You’ve maxed your company 401(k) match. Now what? Where exactly should you direct your savings? Christine Benz has a short but useful Morningstar article called A Hierarchy for Retirement Savings.
The structure reminds me a bit of the Personal Finance Flowchart from Reddit.
The best part of the article is that they explain the exceptions, or at least reasons for de-prioritization, in a clear and concise manner. These exceptions may be uncommon, but they are important to know. I recommend reading the entire article, but here are some quick notes.
- 401(k) up to the match. Exception: You may not have a match.
- IRA up to the limit (plus Spousal IRA). Exception: Your 401(k) may be so awesome it’s good enough. 401ks also have better asset protection.
- 401(k) up to the “normal” limit. Exception: In some limited cases near retirement, the benefits don’t outweigh the restrictions.
- Health Savings Account (HSA) up to the limit. Exception: You may not be eligible for an HSA.
- Additional after-tax 401(k) contributions to the “full” deductible limit, if allowed. (AKA “Mega Backdoor Roth”). Exception: Your plan may not offer additional after-tax contributions (only about 1/4 do), or your plan is otherwise extra bad.
- Taxable brokerage account. The default if nothing else is better.
Photo by Jon Tyson on Unsplash
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