Which Retirement Account Should You Fund First?
With 401(k)s, IRAs, HSAs, and Roth options competing for your dollars, the order you fund them matters. Learn the prioritization framework that maximizes every tax-advantaged dollar.
The order you fill your retirement accounts matters as much as what you put in them.
— FinanceWonk
Retirement accounts are tax-advantaged investment vehicles—including 401(k)s, IRAs, and HSAs—that let your money grow while reducing your tax burden, either now or in the future.
1. There’s an optimal order to fund accounts. The priority stack—match, HSA, Roth, max 401(k), taxable—maximizes every dollar’s tax efficiency. Following this sequence can add tens of thousands to your retirement balance compared to random allocation.
2. Your employer match is a guaranteed 100% return. Before optimizing anything else, capture every dollar your employer will give you. Missing the match is leaving compensation on the table—money you’ve already earned.
3. The HSA is the most powerful retirement account most people ignore. With tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses, the HSA is the only account with a triple tax advantage. After 65, it functions like a traditional IRA for any purpose.
4. Roth vs. traditional depends on your tax trajectory. If you expect higher taxes in retirement, favor Roth. If you’re in a high bracket now but expect lower income later, traditional wins. Most people benefit from having both.
$23,500
2025 401(k) Limit
$1,336/yr
Avg. Match Left Unclaimed
3
HSA Tax Advantages
$70,350
Max Tax-Advantaged Space
What Is It — 401(k), IRA, HSA, and the Priority Stack
Think of retirement accounts like a series of buckets with different-sized holes in the bottom. Each bucket represents a different tax treatment, and the holes represent taxes draining your returns. A regular brokerage account has a big hole—capital gains taxes, dividend taxes, and income taxes all leak out continuously. Retirement accounts plug some or all of those holes, letting more of your money stay in the bucket and compound over decades.
The challenge is that each bucket has a limited capacity (contribution limits), different rules about when you can add money (income limits), and different rules about when you can take it out (withdrawal rules). Your job is to fill them in the right order to keep the maximum amount of money working for you.
The Two Tax Philosophies: Now or Later
Every retirement account falls into one of two camps: traditional (tax-deferred) or Roth (tax-free growth). The difference comes down to when you pay taxes on the money.
Traditional (Tax-Deferred)
Contribute pre-tax dollars today. Your money grows tax-free. Pay income tax when you withdraw in retirement.
$10,000 contribution at 24% bracket
$2,400 tax savings now
Taxed as income when withdrawn
Roth (Tax-Free Growth)
Contribute after-tax dollars today. Your money grows tax-free. Withdrawals in retirement are completely tax-free.
$10,000 grows to $76,123 over 30 years
$66,123 tax-free gains
At 7% annual return, no taxes ever owed on growth
Neither approach is universally better—the optimal choice depends on whether your tax rate is higher now or will be higher in retirement. We’ll cover that decision framework in Section 4.
The Account Lineup
401(k) / 403(b) / 457 — Employer-sponsored plans with high contribution limits ($23,500 in 2025). Most offer an employer match, which is free money. Available in traditional and Roth versions. The 401(k) is the workhorse of retirement savings for W-2 employees.
Traditional IRA — Individual retirement account with a $7,000 annual limit (2025). Contributions may be tax-deductible depending on your income and whether you have a workplace plan. Good for people without 401(k) access or as a supplement.
Roth IRA — The most flexible retirement account. Contributions can be withdrawn anytime without penalty. No required minimum distributions. Income limits apply ($150,000 single / $236,000 married in 2025 for full contribution), but the “backdoor Roth” provides a workaround for high earners.
HSA (Health Savings Account) — Technically a health account, but it’s the best retirement account in disguise. Requires a high-deductible health plan. Triple tax advantage: deductible contributions, tax-free growth, tax-free withdrawals for medical expenses. After 65, withdrawals for any purpose are taxed like a traditional IRA—but medical withdrawals remain tax-free forever.
The HSA Secret
If you can afford to pay medical expenses out of pocket today, you can let your HSA grow for decades and reimburse yourself later—even 30 years later—for any qualified expense you paid after opening the account. Keep your receipts.
Why the Order Matters
Not all tax-advantaged dollars are created equal. An employer match is an immediate 50-100% return before your investments earn a penny. An HSA’s triple tax advantage beats a 401(k)’s double advantage. A Roth IRA’s flexibility and tax-free growth often beats traditional contributions for people early in their careers.
The priority stack isn’t about picking one account—it’s about filling them in sequence to extract maximum value from every dollar you save. Think of it as a waterfall: each level fills up before spilling over to the next.
The Biggest Mistake
Many people max out their 401(k) before contributing to an HSA or Roth IRA, leaving better tax advantages on the table. Others skip the employer match entirely to pay down low-interest debt. The priority stack prevents these costly errors.
How It Works — Tax Advantages, Limits, and Matching
The priority stack is a decision framework that tells you where to put your next dollar of retirement savings. It’s not about picking one account—it’s about filling them in the right sequence to maximize tax efficiency at every level of savings.
The Priority Stack (in order)
2025 Contribution Limits at a Glance
| Account | Under 50 | 50+ Catch-Up | Tax Treatment | Withdrawal Rules | RMDs? |
|---|---|---|---|---|---|
| 401(k) / 403(b) | $23,500 | $31,000 | Pre-tax or Roth | 59½ (10% penalty before) | Yes, starting at 73 |
| Traditional IRA | $7,000 | $8,000 | Pre-tax (if deductible) | 59½ (10% penalty before) | Yes, starting at 73 |
| Roth IRA | $7,000 | $8,000 | After-tax (tax-free growth) | 59½ for earnings; contributions anytime | No |
| HSA | $4,300 / $8,550* | +$1,000 (55+) | Pre-tax in, tax-free out (medical) | Anytime for medical; 65 for other | No |
*HSA limits: $4,300 individual / $8,550 family coverage (2025). Catch-up is $1,000 for ages 55+.
Case Study: Sarah’s $120K Salary
Sarah earns $120,000 and wants to maximize her retirement savings. Her employer matches 50% of 401(k) contributions up to 6% of salary. She has a high-deductible health plan with family coverage. Here’s how she applies the priority stack:
Sarah’s Optimal Allocation
- • Step 1: 401(k) to match — $7,200/yr (6% of salary)
- • Employer adds: $3,600/yr (free money)
- • Step 2: Max HSA — $8,550/yr (family)
- • Step 3: Max Roth IRA — $7,000/yr
- • Step 4: Additional 401(k) — $16,300/yr
Total annual contribution:
$42,650
Plus $3,600 employer match = $46,250 total
Common Mistake: Max 401(k) First
- • Puts full $23,500 in 401(k)
- • Gets $3,600 match (same)
- • Skips HSA entirely
- • Has $15,550 left for taxable
- • Misses triple tax advantage
Lost tax advantage over 30 years:
~$47,000
From forgoing HSA’s third tax benefit
Practical Takeaway
The priority stack isn’t about saving more money—it’s about making the same savings work harder. Sarah contributes the same total either way, but the optimal allocation could mean $50,000+ more at retirement.
The Roth vs. Traditional Decision
Within your 401(k) and IRA, you often choose between traditional (pre-tax) and Roth (after-tax) contributions. The math depends on comparing your tax rate now to your expected tax rate in retirement.
Favor Traditional When...
You’re in a high bracket now (32%+), expect lower income in retirement, live in a high-tax state you plan to leave, or need the current-year tax deduction.
Favor Roth When...
You’re in a lower bracket now (22% or below), early in your career with rising income, expect higher taxes in the future, or want tax-free income flexibility in retirement.
The Hedge Strategy
Contribute to both traditional and Roth accounts to diversify your tax exposure. This gives you flexibility to manage taxable income in retirement regardless of future tax rates.
When It Doesn’t Matter
If your tax rate is identical now and in retirement, traditional and Roth produce the same after-tax result. The tiebreaker: Roth has no RMDs and more flexibility.
Self-Employed? Your Options Are Even Better
If you have self-employment income, you can access accounts with dramatically higher limits:
Solo 401(k) — Contribute as both employee ($23,500) and employer (25% of net self-employment income), up to $70,000 total in 2025. Best for high earners with no employees.
SEP IRA — Contribute up to 25% of net self-employment income, max $70,000 in 2025. Simpler than Solo 401(k) but only allows employer contributions.
SIMPLE IRA — Lower limits ($16,500 employee + 3% match) but simpler to administer with employees. Best for small businesses with staff.
What It Means for You — The Optimal Funding Order
You can’t control market returns or future tax policy, but you control how you allocate your savings across accounts. These four levers determine whether your retirement contributions work at maximum efficiency.
1. Capture the Full Employer Match
This is a guaranteed 50-100% return before your investments earn anything. If your employer matches 50% up to 6%, contribute at least 6%. Anything less is declining free compensation.
2. Maximize Your HSA If Eligible
The HSA’s triple tax advantage—deductible contributions, tax-free growth, tax-free medical withdrawals—beats every other account. If you have a qualifying HDHP, max this before adding to your 401(k) beyond the match.
3. Choose Roth vs. Traditional Intentionally
Base this on your tax trajectory, not habit. Early career with lower income? Favor Roth. Peak earning years in a high bracket? Favor traditional. Uncertain? Split contributions between both.
4. Increase Your Rate by 1% Each Year
Most people can absorb a 1% increase without noticing. Going from 6% to 15% over nine years could add $300,000+ to your retirement balance versus staying at 6%.
Reality Check: The Limits of Tax-Advantaged Space
High earners sometimes assume they can shelter unlimited income in retirement accounts. In reality, combined contribution limits cap out around $70,000 per year for most W-2 employees (401(k) + IRA + HSA at max, including employer contributions). Once you’ve filled all tax-advantaged buckets, a taxable brokerage account is your only option—and that’s not a bad problem to have.
The other reality check: income limits. Roth IRA contributions phase out at $150,000 single / $236,000 married (2025). Traditional IRA deductions phase out if you have a workplace retirement plan and earn above $79,000 single / $126,000 married. High earners often need the “backdoor Roth”—contributing to a traditional IRA, then immediately converting to Roth—to access Roth benefits.
The “I’ll Catch Up Later” Trap
Catch-up contributions after 50 add only $7,500 to your 401(k) limit. That’s helpful, but it can’t compensate for skipping contributions in your 20s and 30s. Someone who contributes $500/month from age 25-35 and then stops will have more at 65 than someone who contributes $500/month from age 35-65. The early dollars have 10 extra years to compound.
Pro Tip: Automate the Priority Stack
Set up automatic contributions in priority order. First, set your 401(k) contribution to at least the match percentage. Then set up automatic monthly transfers to your HSA (max divided by 12). Then to your Roth IRA. Finally, increase your 401(k) contribution rate. By automating, you follow the priority stack without monthly decision fatigue.
What If You’re Starting Late?
If you’re in your 40s or 50s and haven’t saved much, the priority stack still applies—but urgency increases. You have less time for compounding, so every dollar needs to work as hard as possible. Max every tax-advantaged account you can. Take full advantage of catch-up contributions after 50 ($7,500 extra for 401(k), $1,000 extra for IRA, $1,000 extra for HSA after 55).
More important than the accounts: increase your savings rate dramatically. Someone at 50 with $100,000 saved who increases their savings rate to 25% of income can still build a meaningful retirement fund. The accounts optimize what you save; they can’t create savings from nothing.
What If You Don’t Have a 401(k)?
If your employer doesn’t offer a 401(k), your stack is simpler: HSA (if eligible), Roth IRA, Traditional IRA, taxable brokerage. Your total tax-advantaged space is more limited, so each dollar matters more. If you have any self-employment income—even from a side gig—consider opening a Solo 401(k) or SEP IRA to access higher limits.
The Bottom Line
Follow the priority stack: match first, then HSA, then Roth IRA, then max your 401(k), then taxable. This sequence ensures that every dollar you save gets the best available tax treatment. The accounts you choose matter as much as how much you contribute—optimizing both is how you build real wealth.
Try It Out — Map Your Account Strategy
Now that you understand the priority stack, put it into action. Enter your income, employer match details, and current contributions to see exactly how to allocate your retirement savings for maximum tax efficiency.
Quick Start Calculator
Projected Balance at 65
$1,394,374
Over 35 years
Total Contributions
$260,000
Growth from Interest
$1,134,374
Years Until Retirement
35 years
Savings Growth Over Time
What to Look For in the Results
Recommended Annual Contribution by Account
Shows how much to allocate to each account type based on your income, employer match, and HSA eligibility—following the priority stack in optimal order.
Tax Savings from Optimal Allocation
Estimates your current-year tax reduction from pre-tax contributions and projects lifetime tax savings compared to a taxable-only approach.
Projected Balance at Retirement by Account
Projects how much each account could grow to by your target retirement age, helping you see the long-term impact of following the priority stack.
Tax-Advantaged Space Used vs. Available
Shows how much of your total available contribution room you’re using and identifies any unused tax-advantaged space you could fill.
This calculator provides estimates based on the information you enter and standard assumptions about investment returns and tax rates. Actual results will vary based on market performance, changes to tax law, and your personal circumstances. Contribution limits shown are for 2025 and may change in future years. This is educational information, not tax or financial advice. Consult a qualified financial advisor or tax professional for guidance specific to your situation.
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