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A hierarchy for retirement savings
New guidance details a framework for optimizing retirement savings; sequential investments yield significant financial returns
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If you have a fixed sum of money to invest every month or every year, which investment account type gives you the biggest bang for your buck?
There are no one-size-fits-all answers, but this framework for retirement savings is a good starting point.
1: Invest enough in a 401(k)/other company retirement plan to earn matching contributions.
Even a lackluster match—say, 25 cents per dollar—is hard to beat by investing outside the plan, and it comes on top of any investment earnings.
2: Invest in an IRA.
Why choose an IRA over a 401(k)? IRAs often avoid administrative fees, and they offer an array of securities and a Roth option.
But if your 401(k) has no administrative expenses, ultralow-cost investments, and a Roth option, you can make a full 401(k) contribution before moving to an IRA.
2a: Invest in a Spousal IRA.
For married couples with a nonearning spouse, funding a spousal IRA should come next,if the earning spouse has enough to cover both.
3: Invest in your company retirement plan up to the limit.
Higher-income investors should generally exhaust all tax-sheltered retirement-savings options before investing in nonretirement accounts, even if their workplace plan isn’t best of breed. Traditional 401(k) contributions are pretax, compound tax-deferred, and reduce adjusted gross income, thereby increasing eligibility for credits and deductions. Roth 401(k)s offer tax-free compounding and withdrawals in retirement. Those benefits can make even a subpar 401(k) preferable to a taxable account.
4: Make health savings account contributions up to the limit.
HSAs can be treated as retirement saving vehicles if you invest the assets and let the money compound until retirement. Qualified withdrawals remain tax-free.
5: Make aftertax 401(k) contributions to the limit.
If you’ve maxed out regular 401(k) contributions of $24,500 ($32,500 if older than 50), you can contribute up to $72,000 total in 2026—provided your plan allows after-tax contributions. Then convert those to Roth inside the plan, if allowed, or once you retire, leave the company, or take in-service distributions.
This strategy is less attractive if you have a poor or costly 401(k).
6: Invest in a taxable account.
With a taxable (nonretirement) account, you can invest in nearly anything, and there are no withdrawal requirements. You can access the money anytime, or let it build. And while you’ll invest after-tax dollars, you’ll owe capital gains taxes (lower than ordinary income taxes) when you sell.
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This article was provided to The Associated Press by Morningstar . For more retirement content, go to https://www.morningstar.com/retirement .
Christine Benz is director of personal finance and retirement planning for Morningstar and co-host of The Long View podcast . Subscribe to her free newsletter, Improving Your Finances .
Related Links:
Retirement Planning for Real Life, With Christine Benz
https://www.morningstar.com/retirement/retirement-planning-real-life-with-christine-benz
5 Things to Do Now to Retire in 10 Years
https://www.morningstar.com/retirement/5-things-do-now-retire-10-years
One Income, Two Retirements: How Couples Can Protect Their Future
https://www.morningstar.com/retirement/one-income-two-retirements-how-couples-can-protect-their-future
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