Retirement Account Contribution Order: Get More From Every Savings Dollar
Most people who count on multiple accounts get there by taking things as they go: a 401(k) here, an IRA there. It’s a logical step forward, but the method of prioritizing retirement accounts is rarely tested. That sequence is a big factor in determining how much of your money is compounded tax-free, meaning it can be just as important to your long-term retirement plans as the amount you save.
For most people, there is room for improvement. Getting the money order right can improve your long-term retirement plan outlook, although how much it helps depends on your tax situation, plan rules, and financial circumstances.
Bruce Lorenz, CFP® expert 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 life. Here’s how it works.
What is a Total Contribution Order for Retirement Accounts?
A retirement savings and investment contribution order is a sequence where you fund different types of accounts to maximize growth and minimize tax deductions over time. For most people, a prepared order looks like this:
- 401(k) or 403(b) – up to an employer match
- Health Savings Account (if you have a high-deductible health plan)
- Individual Retirement Account (Roth IRA or traditional IRA)
- Taxable merchant account
Your tax situation, income, and near-term goals all affect how closely the above sequence works for you. “It’s not a rule book,” Bruce commented.
Each type of account has its own tax treatment and withdrawal rules, and those differences have long-term implications for your plan. How you fund yourself determines how much of your income is compounded tax-free.
“Our goal is not to use every account,” said Bruce. “Which is to use the appropriate accounts in their order.”
Why Employer Matching Comes First?
An employer matching 401(k) or 403(b) comes first in the account’s contribution order because it delivers a quick return. This match is usually something like dollar for dollar or 50 cents on the dollar to a set limit. The only step where your money earns a return is before it does anything.
“You want to make sure and capture the employer’s game,” Bruce said. “That’s the closest thing to a guaranteed return you can have.”
That said, 401(k) withdrawals before age 59½ generally result in a 10% penalty on top of regular income tax, without limiting circumstances such as disability or certain hardships. Money is meant to stay on the ground.
Your plan’s documentation will tell you the contribution level that unlocks full matching. If there is a place to close that gap, it is one of the most direct improvements you can make.
Exceptions to note: If you carry high-interest debt, such as credit card balances and personal loans with a maximum interest rate of 15% or more, paying that off first often makes more sense than overdraft financing accounts. And if your employer doesn’t offer the same, the case for a 401(k) salary is weakened. An IRA may provide you with better investment options at a lower cost.
Why an HSA is a private retirement account
For those who qualify, the Health Savings Account (HSA) is one of the most overlooked tools in retirement planning, offering a rare triple tax advantage:
- Contributions reduce taxable income.
- Growth within the account is tax-free.
- Withdrawals used for qualified medical expenses are also tax-free.
“An HSA can be a private retirement account,” says Bruce, “and if used properly, it can be the least tax-efficient account you have.” That holds particularly true for people who can afford current medical expenses out of pocket, invest the HSA balance, and let it grow over time.
The best practice is to resist the temptation to spend HSA funds on current expenses. That money can often be invested in mutual funds, stocks, or ETFs if a minimum balance is reached.
“Pay your current out-of-pocket expenses with other funds, other funds, other than an HSA,” Bruce explains. “Let the HSA grow tax-free so it can grow for a long time.”
The IRS sets limits on HSA contributions each year. Contribution limits for 2026 are $4,400 for individual coverage and $8,750 for family coverage, with a $1,000 catch-up contribution for eligible individuals age 55 and older. Tax laws and restrictions change, so verifying current calculations with a tax professional is a good step before deciding on donations.
Withdrawing HSA funds for non-qualified expenses before age 65 usually results in a 20% penalty on top of the income tax. There is no penalty after age 65, but ordinary income tax still applies on unqualified withdrawals. Qualified medical expenses avoid both.
Contributing to a Roth IRA or a Traditional IRA?
Choosing a Roth or traditional IRA depends on how much you pay now in taxes compared to what you expect to pay in retirement. If you think your taxes will increase over time, a Roth makes sense because you pay taxes on the money and owe nothing on qualified withdrawals. If you are in high earning years and expect your income to decrease, a traditional IRA allows you to take deductions now and pay taxes on withdrawals later.
But it’s common to have a Roth and a traditional IRA, and investors may contribute to either option at different times. Holding assets in both allows you to withdraw from a high-yielding account over a period of time, giving you the ability to control your tax exposure in retirement. (Both account types have a 10% early withdrawal penalty before age 59½, with some exceptions.)
“Go check to see what your marginal tax bracket is, and plan,” says Bruce. The Boldin Planner can help you do just that, revealing where your bracket is headed so you can make the call with more confidence.
What is a Tax Trading Account and When Should You Use One?
A taxable brokerage account is where savings come in once you’ve maximized your tax-deferred options, and where the money is yours if you need it before retirement. It has no contribution limits and no restrictions on when or how you withdraw your money, making it easy for 401(k)s and IRAs to fall short.
The tradeoff is that investment gains are taxable. Bruce suggests looking at low-cost ETFs to help keep taxes down, and cautions against conventional trading, which produces short-term gains that are taxed at ordinary income rates. “We want to avoid trading regularly because taxes can eat up our profits,” he said.
A taxable brokerage account has no early withdrawal penalties, making it a great place for cash you may need before retirement, depending on your risk tolerance and time horizon. Investment values can fluctuate, and selling at a loss or generating taxable gains are real investment opportunities.
When Should You Prepare a Donation Order for Your Account?
Few situations require going outside of the automatic waterfall sequence, and recognizing when you’ve done so is part of having a plan that fits your life.
Your savings are low
Waterfall assumes you have a stable emergency fund under you. If your savings are low, or your income varies from month to month, it’s worth stopping contributions beyond the employer match and building up savings first.
“Maybe you have a variable income,” said Bruce, “so you need to have extra money because of your variable income.” Once that pillow is in place, you can resume the sequence.
You have an immediate spending goal
The money you’ll need in the next two to five years for major projects and life events is generally better kept in a high-yield savings account than a tax-advantaged retirement account. The tradeoff is a lower potential return, but the money and stability are often worth it for near-term goals, giving you more flexibility when you need it.
Your tax bracket changes the Roth versus traditional decision
If your income changes significantly, it can change what type of IRA contribution makes sense. A low-bracket year is often a good time to lean toward a Roth, while a high-income year may favor regular 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 will likely change. “There is no perfect answer for everyone, but there is a process that is considered,” Lorenz said. “And that process and that response may change in five years, and that’s OK. That’s not a mistake. It’s just good planning.”
How to Calculate Contributions in the Boldin Planner
A few minutes in the Boldin Planner can help show you how your account’s contribution sequence is costing you, and how effective it can look. Open the Editor and run the donation scenario to see different strategies in parallel 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 status tool within the Boldin Planner and see what the difference is.”
Matching that with your HSA account, Social Security projections, RMD schedule, and Roth Conversion Explorer can help you see which accounts to prioritize at different stages of your plan, and where succession decisions have the most 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 individual financial, tax, or investment advice. Results depend on individual tax conditions, program rules, market performance, and other conditions. Consult a qualified financial or tax professional before making changes to your donation plan.
