A Simple, Tax-Aware Savings Order for Your Money

You may already be doing a good job of saving.

But where you put your money matters just as much as how much you save.

If you’re earning a high income, your biggest advantage isn’t just earning more. It’s keeping more of what you earn and letting it compound efficiently over time.

That’s where having a clear savings order makes a difference.

Get the order right, and your after-tax wealth grows faster. Get it wrong, and you may be leaving opportunities on the table.

Here’s a simple, tax-aware sequence to help you make the most of every dollar.

Priority 1 — Capture Employer Free Money

Start with the easiest win.

If your employer offers a 401(k) or 403(b) match, make sure you’re contributing enough to get the full match. This is essentially a guaranteed return on your money.

There’s no investment strategy that consistently beats “free money,” so this should always be the first step.

Priority 2 — Maximize Your HSA (If Eligible)

If you’re eligible for a Health Savings Account, this is one of the most powerful tools available.

HSAs offer a rare triple tax benefit: you get a deduction when you contribute, tax-deferred growth, and tax-free withdrawals for qualified medical expenses.

One of the best ways to use an HSA is to treat it like a long-term investment account. Pay current medical expenses out of pocket if you can and let the HSA stay invested. Over time, it can grow into a dedicated, tax-free pool for healthcare in retirement, potentially covering one of the largest expenses you’ll face.

Priority 3 — Max Your Workplace Retirement Plan (Be Intentional)

Once you’ve captured the match and funded your HSA, the next step is maximizing your workplace retirement plan.

But this isn’t just about contributing more. It’s about contributing with a purpose.

• If you’re in a high tax bracket today and expect lower taxes in retirement, pre-tax contributions may make more sense

• If you expect similar or higher tax rates in the future, or want more flexibility, Roth contributions are worth considering

• If you’re unsure, many people benefit from a combination of both

If you’re over 50, don’t forget catch-up contributions. These can significantly increase your savings in the years leading up to retirement.

Priority 4 — Backdoor Roth IRA

For many high earners, direct Roth IRA contributions aren’t allowed due to income limits.

That’s where the backdoor Roth strategy comes in.

You make a non-deductible contribution to a traditional IRA, then convert it to a Roth IRA. Done properly, this creates more tax-free growth over time.

One important detail to be aware of is the pro-rata rule. If you already have pre-tax IRA balances, it can create unexpected taxes. In many cases, rolling those balances into a 401(k) first can help simplify the strategy.

Priority 5 — Mega Backdoor Roth (If Available)

If you've already maxed the standard 401(k) limit and your plan allows after-tax contributions, the mega backdoor Roth lets you go further.

You contribute after-tax dollars up to the overall IRS limit, then convert them to Roth, either inside the plan or by rolling to a Roth IRA.

Not every plan offers this feature, but if yours does, it’s a significant opportunity to build additional tax-free assets. Check with your HR or plan administrator.

Priority 6 — Taxable Brokerage Account

Once you’ve fully used your tax-advantaged accounts, a taxable brokerage account becomes your next layer.

This is where flexibility comes in.

You can access these funds at any time, and with the right approach, they can still be very tax-efficient.

Focus on:

• Low-cost, tax-efficient index ETFs

• Long-term investing to benefit from lower capital gains rates

• Tax-loss harvesting when appropriate

  
  

The most important factor here is consistency. Set a monthly contribution and automate it so investing happens without relying on willpower.

Priority 7 — Accelerated mortgage paydown or other goals

After your core investment strategy is in place, you can begin directing additional dollars toward other priorities.

For some, that means paying down a mortgage faster. For others, it may be saving for a second home, funding a business, or creating more lifestyle flexibility.

There’s no universal right answer. This decision depends on your interest rate, expected investment returns, risk tolerance, and personal preferences.

This should come after the accounts above are fully funded. Think of it as a values-based choice, not just a math problem.

How to Make This Work Even Better

The real value of this strategy isn’t just the order. It’s how everything works together.

A few key areas can make a meaningful difference over time:

Asset Location

Being thoughtful about asset location can improve your after-tax returns without changing your investment strategy.

• Place tax-inefficient investments like bonds and REITs in tax-advantaged accounts

• Hold tax-efficient index funds and ETFs in taxable accounts

Equity Compensation

If you receive equity compensation, it should be integrated into your plan, not treated separately.

• Create a simple plan for vesting events

• Track key dates and avoid last-minute decisions

• Align equity comp with your broader tax and investment strategy

Annual Tax Bracket Management

It’s also important to review your tax situation annually.

• Look for opportunities to do Roth conversions

• Harvest gains or losses strategically

• Use charitable strategies like donor-advised funds

Automation

Finally, automation is what brings everything together.

• Set contributions as a percentage of income so they grow with your earnings

• Automate transfers right after payday

• Pre-plan how raises and bonuses are allocated

This is where most high earners gain an edge. Not by doing more, but by doing the right things consistently and in the right order.

Final Thoughts

Most high earners are already doing the hard part. They’re earning well and saving consistently.

But following a clear savings order turns good habits into great outcomes.

The reason this matters is simple: taxes matter. Every dollar you keep is a dollar that continues working for you.

Over a 20- or 30-year career, that difference can be significant.

You don’t need a complicated system.

You need a consistent one.

Start with the match. Maximize your tax-advantaged accounts. Add Roth strategies. Then build flexibility through taxable investments.

Over time, that structure turns income into real, lasting wealth.

 - Steve Balch, CFP®

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