2019 Savings Order of Operations

In math and in computer programming, the order of operations defines how you solve problems and prioritize the order in which you perform procedures.  In the spirit of, “You can do anything, but not everything,” below is my Savings order of operations for 2019.

1. 401K Contributions
This cuts our taxable income and lets us save for retirement. With all of the ways to access retirement funds early, if needed, this is our #1 item.

2. Roth IRA / Backdoor Roth IRAs / Mega Backdoor Roth IRAs
We dance around the eligibility limits for Roth IRAs, but these tax-advantaged accounts are better than regular taxable accounts.  We have a fairly large cash position, so it’s not necessary that we access this money quickly.

3. HSA
This ends up happening no matter what through employer deductions, but I’ve changed my thinking about the HSA vs. Roth IRAs in the past few years. If I can’t fund a Mega Backdoor Roth via normal cash flow / income (and I rarely/never can), I will pull money from the HSA to do it. Once the money is in an HSA, pulling it out to put into a Roth IRA offers the same benefits without the recordkeeping headaches. (Um, and it’s tax-free money into a Roth!)

4. Kids’ college funds
This ends up being weirdly tied with #2 and #3 above. My savings target is the maximum untaxed amount for our state, per kid (so $4K each). I’ve saved “extra” over the past few years, and also sort of cheat this since I simply fund it with invisible-to-me Dependent Care FSA reimbursements.

5. SEP IRA
I have an underperforming yoga teaching side hustle which allows me to contribute to a SEP IRA or Solo 401K.  The SEP IRA required no extra paperwork, so I went with that.  This conflicts with a backdoor Roth, though, so I have to strategically roll it into my 401K before I convert my tIRA.

6. Taxable Investment accounts
We don’t usually made it this far down the list, but this would be tied with #7.

7. Mortgage Prepayment
We have a 15-year mortgage already and our rate is amazing (3.125%), but I still do not like that huge balance hanging out there.  Ideally, we’d contribute extra and then recast – protecting that awesome low interest rate while having annual payments that are slightly less onerous.

5 Responses

  1. […] for me to pull money out of savings than to accept a lower savings rate.   I start with a baseline of savings – usually maxed-out 401Ks, some college savings, an HSA.  Mortgage prepayments are low […]

  2. I have got to embrace an order of operations. Ours is: 401K, IRAs, brokerages (I’ve stopped putting money into the 529 in favor of beefing up our retirement savings), mortgage prepayment. I have got to get myself in gear and start earning side income in some way to be eligible to contribute to a solo 401 or a SEP IRA.

    • I think if we were needing to make a choice between tax-advantaged retirement accounts and a 529, we’d favor retirement every time. It’s just more versatile. We get a teeny tax deduction on the 529 which is the only reason I bother at all.

      Realistically, I get to shelter between $200-$300 in my SEP, so it’s nothing too special. My brain wouldn’t be able to stand it if I didn’t take advantage of every single tax savings available to us!

  3. […] Sarah’s savings order of operations. […]

  4. […] completed the items on my 2019 Savings Order of Operations, with minor […]

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