Hi!
I've been following the FIRE community for a few years now and have a FIRE date of year-end 2021. I realize I have not been utilizing tax advantages to the maximum and am hoping to rectify the situation. Maybe proper optimization could move my goal up by a couple months or just provide a larger cushion in my stash.
I am in my mid-30s, and married, filing jointly. My SO also works but we utilize my employer for health insurance/HSA.
Below is my current status in regard to following the optimal investment order. I greatly appreciate any insight and corrections to where I may be going wrong.
0. Establish an emergency fund to your satisfaction.
(COMPLETE - have sufficient funds in checking and high-yield savings accounts)
1. Contribute to your 401k up to any company match.
(COMPLETE - my employer matches 100% up to 3% and 50% after up to 5%. So I currently contribute 5% and receive an effective 4% employer match. Those dollar amounts annually are ~$3,400 and ~$2,700.)
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.
(COMPLETE- no debt)
3. Max Health Savings Accounts (HSA) if eligible.
(COMPLETE - my employer seeds up to $1,000 so I personally contribute $5,900 annually, with employer contribution of $1,000 then bringing me to the $6,900 limit.)
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level.
(INCOMPLETE)
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 deduction, swap #4 and #5).
(INCOMPLETE)
6. Fund a mega backdoor Roth if applicable.
(INCOMPLETE)
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield.
(COMPLETE - no debt)
8. Invest in a taxable account and/or fund a 529 with any extra.
(COMPLETE - Any leftover funds after expenses have been going into Vanguard ETFs through Robinhood.)
So that's the current situation. If I'm understanding correctly (not a given), my next three steps should be as follows:
- Open a traditional IRA (through Vanguard?) and contribute $5,500 annually.
- Increase my 401k contributions up to the $18,500 limit (up from ~$3,400).
- Start a mega backdoor Roth. I'm a little fuzzy on this, but I believe I would need to open a Roth IRA with a minimum deposit (having already also opened a traditional IRA for Step 4). Then, I can contribute up to ~$33,800 in after-tax contributions to my 401k ($55,000 limit minus $18,500 personal pre-tax contribution minus ~$2,700 employer pre-tax contribution). At the beginning of the calendar year, I would do an in-service rollover from my 401k to have the pre-tax contributions go to my traditional IRA and the post-tax to the Roth IRA.
Note: I realize I wouldn't be able to reach all the way up to $33,800 given my available income post-expenses, but let's just consider that an optimal scenario for the sake of discussion.
Do I have everything right? Should those be my next three steps? Am I missing anything obvious?
Thank you very much for your help!