Which Account First? A Simple Order of Operations
Okay. We've spent this whole module going account by account. 401k, IRA, Roth IRA. What they are, how they're taxed, the whole thing.
So now the question everybody actually has: which one do I put my money in first.
Here's the thing. This isn't complicated once you see it laid out, but almost nobody lays it out for you. You get a 401k enrollment link from HR and a Roth IRA ad on your phone and no one tells you which comes first. So people either freeze and do neither, or they do it backwards. Let's fix that.
The order, plain
- Employer match, up to the full amount. If your work offers a match, that's step one, no exceptions. We spent a whole module on this and I'm not going to soften it now. It's free money. If you're not capturing the whole match yet, stop reading this lesson and go set that number first. This one waits for nothing else.
- Roth IRA, up to the yearly limit, if you qualify. Once you've got the full match, I'd move to a Roth IRA next for most people in their 20s and 30s. You already know my opinion on this one, I've said it before and I'll say it again: the Roth IRA is the easiest first move for most people, and it only gets skipped because it doesn't come with a paycheck deduction to make it automatic. You have to set it up yourself. That's the whole reason people miss it, not because it's a bad account.
- Back to the 401k, past the match. If you've maxed the Roth IRA for the year and still have money to put toward retirement, go back to the 401k and add more there.
- Taxable savings, or a taxable brokerage account, after that. Most beginners in this room aren't going to get this far in year one, and that's fine. I'm including it so you know the order doesn't just stop at three.
That's it. That's the list. I read a lot of financial forums that make this sound like a personality test. It's mostly just a queue.
Why this order, specifically
The match is first because nothing beats free money, full stop.
The Roth comes before the rest of the 401k because of something we haven't talked about yet in this class: control. In your 401k, you're picking from whatever handful of funds your employer's plan offers, and paying whatever fees are baked into that plan. In your own IRA, you're picking the account and the investments. More choice, usually lower fees, and you already paid the tax so future you doesn't owe anything on the growth.
I want to be honest about something here too. Fees matter more than people think and less than the internet screams about. If your 401k has a genuinely high fee, that's worth a real look. But I've seen people spend an hour arguing about a 0.1% fee difference while contributing zero dollars to either account. Get the money in first. Then go be picky.
A practical way to actually do this at home
Don't try to hold this whole order in your head while you're also trying to remember your login information. Write it down.
Grab a sheet of paper, or use the worksheet page in your binder if you brought it, and write the four steps down the side. Next to each one, write the dollar number that applies to you right now. Your match percentage. The current year's Roth IRA limit. Whatever's left after that.
Seeing your own numbers next to the steps, in your own handwriting, does something a spreadsheet doesn't. It makes the order feel like your order, not a rule from a class.
My son Declan asked me once at dinner why I write in "the money book" every night. I told him it's so nothing surprises us. He nodded like that made complete sense to him, then asked for more milk. Kids don't need the whole explanation. They just need to know there's a system and somebody's minding it. Turns out adults are the same way. Once you can point to your own order on a page, a lot of the anxiety about "am I doing this right" goes quiet.
The mistake I see most
People do step two before step one. They open a shiny new Roth IRA, feel proud of themselves, and never go back to check whether they're getting the full match at work. Both accounts are good. But if you're skipping match money to fund a Roth, you're doing it out of order and leaving money behind that you'll never get back.
If that's you, no shame in it. You didn't know, and now you do. Fix the order going forward. You don't have to fix everything from the last five years today.
Before next time
Pull up your own numbers for all four steps, even the ones that don't apply to you yet, and write them down somewhere you'll actually look again. Next lesson we start a new module, and I want you walking in with your own order already on paper. 💛