Account Comparison (2026 Limits)
401(k) - Employer-Sponsored
- 2026 limit: $23,500/year ($31,000 if 50+)
- Tax benefit: Contributions reduce taxable income NOW. Pay tax when you withdraw in retirement.
- Employer match: Many employers match 3-6% of salary. Free money - always get the full match.
- Withdrawal: Penalty-free after 59.5. Required minimum distributions start at 73.
- Best for: Reducing current tax bill, especially in high-earning years. Maximum contribution capacity.
Roth IRA - After-Tax, Tax-Free Growth
- 2026 limit: $7,000/year ($8,000 if 50+)
- Tax benefit: Contribute after-tax dollars. All growth and withdrawals are completely TAX-FREE forever.
- Income limit: Phase-out starts at $161K single / $240K married (2026). Above these? Use backdoor Roth.
- Withdrawal: Contributions (not gains) withdrawable any time penalty-free. Gains penalty-free after 59.5 + 5-year rule.
- Best for: Young people in lower tax brackets. Tax-free growth for 30-40 years is enormously valuable.
Traditional IRA - Tax-Deductible (Maybe)
- 2026 limit: $7,000/year ($8,000 if 50+)
- Tax benefit: Deductible contributions IF you don't have a 401(k) OR income is below $87K single / $143K married.
- Withdrawal: Taxed as ordinary income. Penalty before 59.5. RMDs at 73.
- Best for: Self-employed without a 401(k), or high earners using backdoor Roth conversion strategy.
HSA - Triple Tax Advantage
- 2026 limit: $4,150 individual / $8,300 family
- Tax benefit: Contributions are pre-tax (reduces income), growth is tax-free, withdrawals for medical expenses are tax-free. No other account gets all three.
- Requirement: Must have a High Deductible Health Plan (HDHP) to contribute.
- Strategy: Pay medical expenses out of pocket now, let HSA grow invested for decades, withdraw tax-free in retirement for accumulated medical receipts.
- After 65: Withdrawals for any purpose taxed like traditional IRA (still valuable). For medical expenses: always tax-free.
529 Plan - Education Savings
- 2026 limit: Varies by state (typically $300K-$500K total). Annual gift tax exclusion: $18K/year per beneficiary without filing.
- Tax benefit: Growth is tax-free when used for qualified education expenses. Many states offer state income tax deduction on contributions.
- New in 2024: Unused 529 funds can be rolled to a Roth IRA for the beneficiary ($35K lifetime cap, subject to annual Roth limits).
- Best for: Parents saving for children's college/education.
Optimal Funding Order
- 401(k) up to employer match (instant 50-100% return)
- HSA max (if eligible - triple tax benefit beats everything)
- Roth IRA max ($7,000 of tax-free growth)
- 401(k) max remainder ($23,500 total)
- Taxable brokerage (no limits, no tax advantages)
The Math That Makes This Worth Millions
$23,500/year in a 401(k) at 9.92% for 30 years = $4.1M. The same amount in a taxable account, assuming 24% tax drag on dividends and rebalancing, grows to ~$3.1M. The tax-advantaged account earns $1M more from the same contributions.
Add a maxed Roth IRA ($7,000/yr) and HSA ($4,150/yr) and you're sheltering $34,650/year from taxes. Over a 30-year career, the tax savings compound to $200K-$500K+ depending on your bracket.
Where to Open Each Account
- 401(k): Through your employer (no choice of provider, but you choose investments within it)
- Roth/Traditional IRA: Fidelity, Schwab, or Vanguard (all free, $0 minimums)
- HSA: Fidelity HSA (best - no fees, full investment options) or through your employer
- 529: Your state's plan (check for tax deduction) or Vanguard 529 for low fees regardless of state
Sources: IRS 2026 contribution limits, Vanguard investor research, Fidelity retirement planning data