Avoid the missteps.

Some of the most common missteps in personal finance.

Today, there is a plethora of financial content. While some of it is predatory and outright wrong, some of it is really awesome. Gen Z has more access to becoming financially literate than any generation before them.

With that, I wanted to cover some of the most common mistakes or missteps in personal finance. These won’t be recommendations; rather, they will highlight real-world scenarios that I have seen play out.

Sometimes these pitfalls are hidden. Avoiding them can save time, money, and hassle.

Roth Contributions for High Earners

I have seen this time and again. This might be the single most common mistake I see young professionals make.

Their intentions are great. Knowing that a Roth IRA can be an effective avenue to saving for retirement, young professionals may quickly make a contribution to a Roth IRA.

Awesome! Until it isn’t, which is usually when MAGI (Modified Adjusted Gross Income) exceeds $150,000 for a single person.

There is actually a phaseout range from $150,000 - $165,000. Once the phaseout range is breached, outright contributions to a Roth IRA begin to decrease from the maximum of $7,000 for 2025. After MAGI passes $165,000, NO outright contributions can be made.

Most custodians will not double-check this. It is on the individual investor to follow these rules. When a contribution is made after MAGI exceeds the thresholds, it must be corrected. In the event it is not, a 6% excise tax can apply to the excess contribution for each year it remains in the Roth IRA.

Of course, there are ways around the income limitations, such as a Roth conversion. We won’t cover the backdoor Roth today, but being aware of the MAGI range for outright contributions is so important.

HSA Holding Cash

HSAs are incredibly tax-efficient vehicles. If you want to see all the ways in which they are, check out this old post!

Some households really are strapped when it comes to medical expenses. So, take this one with a grain of salt.

When an individual or household has the ability to cover medical expenses out of pocket, their HSA can be used as an alternate retirement account.

Given the tax-advantaged nature of the account at the federal level, this can offer a huge advantage for some.

Rather than leaving the funds in cash, which an overwhelming majority of people do, the funds can be invested.

This can allow for years of tax-free compounding. Leaving the account in cash can be an opportunity cost over long periods of time.

Bonus HSA content: For those who are looking to grow wealth through their HSA, saving any qualified medical expense receipts is so important! The HSA allows tax-free distribution for qualified medical expenses at any time! Meaning the funds can grow for a long time before being distributed for an old expense!

Missing the Employer Match

An employer’s 401(k) match is usually the closest thing to a free lunch that employees get. (Pay attention to the vesting schedule because that will dictate what someone actually walks away with in the event they separate from service.)

Nonetheless, when it comes to savings, contributing to a 401(k) up to the maximum match is usually the preferred starting place.

Essentially, if an employer offers a match up to 3% of someone’s salary and an employee earns $100,000 annually, for every $1 the employee contributes, the employer is going to add an additional $1 until the employee reaches $3,000.

So, using the example above, rather than saving $3,000 outside of the retirement plan, if the employee directed that $3,000 to their 401(k), they’d actually have saved $6,000 for the year.

This is huge for savers and can be a serious needle mover over the course of someone’s career.

Last but not least… FORGETTING TO INVEST!!!!!

This one is soul-crushing every single time I come across it. From 401(k) plans sitting in a money market fund for 10 years to Roth IRAs in cash, funds MUST be invested and allocated.

Contributing is NOT the last step!!

It is so important to ensure the funds within any investment account are actually traded. For 401(k) plans, this is usually easier. Setting the portfolio will have future contributions invested accordingly in the vast majority of situations.

Roth IRAs are usually different! Trades must be placed to ensure the funds are invested.

Imagine having missed the last 5 years’ worth of growth because a Roth IRA was sitting in cash. That would sting!

This is for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results.