The Contribution Priority Order
You now know every rung of the ladder. This lesson answers the question they all lead to: with a limited amount of money to invest, which account do you fill FIRST? There's a widely-taught default sequence that gets the most out of each tax break — not a law, and not right for every situation, but a sane starting frame that begins with the closest thing to free money in all of investing.
If your 401(k) offers a match, contribute at least enough to capture all of it before anything else. A match is your employer adding money to your account for contributing — often a full or partial dollar for each of your dollars, up to a limit. That's an instant, guaranteed return no investment can promise. Leaving a match on the table is the one near-universal mistake this course will flatly tell you to avoid: it's declining a raise you've already earned.
After the match, the common frame reaches for the accounts with the strongest tax treatment for the dollars that qualify — often the HSA (that triple advantage) and then a Roth or IRA, before circling back to fill more of the 401(k). The logic is simply to spend each limited dollar where its tax break is largest. The exact order shifts with your income and your rate bet from the last two lessons, which is why 'it depends' keeps showing up honestly.
The plain taxable account sits at the bottom of the priority order, used once the sheltered accounts are full or a goal needs the flexibility they don't allow. 'Last' doesn't mean 'never' — for money you'll want before retirement, or for saving beyond the annual limits, the taxable account is exactly right. The ladder fills top-down; it doesn't forbid the ground floor.
One override beats the whole sequence: never lock money in a retirement account you'll need before retirement. The priority order optimizes taxes, but a penalty for early withdrawal can erase every bit of tax savings and then some. Short-term money — the emergency fund, the near-term goal — belongs in flexible, accessible places regardless of how good the tax break looks. Timeline first, tax break second.
This sequence is a teaching default, and real situations bend it constantly: a huge match, an income that closes the Roth door, a state that taxes HSAs, a pension, a spouse's plan. That's the honest limit of any general framework — it gets you 80% of the way, and the last 20% is where a good tax professional earns their fee. You now know enough to ask sharp questions, which is the point of the whole unit.
Match first, richest breaks next, taxable last — bent always by when you'll actually need the money. That's the account ladder assembled into an order, and it closes the first unit: you know the containers and the sequence for filling them. Now for what happens to the money once it's invested.
Not financial advice · Educational only