IRA vs. 401k vs HSA

Do I need all of IRA, Roth, 401k, and HSA?

Many investment accounts, like Roth, IRA, 401k, HSA, and “taxable,” could be overwhelming. Which one should I invest in first? Second? Third? Is it really important? And Why?

Hopefully, this article will answer some of the questions.

IRA and 401k

Both IRA and 401k are retirement plans, which offer tax benefits for investing in various types of assets but also put some constraints on withdrawals. The plans have many similar tax rules. We will focus on the most important differences and similarities, but we will not cover all of them (out of the scope of this article).

Retirement plans: IRA and 401k support two types of accounts: “traditional” and “Roth.”

• Traditional IRA/401k: Contributions are pre-tax, and taxes are deferred until withdrawals (tax-deferred account).
• Roth IRA/401k: Contributions are after-tax, and growth and qualified withdrawals are tax-free (tax-free account).

Note that

• Ordinary income tax is taken on pre-tax money withdrawn from a traditional IRA/401k or converted to a Roth.
• Traditional IRAs/401ks may also hold after-tax contributions. In those cases, when withdrawing or converting to…