Financial Order of Operations (FOO)

Once you have an emergency fund, every additional dollar you save faces a choice: 401(k), IRA, HSA, taxable brokerage, or somewhere else? The Financial Order of Operations (Bo Hanson & Brian Preston, *The Money Guy Show*) answers that in a fixed sequence that captures every ounce of tax-advantaged space in priority order.

**The 9 steps, in order:**

**Step 1 — Cover deductibles.** Enough cash on hand to pay health / auto / home insurance deductibles without going into debt. Typically $1,000–$5,000.

**Step 2 — Get the employer match.** Contribute to 401(k) / 403(b) / SIMPLE / 457 up to the full employer match. See the dedicated option — nothing beats this rate of return.

**Step 3 — Pay off high-interest debt.** Anything above ~7–8% (credit cards, payday loans, personal loans, private student loans at high rates). Use the avalanche method (highest rate first) or snowball (smallest balance first — Ramsey's preference for motivational reasons).

**Step 4 — Fully-funded emergency fund.** 3–6 months of essential expenses in a HYSA. See the dedicated option.

**Step 5 — Max the HSA (if HDHP-eligible).** The HSA is the only account that is triple-tax-advantaged: deductible on the way in, tax-free growth, tax-free withdrawals for qualified medical expenses. 2025 limits: $4,300 self-only / $8,550 family. 2026 limits: $4,400 self-only / $8,750 family. Catch-up $1,000 at 55+. See the dedicated option.

**Step 6 — Max the Roth IRA (or Backdoor Roth if over MAGI cap).** 2025 limit: $7,000 ($8,000 at 50+). 2026 limit: $7,000 ($8,000 at 50+). Direct contribution MAGI phaseout: $150k–$165k single / $236k–$246k married for 2025 (2026 indexed). See the Roth IRA basics option.

**Step 7 — Max the 401(k) / 403(b) above the match.** Employee elective deferral limit: $23,500 for 2025, $24,000 for 2026 (+$7,500 catch-up 50+, +$11,250 super-catch-up age 60–63 under SECURE 2.0).

**Step 8 — Hyper-accumulation.** 25%+ of gross income into wealth-building. Options: taxable brokerage (three-fund / target-date / direct indexing), Mega Backdoor Roth if plan allows, after-tax 401(k) conversions, 529 for kids, I-bonds, rental real estate.

**Step 9 — Prepaid future expenses.** 529 plans for kids, paying down mortgage principal, UTMA / UGMA, charitable contributions. Applies once steps 1–8 are handled.

**Why the order matters:** higher-priority steps have **tax advantages that cannot be recovered later**. Skipping a year's Roth IRA contribution doesn't come back. Skipping the HSA loses the triple-tax-advantage window for that year's medical spending. The 401(k) match skipped this pay period is gone. Taxable brokerage, by contrast, is available any year.

**Intermediate case — student loans + low-interest mortgage:** the FOO doesn't push extra-payment on debt below ~7–8%. A 4.5% mortgage or a 5% federal student loan is treated as capital-productive — the expected return from investing the same dollar in a low-cost index fund (~7% real, long-run) exceeds the interest savings. Extra mortgage payments land in step 9, not step 3.

**Where to shortcut — employer HSA + Mega Backdoor shortcuts:** if your employer's 401(k) supports in-service non-hardship withdrawals or Roth conversions of after-tax contributions ("Mega Backdoor Roth"), step 7 can extend to the 415(c) combined limit ($70k for 2025 / $71k for 2026) with after-tax contributions. High-income earners stuck at step 7 should check their SPD for this feature — see the Mega Backdoor additional option (future session).