If you have read other posts, you know that many of my answers contain a sneaky form of “it depends.” I’ll be less sneaky here. Assuming you have an emergency savings account and a budget where you spend less than you make, the recommended order of precedence is as follows:
- If your employer offers a 401k match to participant contributions, max out your 401k up to your employer’s deferral match rate.
- If you participate in your employers High Deductible Health Plan (HDHP), max out your Health Savings Account.
- After maxing out your Health Savings Account, return to making contributions to your 401k up to max allowable rate. For those employers who don’t have a 401k match, this would be your first allocation into your 401k.
- If you do all of this and still have funds remaining that can be invested, invest into your Individual Retirement Account (IRA).
Order of precedence, in brief – 401(k) (up to employer match), H.S.A., back to 401(k) (unmatched contributions), and finally IRA.
You should still look at fees for each of these financial products, and I’ve assumed your budget is in order and you have a base of emergency savings not contained in a tax deferred account. And, perhaps most importantly than any of the above, you have money remaining in your spend budget to enjoy your life. Salut!