“Good things come to those who wait.” While this adage applies to many areas of life, from smoking a brisket to tending a garden, financial planning occasionally rewards the opposite approach. From college funding to healthcare planning to retirement savings, acting today instead of tomorrow can unlock meaningful long-term advantages.
In today’s blog, we break down 529 plans, HSAs, and Mega Backdoor Roths, highlighting both their advantages and the potential drawbacks every investor should understand before deciding if taking early action on these accounts is right for you.
Let’s get started.
529 Plans
A Section 529 plan is a state-sponsored savings vehicle designed for funding education expenses. A new parent, for example, might open a 529 account soon after a child is born to maximize the time available for growth before the funds are needed.
While 529 plans are most often used to offset the rising cost of traditional college, they can also be used for private K-12 education and vocational schooling.
When used for qualified education expenses, earnings grow tax-free. So why fund a 529 early in the year instead of waiting until December?
Because time in the market is one of the most significant drivers of long-term investment success: far more impactful than stock selection or timing the market. Take the S&P 500 as an example: in 2025, it returned around 17% for the entire year.
However, if someone waited to get into the S&P 500 until December 1, they would only receive about a 0.1% return, missing out on significant capital gains. While history is not an indicator of future success, the power of compounding (tax-free) interest could outweigh the potential risks of early investing.
Health Savings Accounts (HSAs)
An HSA, or Health Savings Account, is a long-term savings vehicle with a triple tax advantage:
- Contributions are made with pre-tax dollars
- Growth is not taxed
- Withdrawals are also not taxed (if used for qualified health expenses)
Eligibility is limited to individuals enrolled in a qualifying High Deductible Health Plan (HDHP), so these accounts are not available for everyone.
By contributing to one’s HSA early in the year, those tax savings from the contribution can be put to work throughout the year while the tax-free growth has more time in the market. If a significant health event occurs later in the year, the HSA remains ready and available, although it is typically preferred to allow the account to continue to grow for as long as possible.
Mega Backdoor Roth
The final strategy discussed here is a “mega backdoor Roth”, which takes place in one’s work-sponsored retirement plan: typically, a 401(k). Annually, the IRS places a limit on the total dollars that can be contributed into a 401(k) plan account: for 2026, this is $72,000.
Everyone has a maximum contribution that counts towards this amount (2026: $24,500). Additionally, an employer will usually match a set percentage of an employee’s income (typically 3-5%).
For this example, the employee is contributing the maximum amount ($24,500) and the employer is contributing $7,500 to their 401k plan as well, for a total contribution of $32,000. The employee can then choose to contribute an additional $40,000 (up to the max of 2026 of $72,000) of after-tax dollars to their 401k account.
By immediately converting the $40,000 to a Roth 401k account, the employee will be able to capitalize on the long-term tax-free growth advantages of a Roth IRA. Additionally, unlike most Roth conversions, a properly executed mega backdoor Roth conversion is a non-taxable event.
You can see a comparison chart for Roth 401(k), Roth IRA, and pre-tax 401(k) retirement accounts on the IRS website.
Downsides
Despite their advantages, these strategies are not without trade-offs. All three require sufficient cash flow and liquidity, which may limit flexibility in the event of an emergency.
Market volatility can also be challenging, especially for investors who may have a harder time trusting the process and struggle emotionally watching their investments go up and down.
Finally, these strategies are not for everyone: not every 401(k) plan allows for a mega backdoor, and many health insurance plans, including Medicare, do not allow for HSA funding.
We’re Here to Help
We would love to partner with you to determine what strategies are right for you, and when to implement them. If you have any questions raised by today’s blog, or your unique situation, contact us today.
