Tax Optimization
The tax code rewards certain behaviors. Understanding these rules can save you tens of thousands over your lifetime.
Account Priority Order
| Priority | Account | Why |
|---|---|---|
| 1 | 401(k) to employer match | 100% return on your money |
| 2 | HSA (if eligible) | Triple tax advantage |
| 3 | Roth IRA | Tax-free growth forever |
| 4 | 401(k) to max ($23,000) | Reduce taxable income |
| 5 | Taxable brokerage | No limits, flexible access |
The Mega Backdoor Roth
If your employer plan allows after-tax contributions and in-service withdrawals, you may be able to contribute up to $69,000/year total to your 401(k), then convert the after-tax portion to Roth.
Tax-Loss Harvesting
When investments drop in value, you can sell them to "harvest" the loss and offset gains elsewhere, then immediately buy a similar (not identical) investment to maintain your position.
You can't buy a "substantially identical" investment within 30 days before or after the sale. Sell VTI, buy ITOT (different fund, similar exposure) = fine. Sell VTI, buy VTI = disallowed.
Asset Location
Where you hold assets matters as much as what you hold. Putting the right investments in the right account types can significantly reduce your tax bill.
| Asset Type | Best Location | Reason |
|---|---|---|
| Bonds / REITs | Tax-deferred (401k, IRA) | High income taxed at your rate |
| High-growth stocks | Roth accounts | Maximize tax-free growth |
| US stock index funds | Taxable accounts | Tax-efficient, qualified dividends |
| International stocks | Taxable accounts | Foreign tax credit available |
Even at this level, a 3-fund portfolio (Total US Stock + Total International + Total Bond) covers everything. The advanced move isn't picking fancier funds. It's putting each fund in the right account.
Estate Planning
This isn't about being wealthy. It's about making sure your wishes are followed and the people you care about are protected.
The Core Documents
Do You Need a Trust?
A revocable living trust avoids probate, provides privacy, and gives more control. But it's not free or simple. Consider one if:
Insurance Optimization
Insurance protects against catastrophic loss. The goal is adequate coverage at minimal cost, not maximum coverage for everything.
Extended warranties, phone insurance, rental car coverage: if you can afford to replace it, you don't need to insure it. Insurance companies profit because the average person pays more in premiums than they ever claim.
Strategic Charitable Giving
Giving feels good. Giving strategically feels good and saves you money.
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