The Optimal Contribution Order

This is the sequence that most financial planners agree on. Follow these steps in order to get the most from every retirement dollar.

1

401k up to the employer match

Enough to get full match

This is non-negotiable. If your employer matches 50% of contributions up to 6% of salary, contribute exactly 6%. You get an immediate 50% return. Nothing else in personal finance reliably beats this. Even if the fund choices in your 401k are bad, the match makes it worth doing first.

Example: $75,000 salary, 50% match up to 6% = contribute $4,500, get $2,250 free. Do this before anything else.

2

Max your Roth IRA ($7,000/yr)

$7,000 (2025), income limits apply

After the match, the Roth IRA is the next best account. You pay taxes now and never pay taxes again on that money - no matter how large it grows. The investment options are unlimited (any ETF at Fidelity, Vanguard, Schwab). Fees are minimal. No required distributions. The flexibility and tax-free compounding make this the second priority.

Example: Open a Roth IRA at Vanguard, invest in VTI or a target-date fund. Contribute $583/month or a lump sum up to $7,000.

3

Back to 401k up to the max ($23,500)

$23,500/yr (2025)

After maxing the Roth, go back to your 401k and contribute up to the $23,500 annual limit. The tax deduction on contributions reduces your taxable income today. If you expect to be in a lower tax bracket in retirement than you are now, pre-tax 401k contributions are valuable.

Example: After 6% for the match and $7,000 to Roth, increase 401k contributions to use up the remaining $23,500 limit.

4

HSA if you have an eligible high-deductible plan ($4,150 individual)

$4,150 individual, $8,300 family (2025)

The HSA has a triple tax advantage: contributions are deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. If you invest the HSA and pay medical expenses out of pocket (keeping receipts), it becomes the most tax-efficient account available. After 65 you can withdraw for any reason with just income tax - same as a traditional 401k.

Example: Max HSA contributions, invest in low-cost index funds, pay medical bills from checking, reimburse yourself from HSA years later.

5

Taxable brokerage account for anything left

No limit

Once all tax-advantaged accounts are maxed, a regular brokerage account is the next option. You get no upfront tax benefit and pay capital gains tax, but long-term capital gains rates are lower than income tax rates, and you have full flexibility.

Very few people reach this step before 40. If you do, you are in good shape.

High-interest debt exception

Before step 2 (Roth IRA), if you have credit card debt at 15%+, pay it off first. A guaranteed 15-20% return from eliminating debt beats expected 7-10% market returns. The only exception is step 1 - always get the employer match regardless of debt, because a 50% instant return beats even 20% credit card interest.