Tax-deferred vs. tax-free
- Tax-deferred (traditional 401(k), traditional IRA, SEP IRA): contributions are often deductible now, growth is untaxed, and withdrawals are taxed as income later.
- Tax-free (Roth 401(k), Roth IRA): you contribute after-tax dollars, and qualified withdrawals, growth included, are tax-free.
- Triple-advantaged (HSA): deductible going in, tax-free growth, and tax-free withdrawals for qualified medical expenses.
The right mix depends on whether you expect your tax rate to be higher now or in retirement. Most people benefit from having both, so they can choose in retirement which bucket to draw from.
2026 contribution limits at a glance
| Account | 2026 limit |
|---|---|
| 401(k) / 403(b) / most 457 employee deferral | $24,500 |
| 401(k) catch-up (age 50+) | $8,000 |
| 401(k) "super" catch-up (ages 60–63) | $11,250 |
| Traditional / Roth IRA | $7,500 |
| IRA catch-up (age 50+) | $1,100 |
| HSA: self-only / family | $4,400 / $8,750 |
Limits are set by the IRS and change most years. Confirm current figures with your plan or advisor.
A common funding order
- Contribute enough to your workplace plan to get the full employer match.
- Fund an HSA if you're eligible.
- Fund a Roth IRA (directly, or via a backdoor Roth if your income is above the limit).
- Go back and max the 401(k).
- Self-employed? A solo 401(k) or SEP IRA can shelter much more.
- Then taxable brokerage, 529s and other goals.
This is a starting framework, not advice for your situation. A pro can tailor it to your income, taxes and goals.
Frequently asked questions
What is a tax-deferred investment account?
An account where you don't pay tax on growth each year. With traditional 401(k)s and IRAs, you typically get a deduction now and pay ordinary income tax when you withdraw.
What is a backdoor Roth IRA?
A two-step strategy for higher earners: contribute to a non-deductible traditional IRA, then convert it to a Roth. The pro-rata rule can create tax if you hold other pre-tax IRA money, so plan it carefully.
Can self-employed people get a 401(k)?
Yes. A solo 401(k) lets you contribute as both employee and employer, often allowing far more than an IRA. A SEP IRA is a simpler alternative.