Don't Blow It: The 6 Most Common Money Questions, Answered

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No idea what to do with your money? We're answering your six biggest questions about your finances—so you can truly be a HBIC.

What's up with my 401(k)?

What is it? 401(k)s are retirement savings plans set up by your employer. You may have also heard of Roth 401(k)s, which are like traditional ones except you contribute after-tax dollars that can be withdrawn tax-free once you retire. There's also 403(b)s, which are for employees at nonprofits or in public education.

How do they work? You contribute a percentage of your paycheck—before taxes—to a 401(k) account. Often, your employer matches your contribution up to a certain amount. So, if your company gives you 50 cents for every $1 you put in up to 6 percent, contribute 6 percent if you can; otherwise, you're leaving free money—and a guaranteed 50 percent return—on the table. If you can afford more, do it. "Increasing your contribution by even 1 percent can make a big difference," says Kristen Robinson, Fidelity's senior VP of women and young investors.

Are target-date funds a good idea? If you're the type who wants someone else to choose how much to put where (in stocks, bonds, etc.), a target-date fund—a one-stop fund option within your 401(k) that's based on when you plan to retire—is a good choice, as it will be recalibrated each year (less risk as you near retirement) to make sure you're on track.

Is a 401(K) enough? Focus on socking away 20 percent of your income, whether that's in a 401(k) or elsewhere.

Should I get an IRA, too?

What is it? IRAs, or individual retirement accounts, offer another way to save.

Do I need one? IRAs are must-haves for anyone whose employer doesn't offer a 401(k). They're also good for those who have maxed out their 401(k)s—this year, the contribution limit is $18,000—and want to save more.

How does it work? Each year, you can contribute up to a certain amount (for 2015, the limit is $5,500). There are two types—the traditional and the Roth—and the main question is: Do you want to pay taxes on the funds now or later?

The Traditional: Earnings grow tax-deferred, meaning you'll pay income tax on withdrawals during retirement. Your contributions are generally tax-deductible at both the state and federal levels (subject to income restrictions).

The Roth: Earnings grow tax-free, meaning you aren't taxed on the money when you pull it out during retirement.

Pro tip: Roth IRA eligibility has salary restrictions (visit, but some investors sidestep them by contributing to a traditional and then converting it to a Roth. Consult an adviser for tax consequences.

The stock market: Do I have to be in it to win it?

If you have a 401(k), you probably already have money in the stock market. But for those who want to invest beyond their retirement funds, index and mutual funds may be the easiest way to test the waters.

What are mutual funds? Think of them this way: You're pooling your money with a bunch of people you don't know, and the fund manager is taking all of your cumulative money and investing it in stocks, bonds, etc., on your behalf. Any gains they achieve equal more income for you.

What are index funds? They're a type of mutual fund, but with generally lower fees than managed mutual funds, and they only follow the performance of an index, like the Dow Jones Industrial Average.

Where do I start? You can buy index funds from brokerages such as Fidelity ( or Vanguard ( For mutual funds, don't be overwhelmed by the quantity of options; a good place to research is on, which monitors the performance of 175,000 funds.

WTF is an HSA?

HSAs, or health savings accounts, are like personal savings accounts, but you can only spend the money on expenses that pertain to your health.

Do I need one? HSAs are only available to those with high-deductible insurance plans. Is that you? Then having an HSA is a good idea, says Elle Kaplan of LexION Capital.

Pros: Money in an HSA can be put toward your deductible (or the money you have to cough up before insurance kicks in), earns interest, and rolls over from year to year. It can also help pay for health costs not covered by insurance, such as a new pair of glasses. Bonus: Contributions are tax-deductible, you can't be taxed when you take money out to pay medical costs, and the money rolls over from year to year indefinitely.

Cons: Health is unpredictable, so it's hard to know how much to set aside (though putting enough in to cover your deductible each year is a good place to start).

How's my credit?

What is it? This three-digit number determines your credit worthiness. For some loans, like mortgages, the higher your credit score, the lower interest rate you'll get.

What's a good one? A good credit score is 700 or above, says Teri Williams, president and COO of OneUnited Bank in Boston.

How can I find mine? is the only site authorized by federal law to provide your full credit report from all three credit bureaus. It's free once a year.

How do I raise my score? Thirty-five percent of a credit score is based on payment history, so the best way to boost it is to get a credit card, use it, and pay the bill on time and in full each month. It also helps to pay down debt, which shows you're good at paying back what you've borrowed.

Can't I just hire someone to do all of this for me? Enter: financial planners

What do they do? Think of financial planners as Sherpas who guide you past financial pitfalls. In addition to mapping out your long-term goals, they can advise you on a diverse range of investments to help you reach those goals.

When do I need one? There's no exact age or income level that triggers the go-see-a-planner alarm. That said, many financial advisers say an event in someone's life—like an inheritance from Grandma—is often what leads people to their offices. Put it this way: If you're just looking for a way to budget your money, you may want to try out a monthly tracker, like, before shelling out $150 to $500 an hour to see a financial planner. But if you have no plan for the next three decades of your financial life, an adviser could be a lifesaver.

What should I look for? Ask the adviser how she is compensated to ensure she isn't paid to push specific funds, says Jennifer Anker, a certified financial planner and wealth-management adviser at TIAA-CREF. Anker recommends looking for a certified financial planner because these types of advisers abide by certain ethics and are supposed to act in their clients' best interest. To find one in your area, visit

Who's best? Hire a "fee-only" adviser. They charge flat fees or a percentage of your investment instead of earning commissions on products they sell, which protects you from potential conflicts of interest. Find a fee-only adviser through the National Association of Personal Financial Advisors at

This article appears in the April issue of Marie Claire, on newsstands now.

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