The savings order of operations sounds basic, but it is the first area of focus when onboarding a client. Understanding what you can save is essential, but prioritizing where to put that money is often the challenge.
Milestone: Emergency Savings
Annual Limit: Unlimited Tax Considerations: Earnings are taxable Misc Items: Top-rated high-yield savings account list here
6 months of expenses is your target, but all you see is everyone around doing all of the things you want to do. Get through this time period, and you have shown you are persistent and can actually save for your financial future. For example, a couple reaches their $50,000 target. They save 25% of their gross income every month and can now allocate the 25% to the milestones below. This is the money that allows you to sleep well at night and not worry about utilizing your long-term investments for any short-term unexpected expenses.
Milestone: Roth IRA
Annual Limit: $7,000 (under 50, total amount between any IRA, and each spouse can contribute the full amount even if one doesn't have income) Tax Considerations: Contributions are after tax, earnings grow tax-free, and withdrawals are tax-free Misc Items: No required minimum distributions (RMDs), backdoor Roth could be considered if over the income limits, beneficiaries under the 10-year rule do not pay taxes and can wait until the 10th year to withdrawal as there are no RMDs
Welcome to the Roth IRA. The most accessible way for any individual to save for retirement and in the most tax-efficient way possible. If you are over the income limits for a direct Roth IRA contribution, you might need to utilize a backdoor Roth. You can read more about this in a recent article we wrote here. Tax-free growth and qualifying tax-free withdrawals make this a great way to build your tax-free bucket of money.
Milestone: 401(k), 403(b), 401(a) - Employer Sponsored Retirement Plan
Annual Limit: Employee (under 50) - $23,500, Employer $46,500 Tax Considerations: Options for pre-tax, after-tax, or Roth contributions, earnings grow tax-free, and qualifying withdrawals are taxed or not taxed based on contribution type Misc Items: Generally protected from creditors and bankruptcy under ERISA rules, limited by investments in the plan, only 50% of plans in the US offer a match
Welcome to the 401(k). A savings powerhouse and considered table stakes now with any employer. If there is a match, contributing enough to get the full match is the bare minimum. Arguably, this should be done before a Roth IRA if given the opportunity. Note the total limit of an individual under 50 is $70,000 for 2025. If you are a W-2 employee, you are scratching your head wondering why you aren't putting that much in. The reason is that the employer dictates their contribution amount via plan design. If you are a practice owner or 1099, you might have the ability to get to the $70,000 mark via profit sharing.
Milestone: Taxable Account or Personal Debt
Annual Limit: Unlimited Tax Considerations: Taxable at different rates depending on the type of income Misc Items: Excessive trading in a taxable account can eat away at your returns as short-term gains (positions held less than a year) are taxed at your income tax rate.
The taxable account vs paying off debt is simple, but often the wrong choice is made. Why? Because we are naturally greedy, want to take shortcuts with our wealth, and have been in a 15-year bull market. If the average rate of return for a taxable account with a diversified stock portfolio is 6% after inflation and taxes, why are we investing in a taxable account vs paying off debt that might have a 6% interest rate (mortgage, student loans, etc)? Obviously, there is nuance here such as IDR forgiveness, etc., but the mortgage is a great example as rates are currently averaging 6.5%. If you compare that to the 6% example above, you are theoretically losing money by allocating extra dollars to your taxable investment account instead of your mortgage.
Milestone: Kids College Funding (529 Plans)
Annual Limit: State-specific and the overall limit generally falls between $235,000-$600,000 Tax Considerations: No tax deduction for contributions at the federal level, some states offer a state-level deduction, earnings grow tax-free, withdrawals are tax-free as long as they are used for qualifying educational expenses Misc Items: You can change beneficiaries on the 529 account (child who would receive funds), you can rollover up to $35,000 to a Roth IRA owned by the 529 plan beneficiary (lots of nuance, so read more here if you are interested)
Welcome to kids' college funding. I love my kids, and I'm sure you love yours. My opinion (nothing more) is that we should focus on the previous milestones before this. Once you reach this milestone, this is a great way to create higher education flexibility for your child. The state you live in matters, as some offer tax deductions for their state residents (a great breakdown here), but the choice is yours, as you can use any plan you want in the country. If your state offers a pre-paid plan, this is a great way to lock in the cost of tuition in a pre-paid vehicle (read about the Florida Pre-Paid Plan here). Parents, grandparents, friends, etc., can contribute to 529 plans on behalf of a child. If you are still working on the previous milestones, this is a great way to get your family involved while you work towards this.
Milestone: Your Choice
Now, you tell me what you want to do with your money. Vacation home, charity, legacy building, passion project, the choice is yours. This is probably the most enjoyable part of the experience, as you have stuck to your plan and are now reaping the reward of flexibility. Does this mean you aren't enjoying life until you get to this point? No, we are still taking vacations, but this is the final level where you know your financial plan is on track and have ultimate flexibility.
The Plan
The drivers of the items above are you and your financial plan. Without knowing the potential outcome, persistence becomes difficult. Let your financial plan reassure you that what you are doing allows you to be set up for success long term, as well as enjoy the moment you are in.
References / Additional Reading
• Looking for a job opportunity in Southwest Florida? We have a very successful practice owner that is looking to bring on an associate. Please email us at servicing@virtusfp.com if interested
• Previous Newsletters & Webinars • Top High-Yield Savings Accounts • Roth Conversions Newsletter • Rolling 529 funds to a Roth IRA • 529 state tax deduction list • Florida Pre-Paid • Mortgage Rates
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Virtus Financial Partners is an investment advisor registered with the U.S. Securities and Exchange Commission. Any statement of past performance is not indicative of future returns. Virtus does not provide legal or tax advice. You should consult with your attorney or tax professional for any advice pertaining to legal and/or tax questions you have.