The Order of Operations for Retirement Account Contributions
08/04/25
When deciding where to put your savings, following a strategic order of operations can help you maximize tax benefits, employer perks, and long-term growth. Here’s a simple framework to guide your contributions:
1. Contribute to your 401(k)/403(b)/457/SIMPLE IRA up to the employer match.
If your employer offers a match, this is essentially free money. Always contribute enough to get the full match, as it is likely the fastest return you’ll ever get on your investment. Some employers offer a traditional 401(k) and a Roth 401(k) option. The employer match, however, will most likely be traditional/pre-tax.
2. Fund a Roth IRA (if eligible and appropriate for your income level).
A Roth IRA allows your investments to grow tax-free, and qualified withdrawals in retirement aren’t taxed. Because contributions are made with after-tax dollars, you also retain flexibility. You can withdraw your contributions (but not earnings) at any time without penalty. Note that this can also be done via backdoor Roth IRA contributions and will take more planning. The maximum contribution for 2025 is $7,000.
3. Go back to your 401(k) and contribute above the match.
Once your Roth IRA is funded, increase your 401(k) contributions as much as you can up to the maximum of $23,500 per year as of 2025. Traditional 401(k) contributions lower your taxable income today, and you can build substantial tax-deferred savings over time. Roth 401(k) contributions work similarly to a Roth IRA.
4. Invest in a taxable brokerage account.
If you’ve maxed out tax-advantaged accounts, a brokerage account is your next stop. While you won’t get the tax breaks you do with retirement accounts, you’ll have full flexibility. This means no contribution limits, no withdrawal penalties and the ability to take advantage of long-term capital gains rates.
Following this order helps you capture employer benefits, create tax diversification, and still build wealth in flexible, taxable accounts.
*Do not use this as advice about your specific situation. Your income level, financial situation and employer benefits can affect if this order is right for you or if certain options are available to you. Please contact me to talk about your specific situation. You are never charged for meetings or advice.