According to CreditCards.com, the average annual interest rate charged on new credit card accounts is a whopping 17.73%. Unless the client’s 401k investment options are guaranteed to return that much in the future, he is better off sending any extra dollars to retiring  credit card balances first.

Even if you include the benefit of the immediate tax reduction offered by saving to a pre-tax retirement account, and the sheltering of any future earnings, it’s still highly unlikely that the retirement plan investments will beat a guaranteed double-digit interest rate cost of the debt.

An extra benefit of paying off this “bad” debt is that it should boost the client’s credit score, allowing  him to not only borrow on better terms in the future, but also reduce the cost of such seemingly-unrelated expenses as auto and homeowners’ insurance.

Clients who have no rainy day fund and, instead, choose to save for retirement in an at-work plan can find themselves in a sticky situation if they need to get that money back in a hurry for an emergency.

Perhaps they could use a credit card, home equity loan or line of credit or some other type of debt to cover the cost. But that assumes that they can borrow enough to cover the expense, at terms that won’t wipe them out.Maybe their employer is one of the majority who offer 401k loans to their workers. But those amounts are limited, and the client may not be able to contribute to the 401k until the loan is repaid. Hardship withdrawals are even more difficult to get than loans, and will certainly result in taxes and probably penalties being imposed when the money is taken out.

It’s better for clients to first save enough in safe, liquid accounts (such as checking or savings) to cover at least  a few months’ worth of living expenses. They should also set aside a suitable amount for planned outlays, such as college costs or home remodeling bills. Then once the event arrives, if they can borrow at favorable terms, or don’t need to exhaust all of their savings, they can start directing funds from their paychecks back to their 401ks or 403bs.

Workers who have a high-deductible health plan option might be better off choosing it, and then saving pre-tax money in a Health Savings Account (HSA).

The premium cost of the high-deductible plan will be lower than that of a standard policy, which could save the employee money. The funds deposited to the HSA  by the employee are pre-tax, and any withdrawals used to pay for the deductible or other qualified expenses are tax-free. The funds in the HSA aren’t “use it or lose it”—any unused balances roll over for use in the future if necessary. Once the HSA owner turns 65, the funds can be withdrawn for any reason without a penalty, but will be taxed as ordinary income (just like if it were an IRA). Therefore, the HSA can serve as kind of an ersatz IRA, while still saving taxes and health insurance premium costs along the way.

However, clients who are likely to use the HSA funds for near-term health expenses may need to use more conservative investments within the HSA, which would limit the potentially-higher return that a more aggressive allocation could bring over the long term.

If the client is likely to be in a low income tax bracket and is willing and able to save more than the Roth IRA contribution limits, he should consider using the Roth version of the 401k or 403b, if his employer offers one.

For 2019 workers can save their gross earnings, or $19,000 (whichever is less) into a Roth 401k or 403b. Those 50 and over can defer up to the lesser of their earnings, or $25,000. That’s a significant increase over the limits to saving in a regular Roth IRA, which for 2019 are the lesser of the client’s earnings, or $6,000 ($7,000 if she is 50 or over).

However, if the client is saving equal to or less than the Roth IRA contribution limit, she probably should opt for the self-directed Roth IRA account, especially if there is no employer match for the Roth 401k.

Not only will the client have a greater number of investment options at her disposal with the Roth IRA, but the money will be easier to get at in an emergency. Under today’s laws Roth IRA contributions can be withdrawn at any time, for any reason, with no penalties whatsoever. But making an early withdrawal from an employer-sponsored Roth 401k might be more difficult, and/or require the client to take a loan from the plan instead.

For most workers, the investment choices in their employer-sponsored plans have likely never been better. But millions of employees are still subject to a limited roster of funds that may offer incomplete diversification and/or high expenses. More pressing for conservative savers is a lack of safe, liquid options that still pay a competitive yield.

Again, those clients who are dismayed by the at-work plan’s fund choices, can’t take (further) advantage of an employer’s matching contribution, and are saving less than the aforementioned IRA or Roth IRA maximums may want to contribute to a self-directed account on their own.

Don’t forget that married clients who fit the above criteria may be able to use a spousal contribution to double how much they can deposit overall to self-directed IRA or Roth IRA accounts.