Luke’s Hierarchy of Savings
When the Trump account was introduced this July, I wondered: Should I take advantage of it? This somewhat convoluted savings vehicle is really a long-term retirement savings account for minor children. How should it stack up against my other savings priorities?
Financial planning starts with goals such as retirement, debt, college, a home, or helping family. If I have extra cash to save, how do I invest it in order to prioritize my goals? I don’t have unlimited money, so what accounts should be funded first? Here’s a framework for thinking about these questions.
1. Pay down high-interest rate debt
Regardless of your goals, paying off high-interest debt should come first. Credit card debt is almost always the top priority. Interest rates often exceed 20 percent, which is a dagger in any financial plan. Private student loans and personal loans that run above 10 percent deserve similar urgency.
2a. Create a safety net
Most financial planners recommend building an emergency fund before funding other long-term goals. The size of your safety net depends on your circumstances, but a rule of thumb is between three and 12 months of expenses. Keep this money safe in a checking, savings, high-yield savings, or money market account. Without a robust safety net, you risk jeopardizing progress toward other goals if you’re forced to draw from a retirement plan early or take on credit card debt.
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2b. Get the company match
If your employer offers a 401(k) match, contribute at least enough to capture all of it. A common structure is for the employer to match 50 percent on the first six percent the employee puts in. This is like an instant, guaranteed 50 percent “return.” Give this the same priority as your emergency fund.
3a. Fill up other retirement savings buckets
Once you've captured your match and built a safety net, start to fill up your other tax-advantaged buckets.
A Roth IRA is my usual next stop. The 2026 limit is $7,500 ($8,600 if 50-plus), growing and coming out tax-free. If you're on an eligible high-deductible health insurance plan, a Health Savings Account is worth a look, too. HSAs offer a “triple tax advantage” in that money is tax deductible going in, grows tax-free, and can be withdrawn tax-free for medical expenses.
From there, finish maxing out your 401(k) or 403(b). The contribution limit is $24,500 this year ($32,500 if 50-plus, up to $35,750 for the new 60-to-63 "super catch-up"). Most people do not have the excess income to fill this bucket.
3b. Start a taxable brokerage account
If you've maxed out tax-advantaged accounts and still have money to save, bravo. Your next priority is a taxable brokerage account. You'll owe tax on dividends and capital gains in these accounts, but capital gains rates are often favorable versus income tax.
These accounts are more flexible than tax-advantaged accounts in that there are no contribution limits, no income restrictions, and no penalties for withdrawing before 59½. They’re a good fit for nearer-term goals like a home down payment. If that's your priority, you may move this higher up the list.
4. Open a 529 college saving plan for kids
If college is a goal for your kids or grandkids, a 529 plan is generally the most efficient way to save for it. The tax deductions are often minor (depending on your state), but growth and withdrawals are tax-free for qualified expenses.
It’s no secret that college tuition has skyrocketed. If helping your kids graduate without debt is a top priority, you may also move this up the list. But I caution against funding your children’s college costs at the expense of your own retirement. Most planners recommend taking care of yourself first. You don’t typically want to sacrifice your financial security to give your children a potential head start.
5. Pay down low-interest rate debt
If you’ve managed to fill your retirement, college savings, and safety net buckets, you’re doing very well.
Now you can revisit low-interest debt. Many people try to accelerate mortgage payments, but it doesn’t make a ton of financial sense to put extra money toward a low-rate mortgage of three or four percent. It may feel good to pay it down, but you’re generally going to be better off investing in the buckets I’ve mentioned above. Still, if you have the excess cash, you might consider paying this debt off for the satisfaction it brings.
6. Consider a Trump account
This brings me back to where I started. Do I need a Trump account for my kids? These accounts let you contribute up to $5,000 a year for a child, with participating employers able to add $2,500 more. Kids born between 2025 and 2028 also get a one-time $1,000 government deposit.
The tax on withdrawals depends on the accountholder’s age and the contribution source, with a mix of pre-tax and after-tax treatment.
If you’ve managed to fill up your retirement buckets, build up a decent brokerage account, and save for college, the Trump account might be a reasonable next step. But it’s still money earmarked for someone else's future, which is why it's last on this list.
The bottom line
Of course, this isn’t meant to be rigid. Priorities all come down to your goals and values. If buying a home is your primary goal, you’ll likely make saving for it a higher priority . But this savings hierarchy can help you think about where to put your next bonus, tax refund, or other cash windfall.
This article originally appeared on the Boston College Center for Retirement Research website.