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?