The retirement account panorama looks like a mish mash of acronyms – 401(ok), IRA, HSA, and many others.

In case you’re new to this, as I used to be once I first began working, it may be overwhelming. Fortuitously, there may be an order of operations in the case of saving for retirement. And it’s an order that works for everybody, no matter your revenue or standing.

Chances are you’ll not have entry to each sort of account on the checklist however that gained’t change the order, you’ll simply skip a step. So long as you observe this order of contributions, you’ll be in fine condition.

Right here it’s:

1. Contribute to a 401(ok) as much as the corporate match
2. Contribute to a Conventional or Roth IRA to the annual limits
3. Contribute to a Well being Financial savings Account
4. Contribute to a 401(ok) as much as the annual restrict
5. Contribute to a SEP-IRA
6. Contribute to a taxable brokerage account

Keep in mind, you might not have entry to every account (or you will have a unique sort), however in the event you observe this order you may be in form.

1. 401(ok) as much as match

• 2025 annual contribution restrict: $23,500

Many employers provide a retirement account match to incentivize you to save lots of in direction of retirement. These are outlined contribution plans and the commonest is a 401(ok) and 403(b), which is for non-profits and academic establishments.

You’ll want to contribute as a lot as you may as much as the match. My first employer, Northrop Grumman, provided a 50% match on the primary 6% of contributions. This meant that by contributing 6% of my wage, Northrop Grumman kicked in an extra 3%.

Make sure to evaluate the vesting interval in the event you intend to vary jobs. A vesting interval is how lengthy it’s a must to wait earlier than the employer match is yours to maintain. Your contributions are at all times yours to maintain.

2. Conventional or Roth IRA

📝 The IRS defines an IRA as an Particular person Retirement Association however everybody calls it an Particular person Retirement Account, which is what I’ll be doing all through this text. It’s a distinction and not using a distinction.

• 2025 annual contribution restrict: $7,000
• 2025 catch-up contribution for ages 50+: $1,000

After the 401(ok) and the free cash, you’ll want to contribute to an Particular person Retirement Account (IRA). It is available in two flavors:

• Conventional IRA – Contributions are tax deductible and the account grows tax free however you might be taxed if you withdraw funds in retirement.
• Roth IRA – Contributions should not tax deductible (after tax) and the account grows tax free and you aren’t taxed if you withdraw funds in retirement.

Every sort has an annual restrict, which is shared, and there are additionally contribution limits primarily based in your revenue.

You’ll have to decide which is finest for you however the Roth IRA is a really engaging account as a result of it grows tax free and isn’t taxed if you withdraw funds in retirement.

3. Well being Financial savings Account

• 2025 annual contribution restrict (particular person): $4,300
• 2025 annual contribution restrict (household): $8,550

If in case you have a excessive deductible medical health insurance plan, you may contribute to a Well being Financial savings Account (HSA). An HSA is actually an funding account with tax advantages when used for medical bills. Additionally, some employers will provide a match on contributions into an HSA however this limits what you may contribute since employer and worker contributions rely in direction of the annual restrict (however that’s OK, because you don’t pay for employer contributions!).

The great thing about the HSA is that it has a “triple tax profit:”

1. Your contributions are pre-tax – You make them by means of a payroll deduction and so, like a 401(ok) contribution, you aren’t taxed on the {dollars} you set into the HSA
2. It grows tax free – Very similar to a 401(ok) and IRA, it grows tax free.
3. Withdrawals are tax free if used for certified medical bills – That is what makes HSAs particular. You may make withdrawals at any time and people withdrawals are tax free if used for certified medical bills.

And in the event you attain 65 and haven’t used up your funds for medical bills, it now works identical to an IRA.

There is only one hitch – you might be topic to the funding choices provided by your plan administrator. Most plans will allow you to make investments the cash within the account however they do range, identical to 401(ok) plans. There are additionally plan charges however the finest HSA plans are modest on this regard.

Relying in your choices, you might determine that the HSA is much less interesting and skip forward to #4.

4. Maximize your 401(ok)

2025 annual contribution restrict: $23,500

When you’ve contributed the utmost into an IRA, your contributions needs to be directed again in direction of your 401(ok) plan. The bounds on this are sometimes fairly excessive and whilst you don’t achieve any further employer match, it represents a means in your accounts to develop tax free till retirement.

5. SEP-IRA

• 2025 annual contribution restrict: $70,000 (or 25% of worker compensation, whichever is much less)

If in case you have self-employment revenue, you may, as an employer, make a contribution to a simplified worker pension (SEP) IRA. The SEP-IRA is a retirement plan for a small enterprise’s proprietor and staff and also you’re solely in a position to contribute to it in case you have enterprise revenue, which incorporates self-employment revenue.

Tax-wise, it’s similar to a Conventional IRA – contributions are tax deductible and development is tax deferred. Withdrawals from a SEP-IRA in retirement are taxed as strange revenue. And at last, in the event you contribute to a standard IRA, your contribution restrict to the SEP-IRA is decreased by the quantity you contributed into the normal IRA.

The large distinction to know with a SEP-IRA is that staff don’t contribute to it – solely employers make a contribution. Within the case the place you might be self-employed, it’s an accounting distinction since you might be each employer and worker. It will get difficult in case you have staff (because the employer should make the identical contribution for all staff) so I’d discuss to an accountant for assist if this describes you.

The large profit right here is that it’s a technique to defer taxation on a whole lot of revenue because the restrict for a SEP-IRA is kind of excessive.

6. Taxable Brokerage Account

Congratulations! In case you’ve gone this far, you’ve gotten reached the Ultimate Boss for retirement financial savings.

In case you’ve maximized your contributions to all the opposite accounts, you solely have one choice left – a taxable brokerage account. There’s nothing notably particular about this class of account aside from it’s the one one out there.

Every of the prior choices had tax advantages and a taxable brokerage account has none. Your contributions should not tax deductible, your investments don’t develop tax free (until you merely maintain them), and your withdrawals are topic to long run of brief time period capital positive factors tax relying on how properly they’ve carried out. Your beginning capital shouldn’t be taxed although, however contributions weren’t tax deductible so this could come as no shock.