Roth vs. Traditional: which is better?
One tax-rate comparison decides it.

The Roth IRA

You contribute money you have already paid income tax on. The account grows tax-free. You withdraw tax-free in retirement. Contributions (but not earnings) can come out at any time without penalty. That flexibility makes it the single most powerful account for early-career savers.

The annual contribution limit is $7,500 for 2026, with a $1,100 catch-up for savers aged 50 and older. Contributions can be made up until the tax filing deadline (mid-April) for the prior year. Open the account at Fidelity, Schwab, or Vanguard (no account fees, no commissions on index funds). Invest the contribution in a total-market fund (VTI, FSKAX, FZROX) or a target-date fund. Do not leave the cash sitting in the settlement fund.

The 401(k)

The 401(k) is an employer-sponsored plan with a much higher contribution limit: $24,500 for 2026, plus a $8,600 catch-up at age 50 and another larger catch-up around age 60 under SECURE 2.0. Contributions come directly from payroll before income tax is calculated, so a $10,000 contribution reduces this year's taxable income by $10,000.

Most employers match a portion of contributions. Typical matches are 50 percent of the first 6 percent of salary, or 100 percent of the first 3 percent. The match is the highest-return investment in personal finance: a dollar that doubles on contact. Capture the full match before doing almost anything else.

Many plans now offer a Roth 401(k) option, which has the same $24,500 limit but uses after-tax dollars for tax-free growth (same mechanics as Roth IRA, higher limit, no income restriction). Self-employed people can open a Solo 401(k) with the same limit plus an employer-side contribution on top.

Roth vs Traditional: how to choose

The rule of thumb: choose Roth when your current tax rate is lower than your expected retirement tax rate; choose Traditional when your current rate is higher. In practice, that means early-career and moderate-income savers typically favor Roth, while high earners in peak years often prefer Traditional for the immediate deduction.

The HSA as stealth retirement account

If you are enrolled in a High-Deductible Health Plan (HDHP), the Health Savings Account sits alongside the Roth and 401(k) as a core retirement vehicle, not merely a medical account. HSA contributions are pre-tax (like Traditional 401(k)), growth is tax-free (like Roth IRA), and withdrawals for qualified medical expenses are tax-free at any age. After age 65, non-medical withdrawals work like a Traditional IRA (income tax, no penalty).

The 2026 HSA contribution limit is $4,400 single / $8,750 family, with a $1,000 catch-up at 55. Invest the balance in index funds inside the HSA custodian (Fidelity's HSA has no fees and supports the same mutual funds as their brokerage). Full mechanics in HSA Deep Dive.

The correct order to fill them

Tax-advantaged space is use-it-or-lose-it on an annual basis. If you do not contribute this year, the room is gone. Assuming foundation is in place (emergency fund, high-interest debt cleared):

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The withdrawal rules, clearly

One sentence to make prominent: you can take out everything you contributed at any time, for any reason, with no tax and no penalty. Only the growth has restrictions.

Exceptions to the 10 percent penalty on earnings:

• First home purchase (up to $10,000 lifetime).
• Disability.
• Substantially equal periodic payments (72(t)).
• Death (beneficiary distributions).
• Unreimbursed medical expenses above 7.5 percent of AGI.
• Qualified higher education expenses.

The full exception list is in IRS guidance verify×DON'T TRUST, VERIFYClaim: The IRS lists multiple exceptions to the 10 percent early withdrawal penalty, including first home, disability, medical, education, and SEPP.Verify at: IRS: exceptions to early distribution tax ↗Specific dollar limits and age thresholds can change. Check current IRS guidance..