Maximizing Your Investments While Minimizing Taxes: A Comprehensive Strategy by John Liang.

John Liang, a financial creator, suggests a tax-efficient strategy for investing. Prioritize saving in an emergency fund, max out your employer match, pay off high-interest debt, fund a health savings account, and finally, invest in retirement accounts, such as a 401(k). By following this order, you can minimize taxes and maximize growth.

John Liang, a prominent financial creator, offers a practical and tax-efficient strategy for investors aiming to grow their wealth while minimizing taxes. His approach emphasizes a specific order of investments to maximize returns and reduce taxable income.

Liang suggests starting with an emergency fund, a high-yield savings account that covers one month’s worth of expenses. This serves as a safety net, preventing the need to withdraw money from other investments during emergencies [1].

Next, Liang recommends maxing out your employer’s 401(k) match. Contributing at least the amount your employer matches can provide a 100% return on investment, as it offers tax-deferred growth. If your employer matches 6% of your salary, contributing that amount is a smart financial move [1].

High-interest debt, such as credit card debt, is the next priority. Liang advises paying off debt with high interest rates first, using methods like the debt avalanche or snowball. This helps to reduce financial anchors that hinder long-term growth [1].

Funding a Health Savings Account (HSA) is the next step. The money in an HSA is triple tax-advantaged—contributions aren’t taxed, the money grows tax-free, and withdrawals for qualified medical expenses are tax-free [1]. Liang recommends paying medical costs out of pocket and reimbursing yourself from the HSA later, allowing the money to grow tax-free.

Liang then suggests maximizing retirement accounts, such as a traditional 401(k)/IRA or a Roth IRA/401(k), depending on your tax situation. Traditional options defer taxes, while Roth options offer tax-free growth. Liang leans towards traditional 401(k)s to reduce current-year tax liability [1].

Paying off medium-interest debt, such as auto loans and federal student loans, is the next step. If the interest rate is higher than market returns, paying down this debt may offer a better risk-adjusted payoff than investing [1].

Investing in a taxable brokerage account is the final step. Liang prioritizes low-cost broad-based index funds, such as the Vanguard Total Stock Market Index Fund ETF (VTI), the Vanguard S&P 500 ETF (VOO), or the Vanguard Total International Stock Index Fund ETF (VXUS). He advises avoiding flashy trading apps that encourage excessive activity [1].

By following this order, investors can minimize taxes and maximize growth. This strategy is particularly beneficial for high-income earners, as it can significantly reduce taxable income while generating attractive returns. A New York resident earning $2,000,000 annually can reduce their taxable income by $600,000 in the first year, saving approximately $285,000 in taxes [2].

For investors seeking professional guidance, consulting a Certified Financial Planner is recommended. This ensures that financial decisions are tailored to the investor’s unique situation and align with their long-term financial goals.

References:
[1] https://finance.yahoo.com/news/best-way-invest-money-avoid-142536230.html
[2] https://due.com/smart-tax-reduction-and-investment-return-strategy/