Building Your Portfolio
The Account Order of Operations
The Account Order of Operations
Where you hold your investments matters almost as much as what you hold. Taxes are your second-largest expense after fees, and tax-advantaged accounts let you legally eliminate or defer them.
Follow this order:
Step 1: 401k/403b Up to the Employer Match
If your employer matches your 401k contributions, contribute enough to capture the full match first. Always. No exceptions.
A 100% match on 3% of salary is a guaranteed 100% return before a single stock is bought. No investment on earth beats that.
Step 2: HSA (If You Have a High-Deductible Health Plan)
The Health Savings Account is the most tax-advantaged account in the US tax code. It is the only triple-tax-advantaged account:
- Contributions are tax-deductible
- Growth is tax-free
- Withdrawals for medical expenses are tax-free
After 65, you can withdraw for any purpose (like a traditional IRA). Invest the money in index funds and let it grow. Pay medical expenses from cash in the meantime if you can.
Step 3: Roth IRA
The Roth IRA is funded with after-tax dollars, but all growth and withdrawals are tax-free. For most people under 50 in a moderate tax bracket, the Roth is superior to the traditional IRA because tax rates are likely to be higher in the future than they are today.
2024 contribution limit: $7,000 ($8,000 if 50+). Income limits apply above ~$146k single / ~$230k married.
Step 4: Max Your 401k
After the Roth, go back and max your 401k. The 2024 limit is $23,000. Traditional 401k contributions reduce your taxable income now. Roth 401k contributions (if available) grow tax-free.
Step 5: Taxable Brokerage Account
Once you have maxed all tax-advantaged options, invest in a regular brokerage account. You pay capital gains taxes on profits, but you have no contribution limits and no withdrawal restrictions.
Summary Table
| Priority | Account | 2024 Limit | Tax Benefit |
|---|---|---|---|
| 1st | 401k (to match) | Up to match | Tax-deferred + free money |
| 2nd | HSA | $4,150 / $8,300 family | Triple tax advantage |
| 3rd | Roth IRA | $7,000 | Tax-free growth |
| 4th | 401k (max) | $23,000 | Tax-deferred |
| 5th | Taxable brokerage | No limit | None, but flexible |
Never pass up the employer match. If your company matches 50% of your contributions up to 6% of salary, and you are only contributing 3%, you are leaving guaranteed free money on the table. This is the one place where the math is completely unambiguous.
Check your own match before you take the quiz. Enter your salary, what you contribute now, and what your employer matches, and you'll see how much of the match you're leaving behind each year.
Leave blank to use the under-50 deferral limit. Age 50+ adds the catch-up.
Enter your salary and contribution to begin
Your employer matches 100% of your 401k contributions up to 4% of salary. You currently contribute 2%. What should you do first?