Order of Funding

[The White Coat Investor]

What order do you fund your tax-advantaged accounts each year (assuming you max them out?)

I generally fund in this order:

1. HSA


2. Backdoor Roth IRAs


3. 529s up to the state tax credit limit

I try to do those the first trading day of January.

Next I tend to fund any tax-deferred options for the previous year that are not yet funded. These include:

1. Employer contributions to individual 401(k) (may have delayed due to unknown income/max contribution)


2. Defined Benefit/Cash Balance Plan (no benefit to funding for 2015 until March/April 2016 in my plan)

Then I do tax-deferred accounts.

1. Partnership 401(k)/Profit-sharing plan (I usually just have 20% withheld from each distribution, so it usually takes 7-8 paychecks)


2. Individual 401(k)s- Employee contribution and then employer contributions, usually as big lump sums when the money is available

Then late in the year I start looking at other opportunities

1. Taxable account (these days either syndicated real estate or stock index funds)


2. Kids' Roth IRAs


3. Kids' UGMAs

Do you follow any specific order? Why or why not?

[Joseph]

Coming out of paycheck spread out evenly all year (max):

1a HSA

1b 401k

1c 457

1d Dependent care FSA (not retirement, obviously, but tax advantaged)

 

2. Traditional IRAs we buy increments of  $1000 or $500 throughout the year until convert in December

3. 529s funded in October. No state tax benefit (no state tax, free money)

4. Kids' Roths in December.

5. Taxable account at end of year.

[PhysicianOnFIRE]

1. Backdoor Roth (done, but wish I would have procrastinated a week in 2016!).

2. 457(B), which has no match, frontloaded over 3 paychecks.

3. 401(k) spread over about 20 biweekly paychecks (my employer only matches a certain amount per paycheck / frontloading delays most of the match $ to a true-up the next year)

4. 529s, which are not tax advantaged in my state, in February and August (when I get a bonus of sorts).

5. HSA, also spread throughout the year.  Would be good to frontload this, but my employer warns of overfunding this.  Contributions to 401(k) and 457(b) are limited automatically to $18,000 from me, but apparently HSA contributions are not.  So I spread this one out as well.

6.  Taxable every month.

[asmallchild]

1. Roth 401k (18k) with first paycheck of the year (I'm in a field that fortunately pays very well. I'm young. I enjoy my job. I figure Roth is the best way to approach this)

 

2. Backdoor Roth IRA (11k, for myself and spouse)

 

3. Will be starting a 529 this year (first child coming!) but no state tax benefits as I'm fortunate enough to live in a no state income tax state. Not sure how much to contribute yet.

 

4. Taxable account (split using the Boglehead method of 1/3 total stock, 1/3 international stock, 1/3 intermediate-term munis since this does have to serve as my primary source of income in retirement and I'm a bit too nervous to go 100% stock), trying to dump about 50% of my gross income into this

[Sajimone]

I max out everything.. 403, 457b, 457f, roth and solo401 as well as monthly contribution to kids 529s x 3.   Does the order really matters if maxing out? The only question left is how much more to save in taxable vs throwing at the mortgage?

[Non-propagated-stimulus]

This is hugely helpful.  Been struggling with this exact question over the last few years.  Good to see how others are doing it.

[Sneezy]

1. Backdoor IRA and solo 401k from last year near the start of the year (worked out that i waited this year as sent checks Firday)

2. 401k/403k up to the max throughout the year

3. 529s monthly

4. Taxable each month depending on cash flow (I calculate where I stand each month and invest excess in taxable)

 

This gives me some benefit from dollar cost averaging over the course of the year and an incentive to keep cash flow positive

[JKG]

Back door Roth IRA for both of us on January 1, then our 401k, 403b, and 457b accounts maxed out evenly over each pay pay period. We also have a nominal amount in a FSA spread out over the year also to cover ophthalmology and dental visits, prescriptions, etc. Thankfully no major medical issues for us. There is no HSA available for us unfortunately. We have no need for 529 plans. Taxable accounts each month depending on cash flow.

[JKG]

Back door Roth IRAs on January 1.

Max out our 401k, 403b, 457b accounts throughout the year.

Nominal amount in a FSA to cover opthalmology, dentist, prescriptions, etc. No HSA available. No 529 plans needed.

Taxable account throughout the year depending on cash flow.

[JKG]

1. Back door Roth in January for both of us (maximum contribution)

2. Max out each 401k, 403b, and 457b account evenly over each paycheck

3. Nominal amount in FSA for dentist, opthalmology, prescriptions, etc. No HSA available, no 529 needed.

4. Taxable accounts monthly based on cash flow

[jfoxcpacfp]

Joseph wrote:

Coming out of paycheck spread out evenly all year (max):

1a HSA

1b 401k

1c 457

1d Dependent care FSA (not retirement, obviously, but tax advantaged)

 

2. Traditional IRAs we buy increments of  $1000 or $500 throughout the year until convert in December

3. 529s funded in October. No state tax benefit (no state tax, free money)

4. Kids’ Roths in December.

5. Taxable account at end of year.

Click to expand...

Curious about your backdoor Roth conversion. If you are contributing to a TIRA all year, then you have to pro-rate when it's time to convert and the account may even be down. Why not contribute to a taxable account all year then move $5,500 to your TIRA before converting to a BDR a few days later? Gains/losses in a non-deductible TIRA are inferior to same in a taxable account. Just wondering...

[Joseph]

Johanna,

It is just a personal feel that I want the money in a Traditional IRA for a longer period than just a one-day flip.  It is easier for my wife and I to see and keep that money earmarked in that way as well.

[jfoxcpacfp]

Joseph wrote:

Johanna,

It is just a personal feel that I want the money in a Traditional IRA for a longer period than just a one-day flip.  It is easier for my wife and I to see and keep that money earmarked in that way as well.

Click to expand...

Ahhh, I see.

[dragonfruit]

Husband is PGY2 and we are dual-income with two kids.

1. 403b up to employer match


2. Both our Roth IRAs to the limit ($11,000)


3. HSA to the limit ($6,500 per family)


4. 529 to the state tax limit ($2,000 per kid)


5. Coverdell (i.e. ESA) to the limit ($2,000 per kid)


6. Back to 403b as we can spare

[The White Coat Investor]

Johanna Turner wrote:

Joseph wrote:

Johanna,

It is just a personal feel that I want the money in a Traditional IRA for a longer period than just a one-day flip.  It is easier for my wife and I to see and keep that money earmarked in that way as well.

Click to expand…

Ahhh, I see.

Click to expand...

Seems like a big hassle for the step doctrine that has never, to my knowledge, been enforced on a backdoor Roth IRA. But to each his own.