You've decided to start investing. You open your brokerage app and immediately face a choice: 401(k)? Roth IRA? Traditional IRA? Taxable brokerage? HSA? The alphabet soup of account types is one of the biggest barriers to getting started.
Here's the good news: there's a widely accepted optimal order, and it works for the vast majority of people. The account you invest in matters more than the specific investments you pick. Getting this sequence right can save you tens of thousands in taxes over your lifetime.
The Optimal Order (For Most People)
Step 1: 401(k) Up to the Employer Match
If your employer offers a 401(k) match, this is always step one. Always. A typical match is 50% of contributions up to 6% of salary, or 100% up to 3-4%. That match is an instant 50-100% return on your money — you'll never find a better guaranteed investment anywhere.
If you earn $70,000 and your employer matches 50% up to 6%, you contribute $4,200/year (6% of salary) and your employer adds $2,100. That's $2,100 of free money. Not contributing enough to get the full match is the single costliest financial mistake working Americans make.
Important: This step is only about getting the match, not maxing out the 401(k). We'll come back to that.
Step 2: Max Out Your Roth IRA ($7,000 in 2026)
After securing the employer match, the next $7,000/year should go into a Roth IRA. Here's why the Roth IRA is special:
Tax-free growth forever. You contribute after-tax dollars, but all growth and withdrawals in retirement are completely tax-free. If you invest $7,000/year from age 25-65, you could have over $1.5 million — and pay zero taxes when you withdraw it.
No required minimum distributions. Unlike a traditional 401(k) or IRA, a Roth IRA never forces you to withdraw money. It can grow tax-free for your entire life and even pass to your heirs.
Flexible withdrawals. You can withdraw your contributions (not gains) at any time, penalty-free. This makes it a partial backup emergency fund — though you should avoid using it as one.
Step 3: HSA If You Have a High-Deductible Health Plan
If you have an HSA-eligible high-deductible health plan, the Health Savings Account is the most tax-advantaged account in existence. It's triple tax-advantaged: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. No other account gets all three.
The secret: you can invest your HSA funds in index funds (not just leave it as cash), pay medical expenses out of pocket now, save receipts, and reimburse yourself years or decades later — tax-free. This effectively turns the HSA into a super-powered Roth IRA for medical expenses. The 2026 limit is $4,300 for individuals or $8,550 for families.
Step 4: Max Out Your 401(k) ($23,500 in 2026)
Now go back to your 401(k) and increase contributions up to the $23,500 annual limit. The traditional 401(k) is tax-deferred: you contribute pre-tax dollars (lowering your current tax bill) and pay taxes when you withdraw in retirement.
If your employer offers a Roth 401(k) option, the choice between traditional and Roth depends on whether you expect your tax rate to be higher or lower in retirement. Most people in their 20s-30s earning a moderate income should lean Roth (you're likely in a lower bracket now than you will be later). Higher earners should generally lean traditional.
Step 5: Taxable Brokerage Account
If you've maxed out your 401(k), Roth IRA, and HSA and still have money to invest — congratulations, you're in excellent shape. The taxable brokerage account is your overflow bucket.
No tax advantages, but also no contribution limits, no income limits, and no restrictions on withdrawals. You pay taxes on dividends and capital gains, but long-term capital gains (assets held over a year) are taxed at 0%, 15%, or 20% depending on income — lower than ordinary income tax rates.
For early retirees, the taxable brokerage is essential. You need accessible money to fund your life between early retirement and age 59.5, when you can access retirement accounts penalty-free.
The Visual Priority Order
To summarize the flow:
401(k) to employer match → Roth IRA ($7,000) → HSA (if eligible) → 401(k) to max ($23,500) → Taxable brokerage (unlimited)
Each step fully funds one account before moving to the next. If you can only afford steps 1 and 2, that's perfectly fine — you're ahead of the vast majority of Americans.
What to Actually Buy in Each Account
Regardless of account type, the investment recommendation is the same for most people: a low-cost total stock market index fund. Something like Vanguard's VTI, Fidelity's FSKAX, or Schwab's SWTSX. One fund, broadly diversified across thousands of companies, with fees under 0.04%.
If you want to add bonds, a simple two-fund portfolio (total stock market + total bond market) covers everything. Adjust the stock/bond ratio based on your age and risk tolerance — a common starting point is 90/10 stocks/bonds in your 20s-30s, gradually shifting toward more bonds as you approach retirement.
The simplest possible approach: use a target-date fund matching your expected retirement year. It automatically rebalances and shifts to bonds as you age. One fund, zero maintenance, totally reasonable performance.
📊 Compare Investment Returns →The Bottom Line
The order you fund your accounts is one of the highest-impact financial decisions you'll make, and it doesn't require any stock-picking skill. Get the free employer match, max your Roth IRA, fill your HSA if eligible, then go back and max the 401(k). Whatever's left goes into a taxable account. Buy a total market index fund in each account and let compound interest do the rest.
You don't need to be a financial expert. You just need to follow the sequence.