How to prioritize your retirement accounts

I have a 401(k), HSA, and an IRA. Should I be prioritizing one over the other? It’s hard to know which ones are more important to save in.

A: Technically, they’re all important to save in (you likely knew we would probably say something like that, didn’t you?) – but we understand your frustration. There are a lot of different types of accounts available for retirement, and only so much money to go around. So, yes, there’s definitely an advantage to thinking through your accounts and saving in a certain order.

Generally speaking, here’s how we like to think about something like this:

  • Your first priority should always be to save in your 401(k) –if  you get a match. And make sure you’re saving enough to get the full match.
  • Next up, save some in your Health Savings Account (HSA). This offers triple-tax benefits for short-term and, even more importantly, long-term healthcare expenses. Plus, once you turn 65, it essentially turns into a de facto 401(k).
  • Then, save in your IRA (you could even consider also opening a Roth IRA to get some tax-free growth).
  • Lastly, while you don’t mention any taxable brokerage accounts, these are great options as well if you still have some money to put away.

Now, what if you don’t get a 401(k) match? While that’s actually fairly uncommon these days, it does happen. In this case, your 401(k) can still be your top priority since the tax-deferred benefits (and high contribution limit) are advantageous for retirement planning. But it’s not a ‘slam dunk.’ Take a closer look at the other aspects of your company’s plan. If the fees are high or the investment options are limited, it could potentially make sense to prioritize your HSA and IRA over your 401(k). A fiduciary advisor can help you sort through your options in more detail.

Here’s The Simply Money Point: Ideally, the amount of money you save – whatever the combination – should total 20 percent of your take-home pay. If you aren’t there, work toward increasing that percentage every year.