401(k) vs. Roth IRA vs. Taxable Brokerage

The Order Matters More Than the Picks

Which stocks or funds you choose matters less than which account type you put them in. The tax treatment of your accounts can easily make a six-figure difference over a career. Here's the optimal funding order for most people.

Step 1: Get Your 401(k) Match

If your employer matches 401(k) contributions, this is the highest-return "investment" available. A 50% match on 6% of salary is an instant 50% return. Not capturing this is literally leaving free money on the table.

Step 2: Max Your Roth IRA ($7,000 in 2026)

After capturing the match, fund a Roth IRA. Why? Your money grows tax-free and withdrawals in retirement are tax-free. You've already paid taxes on the contribution — everything from here grows without Uncle Sam taking a cut.

Income limits apply: in 2026, single filers earning over $161K (MAGI) start getting phased out. If you're over the limit, look into the "backdoor Roth" strategy.

Step 3: Max Your 401(k) ($23,500 in 2026)

Go back and max the 401(k) beyond just the match. This reduces your taxable income today, and many plans now offer a Roth 401(k) option for tax-free growth.

Step 4: Taxable Brokerage

Once retirement accounts are maxed, open a taxable brokerage account. No contribution limits, no withdrawal restrictions, no income limits. You'll pay capital gains taxes, but long-term rates (0-20%) are typically lower than income tax rates.

Use tax-efficient investments here: index ETFs (low turnover = fewer taxable events), municipal bonds if you're in a high tax bracket, and tax-loss harvesting to offset gains.

The Priority Stack

401(k) to match → Roth IRA → 401(k) max → HSA (if eligible) → Taxable brokerage. If you can only do step 1, do step 1. Each step you complete puts you further ahead than 90% of Americans.