1 · Where each account is taxed — the three moments
Start with the shape. Read each row left to right as the life of a dollar: does the tax hit going in, while it grows, or coming out? The whole game is steering income toward the account whose "taxed" moment lands in your lowest-rate year.
| Account | Money going in | While it grows | Money coming out | Pattern |
|---|---|---|---|---|
| Traditional 401(k) / IRA | Untaxed (deducted now) | Untaxed | Taxed (ordinary) | pay at the end |
| Roth 401(k) / IRA | Taxed (now) | Untaxed | Tax-free | pay up front |
| HSA | Untaxed | Untaxed | Tax-free* | never* (triple) |
| Taxable brokerage | Taxed (already-taxed $) | Partly taxed (dividends yearly) | Taxed gently (0/15/20%) | a little all along |
*The HSA is tax-free coming out only for qualified medical expenses (including Medicare Part B & D premiums). After 65, other withdrawals are allowed but taxed like a traditional account — see the detail table. "Traditional" and "Roth" behave the same whether the wrapper is a 401(k)/403(b)/457(b) or an IRA; the differences that do exist between them are in §2. And all of this is federal: California and New Jersey don't conform — they deny the contribution deduction and tax the HSA's dividends, interest, and realized gains yearly (you self-report it; no 1099 is issued), though withdrawals still escape — making it a double, not triple, advantage in those two states (Ch 22).
2 · The full comparison, account by account
The same accounts, now across all four tax moments plus the conditions that govern each. This is the master reference — the rest of the appendix just zooms into two columns of it.
| Account | Contribution (going in) | Growth | Withdrawal (coming out, 59½+) | Inheritance | 2026 limit & key condition |
|---|---|---|---|---|---|
| Traditional 401(k) / 403(b) / 457(b) Ch 1 | Pre-tax — deferrals cut this year's taxable income. | Tax-deferred — no tax on dividends or gains inside. | Every dollar is ordinary income. 10% penalty before 59½. | No step-up; IRD — fully ordinary income to heirs (10-yr rule). | $24,500 (+$8,000 at 50+; +$11,250 at 60–63) |
| Traditional IRA Ch 2 | Pre-tax if deductible — deduction phases out if you're covered by a workplace plan. | Tax-deferred. | Ordinary income; 10% penalty before 59½. | No step-up; IRD, ordinary income to heirs (10-yr rule). | $7,500 (+$1,100 at 50+) |
| Roth 401(k) / 403(b) Ch 3 | After-tax — no deduction; shares the $24,500 elective limit with pre-tax. | Tax-free. | Tax-free once qualified (5-yr clock + 59½). | Tax-free to heirs; 10-yr rule but no annual RMDs. | $24,500 combined; no owner RMDs (from 2024). Employer match lands pre-tax. |
| Roth IRA Ch 3 | After-tax; income limits ($153k–168k single / $242k–252k joint) — backdoor if over. | Tax-free. | Contributions out anytime tax- & penalty-free; earnings tax-free once 5-yr + 59½. | Tax-free; can grow another decade before the 10-yr empty. | $7,500 (+$1,100 at 50+); no owner RMDs, ever. |
| HSA Ch 4 | Pre-tax (and FICA-free via payroll). Needs an HDHP; none once on Medicare. | Tax-free. | Tax-free for medical at any age. After 65, other use = ordinary income (no penalty). | Spouse keeps it as an HSA; any other heir owes ordinary income on the whole balance at once. | $4,400 self / $8,750 family (+$1,000 at 55+) |
| Taxable brokerage Ch 6 | After-tax; no limits, fully liquid. | Dividends & interest taxed yearly; unrealized gains compound untaxed. | No penalty, no age gate. Long-term gains & qualified dividends at 0 / 15 / 20% — only the gain, not your basis. | Step-up in basis — heirs' basis resets to date-of-death value, erasing a lifetime of gains. | No limit; no RMDs; full liquidity. The bridge for early retirees. |
| Treasuries, TIPS & I bonds Ch 6 | After-tax (usually held in a taxable account). I bonds capped $10,000/person/yr. | Interest is federally taxable, but exempt from state & local tax. I bonds & TIPS can defer. | Interest is ordinary income federally — no preferential rate, unlike stock gains. | If held in a taxable account, the step-up applies to market value. | State-tax-free interest is the edge; TIPS/I bonds are the inflation hedge. |
3 · Getting at the money — penalties, ages & RMDs
The "coming out" column above assumes you're 59½ or older and past any 5-year clock. Two conditions complicate it: the 10% early-withdrawal penalty before 59½, and required minimum distributions (RMDs) that eventually force pre-tax money out whether you need it or not.
| Account | Owner RMDs? | Before 59½ | Main early-access door |
|---|---|---|---|
| Traditional 401(k) | Yes — from 73 (75 if born 1960+) | 10% penalty + tax | Rule of 55 (Ch 25); 72(t) SEPP (Ch 24) |
| Traditional IRA | Yes — from 73 | 10% penalty + tax | 72(t) SEPP (Ch 24) |
| Roth 401(k) | No (from 2024) | Earnings penalized if unqualified | Roll to a Roth IRA to reach contributions |
| Roth IRA | No — ever | Contributions free; earnings 10% + tax | Withdraw contributions anytime; mind the 5-yr conversion clock |
| HSA | No | Non-medical = 20% penalty + tax | Spend on medical — always tax-free, any age |
| Taxable | No | None — fully liquid | Sell anytime; hold > 1 yr for the long-term rate |
RMDs matter for more than cash flow: the forced income can push you into a higher bracket, trigger the Social Security "tax torpedo," and cross an IRMAA line — the case for draining or converting the pre-tax bucket before 73 (Ch 13, Ch 21). QCDs (from 70½, up to $108,000) let you satisfy an RMD tax-free by giving it to charity.
4 · What your heirs inherit
The most consequential difference between these accounts shows up after you're gone. With the federal estate tax now irrelevant for nearly every family (2026 exemption: $15M per person), legacy planning is really about income-tax character and the step-up in basis (Ch 28).
| Account | Step-up at death? | How the heir is taxed | Distribution rule (non-spouse) |
|---|---|---|---|
| Taxable brokerage | Yes — basis resets to date-of-death value | ~$0 on all pre-death gains | None — heirs can hold indefinitely |
| Roth 401(k) / IRA | N/A (never taxed anyway) | Tax-free | Empty within 10 years; no annual RMDs — grows tax-free meanwhile |
| Traditional 401(k) / IRA | No | Ordinary income (IRD), at the heir's rate | Empty within 10 years; + annual RMDs if you'd already started |
| HSA | No | Spouse: stays an HSA. Anyone else: whole balance = income that year | Non-spouse: immediate, in full |
The punchline the guide keeps returning to: leave the step-up (taxable) and tax-free (Roth) dollars to your heirs, and spend down or convert the pre-tax accounts yourself — it's the mirror image of in-retirement sequencing (Ch 20). And name a spouse on the HSA, or spend it, so it never lands on a non-spouse as a one-year tax bomb.
The same $10,000 of salary, four tax fates
Take $10,000 of salary, a 22% tax rate both now and in retirement, and 7% growth for 25 years (a 5.4× multiplier). Where you route it changes what you actually keep:
| Route | Invested after tax | Grows to | Tax at withdrawal | Net in hand |
|---|---|---|---|---|
| Traditional | $10,000 | $54,274 | 22% | $42,334 |
| Roth | $7,800 | $42,334 | $0 | $42,334 |
| Taxable | $7,800 | ~$37,700* | 15% on gain | ~$33,200 |
| HSA (medical) | $10,000 | $54,274 | $0 | $54,274 |
When your tax rate is the same going in and coming out, Traditional and Roth tie exactly — $42,334 either way — so the real choice is a bet on your future bracket: Roth wins if it's higher later, Traditional if it's lower. The taxable account trails both, because you fund it with after-tax dollars and pay tax on dividends along the way. And the HSA, spent on medical care, is untaxed at all three moments — which is why the guide calls it the best account in the code.
*Approximate: a ~2% dividend yield taxed yearly drags the taxable account's compounding below 7%, and a final long-term capital-gains bill trims it again. The exact figure depends on turnover and yield.
Rules and dollar figures are for the 2026 plan year (IRS, SSA, and CMS releases; contribution limits per Notice 2025-67). "Traditional" and "Roth" cover 401(k)/403(b)/457(b)/TSP and IRA wrappers except where the table notes a difference. Contribution limits and brackets reset annually with inflation; the Roth IRA income limits and estate exemption are indexed, while a few thresholds are fixed in law — reconfirm current-year numbers before acting. Nothing here is personalized financial, tax, or legal advice; confirm your own situation with a CPA or the IRS.