Savings Strategies: How to Prioritize Where to Save

When you’re a young professional, figuring out where to save your extra cash can feel overwhelming. 401(k)s, Roth IRAs, HSAs, taxable brokerage accounts—there are so many choices, each with its own benefits, rules, and trade-offs.

While there’s no one-size-fits-all approach (because your goals, account mix, and options are unique), I do have a general savings hierarchy that I walk through with clients. This strategy helps reduce taxes today, build tax diversification for the future, and maintain flexibility for life’s unexpected twists.

1. 401(k) Match

The first step? Max out your 401(k) match.

Employer matches are free money and provide an immediate return that beats almost any other investment.

Quick Note: Choosing between pre-tax and Roth contributions deserves its own blog post, but many young professionals prioritize Roth when a pre-tax contribution might actually be better—especially if you're in the 24% federal tax bracket or higher.

2. HSA Contributions

If you have a High Deductible Health Plan (HDHP), max out your Health Savings Account (HSA) next.

HSAs are triple tax-advantaged:

• Contributions are tax-deductible.

• Growth is tax-deferred.

• Withdrawals are tax-free when used for qualified medical expenses.

Contribution limits for 2025 are $4,300 for individuals and $8,550 for families—with an additional $1,000 catch-up if you're over 55.

Bonus tip: If you can afford to pay medical expenses out-of-pocket, let your HSA investments grow for the long term.

3. Max Out 401(k) Contributions

After securing the match and funding your HSA, fully max out your 401(k) if possible:

• $23,500 contribution limit for 2025 if under 50.
  
  

• $31,000 if over 50.

This is a simple way to automate savings while reducing your taxable income.

4. Fund an IRA (Or Use the Backdoor Roth Strategy)

Next, consider an IRA.

If income limits prevent you from contributing directly to a Roth IRA, or deducting a traditional IRA contribution, a Backdoor Roth IRA might be the answer.

Be careful! Backdoor Roths can get complicated if you already have pre-tax IRA money due to the pro-rata rule.

5. Contribute to Your ESPP

If your employer offers an Employee Stock Purchase Plan (ESPP) with a discount (typically 15%), it’s often worth participating.

 The strategy?

 -Buy the shares
-Sell immediately after purchase to lock in the discount
-Diversify the proceeds

6. Invest in a Taxable Brokerage Account

Once you’ve maxed out tax-advantaged options, start saving in a taxable brokerage account.

No contribution limits. No withdrawal restrictions. Total flexibility.

This is especially important if you plan to retire early—since retirement accounts are often inaccessible before 59½ without penalties.

Additional Options

If you’re saving aggressively and still have surplus cash:

• 529 Plan: Great if you want to help fund education for children, grandchildren, or other loved ones.
  
  

• Permanent Life Insurance: Very niche. Useful only if you have a need for life insurance and are already maxing out every other tax-advantaged account.

Final Thoughts

My savings hierarchy isn’t one-size-fits-all, but it provides a strong framework to think about saving intentionally.

The right strategy for you depends on your goals, your current account mix, and how much you need to save to achieve the life you want.