Author Topic: Is there a correct order of where to put your money?  (Read 12528 times)

rtr

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Is there a correct order of where to put your money?
« on: May 28, 2014, 09:23:12 PM »
I am wondering if there is a correct order to place your money into 401k/IRA/HSA/taxable accounts, or if it depends on the situation. I assume tax-deferred comes first, but was not sure since I plan on retiring well before 59.5 (I'm 32 now).

My wife and I are currently paying off debt, which will be completed in a few months. She is a teacher and has a 403b retirement account, which pays about 60% of her highest 5-year average salary. She is not interested in retiring, she likes her job and prefers to stay busy, so that certainly helps my early retirement plans. My employer has a 401k with a 1.5% match, and has Vanguard 500 Index Fund as an option (every other option had overhead in the 1-1.5% range).

So I think the order should be:

1. Max out 401k
2. Max out IRA (traditional?)
3. HSA? (no idea on this, not sure if I'm even eligible)
4. Taxable account (VTSMX, etc)

Is this correct?

butchmonkey

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Re: Is there a correct order of where to put your money?
« Reply #1 on: May 28, 2014, 10:01:06 PM »
I would go 401(k), HSA, Roth IRA, taxable account.

The reason is that the HSA will lower your tax Bill both right now and later when you withdraw the money. Whereas the Roth does not lower your current taxes.





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rtr

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Re: Is there a correct order of where to put your money?
« Reply #2 on: May 28, 2014, 10:17:34 PM »
I would go 401(k), HSA, Roth IRA, taxable account.

The reason is that the HSA will lower your tax Bill both right now and later when you withdraw the money. Whereas the Roth does not lower your current taxes.
Thanks! Why a Roth instead of traditional?

Will

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Re: Is there a correct order of where to put your money?
« Reply #3 on: May 28, 2014, 10:23:52 PM »
I would go 401(k), HSA, Roth IRA, taxable account.

The reason is that the HSA will lower your tax Bill both right now and later when you withdraw the money. Whereas the Roth does not lower your current taxes.
Thanks! Why a Roth instead of traditional?

http://www.madfientist.com/traditional-ira-vs-roth-ira/

Indio

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Re: Is there a correct order of where to put your money?
« Reply #4 on: May 28, 2014, 10:29:13 PM »
I would go with roth first because you have more options on where to invest the money but definitely put enough into 401k to get the match. My HSA has monthly schedule that i dont have any control over so that is withdrawn with each biweekly pay peruod.

butchmonkey

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Re: Is there a correct order of where to put your money?
« Reply #5 on: May 28, 2014, 10:32:49 PM »

I would go 401(k), HSA, Roth IRA, taxable account.

The reason is that the HSA will lower your tax Bill both right now and later when you withdraw the money. Whereas the Roth does not lower your current taxes.
Thanks! Why a Roth instead of traditional?

If you've Already maxed out a 401(k), you can only put in after-tax money into an IRA.
So by putting it into a Roth you lose absolutely nothing. You're putting in after-tax money anyway and with the Roth it will never be taxed again. It is truly a no-brainer.





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butchmonkey

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Re: Is there a correct order of where to put your money?
« Reply #6 on: May 28, 2014, 10:35:49 PM »

I would go with roth first because you have more options on where to invest the money but definitely put enough into 401k to get the match. My HSA has monthly schedule that i dont have any control over so that is withdrawn with each biweekly pay peruod.

Indio you should check with your HSA provider. HSA's are usually portable.

If this is the case with your provider you can roll it into another low cost provider like HSA bank and invest your money in commission free ETF's at a reasonable price. (about two dollars a month)




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Will

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Re: Is there a correct order of where to put your money?
« Reply #7 on: May 28, 2014, 10:36:42 PM »

I would go 401(k), HSA, Roth IRA, taxable account.

The reason is that the HSA will lower your tax Bill both right now and later when you withdraw the money. Whereas the Roth does not lower your current taxes.
Thanks! Why a Roth instead of traditional?

If you've Already maxed out a 401(k), you can only put in after-tax money into an IRA.
So by putting it into a Roth you lose absolutely nothing. You're putting in after-tax money anyway and with the Roth it will never be taxed again. It is truly a no-brainer.





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Do you have a source for this?

rmendpara

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Re: Is there a correct order of where to put your money?
« Reply #8 on: May 28, 2014, 10:52:55 PM »
I am wondering if there is a correct order to place your money into 401k/IRA/HSA/taxable accounts, or if it depends on the situation. I assume tax-deferred comes first, but was not sure since I plan on retiring well before 59.5 (I'm 32 now).

My wife and I are currently paying off debt, which will be completed in a few months. She is a teacher and has a 403b retirement account, which pays about 60% of her highest 5-year average salary. She is not interested in retiring, she likes her job and prefers to stay busy, so that certainly helps my early retirement plans. My employer has a 401k with a 1.5% match, and has Vanguard 500 Index Fund as an option (every other option had overhead in the 1-1.5% range).

So I think the order should be:

1. Max out 401k
2. Max out IRA (traditional?)
3. HSA? (no idea on this, not sure if I'm even eligible)
4. Taxable account (VTSMX, etc)

Is this correct?

I think you have it right. I would only switch #2 from traditional to Roth (since you already should have $17.5k pre-tax in your 401k).

Given your income ~$100k, I don't think you're eligible to also contribute to a Traditional IRA (since you have a 401k and because of your income).

If you are, you're cutting it close. Phase out per IRS site is between $96k-116k income for Married filers.

http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014--IRA-Contribution-and-Deduction-Limits---Effect-of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-Work

I imagine your tax rate now won't be too much higher than when you retire (not sure how 403b income and social security work exactly for tax purposes, but give or take similar).

Regardless, the difference won't be much, since the IRA limit is $11k/yr (5.5k each spouse), and it's probably good to be somewhat tax diversified between pre-tax (401k) and tax free (Roth).

I believe everyone is eligible for a HSA, regardless of income, but you have to have an eligible high deductible health insurance plan (I'd look into the details to make sure your plan qualifies). If not, I'd switch to high deductible. Then, get the HSA!!! It's a HUGE benefit, since you get to contribute pre-tax, and withdraw without paying taxes as long as it's for health-related expenses.

Anything you have left over afterwards can go into your taxable account, over and above your emergency savings/vacation/living costs/etc.

Btw, Roth vs Traditional is less important of a distinction... as long as you are maxing out your 401k and IRA each yr.
« Last Edit: May 28, 2014, 10:57:44 PM by rmendpara »

butchmonkey

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Re: Is there a correct order of where to put your money?
« Reply #9 on: May 28, 2014, 10:53:57 PM »
Sure,

http://money.usnews.com/money/retirement/articles/2014/01/06/how-to-max-out-your-retirement-accounts-in-2014

I am assuming OPs income is above the phase outs given that the 401k and hsa alone will   Require a minimum of $24000in savings plus the contributions to his wife's 403 B.

If this is the case then a backdoor Roth is the way to go.

Hope that helps.


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Will

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Re: Is there a correct order of where to put your money?
« Reply #10 on: May 29, 2014, 08:26:46 AM »
Sure,

http://money.usnews.com/money/retirement/articles/2014/01/06/how-to-max-out-your-retirement-accounts-in-2014

I am assuming OPs income is above the phase outs given that the 401k and hsa alone will   Require a minimum of $24000in savings plus the contributions to his wife's 403 B.

If this is the case then a backdoor Roth is the way to go.

Hope that helps.


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Not sure how/where the OP's income level has been determined, but I for one max out my 401(k) and my income is not above the phase outs.  Every penny I have added to my IRA is fully deductible.

butchmonkey

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Re: Is there a correct order of where to put your money?
« Reply #11 on: May 29, 2014, 08:49:30 AM »
Good point Will. No argument with your strategy, it is spot on. If I could deduct my IRA I would and would not contribute to a Roth.

If you are a high income earner though, backdoor Roth is the way to go.


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rtr

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Re: Is there a correct order of where to put your money?
« Reply #12 on: May 29, 2014, 11:30:18 AM »
Not sure how/where the OP's income level has been determined, but I for one max out my 401(k) and my income is not above the phase outs.  Every penny I have added to my IRA is fully deductible.

Household income would be a minimum $110k gross, typically $130-140k gross w/ bonuses. So in order to qualify for a traditional IRA, I would have to get taxable income below $96k?

rtr

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Re: Is there a correct order of where to put your money?
« Reply #13 on: May 29, 2014, 11:34:41 AM »
Good point Will. No argument with your strategy, it is spot on. If I could deduct my IRA I would and would not contribute to a Roth.

If you are a high income earner though, backdoor Roth is the way to go.

Still learning here. When you say backdoor Roth, I assume that doesn't matter if it's traditional or Roth during the accumulation phase, is that correct? And by backdoor Roth, do you mean I would max the 401k/HSA/Roth, then use the 5-year rule to transfer from the 401k to Roth when retirement time comes prior to 59.5?

butchmonkey

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Re: Is there a correct order of where to put your money?
« Reply #14 on: May 29, 2014, 01:17:27 PM »
A backdoor Roth is a legal way for you and your wife to contribute 5500 each to a Roth IRA even if you are above the income cutoff.

For more see here:

http://whitecoatinvestor.com/backdoor-roth-ira-tutorial/


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Jack

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Re: Is there a correct order of where to put your money?
« Reply #15 on: May 29, 2014, 01:31:29 PM »
  • 401(K) up to company match
  • IRA (Roth or tradtional, depending on your tax situation)
  • Rest of 401(K) up to federal maximum
  • Other tax-advantaged accounts (HSA, ESA, etc.)
  • taxable

I suggest maxing the IRA before maxing the 401K because the IRA almost always has lower expenses and more freedom in investment choices. (But you don't want to do the IRA before starting the 401K at all because the latter's company match is free money!)

Petunia 100

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Re: Is there a correct order of where to put your money?
« Reply #16 on: May 29, 2014, 02:29:10 PM »

My wife and I are currently paying off debt, which will be completed in a few months. She is a teacher and [b[has a 403b retirement account, which pays about 60% of her highest 5-year average salary[/b]. She is not interested in retiring, she likes her job and prefers to stay busy, so that certainly helps my early retirement plans. My employer has a 401k with a 1.5% match, and has Vanguard 500 Index Fund as an option (every other option had overhead in the 1-1.5% range).


It sounds as though you are confusing a 403b with a pension.  Your wife's pension may pay about 60% of her highest 5-year average salary, but her 403b works just like your 401k.  What she can take out depends upon how much she puts in, how well her investments do, and how much is ciphoned off to pay high investment fees.

Iron Mike Sharpe

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Re: Is there a correct order of where to put your money?
« Reply #17 on: May 29, 2014, 03:02:05 PM »
401k up to company match
max out HSA (don't forget you avoid FICA tax on this.  And if used for future health care costs, medicare premiums, nursing, etc it is never taxed)
max out 401K
Roth IRA

rtr

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Re: Is there a correct order of where to put your money?
« Reply #18 on: May 29, 2014, 04:23:57 PM »

It sounds as though you are confusing a 403b with a pension.  Your wife's pension may pay about 60% of her highest 5-year average salary, but her 403b works just like your 401k.  What she can take out depends upon how much she puts in, how well her investments do, and how much is ciphoned off to pay high investment fees.

Hot diggity I think you're right! The 403b may be another avenue for saving. I'll have to check into this. Thanks!

Gin1984

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Re: Is there a correct order of where to put your money?
« Reply #19 on: May 29, 2014, 06:36:48 PM »

It sounds as though you are confusing a 403b with a pension.  Your wife's pension may pay about 60% of her highest 5-year average salary, but her 403b works just like your 401k.  What she can take out depends upon how much she puts in, how well her investments do, and how much is ciphoned off to pay high investment fees.

Hot diggity I think you're right! The 403b may be another avenue for saving. I'll have to check into this. Thanks!

Yep, it will be another way for you to knock down your taxable income.

Also, check to see if your wife has the ability to contribute to a 403b and a 401k.  In my state, government workers can contribute to both a 401k and 457.  $17,500 employee cap for each plan, allowing them to set aside up to $35,000 tax-deferred each year.  Root of Good did the same thing as well.  You can see his breakdown on his $150,000 Income, $150 Income Tax post.
You cannot contribute to a 401k and 403b.  A 401k is for for profit companies and a 403b is for non-profits.  A 457 is for governmental organizations so you can have a 403b and 457 together.

Gin1984

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Re: Is there a correct order of where to put your money?
« Reply #20 on: May 29, 2014, 09:51:38 PM »

It sounds as though you are confusing a 403b with a pension.  Your wife's pension may pay about 60% of her highest 5-year average salary, but her 403b works just like your 401k.  What she can take out depends upon how much she puts in, how well her investments do, and how much is ciphoned off to pay high investment fees.

Hot diggity I think you're right! The 403b may be another avenue for saving. I'll have to check into this. Thanks!

Yep, it will be another way for you to knock down your taxable income.

Also, check to see if your wife has the ability to contribute to a 403b and a 401k.  In my state, government workers can contribute to both a 401k and 457.  $17,500 employee cap for each plan, allowing them to set aside up to $35,000 tax-deferred each year.  Root of Good did the same thing as well.  You can see his breakdown on his $150,000 Income, $150 Income Tax post.
You cannot contribute to a 401k and 403b.  A 401k is for for profit companies and a 403b is for non-profits.  A 457 is for governmental organizations so you can have a 403b and 457 together.

Are you sure about that?  How was Root of Good contributing to both a 401k and 457?  And why does the state of Utah allow government employees to contribute to a 401k and 457 (no 403b option):

https://www.urs.org/mango/pdf/urs/Forms/dcct-1.pdf

Seems like a 401k is available for more than just for-profit companies.
According to the IRS "A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts."
"A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers."
"Who can establish a 457(b) plan?
The organization must be a state or local government or a tax-exempt organization under IRC 501(c)."
Pretty sure, looking at the IRS website and what I know of tax law.

hoppy08520

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Re: Is there a correct order of where to put your money?
« Reply #21 on: May 31, 2014, 08:25:06 PM »
401k up to company match
max out HSA (don't forget you avoid FICA tax on this.  And if used for future health care costs, medicare premiums, nursing, etc it is never taxed)
max out 401K
Roth IRA
Correct. The other responders are putting HSA too far down the list. HSA
definitely goes second (if you have an HSA).

arebelspy

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Re: Is there a correct order of where to put your money?
« Reply #22 on: June 06, 2014, 10:59:45 PM »
I'm surprised no one mentioned what I feel is the "correct" answer to the question: it depends on your current tax bracket, and your expected tax bracket in retirement.

Let us know those, and we can give specifics.  Otherwise it's just speculation, and could very well be wrong, depending on your circumstances.
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butchmonkey

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Re: Is there a correct order of where to put your money?
« Reply #23 on: June 06, 2014, 11:34:08 PM »

I'm surprised no one mentioned what I feel is the "correct" answer to the question: it depends on your current tax bracket, and your expected tax bracket in retirement.

Let us know those, and we can give specifics.  Otherwise it's just speculation, and could very well be wrong, depending on your circumstances.

Instead of this non specific statement, please flesh this out.

Give some examples where you feel tax brackets change your recommended order of investment vehicles.


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arebelspy

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Re: Is there a correct order of where to put your money?
« Reply #24 on: June 07, 2014, 02:47:02 AM »

I'm surprised no one mentioned what I feel is the "correct" answer to the question: it depends on your current tax bracket, and your expected tax bracket in retirement.

Let us know those, and we can give specifics.  Otherwise it's just speculation, and could very well be wrong, depending on your circumstances.

Instead of this non specific statement, please flesh this out.

Give some examples where you feel tax brackets change your recommended order of investment vehicles.

Really?

Okay, here's a simple example:

Tax bracket higher in retirement than now, using Roth IRA now is better.
Tax bracket lower in retirement than now, using a Traditional IRA now is better.

Surely you can think of some other examples?  :)
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clifp

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Re: Is there a correct order of where to put your money?
« Reply #25 on: June 07, 2014, 03:24:09 AM »
I'm surprised no one mentioned what I feel is the "correct" answer to the question: it depends on your current tax bracket, and your expected tax bracket in retirement.

Let us know those, and we can give specifics.  Otherwise it's just speculation, and could very well be wrong, depending on your circumstances.
+1

I also think that your asset allocation matters and time to to retirement. You certainly want to have all in your bond in a tax deferred funds.
However, if you are say 5 years from retirement it doesn't make a lot of sense to invest heavily in a 401K (with poor stock choices), as opposed to simply buying index funds in a taxable account.


I'd add that in general, many early retiree end up with too much in tax deferred and not enough in taxable.  While there are ways of tapping 401K/IRA before 59.5 it can be tricky.



TonyPlush

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Re: Is there a correct order of where to put your money?
« Reply #26 on: June 07, 2014, 01:45:34 PM »
Somebody put me in my place...

I am 24 years old. I contribute to my 401K up to my employer match. However, I prefer to apply the rest of my savings to a taxable account. I could apply the maximum $17,500 to my 401K, but I put it in all in taxable Vanguard account instead.

My line of thinking is that I want to have the freedom to use that money for ventures before I reach 59 1/2, and I don't plan on retiring any later than 45. How wrong am I?

Frankies Girl

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Re: Is there a correct order of where to put your money?
« Reply #27 on: June 07, 2014, 03:00:05 PM »
Somebody put me in my place...

I am 24 years old. I contribute to my 401K up to my employer match. However, I prefer to apply the rest of my savings to a taxable account. I could apply the maximum $17,500 to my 401K, but I put it in all in taxable Vanguard account instead.

My line of thinking is that I want to have the freedom to use that money for ventures before I reach 59 1/2, and I don't plan on retiring any later than 45. How wrong am I?

Pretty wrong in my opinion, but you're just starting out, and all of us had to figure this stuff out at some point. At least you are at a young age and can figure out how to fix your situation to best maximize your savings/investing (I didn't get all of this until my late 30s).

Maxing your 401k now (if you can) means you're dropping your current taxable income that you'd be paying out every year to the IRS (that's a big win especially if it drops you to a lower tax bracket) and have more money (since contributions to 401ks come out pre-tax) to invest in that account.

The money in a 401k also grows tax deferred.

You can also also access retirement accounts anytime before 59 - as discussed many many times around these parts - search for "Roth pipeline" and "SEPP" or "72t" to see different access methods. The Roth pipeline is the easiest and is pretty sweet since if you're in or below the 15% tax bracket in ER, you pay NO taxes and can live pretty darn comfortably. Mad FIentist and GoCurryCracker discuss the pipeline on their sites... and that's definitely the route I plan to take when I pull the plug.

Taxable accounts are for the overflow once you've optimized your tax deferred investing buckets. You're still young enough that growing the tax deferred accounts is the best move NOW because the biggest factor in smart investing is time... and the erosion of going taxable when you have the option to fill up your deferred can eat into your money/growth and it's completely avoidable.

When you're in your 30s or whenever you're making much more money from raises and have overflow that won't fit in your 401k/HSA/Roth... stick that in the taxable account. Then you have years of tax deferred growth accounts AND a healthy taxable account to cover your immediate expenses.


« Last Edit: June 07, 2014, 05:02:26 PM by Frankies Girl »

clifp

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Re: Is there a correct order of where to put your money?
« Reply #28 on: June 07, 2014, 04:00:35 PM »
Somebody put me in my place...

I am 24 years old. I contribute to my 401K up to my employer match. However, I prefer to apply the rest of my savings to a taxable account. I could apply the maximum $17,500 to my 401K, but I put it in all in taxable Vanguard account instead.

My line of thinking is that I want to have the freedom to use that money for ventures before I reach 59 1/2, and I don't plan on retiring any later than 45. How wrong am I?

As Arebelspy said taxes matter.  So I'll make some assumptions you are in the 28% tax bracket today, you will be in the 28% tax bracket when you retire in 21 years at 45 and capital gains will still be taxed at 15%.. (Obviously the odds are excellent I'll be wrong about tax brackets in 21 years).

You have $10K in pre tax money to invest.
Option 1 401K.  broad index funds with .2% expense ratio.  Expected market return over 21+ year 9%/year
9%-.2%=8.8% compounded for 21 years grows 587.8% *$10,000 = $58,777.  You withdraw that at age 45 and pay 28% tax leaving you $42,319

Option 2 Vanguard total stock market expected return 9%. 
The expense ratio of VTI is less .05% but you will have to pay 15% tax on the 2% dividends you receive each year. So the expected return after taxes and expenses
9% -.05 -.3%= 8.65% grows 571%

You pay the 28% tax upfront leaving you only $7,200 to invest *571% = $41,110
You sell it at age 45 and owe taxes on the profit $41,110 - ~$11,000 ($7200+ reinvested dividends and capital gains) = $30,110* 15= $4,515
leaving you with $41,110 - $4,515 taxes = $36,595 or 15% less money.

If you are in a lower tax bracket at retirement say 15% than it is even a bigger win.
TL:Dr cause you hate math.  Maxing out your 401K you gives you more money (today) to benefit from the magic of compound interest. 

But you should fill in your own numbers to prove it to yourself.

arebelspy

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Re: Is there a correct order of where to put your money?
« Reply #29 on: June 07, 2014, 06:26:34 PM »
Somebody put me in my place...

I am 24 years old. I contribute to my 401K up to my employer match. However, I prefer to apply the rest of my savings to a taxable account. I could apply the maximum $17,500 to my 401K, but I put it in all in taxable Vanguard account instead.

My line of thinking is that I want to have the freedom to use that money for ventures before I reach 59 1/2, and I don't plan on retiring any later than 45. How wrong am I?

Read this why you should use tax advantaged..

http://www.madfientist.com/retire-even-earlier/

It can literally shave years off.
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TomTX

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Re: Is there a correct order of where to put your money?
« Reply #30 on: June 08, 2014, 02:59:40 PM »
Somebody put me in my place...

I am 24 years old. I contribute to my 401K up to my employer match. However, I prefer to apply the rest of my savings to a taxable account. I could apply the maximum $17,500 to my 401K, but I put it in all in taxable Vanguard account instead.

My line of thinking is that I want to have the freedom to use that money for ventures before I reach 59 1/2, and I don't plan on retiring any later than 45. How wrong am I?

At the very least, you need to be maxing out a ROTH every year - you can take out the contributions anytime you run out of other $$, with no tax and no penalty.

TonyPlush

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Re: Is there a correct order of where to put your money?
« Reply #31 on: September 28, 2014, 03:55:23 PM »
Somebody put me in my place...

I am 24 years old. I contribute to my 401K up to my employer match. However, I prefer to apply the rest of my savings to a taxable account. I could apply the maximum $17,500 to my 401K, but I put it in all in taxable Vanguard account instead.

My line of thinking is that I want to have the freedom to use that money for ventures before I reach 59 1/2, and I don't plan on retiring any later than 45. How wrong am I?

Pretty wrong in my opinion, but you're just starting out, and all of us had to figure this stuff out at some point. At least you are at a young age and can figure out how to fix your situation to best maximize your savings/investing (I didn't get all of this until my late 30s).

Maxing your 401k now (if you can) means you're dropping your current taxable income that you'd be paying out every year to the IRS (that's a big win especially if it drops you to a lower tax bracket) and have more money (since contributions to 401ks come out pre-tax) to invest in that account.

The money in a 401k also grows tax deferred.

You can also also access retirement accounts anytime before 59 - as discussed many many times around these parts - search for "Roth pipeline" and "SEPP" or "72t" to see different access methods. The Roth pipeline is the easiest and is pretty sweet since if you're in or below the 15% tax bracket in ER, you pay NO taxes and can live pretty darn comfortably. Mad FIentist and GoCurryCracker discuss the pipeline on their sites... and that's definitely the route I plan to take when I pull the plug.

Taxable accounts are for the overflow once you've optimized your tax deferred investing buckets. You're still young enough that growing the tax deferred accounts is the best move NOW because the biggest factor in smart investing is time... and the erosion of going taxable when you have the option to fill up your deferred can eat into your money/growth and it's completely avoidable.

When you're in your 30s or whenever you're making much more money from raises and have overflow that won't fit in your 401k/HSA/Roth... stick that in the taxable account. Then you have years of tax deferred growth accounts AND a healthy taxable account to cover your immediate expenses.

Great points, appreciate the insight. I've definitely underestimated the tax advantages.

As Arebelspy said taxes matter.  So I'll make some assumptions you are in the 28% tax bracket today, you will be in the 28% tax bracket when you retire in 21 years at 45 and capital gains will still be taxed at 15%.. (Obviously the odds are excellent I'll be wrong about tax brackets in 21 years).

You have $10K in pre tax money to invest.
Option 1 401K.  broad index funds with .2% expense ratio.  Expected market return over 21+ year 9%/year
9%-.2%=8.8% compounded for 21 years grows 587.8% *$10,000 = $58,777.  You withdraw that at age 45 and pay 28% tax leaving you $42,319

Option 2 Vanguard total stock market expected return 9%. 
The expense ratio of VTI is less .05% but you will have to pay 15% tax on the 2% dividends you receive each year. So the expected return after taxes and expenses
9% -.05 -.3%= 8.65% grows 571%

You pay the 28% tax upfront leaving you only $7,200 to invest *571% = $41,110
You sell it at age 45 and owe taxes on the profit $41,110 - ~$11,000 ($7200+ reinvested dividends and capital gains) = $30,110* 15= $4,515
leaving you with $41,110 - $4,515 taxes = $36,595 or 15% less money.

If you are in a lower tax bracket at retirement say 15% than it is even a bigger win.
TL:Dr cause you hate math.  Maxing out your 401K you gives you more money (today) to benefit from the magic of compound interest. 

But you should fill in your own numbers to prove it to yourself.
Very powerful example, thank you.

Read this why you should use tax advantaged..

http://www.madfientist.com/retire-even-earlier/

It can literally shave years off.
Great read. Read, bookmarked, and will read again to make sure it all sinks in.

At the very least, you need to be maxing out a ROTH every year - you can take out the contributions anytime you run out of other $$, with no tax and no penalty.
Thanks, since I made that post I did create a Roth IRA and maxed it out for the year.

TonyPlush

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Re: Is there a correct order of where to put your money?
« Reply #32 on: September 28, 2014, 03:56:16 PM »
I think the last thing holding me back from maxing out my TSP/401K is an irrational fear of a 'too good to pass up' investment opportunity. I see now how a TSP/IRA can be accessed to fund living expenses, but as far as I can tell there is not an option to immediately access IRA money in the event you wanted to invest in say real estate, a promising start up, or other business venture. I guess I should recognize that's the purpose of productive, business oriented loans?

LordSquidworth

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Re: Is there a correct order of where to put your money?
« Reply #33 on: October 01, 2014, 10:00:57 AM »
I am wondering if there is a correct order to place your money into 401k/IRA/HSA/taxable accounts, or if it depends on the situation. I assume tax-deferred comes first, but was not sure since I plan on retiring well before 59.5 (I'm 32 now).

My wife and I are currently paying off debt, which will be completed in a few months. She is a teacher and has a 403b retirement account, which pays about 60% of her highest 5-year average salary. She is not interested in retiring, she likes her job and prefers to stay busy, so that certainly helps my early retirement plans. My employer has a 401k with a 1.5% match, and has Vanguard 500 Index Fund as an option (every other option had overhead in the 1-1.5% range).

So I think the order should be:

1. Max out 401k
2. Max out IRA (traditional?)
3. HSA? (no idea on this, not sure if I'm even eligible)
4. Taxable account (VTSMX, etc)

Is this correct?

1. 401k up to employers match.
2. Roth IRA
3. HSA
4. Finish up 401k
5. Taxable account