Retirement Accounts Explained

The Hierarchy of Retirement Accounts

If you're earning income, here's the order most experts recommend:

1. 401(k) up to the employer match — instant 50-100% return on your money
2. Pay off high-interest debt (>7%)
3. Build an emergency fund
4. Roth IRA (or Traditional, depending on your tax bracket)
5. HSA (if eligible)
6. Max out the 401(k) beyond the match
7. Taxable brokerage for everything else

This isn't gospel — but it's a strong default for most people in their 20s and 30s.

Traditional vs. Roth — One Question

The mechanics:

• Traditional: tax deduction now, taxed later when you withdraw
• Roth: no deduction now, everything tax-free in retirement — including 30+ years of growth

Ask yourself: "Will my tax rate in retirement be higher or lower than today?"

• Younger / earning less → Roth wins (lock in today's lower rate)
• Mid-career / high tax bracket → Traditional often wins (deduction is more valuable now)
• Most people benefit from having both for tax-flexibility in retirement

The Match Is Non-Negotiable

If your employer matches 100% of the first 5% you contribute, that's a 100% guaranteed return. The stock market has never, in any year, beaten that.

If you're not capturing your full match, fix that today. Skipping it is one of the most expensive mistakes in personal finance.

Contribution Limits (US, recent years)

These change each year — check the current numbers:

• 401(k): ~$23,000/year (plus $7,500 catch-up if 50+)
• IRA / Roth IRA: ~$7,000/year (plus $1,000 catch-up if 50+)
• HSA: ~$4,150 individual / ~$8,300 family

Roth IRAs phase out at higher incomes — Google "backdoor Roth" if that's you.

The HSA Hack

If you have a qualifying high-deductible health plan, the HSA is the only account in America that's tax-deductible going in, tax-free growing, and tax-free coming out for medical expenses.

Pro move: save your medical receipts, pay out-of-pocket today, and reimburse yourself decades later — letting the HSA grow tax-free in the meantime.

Time is your most valuable asset. A 22-year-old contributing $200/month to a Roth IRA at 8% growth retires with about $700,000. The same person waiting until 32 ends up with about $300,000. Ten years cost them $400,000. Start now.