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After maxing the 401K and HSA, add to a Roth IRA. No question. Any contributions can be withdrawn penalty free at anytime. I would also suggest the "Investment Order" from the Case Study spreadsheet (see below).
Good luck. Yes, you're doing the right things, but there's always more to think about.
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'Investment order' - copied from the
"Case Study spreadsheet".
Here is the "usual advice", current as of the posting date. See the 'Investment Order' tab in the
case study spreadsheet for the latest version.
"Max..." means "contribute up to the maximum allowed for..., subject to your ability to pay day-to-day expenses."
It is up to you whether to consider "saving for a house down payment" as a "day to day expense", vs. lumping the down payment savings in with "taxable investments" at the end.
If you are renting, you may not be throwing away as much on rent as you might think. See
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/ for some thoughts.
In the lists below, thinking "first your 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct -
unless your 457 fund options are significantly worse than those in the 401k/403b -
due to penalty-free access to 457 funds at retirement, even if younger than 59 1/2.
Differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules).
Current 10-year Treasury note yield is ~2%. See
http://quotes.wsj.com/bond/BX/TMUBMUSD10Y WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.
WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see
http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/ if you want even more details on that topic). See also
https://www.bogleheads.org/forum/viewtopic.php?f=2&t=182081,
http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started/msg868845/#msg868845 and other posts in that thread about exceptions to the rule.
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial
The emergency fund is your "no risk" money. You might consider one of these online banks:
http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001 If your 401k options are poor (i.e., high fund fees) you can check
http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/for some thoughts on "how high is too high?"
Priorities above apply when income is primarily through W-2 earnings. For those running their own businesses (e.g., rental property owner, small business owner, etc.),
putting money into that business might come somewhere before, in parallel with, or after step 5.
See
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html for some data on historical returns.
Also, I've started recommending people read "
Get What's Yours" by Laurence J. Kotlikoff, et. al. Check your local library - a bit dry because the subject matter is SO convoluted. But worthwhile - even if you're a Social Security 'skeptic' (like me). If you're video oriented, see
THIS... review from PBS newshour.
