Tip of the Week

On the Way to Financial Freedom When Beginning a Career

The array of choices for investing and paying down debts can seem overwhelming to recent college graduates. However, there is a clear order to follow. This rank ordering is the most tax-efficient financial moves an employee should make when beginning a career:

First, enough should be contributed to a 401(k) [or equivalent employer-sponsored retirement account—403(b), 457, thrift savings plan (for federal government employees)] to get the maximum employer match. Also, if the individual has high-deductible health insurance, they should contribute the maximum allowable to an HSA.

Next, high-interest-rate debts (e.g., most credit cards) should be paid off in order, starting with the highest after-tax interest rate.

Next, contributions should be made to a Roth IRA ($6,000 is the maximum allowable for 2020 if under age 50), but only up to the amount necessary to meet potential emergency needs.

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