Tax-Advantaged Accounts Explained: 401k, IRA, HSA, 529

Tax-advantaged accounts are among the most powerful wealth-building tools available. Understanding how each works helps you use them effectively.

401(k) and 403(b)

Employer-sponsored retirement accounts. Contributions reduce your taxable income today. Investment growth is tax-deferred. You pay taxes on withdrawals in retirement.

2025 limits: $23,500 employee contribution. $70,000 total including employer match (if under 50). Additional catch-up contributions for those 50+.

Key benefit: Employer match is free money. Contribute at least enough to get the full match.

Traditional IRA

Individual retirement account with similar tax treatment to 401(k). Contributions may be tax-deductible depending on income and whether you have a workplace plan.

2025 limit: $7,000 ($8,000 if 50+).

Key benefit: Available to everyone with earned income. Good supplement to workplace plans.

Roth IRA

Contributions are made with after-tax money. Investment growth and qualified withdrawals are completely tax-free.

2025 limit: $7,000 ($8,000 if 50+). Income limits restrict direct contributions for high earners.

Key benefit: Tax-free growth forever. No required minimum distributions. Contributions (not earnings) can be withdrawn anytime without penalty.

Roth 401(k)

Combines 401(k) contribution limits with Roth tax treatment. After-tax contributions, tax-free growth and withdrawals.

2025 limit: Same as traditional 401(k). Can split contributions between traditional and Roth.

Key benefit: Higher contribution limits than Roth IRA. No income limits.

HSA (Health Savings Account)

Available only with high-deductible health plans. Triple tax advantage: tax-deductible contributions, tax-free growth, tax-free withdrawals for qualified medical expenses.

2025 limits: $4,300 individual, $8,550 family. Additional $1,000 catch-up if 55+.

Key benefit: The only account with triple tax advantage. Can invest funds and let them grow. After 65, can withdraw for any purpose (taxed as income like traditional IRA).

529 Plan

Education savings account. State-sponsored with tax-free growth and withdrawals for qualified education expenses.

Key benefit: Some states offer tax deductions for contributions. Unused funds can be rolled to Roth IRA (with limits) starting in 2024.

Prioritization Strategy

A common priority order: 401(k) up to employer match, HSA if eligible, Roth IRA if eligible, 401(k) up to maximum, taxable brokerage.

Individual situations vary. Consult a tax professional for personalized advice.