Chapter 8
Tax Advantaged Accounts

Tax-advantaged accounts are the core architecture of tax-efficient wealth management. They exist for one reason: to let you keep more of your returns and pay less to the government. The tax code categorizes these accounts into three primary wrappers: tax-deferred (pre-tax), tax-free (Roth), and medical (HSA), each with its own contribution limits, withdrawal restrictions, and early distribution penalties.

This introduces the problem of asset location—determining which asset class belongs in which tax wrapper to maximize long-term compound growth. Tax-inefficient instruments, like high-yield bonds, active mutual funds, and REITs, belong inside tax-sheltered wrappers. Highly tax-efficient assets, like broad-market equity index funds, can safely sit in taxable brokerage accounts. But the optimization puzzle goes deeper: should you fund pre-tax or Roth? Is the Mega Backdoor Roth worth the administrative hassle? This chapter provides the answers.

The canonical savings cascade for a high-income household:

1.

Contribute up to your employer’s 401(k) match. This is a guaranteed 100% instant return that outranks everything else.

2.

Contribute to the Health Savings Account (HSA) up to the limit ($4,400 single / $8,750 family in 2026) to capture the triple tax advantage.

3.

Contribute to a Roth IRA up to the limit ($7,500 in 2026), utilizing the backdoor Roth technique if your income exceeds the direct contribution limits.

4.

Contribute the remaining elective deferrals to your pre-tax or Roth 401(k) up to the individual limit ($24,500 in 2026, or $32,500 if age 50+).

5.

Contribute to an after-tax 401(k) and execute an in-plan Roth conversion (the Mega Backdoor Roth strategy) up to the defined contribution plan limit ($72,000 in 2026).

6.

Direct excess savings to a taxable brokerage account, using highly tax-efficient investments (like low-turnover equity ETFs) to capture preferential capital gains rates and basis step-ups.

If you have children, a Trump Account (section “Trump Child Savings Accounts”) earns one spot on a list like this: open it to capture the $1,000 federal seed and any employer contribution. That free money ranks above everything. Beyond it, the account converts capital gains into ordinary income and is funded last—behind a 529 and a plain taxable account held for the child.