Optimal order of funding

Member since 2025 · 22 posts · 18 votes

Hi everyone,

As a high-income earner, what is the optimal order of funding tax-deferred and tax-advantaged accounts to maximize tax savings? I am considering the following options: contributing to a 401(k), paying down high-interest debt, funding an HSA, and making a backdoor Roth contribution.

Thank you.

Best,

Zeni Kharel

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Josh L.

USA · Member since 2023 · 145 posts · 84 votes

@Don Konipol love the response. Cash is king. I'm liking the perspective on cash reserves of 15% of assets vs the typical 3-6 months of expenses.

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Josh St LaurentBusiness Member
Financial Advisor · Stateline, NV · Member since 2023 · 131 posts · 122 votes
1y
@Zeni Kharel you're on the right track. Based on your question you seem to be a W2 employee, if that's the case the order your presented things in makes sense. If you have a stock plan there are strategies there depending on the type of plan.

I'll throw in a powerful real estate tool that wasn't on your list, a short term rental that you materially participate in. It would likely offset more taxes than all the other things on your list combined.

I hope this helps.
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Josh L.
USA · Member since 2023 · 145 posts · 84 votes
1y
@Zeni Kharel Good question. If you are a high income earner, I would start with $1k in savings, then wipe out all non-mortgage debt (use savings if you have it). After that, build up three to six months of savings, and then go back to putting 15% of household income into a Roth 401(k) if you have the option. Roth is generally better than traditional. You get tax free growth on earnings and you do not have to worry about which bracket you will be in during retirement. I cannot take credit as that is a Dave Ramsey approach, but if you want a more quantitative approach check out The Money Guy’s Financial Order of Operations. That's my personal approach.
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Josh L.
USA · Member since 2023 · 145 posts · 84 votes
1y
@Zeni Kharel One thing to add regarding an HSA is to look at what you spent on medical in the past year (out of pocket or deductibles) and make your payroll contributions align with that. In other words, funding your HSA is more of a budget question, and by funding it through payroll you will not need a separate line in your budget for medical.
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Cole Setzer
Member since 2024 · 4 posts · 2 votes
1y
Some of this depends on your goal, and current circumstances. Are you wanting to Retire before 65? Is your income above 250k? what does your current finances look like (interest rate on your loans, Cash on hand, etc.)?
There is not a one size fits all approach for what the optimal order of funding is. the set of variables that apply to your situation, determine what is best for your desired outcome. For example a traditional 401k for someone in the 32% bracket who wants to retire at 55 may best. That person can do a Roth Conversion later on and only pay at a 12 or 22% tax rate.
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
1y
Quote from @Zeni Kharel:

Hi everyone,

As a high-income earner, what is the optimal order of funding tax-deferred and tax-advantaged accounts to maximize tax savings? I am considering the following options: contributing to a 401(k), paying down high-interest debt, funding an HSA, and making a backdoor Roth contribution.
Thank you.
Best,
Zeni Kharel

While there are some universals, everyone’s circumstances are different. While one person “needs” $15k in liquid savings, someone else “needs” $150k.

As a HML I see people in desperate situations all the time. Their typical PFS show $5, 10 or 50 million in assets, and $3,500 liquid. I’m a BIG believer in cash reserves - like 15%+ of your assets.

For me a great wealth builder was (1) a DEFINED BENEFIT plan allowing me to defer tax on up to $350,000 per year at age 50 when I was in the highest tax bracket; and conversion to and into a ROTH 401k (all self directed) over a 5 year period at a lower bracket and a BIG discount for the non liquidity of my retirement portfolio investments.

After 45 years as an investor in real estate, REITs, limited partnerships, businesses and as a general partner in real estate and mortgage note syndications, as well as manager of real estate funds and high yield mortgage funds, I can tell you that the number one component of long term, sustainable investment success is STAYING POWER. If you are forced to liquidate at market bottoms; if you lose everything in a recession and have to start over; or if you don’t have the liquidity to invest during temporary “panics”, to take advantage of temporary once in a lifetime “deals”, then wealth accumulation becomes 10 times more difficult.
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Josh L.
USA · Member since 2023 · 145 posts · 84 votes
1y
@Don Konipol love the response. Cash is king. I'm liking the perspective on cash reserves of 15% of assets vs the typical 3-6 months of expenses.
2 Reply
Zeni Kharel
OP
Member since 2025 · 22 posts · 18 votes
1y
I appreciate everyone's insights and input!!! Thank you so much everyone!
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Vandana Thapa
Lender · 10220 SW Greenburg Rd Portland OR United States, OR · Member since 2025 · 16 posts · 8 votes
1y
@Zeni Kharel As a high-income earner, your priority should be to first eliminate guaranteed losses (like high-interest debt), then layer in contributions to accounts that give you the strongest tax advantages. Think of it as stacking your dollars in the most efficient order so you’re keeping more money compounding for your future instead of sending it away in interest or taxes.
- Pay off high-interest debt first. No investment reliably beats a 15–20% guaranteed return.
- Maximize your employer 401(k) match. It’s free money and should never be left on the table.
- Fully fund your HSA (if eligible). With its triple tax advantage pre-tax in, tax-free growth, tax-free out for medical expenses, it’s one of the most powerful accounts available.
- Contribute beyond the match to your 401(k). The tax deferral is especially valuable in high-earning years.
- Make a backdoor Roth contribution. This ensures you still build a tax-free bucket for retirement, balancing your overall tax exposure.
Once you’ve handled debt and optimized tax-advantaged accounts in this order, you’ll be in the best position to funnel additional cash flow into real estate or other income-producing assets. That’s where long-term wealth building truly accelerates, combining leverage, depreciation, and appreciation alongside your retirement strategies.
This response is for educational purposes only and not intended as financial, tax, or legal advice. Always consult your own advisors before making investment decisions.
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