Roths, HSAs, 401(k)s and more — when it comes to retirement planning, working Americans have no shortage of tax-advantaged accounts in which they can tuck away money for the later years of their lives.
But with only so much money to go around, the question is: Where should advisors tell savers to put their money?
It’s a relatively simple question, but not without its conflicts. Financial advisors tend to agree on fundamental priorities for clients — establishing an emergency fund and contributing to get an employer match on a 401(k) — but it’s not long before even experts reach a point of disagreement.
Paying taxes now or later
In retirement planning, one of the biggest decisions an investor has to make is whether to pay income taxes on contributions now or pay taxes on withdrawals later. In practical terms, that means choosing between Roth accounts or traditional 401(k)s and IRAs.
Roth accounts, which allow investments to grow tax-free, have surged in popularity over recent years.
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From 2016 to 2022, the percentage of households with positive balances in Roth IRAs has increased significantly, according to an analysis of the Federal Reserve’s Survey of Consumer Finances done by the Center for Retirement Research at Boston College. That’s especially true for younger investors. In 2016, just 6.6% of households age 20 to 29 had a Roth IRA. By 2022, that figure jumped to 19.2%, according to the Center for Retirement Research.
Advisors say that Roth accounts, whether a 401(k) or IRA, are ideal for younger, lower-income workers. But the factors that may make Roths appealing aren’t always easy to nail down.
“Deciding on whether to choose traditional or Roth options becomes difficult, requiring guesses as to what future tax rates, account values and retirement income needs may look like,” said C Garrett Moore, founder of Moore Financial Management in Bradenton, Florida.
Traditional 401(k)s and IRAs could be a better option for older workers who find themselves in a higher tax bracket, advisors say. Still, making that determination isn’t just about an investor’s current circumstances. As Moore said, it also involves comparing your current tax rate to what you imagine your future tax rate could be. That future figure is partially influenced by how much money you expect to withdraw in retirement, but it also includes broader assumptions about future tax policy.
A battle of the Roths
Choosing between traditional and Roth accounts may be the first step, but it’s certainly not the last. For savers who decide to go the Roth route, there’s still debate about which is better: IRAs or 401(k)s.
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Roth 401(k)s offer a couple of distinct benefits over their IRA counterparts: namely, higher contribution limits ($23,500 vs. $7,000 in 2025) and the lack of an income cap. But most advisors say Roth IRAs are still the way to go for workers who have access to them.”
With Roth IRAs specifically, you can pull out your contributions at any time, penalty and tax free,” said Filip Telibasa, owner of Benzina Wealth in Sarasota, Florida. “This is not true for 401(k) plans, even if they are Roth. After the IRA is full, we can rotate back to the 401(k) to max it out if there are funds left over.”
More liquid contributions aren’t the only way that IRAs offer greater flexibility than 401(k)s.
IRAs “typically offer many more investment options and the account is not run by your employer so you aren’t subject to any changes they might make to their plan,” said Leah Copertino, founder of Go Fish Finance in Louisville, Colorado.
Advisors also point out that IRAs generally have lower fees than employer-sponsored 401(k)s. That said, for individuals making $150,000 or more, Roth IRAs are not an option due to strict income limits, making 401(k)s a saving grace for tax-averse high earners.
To HSA or not to HSA
The small but mighty health savings account (HSA) is often overlooked when it comes to retirement planning, advisors say. Thanks to its triple-tax-advantaged structure, the HSA is one of the most powerful retirement accounts available to workers, but advisors say the unique account isn’t for everyone.
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For one, gaining access to an HSA requires that a worker sign up for a high-deductible health plan. Workers with more medical needs may not be good candidates for this approach, but those with relatively low medical costs can benefit from signing up for a high-deductible plan and contributing to an HSA, advisors say.
“The HSA is never taxed (federally; some states do apply taxes to HSAs), allowing you to contribute tax-free, grow your money tax-free, and withdraw your money tax-free. It’s truly a unicorn account,” Copertino wrote in an email. “The watch-out here is that in order to get this triple tax advantage, you’ll want to pay out of pocket for your current health care costs, so make sure this is reflected in your annual budget. This will allow you to invest in your HSA account for the long term and unlock that tax-free growth.”
Going the HSA path could incur more out-of-pocket expenses in the short term, but advisors say it’s hard to beat the long-term tax advantages.
“It really should be about building a retirement strategy that lowers your lifetime tax bill,” said Ben Loughery, founder of Lock Wealth Management in Atlanta, “not just this year’s tax bill.”
