The Optimal Order to Fund Retirement Accounts

[@rob_berger]

Here's the related article that goes with the video: robberger.com/the-optimal-order-of-funding-retirement-accounts/

[@andyh4518]

Great article. I would add the following to the pros/cons: traditional 401k/IRAs will be taxed as regular income when withdrawn, plus there's the RMD. Whatever is in a traditional brokerage will be taxed as long term capital gains instead.

[@Kep19901]

Sometimes (like with mine) the employer gives a match or $ amount towards your HSA. GEHA gives me $1,000 annually for my single self.

[@BiggMo]

3:08 Much of Ramseys advice is more about behavior change than maximizing return

[@CherryWig47]

Wa$$ap

[@toddapplegate3988]

Up to match 401k, Roth IRA, HSA, back to 401k max out consider Roth option if available, consider I-Bonds and then taxable account. I have decades of healthcare receipts .

[@CherryWig47]

Wa$$ap

[@SilverCpa]

HSA is the apex predator of retirement accounts.

[@CherryWig47]

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[@susanw.1731]

HSA's money can be reimbursed for Medicare premiums as well as medical expenses.

[@rob_berger]

Yes! That's our plan.

[@TedWesterfield]

@@susanw.1731 You are correct to a point but be careful. HSA’s can reimburse for Medicare Parts A & B premiums, however, one cannot do so for a Medigap or Supplemental premium. The federal government does not consider the latter premiums as qualified medical expenses. I know, it makes no sense to me either.

[@susanw.1731]

@@TedWesterfield Yup. . 🙂

[@markaustin5269]

I believe you can also use HSA for COBRA premiums.

[@pcash4088]

I planned to retire at 55 so I contributed to my 401k but rather than max it out I put some into a brokerage account. I used those dividends to bridge me to 60. In fact I’m also using the money in there now to perform Roth conversions. Worked for me, but everyone’s situation is unique.

[@GoKU-xx2vg]

Don't forget Rule 55

[@joy2world97]

I am not sure why everyone want to retire early and want to put money into the brokerage account first. There's rule of 55 and 72t to take money out of 401k. Why waste those 401k deduction?

[@ariefraiser140]

​@@joy2world97100% agreed. Maxing out your 401k depending on your tax bracket gives you up front savings that year of around $6000/year. Enough tax savings to almost fully fund a roth IRA. Bypassing tax advantage accounts for brickerage accounts also would result in tax drag everytime dividends are paid out in the after tax brokerage account. And lastly it's definitely harder to rebalance a brockerage account than a tax advantage account like a 401k or IRA because rebalancing in a brockerage account will trigger sales of assets which would trigger taxes owed for that year. Since you only pay taxes in a tax advantage account when you withdraw money you don't have to worry about paying taxes when you rebalance. In any case you are correct. There are multiple ways to get money out of retirement accounts penalty free at age 55.

[@cheesewagon85]

Good stuff. I’ve actually got a truckload of index funds in a taxable account that i’m starting to spend down while maxing out all my tax advantaged accounts. 50k salary, 30k saved per year.

[@TedWesterfield]

@@cheesewagon85 awesome! 50K salary with a 60% savings rate. You’re da man (or woman). it’s not hard if one knows how to play the game.

[@James-li7do]

Jiv😮 vv

[@hanwagu9967]

is that a 1/4ton truck?

[@joy2world97]

I am doing the same. Spend down brokerage to fund my 401k after tax(mega)

[@TedWesterfield]

My recommended contributions: 1) 401K up to the company match but no more; then, 2) Roth IRA to the max; then, 3) HSA to the max; then, 4) return back to 401K and add up to the max (unless one has a Roth 401 K option and would contribute there). Stop contributing to it 10 years before planned retirement date; 5) contribute the $ you had been putting into the 401K into a brokerage account the last 10 working years. Blindly maxing out a 401K for decades puts one behind the eight ball. Taxes will kill savers once the 401K fund has grown so large and must be withdrawn in retirement.

[@cheesewagon85]

Roth 401k is my friend.

[@ariefraiser140]

​@@cheesewagon85The 401K is also a tax shelter. So to stop contributing to it for 10 years before retirement will cost you not only the match but the tax deductible savings. For those with a high income they would be giving up upfront savings of as much as $20,000+ per year in lost tax savings and company match for 10 years. You're overthinking this.

[@mariorosa6540]

Stopping to contribute 10 years before loses the advantage of compounding interest on a larger dollar amount. Plus not investing because of fear of taxes is not a sound move.

[@MrEscape314]

He isn't losing compounding nor is he saying to stop contributing. He's saying don't max out the 401k the last ten years and redirect those investments to a brokerage account. I think this will give you a more balanced portfolio to work with in retirement.

[@gbski43]

I would Revise 4&5 to say stop contributing beyond the match to the 401k the last 10 years prior to an EARLY retirement in favor of the brokerage investments to have access to money before 59.5 years old

[@BIOHAZARD_V2]

No FICA on HSA contributions when done via payroll deduction, quad tax advantaged!

[@A_T_O_M_I_C_Rooster]

Yep, people miss this. Indeed it is quad tax advantaged.

[@DavidDLee]

1. 401K to get the match 2. HSA to max, for the tax advantage 3. 401K to max, for the tax deduction If you want to save even more, it depends on if you want to invest in other things, such as real estate, business etc. Not interested in other investments: 4. Roth through Mega backdoor + backdoor Roth, 5. Taxable Possibly other investments: 4. Taxable 5. Roth through Mega backdoor + backdoor

[@CherryWig47]

Wa$$ap

[@christiandavis5014]

I wish I was more knowledgeable about Roth accounts early in my career (graduated from college in 1997). I would have funded a Roth when my taxable income had me in the lower marginal brackets. Instead, I was stuck in the dogma of reducing every tax dollar possible. I missed out on what could have been a lot of tax free growth opportunity.

[@CherryWig47]

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[@vincentslusser9205]

I prioritize funding my HSA with the amount that I soend during the year (approximately about $2k currently). And then I try and fully fund the Roth. But other than thatz the strategy is the same as what is in your book. Thats my personal choice.

[@CherryWig47]

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[@delbertsmith7307]

I’m 57 started a Roth account.

[@CherryWig47]

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[@ranman1959]

I had a great 401(k) while working. If I put in 7%, the company matched 9%. I also have an HSA, which I have invested in a growth ETF and consider my LTC insurance. But I'll save all my medical-related receipts just in case it grows too large. You can also reimburse yourself from an HSA for Medicare Part B premiums, including IRMAA.

[@retiredandroaming]

"You can also reimburse yourself from an HSA for Medicare Part B premiums". Really? I did not know that!!!

[@KeciaCranford]

It's recommended to save at least 15% of your income in a 401k. You can use online calculators to estimate how much you should save based on your age and income. Saving at least 15% of your income in a 401(k) can help ensure that you have enough money to retire comfortably. By saving this much, you can take advantage of compound interest and potentially grow your retirement savings over time.

[@johnlawton-y1d]

Effective personal finance management is more important than the amount of money saved, regardless of whether income is earned through job or investment. Individuals can seek counsel from a certified financial advisor to optimize financial outcomes, who can provide specialized advice and methods to decrease expenses and maximize income.

[@DCMannings]

I get the tax benefits of the HSA. But this account comes with the burden of tracking, filing, and holding on to expense receipts for many years. No. I max out everything else.

[@bberg6080]

You could contribute for a few years, or longer, and use it to pay for current expenses. Then let whatever is left grow to pay for medical expenses when you retire. Tracking and filing is the most cost efficient, but there are other ways to use it to your advantage. If you don't want to take a photo of a receipt in Google Drive, Drop Box or any other service you might be using, there are still options to take advantage.

[@kristytonsing3409]

Would a credit card receipt suffice?

[@justme4171]

You can use HSA to pay Medicare premiums

[@michaelswami]

Don’t sleep on taxable brokerage. Long term capital gains and qualified dividends tax treatment, at least at present, are hard to argue with when compared to additional traditional 401K contributions (post match). Particularly if you think you might retire early.

[@CherryWig47]

Wa$$ap

[@hanwagu9967]

You should take your employer's vesting period into consideration before automatically saying contribute to employer's match is a non-negotiable, first place you should save for retirement if your employer plan matches. I've seen plenty of cases in the federal contracting scene, where some companies have ridiculous vesting schedules and you as the employee may not be employed by them long enough to capture the match because the contract ran out or the company did not win contract renewal. Everything becomes an emergency fund if you get into a catastrophic situation, but it shouldn't be a reason to save in a retirement account for that purpose, buying a house, etc.

[@CherryWig47]

Wa$$ap

[@ericw9655]

Great advice, Rob. Would you recommend leaving the HSA completely alone and paying for medical expenses out of pocket to allow the maximum tax free compound growth?

[@CherryWig47]

Wa$$ap

[@richardjohnson218]

No HSA option for me. I max out ROTH 401K after my ROTH IRA! Get as much in Roth as possible!

[@CherryWig47]

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[@jameson4420]

I decided to drop my SIMPLE IRA (basically a small business 401k) down to just enough to get the full employer match once I realized the annual fee was 1.4%

[@CherryWig47]

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[@djpuplex]

I make just under $60k/yr. I do match 403b Roth 6%, HSA max than whatever I have left into Roth.

[@kersting13]

At $60k a year, I'd agree with all the Roth fanatics here. If you're a single filer, you're very close to creeping into the 22% bracket, at which point, I'd contribute enough to a traditional account to defer $$ down into the lower brackets. Unless you're going to have a LOT of other income streams in retirement, you don't want to retire with 100% in Roth. If you end your career 100% in Roth, you've paid WAAAAAAY more in taxes than you ever needed to. If you make it to a few years before retirement without much in a tax deferred account, I'd start using one, but hopefully you'd naturally get there by your salary creeping up into the higher tax brackets and moving slowly to trad deferrals.

[@CherryWig47]

Wa$$ap

Rob, thank you for yet another informative video. Shouldn't taxes be taken into account here when contributing with pre-tax money to 401k and/or HSA? That is, contribute until the limit of the current tax bracket then contribute after-tax to Roth IRA?

[@CherryWig47]

Wa$$a

[@timjones8295]

Great advice!

[@CherryWig47]

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[@shanew7361]

Can you open an HSA if you're unemployed and living off savimgs/investments?

[@hanwagu9967]

Only if your health insurance qualifies as a High Deductible Health Plan (HDHP) and the insurance is HSA-qualified.

[@shanew7361]

@hanwagu9967 Yes, my plan is an hdhp. I'm not sure how I would be able to utilize it for a tax advantage, is all.

[@MeltingRubberZ28]

​@shanew7361 if you have dividends from a taxable brokerage/cashing in capital gains, the HSA input would lower income.

[@jjred233]

I believe you need to have deducible above 2500 for single and 4000 for married to open an HSA.

[@shanew7361]

@jjred233 My deductible is a lot higher than that. I'm trying to figure out how I can benefit tax wise by having/using one.

[@Reza_Audio]

but Rob, in many case if you lose your job before vesting schedule we practically are forfeiting the match dollar, this happened to me. after getting lay off before the cliff years, now when i am trying to rollover (merge my old 401k) that matched money is not mine anymore. i dont know why we should rely on this. it's like a myth

[@CherryWig47]

Wa$$ap

[@noahmoss]

I’m just doing long-term investing in a brokerage to pay 0% in tax and Roth IRA for 0% incase I decide to move to another country where the brokerage would no longer allow for 0% tax. I’ve found an ETF that significantly outperforms the average 401k APY, so it’s logically improbable that a 401k match would outperform my brokerage and Roth IRA.

[@hanwagu9967]

Well, if your plan is moving to another country, you ought to ensure that your brokerage will allow you to keep your account open or accessible.

[@noahmoss]

@@hanwagu9967 yes they will

[@jerrylabat550]

On your saved medical receipts you also need to be sure your HSA servicer agrees they are valid receipts. Mine basically requires an Explanation of Benefits with correct costs/dates/procedures and patient names. This basically eliminates any standalone credit card receipts because they won't list the medical procedure codes.

[@hm51008]

Depends on the institution. Fidelity makes it clear they do not make that determination.

[@MichaelToub]

Great Video!

[@CherryWig47]

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[@Mlrossi1962]

Hey Rob, have you found a good tool to store and manage all if your HSA receipts as you submit them? I can do the scanning and spreadsheet thing but there has to be an easier way on a phone app. If you do, would you consider doing a video on it??

[@CherryWig47]

Wa$$ap

[@rapfreak7797]

Don’t forget to invest the funds in your HSA, most plans won’t do this automatically for you without you setting it up first.

[@CherryWig47]

Wa$$ap

[@SJROBINSON]

What if your employer does not match anything and the plans are expensive, most funds at 1% fee. I currently max out a Roth IRA and an HSA (for just myself, wife has regular insurance). Would you still consider a 401k after??? I feel the next step is to help my wife max out her Roth IRA then consider a regular brokerage account and skipping the 401k altogether. My wife does have a 401k and does contributes up to their 3% match. I’m thinking we’d be in pretty good shape with 2 max roths, 1 max HSA, and one 401k at 3% + 3%.

[@hanwagu9967]

In your 401k situation, I'd forego it and just do after-tax brokerage.

[@cvon2024]

What if I have a Roth 401k [no match] available. Would that then be #1 given I can contribute so much and have it grow tax free?

[@GoKU-xx2vg]

Correct. Unless the traditional 401k has a match.

[@CherryWig47]

Wa$$ap

[@fasteddy3336]

Rob, you give great advice. I think you missed something on the HSA. Do you think any 22 year-old is going to keep receipts for the next 30 or 40 years to turn it in to get money out of his HSA? Most kids in their 20s can’t hold onto the receipt walking out of the store they bought the item. Don’t you lose the value of the US dollar by spending it today and not collecting it for 30 or 40 years? My useless opinion.

[@DirtyBob154]

25 year old here. Yeah this is ridiculous. Good luck keeping those accounting records.

[@Kep19901]

Uh, yeah I think a 22 year old is going to keep receipts after watching this video. And you can invest the $, so it will grow above inflation, then when you take out x amount at 64 to take a vacation or whatever you want, tax free. Just take a picture of the receipt and upload it somewhere. Or don't have an HSA, idc it's your life.

[@Kep19901]

If I spend $1,000 annually per year for 43 years, and pay out of pocket and keep the receipts. Sounds to me like I can spend $43,000 on whatever want when I'm 65. Tax free.

[@BrianDonoghue]

Rob’s advice on HSA assumes someone has the time to submit his/her before they pass away. When a non-spouse inherits unused HSA funds, the account is fully taxable in year 1 to the beneficiary. In this way, it is worse than an inherited IRA. Rob often talks about simplicity but disregards that when it comes to leaving an extra tax bill or account to manage for beneficiaries of a HSA.

[@TedWesterfield]

@@fasteddy3336 it’s a mindset, no matter what age. If you simply tell yourself that you’re not going to tap the HSA, then you won’t (kinda like SS tax-outta sight, outta mind). However, I get that might be more difficult for a younger worker with a lower income. I paid a small medical co-pay once from my HSA 18 years ago. None since. Immediately realized it was stupid to do so and today I am very pleased that I understood the ramifications.

[@bribradt3450]

My 401k doesnt have a match so I go Roth IRA first

[@hanwagu9967]

Even if your employer doesn't offer a match, there is an argument for still contributing to t401k to reduce your current tax liablity if that is a consideration.

[@rickdunn3883]

How does one determine if their health plan is a HDHP?

[@DirtyBob154]

Check their health plan…

[@TedWesterfield]

@@rickdunn3883 you can figure it a couple of ways. The easiest is to ask your H.R. mgr. if your healthcare plan meets criteria. The second is to simply do a google search. There is a certain deductible amount that must be met, which changes annually.

[@hanwagu9967]

keep in mind that the insurance has to be HDHP designated as well as HSA-qualified. Not all HDHP meet HSA-qualifications or offer HSA option.

[@richardjohnson218]

No HSA option for me. I max out ROTH 401K after my ROTH IRA !!! Get as much in Roth as possible!!!

[@DirtyBob154]

Bad choice. Three bucket strategy is optimized best

[@MeltingRubberZ28]

​@DirtyBob154 nah. As much Roth as possible unless you're in an insanely high tax bracket

[@GoKU-xx2vg]

​@@DirtyBob154your comment makes 0 sense. Must be a bot

[@DirtyBob154]

@@GoKU-xx2vg lol. Google it

[@A_T_O_M_I_C_Rooster]

Berger should probably state explicitly that if your employer plan has great 401k investment options or brokeragelink, I would just pile all of the money into the 401k instead of using the IRA.

[@rob_berger]

I thought I did!

[@A_T_O_M_I_C_Rooster]

@@rob_berger In the video? If so, my apologies. I do see that information on your website though.

[@gizmobowen]

Wish I had watched this video 25 years ago when I started retirement saving. Not sure how I would have found it while surfing the net on AOL.

[@Kep19901]

TSP is the best.

[@CherryWig47]

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[@bobfrstcty]

Interesting 🧐

[@CherryWig47]

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[@reynoldslacybrleroymeuschke]

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[@FederickLeo]

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[@SonyaYeva]

I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $200k passively by just investing through an advisor, and I don't have to do much work. Inflation or no inflation, my finances remain secure. So I really don't blame people who panic.

[@FederickLeo]

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[@SonyaYeva]

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[@reynoldslacybrleroymeuschke]

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[@SeanCarden564]

I will be forever grateful to you, you changed my entire life and I will continue to preach on your behalf for the whole world to hear you saved me from huge financial debt with just a small investment, thank you Wendy Hubbard Stewart.

[@CherryWig47]

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[@davidwinebrennerjr4196]

You are wrong a lot! What lane do you think you are in?

[@CherryWig47]

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