The Retirement Savings Order of Operations
Most working professionals understand the importance of saving for retirement—but few have a clear system for where to put each dollar first. Just like following the correct order of operations in math ensures the right answer, following a “Retirement Savings Order of Operations” ensures each dollar you save works as efficiently as possible. Here’s the framework.
1. Workplace Retirement Plan — Up to the Employer Match
Your first stop should always be your workplace retirement plan—such as a 401(k), 403(b), or SIMPLE IRA—at least up to the employer match. If your employer matches 50% of the first 6% you contribute, that’s an immediate 50% return on your money. No other investment can guarantee that kind of return.
If you’re in a 32% federal tax bracket or higher, it may make sense to go further and maximize your 401(k) contributions up to the annual deferral limit ($23,000 for 2025, plus $7,500 catch-up if age 50+). The upfront tax deduction is valuable at higher marginal rates, and the deferred growth compounds tax-free until withdrawal.
2. Health Savings Account (HSA) — Up to the Annual Max
If you’re covered by a high-deductible health plan, an HSA offers one of the most powerful savings vehicles available. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free—the only account that offers a triple tax advantage.
In 2025, individuals can contribute up to $4,300, and families up to $8,550, plus a $1,000 catch-up for those 55 or older.
The best strategy is to pay out-of-pocket for medical expenses today and save your receipts—often called the “shoebox strategy.” You can reimburse yourself years later, allowing your HSA to grow and compound tax-free while retaining access to funds if needed.
3. Roth or Traditional IRA — Up to the Annual Max
Once you’ve taken advantage of your workplace plan and HSA, the next step is an Individual Retirement Account. The choice between Traditional and Roth depends on your current versus expected future tax bracket.
Traditional IRA: Deduct contributions now and pay taxes later—ideal if you expect lower taxes in retirement.
Roth IRA: Pay taxes now, enjoy tax-free withdrawals later—ideal if you expect higher taxes or value future flexibility.
The 2025 contribution limit is $7,000 ($8,000 if age 50+). Even if you earn too much for direct Roth contributions, the backdoor Roth IRA strategy remains an option.
4. Taxable Brokerage Account — What’s Left Over
After maximizing tax-advantaged accounts, direct remaining savings to a taxable brokerage account. These accounts have no contribution limits, no early-withdrawal penalties, and allow for flexible investing. You’ll pay taxes on dividends and capital gains, but strategies like tax-loss harvesting and qualified dividend investing can help reduce that burden.
The Takeaway
The order of operations provides a clear roadmap:
- Grab your employer match.
- Max out your HSA if eligible.
- Fund your IRA.
Invest the rest in a taxable account.
Following this disciplined approach ensures each dollar saved goes to the most tax-efficient, high-impact destination possible—helping your retirement savings grow stronger, faster, and smarter.