Retirement Account Types
The IRS wants you to save for retirement, so it offers tax-advantaged accounts. Pick the right wrapper for your money and you keep tens or hundreds of thousands of dollars extra over a career.
Traditional vs Roth — the core split
Traditional = pay tax later. Contributions are pre-tax (immediate deduction). Money grows tax-deferred. Withdrawals in retirement are taxed as ordinary income.
Roth = pay tax now. Contributions are after-tax (no deduction). Growth and qualified withdrawals are entirely tax-free.
Math: if your tax rate now equals your tax rate in retirement, the two are mathematically identical. If you expect higher taxes later → Roth. Lower later → Traditional.
Why these accounts are special
Tax shelter. Inside the account, dividends and capital gains aren't taxed yearly. That's a huge compounding advantage vs. a taxable brokerage.
Employer match. 401(k) plans often match 50–100% of your first few % of pay — the highest-ROI "investment" you'll ever find.
Limits. Contributions are capped each year by the IRS. Catch-up contributions kick in at 50.
The main account types (2024 limits)
401(k) — Traditional
Employer-sponsored. Contributions come straight out of paycheck pre-tax, lowering this year's taxable income. Often paired with an employer match.
401(k) — Roth
Same 401(k) shell but contributions are after-tax. Qualified withdrawals (after 59½ and 5-year rule) are completely tax-free.
Traditional IRA
Individual Retirement Account you open at any broker. Pre-tax contributions deductible (subject to income limits if you also have a workplace plan).
Roth IRA
The crown jewel of retirement accounts. Decades of tax-free growth, no RMDs ever, you can withdraw your own contributions anytime tax-free.
HSA (triple-tax-advantaged)
Health Savings Account. The only account with three tax benefits: deductible going in, grows tax-free, tax-free for qualified medical expenses. After 65 it's an effective traditional IRA for any use.
SEP IRA
For self-employed / small business owners. High contribution limits, simple to set up, but ALL employees must be funded proportionally.
Solo 401(k)
A 401(k) for self-employed with no employees other than a spouse. Can contribute as employee AND employer — much higher caps than IRAs.
457(b) / 403(b)
457(b): state & local government. 403(b): public schools, hospitals, nonprofits. Both look like 401(k)s. 457(b) has no early-withdrawal penalty after separation from service.
Comparison at a glance
| Feature | Traditional 401(k) | Roth IRA | HSA |
|---|---|---|---|
| 2024 limit | $23,000 | $7,000 | $4,150 / $8,300 |
| Tax now | Deductible | No deduction | Deductible |
| Tax later (qualified) | Taxed | Tax-free | Tax-free (medical) |
| Income limits | None | ~$161k single / $240k MFJ | HDHP enrollment |
| Employer match | Often | No | Sometimes |
| RMDs at 73 | Yes | No | No |
| Early withdrawal penalty | 10% before 59½ | Contributions = no; earnings = 10% | 20% for non-medical before 65 |
Roth vs Traditional simulator
Order of operations — what to fund first
401(k) up to the full employer match
Free money. A 100% match is a 100% return before market gains. Always capture this first.Max out an HSA (if you have an HDHP)
Triple-tax-free. No other account offers this. Treat it as a stealth retirement account: pay current medical bills out of pocket and let it grow.Pay off high-interest debt (>7% APR)
Guaranteed tax-free return equal to your APR. Wipe credit cards before investing more.Max out a Roth IRA (if eligible)
$7,000/yr of tax-free growth forever. Most flexible retirement account in existence.Max out the 401(k) ($23,000)
Big tax deduction + tax-deferred growth. Best vehicle once Roth IRA is full.Mega-backdoor Roth, taxable brokerage, mortgage payoff
Once the above are full, optimize further: backdoor Roth, taxable account in index funds, or accelerated mortgage payoff.Connect the dots
Quiz
15 questions on retirement accounts.
Flashcards
Tap to flip. Key retirement-account terms.
Teacher mode
Lesson outline, quick reference, and a printable worksheet with answer key.
Lesson outline (40 min)
- 5 min · Hook — Show a 401(k) match ($5k → $7.5k instantly). Ask: "What return doubles your money in one day with no risk?"
- 10 min · Tax timing — The Trad-vs-Roth split. Pay now or pay later. Walk the math on identical tax rates.
- 10 min · Account tour — 401k, IRA, Roth, HSA. Show the "triple-tax" HSA edge.
- 10 min · Simulator — Have students plug in their projected tax rates. Discuss why Roth IRA is often the best account for young earners.
- 5 min · Wrap — The funding priority: capture match → HSA → kill high-interest debt → Roth IRA → max 401(k).