Investment Account Priorities For Younger Adults

Inspired by a post on Threads

1. Emergency Fund/Savings Account

Yields are decent now, the goal should be whatever number of months worth of expenses would make you comfortable. 3 months, 6, 12, whatever number. This could also be thought of as an optionality fund, financial optionality if at some point you want to take a sabbatical or desire a job that turns out to pay less than you're making.

2. Roth 401k

Not all employers have a Roth option for the 401k but if you're under 35 I would go all Roth and put in as much of your salary as you can afford or at minimum, enough to at least max out the employer match.

3. Traditional 401k

If you're getting an employer match, you're getting free money. In the early years, your employer match will likely be greater than your investment results.

4. Health Savings Account

If you don't have access to a employer sponsored 401k and the cost of the premiums make sense, then I would make this number 2 on the list. You get a tax deduction for contributions and can take the money out tax free when used for qualified medical expenses.

5. Roth IRA

If you don't have a Roth 401k option, you can contribute to a Roth IRA if your income is under $153,000 single/$228,000 joint (a little more to it to check out if you make that much). You will be glad you have some Roth assets when you retire.

6. Spousal IRAs

If only one spouse has earned income, you can still fund a Roth IRA or traditional IRA for that spouse subject to income limits. For younger people I would go Roth, then moving to a traditional IRA later if/when income increases.

7. Taxable investment account (trust or otherwise)

You already have some taxable money set aside as an emergency/optionality fund but once you get beyond that comfort number of emergency savings it makes sense to invest this taxable money too.