Account Priority: Where to Invest First
With limited money to invest, you need to prioritize which accounts to fund first. The order matters because it affects how much wealth you'll accumulate.
Step 1: Get the Full Employer Match
Always contribute enough to your 401(k) to get the full employer match. This is an immediate 50-100% return on your money. Even if you have high-interest debt, the match is usually worth capturing first.
Step 2: Max Out a Roth IRA
After capturing the match, many experts recommend maxing out a Roth IRA ($7,500). Roth IRAs offer more flexibility: you can withdraw contributions anytime, have better investment options than most 401(k)s, and enjoy tax-free growth.
Step 3: Go Back to the 401(k)
Once your Roth IRA is maxed, return to your 401(k) and contribute up to the $24,500 limit. The tax-deferred growth is powerful, even if your 401(k) has higher fees than ideal.
Beyond the Basics
If you max out both, consider an HSA (if eligible, it has a triple tax advantage) or a taxable brokerage account. Some employers offer after-tax 401(k) contributions with in-plan Roth conversions (mega backdoor Roth).
- Always capture the full employer 401(k) match first because it's free money
- Roth IRAs often come second due to flexibility and tax-free growth
- Finish maxing your 401(k) before moving to taxable accounts
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