Investing can seem like a puzzle, but with the right strategy, you can make the most of your money! In this video, we’ll be discussing the “investing sequence” to help you understand where to throw your money first. We’ll start with the 401(k) and why it’s important to invest enough to claim the full match if your employer offers one. Then, we’ll talk about the pros and cons of investing in a 401(k) and why it might not be the best option for everyone. Next up, we’ll dive into the world of HSAs – a unique savings option with TRIPLE tax benefits. And lastly, we’ll introduce you to the Roth IRA – the perfect solution for anyone looking to avoid taxes on their retirement savings. Watch now to learn the why behind the where of investing!
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Investing your money can be confusing with so many options available. The first step in any investment strategy is to understand the investing sequence, which involves prioritizing your investments based on their tax advantages.
The three most important accounts in the investing sequence are the 401(k), the Health Savings Account (HSA), and the Roth IRA. It’s essential to understand the benefits of each account and how to make the most of your contributions.
The 401(k)
The 401(k) is the most common retirement account offered by employers in the United States. It’s a tax-deferred account, which means you won’t have to pay taxes on the contributions until you withdraw the funds. If your employer offers a 401(k) match, it’s essential to take advantage of it by contributing at least the minimum amount required to receive the match.
The Health Savings Account (HSA)
The Health Savings Account (HSA) is a tax-advantaged account that allows you to save and invest money for medical expenses. You can contribute pre-tax money to your HSA, and the funds will grow tax-free. The HSA is an excellent investment vehicle for those who have high-deductible health plans because it allows them to save money on medical expenses while investing in their long-term health.
The Roth IRA
The Roth IRA is a retirement account that allows you to contribute after-tax money. The funds in the Roth IRA will grow tax-free, and you won’t have to pay taxes on any withdrawals made after age 59 ½. If you expect your tax bracket to be higher in retirement than it is now, the Roth IRA is an excellent investment option.
In terms of the investing sequence, it’s essential to prioritize your investments based on their tax advantages. Here’s an example of the investing sequence:
1. Contribute to your 401(k) up to the employer match.
2. Max out your HSA contributions.
3. Max out your 401(k) contributions.
4. Max out your Roth IRA contributions.
By following this sequence, you’ll be maximizing your tax advantages and investing in your future. It’s also important to review and adjust your investments regularly to ensure you’re on track to meet your financial goals.
In conclusion, understanding the investing sequence is crucial to building a successful investment strategy. By prioritizing your investments based on their tax advantages, you’ll be setting yourself up for a secure financial future. It’s always a good idea to consult with a financial advisor to determine the best investment strategy for your needs.
The often overlooked aspect of a Roth is that one pays taxes at their top tax bracket. With a traditional IRA/401k one would pay taxes at their effective tax bracket, which can be much lower.
The Roth benefit you mention is really a function of using a low fee personal account instead of a higher fee employer account. It would be prudent to point out that fee saving benefit disappears when comparing a Roth IRA to a Roth 401k.
Employer retirement account fees are ridiculous and can easily chew up any tax savings one may receive. This is why moving a 401k to a low fee personal Rollover IRA is a popular strategy when switching employers.
If your employer offers a Roth403b, you would garner the employer match there first, then maximize the HSA and then contribute up to the maximum for the 403b account correct?
Wish I learned more about investing in high school. When will they add it to the schools curriculum?