notice. This makes it ideal for short-term needs like paying the bills, providing a safety net, and purchasing big-ticket items. Let’s put some hypothetical numbers to these to help quantify the average American’s cash needs. Paying the bills — The average American household, based on the latest available numbers from 2024, spends roughly $6,500 a month. Providing a safety net — Most advisors (including us) recommend an emergency fund with at least three months' worth of expenses ($19,500 using the average monthly spend above). Your spending levels may differ, but for the average American, that calls for about $26,000 in cash, plus any more needed for major purchases. Saving for a home and/or car purchase, for example, will change your calculus. If you're more risk averse, then consider adding a little more buffer. Try a six-month emergency fund. If you’re a freelancer and your income fluctuates a lot, consider nine months. Beyond that, however, you're paying a premium for cash not earmarked for a specific purpose, and the cost is two-fold. Your money, as mentioned earlier, is very likely losing value each day. Not the big swings of the stock market, but a slow yet steady leak. 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. Global stocks, as represented by the MSCI World Index, have generated nearly a 9% annual return since 1988. Even the highest-yield cash accounts come nowhere near that. So once you've identified your excess cash, where do you go from there? Take a big leap forward on your long-term goals And say hello to investing by way of a lump sum deposit. It can feel like a leap of faith. Like diving into the deep end instead of slowly wading in. And it feels that way for a good reason—all investing comes with risk. But when you have extra cash lying around, historical and simulated market data suggests that investing it all at once outperforms spreading it out, even when accounting for market volatility. Spreading out your deposits over time is called dollar cost averaging, and it’s generally a good fit for investing your regular cash flow, not lump sums you already have on hand. But savvy savers can employ both strategies—they dollar cost average their income as it comes in, and they invest excess dollars or cash windfalls in lump sums. Because in the end, both serve the same goal of building long-term wealth.\\ \\ \\ 4 min read](https://www.betterment.com/resources/how-much-cash) - \\ Three ways to put your bonus to work\\ \\ Three ways to put your bonus to work Here's how to work with your urge to splurge, while still moving your money goals forward. Key takeaways Bonuses can help you take a big leap forward with your money goals. But if a spending spree sounds tempting, consider splitting your bonus 50/50 between “present-day” you and “future” you. Saving your bonus via a 401(k) and/or IRA can unlock special tax advantages. Stashing it in a high-yield cash account can help build your emergency fund or save for a near-term goal. 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 take advantage of the tax perks of a traditional or Roth IRA. Better yet, you have until Tax Day of 2026 to max out your 2025 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. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. 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.\\ \\ \\ 3 min read](https://www.betterment.com/resources/using-bonus-to-minimize-tax) - \\ Three steps to size up your emergency fund\\ \\ Three steps to size up your emergency fund Strive for at least three months of expenses while taking these factors into consideration. Imagine losing your job, totaling your car, or landing in the hospital. How quickly would your mind turn from the shock of the event itself to worrying about paying your bills? If you’re anything like the majority of Americans recently surveyed by Bankrate, finances would add insult to injury pretty fast: Only around 2 in 5 Americans would pay for an emergency from their savings In these scenarios, an emergency fund can not only help you avoid taking on high-interest debt or backtracking on other money goals, it can give you one less thing to worry about in trying times. So how much should you have saved, and where should you put it? Follow these three steps. 1. Tally up your monthly living expenses — or use our shortcut. Coming up with this number isn’t always easy. You may have dozens of regular expenses falling into one of a few big buckets: Food Housing Transportation Medical When you create an Emergency Fund goal at Betterment, we automatically estimate your monthly expenses based on two factors from your financial profile: Your self-reported household annual income Your zip code’s estimated cost of living You’re more than welcome to use your own dollar figure, but don’t let math get in the way of getting started. 2. Decide how many months make sense for you We recommend having at least three months’ worth of expenses in your emergency fund. A few scenarios that might warrant saving more include: You support others with your income Your job security is iffy You don’t have steady income You have a serious medical condition But it really comes down to how much will help you sleep soundly at night. According to Bankrate’s survey, nearly ⅔ of people say that total is six months or more. Whatever amount you land on, we’ll suggest a monthly recurring deposit to help you get there. We’ll also project a four-year balance based on your initial and scheduled deposits and your expected return and volatility. Why four years? We believe that’s a realistic timeframe to save at least three months of living expenses through recurring deposits. If you can get there quicker and move on to other money goals, even better! 3. Pick a place to keep your emergency fund We recommend keeping your emergency fund in one of two places: cash—more specifically a low-risk, high-yield cash account—or a bond-heavy investing account. A low-risk, high-yield cash account like our Cash Reserve may not always keep pace with inflation, but it comes with no investment risk. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. An investing account is better suited to keep up with inflation but is relatively riskier. Because of this volatility, we currently suggest adding a 30% buffer to your emergency fund’s target amount if you stick with the default stock/bond allocation. There also may be tax implications should you withdraw funds. Your decision will again come down to your comfort level with risk. If the thought of seeing your emergency fund’s value dip, even for a second, gives you heartburn, you might consider sticking with a cash account. Or you can always hedge and split your emergency fund between the two. There’s no wrong answer here! Remember to go with the (cash) flow There’s no final answer here either. Emergency funds naturally ebb and flow over the years. Your monthly expenses could go up or down. You might have to withdraw (and later replace) funds. Or you simply might realize you need a little more saved to feel secure. Revisit your numbers on occasion—say, once a year or anytime you get a raise or big new expense like a house or baby—and rest easy knowing you’re tackling one of the most important financial goals out there.\\ \\ \\ 4 min read](https://www.betterment.com/resources/emergency-fund) ### Investing [See all Investing](https://www.betterment.com/resources/all?genre=investing) - \\ Backdoor Roths and beyond: The four camps who can benefit from a Roth IRA conversion\\ \\ Backdoor Roths and beyond: The four camps who can benefit from a Roth IRA conversion A Roth conversion isn't for everyone, but it can unlock tax savings if you're a high earner, facing RMDs, retiring early, or in a low-income year. Key takeaways A Roth conversion means moving money from a traditional retirement account into a Roth IRA, where you pay taxes now in exchange for tax-free qualified withdrawals. It can be a smart move in several scenarios: your income exceeds the eligibility limits for IRAs, you want lower required minimum distributions in retirement, you're planning an early retirement, or you're temporarily in a low tax bracket. Done right, a conversion can lead to savings over time, but timing and tax planning matter enormously. We recommend working with a financial and/or tax specialist before converting. Households with over $100k at Betterment can kick the tires on a Roth conversion with the help of a professional. Roth IRAs and their tax-exempt perks are pretty great—so great that in some scenarios, it can make sense to convert pre-tax dollars from traditional IRAs and 401(k)s into post-tax dollars in a Roth IRA. This is what’s known as a Roth IRA conversion. You’re taking those pre-tax funds and telling Uncle Sam you’d rather pay taxes on them now in exchange for the benefit of tax-free qualified withdrawals down the road. So what scenarios are Roth conversions ideal for? Four in particular: High earners and the “backdoor” Roth conversion – The IRS blocks direct Roth IRA contributions above certain income limits, but there's a workaround. Recent retirees and unwelcome RMDs – Converting traditional retirement account funds now shrinks the mandatory withdrawals that can inflate your tax bill in retirement. Early retirees and the Roth conversion “ladder” – A little advance planning can unlock your retirement savings years before the IRS’s minimum age of 59 ½ for penalty-free withdrawals after a 5-year holding period for each conversion. People experiencing temporary income dips – Take advantage of low (or no) income tax years. High earners and the “backdoor” Roth conversion Did you know the IRS restricts access to Roth IRAs based on income? Shut the front door! Yes, if your income exceeds these limits, you can’t contribute directly to a Roth IRA. But as the saying goes, when one door closes, another door opens. A “backdoor,” more specifically. A “backdoor” Roth entails contributing after-tax dollars first to a traditional IRA, then converting those funds to a Roth IRA. It’s fairly straightforward in two scenarios: You’ve never contributed to a traditional IRA before. Betterment makes it easy to not only open both a traditional and Roth IRA, but to convert those traditional funds with only a few clicks. You’ve made only pre-tax contributions to a traditional, SEP, and/or SIMPLE IRA(s). Thanks to the IRS’s pro rata rule, you’ll need to first move those pre-tax dollars out of their respective accounts and into a traditional 401(k) or 403(b) before you can use the IRA for a backdoor. Now, things can get tricky if you have a mix of both pre- and post-tax funds in any traditional IRAs (Side note: the IRS treats any and all traditional IRAs you have as essentially the same bucket). So before going down the road of a backdoor Roth, or any Roth conversion really, we highly recommend seeking out both financial and tax guidance. In the case of the former, households with $100k at Betterment can get free guidance on a backdoor Roth via live chat. Already a customer and clear that mark? You're already in—just open a chat. Considering making the move? Our Licensed Concierge team is here to help. Recent retirees and unwelcome RMDs The IRS doesn’t let you keep pre-tax funds in your traditional IRAs and 401(k)s indefinitely. Those dollars are meant to be spent, after all. And Uncle Sam wants (or needs) that tax revenue at some point. So starting in your 70s (75 for those born after 1960, 73 for those born 1951-1959), annual required minimum distributions (RMDs) from these accounts kick in, and the withdrawals are taxed accordingly. RMDs aren’t inherently a bad thing, but if your expenses can already be covered from other sources, RMDs can needlessly raise your tax bill. You can get ahead of this and lower your future amount of RMDs by converting traditional funds to a Roth IRA, which is exempt from RMDs, before you reach RMD age. This can be especially beneficial when your income is low and you have extra space in a low tax bracket you can take advantage of. Another benefit is you’ll minimize taxes on Social Security benefits and Medicare premiums later on in retirement. Early retirees and the Roth conversion “ladder” If you want to retire early, even by just a few years, you might encounter a problem: Most of your retirement savings are tied up in tax-advantaged 401(k)s and IRAs, which slap you with a 10% penalty if you withdraw the funds before the age of 59 ½. A few key exceptions to this early withdrawal rule exist, however: Regular contributions to a Roth IRA (not the growth from those contributions) can be withdrawn any time without taxes or penalties. Once regular contributions are exhausted, Roth IRA conversions can be withdrawn penalty-free as well provided you let each conversion sit for at least five years. So with a little advance planning, early retirees can create a “ladder” of penalty-free Roth IRA funds. They convert funds each year, pay income taxes on them at that time (or not, if they play their cards right), wait five years, then withdraw each conversion scot-free. People experiencing temporary income dips Say you find yourself staring at a significantly smaller income for the year. Maybe you’re taking some time away from work, or you work on commission and had a down year. Whatever the reason, that dip in income means you’re currently in a lower tax bracket, and it may be wise to pay taxes on some of your pre-tax investments now at that lower rate compared to the higher rate when your income bounces back. Roth conversions can be powerful, but plan carefully If you find yourself in one of these scenarios, a Roth conversion could be a real opportunity for you. But the difference between a smart conversion and a costly one often comes down to timing, tax planning, and knowing the rules. Before you pull the trigger, it's worth reading up on the most common Roth conversion mistakes—and even better, talking it through with an advisor who can look at your full picture. Betterment Premium gives you access to a team of CERTIFIED FINANCIAL PLANNER® professionals who can help you figure out the right amount to convert, in the right year, for your situation.\\ \\ \\ 6 min read](https://www.betterment.com/resources/roth-ira-conversions) - \\ The powerful potential of the tax swap\\ \\ The powerful potential of the tax swap Your top tax rate will likely ebb and flow over your lifetime. Tax-savvy investing can help you pay when the tide is low. Key takeaways Your tax rate often ebbs and flows over your lifetime, and the gap between your highest- and lowest-earning years represents an opportunity. Tax-deferred investing lets you swap taxes today for a potentially smaller bill in retirement, while keeping more capital compounding in the market. In low-income years, you can do the opposite: pay a lower rate up front, then enjoy tax-free qualified withdrawals down the road. Betterment automates much of the heavy lifting on both strategies. And for more personalized planning, our advisors can help you find the right moves at the right time. Most investors fixate on their returns. But there's a second stat that can quietly work against them: their tax bracket. And unlike market returns, your tax bracket is something you can actually influence. Investors accomplish this by way of tax arbitrage—a tax “swap” of sorts. The core insight is simple: your tax bracket isn't fixed. It changes over your lifetime, and in response to the choices you make. Sometimes the opportunity arises to swap a tax for a lower (and/or later) one, and these moves can make a meaningful difference in how much of your investing returns you actually keep in the long run. First, a quick tour of how taxes work The U.S. tax system is progressive, meaning income is taxed in layers. Each slice is taxed at a higher rate than the one below it, so while it’s common to hear about your tax bracket (as in, singular), your income often falls into multiple brackets (as in, plural). Tax swaps are all about maneuvering around your top tax bracket and its associated tax rate. As your income grows over time, your last few dollars earned will sometimes break into a higher bracket. And vice versa, when you earn less in a given year—say in retirement or in between jobs—you may slide down a bracket or two. These movements present an opportunity. Two common types of tax swaps Tax deferral: Reducing taxable income today, and buying time for compound interest to do its thing The first example is also the most straightforward: swap a tax today for one down the road. For many people in their peak earning years, that future point is retirement. Let’s say you're hypothetically in the 22% income tax bracket today, but expect to be in the 12% bracket in retirement. In this scenario, every dollar you defer is a dollar that gets taxed nearly half as much, although individual results will vary. Just as importantly, however, this frees up more capital that can potentially benefit from decades of compound growth. Traditional IRAs and 401(k)s are the workhorses here, letting you invest more than $30,000 of income before it gets taxed. In the case of traditional IRAs, it should be noted, those tax benefits phase out at certain income levels. Beyond capped retirement accounts, two strategies can help you maximize the benefits of deferring taxes: Tax-loss harvesting can sprinkle the same advantages on a portion of your taxable investing, with theoretically no limits—and as a side benefit, any leftover harvested losses can offset a higher tax on up to $3,000 of ordinary income each year. Asset location, also known as Tax Coordination at Betterment, can help shield more of your tax-heavy assets in tax-deferred accounts. Both features are fully-automated at Betterment and just a few of the ways it can pay to automate your investing. Filling up low brackets: Take advantage of low or no(!) tax rate years If deferring taxes is about pushing taxes into the future, the second type of tax swap is its polar opposite: pulling them forward into the present when your cash flow dips below its normal cruising altitude. Think early in your career, a gap year between jobs, or early retirement. Filling up low brackets strategically requires advance planning, which is why we recommend talking things through with both a financial and tax advisor. Broadly-speaking, you have a few strategies at your disposal: Roth IRA/401(k) contributions \| Paying taxes on your investing now so future growth can be tapped tax-free via qualified withdrawals. Roth IRA conversions \| Converting pre-tax traditional IRA/401(k) contributions to a Roth IRA and paying taxes now. Tax-gain harvesting \| Strategically selling appreciated investments in a taxable account to realize gains without owing federal income tax, then reinvesting the proceeds. If you play your cards right here, you could pull off the most impressive tax swap of all: a 0% tax rate. That's thanks to the favorable treatment of long-term capital gains, the profits from selling investments held longer than a year. Unlike short-term gains, which are taxed as ordinary income, long-term gains have their own brackets, which are both lower and fewer in number: Tax year 2026 long-term capital gains tax rates Tax rate Single filers Married filing jointly 0% $0-$49,450 $0-$98,900 15% $49,451-$545,500 $98,901-$613,700 20% $545,501 or more $613,701 or more Source: IRS This means investors, assuming they have no other sources of income, can enjoy tens of thousands of dollars in qualified tax-free profits from their taxable investing accounts each year, and even more when factoring in the standard deduction. How Betterment makes it easy You could map all of this out yourself—figuring out your current bracket/s, projecting where you'll land in retirement, deciding which accounts to prioritize, and revisiting it all every time your life changes. It's doable. It's also a lot. Or you can let us do the lion’s share of the work. Tell us your household pre-tax income and tax filing status, and we’ll recommend whether it makes sense to lean into tax-deferred accounts. And for even more personalized guidance, there’s Betterment Premium. Our team of advisors can help you think through the timing of Roth conversions and other strategies that benefit from a human eye. We also recommend looping in a tax advisor, who can pressure-test the plan from a tax filing perspective. A savvy trade hiding in plain sight Tax swaps aren’t about gaming the system. They’re about using the tax code the way it was designed to be used—strategically, patiently, and with an eye on the long game. Most investors leave this opportunity on the table not because it's out of reach, but because it feels complicated. It doesn't have to be. Whether you're just starting to think about tax-smart investing or looking to get more intentional about your retirement strategy, Betterment can help you find and act on the opportunities that make sense for you.\\ \\ \\ 6 min read](https://www.betterment.com/resources/tax-swaps) - \\ How Betterment’s tech helps you manage your money\\ \\ How Betterment’s tech helps you manage your money Our human experts harness the power of technology to help you reach your financial goals. Here’s how. When you’re trying to make the most of your money and plan for the future, there are some things humans simply can’t do as well as algorithms. The big idea: Here at Betterment, we’re all about automated investing—using technology with human experts at the helm—to manage your money smarter and help you meet your financial goals. How does it work? Robo-advisors use algorithms and automation to quickly and efficiently optimize your investments. They do the heavy lifting behind the scenes, managing all the data analysis and adapting investment expertise to fit your circumstances. All you need to do is fill in the gaps with details about your financial goals. The result: you spend less time managing your finances and more time enjoying your life, while Betterment focuses on your specific reasons for saving, adjusting your risk based on your timeline and target amount. Plus, robo-advisors cost less to operate. While the specific fees vary from one robo-advisor to the next, they all tend to be a fraction of what it costs to work with a traditional investment manager, meaning more of your money stays invested. Learn more about how much it costs to save, spend and invest with Betterment. A winning combination of human expertise and technology: Automation is what Betterment is known for. But our team of financial experts is our secret sauce. They research, prototype, and implement all the advice and activity that you see in your account. Our algorithms and tools are built on the expertise of traders, quantitative researchers, tax experts, CFP® professionals, behavioral scientists, and more. Four big benefits (just for starters): We put your dividends back to work: We automatically reinvest available dividends, even purchasing fractions of shares on your behalf, so you don’t miss out on potential market returns. A focus on the future: Nobody knows the future. And that makes financial planning tough. Your situation can change at any time but our tools and advice can help you see how various changes could affect your goals. We show you a range of potential outcomes so you can make more informed decisions. Anticipating taxes: We may not be able to predict future tax rates, but we can be pretty sure that certain incomes and account types will be subject to some taxes. This becomes especially relevant in retirement planning, where taxes affect which account types are most valuable to you. Factoring in inflation: We don’t know how inflation will change, but we can reference known historical ranges, as well as targets set by fiscal policy. The most important thing is to factor in some inflation because we know it won’t be zero. We currently assume a 2% inflation rate in our retirement planning advice and in our safe withdrawal advice, which is what the Fed currently targets. Additional advice is always available: At Betterment, we automate what we can and complement our automated advice with access to our financial planning experts through our Premium plan, which offers unlimited calls and emails with our team of CFP® professionals. You can also schedule a call with an advisor to assist with a rollover or help with your initial account setup. Whether you need a one-time consultation or ongoing support, you can always discuss your unique financial situations with one of our licensed financial professionals Managing your money with Betterment: Our mission is to empower you to make the most of your money, so you can live better. Sometimes the best way to do that is with human creativity and critical thought. Sometimes it’s with machine automation and precision. Usually, it takes a healthy dose of both.\\ \\ \\ 4 min read](https://www.betterment.com/resources/how-betterment-technology-manages-money) ### Planning [See all Planning](https://www.betterment.com/resources/all?genre=planning) - \\ Free financial advice, for the busiest season of your life\\ \\ Free financial advice, for the busiest season of your life For households with $100k+ at Betterment, our advisory fee includes complimentary live chat with a licensed financial specialist. Key takeaways Mid-career comes with competing financial priorities, but you don't have to figure out the order alone. Households with $100k or more at Betterment unlock free access to live chat with a licensed financial specialist. Not AI, not a bot—a real person. Higher earners often leave money behind by staying in "default mode.” Use live chat to size up advanced strategies like asset location, backdoor Roth IRAs, and tax-loss harvesting. Transferring investments from outside Betterment can be a simple way to reach $100k and unlock live chat, while also bringing more of your financial life under one roof. If life is one long series of challenges, those in their 30s or 40s are somewhere in the messy middle of it all. Maybe you just bought a house, or you're trying to. Maybe there's a kid on the way, an expensive wedding behind you, and a college fund somewhere on the horizon. Your income is real now, your finances are getting complicated fast, and the old advice ("just max out your IRA") stopped covering it a while ago. The good news? You don't have to untangle everything by yourself. Households with $100k or more at Betterment now have free access to live chat with a licensed financial specialist—someone who can look at your specific situation and help you figure out what to do next. So let's set the table for your first conversation. Too many goals, not enough dollars? You’ve got a lot going on, so much that your cash flow can’t cover everything. Free live chat can help you quickly prioritize and start knocking out money goals. Because the sooner you start, the sooner you can start enjoying the financial freedom that comes with stacking milestones. Here’s a sampling of the life goals we can help you sort through: Buying a home. Whether you're ready to make an offer or still saving for a down payment, a home purchase reshapes your whole financial picture. A $100k Betterment balance not only lets you size up your strategy with the help of a specialist, it can score you a discounted rate on a mortgage. Building (or rebuilding) an emergency fund. Life has a way of getting expensive at the worst moments. Three to six months of accessible cash is the foundation everything else sits on. At the same time, it’s also possible to overdo it. So size up exactly how much cash you need to sleep better at night, and what to do with the rest. Saving for your kid's college. This one isn’t a pass-fail proposition. Saving even a little, especially while your kids are little, can lighten their financial load when college or trade school come knocking. The question is where to save, and how this goal fits against everything else you're juggling. Charitable giving. The great thing about building the foundation for long-term wealth is it empowers you to give with an abundance mindset. And by donating and replacing appreciated shares instead of dollars, you can effectively reset the tax bill on a slice of your taxable investing as an added bonus. Move beyond the basics of investing Once your finances mature a little, you hit a different category of question. Not "Am I saving?" but "Am I set up the right way?" This is where a lot of investors quietly wonder if they're missing something. And often, they are—not because they've done anything wrong, but because default settings don't always age well. A few advanced settings worth exploring include: Asset location (aka Tax Coordination). It's not just what you invest in, it's where you hold it. You may now have a mix of account types (tax-deferred, tax-exempt, and/or taxable), and strategically dividing up your portfolio between them can meaningfully reduce the potential tax drag on your returns over time. Backdoor Roth contributions. Make more money, and the tax benefits of a traditional IRA will quickly phase out. Make a little more, and the same goes for Roth IRAs. But there’s a perfectly legit workaround that high earners use to get money into a Roth anyway. It takes a couple of steps, so live chatting with our team (and a tax advisor) is highly recommended. Tax-loss harvesting. When your taxable investments dip below their initial purchase price, you can jump on the opportunity to “harvest” the theoretical loss and potentially snag similar benefits as tax-deferred accounts. None of these are hacks. They're just what a well-kept portfolio and automated investing can look like once you've moved past the basics. Help has entered the chat If your household has more than $100k at Betterment, you've reached the point where some money questions are worth asking out loud—and you can do exactly that, for free, with a licensed financial specialist via live chat. Not a chatbot. Not an FAQ page. A real human who can act as a sounding board, take a look at how you're set up, and tell you honestly whether anything deserves a second look. Think of it as a gut-check from someone who's seen a lot of portfolios. The kind of conversation where you can ask: Is a backdoor Roth right for me? How can I grow my charitable giving right along with my wealth? Does my particular mix of assets and accounts make sense? If you're already at $100k, you're already in—simply open a new support chat and select “Talk to a financial specialist.” And if you're not quite there, transferring existing investments from external accounts can be a straightforward way to get there. It can mean bringing more of your financial life under one roof, with the fuller picture in view. So consider transferring your investments to Betterment, and get a second set of eyes for your nest egg.\\ \\ \\ 5 min read](https://www.betterment.com/resources/free-live-chat-financial-goals) - \\ How to course correct when you simply can't stay the course\\ \\ How to course correct when you simply can't stay the course De-risking during market volatility can be costly. Here’s how to do it without breaking the bank. The best course of action during market volatility is often inaction. That’s because selling riskier assets at a loss locks in those losses. It foregoes their potential for future growth, and it might also trigger capital gains taxes in the process. But if taking some sort of action feels necessary, then modestly reducing your overall risk exposure can be a reasonable alternative. Consider dialing down your existing stock allocation by a few percentage points, or lower the costs of recalibrating by using your future deposits instead. Either way, the solution may be the same: sprinkling in more bonds. Consider bonds to calm your investing nerves When people talk about diversification, equities like international stocks get most of the attention. But no less important in the role of managing risk are bonds. These are the loans given to governments and companies by investors, and while they're not completely risk-free (no asset is), the relatively-modest interest they tend to pay out can feel like a windfall when stock values are plunging. They won’t negate all of the volatility of stocks, but they can help smooth things out and preserve capital. This is why all of our recommended allocations include holding at least some bonds. One way to de-risk some of your future investing is with one of our portfolios made up of both stocks and bonds (Core, Value Tilt, etc.). We’ll recommend a risk level based on your goal, but we make it easy to dial up the bond allocation to your preference. Over time, you can slowly finetune things until your collective risk feels right. Or you can let us automatically adjust it based on your target date. We also offer two portfolios comprised entirely of bonds, each one designed for a different use: Target Income built with BlackRock, designed to help you limit market volatility, preserve wealth, and generate income. The Goldman Sachs Tax-Smart Bonds portfolio, designed for high-income individuals seeking a higher after-tax yield compared to a cash account. Don’t forget about the role of cash One of the best ways to mitigate your overall financial risk is by shoring up your emergency fund, which may include a high-yield cash account like our Cash Reserve. Imagine losing your income stream, and how much time you'd want to get back on your feet. A good place to start is 3-6 months' worth of your essential expenses, but your right amount is whatever helps you sleep more soundly at night. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. Steadying the ship during unsteady times As we mentioned up front, right-sizing your risk during downturns isn’t always cheap. But there are ways to minimize the costs. Lowering your risk profile incrementally is one of them, and stretching out your safety net is another. Either way, it’s okay to recalibrate your risk tolerance from time-to-time, and you can do it wisely with Betterment.\\ \\ \\ 3 min read](https://www.betterment.com/resources/derisking-during-market-downturns) - \\ Traditional vs. Roth: Should you take your tax break now, or later?\\ \\ Traditional vs. Roth: Should you take your tax break now, or later? 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. 2026 IRA income limits Traditional IRA\* Modified Adjusted Gross Income (MAGI) Roth IRA Modified Adjusted Gross Income (MAGI) Full tax deduction $0-$81,000 (single filers) Full contribution $0-$153,000 (single filers) $0-$129,000 (married filing jointly) $0-$241,999 (married filing jointly) Partial tax deduction $81,001-$90,999 (single filers) Partial contribution $153,001-$167,999 (single filers) $129,001-$148,999 (married filing jointly) $242,000-$251,999 (married filing jointly) No tax deduction\*\* $91,000 and up (single filers) No contribution $168,000 and up (single filers) $149,000 and up (married filing jointly) $252,000 and up (married filing jointly) \*If covered by a retirement plan at work \*\*Anyone is eligible to make non-deductible contributions to a traditional IRA See the income limits for more tax filing statuses 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. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more.\\ \\ \\ 4 min read](https://www.betterment.com/resources/traditional-vs-roth) ## Browse our most popular topics Jump to topic Submit search - [401(k)s](https://www.betterment.com/resources/tag/401ks) - [529s](https://www.betterment.com/resources/tag/529s) - [Asset types](https://www.betterment.com/resources/tag/asset-types) - [Automation](https://www.betterment.com/resources/tag/automation) - [Benchmarks](https://www.betterment.com/resources/tag/benchmarks) - [Bonds](https://www.betterment.com/resources/tag/bonds) - [Budgeting](https://www.betterment.com/resources/tag/budgeting) - [Compound growth](https://www.betterment.com/resources/tag/compound-growth) - [Costs](https://www.betterment.com/resources/tag/costs) - [Diversification](https://www.betterment.com/resources/tag/diversification) - [Donating shares](https://www.betterment.com/resources/tag/donating-shares) - [ETFs](https://www.betterment.com/resources/tag/etfs) - [Education savings](https://www.betterment.com/resources/tag/education-savings) - [Emergency funds](https://www.betterment.com/resources/tag/emergency-funds) - [Financial advisors](https://www.betterment.com/resources/tag/financial-advisors) - [Financial goals](https://www.betterment.com/resources/tag/financial-goals) - [Flexible portfolios](https://www.betterment.com/resources/tag/flexible-portfolios) - [Getting started investing](https://www.betterment.com/resources/tag/getting-started-investing) - [Health Savings Accounts](https://www.betterment.com/resources/tag/health-savings-accounts) - [Home ownership](https://www.betterment.com/resources/tag/home-ownership) - [IRAs](https://www.betterment.com/resources/tag/iras) - [Investing accounts](https://www.betterment.com/resources/tag/investing-accounts) - [Market volatility](https://www.betterment.com/resources/tag/market-volatility) - [Mutual funds](https://www.betterment.com/resources/tag/mutual-funds) - [Performance](https://www.betterment.com/resources/tag/performance) - [Portfolios](https://www.betterment.com/resources/tag/portfolios) - [Preparing to retire](https://www.betterment.com/resources/tag/preparing-to-retire) - [Retirement income](https://www.betterment.com/resources/tag/retirement-income) - [Retirement planning](https://www.betterment.com/resources/tag/retirement-planning) - [Risk](https://www.betterment.com/resources/tag/risk) - [Rollovers and transfers](https://www.betterment.com/resources/tag/rollovers-and-transfers) - [Roth accounts](https://www.betterment.com/resources/tag/roth-accounts) - [Stocks](https://www.betterment.com/resources/tag/stocks) - [Tax Coordination](https://www.betterment.com/resources/tag/tax-coordination) - [Tax loss harvesting](https://www.betterment.com/resources/tag/tax-loss-harvesting) - [Taxable accounts](https://www.betterment.com/resources/tag/taxable-accounts) - [Taxes](https://www.betterment.com/resources/tag/taxes) - [Taxes](https://www.betterment.com/resources/tag/taxes) - [Financial goals](https://www.betterment.com/resources/tag/financial-goals) - [Portfolios](https://www.betterment.com/resources/tag/portfolios) - [Rollovers and transfers](https://www.betterment.com/resources/tag/rollovers-and-transfers) - [Performance](https://www.betterment.com/resources/tag/performance) ## Put a team of advisors in your corner with Betterment Premium. [Learn more](https://www.betterment.com/cs/c/?cta_guid=4085283c-52ee-4592-b00b-64ba5d798ca9&signature=AAH58kHYfnkf31qLSjS8HhPLdDGWcAGQpg&portal_id=5274572&pageId=56468442528&placement_guid=01c18463-22ad-42c8-826e-97e0edc4eed6&click=f1e44d92-1cd4-40d7-ac36-d0a63acba7f2&redirect_url=APefjpHekuU9E57RjCIf4lXp0lp_GMvxyrWaHFQpioRqvMzDT0sV9_YhRScPsxJLapXGKVWDBz-LSAgKhH9haOjR5nzr4BfFKbx6QiD3qhGoUZr1NStguAevLxDhcEzxe58f1i1Vzg82&hsutk=&canon=https%3A%2F%2Fwww.betterment.com%2Fresources&ts=1777300992904 "Learn more") ## Read our most popular articles - \\ \\ How Betterment Manages Risks in Your Portfolio\\ \\ How Betterment Manages Risks in Your Portfolio true Betterment’s tools can keep you on track with the best chance of reaching your goals. Investing always involves some level of risk. But you should always have control over how much risk you take on. When your goals are decades away, it's easier to invest in riskier assets. The closer you get to reaching your goals, the more you may want to play it safe. Betterment’s tools can help manage risk and keep you on track toward your goals. In this guide, we’ll: Explain how Betterment provides allocation advice Talk about determining your personal risk level Walk through some of Betterment’s automated tools that help you manage risk Take a look at low-risk portfolios The key to managing your risk: asset allocation Risk is inherent to investing, and to some degree risk is good. High risk, high reward, right? What’s important is how you manage your risk. You want your investments to grow as the market fluctuates. One major way investors manage risk is through diversification. You’ve likely heard the old cliche, “Don’t put all your eggs in one basket.” This is the same reasoning investors use. We diversify our investments, putting our eggs in various baskets, so to speak. This way if one investment fails, we don’t lose everything. But how do you choose which baskets to put your eggs in? And how many eggs do you put in those baskets? Investors have a name for this process: asset allocation. Asset allocation involves splitting up your investment dollars across several types of financial assets (like stocks and bonds). Together these investments form your portfolio. A good portfolio will have your investment dollars in the right baskets: protecting you from extreme loss when the markets perform poorly, yet leaving you open to windfalls when the market does well. If that sounds complicated, there’s good news: Betterment will automatically recommend how to allocate your investments based on your individual goals. How Betterment provides allocation advice At Betterment, our recommendations start with your financial goals. Each of your financial goals—whether it’s a vacation or retirement—gets its own allocation of stocks and bonds. Next we look at your investment horizon, a fancy term for “when you need the money and how you’ll withdraw it.” It’s like a timeline. How long will you invest for? Will you take it out all at once, or a little bit at a time? For a down payment goal, you might withdraw the entire investment after 10 years once you’ve hit your savings mark. But when you retire, you’ll probably withdraw from your retirement account gradually over the course of years. What if you don’t have a defined goal? If you’re investing without a timeline or target amount, we’ll use your age to set your investment horizon with a default target date of your 65th birthday. We’ll assume you’ll withdraw from it like a retirement account, but maintain a slightly riskier portfolio even when you hit the target date, since you haven’t decided when you'll liquidate those investments. But you’re not a “default” person. So why would you want a default investment plan? That’s why you should have a goal. When we know your goal and time horizon, we can determine the best risk level by assessing possible outcomes across a range of bad to average markets. Our projection model includes many possible futures, weighted by how likely we believe each to be. By some standards, we err on the side of caution with a fairly conservative allocation model. Our mission is to help you get to your goal through steady saving and appropriate allocation, rather than taking on unnecessary risk. How much risk should you take on? Your investment horizon is one of the most important factors in determining your risk level. The more time you have to reach your investing goals, the more risk you can afford to safely take. So generally speaking, the closer you are to reaching your goal, the less risk your portfolio should be exposed to. This is why we use the Betterment auto-adjust—a glide path (aka formula) used for asset allocation that becomes more conservative as your target date approaches. We adjust the recommended allocation and portfolio weights of the glide path based on your specific goal and time horizon. Want to take a more aggressive approach? More conservative? That’s totally ok. You’re in control. You always have the final say on your allocation, and we can show you the likely outcomes. Our quantitative approach helps us establish a set of recommended risk ranges based on your goals. If you choose to deviate from our risk guidance, we’ll provide you with feedback on the potential implications. Take more risk than we recommend, and we’ll tell you we believe your approach is “too aggressive” given your goal and time horizon. Even if you care about the downsides less than the average outcome, we’ll still caution you against taking on more risk, because it can be very difficult to recover from losses in a portfolio flagged as “too aggressive.” On the other hand, if you choose a lower risk level than our “conservative” band, we'll label your choice “very conservative.” A downside to taking a lower risk level is you may need to save more. You should choose a level of risk that’s aligned with your ability to stay the course. An allocation is only optimal if you’re able to commit to it in both good markets and bad ones. To ensure you’re comfortable with the short-term risk in your portfolio, we present both extremely good and extremely poor return scenarios for your selection over a one-year period. How Betterment automatically optimizes your risk An advantage of investing with Betterment is that our technology works behind the scenes to automatically manage your risk in a variety of ways, including auto-adjusted allocation and rebalancing. Auto-adjusted allocation For most goals, the ideal allocation will change as you near your goal. Our automated tools aim to make those adjustments as efficient and tax-friendly as possible. Deposits, withdrawals, and dividends can help us guide your portfolio toward the target allocation, without having to sell any assets. If we do need to sell any of your investments, our tax-smart technology is designed to minimize the potential tax impact. First we look for shares that have losses. These can offset other taxes. Then we sell shares with the smallest embedded gains (and smallest potential taxes). Rebalancing Over time, individual assets in a diversified portfolio move up and down in value, drifting away from the target weights that help achieve proper diversification. The difference between your target allocation and the actual weights in your current ETF portfolio is called portfolio drift. We define portfolio drift as the total absolute deviation of each super asset class from its target, divided by two. These super asset classes are US Bonds, International Bonds, Emerging Markets Bonds, US Stocks, International Stocks, and Emerging Markets Stocks. A high drift may expose you to more (or less) risk than you intended when you set the target allocation. Betterment automatically monitors your account for rebalancing opportunities to reduce drift. There are several different methods depending on the circumstances: First, in response to cash flows such as deposits, withdrawals, and dividend reinvestments, Betterment buys underweight holdings and sells overweight holdings. This reactive rebalancing generally occurs when cash flows going into or out of the portfolio are already happening. We use inflows (like deposits and dividend reinvestments) to buy asset classes that are under-weight. This reduces the need to sell, which in turn reduces potential capital gains taxes. And we use outflows (like withdrawals) by seeking to first sell asset classes that are overweight. Second, if cash flows are not sufficient to keep a client’s portfolio drift within its applicable drift tolerance (such parameters as disclosed in Betterment’s Form ADV), automated rebalancing sells overweight holdings in order to buy underweight ones, aligning the portfolio more closely with its target allocation. This proactive rebalancing reshuffles assets that are already in the portfolio, and requires a minimum portfolio balance (clients can review the estimated balance at www.betterment.com/legal/portfolio-minimum). The rebalancing algorithm is also calibrated to avoid frequent small rebalance transactions and to seek tax efficient outcomes, such as helping to reduce wash sales and minimizing short-term capital gains. Allocation change rebalancing occurs when you change your target allocation. This sells securities and could possibly realize capital gains, but we still utilize our tax minimization algorithm to help reduce the tax impact. We’ll let you know the potential tax impact before you confirm your allocation change. Once you confirm it, we’ll rebalance to your new target with minimized drift. If you are an Advised client, rebalancing in your account may function differently depending on the customizations your Advisor has selected for your portfolio. We recommend reaching out to your Advisor for further details. For more information, please review our rebalancing disclosures. How Betterment reduces risk in portfolios Investments like short-term US treasuries can help reduce risk in portfolios. At a certain point, however, including assets such as these in a portfolio no longer improves returns for the amount of risk taken. For Betterment, this point is our 60% stock portfolio. Portfolios with a stock allocation of 60% or more don’t incorporate these exposures. We include our U.S. Ultra-Short Income ETF and our U.S. Short-Term Treasury Bond ETF in the portfolio at stock allocations below 60% for both the IRA and taxable versions of the Betterment Core portfolio strategy. If your portfolio includes no stocks (meaning you allocated 100% bonds), we can take the hint. You likely don’t want to worry about market volatility. So in that case, we recommend that you invest everything in these ETFs. At 100% bonds and 0% stocks, a Betterment Core portfolio consists of 60% U.S. short-term treasury bonds, 20% U.S. short-term high quality bonds, and 20% inflation protected bonds. Increase the stock allocation in your portfolio, and we’ll decrease the allocation to these exposures. Reach the 60% stock allocation threshold, and we’ll remove these funds from the recommended portfolio. At that allocation, they decrease expected returns given the desired risk of the overall portfolio. Short-term U.S. treasuries generally have lower volatility (any price swings are quite mild) and smaller drawdowns (shorter, less significant periods of loss). The same can be said for short-term high quality bonds, but they are slightly more volatile. It’s also worth noting that these asset classes don’t always go down at exactly the same time. By combining these asset classes, we’re able to produce a portfolio with a higher potential yield while maintaining relatively lower volatility. As with other assets, the returns for assets such as high quality bonds include both the possibility of price returns and income yield. Generally, price returns are expected to be minimal, with the primary form of returns coming from the income yield. The yields you receive from the ETFs in Betterment’s 100% bond portfolio are the actual yields of the underlying assets after fees. Since we’re investing directly in funds that are paying prevailing market rates, you can feel confident that the yield you receive is fair and in line with prevailing rates.\\ \\ \\ 10 min read](https://www.betterment.com/resources/how-betterment-manages-risk) - \\ \\ How To Plan Your Taxes When Investing\\ \\ How To Plan Your Taxes When Investing true Tax planning should happen year round. Here are some smart moves to consider that can help you save money now—and for years to come. Editor’s note: We’re about to dish on taxes and investing in length, but please keep in mind Betterment isn’t a tax advisor, nor should any information here be considered tax advice. Please consult a tax professional for advice on your specific situation. In 1 minute No one wants to pay more taxes than they have to. But as an investor, it’s not always clear how your choices change what you may ultimately owe to the IRS. Consider these strategies that can help reduce your taxes, giving you more to spend or invest as you see fit. Max out retirement accounts: The more you invest in your IRA and/or 401(k), the more tax benefits you receive. So contribute as much as you’re able to. Consider tax loss harvesting: When your investments lose value, you have the opportunity to reduce your tax bill. Selling depreciated assets lets you deduct the loss to offset other investment gains or decrease your taxable income. You can do this for up to $3,000 worth of losses every year, and additional losses can count toward future years. Rebalance your portfolio with cash flows: To avoid realizing gains before you may need to, try to rebalance your portfolio without selling any existing investments. Instead, use cash flows, including new deposits and dividends, to adjust your portfolio’s allocation. Consider a Roth conversion: You can convert all or some of traditional IRA into a Roth IRA at any income level and at any time. You’ll pay taxes upfront, but when you retire, your withdrawals are tax free. It’s worth noting that doing so is a permanent change, and it isn’t right for everyone. We recommend consulting a qualified tax advisor before making the decision. Invest your tax refund: Tax refunds can feel like pleasant surprises, but in reality they represent a missed opportunity. In practice, they mean you’ve been overpaying Uncle Sam throughout the year, and only now are you getting your money back. If you can, make up for this lost time by investing your refund right away. Donate to charity: Giving to causes you care about provides tax benefits. Donate in the form of appreciated investments instead of cash, and your tax-deductible donation can also help you avoid paying taxes on capital gains. In 5 minutes Taxes are complicated. It’s no wonder so many people dread tax season. But if you only think about them at the start of the year or when you look at your paycheck, you could be missing out. As an investor, you can save a lot more in taxes by being strategic with your investments throughout the year. In this guide, we’ll: Explain how you can save on taxes with strategic investing Examine specific tips for tax optimization Consider streamlining the process via automation Max out retirement accounts every year Retirement accounts such as IRAs and 401(k)s come with tax benefits. The more you contribute to them, the more of those benefits you enjoy. Depending on your financial situation, it may be worth maxing them out every year. The tax advantages of 401(k)s and IRAs come in two flavors: Roth and traditional. Contributions to Roth accounts are made with post-tax dollars, meaning Uncle Sam has already taken a cut. Contributions to traditional accounts, on the other hand, are usually made with pre-tax dollars. These two options effectively determine whether you pay taxes on this money now or later. So, which is better, Roth or Traditional? The answer depends on how much money you expect to live on during retirement. If you think you’ll be in a higher tax bracket when you retire (because you’ll be withdrawing more than you currently make each month), then paying taxes now with a Roth account can keep more in your pocket. But if you expect to be in the same or lower tax bracket when you retire, then pushing your tax bill down the road via a Traditional retirement account may be the better route. Use tax loss harvesting throughout the year Some of your assets will decrease in value. That’s part of investing. But tax loss harvesting is designed to allow you to use losses in your taxable (i.e. brokerage) investing accounts to your advantage. You gain a tax deduction by selling assets at a loss. That deduction can offset other investment gains or decrease your taxable income by up to $3,000 every year. And any losses you don’t use rollover to future years. Traditionally, you’d harvest these losses at the end of the year as you finalize your deductions. But then you could miss out on other losses throughout the year. Continuously monitoring your portfolio lets you harvest losses as they happen. This could be complicated to do on your own, but automated tools make it easy. At Betterment, we offer Tax Loss Harvesting at no extra cost. Once you determine if Tax Loss Harvesting is right for you (Betterment will ask you a few questions to help you determine this), all you have to do is enable it, and this feature looks for opportunities regularly, seeking to help increase your after-tax returns. Keep in mind, however, that everyone’s tax situation is different—and Tax Loss Harvesting may not be suitable for yours. In general, we don’t recommend it if: Your future tax bracket will be higher than your current tax bracket. You can currently realize capital gains at a 0% tax rate. You’re planning to withdraw a large portion of your taxable assets in the next 12 months. You risk causing wash sales due to having substantially identical investments elsewhere. Rebalance your portfolio with cash flows As the market ebbs and flows, your portfolio can drift from its target allocation. One way to rebalance your portfolio is by selling assets, but that can cost you in taxes. A more efficient method for rebalancing is to use cash flows like new deposits and dividends you’ve earned. This can help keep your allocation on target while keeping taxes to a minimum. Betterment can automate this process, automatically monitoring your portfolio for rebalancing opportunities, and efficiently rebalancing your portfolio throughout the year once your account has reached the balance threshold. Consider getting out of high-cost investments Sometimes switching to a lower-cost investment firm means having to sell investments, which can trigger taxes. But over time, high-fee investments could cost you more than you’d pay in taxes to move to a lower cost money manager. For example, if selling a fund will cost you $1,000 in taxes, but you will save $500 per year in fees, you can break even in just two years. If you plan to be invested for longer than that, switching can be a savvy investment move. Consider a Roth conversion The IRS limits who can contribute to a Roth IRA based on income. But there’s no income limit for converting your traditional IRA into a Roth IRA. It’s not for everyone, and it does come with some potential pitfalls, but you have good reasons to consider it. A Roth conversion could: Lower the taxable portion of the conversion due to after-tax contributions made previously Lower your tax rates Put you in a lower tax bracket than normal due to retirement or low-income year Provide tax-free income in retirement or for a beneficiary Provide an opportunity to use an AMT (alternative minimum tax) credit carryover Provide an opportunity to use an NOL (net operating loss) carryover If you decide to convert your IRA, don’t wait until December—you’d miss out on 11 months of potential tax-free growth. Generally, the earlier you do your conversion the better. That said, Roth conversions are permanent, so be certain about your decision before making the change. It’s worth speaking with a qualified tax advisor to determine whether a Roth conversion is right for you. Invest your tax refund It might feel nice to receive a tax refund, but it usually means you’ve been overpaying your taxes throughout the year. That’s money you could have been investing! If you get a refund, consider investing it to make up for lost time. Depending on the size of your refund, you may want to resubmit your Form W-4 to your employer to adjust the amount of taxes withheld from each future paycheck. The IRS offers a Tax Withholding Estimator to help you get your refund closer to $0. Then you could increase your 401(k) contribution by that same amount. You won’t notice a difference in your paycheck, but it can really add up in your retirement account. Donate to charity It’s often said that it’s better to give than to receive. This is doubly true when charitable giving provides tax benefits in addition to the feeling of doing good. You can optimize your taxes while supporting your community or giving to causes you care about. To donate efficiently, consider giving away appreciated investments instead of cash. Then you avoid paying taxes on capital gains, and the gift is still tax deductible. You’ll have to itemize your deductions above the standard deduction, so you may want to consider “bunching” two to five years’ worth of charitable contributions. Betterment’s Charitable Giving can help streamline the donation process by automatically identifying the most appreciated long-term investments and partnering directly with highly-rated charities across a range of causes.\\ \\ \\ 8 min read](https://www.betterment.com/resources/how-to-plan-taxes-when-investing) - \\ \\ How Betterment’s tech helps you manage your money\\ \\ How Betterment’s tech helps you manage your money true Our human experts harness the power of technology to help you reach your financial goals. Here’s how. When you’re trying to make the most of your money and plan for the future, there are some things humans simply can’t do as well as algorithms. The big idea: Here at Betterment, we’re all about automated investing—using technology with human experts at the helm—to manage your money smarter and help you meet your financial goals. How does it work? Robo-advisors use algorithms and automation to quickly and efficiently optimize your investments. They do the heavy lifting behind the scenes, managing all the data analysis and adapting investment expertise to fit your circumstances. All you need to do is fill in the gaps with details about your financial goals. The result: you spend less time managing your finances and more time enjoying your life, while Betterment focuses on your specific reasons for saving, adjusting your risk based on your timeline and target amount. Plus, robo-advisors cost less to operate. While the specific fees vary from one robo-advisor to the next, they all tend to be a fraction of what it costs to work with a traditional investment manager, meaning more of your money stays invested. Learn more about how much it costs to save, spend and invest with Betterment. A winning combination of human expertise and technology: Automation is what Betterment is known for. But our team of financial experts is our secret sauce. They research, prototype, and implement all the advice and activity that you see in your account. Our algorithms and tools are built on the expertise of traders, quantitative researchers, tax experts, CFP® professionals, behavioral scientists, and more. Four big benefits (just for starters): We put your dividends back to work: We automatically reinvest available dividends, even purchasing fractions of shares on your behalf, so you don’t miss out on potential market returns. A focus on the future: Nobody knows the future. And that makes financial planning tough. Your situation can change at any time but our tools and advice can help you see how various changes could affect your goals. We show you a range of potential outcomes so you can make more informed decisions. Anticipating taxes: We may not be able to predict future tax rates, but we can be pretty sure that certain incomes and account types will be subject to some taxes. This becomes especially relevant in retirement planning, where taxes affect which account types are most valuable to you. Factoring in inflation: We don’t know how inflation will change, but we can reference known historical ranges, as well as targets set by fiscal policy. The most important thing is to factor in some inflation because we know it won’t be zero. We currently assume a 2% inflation rate in our retirement planning advice and in our safe withdrawal advice, which is what the Fed currently targets. Additional advice is always available: At Betterment, we automate what we can and complement our automated advice with access to our financial planning experts through our Premium plan, which offers unlimited calls and emails with our team of CFP® professionals. You can also schedule a call with an advisor to assist with a rollover or help with your initial account setup. Whether you need a one-time consultation or ongoing support, you can always discuss your unique financial situations with one of our licensed financial professionals Managing your money with Betterment: Our mission is to empower you to make the most of your money, so you can live better. Sometimes the best way to do that is with human creativity and critical thought. Sometimes it’s with machine automation and precision. Usually, it takes a healthy dose of both.\\ \\ \\ 4 min read](https://www.betterment.com/resources/how-betterment-technology-manages-money) - \\ \\ Three steps to size up your emergency fund\\ \\ Three steps to size up your emergency fund true Strive for at least three months of expenses while taking these factors into consideration. Imagine losing your job, totaling your car, or landing in the hospital. How quickly would your mind turn from the shock of the event itself to worrying about paying your bills? If you’re anything like the majority of Americans recently surveyed by Bankrate, finances would add insult to injury pretty fast: Only around 2 in 5 Americans would pay for an emergency from their savings In these scenarios, an emergency fund can not only help you avoid taking on high-interest debt or backtracking on other money goals, it can give you one less thing to worry about in trying times. So how much should you have saved, and where should you put it? Follow these three steps. 1. Tally up your monthly living expenses — or use our shortcut. Coming up with this number isn’t always easy. You may have dozens of regular expenses falling into one of a few big buckets: Food Housing Transportation Medical When you create an Emergency Fund goal at Betterment, we automatically estimate your monthly expenses based on two factors from your financial profile: Your self-reported household annual income Your zip code’s estimated cost of living You’re more than welcome to use your own dollar figure, but don’t let math get in the way of getting started. 2. Decide how many months make sense for you We recommend having at least three months’ worth of expenses in your emergency fund. A few scenarios that might warrant saving more include: You support others with your income Your job security is iffy You don’t have steady income You have a serious medical condition But it really comes down to how much will help you sleep soundly at night. According to Bankrate’s survey, nearly ⅔ of people say that total is six months or more. Whatever amount you land on, we’ll suggest a monthly recurring deposit to help you get there. We’ll also project a four-year balance based on your initial and scheduled deposits and your expected return and volatility. Why four years? We believe that’s a realistic timeframe to save at least three months of living expenses through recurring deposits. If you can get there quicker and move on to other money goals, even better! 3. Pick a place to keep your emergency fund We recommend keeping your emergency fund in one of two places: cash—more specifically a low-risk, high-yield cash account—or a bond-heavy investing account. A low-risk, high-yield cash account like our Cash Reserve may not always keep pace with inflation, but it comes with no investment risk. Cash Reserve offered by Betterment LLC and requires a Betterment Securities brokerage account. Betterment is not a bank. FDIC insurance provided by Program Banks, subject to certain conditions. Learn more. An investing account is better suited to keep up with inflation but is relatively riskier. Because of this volatility, we currently suggest adding a 30% buffer to your emergency fund’s target amount if you stick with the default stock/bond allocation. There also may be tax implications should you withdraw funds. Your decision will again come down to your comfort level with risk. If the thought of seeing your emergency fund’s value dip, even for a second, gives you heartburn, you might consider sticking with a cash account. Or you can always hedge and split your emergency fund between the two. There’s no wrong answer here! Remember to go with the (cash) flow There’s no final answer here either. Emergency funds naturally ebb and flow over the years. Your monthly expenses could go up or down. You might have to withdraw (and later replace) funds. Or you simply might realize you need a little more saved to feel secure. Revisit your numbers on occasion—say, once a year or anytime you get a raise or big new expense like a house or baby—and rest easy knowing you’re tackling one of the most important financial goals out there.\\ \\ \\ 4 min read](https://www.betterment.com/resources/emergency-fund) Twitter Widget Iframe