Most people who save across multiple accounts get there by figuring things out as they go: a 401(k) here, an IRA there. It’s meaningful progress, but how to prioritize retirement accounts is rarely examined. That sequence is a big factor in determining how much of your money compounds without tax drag, which means it can be as important to your long-term retirement planning as the amounts you’re saving.
For most people, there’s room to improve it. Getting the funding order right can meaningfully improve your retirement plan’s long-term outlook, though how much it helps depends on your tax situation, plan rules, and financial circumstances.
Bruce Lorenz, a CFP® professional and Boldin Advisor, uses an account contribution framework to show how the order of contributions across account types affects your tax exposure and ultimately your plan health. Here’s how it works.
What’s the Optimal Contribution Order for Retirement Accounts?
The contribution order for retirement savings and investments is the sequence in which you fund different account types to maximize growth and minimize tax drag over time. For most people, an optimized order looks like this:
- 401(k) or 403(b) – up to the employer match
- Health Savings Account (if you have a high-deductible health plan)
- Individual Retirement Account (Roth IRA or traditional IRA)
- Taxable brokerage account
Your tax situation, income, and near-term goals all affect how closely the above sequence applies to you. It’s “not a rulebook,” Bruce notes.
Each account type has its own tax treatment and withdrawal rules, and those differences have long-term implications for your plan. The order in which you fund them determines how much of your money compounds without tax drag.
“Our goal isn‘t to use every account,” Bruce says. “It’s to use the right accounts in the right order.”
Why Does the Employer Match Come First?
The employer match on a 401(k) or 403(b) comes first in the account contribution order because it delivers an immediate return. This match is usually something like dollar-for-dollar or 50 cents on the dollar up to a set threshold. It’s the only step where your money earns a return before it has done anything at all.
“You want to make sure and capture the employer match,” Bruce says. “That’s the closest thing to a guaranteed return that you can have.”
That said, 401(k) withdrawals before age 59½ typically trigger a 10% penalty on top of ordinary income tax, with limited exceptions for circumstances like disability or certain hardship situations. The money is meant to stay put.
Your plan documents will tell you the contribution level that unlocks the full match. If there’s room to close that gap, it’s one of the most direct improvements you can make.
Exceptions worth noting: If you’re carrying high-interest debt, such as credit card balances and high-rate private loans at 15% or higher, paying that down first often makes more sense than funding accounts beyond the match. And if your employer doesn’t offer a match, the case for leading with a 401(k) weakens. An IRA may offer you better investment options at a lower cost.
Why the HSA Is Actually a Stealth Retirement Account
For those who qualify, the Health Savings Account (HSA) is one of the most overlooked tools in a retirement plan, offering a rare triple tax advantage:
- Contributions reduce your taxable income.
- Growth inside the account is tax-free.
- Withdrawals used for qualified medical expenses are also tax-free.
“The HSA can be a stealth retirement account,” Bruce says, “and if used correctly, can be the most tax-advantaged account you own.” That holds most clearly for people who can pay current medical expenses out of pocket, invest the HSA balance, and let it grow over a long time horizon.
The best practice is to resist the temptation to use HSA funds for current expenses. That money can often be invested in mutual funds, stocks, or ETFs once a minimum balance is met.
“Pay your current out-of-pocket expenses from other cash, other funds, outside of the HSA,” Bruce explains. “Let the HSA grow tax-free for long-term growth.”
The IRS sets HSA contribution limits each year. The 2026 contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, with a $1,000 catch-up contribution for eligible people 55 and older. Tax rules and limits change, so confirming current figures with a tax professional is a good step before deciding on contributions.
Withdrawing HSA funds for non-qualified expenses before you’re 65 generally triggers a 20% penalty in addition to income tax. There’s no penalty after 65, but ordinary income tax still applies to non-qualified withdrawals. Qualified medical expenses avoid both.
Do You Contribute to a Roth IRA or a Traditional IRA?
Picking a Roth or traditional IRA depends on how much you currently pay in taxes compared to what you expect to pay in retirement. If you think your taxes will climb later, a Roth makes sense because you pay taxes on contributions and owe nothing on qualified withdrawals. If you’re in peak earning years and expect your income to drop, a traditional IRA lets you take the deduction now and pay taxes on withdrawals later.
But it’s common to have both a Roth and a traditional IRA, and investors may contribute to either option at various times. Holding assets in both lets you withdraw from the account that’s more advantageous at a given time, giving you flexibility to manage your tax exposure in retirement. (Both account types carry a 10% early withdrawal penalty before you’re 59½, with some exceptions.)
“Go check to see what your marginal tax bracket is, and then do some planning,” Bruce says. The Boldin Planner can help you do exactly that, projecting where your bracket is headed so you can make the call with more confidence.
What’s a Taxable Brokerage Account and When Should You Use One?
A taxable brokerage account is where savings go once you‘ve maxed your tax-advantaged options, and where money belongs when you might need it before retirement. It has no contribution limits and no restrictions on when or how you withdraw your money, giving it flexibility that 401(k)s and IRAs lack.
The tradeoff is that investment gains are taxed. Bruce suggests looking at low-cost ETFs to help keep tax drag down, and he cautions against frequent trading, which generates short-term gains taxed at ordinary income rates. “We want to avoid frequent trading because the taxes can eat away our returns,” he says.
A taxable brokerage account has no early withdrawal penalties, which makes it a good place for money you might need before retirement age, depending on your risk tolerance and time horizon. Investment values can fluctuate, and selling at a loss or generating taxable dividends are real possibilities to factor in.
When Should You Adjust Your Account Contribution Order?
A few situations call for stepping outside the contribution waterfall’s default sequence, and recognizing when to do that is part of having a plan that actually fits your life.
Your cash reserves are low
The waterfall assumes you have a stable emergency fund underneath it. If your savings cushion is low, or your income varies month to month, it’s worth pausing contributions beyond the employer match and building up cash reserves first.
“Perhaps you have a variable income,” Bruce says, “and so you need to have a little more cash on hand because of the variability in your earnings.” Once that cushion is in place, you can resume the sequence.
You have a near-term spending goal
Money you’ll need in the next two to five years for big projects and life events is often better kept in a high-yield savings account rather than a tax-advantaged retirement account. The tradeoff is lower potential return, but the liquidity and stability tend to be worth it for near-term goals, giving you more flexibility when you need it.
Your tax bracket changes the Roth vs. traditional decision
If your income changes significantly, it can flip which type of IRA contribution makes more sense. A year in a lower bracket is often a good time to lean toward Roth, while a peak earning year may favor traditional pre-tax contributions. This applies to both your IRA and any Roth 401(k) option your employer may offer.
The right sequence is personal, and it will likely evolve. “There is no one perfect answer for everyone, but there is a thoughtful process,” Lorenz says. “And that process and that answer may change in five years, and that’s okay. That’s not a mistake. It’s just good planning.”
How to Model Contributions in the Boldin Planner
A few minutes in the Boldin Planner can help show you whether the sequence of your account contributions is costing you, and what a more effective one might look like. Open the Planner and run a contribution scenario to see different strategies side by side and visualize the projected impact on your income and tax liability.
“Try adding a dollar to a brokerage account. Try adding a dollar to your 401(k),” Bruce suggests. “Use the scenario tool within the Boldin Planner and see what the differences are.”
Pairing that with your HSA account, Social Security projections, RMD schedule, and the Roth Conversion Explorer can help you see which accounts to prioritize at different stages of your plan, and where the sequencing decisions have the biggest long-term impact.
Your next dollar is already working for you. Getting the order right can help it work harder.
This article is for educational purposes and does not constitute individualized financial, tax, or investment advice. Outcomes depend on individual tax situations, plan rules, market performance, and other circumstances. Consult a qualified financial or tax professional before making changes to your contribution strategy.