The Order Of Investing Your Next $1,000

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Contribute To Your 401k Match
No matter how much they offer, take it because they’re offering you free money here. A lot of people don’t realize that this is a part of your compensation just like your salary, healthcare, sick days, and vacation days. One thing to note which I don’t think a lot of people are aware of is that money that’s matched by your employer is automatically put into a Traditional 401k NOT a Roth 401k.
Pay Down Some Bad Debt
Pay off any bad debt that has an interest rate of 4 to 5% or higher. For rates less than that just pay the minimum payment and move on with your life. You can use the Dave Ramsey promoted debt snowball method where you pay off the lowest debt first or use the debt avalanche method where you pay the debt with the highest interest rate first. I’m a big fan of investing at least something while you’re paying off non-credit card debt so if you want to check that box with an employer match then great.
Invest In A Health Savings Account
This is purely based on the fact that this account offers you triple tax savings when money in the account is invested. What I mean by triple tax savings is that money goes into the account with pre-tax dollars, it grows tax-free, and can be withdrawn for medical expenses tax-free. One caveat is that if you use this money for non-medical expenses before the age of 65 then you’ll pay a penalty and taxes on the money so you should avoid this if possible. The good news is that if you happen to not need all of the HSA money for medical expenses then at the age of 65 you can use it for non-medical purposes.
Max Out Your Roth IRA
Contribute to a Roth if you’re within the income limit and contribute to a Traditional if you’re over the income limit...then decide if it makes sense to do a backdoor Roth from a Traditional IRA to a Roth IRA. It usually makes sense to try to get money into a Roth IRA if possible so the money can grow tax-free. Another good thing about a Roth IRA is that you can withdraw contributions at any point in time without paying early withdrawal penalties. As long as you don’t touch any of the investment gains then you’ll be fine.
Once all of those accounts have been maxed out it’s time to move back into accounts like a 401k, 457, and 403b. These are most likely going to end up being the largest accounts you own when it’s time to withdraw money to live off because you’re able to contribute so much more. With a 401k the max amount you can contribute in 2022 is $20,500. It usually jumps by $500 every year or every other year. This was the first time it jumped by $1k within a 1 year period since around 2005/2006.
If there’s money left that needs a home this is where you’d want to start putting it into a taxable investment account.
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Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money. If you need help then contact a Certified Financial Fiduciary before trying anything that is mentioned in this video. I prefer a Fiduciary financial advisor that charges an hourly fee as opposed to an ongoing fee based on a % of your portfolio. Always remember that incentives determine the type of advice they give you so one that charges an hourly fee is less likely to be problematic.

[@JarradMorrow]

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[@PP2US]

I have a defined benefits plan under my sole proprietorship… where I contribute anywhere from 100k to 250k per year … can I still contribute to a traditional 401k?

[@TheFirstRealChewy]

I prefer maxing tax deferred accounts over contributing to a Roth account unless I am projected to have too much money in a taxed deferred account. The issue with a lot of these recommendations is that they don't mention that how much you already have, how much you can contribite, and how much time you have left to contribute to the account makes a difference. If you only have 10 years to contribute, you have very little in tax deferred investments, and you are in a high tax bracket, definitely contribute to the tax deferred account. The main reason to invest in a Roth account is if you will pay more in taxes in retirement, and you must factor in Pensions and Social Security benefits into this. It takes very little taxable income to cause your social security benefits to be taxed. Some people defer collecting social security benefots so that it increases, plus they have more time to rollover the tax deferred money to a Roth account.

[@helloworldcsofficial]

Where can I open an HSA?

[@masmith1111]

the answer is 26. Am I right?

[@babybellalovesbeagle]

If I only have 1 option max 401 or roth ira?

[@TheFirstRealChewy]

Loaded question. It's typical for people to earn less when they are starting their career and earn the most in the second half of their career. In this case, it's best to contribute to a Roth for the first half of your career then a 401K for the second half. If you can max both a Roth IRA and 401K, now then absolutely do that. The main problem with a 401K is having too much money. One could argue that having too much is a good problem.😊 If leaving the money for kids then a Roth is better since they don't have to take all the money out of a 401K within 10 years, which would result in high taxes. RMDs can be an issue if you are forced to take out more than you want, but that will be less of an issue for most people. A more likely issue is having to take out more money than you want due to an emergency or a large purchase. This is where having money in a Roth or brokerage account helps since you can take the extra from the Roth tax free, or from the brokerage and pay long term capital gains tax instead of income tax. Keep an emergency fund and save towards big purchases so you don't have to make one big withdrawal and pay 30+% in taxes on the extra.

[@briannadoss9157]

You had me at Chipotle Burritos!!

[@rereAL205]

Can you go more into how to retire early. I'm not understanding how you access money if you want to retire at 40 and all of your money is tied up in retirement accounts. Live off contributions to Roth?

[@JarradMorrow]

I can make a specific video on the topic, but I'm not sure when exactly it'll come out. Here's a quick breakdown of where money would come from to fund your "early retirement" years so you don't have to wait on that video though: 1. Access 401k money by using the "roth conversion" method. I made a video on that topic here kzbin.info/www/bejne/oKmXdH1reZ1jrq8 2. Taxable brokerage account 3. Access Roth IRA contributions (because they can be withdrawn at any point in time) 4. Live off passive (or partially passive) income- Real Estate, side business, etc. 5. HSA funds Realistically you'd want to plan on living off your taxable brokerage account while you go through the 5 year process needed for the roth conversion ladder. Other things to understand before you start this whole process: "Sequence of returns risk" which I haven't made a video on yet.

[@rereAL205]

@@JarradMorrow right, but you said to Max out 401k first... With my income that's impossible. I had planned to pull from taxable since I can pull up to 100k without paying taxes (I'm married so the 80k plus 25 standard deduction). But if I do it the way you said with my income all my money will be in retirement accounts. I guess I need steps for the lower income folks lol

[@amandapatel7299]

I have no match, no debt, no high deductible health, over the income limits of both Roth and Traditional. Would you bother with the IRA if there was no tax advantage? I’m just left with 401K (I have crappy offerings from company) and brokerage. Would you even bother with maxing 401K if the only decent offering is basically 1 sp500? I’m honestly just trying to figure out where to put money because most of the usual offerings and order of investing as you put it don’t apply to me. Are there orders after brokerage? Thanks for any tips.

[@TheFirstRealChewy]

If that one, crappy 401K is an S&P 500 Index with low fees, that's what I'd pick and max it if possible. If you meet the criteria to do a Backdoor Roth, then you can do that after maxing the 401K. After that contribute any excess money to a brokerage account or some other investment of choice (real estate, side hustle, etc). You don't pay federal taxes on long term capital gains up to a limit, then 15%, then 20%. You'll still pay state taxes unless you relocate to a place that doesn't have state taxes. Where you live in retirement makes a difference, but having access to good Healthcare will be important.

[@jasonfbaker]

Love my OMI and SAND crypto!

[@JarradMorrow]

Those are foreign languages to me 😂. I’m not deep enough in the crypto world to know of them

[@jasonfbaker]

@@JarradMorrow OMI is part of the NFT world and digital Marvel and Disney collectibles, while SAND is sandbox and part of the Metaverse.

[@trevorhassel8296]

Way to go man, quality, editing, everything is on point

[@JarradMorrow]

Thanks, brother!

[@JamieKingCS]

My understanding with HSA is I can save my medical receipts over the decades then pull that amount out later when I want…no tax penalty. True?

[@JarradMorrow]

That’s correct. I break down my process for keeping track of receipts in this video: kzbin.info/www/bejne/ipubfpV4jNirsLc

[@JamieKingCS]

@@JarradMorrow excellent. Thanks. I was expecting you to mention this trick in this video and the other one linked to from the video. This trick was a huge selling point that gave me comfort knowing if I ever had to dip into the fund to catch up on daily expenses, I could. Fortunately haven’t had to though. No worries though.

[@flavioespinal5156]

what about selfemployee we cant go HSA or 401k

[@juancarlosmontes]

Huge thumbs up!! This one is going in my "To Be Reviewed Periodically" playlist. This is valuable and important content. I watched twice to process the reasons why. I hope others appreciate it/you as much as I do. You go to a lot of hard work to earn Molly her doggy kisses. The "order of operations" was the perfectly analogy to bring it home to us numbers people.

[@mybyrd8598]

Great summary, love it!!

[@JarradMorrow]

Glad you liked it 👍🏻

[@nmernst]

Always look forward to your videos. My HSA investment was available maybe a few years ago and started last year... better late than never :)

[@JarradMorrow]

An HSA has become one of my favorite investment accounts. Stick with it!

[@Tephiffany]

Your content is both educational and amusing! I've been binge watching your videos!

[@JarradMorrow]

Thanks for the kind words!

[@ccarp1515]

Some companies also contribute into an employee’s HSA…it’s “free money”.

[@JarradMorrow]

Great point!

[@coreyw5981]

Hey guys im confused by if your pre taxed money doesn't come straight from your paycheck to your investing how is it otherwise pretaxed? Like if you self contribute to a 401k or traditional ira. How can it be non taxed when it comes from a bank account which already got taxed?

[@JarradMorrow]

Great question. With a 401k your employer is funding it for you so it’s done with pretax money. With a traditional IRA the money you contribute has of course already been taxed. Because of that you’ll claim it on your taxes for the year and that’s where you’ll get “paid back” (for lack of a better term) the taxes from the traditional IRA contribution.

[@figandcloverranch5871]

If I have a personal Roth and my Employer offers a Roth piece to my 401k savings . Is the ceiling max the same or are those two diff things ??

[@TheFirstRealChewy]

Different for Roth IRA and Roth 401K. However, your 401K limit takes into account your combined contribution to your 401K and Roth 401K. So if the 401K limit is $23K for 2024, then you'll hit the limit if you contribute $10K to a Roth 401K and $13K to a 401K. That limit applies regardless of switching jobs.

[@Campos2011]

401k, Roth IRA, HSA, Taxable Investment, some Crypto. Currently I’m doing these except the Roth/HSA.

[@JarradMorrow]

Why have you need avoiding the HSA and Roth IRA?

[@Campos2011]

@@JarradMorrow I’ve just been lazy about it and getting online to change 😅 I do need to get it set up. Company match is 6% so I do 9% for total 15% in 401k, we also have a pension but those can go sideways. I know I should only do the match then after put into Roth. My HSA, well I’m pretty healthy so had never thought of using that for tax advantage but I’m going to have to. While not much, last year taxes I paid $4,500 Fed and assume it will be same this next season. I could have avoided some of that by doing the Roth and HSA. Typing all this up has made me realize I’m slacking. Thank you for engaging with me Jarrad. I enjoy your content and have learned quite a bit, just gotta implement more of it.

[@JarradMorrow]

😂 that was fun reading your stream of consciousness and ending up at the point where you realize you're slacking. We all do it sometimes so no worries. Ya only have so much time to contribute to each of those accounts each year. Once that year is gone you can never contribute that $6k into that Roth IRA ever again. That's the way I've always looked at it and it's helped me get my darn money into that account asap 😂

[@Campos2011]

@@JarradMorrow Haha, like a ton of bricks. Yup, I know you like HSA advantages. I’m glad you made this video to reinstate the importance and order of investing.

[@jasonfbaker]

The HSA is amazing. My fees are so low.

[@dominickburkhardt1486]

The Biden admin just recently announced that this will be the last year for the back door Roth. Is there any alternatives to this that offer similar tax advantages?

[@JarradMorrow]

The bill has only been proposed so there’s no reason to panic until it’s actually signed. These things go through many revisions before anything is actually agreed on. Plus, I believe that, based on how the bill is currently written, the removal of Roth conversions only applies to people making more than $400k or couples making more than $450k by 2032. Fact check me on that info because things may have changed since I last looked into it.

[@dominickburkhardt1486]

@@JarradMorrow that’s great to know. I was having a tough time finding reliable information online. I appreciate your response and will look more into this! By the way, I love the videos. You seem to have found an excellent balance between being educational and entertaining. I really enjoy your work.

[@Mikethecoolguy]

You and wealthy Tiffany, two under rated finance channels. Good job.

[@JarradMorrow]

Never heard of her. Thanks!

[@jasongilbert3391]

Jarrad, my employer provides 5% 401k match in January no matter if the employee contributes to the 401 or not. With that being said, would you recommend stopping my 5% contribution to my 401k and putting that 5% to my HSA account since my employer does provides a high deductible health insurance plan?

[@jasonfbaker]

Good question. HSA has lower contribution limits, so you should at least max out the annual HSA amount of possible. HSA accounts can also be moved around to fine the lowest fees. Jarrard mentioned the risk with HSA and removing funds early, where 401Ks can use the Roth back door approach.

[@JarradMorrow]

If you don’t have to contribute in Jan for them to match then it would make sense to take the money you’d normally contribute for that month and put it into your HSA

[@TheFirstRealChewy]

Absolutely if you are enrolled in the HDHP with an HSA.

[@caringfemaleboston2310]

I started to get into Bitcoin and crypto just recently as u said u started making videos regarding both and sense I stopped watching u I am in the - on cash app and I want out 😂 go figure lol you are the only you tuber I can understand everyone else talks as if everyone is professional investor so ty keep making videos

[@x3loveee]

great vid !! although im realllyyyy curious which other two crypto you're investing in hahaha

[@JarradMorrow]

😂 I’ll share that info some day

[@gregwessels7205]

Jarrad owns a dog (who is looking forward to all those 👍 kisses) so definitely one of the dog coins.😁

[@janayjohnson7986]

I like your videos but please slow down, you talk too fast!

[@JarradMorrow]

It’s my normal talking speed so I apologize. There should be a button on the video to slow it down to .75 speed if that helps

[@janayjohnson7986]

@@JarradMorrow I understand, you speak and think quickly. Just have to watch more than once. Thanks for the content

[@JarradMorrow]

I’ll try to work on it. Appreciate the feedback 👍🏻

[@gregwessels7205]

Learned very quickly whenever a chart comes up, I pause. Great content though.

[@rcollette8]

Awesome content! This should be given to everyone when they’re young as a guide. I wish I started earlier. Thankfully I’m on the path now maxing out everything. Thank you for helping all of us sort through it all. 👍🏼

[@JarradMorrow]

It’s never too late!

[@jasongilbert3391]

Can you please give me your opinion on my 401k / HSA scenario /question below?

[@JarradMorrow]

Sorry, your comment got buried. KZbin isn’t the best at making it easy to filter through all comments across my channel on the back end. I just answered it for you 👍🏻

[@superslyko123]

Tons of very smart ideas here, but lose the mic. Joe Rogan has got it wrong, it doesn't make you cool, I would rather see you than a foot of black plastic.

[@JarradMorrow]

Sound quality on the other mics I have give off too much echo so that’s the only reason I use it 👍🏻

[@targetops6]

I came across this video and love it. I do have a question, how does this mix or formula change if your company matches 6% (100%) then put in a discretionary 6% totally 18% between you and the company?

[@JarradMorrow]

Glad it was helpful. Thank you for the feedback! The order stays the same no matter how much your employer is offering to match. If they’re matching 100% up to 6% then that’s really good!