When it comes to saving for retirement, knowing which account to fund first is like knowing which steps to take when climbing a mountain. You want to reach the summit with enough oxygen (money) and energy (tax efficiency) to enjoy the view. For those aiming to retire early, funding retirement accounts in the right order and amount takes a bit more strategy.
Over the years, I’ve contributed to just about every retirement account out there—401(k), Roth IRA, SEP IRA, Solo 401(k), HSA, and good old taxable brokerage accounts. After retiring in 2012, I’ve had over a decade to keep funding these various retirement accounts to different degrees. A lot of what you can and want to contribute will depend on your income pre and post retirement.
So if you’re trying to figure out the best order to fund your retirement accounts so you can retire eary, let me walk you through what I believe is the optimal approach—one that minimizes taxes, boosts long-term returns, and gives you flexibility to live your best life in retirement.
The Ideal Order And Amount To Fund Your Retirement Accounts
To start, the main difference between a traditional retiree and an early retiree is simply the age of retirement. Traditional retirees typically stop working after age 60, while early retirees aim to do so before 60. As a result, early retirees need to accumulate enough capital and passive income to bridge the gap until they can access tax-advantaged retirement funds without penalty.
With that in mind, let’s walk through the ideal order to fund your retirement accounts if you want to retire early.
Step 1: Contribute to Your 401(k) Up to the Employer Match
Let’s start with the golden rule: never leave free money on the table.
Back when I was working in finance, my employer offered a 100% match on 401(k) contributions up to $4,000 for new employees. At the time, I was grinding hard in my 20s, working 60+ hours a week, and the idea of “free money” felt like a myth. But when I ran the numbers, I was pumped.
If you earn $80,000 and contribute 10% of your salary ($8,000), and your employer chips in ($4,000), you're getting $12,000 invested each year. Over 30 years at an 8% return, that’s nearly $1.55 million vs. $1.06 million without the match.
Now that it’s been 26 years since I first contributed to a type of 401(k), I can clearly see the powerful effects of compounding. Accumulating your first million is the hardest, not the easiest, as I wrote in a previous post. But once you get there, your 10th million and every million after that comes much easier during normal times.
Step 2: Max Out Your HSA (If You Have a High Deductible Plan)
The Health Savings Account (HSA) is the only account that offers a triple tax benefit: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. The maximum contribution for 2025 is $4,300.
I wish I had started maxing out my HSA in my 20s and 30s, while paying for medical expenses out of pocket and letting the account grow. Had I done that, I’d likely have over $100,000 in additional tax-efficient retirement savings today. But back then, I didn’t fully understand my health insurance options, I just went with the default. Don’t make the same mistake. Ask your employer about all available health insurance plans and whether you’re eligible for an HSA.
That said, HSAs are only available if you're on a high deductible health plan (HDHP). Make sure you have enough cash flow to cover surprise expenses, or this strategy could backfire. But if you’re healthy and can handle the risk, an HSA is a retirement powerhouse.
Step 3: Fund a Roth IRA
Once you’ve got your HSA sorted, it’s time to look at IRAs.
I wasn’t a fan of Roth IRAs until after I left work and had minimal income. But in hindsight, I could have contributed to a Roth IRA in my early years, which would have helped diversify my retirement portfolio.
When you withdraw from your 401(k), the IRS treats the withdrawals as ordinary income, not capital gains—which are typically taxed at a lower rate. This was one of my financial blind spots. I used to assume all investments would be taxed as capital gains. But with 401(k) contributions made pre-tax, your entire 401(k) balance ends up being one giant pot of tax-deferred income.
If you're just starting your career and fall within the 24% federal marginal income tax bracket or lower, contributing to a Roth IRA makes a lot of sense. You contribute with after-tax dollars, your investments grow tax-free, and you can withdraw the money tax-free in retirement. Plus, there are no Required Minimum Distributions (RMDs), which provides valuable flexibility down the road.
Here are the latest Roth IRA income limits for 2025:
- Single filers: You can make a full Roth IRA contribution if your income is below $150,000.
- Married couples filing jointly: You can make a full contribution if your joint income is below $236,000.
If your income exceeds the limit to contribute directly to a Roth IRA, you can consider a Backdoor Roth IRA. That said, I believe the breakeven point for Roth contributions is around a 24%-27% marginal tax rate. If you’re in a 30%+ tax bracket, contributing heavily to a Roth IRA may not be as worthwhile. Instead, consider converting or contributing during years of low or no income.
The key is to choose based on your current tax situation. If you're in a high-tax state and high income bracket, a Traditional IRA might provide more immediate tax relief. If you're early in your career or retired with lower income, the Roth could be your best friend.
Ultimately, you want to maximize tax-free income in retirement. One of the best ways to do so is with a Roth IRA.
Step 4: Max Out the Rest of Your 401(k)
After you’ve handled the match, the HSA, and your IRA, go back and fill up the rest of your 401(k). The employee maximum contribution limit for 2025 is $23,500. The limit will likely increase every two years by $500 – $1,000.
Although potentially painful in the beginning, you will get accustomed to living on less and always maxing your 401(k) out. I treated my 401(k) contributions as a necessary expense, which made contributing much easier. That “sacrifice” has compounded into hundreds of thousands of extra dollars in retirement accounts.
Here’s my 401(k) savings guide by age if you want to see whether you’re on track. Based on my guide, I believe everyone who contributes at least $5,000 annually to their 401(k) and receives and employer match will become 401(k) millionaires by 60.
Step 5: Mega Backdoor Roth (If Your Employer Allows It)
This one’s not for everyone, but if your employer allows after-tax contributions to your 401(k) and in-plan Roth conversions, you’ve got yourself another way to diversify your retirement funds.
With the Mega Backdoor Roth IRA, you can potentially contribute up to $70,000 (in 2025) into your 401(k) and then convert it to a Roth. This is a huge opportunity for high earners to build more tax-free retirement wealth.
Here’s the logic behind doing a Mega Backdoor Roth IRA that I didn’t fully grasp when I was younger, mainly due to my dislike of paying taxes. If you’re going to invest using after-tax money in a taxable brokerage account anyway, you might as well funnel as much of that after-tax money as possible into a Roth IRA, where you can enjoy the tax benefits.
Again, Roth IRA investments grow tax-free and can also be withdrawn tax-free. It’s a no-brainer and something I regret not taking advantage of earlier in my life.
Just keep in mind that not all employers offer this option, so check with your HR department or plan administrator to see if it’s available.
Step 6: Invest Aggressively in a Taxable Brokerage Account
If you want to retire early, funding your taxable brokerage account is key. It is far more important than any other retirement account.
While there are no tax advantages, a taxable brokerage account is the most flexible investment vehicle. There are no income limits, no contribution caps, and no early withdrawal penalties. As an early retiree, it’s the dividend income and principal from your taxable brokerage account that you can tap to fund your lifestyle.
Your 401(k) and IRAs are great, but they’re locked up until age 59.5—unless you go through a Roth conversion ladder or use 72(t) distributions, which are more advanced strategies. But I don't recommend withdrawing early from your retirement funds if you don't have to. If you want the freedom to walk away from work early, you need to focus on building your taxable portfolio.
As a target, aim to build your taxable portfolio to be 3X larger than your pre-tax retirement accounts by the time you want to retire. In other words, max out your 401(k) contributions first, then invest the same amount in your taxable brokerage account. As you earn more and get closer to retirement, strive to invest 2X (or more) of your 401(k) employee maximum into your taxable brokerage account.
This strategy helped me generate enough passive income to live off my investments in 2012 and focus on what I love.
Step 7: Earn Supplemental Income During And After Work
The final step for aspiring early retirees is to generate side income during work and after work. However, make sure you don't violate your employee terms of agreement with your employer with your side hustle. Definitely don't work on your side hustle during normal work hours. If you do, you will be warned, and might lose your job.
If you are a freelancer, you can open a Keogh 401(k) plan (also known as a Solo 401(k) or self-employed 401(k)) and contribute freelance income to it even if you already participate in a regular 401(k) through your employer. But you can only contribute a combined total of the maximum employee contribution for the year, e.g. $13,500 from as an employee, and $10,000 as a freelancer.
However, as a freelancer, you can also contribute as the employer to your Solo 401(k). Specifically, you’re allowed to make an employer contribution of up to 25% of your net self-employment income, in addition to your employee contribution.
The higher your net profit, the larger your employer contribution—up to a maximum of $46,500 for 2025. Combined with the employee contribution limit of $23,500, the total Solo 401(k) contribution limit for 2025 is $70,000.
Alternatively, you might find yourself in a dual-employment situation where one employer offers a 401(k) and the other provides a SEP-IRA. In this case, you could potentially contribute even more to pre-tax retirement accounts—assuming you and your employers earn enough to hit the limits.
Wonderful Retirement Benefits of Earning Side Income
The ability to contribute as both an employee and an employer can significantly boost your retirement savings. If your side business becomes increasingly profitable, you can also invest more into a taxable brokerage account. To max out the 2025 employer 401(k) contribution limit of $46,500, you'd need to earn a net profit of $186,000 ($46,500 ÷ 25%).
Best of all, a side hustle can provide a fun and meaningful purpose after early retirement. For me, being able to write on Financial Samurai and connect with readers over the years has been incredibly fulfilling. I can't play sports all day because my knees and shoulders would break.
In fact, during the two years leading up to retirement, I found myself more excited to wake up early and write posts and read comments than I was to go to my day job. So when the time came, the opportunity to focus on Financial Samurai with complete autonomy was simply too good to pass up.
Step 8: Negotiate Your Own Pension Through a Severance Package
Your final step to retiring early is negotiating your own pension package—in the form of a severance. If you’re planning to leave the workforce anyway, you might as well try. There’s no downside. Sadly, fewer than 15% of employers offer pensions today. That’s why you have to fight to build your own.
Too many employees either fear confrontation or mistakenly believe their employer would never offer them a severance for voluntarily leaving. These beliefs often stem from a lack of knowledge and emotional intelligence—specifically, the ability to see the situation from the employer’s perspective.
For example, if you’re a mediocre employee, your employer might want to let you go, but they’re stuck. Firing someone without proper documentation could expose them to legal risk. So instead, they have to initiate a performance improvement plan (PIP) that can take six months to a year.
On the flip side, if you’re a top performer, your employer will be reluctant to lose you. But if you offer to stay on during the transition and help train your replacement without disrupting productivity, they may reward your goodwill with a severance. Trying to keep some whose heart is no longer in the job is a bad idea.
Our Two Severance Packages Were The Ultimate Catalysts To Retire Early
My own severance in 2012 covered five to six years of living expenses, essentially a mini pension that gave me the courage to live life on my own terms. Worst case, I could’ve gone back to work if things didn’t pan out.
My wife’s severance in 2015 gave her two years of financial runway. Even better, she returned to her old firm as a freelancer at a 60% pay bump with less stress and more flexibility. Less than a year later, we had our son, and she’s never gone back to work.
So please, for the love of all that’s good in this world—if you plan to retire early, try to negotiate a severance. You have more leverage than you think. Pick up a copy of How To Engineer Your Layoff to learn how.
A Simple Retirement Savings Framework To Keep In Mind
- Max out tax-advantaged accounts = security after 60
- Build taxable accounts for greater than your tax-advantaged accounts = freedom before 60
Your goal should be to take full advantage of all the tax-efficient retirement accounts available to you. If you don’t, you’re leaving money on the table that rightfully belongs to you. Thanks to hedonic adaptation—which works both ways—you’ll quickly get accustomed to maxing out your tax-advantaged retirement accounts.
Beyond that, your ultimate goal is to build your taxable investment portfolio to the point of maximum discomfort. If your monthly contributions to your taxable accounts still feel comfortable, you’re probably not contributing enough.
If you truly want to retire before 60, you must keep pushing your retirement contributions to the limit. Make it a game each month to see how much more you can save. If you’re still alive and kicking the next month, contribute even more.
Ultimately, if you can achieve a 50% savings rate after maxing out your tax-advantaged accounts, early retirement becomes a matter of when, not if.
Additional Tips For Optimizing Retirement Contributions
- Watch fees. Stick with low-cost index funds from Vanguard, Schwab, or iShares. Avoid anything with an expense ratio over 0.25% unless you know exactly what you’re getting.
- Keep it simple. As your wealth grows, so does the complexity. I’ve found it helpful to consolidate accounts under fewer institutions for better service and ease of tracking.
- Stick to your strategy. Avoid emotional investing. Even though I invest in individual stocks, I keep ~70% of my public equities in index funds.
Use Powerful Retirement Planning Tools
If you want to take your retirement planning to the next level, check out Boldin, a retirement-focused tool I’ve following and using since 2016.
It’s cheaper than hiring a financial advisor and gives you tools like Roth conversion calculators, real estate integration, and a holistic view of your portfolio. It has a free retirement planner for all to use. For an even more powerful option, its PlannerPlus version is just $120/year, and in my opinion, worth every penny if you're serious about retiring well.
What I like about Boldin is that it doesn’t just focus on stocks and bonds—it also includes real estate, which makes up a significant portion of my net worth, as well as many Americans’. Conducting a comprehensive analysis of your entire net worth is essential for proper retirement planning.
Diversify Into Real Estate With Fundrise
If you want to diversify into real estate without the hassle of tenants and maintenance issues, check out Fundrise.
I’ve personally invested over $300,000 with Fundrise, a platform that gives you passive exposure to private real estate deals. They focus on Sunbelt markets where population and rent growth are strong, thanks to the rise of remote work.
What I like is that Fundrise combines the stability of bonds with the potential upside of equities, especially for those of us looking for diversification outside of the public markets. During times of chaos and distress, hard assets like real estate tend to outperform.
Subscribe To Financial Samurai
Finally, if you want more insights like this delivered straight to your inbox, make sure to subscribe to the Financial Samurai newsletter, over 60,000 people already have. My goal is to help you reach financial freedom sooner rather than later.
There’s no one-size-fits-all answer to retirement planning, but there is an optimal path depending on your income, goals, and lifestyle. There is on piece of advice relevant to everybody: Aggressively fund your retirement accounts while you still have the energy. Your future self will thank you.
A new one that I just started this year is contributing to a 457. Like the 401k – it is a pre-tax contribution that can grow tax free. One of the risks is that if your company were to fold, it can be treated as a company asset, rather than your money, so you’ll want to be careful here. Another issue is that if you remain employed you cannot access the funds until much later than for other accounts. But one of the huge benefits, for those considering early retirement, is that if you leave your employer, you can access money in a 457 immediately without penalty (still subject to income tax, of course). So, you get the upfront tax savings, and you also get options should you voluntarily or involuntarily leave employment. Also, while the 457 has a contribution limit like the 401k, it is not subject to the same limit – so you can max out both separately. I don’t think I’d put it too high on your list, but in the interest of diversification – since I have a decent Roth account and have been maxing out HSA and 401k for a while- it made sense in my case to get a few years’ worth of expenses in this bucket, so I’ll be maxing it out for the next bit.
Thanks for sharing this! The 457 plan is such an underrated retirement tool, especially for those who qualify (typically government or certain nonprofit employees). I’m glad you highlighted the immediate access upon separation from service — that’s a big deal for anyone thinking about early retirement. The ability to contribute in addition to a 401(k) is another major plus that not many people realize.
You’re right to point out the potential risk of assets being tied to the employer in a non-governmental 457(b) — definitely something folks need to research before committing. For those with a strong base in their Roth, HSA, and 401(k), it sounds like your move into the 457 is a smart way to add flexibility and tax efficiency down the road.
Curious — are you contributing to a governmental or non-governmental 457? That distinction can really change the risk profile.
It’s governmental – and that made all the difference. I found a lot of literature warning away from 457’s in the private sector – and I might agree. But when you are part of a state-sponsored institution (education) that has been around for more than a 100+ years, it provides a lot of confidence. And it will still only make up no more than 5-10% of my total retirement portfolio, most likely. But the added flexibility will be awesome should I make the jump to early retirement in a few years.
Always enjoy your articles. I believe you offer more valuable insights than authors who charge for their newsletters. In other words, you are a bargain!
Hope you are proud of your work and how you have likely changed lives for the better.
We retired a few years ago at 60 when I was able to get a severance package. We were thinking of going anyway so this opportunity just made the decision easier. I read your articles about the value of Severance. Saw that this could be a possibility at the place I worked and just sort of hung around for six months or so to see what would happen. Sure enough, package was offered and worth well over six months of income/insurance. Essentially free money to “quit.”
I also agree with the comments on having a taxable investment account for flexibility. We are now in mid 60’s and use the taxable account almost exclusively for living expenses, health care, taxes and travel. This has allowed us to still consider the HSA’s, IRA’s and Roth $ as long-term investments for the “future”.
While no one knows the future and certainly 2025 has not started out very fun, we may never have to tap these retirement funds or at least not for 10 years. For last several years, the growth of the taxable account has exceeded annual withdrawal. But….not sure that’s going to be the case this year.
As a couple, we never made more than $250k joint and well below that for most of our careers. However, living a somewhat frugal, stealth wealth life and believing in free markets/capitalism and wealth creation that comes from working assets; we have done OK.
We do not take our “luck” for granted and know many others are not as fortunate.
You have played a role in this, and I thank you.
Wonderful to hear Christopher, and you’re welcome! It’s been nice to go on this financial journey with you and others. And if you’d like to support my work, you can always pick up a hard copy of Millionaire Milestones and gift it to a loved one.
Nice job getting your severance package on your way out. It felt like winning the lottery didn’t it? If only more people who want to leave their jobs had the knowledge and courage to do so, there would be a lot more happy people!
It’s sad, but a recession seems inevitable. I would not be surprised to see a 20%+ drawdown in the S&P 500 again (under 5,000). To work now and lose money is so disheartening. Better to just enjoy life and improve your ROE instead I say!
Could you revisit step 1 and give your thoughts on employer match going into Roth or pre-tax? My son is 29 and not convinced his retirement tax bracket will be higher than his current one (22%). Is it the case that if your tax bracket is exactly the same in retirement as it is now, then Roth gets you nothing? Still true when there’s an employer match (his is 6%)? For some reason I cannot seem to get my head around this, given that all the growth is tax free. Thank you!
Great question — and one that stumps a lot of people because Roth vs. pre-tax isn’t just a math problem; it’s also about predicting an uncertain future.
Let’s break it down simply and revisit Step 1 (i.e., choosing between Roth and pre-tax contributions):
1. If your tax bracket is the same in retirement, does Roth get you “nothing”?
In theory — yes.
If your tax rate today is exactly the same as it will be in retirement, Roth and pre-tax contributions are mathematically equal, assuming you invest the tax savings from the pre-tax account and all other things are equal (like identical investment returns and withdrawal timing).
Example:
* Roth: Contribute $10,000 post-tax. At 22% tax, that costs you $12,820 in gross income.
* Pre-tax: Contribute $10,000 pre-tax. You save $2,820 in taxes now, which you must invest separately for the comparison to hold.
If both accounts grow at the same rate and you withdraw at the same 22% rate, you’ll net the same after-tax retirement income.
But this is under idealized conditions.
2. What about the employer match?
This is where the Roth might win in the real world, especially for your son.
* Employer matches are always made with pre-tax dollars, no matter whether the employee contributes to Roth or pre-tax.
* So even if he contributes to a Roth 401(k), his employer’s 6% match goes into a separate pre-tax account.
* In retirement, that matched portion (and its growth) will be taxed when withdrawn.
Why that matters:
Choosing Roth means your own contributions and growth are tax-free, but you still get a diversified tax exposure because the employer portion will be taxed later. This could offer better flexibility in retirement (e.g., draw from Roth to avoid bumping into a higher tax bracket, or from pre-tax when in a low-income year).
3. Other considerations that tilt the scale toward Roth:
* He’s only 29. Lots of years of compound growth — all tax-free in a Roth. That benefit grows the longer the investment horizon.
* Tax rates may rise. Hard to predict, but current tax brackets expire after 2025. If Congress doesn’t renew them, which they should, he might be in a higher bracket later even without a big income boost.
* No RMDs from Roth 401(k)s (if rolled to Roth IRAs). Pre-tax accounts force withdrawals starting at age 73, which can spike taxes in retirement.
* Future flexibility. A Roth “bucket” allows more control over taxes in retirement. This is especially helpful for things like qualifying for ACA subsidies, avoiding IRMAA surcharges, or managing tax brackets strategically.
TL;DR for Your Son: If he’s unsure and can afford the upfront taxes, Roth contributions are a great bet at his age — even if his current tax bracket matches.
As always, consult with a tax advisor. A 22% tax bracket isn’t high. And if he plans to make more and ascend in his career, 22% may look like a bargain in the future.
I remember being confused about the match on company match when I first opened my 401k. The whole process was confusing. But I’m glad I didn’t let that deter me from figuring out the basics and moving forward with setting one up. I didn’t have access to a 401k at every job, but when I did I contributed as much as I could until I could afford to max it out.
I’ve never had an HSA but I did use FSAs for many years. It was annoying to have to submit all the receipts and such, but I liked the tax benefits enough to take advantage of it.
The other thing I’ve done is contribute to an after tax investment account for over 20 years in addition to my retirement accounts. It’s painful to see the blows to it this month, but it’s a good reminder for me to review my allocation, buy low, and focus on the horizon. Thanks!
Thanks for sharing your experience — I remember feeling the same way when I first opened a 401(k). The employer match and tax treatment were confusing at first, but like you, I’m really glad I stuck with it and learned the basics. It’s one of those things where taking action, even if you’re unsure, can really pay off over time.
Interesting point about FSAs. The paperwork can be a hassle, but the tax savings make it worth it. HSAs are great if you ever get access to one in the future; they’re like a triple tax-advantaged unicorn.
And kudos for consistently investing in a taxable account for over 20 years — that kind of discipline is impressive. This month’s market volatility has definitely been tough to watch, but your approach to revisit your allocation and stay focused on the long term is spot on.
One big difference between company 401(k) and Roth IRAs is that company 401(k) generally only provide access to mutual funds, which I think is a good thing as most young people who are encouraged to contribute to a 401k are no savvy enough to be in individual stocks, which is easy to do in a Roth. Roths have access to the entire universe of stocks and funds, typically. I know several people who switched jobs and moved their 401(k) to a brokerage and proceeded to gamble most of it away in the market.
Be careful when you move 401(k)s to brokerages and self-manage. Can completely ruin thoughts of early retirement. Your graph above assumes responsible investing.