Moving forward from our Nexus Article, we last covered broad based index funds and the compounding power that they provide. Next, I want to talk about the rest of the investing order as it doesn’t cover any new concepts, just gives the mathematical priority to your money.

One thing I do want to call out before advancing, as it relates to the previous article on picking funds. My son recently started mowing a Grandparent’s lawn for $20 a week. We talked about how the minimum savings rate a person should aim for is 50%. Now he’s gung-ho on buying more Coka-Cola stock, but with his fractional share $10 we went over the S&P 500 calculator. Using the historical return rate of 7% and “normal” retirement age. If he continued to put just $10 a week into it he would have $211,000 in 50 years.

Then we did it with the 2026 401k contribution limit of $24,500. It was $10 million. That’s with no other contributions, just time, the index, and the 401k. You could actually hit $1 million at 19 years of the compounding.

Now I understand that many 18-30 year olds aren’t going to be able to put $24,500 into their 401k in a year, but time is money. Time in the market is the most vital component to wealth generation. Then it’s diversification. Index funds allow you to do both.

The Rest of the Investing Order

I want you to pay special attention to #4 and #8. Debt repayment is a very important part of saving. It is a key component in building your wealth. The cashflow you get back when a debt is cleared is money you are already used to not having and it can easily flow into retirement accounts and investments.

Emergency Funds are complete, 401k Match is complete. Debt over 9% interest is tackled, so what are the HSA and FSA? These are special healthcare and childcare related accounts that come out of your paycheck before ALL taxes including FICA (Social Security and Medicare) [Reference our Intro to Taxes Article]. There are two kinds of FSA. The first is Medical and the second is childcare/daycare related. Flexible Spending Accounts are designed to save you a bunch of money on taxes for necessary expenses. These are use it or lose it funds in the year, though in recent times a very small rollover portion has been allowed.

The HSA on the other hand is strictly for medical expenses, but it has one of the most amazing things ever. It can be invested into Index Funds. It comes out of your paycheck completely free of taxes, grows free of taxes, and can be used on medical expenses without ever getting taxed on that money. Even better, is that if you keep solid photocopies of your medical bills you can reimburse yourself out of the HSA for medical expenses that occurred years prior (but had to be years in which you had owned the HSA account). So imagine adding $8,000 a year to the S&P 500 for 30 years and then reimbursing all the medical bills you paid out of pocket from that HSA account when you are 65. That’s $800,000 with the growth. Hopefully well above the expenses you incurred in medical bills.

Moving on to #6, I do a pretty in depth IRA discussion here, but basically an IRA is a bucket you can put your retirement money into that gives you complete control. You can use lowest fee brokers like Vanguard, or get 3% matching from Robinhood. A traditional one you save taxes on now, and a Roth one you pay taxes now so that 100% of the growth is tax free when you take it out.

The choice between Roth and Traditional mainly comes down to taxes. If your tax burden is low you want a Roth because the Traditional isn’t saving you much money. If your income is high you can’t deduct a traditional anyway and you have to use a Roth, and if you’re income is really high you can’t even use a Roth and can only contribute to a Traditional as a non-deductible contribution. To phase out tIRA deductions takes $81,000 MAGI for a single person, then $91,000 to not be able to deduct any portion. Married it takes $129,000 – $149,000. To be unable to fund a Roth in 2026: Single $153,000 – $168,000, MFJ $242,000 – $252,000.

Due to the amount of control that you have on your own IRA and its reduced fees, that’s the reason the IRA supersedes capping the 401k. With one exception, because when you’re trying to keep as much money as possible in your own pockets and out of the government’s of course there are exceptions. That pesky MAGI number. Modified Adjusted Gross Income. See 401k contributions are considered ‘Above the Line’ deductions so they actually reduce your MAGI. If you’re a single person pushing that $81,000 or $153,000 line, capping your 401k can push you below those numbers so that you can fully deduct the tIRA or fully contribute to a Roth. The range on those numbers above means only a portion of contributions are allowed in those brackets. Also those deductible IRA numbers fall into the 22% bracket while the Roth limits fall into the 24% bracket.

If you’re income is in those ranges it is highly recommended to swap the 401k with the IRA in order to maximize those benefits.

Fun Fact: If you’re in the 22% bracket with a fully deductible IRA. Capping your 401k and your IRA in 2026 – ($24,500 + $7,500 =$32,000) – saves you $7,040 in federal taxes alone. Which pretty much allows the IRA to fund itself from your tax savings.

It also takes $87.67 a day to cap both of those in a year, but the IRA would only take $20.55 per day to cap for the year.

The last two involve paying off debt over 4%, which for most people would be pretty much anything besides their mortgage, and then putting the rest of your available spending money into a taxable brokerage account. This is just a normal account that you can buy the exact same funds that are in your retirement accounts, except you can sell it and withdraw it if needed, or let it compound for decades.

I hope this section of the Series has been helpful in starting, or growing your understanding of Wealth, and all things Finance.

~~Miniwing~~
Investor, Stoic, Parent