The Retirement Account Toolkit: 401(k), IRA, Roth & More
Every major retirement account type, how they differ, and which ones you should open first.
In this lesson you'll learn
Why tax-sheltering grows wealth dramatically faster than taxable accounts
Every major account type: 401(k), IRA, Roth IRA, HSA, SEP-IRA
2024 contribution limits for each account
The priority stack — which accounts to fill in what order
Required Minimum Distributions and the Roth advantage
Why Retirement Accounts Beat Taxable Accounts
The fundamental advantage of retirement accounts is tax sheltering. In a taxable brokerage, every dividend payment and every realized capital gain is taxed in the year you receive it. That tax drag — paid year after year — acts as a steady brake on compounding. In a retirement account, that money continues to compound without being taxed each year.
The long-run math is striking. At 7% annual return over 30 years, $10,000 grows to approximately $76,000 in a taxable account (after accounting for annual tax drag on dividends and gains) versus roughly $96,000 in a tax-deferred retirement account — a difference of $20,000 from the same initial investment. The longer the time horizon, the wider that gap becomes.
Taxable Brokerage
→Dividend paid → taxed immediately (0–37%)
→Capital gain realized → taxed same year
→Only after-tax dollars continue compounding
→$10,000 → ~$76,000 after 30 years at 7%
Retirement Account
→Dividend paid → no tax due this year
→Gains accumulate without annual tax drag
→Full balance keeps compounding year after year
→$10,000 → ~$96,000 after 30 years at 7%
The $20,000 difference above assumes a modest starting amount. Multiply this across decades of consistent contributions and you understand why maxing tax-advantaged accounts before investing in a taxable brokerage is one of the highest-return financial decisions you can make.
Account Type Overview
Six major retirement account types cover nearly every employment situation. Each has different contribution limits, tax treatment, and rules about who can use them.
The Priority Stack — Which to Use First
Not all retirement dollars are equal. The order in which you fill these accounts has a significant impact on your long-run wealth. Here is the right sequence, from highest priority to lowest:
1
401(k) to the employer match
This is free money — always capture it first. A 50–100% instant return beats every other investment.
2
Roth IRA to max ($7,000)
If income-eligible. Tax-free growth for decades — fund this before adding more to your 401(k).
3
HSA to max (if on HDHP)
Triple tax advantage: pre-tax in, tax-free growth, tax-free out for medical. Unmatched by any other account.
4
401(k) to the annual max ($23,000)
After Roth IRA and HSA are funded, go back and fill your 401(k) to the full employee limit.
5
Taxable brokerage (no limit)
No tax advantages, but no restrictions either. Use for goals before retirement or once all other accounts are maxed.
Required Minimum Distributions (RMDs)
Pre-tax accounts — Traditional 401(k), Traditional IRA — require you to start withdrawing money at age 73. The IRS calculates a minimum withdrawal amount each year based on your account balance and life expectancy. You cannot leave this money growing indefinitely in pre-tax accounts.
Roth IRAs do NOT have RMDs during your lifetime. That money can keep compounding tax-free for as long as you live. For wealthy retirees who don't need the cash flow, this is a major advantage — and it's one reason high earners increasingly favor Roth 401(k)s and backdoor Roth conversions.
Failing to take an RMD when required triggers a 25% excise tax on the amount you should have withdrawn. This is one of the more painful IRS penalties — and it's entirely avoidable with a simple annual reminder.
Quick Knowledge Check
3 questions · test what you've just learned
1
Which retirement account offers the BEST tax treatment overall?
2
You have a Traditional IRA with $500,000 at age 73. What must you do?
3
You earn $50,000/year and your employer matches 50% of your 401(k) contributions up to 6% of salary. What is the maximum employer match you can receive?
✓ Key takeaways from Lesson 1
Tax sheltering in retirement accounts produces ~$20,000 more on a single $10,000 investment over 30 years at 7% versus a taxable account.
Six major account types: 401(k)/403(b), Traditional IRA, Roth IRA, Roth 401(k), SEP-IRA, and HSA — each with different limits, rules, and tax treatment.
Priority stack: capture the employer match first, then Roth IRA, then HSA (if eligible), then max the 401(k), then taxable brokerage.
Pre-tax accounts require RMDs at age 73; Roth IRAs have no RMDs during your lifetime.
The HSA is technically the most tax-advantaged account available — triple tax benefit if used for medical expenses.