If you have money that you can afford to put away in savings, the most important thing is to save it anywhere. Your employer may be able to do an automatic withdrawal from your paycheck to put money into a savings account. Or you could open a self-directed brokerage account. I would say that using some kind of tax deferred savings method is better in the long run, but that might not be the case for everyone.
If you want to have assets in your spouse‘s name, you may be able to contribute money to a Roth IRA in her name from your earned income. The income limits to contribute to a Roth IRA are higher than the limits to contribute to a traditional IRA. You don’t get an immediate tax deduction, but when you retire, your withdrawals are tax free forever.
If you increase your 401(k) savings, you can’t touch that money until retirement, but Since it is pre-tax, you can invest $125 and your take-home pay only drops by $100.
Or, take the $100 and invest in a Roth IRA in your name or in your spouse‘s name. With a Roth IRA, your principal could lose value in a down market, but you will likely have a higher long-term return than a savings account. You can withdraw your Roth contributions at any time without paying additional tax, even though you can’t withdraw the earnings until retirement unless you pay a penalty. This gives you some ability to access your money before retirement for emergencies.
Or, take the $100 and open a brokerage account and invest in a broadly diversified mutual fund. You have the risk of loss in a down year, but your long-term growth rate will exceed any savings account, and the account is completely liquid and you can withdraw the money to spend it at any time. You will pay a little tax every year on capital gains and dividends, but when you withdraw the money, you will only pay additional taxes on the gains and not the original principle you deposited.
Or, take the $100 and invest it in a savings account. There are several online savings accounts that pay higher interest rates than your local bank, although the rate is still only around 1%. The principle is guaranteed and you can access your money at any time.
The most important thing is that if you do have money in your take-home pay that you don’t need to spend on a weekly basis and could afford to save someplace, save it anyplace.
