Tax-Advantaged Accounts

The three flavors

Pre-tax (Traditional) — You get a tax deduction today. Investments grow tax-deferred. You pay ordinary income tax on withdrawals in retirement. Includes Traditional 401(k), Traditional IRA, 403(b), 457(b), and SEP-IRA.

Roth — You pay tax today on the contribution. Investments grow tax-free. Qualified withdrawals in retirement are tax-free. Includes Roth 401(k), Roth IRA.

Triple tax-advantaged (HSA) — The rare account with all three benefits: tax-deductible contribution, tax-free growth, and tax-free withdrawal for qualified medical expenses. HSAs are arguably the most tax-favored account the IRS offers.

The big three accounts

401(k) / 403(b) / 457(b) — Employer-sponsored retirement plans. 2026 contribution limit: $24,500 ($32,500 if age 50+, $35,750 if age 60–63). Many employers match some portion of your contribution — getting the full match is the single highest-return financial decision you can make.

IRA / Roth IRA — Individual retirement account you open yourself. 2026 limit: $7,500 ($8,600 if age 50+). Roth IRA direct contributions phase out at higher incomes (single filers above ~$150k, MFJ above ~$236k for 2026 — confirm current thresholds annually).

HSA — Health Savings Account. Requires being enrolled in an HSA-eligible High Deductible Health Plan. 2026 limits: $4,400 self-only, $8,750 family, plus $1,000 catch-up if age 55+.

The priority order

A defensible order of operations for annual savings:

1. Enough 401(k) to capture full employer match. This is free money.
2. HSA (if eligible). Triple-tax-advantaged; the best account you have access to.
3. Max Roth IRA (if income allows) or Traditional IRA (if Roth is phased out).
4. Max remaining 401(k) up to the $24,500 limit.
5. After-tax "Mega Backdoor" Roth (if your plan supports it).
6. 529 plan (for college savings goals).
7. Taxable brokerage account for anything beyond that.

The exact order depends on your tax bracket, employer match rules, HSA eligibility, and specific goals.

Why the order matters

Tax-advantaged space is limited by annual contribution caps. Unused space is gone forever at the end of each year — you can't "catch up" next year except through the narrow 50+ catch-up rules. Missing a $7,500 IRA contribution at age 30 costs you not just $7,500 but also 35 years of tax-advantaged growth on that contribution — potentially $50,000+ in final value.

Every year you don't max these accounts is a permanent opportunity cost.

Taxable accounts still matter

Tax-advantaged accounts aren't the whole answer. A regular taxable brokerage account has no contribution limit, full liquidity at any time, and receives a "step-up in basis" at death that can eliminate capital gains tax entirely for heirs. It is the right destination for:

• Money above the contribution caps
• Money you might need before age 59½
• Taxable events timed to low-income years

How Horizons uses this

Each account in Horizons has a tax treatment (pre-tax, Roth, taxable, HSA). The engine applies correct tax rules on contributions, growth, and withdrawals — including the gross-up math that figures out how much to withdraw from a Traditional account to cover a net expense after taxes.