I was having a drink with a friend when the discussion of budgets, savings, and retirement came up. We were discussing budgets, and I mentioned how I "pay myself" first by throwing money into my IRA, and how I'm excited that this is the first year I'm maxing out both my IRA and 401k. She confessed that she just has a random percentage contribution to her company's 401k (not maxing), and while she does have a savings account, pretty much whatever she doesn't spend just sits in her checking account. She's comfortable with the amount that she spends (and definitely doesn't spend her whole pay check), but she's was just never sure what to do with extra money, so she didn't do anything with it. I offered to help her set up an IRA, so at least she has something else.
I want to give her basic, easy advice (there's a good chance I'll actually be doing the leg work for her here). Whatever advice I can offer right now is better than nothing, but I want to crowd source and see what you all think as well.
She's a software engineer, high earner but her income will grow, HCOL.
- I had recommended an IRA first. Traditional or Roth? Given that her she's still at the beginning of her career (less than five years in the work force), I'm inclined to say Roth. As an aside, I currently have a Roth IRA with Vanguard with the Target Retirement Date (2055), and when I explained what that was, her response was "just do that." She's all for simplicity and is fairly risk adverse.
- If she has more than $5500 to invest (which she very well might, I don't know her exact numbers), what's the next account she should open (assuming she begins to max out her 401k as well)?
- She *might* be planning an elective surgery* sometime in the future, which is part of the reason she's been hoarding money. My company provides money with an FSA, so I really know nothing about HSAs. Is an HSA (or something similar) a viable option for an elective surgery? (*I am not going to attempt to dissuade her from her choice of surgery, she's on the fence about it and I will support her choice no matter what, so please don't say "tell her not to have the surgery!" If there's nothing out there that can help with savings for an elective surgery, she'll figure something else out.)
Thanks in advance for your advice!
Edited to add: she's debt free, rents with roommates, and is not considering any large purchases (like a house or car) in the immediate (or even distant) future - the possible surgery is the only potential large expense.