I have read general advice about the importance of allocating retirement savings along different types of accounts (401K, Roth, CDs, HSA, etc). The rationale for this advice has been the fact that no one knows what the law will be years from now when one retires. Despite this, I'd like to ask which instruments one should definitely include (considering they are available) and what order one should allocate money to them. Example, should I contribute to my 401K before opening up a Roth or put equal amounts on both. How about HSAs, what percentage of one's savings should go there. Example, if I can save $2,000.00 a month, once I reach the 401K limit, where should my next savings go to?

I often think with a flowchart in my head.

What are your goals?

General consensus is, 401k up to match, Roth IRA, 401k if you can stomach the fees, then taxable accounts.

Depending on income, what your goals are etc, you may want to shift priority around. For example, if you were income limited, but wanted to retire sometime after 55, my advice would be to focus more on 401k savings.

If you want to retire early and you want to limit 72(t) withdrawals, traditional IRA funds that you can convert to Roth funds 5 year prior will be handy as well. Or you can take it on the chin in the taxable world.

As far CD's go, these are for cash only. I keep my emergency fund in CD's and ibonds.

If there is an employer match on 401k contributions, definitely get that first. Then I think it largely depends on what investments are available through your 401k. If one doesn't get a match, and the fund options are poor (high expense ratios), then it would be best to prioritize an IRA (Roth or Traditional is a personal decision) with a company like Vanguard that has good (low expense ratio) funds. I suppose it's possible that your 401k could offer one fantastic stock fund, while everything else sucks, so you might contribute to both at the same time by holding stocks in your 401k and bonds in your IRA.

I don't get a match, but the fund options in my employer-sponsored plan (TSP... similar to a 401k) are actually superior to Vanguard's offerings for my IRA, so I would fill up the TSP first if I couldn't max both. And I've chosen to make pre-tax contributions to the TSP while having a post-tax Roth IRA with Vanguard; diversifies my tax situation for the reason you stated.

Tim

Regarding HSAs - in case you haven't noticed, one of the two guys running for the big job wants to completely change the health care system, and the other wants to continue implementing a major change that is already the law. What makes you think the HSA will live up to its promise? Do you actually need one? Hint - not if your employer pays health insurance until you get medicare, and not if you buy health exchange plans that are deductible anyway. We just don't know what the law is going to be like.

I'm already maxing my 401K. I guess the question should have been phrased as "what should I after I max out my 401K?"

And as for the HSAs, there are all kinds of medical expenses that these funds can be used for. I'm allocating 1K per year given my age and my present health, but I'm doing it to cover myself in case I -- or anyone in my immediate family needs it -- and also for the tax benefit.

Emergency Fund
401k up to match
Pay off non-mortgage debt
Roth IRA up to limit
Pay off Mortgage
401k up to limit
HSA up to limit
Taxable accounts/investments

I recommend a mix of asset types so that one bad event won't make you broke.

I think this should be the order. Please let me know if you see a problem with this.

1. Pay of high interest rate debt - live within your means and you won't have this to begin with.

2. Emergency Fund - so you don't go back to step 1

3. 401k up to match - Don't pass up the free money from your employer.

4. HSA up to limit - This is tax-free in and tax-free out when you use it for medical expenses. This makes it better than an unmatched 401k or IRA. If you are over 65 and want to use it for something else then it will be taxed as income just like a 401k or IRA.

5. Roth IRA - This depends on your current tax rate and your predicted tax rate in retirement.

6. 401k and IRA up to limit - including any over 50 catch up amounts

7. Pay off Mortgage - This should be a very low interest rate loan and the interest is tax-deductible on top of that. If you have a high interest rate on your mortgage than you should have refinanced long ago.

8. Taxable accounts/investments

An HSA might be a good idea for some people. I have looked into it. In my case the limits are so low and the fees tend to be high or investment options so pathetic that it just isn't worth it. It's also not obvious how HSAs with play with the ACA.

Personally I have always invested in taxable accounts at a much higher priority. Money in that kind of account is unencumbered by future changes in tax policy and many other things that are unpredictable. But that choice has been made easy for me since I'm not eligible for Roth or TIRA contributons without complications.

I know you have an opinion on this non-diametrically opposed to my opinion, which is to say I am personally in favor of maxing out any and all tax-advantaged accounts, even if one intends to retire early. At least, that's what my spouse are doing. So with a grain of salt:

I think that if any account is worth contributing to, it's an HSA. I would definitely put it right behind "401(k) up to match" and well ahead of taxable accounts. There is no other account that is tax free both going in and coming out. Furthermore, depending on your situation (including both health and medical insurance), it might be a financial net gain to use an HDHP, since they usually have far cheaper premiums than a "normal" insurance policy. But even if it's breakeven or a little worse, gaining access to an HSA is arguably worth it.

You can typically avoid overly onerous fees and bad investing options by selecting your own HSA administrator. Most of the administrators out there are as terrible as you say. But there are a few that cater to the discerning consumer.

I do agree with that. A big part of the issue is that with employer HSAs there tend to be issues. My employer offers really good health coverage. But the HSA option is pretty terrible. I suppose if I could find a plan that had Vanguard-esque fees I would probably seriously consider it. The ones I looked at had ~2%ish fees and the investment options were limited to glorified savings accounts. It just wasn't worth it.

Well, if you are eligible for an HSA, you aren't limited to your employer's choice of HSA. Though using your employer's designated HSA is the only way to have contributions made before FICA (SS and Medicare) taxes. That extra 7.65% is why the accounts chosen by employers always seem to have those darn 2% account maintenance fees.

Worth repeating! Depending on ones marginal tax brackets, payroll contributions to an employer-sponsored HSA avoid 40+% taxes. So, in summary, the employer sponsored hsa:

1. Is contributed to with hyper-efficiency due to avoidance of income and FICA taxes.

2. Grows tax free.

3. Is spent tax free if on qualified medical expenses, which ALL retirees will have.

4. Essentially reverts to a pretax 401k after age 65 (I.e. no restrictions on use)

And that is why, IMHO, an HSA beats a non-company-matched retirement savings vehicle all day, every day.