Stock Options vs Debt Payment vs Roth IRA

[moneynoob]

Four years ago I bought about $6,000 worth of my company's stock options. I work at a small 14 person engineering company that is "employee owned". Anyway, I am 26 now and was 22 fresh out of college when I bought these thinking in a few years the company would sell and I'd have a down payment for a house.

However, the company is showing zero signs of selling within the next 10 years and the option price remains exactly the same as when I purchased it four years ago. So it is basically just sitting there with the only benefit being that it has been protected from my financially irresponsible ways. There are no bonuses based on owning stock apparently. I also have no idea how well the company is doing. But based on no bonuses or increased share price, I am not hopeful.

My conundrum now is that I have been very irresponsible with my money the past four years and your blog along with Millennial Millionaire has inspired me to change my ways. But now I have about $20K of debt to pay off ASAP. My goal is 6 months. Then I can max out my tax deferred plans.

So my question is:

           Should I leave that $6k in stock options doing nothing (no interest, no gained value of any sort) or cash it out and put it all towards my debt? This would free up either $130 or $270
               worth of monthly payments that I can use to pay off other loans. (Debt Snowball)

           OR put it all in my Roth IRA? (over a few months time because Dollar Cost averaging)

           OR just leave it?

Thank you for taking the time to read this. Hopefully you have time to respond.

[GizmoTX]

Cash out immediately & pay down your debt. I would choose the highest interest rate first.
See what else you can cut from your spending, sell, and consider working a part time gig.
Invest in an IRA only when you have eliminated all your debt & have at least $1K in a readily available emergency fund.

[Lady SA]

what interest rate(s) is your debt?
Do you have an emergency fund?
Do you have access to a 401k?

See investment order:
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.   


If your debt is student loans and you have rates at 5% or lower, I would say you should prioritize saving as much as you can and paying off the debt with the remainder. If you have high interest debt (like credit cards or anything over 7% or so) then pay that off like your hair is on fire, then you can slow down and save.

You are young, your biggest advantage is to get money in the stock market as soon as possible and get that growing for as many years as you can.

This is coming from a 26 year old--we had $150k in loans to pay off, but we refinanced, paid the minimums, and then maxed all our 401k, IRA, and HSA contributions, then anything extra went toward our loans. That meant an extra 4 years in the market, which has been really great for us--4 years later, instead of -$150k net worth, we are now +$180k net worth ($225k in assets, $43k debt), and much more relaxed. Sometimes finding a middle ground is a better path instead of 100% focusing on debt and then 100% on saving. Why not do both (less extreme)?

edit: I would see if there are any penalties for cashing out your stock options. This will be counted as income for your taxes, fyi. But unless there were big penalties, I would absolutely cash it out and then probably max out your IRA, and anything leftover from that (~$500?) would just go into an emergency fund if you don't have one. Then with your normal income, begin slowly paying down your debts each month.

UNLESS we are talking credit card debt, in which case you should use the $6k to set up an emergency fund to prevent needing to go further into debt, and then use that to pay off the highest interest debts first.

[LessIsLess]

You can try getting another job that has a signing bonus.  Use the signing bonus to wipe out your debt, or a portion of it, while getting a pay increase.

[moneynoob]

Cash out immediately & pay down your debt. I would choose the highest interest rate first.
See what else you can cut from your spending, sell, and consider working a part time gig.
Invest in an IRA only when you have eliminated all your debt & have at least $1K in a readily available emergency fund.

Is it more important to cash out highest amount or highest APR? The APR is within a percent.

[moneynoob]

Interest rates are 3, 4, 7 and 9. Varying amounts. Non of them student loans. Like I said, financial stupidity lol. But I have never had credit card debt.

Yes I do. I contribute it automatically 10% of my take home pay and pretend it doesn't exist.

Yes I do and contribute up to employer match.

See investment order:
0. Establish an emergency fund to your satisfaction            CHECK
1. Contribute to your 401k up to any company match            CHECK
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.        OK   
3. Max HSA             I NEED TO RESEARCH THIS
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level            WILL DO
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)            OK
6. Fund a mega backdoor Roth if applicable.         NEEDS RESEARCH
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.            OK
8. Invest in a taxable account and/or fund a 529 with any extra.   OK

I like what you're saying about meeting in the middle between paying off debts. It seems throwing all your money at the debt is putting alot of faith in the constant money stream coming in.

Another thought I had was make the minimum payment toward the loans and throw the extra money that I would dedicate to paying them off in a savings account. And as the balance of the savings account matches a loan, then pay the loan.

It sounds like you did something similar except your accounts accumulated interest.

what interest rate(s) is your debt?
Do you have an emergency fund?
Do you have access to a 401k?

See investment order:
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.   


If your debt is student loans and you have rates at 5% or lower, I would say you should prioritize saving as much as you can and paying off the debt with the remainder. If you have high interest debt (like credit cards or anything over 7% or so) then pay that off like your hair is on fire, then you can slow down and save.

You are young, your biggest advantage is to get money in the stock market as soon as possible and get that growing for as many years as you can.

This is coming from a 26 year old--we had $150k in loans to pay off, but we refinanced, paid the minimums, and then maxed all our 401k, IRA, and HSA contributions, then anything extra went toward our loans. That meant an extra 4 years in the market, which has been really great for us--4 years later, instead of -$150k net worth, we are now +$180k net worth ($225k in assets, $43k debt), and much more relaxed. Sometimes finding a middle ground is a better path instead of 100% focusing on debt and then 100% on saving. Why not do both (less extreme)?

edit: I would see if there are any penalties for cashing out your stock options. This will be counted as income for your taxes, fyi. But unless there were big penalties, I would absolutely cash it out and then probably max out your IRA, and anything leftover from that (~$500?) would just go into an emergency fund if you don't have one. Then with your normal income, begin slowly paying down your debts each month.

UNLESS we are talking credit card debt, in which case you should use the $6k to set up an emergency fund to prevent needing to go further into debt, and then use that to pay off the highest interest debts first.

[trollwithamustache]

so... almost never buy into an engineering firm. earn in if they want to pay you a bonus with shares. 

do you plan on sticking around this firm? (getting licensed and eventually becoming a principle?)

Your shares are likely worthless. And engineering firm is worth the sum of its people and the owner's business contacts. None of which are firmly attached to the firm. The ESOP shares likely do not pay a distribution or dividend because they are a method for the owners to sell out and into retirement. 

You want a path to owing shares that pay out the profits to you. Does that path exist?

[Lady SA]

Another thought I had was make the minimum payment toward the loans and throw the extra money that I would dedicate to paying them off in a savings account. And as the balance of the savings account matches a loan, then pay the loan.

It sounds like you did something similar except your accounts accumulated interest.

Close, but not quite.

We invested every month instead in our 401ks, IRAs, etc. None of the money that goes in comes back out to pay off our loans, it stays invested (buy and hold).
For the loans, we did have an extra $1000 per month after those savings to put towards them (on top of the minimums).

Basically, we prioritized investing slightly ahead of paying our loans off early. We didn't go to either extreme (saving everything and only paying debt mins vs not saving anything and putting everything toward debt)

Can you list out the balances/interest rates for all your loans? I would pay off the 7% and 9% loans asap, but the 4% and 3%, mathematically, you are better off investing (you get a better return in the market on average... ~7% vs your 3 or 4%)
Would you also be comfortable sharing what the story is behind these loans? Car loans or personal loans?

[moneynoob]

so... almost never buy into an engineering firm. earn in if they want to pay you a bonus with shares. 

do you plan on sticking around this firm? (getting licensed and eventually becoming a principle?)

Your shares are likely worthless. And engineering firm is worth the sum of its people and the owner's business contacts. None of which are firmly attached to the firm. The ESOP shares likely do not pay a distribution or dividend because they are a method for the owners to sell out and into retirement. 

You want a path to owing shares that pay out the profits to you. Does that path exist?

I am not sure. I am in California now and it is not really worth the cost of living to me so probably not.

Is this "You want a path to owing shares that pay out the profits to you. Does that path exist?" referring to to profit sharing? If so, then not that I am aware of.

[moneynoob]

Another thought I had was make the minimum payment toward the loans and throw the extra money that I would dedicate to paying them off in a savings account. And as the balance of the savings account matches a loan, then pay the loan.

It sounds like you did something similar except your accounts accumulated interest.

Close, but not quite.

We invested every month instead in our 401ks, IRAs, etc. None of the money that goes in comes back out to pay off our loans, it stays invested (buy and hold).
For the loans, we did have an extra $1000 per month after those savings to put towards them (on top of the minimums).

Basically, we prioritized investing slightly ahead of paying our loans off early. We didn't go to either extreme (saving everything and only paying debt mins vs not saving anything and putting everything toward debt)

Can you list out the balances/interest rates for all your loans? I would pay off the 7% and 9% loans asap, but the 4% and 3%, mathematically, you are better off investing (you get a better return in the market on average... ~7% vs your 3 or 4%)
Would you also be comfortable sharing what the story is behind these loans? Car loans or personal loans?

Yeah I can provide that. As I said, financially irresponsible lol. Live and learn.

$5500 @ 9.1% (Desert toys)
$8500 @ 7.9% (Debt Consolidation)
$5500 @ 4.7% (Car)
$2900 @ 3.89% (Motorcycle)

I planned to sell the motorcycle to pay off that loan.

[trollwithamustache]

Is this "You want a path to owing shares that pay out the profits to you. Does that path exist?" referring to to profit sharing? If so, then not that I am aware of.

At the end of the day, what happens to the firm's profits?  Are they paid out to the owners in dividends? are they paid out just to senior owners? Or, are the profits put into a bonus program and used for you to buy shares from your owner who is selling his shares to the ESOP?

I ask these questions because the ESOPs I have had an opportunity to join have no clear path to paying profit dollars to me as a dividend or distribution and limits on years after I left until I could cash out. Which sounds an awful lot like the shares are worthless.  So I went out on my own.

As a shareholder try asking for a financial report. Say last years. They probably won't give it to you, and you can take that to mean what you will...

[moneynoob]

I will attempt to find this information out.

I have been told that bonuses are paid as a result of what percentage of the shares you own. But there was no bonus.

SO I imagine there is no clear path what to do with the profit dollars. Or if there even are any since the share price has not changed in 4 years.

If I do see a financial report, what should I look for?

Is this "You want a path to owing shares that pay out the profits to you. Does that path exist?" referring to to profit sharing? If so, then not that I am aware of.

At the end of the day, what happens to the firm's profits?  Are they paid out to the owners in dividends? are they paid out just to senior owners? Or, are the profits put into a bonus program and used for you to buy shares from your owner who is selling his shares to the ESOP?

I ask these questions because the ESOPs I have had an opportunity to join have no clear path to paying profit dollars to me as a dividend or distribution and limits on years after I left until I could cash out. Which sounds an awful lot like the shares are worthless.  So I went out on my own.

As a shareholder try asking for a financial report. Say last years. They probably won't give it to you, and you can take that to mean what you will...

[Lady SA]

$5500 @ 9.1% (Desert toys)
$8500 @ 7.9% (Debt Consolidation)
$5500 @ 4.7% (Car)
$2900 @ 3.89% (Motorcycle)

I planned to sell the motorcycle to pay off that loan.

I would sell the motorcycle, then cash out your $6000 (confirm there are no consequences to doing this beyond affecting your net income/MAGI for the tax year!) and pay off the whole 9.1% loan. Then take the usual monthly payment you put toward that Desert Toys loan and roll that into your payment toward the debt consolidation loan at 7.9%.

What this looks like in practice, pretend these are your monthly payments:
$5500 loan - $200 per month
$8500 loan - $300 per month
$5500 loan - $200 per month
$2900 loan - Gone because you are selling that thing!

When you pay off the first loan, it will look like this (put toward the next highest interest rate, this is mathematically optimal):
$5500 loan - gone!
$8500 loan - $300 + $200 per month = $500 per month
$5500 loan - $200 per month

Then after you pay off the $850 with the bigger payment, you roll THAT payment into the last loan:
$5500 loan - gone!
$8500 loan - gone!
$5500 loan - $200 + $300 + $200 per month = $700 per month

I highly suggest you go to the Case Study section of the forums and post a case study detailing your monthly income, expenses, etc, and we can help you in more detail free up monthly cash to save or put toward debt. https://forum.mrmoneymustache.com/case-studies/
Check out the "how to write a case study" sticky at the top.

[moneynoob]

Nice! a debt snowball method

Alright, I will look into the case studies.

Thank you very much to everyone who helped out!

[trollwithamustache]

.

If I do see a financial report, what should I look for?

warning sign number one you can't make any sense of it :) Seriously, it may not be the easiest to read document but you should be able to suss out where all the profit dollars go, or if there is no accounting profit, where the real dollars ended going out. salary? bonuses to others? various expense categories?  Are they reasonable? Not from a Joe makes more than me and that's not fair perspective, but as hey, I own this business and what do I want to change to make it worth more perspective.

It may well be there is nothing neferous/bad deal for the ESOP owners relative to the old owners, its just a not a well run business. That's actually pretty common too.

[moneynoob]

I believe it is the latter. Just not well run. In my experience, good engineers don't make good businessmen as all they want to do is engineer and avoid the business side like the plague. There are exceptions of course

.

If I do see a financial report, what should I look for?

warning sign number one you can't make any sense of it :) Seriously, it may not be the easiest to read document but you should be able to suss out where all the profit dollars go, or if there is no accounting profit, where the real dollars ended going out. salary? bonuses to others? various expense categories?  Are they reasonable? Not from a Joe makes more than me and that's not fair perspective, but as hey, I own this business and what do I want to change to make it worth more perspective.

It may well be there is nothing neferous/bad deal for the ESOP owners relative to the old owners, its just a not a well run business. That's actually pretty common too.

[dhc]

I'm confused. Usually you don't buy stock options for a company you work for. You might have an opportunity to buy stock in your private company, but stock options are usually granted, and the only time you pay is if you exercise them (which is basically using the option to purchase stock for the price it was at back when the option was granted). In general (though not always), if you exercise options, you can turn around either immediately or relatively quickly and sell the stock you've just purchased, so you're not really out much money.

If you actually spent money to buy stock in a private company that you also work for, that would be an extreme consolidation of risk even if you thought the stock was going to increase dramatically in price or pay great dividends, neither of which seems to be the case. Assuming you have the option to sell it, you should do so as soon as possible.

Now, if this is an ESOP ("employee stock ownership plan", not "option"), where you're given the chance to buy stock at a reduced price or something like that, by all means you should continue to purchase as much as you're allowed to. However, you shouldn't purchase it to hold indefinitely; you should turn around and sell it as quickly as allowed, make your quick 15% (or whatever, but that seems to be standard), and invest the proceeds in whatever you'd otherwise use that money for - paying down debt in your case, followed by responsible, diversified investment.

[RookieStache]

See investment order:
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.   

Great advice for the OP. I do feel that there are certain circumstances which make it more complicated than 1-8 here though. 29 years old and I would like to lay out my situation and see what you think.

1. Contribute to your 401k up to any company match         Check   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. No debts outside of mortgage payment, no credit card balance           
3. Max HSA     Married, contributing $3,500 a year
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level    Check  
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5) Contributing 13% per year           
6. Fund a mega backdoor Roth if applicable. Full disclosure, don't 100% understand this or if it applies to me at this point       
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. No debts outside of mortgage payment, no credit card balance           
8. Invest in a taxable account and/or fund a 529 with any extra. (Investing $40 a month in taxable, $100 a month in 529, 15 year mortgage)

My reasoning for fully funding Roth IRA,$40 a month on taxable, $100 a month in 529, 15 year mortgage before maxing out HSA and 401K is the following:

1) We live in an extremely LCOL area. While this is good for expenses, salaries suffer because of this. The wife and I combine for $95,000 pretax. Maxing out HSA and 401K would force us to eliminate 529, taxable, refinance to 30 year, and this would still make things tight. We can't cut out any more expenses as we are both extremely frugal people and have already cut out everything we feel fit. 

2) If we were to focus only on maxing 401K/HSA, there would be no money to save for upcoming costs over the next 30 years (before retirement). As our family expands, we will need to move to another home, pay for daycare, weddings, college, etc. Wouldn't saving for these things be beneficial instead of only focusing on retirement savings and then having to take out all types of loans to pay for these things?

3) I've seen the 1-8 list a few times now and am just curious if you still think this would work for my situation. If I were to start maxing out my 401K today, I would have over 160% of my salary to pull a year for over 30 years, and that wouldn't be including a maxed out HSA to pay for all health care expenses, as well as Roth IRA and any Social Security we may get in the future. Living as frugally as I have for 29 years, and how I will be for the next 30 years, I think this would be quite the overkill. I feel like I would rather not struggle and have my kids sacrifice up until my retirement, just to have too much to even spend in retirement.

Thoughts?

[boarder42]

See investment order:
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.   

Great advice for the OP. I do feel that there are certain circumstances which make it more complicated than 1-8 here though. 29 years old and I would like to lay out my situation and see what you think.

1. Contribute to your 401k up to any company match         Check   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. No debts outside of mortgage payment, no credit card balance           
3. Max HSA     Married, contributing $3,500 a year
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level    Check  
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5) Contributing 13% per year           
6. Fund a mega backdoor Roth if applicable. Full disclosure, don't 100% understand this or if it applies to me at this point       
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. No debts outside of mortgage payment, no credit card balance           
8. Invest in a taxable account and/or fund a 529 with any extra. (Investing $40 a month in taxable, $100 a month in 529, 15 year mortgage)

My reasoning for fully funding Roth IRA,$40 a month on taxable, $100 a month in 529, 15 year mortgage before maxing out HSA and 401K is the following:

1) We live in an extremely LCOL area. While this is good for expenses, salaries suffer because of this. The wife and I combine for $95,000 pretax. Maxing out HSA and 401K would force us to eliminate 529, taxable, refinance to 30 year, and this would still make things tight. We can't cut out any more expenses as we are both extremely frugal people and have already cut out everything we feel fit. 

2) If we were to focus only on maxing 401K/HSA, there would be no money to save for upcoming costs over the next 30 years (before retirement). As our family expands, we will need to move to another home, pay for daycare, weddings, college, etc. Wouldn't saving for these things be beneficial instead of only focusing on retirement savings and then having to take out all types of loans to pay for these things?

3) I've seen the 1-8 list a few times now and am just curious if you still think this would work for my situation. If I were to start maxing out my 401K today, I would have over 160% of my salary to pull a year for over 30 years, and that wouldn't be including a maxed out HSA to pay for all health care expenses, as well as Roth IRA and any Social Security we may get in the future. Living as frugally as I have for 29 years, and how I will be for the next 30 years, I think this would be quite the overkill. I feel like I would rather not struggle and have my kids sacrifice up until my retirement, just to have too much to even spend in retirement.

Thoughts?

for money you plan to invest the optimal way is 1-8 you can choose to do some other things but

1. money is fungible - funding a 529 plan over an IRA or a 401k or an HSA is going to make you come out behind.  Your money when you choose to spend it in the future can come out of any bucket so why not save it the best way - you're trying to treat the 529 like a college saving plan bucket but you should be putting that money into the HSA to max it each year - then in the future you can take money out of your other accounts to fund the college portion.  Also the HSA should be fully funded prior to putting anything extra twoards a 401k.

2. sounds like youre investing your EF which if fine your extra 40 a month into there is like an EF.  it sounds like which is step 0

3. a 30 year mortgage is a good thing lets you leverage money farther out at todays fixed price and rate. if you plan to live in a house over 7 years it typically comes out ahead of a 15 - so in the future when you buy a new house i'd go 30 year.

4. No real reason to be roth IRA you should be Trad at your levels of income

[RookieStache]

See investment order:
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.         
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account and/or fund a 529 with any extra.   

Great advice for the OP. I do feel that there are certain circumstances which make it more complicated than 1-8 here though. 29 years old and I would like to lay out my situation and see what you think.

1. Contribute to your 401k up to any company match         Check   
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. No debts outside of mortgage payment, no credit card balance           
3. Max HSA     Married, contributing $3,500 a year
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level    Check  
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5) Contributing 13% per year           
6. Fund a mega backdoor Roth if applicable. Full disclosure, don't 100% understand this or if it applies to me at this point       
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. No debts outside of mortgage payment, no credit card balance           
8. Invest in a taxable account and/or fund a 529 with any extra. (Investing $40 a month in taxable, $100 a month in 529, 15 year mortgage)

My reasoning for fully funding Roth IRA,$40 a month on taxable, $100 a month in 529, 15 year mortgage before maxing out HSA and 401K is the following:

1) We live in an extremely LCOL area. While this is good for expenses, salaries suffer because of this. The wife and I combine for $95,000 pretax. Maxing out HSA and 401K would force us to eliminate 529, taxable, refinance to 30 year, and this would still make things tight. We can't cut out any more expenses as we are both extremely frugal people and have already cut out everything we feel fit. 

2) If we were to focus only on maxing 401K/HSA, there would be no money to save for upcoming costs over the next 30 years (before retirement). As our family expands, we will need to move to another home, pay for daycare, weddings, college, etc. Wouldn't saving for these things be beneficial instead of only focusing on retirement savings and then having to take out all types of loans to pay for these things?

3) I've seen the 1-8 list a few times now and am just curious if you still think this would work for my situation. If I were to start maxing out my 401K today, I would have over 160% of my salary to pull a year for over 30 years, and that wouldn't be including a maxed out HSA to pay for all health care expenses, as well as Roth IRA and any Social Security we may get in the future. Living as frugally as I have for 29 years, and how I will be for the next 30 years, I think this would be quite the overkill. I feel like I would rather not struggle and have my kids sacrifice up until my retirement, just to have too much to even spend in retirement.

Thoughts?

for money you plan to invest the optimal way is 1-8 you can choose to do some other things but

1. money is fungible - funding a 529 plan over an IRA or a 401k or an HSA is going to make you come out behind.  Your money when you choose to spend it in the future can come out of any bucket so why not save it the best way - you're trying to treat the 529 like a college saving plan bucket but you should be putting that money into the HSA to max it each year - then in the future you can take money out of your other accounts to fund the college portion.  Also the HSA should be fully funded prior to putting anything extra twoards a 401k.

Where would the money come from other accounts for college expenses if it's all tied up in 401K's/HSA's is my question though.