Purse readers are likely familiar with 401(k)s and IRAs, the tax-advantaged retirement accounts we’re all encouraged to start saving and investing in as soon as we can. But financial experts also advise using non-retirement accounts in your planning so you’ll have more flexibility and options now and once you reach your post-work years.
It’s important to understand the tax implications, contribution limits, and other nuances of each account type, and why they are useful in retirement.
401(k)s and traditional IRAs
With tax-deferred accounts like 401(k)s and traditional IRAs, you contribute money before it is taxed, meaning you receive an income tax break in the year that you contribute to them. Then you can invest the contributions in a variety of different securities, such as mutual funds and/or exchange-traded funds (ETFs), etc., and your money grows on a tax-deferred basis.
There are contribution limits on each:
- 401(k): $24,500 in 2026, plus $8,000 catch-up for those age 50 or older (and $11,250 for ages 60 to 63, if your plan allows). Some plans may allow after-tax contributions up to a combined employee and employer limit of $72,000.
- IRA: $7,500 in 2026, plus $1,100 catch-up for those age 50 or older.
This money is meant for retirement, and so you cannot take a withdrawal without incurring a penalty until you are 59 ½, unless it is for a number of reasons approved by the IRS.
When you take a withdrawal in retirement, you pay taxes at your ordinary income rate on the contributions and the growth. That makes these accounts valuable for those who earn a lot now and are likely to be in a lower tax bracket in retirement.
A 401(k) is offered through an employer, while anyone with earned income can open an IRA on their own. (There are some rules on when you can deduct your contributions.) There are a number of different types of IRAs with different contribution limits and other rules around their usage; you can find out more about them here.
Roth 401(k)s and Roth IRAs
The money you contribute to a Roth 401(k) or IRA is considered after-tax dollars, and the earnings and growth can generally be withdrawn tax-free in retirement.
The contribution limits are the same as the traditional accounts, and if you have both account types, you cannot contribute more than the limit cumulatively.
The big difference with a Roth IRA is that you can withdraw your contributions before age 59 ½, since you already paid taxes on them. You cannot withdraw the gains before then without paying a penalty, though.
These accounts are especially valuable for younger investors who are likely to earn much more in the future. But it is good for anyone who’s eligible to have a Roth account because withdrawals in retirement do not count as “income,” which can keep your tax bill lower then.
While there are no income limits on a Roth 401(k), you can only contribute to a Roth IRA if you earn less than $153,000 if you’re a single filer, or less than $242,000 if you’re married and file jointly.
Alicia Adamczyk
Taxable brokerage account
While these investment accounts do not offer the upfront tax advantages of retirement accounts, they have a lot more flexibility when it comes to contributions and withdrawals, which makes them a great companion to your 401(k) and IRAs.
Anyone can open a brokerage account and contribute as much money as they would like. You can invest your contributions in mutual funds, ETFs, stocks, bonds, crypto and other alternatives, and more.
There are no penalties for early withdrawals, because there are no age restrictions on these accounts. When you do withdraw funds, you pay the capital gains tax rate, which is usually much lower than the ordinary income tax rate.
The long-term capital gains rate for investments held longer than one year:
- 0% applies to individuals earning up to $48,350; married filing jointly earning up to $96,700; and heads of household earning up to $64,750.
- 15% applies to individuals earning between $48,350 to $533,400; married filing jointly earning between $96,700 to $600,050; and heads of household earning between $64,750 to $566,700.
- 20% applies to taxable income above those limits.
Additionally, while 401(k)s and traditional IRAs have required minimum distributions once you reach a certain age (generally 73 or 75), brokerage accounts do not. That said, you may incur annual taxes on dividends and capital gains. You will pay ordinary income tax rates if you sell investments you held for less than one year.
You can see why these accounts are so useful in retirement—there is much greater flexibility, and it is likely that you will pay a lower tax rate on any gains than you would with a traditional retirement account.
Tapping a brokerage account is especially useful in the “income valley” years, or right after you retire but before you start collecting Social Security. Your income may be very low, and so it is possible you will pay no tax at all on your withdrawals given the 0% capital gains rate. This can even help you put off taking withdrawals from your tax-deferred accounts for a few years.
A brokerage is also helpful if you need or want to retire early, either by choice or because of illness, disability, or extended unemployment. If you have some savings in a brokerage account, then you can avoid tapping your retirement accounts until you reach retirement age when you can do so penalty-free.
Alicia Adamczyk
Health savings accounts
Not everyone has access to health savings accounts, or HSAs; they are offered alongside high deductible health plans. But if you can make it work, they are a great way to save for health care costs in retirement.
Contributions to an HSA are generally made with pre-tax dollars, the earnings grow tax-deferred, and distributions for qualified medical expenses are withdrawn tax-free. That’s a triple-tax advantage.
There are contribution limits on HSAs, too. Single taxpayers can contribute $4,400 in 2026, and families can contribute up to $8,750. Money in an HSA can be used to pay for current medical expenses, or it can be invested, so it can potentially grow, giving you a nice nest egg to use in retirement.
And after age 65, you can use your HSA to pay for things other than health care, though you will owe ordinary income tax on the distributions at that time.
Cash
While it’s great to have your money in the market, you will want to have some cash in a high-yield savings account, at least enough to see you through a few months’ worth of expenses. That way, you won’t necessarily need to sell off investments in a down market cycle, and you will feel prepared for emergencies that come your way.
It’s a lot of accounts to juggle, but remember that you don’t necessarily need to max them all out every year (and very few people will be able to). Rather, you want to give yourself options and flexibility in retirement.
More on retirement:
Alicia Adamczyk
Alicia Adamczyk
