Chapter 7: The account stack, tax edition

Send $1,000 of salary to four different homes, hold the same index fund in each, and come back in 25 years. The endings are not close: about $3,500 in a plain brokerage account, $4,125 in a 401(k) or a Roth, and $5,427 in an HSA that ends up paying medical bills. Same dollar, same fund, same 7% return. The only variable is the wrapper around the money, and a wrapper is nothing but tax law with a login screen.

The Personal Finance Guide owns the plumbing: its Chapter 16 explains what a 401(k), an IRA, and a Roth actually are, and its Chapter 17 walks the HSA from eligibility to reimbursement. This chapter is the tax edition: every 2026 limit in one table, each wrapper priced in dollars, and a clear order for the question that returns every payday, which is where the next dollar should go.

Every 2026 limit in one place

Three footnotes are worth more than most full articles. An employer match never counts against your $24,500; it rides on top. The Roth IRA phaseout blocks direct contributions only, which is why Chapter 8 exists. And if a workplace plan covers you, the deduction for a traditional IRA contribution phases out at fairly modest incomes, so a high earner's IRA dollars usually travel through Chapter 8's route rather than through a deduction.

Traditional or Roth: one bet, priced

Every traditional-versus-Roth argument on the internet reduces to a single bet about marginal rates, and the arithmetic is perfectly symmetric. Take $1,000 of salary at a 24% marginal rate. Send it to a traditional 401(k) and the full $1,000 invests, grows to $5,427 over 25 years at 7%, and gets taxed on the way out: at 24%, you keep $4,125. Choose the Roth instead and you pay $240 of tax first, invest $760, and keep every penny of the $4,125 it becomes. When the rate going in equals the rate coming out, the two finishes match exactly.

So the whole decision is which rate is higher: your marginal rate today, which you know, or your marginal rate in retirement, which you are guessing. At 32% and above, traditional usually wins, both because retirement income rarely rebuilds a salary that size and because Chapter 9's conversion window often lets you settle the deferred bill at 12% or 22%. At 12%, Roth wins; the tax has never been cheaper for you than right now. In the 22–24% middle, the honest answer is uncertainty, and splitting contributions between the two is a perfectly adult response. The Personal Finance Guide's Chapter 16 has the rest of the mechanics; Chapter 9 here shows retirees re-running this bet every December.

The HSA: 31.65 cents on the dollar, on day one

The HSA is the only account in the code that can skip tax at all three stages: money in, growth along the way, and money out for qualified medical costs. The tax edition adds one detail the benefits brochure buries: route the contribution through payroll. Payroll HSA dollars skip federal income tax and the 7.65% payroll tax, so at a 24% bracket each dollar avoids 31.65 cents on the way in. Max a family HSA at $8,750 through payroll and $2,769 of tax simply never gets withheld. A contribution from your bank account still earns the income-tax deduction at filing time, but not the payroll piece, so the payroll route wins by $669 a year at the family limit.

The second-order move matters just as much: invest the balance and leave it alone. Pay today's medical bills from cash, keep the receipts, and reimburse yourself tax-free decades from now, after the money has compounded. That is the receipt-shoebox strategy, and the Personal Finance Guide's Chapter 17 covers the eligibility rules and the ritual. The catch is real and worth saying plainly: an HSA requires a qualifying high-deductible health plan, and a plan that fits your health needs always outranks a tax break.

The 529: a state rebate plus an escape hatch

A 529 plan gets no federal deduction going in, but growth comes out free of federal tax when it pays for education. The immediate payoff is at the state level: many states offer a deduction or credit for contributions, and the rules vary widely by state, so check yours before assuming anything. Renee contributes $4,000 a year toward her relatives' schooling, and at a 5% state rate her deduction returns about $200 each spring, with the federal shield on growth doing the quiet long-term work.

The classic fear, saving for a college that never happens, has shrunk. Up to $35,000 of leftover 529 money can now roll into the beneficiary's Roth IRA over time, provided the account is at least 15 years old, the contributions have seasoned for 5 years, and the rollovers move at IRA-limit speed, $7,500 a year. The hatch softens a bad guess; it does not excuse one. Non-qualified withdrawals still tax the earnings and add a 10% penalty, so fund real education plans, not hypothetical ones.

The order for your next dollar

Through a pure tax lens, the marginal dollar goes down this ladder:

1. The 401(k), up to the full employer match. A 50% or 100% match is a return no tax strategy can touch. Take all of it before optimizing anything else.
2. The HSA, through payroll, to the limit. 31.65 cents of day-one savings at the 24% bracket, and the only wrapper that never taxes you again.
3. More 401(k) or IRA, traditional or Roth by the bet above. High brackets lean traditional; low brackets lean Roth; earners past the Roth IRA phaseout add the backdoor here (Chapter 8).
4. A 529, only if education costs are genuinely coming. The state deduction is the immediate reward, and the $35,000 hatch limits the cost of guessing wrong.
5. The taxable brokerage. No limits, no lockups, full access to the Chapter 4 through 6 toolkit. Last in the tax ranking and still a fine place for money to live.

This is the tax lens only. The Personal Finance Guide's full order of operations adds the human steps, the emergency fund and high-interest debt, and those outrank everything on this list.

Priya sizes her deduction: SEP vs solo 401(k)

Self-employed savers get to build the employer side of the ladder themselves, and the choice of plan changes the deduction by five figures.

Two honest wrinkles. Neither plan reduces self-employment tax; both shelter income tax only, and Chapter 11 covers the SE side. And retirement deductions shrink the QBI deduction (also Chapter 11), which claws back part of the saving, so a CPA earns their fee sizing the exact contribution in a QBI year.

What a dollar becomes in each wrapper

The figure below runs the chapter's opening race with every assumption stated: $1,000 of salary, the same fund earning 7% a year (2% of it as dividends), 25 years, a 24% bracket both now and in retirement, dividends and the final gain in the taxable account taxed at 15%, and the HSA funded through payroll and spent on medical care.

The taxable bar is the baseline every other wrapper is measured against, and it is no tragedy: $760 after tax grows to about $3,500 after annual dividend taxes and the final 15% on gains. The tax-advantaged wrappers add $600 to $1,900 per $1,000 of salary, which is why filling them is the highest-paying paperwork most people will ever do.

Where people go wrong

• Funding an IRA while match dollars go unclaimed. No wrapper beats an instant 50% or 100% return.
• Using the HSA as a checking account. Spending it down each year, or leaving it in cash, forfeits the only triple-tax-free compounding in the code.
• Defaulting to Roth at 32% or traditional at 12%. Both are the marginal-rate bet placed exactly backwards.
• Overfunding a 529 on autopilot. The Roth hatch caps at $35,000 lifetime, and non-education withdrawals tax the earnings plus 10%.
• Opening a SEP out of habit at Priya-sized profits. The solo 401(k) nearly doubles the deduction at $140,000 and keeps the backdoor Roth clean.

Key takeaways

• The 2026 limits: $24,500 for a 401(k), $7,500 for an IRA, $4,400/$8,750 for an HSA, with catch-ups at 50+ and a $35,000 lifetime 529-to-Roth hatch.
• Traditional and Roth produce identical results when tax rates match; the choice is purely a bet on today's marginal rate versus retirement's.
• HSA dollars through payroll dodge income tax and the 7.65% payroll tax: 31.65 cents per dollar at the 24% bracket, $2,769 on a maxed family HSA.
• The order for a marginal dollar: match, HSA, more 401(k)/IRA by the rate bet, 529 if college is real, then taxable.
• Priya's solo 401(k) shelters $50,522 against a SEP's $26,022 at the same $140,000 profit, worth about $5,400 of federal tax this year.

Sources: IRS: 2026 Tax Inflation Adjustments · IRS: Publication 969, HSAs · IRS: Publication 590-A · Tax Foundation: 2026 Tax Brackets · Finvest Personal Finance Guide