401(k) vs. IRA vs. HSA vs. 529: Tax-Advantaged Accounts Compared

You just got a $5,000 raise. You could put it in a savings account and earn a little interest. Or you could put it in the right tax-advantaged account and effectively earn a 22% instant return before the money even grows, just from the tax deduction alone.

That's not a hypothetical. It's exactly what happens when someone in the 22% federal bracket contributes $5,000 to a pre-tax 401(k). The contribution reduces taxable income by $5,000, saving $1,100 in taxes immediately. The money then grows tax-deferred for decades.

And yet, 39.3 million Americans have HSAs they could be maximizing, millions more leave employer 401(k) matches on the table, and most people have never heard the phrase "financial order of operations."

This guide fixes that.

The 30-Second Version: Four accounts offer major tax breaks: 401(k), IRA, HSA, and 529. Each has different rules for contributions, growth, and withdrawals. The optimal funding order for most people: 401(k) up to the employer match → max your HSA → max a Roth IRA → then go back and max the 401(k). Exceptions abound. Read on.

The Big Comparison Table

Here's every major feature, side by side, for the 2026 tax year:

A few things jump off this table. The HSA is the only account that's tax-free at every stage: going in, growing, and coming out (for medical expenses). The Roth IRA is the only retirement account with no required minimum distributions. And 529 plans have no federal contribution limit, though gifts over $19,000 per beneficiary per year trigger gift tax reporting.

How Each Account Actually Works

The 401(k): Your Biggest Tax Shelter

The 401(k) is the workhorse. With a $24,500 employee contribution limit in 2026 (plus $8,000 catch-up for those 50 to 59 and 64+, or a "super" catch-up of $11,250 for ages 60-63), it shelters more money from taxes than any other account available to most workers.

Contributions come straight off your paycheck, reducing your taxable income dollar for dollar. Earning $75,000 and contributing $5,000? You're only taxed on $70,000. At a 22% marginal rate, that's $1,100 in immediate savings.

The Vanguard "How America Saves" report found the average 401(k) balance hit $148,153 at the end of 2024. But the median was just $38,176, which tells you a lot about how skewed the distribution is. Most people aren't maximizing these accounts.

The catch: withdrawals in retirement are taxed as ordinary income. Every dollar. No favorable capital gains rate. And if you pull money out before 59½, you'll face a 10% penalty on top of income tax.

Many employers now offer a Roth 401(k) option. Same contribution limits, but you contribute after-tax dollars and withdrawals are tax-free. Starting in 2026, catch-up contributions for employees earning over $150,000 in FICA wages must go into the Roth side.

The IRA: Flexibility the 401(k) Can't Match

IRAs give you more investment choices (you're not limited to your employer's fund menu), but the contribution limit is smaller: $7,500 for 2026.

Traditional IRA: Contributions may be tax-deductible. But if you're covered by a workplace plan like a 401(k), deductibility phases out at higher incomes. Growth is tax-deferred. Withdrawals are taxed as ordinary income.

Roth IRA: No deduction, but qualified withdrawals are tax-free. No RMDs during your lifetime. Income limits apply ($168,000 single / $252,000 married filing jointly for 2026 for full contributions). Earn too much? The "backdoor Roth" conversion is still available.

Our article on Roth IRA capital gains tax explains exactly how trading inside a Roth shelters all gains from tax.

The HSA: The Best Account Nobody Fully Uses

The HSA requires a high-deductible health plan (HDHP), which not everyone has. But if you do, this is arguably the most tax-efficient account in existence.

Triple tax advantage:

1. Contributions are tax-deductible (or pre-tax via payroll)
2. Growth is tax-free
3. Withdrawals for qualified medical expenses are tax-free

After age 65, non-medical withdrawals are simply taxed as ordinary income, no penalty. That makes the HSA function exactly like a Traditional IRA at that point, but with the added option of tax-free medical withdrawals.

The strategy that personal finance communities on Reddit and Bogleheads love: pay medical expenses out of pocket now, invest your HSA in index funds, save receipts, and reimburse yourself decades later. There's no time limit on reimbursement. Your $200 doctor visit receipt from 2026 is still valid in 2056.

I know. It feels like a hack. It's not. It's explicitly allowed.

The 2026 limits are $4,400 (self-only) or $8,750 (family).

The 529: Education's Tax Shelter

529 plans offer tax-free growth and tax-free withdrawals for qualified education expenses: college tuition, room and board, books, and up to $10,000 per year for K-12 tuition.

Worried about trapping money? SECURE 2.0 now allows rolling unused 529 funds into a Roth IRA for the beneficiary, up to a $35,000 lifetime cap. The 529 must have been open for at least 15 years, and annual rollovers are subject to Roth IRA contribution limits. But it's a meaningful escape valve.

Total 529 assets hit $525.1 billion across 17 million accounts by the end of 2024. And despite what some parents fear, a 529 owned by a parent is assessed at a maximum of 5.64% on the FAFSA, compared to 20% for assets in the student's name.

The Financial Order of Operations

This is the question everyone really wants answered: which account do I fund first?

Here's the widely accepted prioritization for most people:

Step 1: 401(k) up to the employer match. This is free money. A 50% match on 6% of your salary is an instant 50% return. Nothing else comes close.

Step 2: Max your HSA (if you have an HDHP). Triple tax advantage beats everything.

Step 3: Max your Roth IRA. Tax-free growth forever, no RMDs, and you can withdraw contributions (not earnings) anytime without penalty.

Step 4: Go back and max the 401(k). Fill it to the $24,500 limit.

Step 5: Taxable brokerage account. Once all tax-advantaged space is full, invest in a regular account at Fidelity, Schwab, or Vanguard.

Step 6: 529 (if you have education expenses to plan for). Fund this alongside or after the retirement accounts, depending on your timeline.

Not everyone follows this order. If you're 55 with $80,000 in medical expenses ahead, the HSA might be Step 1. If you have a toddler and no retirement savings, you might skip the 529 entirely for now. The order adapts to your life.

Worked Example: The $8,150 That Saved $1,793

Marcus is 30, single, earning $75,000. He contributes 5% of his salary ($3,750) to his Traditional 401(k) and maxes his HSA at $4,400. Total pre-tax contributions: $8,150.

Without contributions:

• Taxable income: $75,000 − $15,750 (standard deduction) = $59,250
• Federal tax: approximately $7,949

With contributions:

• AGI drops by $8,150 ($3,750 + $4,400) = $66,850
• Taxable income: $66,850 − $15,750 = $51,100
• Federal tax: approximately $6,156

Savings: $1,793 in one year. That's a guaranteed 22% return on his $8,150 contribution, before the investments even start growing.

Use our compound interest calculator to see how those savings compound over 30 years.

What to Do: Your Next Move

1. Check if your employer offers a match. If so, contribute at least enough to get the full match. Anything less is leaving compensation on the table.

2. Open an HSA if you have a high-deductible plan. Fidelity, Lively, and HSA Bank are popular options with low fees and investment options. Invest the funds instead of leaving them in cash.

3. Open a Roth IRA if your income qualifies. Fidelity, Vanguard, and Schwab all offer free accounts with no minimum. Fund it with broad index funds like VTI or VXUS.

4. Review your 529 plan if you have kids. Your state's plan may offer a state tax deduction. Compare fees at SavingForCollege.com.

5. Revisit annually. Contribution limits change. Income limits shift. The overview of how all investments are taxed provides the broader context. And for understanding how tax brackets work, see our taxes section.

References

1. Devenir. (2025). 2024 Devenir & HSA Council Demographic Survey. Devenir.com.
2. Internal Revenue Service. (2025). Notice 2025-67: 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500. IRS.gov.
3. Internal Revenue Service. (2025). Revenue Procedure 2025-19: HSA Contribution Limits for 2026. IRS.gov.
4. Fidelity. (2025). Roth IRA Taxes. Fidelity Learning Center. https://www.fidelity.com
5. Internal Revenue Service. (2025). Annual Gift Tax Exclusion. IRS.gov.
6. Vanguard. (2025). How America Saves 2025. Vanguard.com.
7. Vanguard. (2025). SECURE 2.0 Catch-Up Contribution Changes. Vanguard.com.
8. Chase. (2025). 529 to Roth IRA Rollover Rules Under SECURE 2.0. Chase.com.
9. Investment Company Institute. (2025). 529 Plan Data, December 2024. ICI.org.
10. U.S. Government Accountability Office. (N.D.). FAFSA Asset Assessment Rates. GAO.gov.
11. Internal Revenue Service. (2025). Revenue Procedure 2025-32: 2026 Tax Brackets. IRS.gov.