Retirement accounts
Everything in this section is a variation on one trade: you give up access to the money for decades, and in exchange the government stops taxing what it earns along the way. The differences between the wrappers — 401(k), traditional IRA, Roth — come down to three questions. When do you pay the tax, going in or coming out? How much can you put in? And when can you get at it without a penalty? A 401(k) takes $24,500 of elective deferrals in 2026 inside a $72,000 overall plan ceiling and forces distributions at 73; a Roth IRA takes $7,500, never forces a distribution, and never taxes the growth again. Everything else in this section is detail hanging off those three questions.
The IRC §415(c), “Limitations on benefits and contributions under qualified plans” caps the total annual contributions to a defined contribution plan (e.g., 401(k)), including employee pre-tax, Roth, employer match, profit-sharing, and after-tax contributions. For after-tax contributions specifically, this is the only applicable limit, meaning you can contribute up to the difference between $72,000 and the sum of all other contributions. Importantly, this limit applies separately to each employer’s plan if you work for multiple employers with unrelated control groups, allowing you to maximize contributions across plans. However, exceeding this limit triggers penalties and corrective distributions.
Understanding these accounts’ nuances, including penalties for early withdrawals and strategic tax planning, is critical to optimizing retirement savings and ensuring financial security in later years. See overview of retirement accounts in Table 8.2.
| Taxable account | Pre-tax 401(k) | Roth 401(k) | Roth IRA | |
| taxation of contributions | post-tax dollars | pre-tax dollars | post-tax dollars | post-tax dollars |
| taxation while growing | tax dividends and capital gains incurred as it grows | not taxed | same | not taxed |
| taxation of withdrawals | tax growth at capital-gains tax rates (if invested for > 1 yr) | tax at income tax rates | not taxed | not taxed |
| annual contribution restrictions | none | plan-defined eligible pay, which commonly excludes RSU income even though it is W-2 wages — check your plan document; elective deferral limited to $24,500 in 2026, plus employer match; all contributions combined capped at $72,000 ( IRC §415(c)) | same except $24,500 post-tax dollars plus employer match | only earnings (includes RSU income); limited to $7,500 (+$1,100 if age 50+ in 2026), spousal IRA also possible |
| withdrawal restrictions and requirements | none | unrestricted if age 59½+, special rule for retired age 55+; required minimum distribution if age 73+; other special cases and penalties exist | same, but no required minimum distributions during the owner’s lifetime (since 2024) | unrestricted if age 59½+; no minimum distribution; other special cases exist |
| protection against creditors (seizure by others) | none | ERISA anti-alienation: effectively absolute against private creditors, in and out of bankruptcy; the IRS and a QDRO still reach it | same | federal bankruptcy protection to the BAPCPA cap, plus whatever your state’s exemption statute gives outside bankruptcy — which in many states is full protection |
| inheritance treatment | basis changes to value at time of inheritance so taxes on prior growth are not paid | 401(k)-plan specific | same | spouse gets regular IRA distribution rules; non-spouses must empty within 10 years |
| charitable donations | no taxes due plus charitable deduction permitted | donate upon death or move to IRA and then, if age 70.5+, QCD | same | QCD allowed but pointless — withdrawals are already tax-free; donate taxable assets instead |