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Max out the tax deferred.
Is he relatively healthy? If so, pick an HDHP insurance plan, max out an HSA, and invest the funds
What does “fundamentally shift you down a bracket mean”?
He has no need for emergency fund but does have liquid money in his brokerage acct. I’m thinking more in the Roth to take advantage of the low tax bracket
*sounds like parents are the emergency fund 😉
Are you managing your son’s money? I’d say he should be the one asking and learning about these things if the goal is for him to make intelligent financial decisions. Always good to help at the start though
He should be putting most of it in HYSA and investments.
I was going to say max out HSA too. A lot of people forget about that as an option. More in 401k is also a good idea.
Subject Expert
In that situation I would be putting a lot into the Roth 401k.
I am not managing his money but he does like to discuss finances with me
What I do, and my suggestions.
1. Roth 401k up to match
2. Max out Roth IRA
3. Max out Roth 401k and convert the company’s match (probably in traditional funds, convert to Roth in the 401k - some employers allow this conversion online and for others you have to call to do this) - you’ll need to pay tax on this
4. If generally healthy, consider high deductible health plan and max out HSA but pay cash for medical expenses-keep good receipts of expenses. Invest HSA account and let it grow. You can always repay yourself for past medical expenses from your HSA at any point-no time limit, you can even repay yourself in 30 years tax free. This is my own personal long term care plan. If you never use this $ and want to take money out for non-medical expenses after age 65, you just have to pay tax on it but there are no RMDs.
5. If company allows, contribute after tax money into 401k and move it into Roth 401k (mega backdoor Roth) - I suggest reading up on this if interested. The aggregate limit of 401k contributions+match+after tax contributions is $70k for 2025. There are tax implications to be aware of.
I’m 95% Roth with many traditional to Roth conversions, back door and mega back door roth’s behind me. Also have a good, invested HSA. Primary reason for Roth - I don’t want to mess with forced RMDs in the future for an account balance that has grown and I’m paying tax when I just want to enjoy the money I want when I want - tax free.
Lots of philosophies out there, this is my approach.
Does he have an emergency fund set up or otherwise any need for the money in the short to medium term? If it’s long-term money, I’d recommend putting more into Roth 401k
Is your son interested in buying property anytime soon? If so it might be good to mix some brokerage in addition to the HSA and retirement recommendations. Start saving for that down payment.
He should be maxing 401k at $26500 if he can. At his age all equities. 60% US/ 30% international and 10% emerging.