028 | Retirement Savings Order of Operations: 401k, IRA, and Roth

ChooseFI | Financial Independence Podcast

Jonathan Mendonsa & Brad Barrett | Choose FI Media, Inc

Careers, Investing, Business

4.8 • 5.2K Ratings

🗓️ 19 June 2017

⏱️ 42 minutes

🔗️ Recording | iTunes | RSS

🧾️ Download transcript

Summary

Most people think tax-deferred accounts are all created equal — they're not. Brad and Jonathan break down the precise hierarchy of retirement "buckets" and explain why the order you fill them matters far more than how much you save. From the triple-tax-free power of HSAs to the strategic use of Roth conversions, they map out the four primary tax treatments for retirement funds and reveal which levers actually move the needle on your path to FI. Key Topics: Introduction to Investment Buckets [00:00:00] Understanding the Four Tax Options [00:02:19] Health Savings Accounts (HSAs): Not taxed at any stage Roth IRAs: Taxed on contributions, tax-free growth and withdrawals Traditional Retirement Accounts (e.g., 401(k)s): Taxed on withdrawals Taxable Brokerage Accounts: Taxed on contributions and growth Roth IRA and its Benefits [00:11:00] Flexibility of contributions and tax-free withdrawals under certain conditions The Importance of Tax Deferred Accounts [00:17:00] Strategies for High-Income Individuals [00:31:00] Backdoor Roth IRA for those exceeding contribution limits Key Insights: "Maximizing tax efficiency means no taxes at any stage: contribution, growth, and withdrawal." [00:01:24] "Control your current tax and tax rate to maximize your financial outcomes." [00:09:50] "The Roth IRA provides the flexibility to draw funds without tax implications." [00:25:19] "Tax diversity allows for more financial options in retirement." [00:23:46] "Start investing early in a Roth IRA for extraordinary long-term benefits." [00:39:19] Action Items: Max out your 401k contributions this year [00:24:39] Consider implementing a Roth IRA conversion ladder [00:10:54] Terminology: Marginal Tax Bracket: The rate at which your last dollar of income is taxed [00:20:40] Backdoor Roth IRA: A method for high-income earners to contribute to a Roth IRA by converting a traditional IRA [00:31:48] Resources: White Coat Investor - Backdoor Roth IRA [00:34:00] Related Episodes: Episode 018: Capital Gains Harvesting [00:05:56] Episode 013: Maximizing Tax-Deferred Compensation [00:06:40] ▶ Listen Next: Ep. 029 — The Aspiring Minimalist vs the Reluctant Frugalist | Essential Listening

Transcript

Click on a timestamp to play from that location

0:00.0	Okay guys, today we're going to be talking about the tools that you can use to crush this
0:04.3	financial game.
0:05.3	It's time to talk about the buckets.
0:07.0	You're listening to Choose Appi Radio.
0:11.8	The blueprint for financial independence lives here.
0:22.5	If you're looking to unblocked as secrets to financial independence and early retirement,
0:27.5	you're in the right place.
0:29.4	Stay tuned and join a community of like-minded people who are getting all fans to hear
0:34.2	and taking control of their lives in the pursuit of financial independence.
0:38.4	Choose FI, your home for financial independence online.
0:48.0	Alright, welcome back guys.
0:55.2	Today we're starting a series and we want to talk specifically about the tools that you
0:58.8	have available to you.
0:59.8	Basically, if you want to think about it this way, the order of operations, the buckets
1:03.8	that you can use to reach financial independence.
1:06.5	Yeah, I think this is a long overdue podcast.
1:09.0	I think this will be interesting for the audience, certainly.
1:11.0	It'll be interesting for us to clarify.
1:13.0	And we've certainly spoken about many, if not all, of these different buckets, but it's
1:17.5	important to lay it out sequentially and give people a real framework.
1:21.2	So yeah, I think like I said, this is overdue and it's an important episode.
1:24.9	And also last week, we talked a little bit about how we wanted to optimize individual
	...

Please login to see the full transcript.

Previous episode | Next episode

Disclaimer: The podcast and artwork embedded on this page are from Jonathan Mendonsa & Brad Barrett | Choose FI Media, Inc, and are the property of its owner and not affiliated with or endorsed by Tapesearch.

Generated transcripts are the property of Jonathan Mendonsa & Brad Barrett | Choose FI Media, Inc and are distributed freely under the Fair Use doctrine. Transcripts generated by Tapesearch are not guaranteed to be accurate.