What to Fund First: 401k, IRA, or HSA?

Deciding where to allocate your funds among a 401(k), IRA, and HSA can be a challenging task. Each account offers distinct benefits and advantages, making it essential to strategize your contributions effectively.

One common approach is to prioritize funding in the following order: 1. 401(k), 2. HSA, and finally, 3. IRA. This arrangement can maximize tax advantages and long-term savings potential.

Here's a breakdown of why you may consider funding in this sequence:

• 401(k): Contribute enough to meet your employer's match, if available, as it's essentially free money. 401(k) contributions lower your taxable income, encouraging long-term savings.
• HSA: Health Savings Accounts offer triple tax benefits - tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for medical expenses. By funding your HSA next, you can save for healthcare costs in a tax-efficient manner.
• IRA: After maximizing your 401(k) and HSA contributions, consider funding an IRA. Traditional IRAs offer tax-deferred growth, while Roth IRAs provide tax-free withdrawals in retirement.

Remember, individual financial situations vary, so it's essential to assess your specific needs and goals before deciding where to invest first.

When faced with the decision of how to allocate your money between a 401(k), IRA, and HSA, it’s vital to consider your short-term and long-term financial goals. Each account serves a unique purpose, and creating a harmonious strategy can lead to greater savings efficiency.