Deciding where to put retirement savings can be overwhelming, especially when money is limited. A new framework from Morningstar's director of personal finance and retirement planning, Christine Benz, offers a practical hierarchy for prioritizing different account types, from 401(k)s and IRAs to health savings accounts and taxable brokerage accounts.
The first step, according to Benz, is to contribute enough to a company retirement plan such as a 401(k) to earn the full employer match. Matching contributions are essentially free money added on top of any investment earnings, and even a modest match of 25 cents per dollar is difficult to beat by investing outside the plan. If an employer offers no match at all, savers can skip this step and move directly to the next priority.
After capturing the match, the next priority is investing in an IRA. IRAs often come with low costs, offer a wide array of investment options, and provide access to a Roth account, which allows for tax-free withdrawals in retirement. However, if a workplace plan already features ultralow costs, no administrative fees, and a Roth option, savers may reasonably choose to fully fund that plan before opening an IRA.
For married couples with a nonearning spouse, Benz suggests funding a spousal IRA next, provided the earning spouse has enough income to cover both accounts. This allows the nonearning spouse to build retirement savings in their own name. If the earning spouse's 401(k) is particularly strong, fully funding that plan could reasonably come before funding IRAs for either spouse.
Once IRAs are addressed, the framework calls for contributing to a company retirement plan up to the annual limit. Traditional 401(k) contributions are made with pretax dollars, compound on a tax-deferred basis, and reduce adjusted gross income, which can increase eligibility for other credits and deductions. Roth 401(k)s offer tax-free compounding and tax-free withdrawals in retirement. These benefits can make even a subpar workplace plan preferable to a taxable account, especially for higher-income investors who should generally exhaust all tax-sheltered options first.
The next step is making health savings account contributions up to the limit. HSAs offer a triple tax advantage: contributions are pretax, funds can be invested and grow with tax benefits, and qualified withdrawals for healthcare expenses are tax-free. To contribute, a saver must be covered by a high-deductible health plan. If the assets are invested and allowed to compound until retirement, an HSA can function as an effective retirement savings vehicle.
After maxing out regular 401(k) contributions, which are $24,500 in 2026 ($32,500 for those older than 50), savers can consider aftertax 401(k) contributions, provided the plan allows them. Total contributions can reach up to $72,000 in 2026. These aftertax dollars can then be converted to Roth assets inside the plan, if allowed, or later through in-service distributions or after leaving the company. This strategy is less attractive if the 401(k) plan is poor or carries high costs.
The final step in the hierarchy is investing in a taxable, nonretirement account. This makes sense for savers who already have a sizable share of assets in tax-deferred and Roth accounts and are aiming for tax diversification in retirement. Taxable accounts offer nearly unlimited investment choices, no withdrawal requirements, and access to money at any time. While contributions are made with aftertax dollars, capital gains taxes are lower than ordinary income taxes when investments are sold.