What is the math behind maxing a Roth IRA before going back to 401(k)? Assuming I contribute $7,000 post-tax dollars to Roth or $9,333 equivalent pre-tax to 401(k) (assuming 25% effective tax rate).

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When it comes to managing your finances, it can be overwhelming to know where to start. One important aspect of financial planning is determining the order in which to allocate your funds. One strategy that has been gaining popularity is the Financial Order of Operations, which provides a framework for how to prioritize your financial goals. One key component of this framework is prioritizing contributions to a Roth account.

A Roth account, such as a Roth IRA or Roth 401(k), offers unique benefits that make it a valuable tool in your financial planning arsenal. Unlike traditional retirement accounts, contributions to a Roth account are made with after-tax dollars, meaning that withdrawals in retirement are tax-free. This can be particularly advantageous if you anticipate being in a higher tax bracket in retirement, as you can potentially save a significant amount of money on taxes by withdrawing from a Roth account instead of a traditional retirement account.

Another benefit of a Roth account is that it offers flexibility in terms of withdrawals. Unlike traditional retirement accounts, which have required minimum distributions starting at age 72, Roth accounts do not have this requirement. This means that you can leave your money in a Roth account for as long as you like, allowing it to continue growing tax-free for as long as you need it.

Prioritizing contributions to a Roth account can also provide added diversification to your retirement savings. By having a mix of traditional and Roth accounts, you can better manage your tax liability in retirement and have greater flexibility in how you access your funds.

When determining where to allocate your funds, it is important to consider your individual financial situation and goals. However, prioritizing contributions to a Roth account early on in your financial planning can provide significant benefits in the long run. By taking advantage of the tax-free growth and flexibility that a Roth account offers, you can set yourself up for a more secure and financially stable retirement.

In conclusion, prioritizing Roth contributions in the Financial Order of Operations is a smart financial move that can provide valuable benefits in the long run. By maximizing your contributions to a Roth account early on, you can take advantage of tax-free growth, flexibility in withdrawals, and added diversification to your retirement savings. Consider speaking with a financial advisor to determine the best strategy for incorporating Roth contributions into your financial plan and start prioritizing your financial future today.