Priority order for contributions
Maximize tax-advantaged accounts in order of tax benefit and employer matching. Don't leave free money on the table.
Emergency fund first
$1,000-2,500 starter emergency fund before retirement contributions
Employer match (free money)
Contribute enough to 401(k) to get full employer match
HSA (triple tax advantage)
Max out Health Savings Account if available
IRA/RRSP/ISA maximum
Max out individual retirement accounts
Max 401(k)/workplace plan
Complete employer plan contributions
2024 contribution limits by region
🇺🇸 United States
| Account Type | 2024 Limit | Age 50+ Catch-up |
|---|---|---|
| 401(k) | $23,000 | +$7,500 |
| IRA (Traditional/Roth) | $7,000 | +$1,000 |
| HSA | $4,300 / $8,550 family | +$1,000 |
🇨🇦 Canada
| Account Type | 2024 Limit | Special Rules |
|---|---|---|
| RRSP | 18% income, max $31,560 | Carry forward unused room |
| TFSA | $7,000 | Withdrawals restore room next year |
| FHSA | $8,000 | First-time homebuyers only |
🇬🇧 United Kingdom
| Account Type | 2024-25 Limit | Tax Relief |
|---|---|---|
| Pension | £60,000 annual allowance | At marginal tax rate |
| ISA (all types) | £20,000 | Tax-free growth/withdrawals |
| LISA | £4,000 (25% bonus) | First home or retirement |
Traditional vs Roth decision framework
Choose Traditional/RRSP When:
- • Currently in high tax bracket (24%+ US, 30%+ Canada)
- • Expect lower income in retirement
- • Need immediate tax deduction
- • Maxing out dollar limits (can effectively save more)
- • Employer match is traditional (get deduction + match)
- • Plan to retire to lower-tax jurisdiction
Choose Roth/TFSA When:
- • Currently in low tax bracket (12% or less US)
- • Young with decades of growth ahead
- • Expect higher income/tax rates in retirement
- • Want tax-free withdrawals in retirement
- • Estate planning benefits (no RMDs)
- • Concerned about future tax rate increases
Hedge Your Bets Strategy
If uncertain, split contributions between traditional and Roth accounts
Provides flexibility in retirement to manage tax brackets
Example: 60% traditional (immediate savings), 40% Roth (tax diversification)
Advanced strategies
Mega Backdoor Roth (US)
Requirements: 401(k) allows after-tax contributions and in-service withdrawals
Process: Contribute after-tax dollars, immediately convert to Roth
Limit: Up to $69,000 total 401(k) contributions (2024)
Benefit: Massive Roth contributions for high earners
Spousal IRA Contributions
Non-working spouse can contribute based on working spouse's income
Double your household IRA contribution limit
Each spouse can have traditional and/or Roth IRA
Income limits apply to household AGI
RRSP/TFSA Optimization (Canada)
Use RRSP in high-income years, TFSA in lower-income periods
RRSP deduction can reduce clawback of benefits (GIS, CCB)
TFSA withdrawals don't affect income-tested benefits
Consider FHSA for first-time homebuyers
Common mistakes to avoid
⚠️ Costly Errors
- • Not getting employer match: Leaving 50-100% returns on the table
- • Over-contributing: 6% excess contribution penalty annually
- • Wrong account type: Not considering current vs future tax brackets
- • Cashing out when changing jobs: 20% withholding + 10% penalty + taxes
- • Not naming beneficiaries: Complicates estate settlement
- • Ignoring fees: High-cost funds can erode decades of returns
Investment strategies inside tax shelters
Tax-Efficient Placement
- • Tax-advantaged accounts: Bonds, REITs, actively managed funds
- • Taxable accounts: Tax-efficient index funds, individual stocks
- • Roth accounts: Highest-growth potential investments
- • Traditional accounts: Income-generating assets
Low-Cost Options
- • Index funds: Broad market exposure, minimal fees
- • Target date funds: Age-appropriate allocation, rebalancing
- • ETFs: Tax-efficient, low expense ratios
- • Avoid: High-fee actively managed funds, frequent trading
Withdrawal strategies
| Account Type | Early Withdrawal Rules | Required Distributions |
|---|---|---|
| 401(k) Traditional | 10% penalty before 59.5 (some exceptions) | RMDs at 73 |
| 401(k) Roth | Contributions anytime, earnings 5-year + 59.5 | RMDs at 73 |
| IRA Traditional | 10% penalty + taxes (exceptions apply) | RMDs at 73 |
| Roth IRA | Contributions anytime tax/penalty free | No RMDs during lifetime |
| TFSA | Anytime, no penalties | None |
💡 Pro Tip
Automate your contributions to remove emotional decision-making. Set up payroll deductions for 401(k) and automatic monthly transfers for IRA/TFSA. Increase contributions by 1-2% annually or whenever you get a raise.
Frequently Asked Questions
Should I contribute to 401(k) if there's no employer match?
Usually max out IRA first (more investment options, lower fees), then return to 401(k). Exception: if you're in a very high tax bracket and need the larger deduction limit of 401(k).
Can I contribute to both RRSP and TFSA?
Yes, they have separate contribution limits. Strategy depends on income level and tax situation. High earners often prioritize RRSP for immediate tax deduction, then TFSA.
What if I can't max out all my accounts?
Follow the priority order: emergency fund, employer match, HSA, then IRA/TFSA, then remaining 401(k) space. Even small amounts compound significantly over decades.
Should I pay off debt or contribute to retirement accounts?
Get employer match first (it's guaranteed return), pay off high-interest debt (>6-7%), then balance debt payoff with retirement contributions based on interest rates vs expected investment returns.