Tax-advantaged accounts are the most powerful wealth-building tools available. They let your money grow without the drag of annual taxes eating into your returns.
The Tax Advantage Math
| Account Type | Tax Benefit |
|---|---|
| Traditional (401k, IRA) | Tax-free going in |
| Roth (401k, IRA) | Tax-free coming out |
| Tax-free in, growing, AND out | |
| 529 | Tax-free for education |
Why it matters: $10,000 invested, 7% return, 30 years:
- Taxable: ~$52,000 (after 15% capital gains tax)
- Tax-advantaged: ~$76,000
- Difference: $24,000 more from the same investment
The Priority Stack
Do This
Fill accounts in this order:
- 401k to employer match — Free money, always first
- HSA (if eligible) — Triple tax advantage
- — Tax-free growth forever
- 401k to max — More tax-advantaged space
- Taxable brokerage — After all tax-advantaged space is full
Account Details
401(k) / 403(b)
| Feature | 2024 Details |
|---|---|
| Contribution limit | $23,000 ($30,500 if 50+) |
| Tax treatment | Traditional or Roth |
| Employer match | Free money! |
| Withdrawal | 59½ or penalty |
When to prioritize: When you have an employer match (always get the match first).
Traditional vs. Roth
| If You... | Choose... |
|---|---|
| Think taxes will be higher later | Roth |
| Think taxes will be lower later | Traditional |
| Are early in career (lower ) | Roth |
| Are at peak earnings | Traditional |
| Not sure | Split 50/50 |
IRA (Individual Retirement Account)
| Feature | 2024 Details |
|---|---|
| Contribution limit | $7,000 ($8,000 if 50+) |
| Tax treatment | Traditional or Roth |
| Income limits (Roth) | $161k single, $240k married |
When to prioritize: After getting 401k match, especially if your 401k has poor fund choices.
Pro Tip
High earners: Check out our Wealth tier lesson on backdoor Roth IRA to contribute even above income limits.
HSA (Health Savings Account)
| Feature | 2024 Details |
|---|---|
| Contribution limit | $4,150 individual, $8,300 family |
| Requirement | Must have HDHP insurance |
| Tax treatment | Triple advantage |
The HSA hack: Pay medical expenses out of pocket, invest your HSA, let it grow for decades. In retirement, reimburse yourself tax-free for all those receipts you saved.
See our HSA Strategy lesson for the full playbook.
529 Plans
| Feature | Details |
|---|---|
| Contribution limit | Varies by state ($300k+) |
| Tax treatment | Tax-free for education |
| State deduction | Many states offer it |
Best for: Parents saving for kids' college, or saving for your own education.
Contribution Limits Summary
| Account | 2024 Limit |
|---|---|
| 401(k) | $23,000 |
| IRA | $7,000 |
| HSA | $4,150 / $8,300 |
| 529 | Varies (~$18,000/year gifting) |
Total possible tax-advantaged savings: $34,150+ per person
Common Mistakes
Avoid This
- Not getting the full 401k match (leaving free money)
- Using traditional when Roth makes more sense (or vice versa)
- Ignoring the HSA (best account nobody uses right)
- Cashing out old 401ks instead of rolling over
- Not investing money inside the accounts
The Optimization Path
Once you've mastered the basics, our Wealth tier covers:
- Backdoor Roth IRA for high earners
- Tax-efficient investing strategies
- techniques
Quick Win
Check how much you're contributing to tax-advantaged accounts right now. If you're not maxing them out, increase your contribution by even 1% this month.