Prioritize Your Investments for Tax Efficiency
Investment planning isn't just about picking which companies or funds to buy — it's about where you put them. Each account type has its own tax treatment and availability: a Roth 401(k) lets your contributions grow tax-free in retirement, a Roth IRA lets your money grow and be withdrawn tax-free, and an HSA is triple tax-advantaged — tax-free going in, tax-free while growing, and tax-free coming out when used for medical expenses. This concept is called asset location, and with limited resources, it matters just as much as what you invest in.
Why Tax Efficiency?
When you invest long-term, your growth should far outpace your original contributions. $10,000 invested at 7% for 30 years becomes roughly $81,000 — and $71,000 of that is growth. That growth is subject to capital gains tax in a brokerage account, income tax on withdrawal from a Traditional 401(k), or no tax at all in a Roth 401(k), Roth IRA, or HSA. Putting your money in the right account means you keep more of what you earn, without wasting any opportunity.
How to Prioritize Different Accounts
With most people having limited resources, the order you fill these accounts determines how efficiently your money works. Follow this priority:
- Step 1: 401(k) up to the match — Your employer matches a percentage of your contributions. This is free money — never leave it on the table. Prefer the Roth 401(k) option if your plan offers it.
- Step 2: Maximize HSA — If you have a high-deductible health plan, the HSA is the only account with a triple tax advantage: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. After age 65, it works like a Traditional IRA for non-medical use.
- Step 3: Maximize Roth IRA — Contributions grow tax-free and withdrawals in retirement are tax-free. You've already paid tax on the money going in, so every dollar of growth is yours to keep.
- Step 4: Maximize Roth 401(k) — Go back and fill the rest of your Roth 401(k) up to the annual limit to maximize your tax-free bucket.
- Step 5: Brokerage account — Taxable but flexible. No contribution limits, no withdrawal penalties, and long-term capital gains rates are lower than income tax rates.
- Step 6: Other goals — 529 plans for kids' education, extra mortgage payments, or other priorities. These depend on your personal situation.
2026 Contribution Limits
For 2026, the annual 401(k) employee limit is $24,500 (same for Roth or Traditional). The HSA limit is $4,400 for individual coverage or $8,750 for family coverage. The Roth IRA limit is $7,500. These are base limits — the tool above uses these numbers and recalculates your allocation instantly as you adjust your salary and savings rate.
Re-run this calculator whenever your situation changes: a raise, a job change, new IRS limits, a change in HSA eligibility, or turning 50 (catch-up contributions). Use the Money Flow Analyzer to map how money moves between accounts each month, or track your progress over time with the Net Worth Tracker.