Saving for retirement can be very confusing because of how many options there are.
401(k) or IRA?
Traditional or Roth IRA?
HSA or IRA? What's going on?
(and if you have it figured out, please send this to someone who is perhaps earlier in their career or just needs a little more help)
Fortunately, there is a “correct” order of operations when it comes to retirement savings. You may not have access to all of the accounts but the order is clear.
Let's see what they are:
Read more:
- If you don't yet have a Roth IRA, you'll want to open one with the best Roth IRA administrators.
- Health Savings Accounts are a rare breed of account with triple tax benefits.
- If you need a brokerage account, some offer generous brokerage bonuses.
Contribute to a 401(k) up to the company match
If your employer offers a company match, you want to contribute as much as you can to get the maximum match. For example, if your employer will match your 401(k) contributions on up to 4% of your salary, you want to contribute the full 4%. This ensures you get the most “free money” you can into your 401(k). This applies to any similarly structured account, such as a 403(b).
You can contribute up to $23,500 into a 401(k) each year but you don't want to do that… yet.
Contribute to a Traditional or Roth IRA
Once you've maximize your employer match, look to contribute to an IRA. A traditional IRA is an account that lets you deduct contributions from your taxes but it grows tax free. You are taxed on your withdrawals in retirement. A Roth IRA does not let you deduct your contributions but it grows tax free and you are not taxed when you take withdrawals in retirement. You will have to check to see which is better for you but in most cases, it'll be the Roth IRA.
Contribute as much as you are allowed and the 2025 annual limit is $7,000. If you are 50+, you can contribute an additional $1,000 in what's known as a catch-up contribution. Depending on your income, you may be limited in how much you can contribute to a Roth IRA.
Contribute to a Health Savings Account
A Health Savings Account is available to individuals who have a high deductible health insurance plan. It's powerful in that it's meant for medical expenses but can also be treated as an investment account. As long as your insurance plan qualifies as high deductible, you can contribute into an HSA and take advantage of its powerful tax benefits.
Contributions to an HSA are done through a payroll deduction and thus pre-tax, much like a 401(k). It grows tax-free, again like a 401(k). Here's where it gets good – withdrawals are tax free if used for qualified medical expenses. If you reach 65 and still haven't used up the HSA, then it behaves just like an IRA. It's a great account if you are eligible and lucky enough not to need the money.
Contribute the maximum to a 401(k)
Once you've funded an IRA and an HSA, assuming you are eligible, continue to contribute to a 401(k) until you reach the annual limit of $23,500 (in 2025). This limit is quite high for most Americans and if you are doing this each year, you're going to be in very good shape.
Contribute to a taxable brokerage account
If you have funded everything up to this point, you will be set up for as comfortable a retirement as possible. If you wish to save even more, your only option at this point is to put it into a taxable brokerage account. Now you're simply investing and there are no tax benefits related to retirement with a regular brokerage account.
