MONEY Ask the Expert

What’s the Difference Between an Index Fund, an ETF, and a Mutual Fund?

Investing illustration
Robert A. Di Ieso, Jr.

Q: What is the difference between index funds, ETFs, and mutual funds? — Gary

A: An easy way to think about it is this: Exchange-traded funds, or ETFs, are a subset of index funds; and index funds are a subset of mutual funds.

“It’s like a funnel,” says Christine Benz, director of personal finance at fund tracker Morningstar.

Let’s start with the broadest of the three categories: mutual funds.

What is a mutual fund

A mutual fund is a basket of stocks, bonds, or other types of assets. This basket is professionally managed by an investment company on behalf of investors who don’t have the time, know-how, or resources to buy a diversified collection of individual securities on their own.

In exchange, the fund charges investors a fee, which may run around 1% of assets annually or more. That means $100 for every $10,000 you invest.

In the case of most stock funds, holdings are selected by a portfolio manager, whose job it is to pick the stocks that he or she thinks are poised to perform the best while avoiding the clunkers. This process is referred to as “active management.”

But “active management” isn’t the only way to run a mutual fund.

What is an index fund

An index fund adheres to an entirely different strategy.

Instead of picking and choosing just those stocks that the portfolio manager thinks will outperform, an index fund buys all the shares that make up a particular index, like the Standard & Poor’s 500 index of blue chip stocks or the Russell 2000 index of small-company shares. The aim is to replicate the performance of that entire market.

But because index funds buy and hold rather than trade frequently — and require no analysts to research companies — they are much cheaper to operate. The Schwab S&P 500 Index fund, for example, charges just 0.09%, or $9 for every $10,000 you invest.

By definition, when you own all the stocks that make up a market, you’ll earn just “average” returns of all the stocks in that market. This raises the question: Who would want to settle for just “average” performance?

As it turns out, plenty of investors around the world. While it’s counter-intuitive, academic research has shown that the higher expenses associated with active management and the inherent difficulty of picking winning stocks consistently over long periods of time means that most funds that aim to beat the market actually end up behind in the long run.

“In general, active funds have not delivered impressive performance,” Benz says. Indeed, S&P Dow Jones Indices has studied the performance of actively managed funds. Over the past 10 years, less than 20% of actively managed blue chip stock funds have outperformed the S&P 500 index of blue chip stocks while fewer than 15% of small-company stock funds have beaten the Russell 2000 index of small-cap shares.

What are ETFs

Okay, index funds sound like a good bet. But what type of index fund should you go with?

Broadly speaking, there are two types. On the one hand, there are traditional index mutual funds like the Vanguard 500 Index. Then there are so-called exchange-traded funds, such as the SPDR S&P 500 ETF SPDR S&P 500 ETF SPY 0.21% .

Both will give you similar results, but they are structured somewhat differently.

For starters, with a mutual fund, you often buy and sell shares directly with the fund company. The fund company will let you trade those shares once a day, based on that day’s closing price.

ETFs, on the other hand, aren’t sold directly by fund companies. Instead, they are listed on an exchange, and you must have a brokerage account to buy and sell those shares. That convenience typically comes at a price: Just like with stocks, investors pay a brokerage commission whenever they buy and sell.

That means for small investors, traditional index mutual funds are often more cost effective. “If you are on the hook for trading costs, that can really eat into your returns,” says Benz.

On the other hand, because they are exchange traded, ETF shares can be traded throughout the day. Being able to trade in and out of funds during the day is a convenience that has proved popular for many investors. For the past decade exchange-traded funds have been one of the fastest growing corners of the fund business.

Read next: 5 Things You Didn’t Know About the World’s Biggest Bond Fund

MONEY Ask the Expert

3 Simple Ways to Build a Low-Risk Portfolio

Investing illustration
Robert A. Di Ieso, Jr.

Q: My 89-year-old father has $750,000 after selling his Medtronic stock and paying capital gains. He’d like to make a low-risk investment with easy accessibility, but one that would give him more than a savings account. Any suggestions? — Karen

A: Before your father gets too focused on where he should reinvest the proceeds of this sale, it’s important to ask how this fits into the bigger picture of his finances, says Shari Burns, a chartered financial analyst and managing director with United Capital in Seattle.

Given the current state of the bond market — interest rates are very low but poised to move higher this year, which would threaten the value of older bonds — there is no simple answer for making a low-risk investment that is easily accessible and that pays more than just a savings account.

“Preserving principal is one priority, and getting a better return than a savings account is another,” says Burns, noting that any time you look for additional reward, you’re taking on additional risk.

With that in mind, your father needs to think about his priorities and his timeline. Let’s consider three scenarios:

Scenario # 1: He needs all the proceeds of the stock sale to support his cost of living.

Under this scenario, he should start with how much he needs and for roughly how many years. Working backwards will help him determine the right balance of risk and reward.

In simplistic terms, his $750,000 translates to $75,000 in annual income for the next 10 years. To keep up with inflation and preserve capital consider a mix of cash and individual bonds.

Burns suggests keeping $250,000 in a savings account to draw on over the next few years. “If short-term rates go up, then the interest on the savings account will rise,” she says.

Your dad can then invest the remaining $500,000 in a laddered bond portfolio of individual Treasury securities. A simple way to build such a “ladder” is to divide that money equally among Treasuries maturing in two-year increments, starting with 2-year notes and going out to 10-year securities.

At current rates, those Treasuries are paying out 0.72%, 1.29%, 1.74%, 2.07% and 2.33% respectively. So combined, this $500,000 ladder will average 1.63% per year or $8,140 in annual income for the first few years.

“As you spend down the savings account, you will replenish your cash as bonds mature in the years that remain,” she says. “After 10 years your portfolio will be depleted.” It’s important to point out that because your father is holding these bonds to maturity, rising rates aren’t a concern.

Scenario #2: He doesn’t need the additional income but will rest easy knowing it’s safe.

Under the second scenario — which we’ll venture to say is the most likely based on the size of this single holding – he will probably want to keep about 70% to 75% of these funds in cash and a short-term bond fund, such as the Vanguard Short-Term Bond Index VANGUARD SHORT-TERM BOND INDEX INV VBISX 0.19% .

The remaining 25% to 30% should go to a low-cost stock fund, such as the Schwab S&P 500 Index fund SCHWAB S&P 500 SWPPX 0.28% or the Vanguard Total World Stock Index fund VANGUARD TOTAL WORLD STK INDEX INV VTWSX 0.24% . “The stock portion of the portfolio will provide growth over time, which will keep the total portfolio ahead of inflation,” she says. Because neither the bond market nor the stock market are exactly cheap, however, it makes sense to dollar-cost average into these portfolios over the next six months to a year.

Scenario #3: He wants to preserve wealth to eventually pass this on to his heirs or charity.

Finally, if your father is more focused on long-term wealth preservation, he may want to rethink his goal and invest for the long term, she says. “He will want the capital to rise faster than inflation to maintain the purchasing power of his wealth,” she says. Use the same approach described above, only plan to bring the equity portion up to 50% to 60% of this segment of the portfolio.

Read next: The Low-Risk, High-Reward Way to Buy Your First Investment Property

MONEY Ask the Expert

Can Debt Collectors Go After My Retirement Savings in Court?

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: My wife retired late last year and we are thinking about rolling some of her 401(k) assets into an IRA account. We live in California and understand that the protections from creditors and in bankruptcy vary. Does this move make sense for us? —Max Liu

A: There are a lot of good reasons to roll money from a 401(k) plan into an IRA after retiring. In an IRA, you have greater control over your assets. You can own individual stocks, ETFs, or even real estate, and not be bound to the often-limited menu of investment options in your company’s plan. Since you are not working any longer, there is no concern over getting an employer match. If the fees seem high or you just don’t like maneuvering the plan’s website, a rollover may make sense.

But you are right to consider protection from creditors. In general, all assets inside a 401(k) plan are out of reach of creditors, both inside or outside of bankruptcy. That’s often true of 401(k) assets rolled into an IRA, as well—though you may be required to prove that those assets came from a 401(k). For that reason, never co-mingle rolled over assets with those from a self-funded IRA, says Howard Rosen, an asset protection attorney in Miami, Fla. He advises opening a new account for the roll over.

Federal law sets these protections. But through local bankruptcy code, 33 states have put their own spin on the rules—and California is one of those. “You need to understand that when you move assets from a 401(k) plan to an IRA, you are moving from full protection to limited protection,” says Jeffrey Verdon, an asset protection attorney in Newport Beach, Calif.

States like Texas and Florida make virtually no distinction between assets in a 401(k) and those rolled into an IRA, he says. Assets are fully protected from creditors in both types of retirement account. Further, in such states the distributions from such accounts are also protected.

But in California, creditors may come after any IRA assets not deemed necessary for living expenses. They may also come after any distributions you take from your IRA. You can protect up to $1.25 million through bankruptcy, a figure that resets every three years to account for inflation. But that is a total for all IRA assets, not each account, says Cyrus Amini, a financial adviser at Charlesworth and Rugg in Woodland Hills, Calif. And note, too, that a critical ruling last year determined that inherited IRAs are no longer protected.

To understand IRA protections in other states, you may need to speak with the office of the state securities commissioner or state attorney. Many of the state rules have been shaped through case law, and so you may want to consult a private attorney, says Amini. Another good starting point is the legal sites Nolo.com and protectyou.com.

MONEY Ask the Expert

The Best Way To Buy Stocks Warren Buffett Likes

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’d like information on the “dividend aristocrats” that Warren Buffett has talked about. Should I buy them through a fund or a direct purchase plan? — Sheron Milliner

A: There’s no hard-and-fast rule about what stocks qualify as “dividend aristocrats,” but the moniker typically refers to companies that have consistently paid and raised their dividends — without fail — for at least several consecutive years.

The exact number of years is up for debate. Standard & Poor’s runs several equity indexes that track these types of companies. One benchmark that focuses on S&P 500 companies requires at least 25 consecutive years of dividend increases; a broader-based U.S. index looks for stocks that have boosted their payouts for 20 years or more; and a European version defines a dividend aristocrat as a stock that has boosted its payments for at least 10 straight years.

The dividend itself doesn’t have to be that large either — “it just has to be sustainable,” says Ron Weiner, CEO of investment advisory firm RDM Financial Group. “A company is showing its confidence in growth by increasing dividends as opposed to doing a one-time stock buyback or cash distribution.”

Companies that qualify as aristocrats tend to be value-oriented blue chips — think PepsiCo PEPSICO INC. PEP -0.37% , Johnson & Johnson JOHNSON & JOHNSON JNJ -0.23% , and Walmart WAL-MART STORES INC. WMT -0.81% — as opposed to high-flying newbies.

That said, a company’s place in the court isn’t guaranteed. Banks were for many years dividend aristocrats, but many cut their payouts in the aftermath of the financial crisis.

For that reason – and for the sake of diversification – Weiner’s advice to investors interested in this strategy is to look for an exchange-traded fund (ETF) or mutual fund that focuses on dozens or hundreds of companies with track records for paying and boosting their dividends.

The SPDR S&P Dividend ETF (SDY), for example, limits its universe to stocks that have increased their dividends for 20 consecutive years. Again, this isn’t to say it’s a forgone conclusion that these companies will continue to up their payouts. As Morningstar analyst Michael Rawson notes, because the fund weights its holdings by yield, it tends to favor lower-quality midcaps and value holdings.

Another ETF in this niche, the ProShares S&P 500 Dividend Aristocrats (NOBL), focuses on companies in the index with a 25-year record of dividend increase, but it gives equal weighting to all of its holdings.

It’s important to note that investors looking for income won’t necessarily find the highest yields among this group. Again, the key is consistency, says Weiner. “The point is to find good companies that have demonstrated that they can consistently grow their businesses over time.”

Although Weiner has used passive funds to tap into this group, he thinks active management may have an advantage here. “If something big happens, managers can react faster than an index,” says Weiner, whose firm has invested in the Goldman Sachs Rising Dividend Growth fund.

At the same time the fund sticks with companies that have raised their dividends an average of 10% a year over the last 10 years, its managers look for companies with the wherewithal to continue raising dividends in a meaningful way.

You could put together your own portfolio of dividend aristocrats by using one of the above portfolios as a starting point, but Weiner doesn’t recommend that approach. Even if you did assemble a diverse mix of dividend payers, keeping tabs on these companies is practically a full-time job.

“You can’t just buy and hold, and not pay attention,” says Weiner. “Aristocrats do get overthrown.”

MONEY Ask the Expert

The Best Landscape Lighting to Showcase Your Yard

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: I’ve always loved the dramatic look of landscape lighting shining up on a house and its trees, and I see solar-powered do-it-yourself lights that look affordable and easy. Are they a good option?

A: While DIY solar lights are unquestionably affordable and easy to install (just press them into the dirt like a tent stake), they probably won’t deliver the dramatic results you’re seeking.

Solar-powered path lights, fence-post-toppers, step lights, and spotlights get their energy from the sun by day then come on automatically by night. No wiring or professional installation is required, and you’ll pay only about $10 to $30 per light, depending on the style.

But these products tend to provide only dim illumination and generally don’t have enough power supply to shine all through the night (especially after a cloudy day or if they’re located in a spot that doesn’t get all-day sun).

Stepping up to the next grade of do-it-yourself outdoor lighting means spending $20 to $40 per fixture—and several hours connecting and burying the wires. These lights use low-voltage wiring, meaning you don’t need an electrician to install them as long as you have exterior outlets you can plug into.

You connect the wires by crimping them together and bury them either under your mulch or several inches underground, according to the manufacturer’s instructions.

Look for a product that uses LED lights, which are brighter and use less power than halogens so they last longer into the night. Also, check the bulbs’ color temperature: “Aim for 2700 kelvin, or something close,” says Michael Potucek, of Artistic Outdoor Lighting, in Lombard, Illinois. “Once you get up to 4000 or 5000 kelvin, the light is very stark and cold.”

Better yet, hire a specialist—or your landscaper—to install a pro-grade lighting system. You’ll get the 2700k light of traditional incandescent bulbs, plus higher-grade electronics, buried in deep trenches with protective conduit in locations where you’re likely to dig (like mulch beds). That means no cut wires from gardening projects or short-outs from water that seeps into the wire connections.

You’ll pay around $3,000 to $4,000 for the full package—pathway lights, uplights on the house and trees, step lights on the stoop.

And you’ll get more than just a higher quality product. A good lighting specialist will bring professional design techniques to your lighting plan, not just by placing the lights for the best results but also using a variety of different lenses on the fixtures and wattages for the bulbs to create a pleasing scene.

“There’s an art to getting it right, almost like lighting a stage,” says Potucek. A professional job will fully illuminate your path rather than just its edges, for example, your trees will look dramatic whether their leafed out in summer or bare branches in winter, and every part of your house will be equally bright, from its highest peak to the lowest.

MONEY home improvement

How to Never Buy Another Propane Tank for Your Grill

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: I just ran out of barbecue gas midway through cooking for a backyard party, and I am so done with the hassle of propane tanks. What would I have to pay to connect my grill to my household gas line?

A: If you have a gas-burning heating system or range in your house, you can connect your grill to the supply line—probably even the grill you already have—and never have to go out and fill up another propane tank again.

“It’s the best $300 or $400 you’ll ever spend,” says Dan Marguerite, owner of the Backyard Barbecue Store in Wilmette, Illinois.

You will need to hire a licensed plumber to open up and connect to the gas line in your house or near the meter (about $150), then run a new line over to your grill, using rigid pipe inside and buried flexible hose outside (about $7 per foot in both cases).

If your house uses propane (meaning you already have a large supply tank that gets refilled regularly by a delivery truck), your plumber will just remove the regulator on your grill, and you’re ready to start cooking. If your house uses natural gas (the kind that comes in through a meter from the street) you’ll need to install a conversion kit on the grill, which essentially makes the burner orifices larger to account for lower gas pressure. Most grills can be converted, with the kit running $75 to $100, plus perhaps another $50 if you hire your plumber to install it, which is a good idea, Marguerite says.

You will experience no difference in the temperature or operation of the grill using the new connection, he says. “The larger orifices and the different regulator on the gas line mean you’re still getting the same BTUs and the same cooking feel.”

Of course, if your particular grill doesn’t offer a conversion kit—or if the inside is so covered with charred barbecue sauce that you don’t even want to try—this is also a perfect excuse to buy a new grill, maybe one with lighting, rotisserie attachment, and built-in smoker ($1,800 to $3,000 and up).

MONEY Ask the Expert

When It’s Risky to Be Conservative With Stocks

Investing illustration
Robert A. Di Ieso, Jr.

Q: I’m 26 years old and have $100,000 invested in mutual funds, with 50% in stocks and 50% in bonds. Is this the right strategy for my age? — Oliver in Hillside, New Jersey

A: The right investment strategy is, ultimately, the one that makes the most sense for your goals, your risk tolerance, and your time horizon.

That said, if this money is for retirement, you should probably lighten up on the bonds given your age. “My recommendation for someone this age is to increase their stock exposure to up to 80% or 90% of the total portfolio,” says Brian Cochran, a certified financial planner with John Moore & Associates in Albuquerque, N.M.

If you’re wary of stocks, you’re not alone. “This is extremely common among people of this generation,” says Cochran. “Growing up during the financial crisis and recession seems to have left a bad taste in their mouths.” In a UBS Wealth Management survey published last year, in fact, millennials (people ages 21 through 36) reported having just 28% of their assets in equities – and a whopping 52% in cash.

Here’s the thing: Over the long term, it’s actually risky to be too conservative.

Historically, stocks have appreciated in the high single digits, says Cochran, and bonds have appreciated in the low single digits. With your allocation, that’s a difference of a couple percentage points a year, and it adds up. A $100,000 portfolio that appreciates 6% a year on average, for instance, would be worth about $600,000 in 30 years. One that grows 4% a year will end up at $331,000 or about half as much.

“The danger of a 50/50 allocation is that inflation could grow faster than a portfolio with that allocation,” says Cochran. “At 3% inflation, $1,000 today would be worth the equivalent of $412 in 30 years.”

And your time horizon may be even longer, possibly 40 years. “We’re preparing most clients in their 20s to retire around age 70,” says Cochran.

Meanwhile, after three decades of falling bond yields – which translates to rising bond prices – many experts warn that bond investors could actually lose money when interest rates finally move the other direction. “We don’t expect a lot of returns from bonds in the next two to three years,” he adds.

You can get a quick overview of where you should be using Bankrate.com’s asset allocation calculator.

If you have a retirement plan with a large brokerage, you should have access to some more robust planning tools, which will help you dial in that allocation in more detail.

If you’re still unsure, consider opting for a target-date retirement mutual fund that will allocate your assets based on your retirement age; you are probably looking at a 2060 target-date fund, says Cochran.

Alternatively, consider working with a fee-only financial planner to help you fine- tune your portfolio. In the end, these big-picture planning decisions carry even more weight than the individual stocks or funds you choose. Kudos to you for thinking about this now.

MONEY Health Care

What Happens When Your Doctor Leaves Your Health Plan

140603_FF_QA_Obamacare_illo_1
Robert A. Di Ieso, Jr.

Q. My doctor is leaving my provider network in the middle of the year. Does that unexpected change mean I can switch to a new plan?

A. Some life changes entitle you to switch plans outside your health plan’s regular annual open enrollment period—losing your on-the-job coverage is one example—but losing access to your doctor generally doesn’t qualify.

There are some exceptions, however. Several states have “continuity of care” laws that allow people to keep seeing a specific doctor after the physician leaves a provider network if they’re undergoing treatment for a serious medical condition, have a terminal illness or are pregnant, among other things. How long a patient is allowed to continue to see that doctor varies by state. It may be 90 days or for the duration of treatment or the end of a pregnancy, for example.

State continuity of care laws don’t apply to self-funded plans that pay their employees’ claims directly.

Some seniors in private Medicare Advantage plans may also be allowed to change plans midyear if their physicians or other providers leave their current network, according to rules that went into effect this year.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

MONEY Ask the Expert

The One Thing Not to Do When Paying for Home Repairs

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: My handyman gives me a discount if I pay in cash, and my tree guy asks me to make a check out to him personally. I assume neither one is claiming the income on his taxes. What gives? Am I breaking any laws—or ethical principles—when I oblige?

A: “Cash is still an acceptable form of payment, last I heard,” says Grand Rapids, Mich., certified financial planner Justin Hales, “even though I hardly ever carry it anymore.” And there’s nothing either legally or morally questionable about paying cash for a home improvement.

“Think of all those coffee shops and restaurants that take only cash,” Hales notes. “Maybe they’re cheating on their taxes, maybe they’re not. It’s not the consumer’s obligation to figure that out.”

After all, your tree guy or handyman can short the IRS whether you pay with a check, credit card, Apple Pay, or Bitcoin. There are valid reasons besides tax evasion that he may prefer cash, such as to save the transaction fees on credit card payments or cut down on trips to the bank to deposit checks.

As long as you’re hiring companies you’ve fully vetted, and that you know are licensed and carry both workman’s comp and liability insurance, there’s no downside to paying cash or with a check made out to the individual rather than his business, Hales says.

If you don’t have cash on hand and a he suggests a check made out to “cash,” the ethics are a bit messier. “There’s no really good legitimate reason” to ask for such a check, says Hales. “He still has to go to the bank, unless he wants to pay a check-cashing store to cash it.” So he almost surely is looking to avoid showing the income on his taxes, which means you’re abetting his tax evasion—and if you’re receiving a discount for it, you’re also benefiting from the illegal maneuver.

Because cash provides no proof of payment, make sure you get a signed receipt for each payment you make. The receipt should specify the work done, the date, and the price. If the handyman gave you a detailed proposal spelling out the particulars of the job, he can simply write “paid in full” on that paperwork with his signature and date. That way you have proof of the work he did—and proof that you don’t owe him for it.

MONEY Ask the Expert

Why a High Income Can Make It Harder to Save for Retirement

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: My employer’s 401(k) plan considers me a “highly compensated” employee and caps my contribution at a measly 5%. I know I am not saving enough for retirement. What are the best options to maximize my retirement savings? I earn $135,000 a year and my wife makes $53,000. – E.O., Long Island, NY

A: It’s great to have a six-figure income. But, ironically, under IRS rules, being a highly compensated worker can make it harder to save in your 401(k).

First, some background on what it means to be highly compensated. The general rule is that workers can put away $18,000 a year in pre-tax income in a 401(k) plan. But if you earn more than $120,000 a year, or own more than a 5% stake in your employer’s company, or are in the top 20% of earners at your firm, you are considered a “highly compensated employee” (HCE) by the IRS.

As an HCE, you’re in a different category. Uncle Sam doesn’t want the tax breaks offered by 401(k)s only to be enjoyed by top executives. So your contributions can be limited if not enough lower-paid workers contribute to the plan. The IRS conducts annual “non-discrimination” tests to make sure high earners aren’t contributing disproportionately more. In your case, it means you can put away only about $6,000 into your plan.

Granted, $120,000, or $135,00, is far from a CEO-level salary these days. And if you live in a high-cost area like New York City, your income is probably stretched. Being limited by your 401(k) only makes it more difficult to build financial security.

There are ways around your company’s plan limits, though neither is easy or, frankly, realistic, says Craig Eissler, a certified financial planner with Halbert Hargrove in Houston. Your company could set up what it known as a safe harbor plan, which would allow them to sidestep the IRS rules, but that would mean getting your employer to kick in more money for contributions. Or you could lobby your lower-paid co-workers to contribute more to the plan, which would allow higher-paid employees to save more too. Not too likely.

Better to focus on other options for pumping up your retirement savings, says Eissler. For starters, the highly compensated limits don’t apply to catch-up contributions, so if you are over 50, you can put another $6,000 a year in your 401(k). Also, if your wife is eligible for a 401(k) or other retirement savings plan through her employer, she should max it out. If she doesn’t have a 401(k), she can contribute to a deductible IRA and get a tax break—for 2015, she can contribute as much as $5,500, or $6,500 if she is over 50.

You can also contribute to an IRA, though you don’t qualify for a full tax deduction. That’s because you have a 401(k) and a combined income of $188,000. Couples who have more than $118,000 a year in modified adjusted gross income and at least one spouse with an employer retirement plan aren’t eligible for the tax break.

Instead, consider opting for a Roth IRA, says Eissler. In a Roth, you contribute after-tax dollars, but your money will grow tax-free; withdrawals will also be tax-free if the money is kept invested for five years (withdrawals of contributions are always tax-free). Unfortunately, you bump up against the income limits for contributing to a Roth. If you earn more than $183,000 as a married couple, you can’t contribute the entire $5,500. Your eligibility for how much you can contribute phases out up to $193,000, so you can make a partial contribution. The IRS has guidelines on how to calculate the reduced amount.

You can also make a nondeductible contribution to a traditional IRA, put it in cash, and then convert it to a Roth—a strategy commonly referred to as a “backdoor Roth.” This move would cost you little or nothing in taxes, if you have no other IRAs. But if you do, better think twice, since those assets would be counted as part of your tax bill. (For more details see here and here.) There are pros and cons to the conversion decision, and so it may be worthwhile to consult an accountant or adviser before making this move.

Another strategy for boosting savings is to put money into a Health Savings Account, if your company offers one. Tied to high-deductible health insurance plans, HSAs let you stash away money tax free—you can contribute up to $3,350 if you have individual health coverage or up to $6,650 if you’re on a family plan. The money grows tax-free, and the funds can be withdrawn tax-free for medical expenses. Just as with a 401(k), if you leave your company, you can take the money with you. “So many people are worried about paying for health care costs when they retire,” says Ross Langley, a certified public accountant at Halbert Hargrove. “This is a smart move.”

Once you exhaust your tax-friendly retirement options, you can save in a taxable brokerage account, says Langley. Focus on tax-efficient investments such as buy-and-hold stock funds or index funds—you’ll probably be taxed at a 15% capital gains rate, which will be lower than your income tax rate. Fixed-income investments, such as bonds, which throw off interest income, should stay in your 401(k) or IRA.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

Read next: Why Regular Retirement Saving Can Improve Your Health

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