Account types

Tax treatment: traditional, Roth, and HSA side by side

Three buckets, three different tax moments. Traditional accounts defer the tax until withdrawal, Roth accounts tax the money up front, and an HSA can avoid tax on all three sides when the funds pay qualified medical costs.

2025 tax treatment comparison for retirement and health savings accounts
Feature Traditional 401(k) / IRA Roth 401(k) / IRA HSA
Contributions Pre-tax; IRA deduction subject to phase-outs After-tax, no deduction Pre-tax or after-tax, deductible either way
Taxable income today Reduced Unchanged Reduced
Investment growth Tax-deferred Tax-deferred Tax-free
Qualified withdrawals Taxed as ordinary income Tax-free after 59½ plus the 5-year rule Tax-free for qualified medical expenses
2025 contribution limit $23,500 elective deferral; $7,000 IRA $23,500 elective deferral; $7,000 IRA $4,300 self-only; $8,550 family
Age 50+ catch-up $7,500 (401k); $1,000 (IRA) $7,500 (401k); $1,000 (IRA) $1,000
Required minimum distributions Yes, generally from age 73 No RMD on Roth IRAs; Roth 401(k) RMDs removed None while the account stays open
Early withdrawal penalty 10% before 59½, plus income tax 10% on earnings before 59½ 20% on non-medical use before 65

Source: IRS Notice 2024-80 (2025 retirement plan limits) and IRS Publication 969 (health savings accounts). Limits apply per person, per tax year.

Decision line: I can name which of these three tax moments matters most for my next dollar this year.

Account priority

Priority waterfall: where each dollar goes first

Order accounts by what each dollar returns, not by tax preference. An employer match is the only step that returns more than a dollar for a dollar, so it sits above every tax-advantaged account. Compare this order against the full limit schedule on the 2025 limits ledger.

  1. HSA (qualifying high-deductible health plan)

    2025 limit: $4,300 self-only, $8,550 family. Contributions go in pre-tax, growth is untaxed, and withdrawals for qualified medical costs are untaxed. After age 65, non-medical withdrawals are taxed like ordinary income.

    GoEnrolled in a qualifying HDHP and able to cover the deductible from cash reserves. StopNo HDHP enrollment, or no cash cushion outside the account.

  2. 401(k), traditional or Roth, up to the full employer match

    The match is a return the market cannot reproduce. Check the plan formula and your vesting schedule before deciding the rate; the match formula walkthrough shows how to read it.

    GoAny unclaimed match remains in the plan. StopOnce your contributions reach the match ceiling.

  3. Traditional IRA or Roth IRA

    2025 limit: $7,000 plus $1,000 catch-up at age 50 and older. Deductibility phases out for workplace-plan participants; Roth contributions phase out by modified adjusted gross income. Details sit in the tax treatment comparison.

    GoIRA deduction or Roth eligibility is available and the plan menu is thin. StopIncome exceeds the phase-out range and backdoor steps are not practical for you.

  4. Remaining 401(k) deferrals to the annual cap

    2025 elective deferral limit: $23,500, with a $7,500 catch-up at age 50 and older. Total employee plus employer contributions are capped separately by the plan.

    GoCash flow is stable and the plan offers low-cost investments. StopExpensive plan fees or a short time horizon for the money.

  5. Taxable brokerage account

    No contribution limit and no withdrawal restriction. Dividends and realized gains are taxed each year, and there is no early-withdrawal penalty on the account itself.

    GoTax-advantaged space is full and goals sit before age 59½. StopYou are holding penalty-free retirement space open to fund this instead.

Decision line: has every dollar of available employer match been claimed before any contribution to a lower step?

Account Types / Penalties and RMDs

Penalties and required minimum distributions

Two events create the largest additional taxes: taking money out before 59½, and missing a required distribution. Each row states the charge, the exceptions, and the age rule behind it.

401(k) withdrawal before 59½
10% additional taxPlus ordinary income tax on the amount withdrawn. Exceptions include death, total disability, separation from service at age 55 or later, and qualified birth or adoption expenses.
Traditional IRA withdrawal before 59½
10% additional taxSame charge as a 401(k), with narrower exceptions: first-time home purchase up to $10,000, qualified higher education costs, health insurance premiums while unemployed, and disability.
Roth IRA distributions
No charge on contributionsYour own contributions come out tax free and penalty free at any age. Earnings need a five-year holding period plus age 59½, or they face the 10% additional tax.
HSA non-qualified withdrawal
20% additional taxAmounts not used for qualified medical expenses are added to income, and before age 65 an extra 20% applies on top of that.
Required minimum distributions
Age 73 or 75Distributions begin at 73 for savers born from 1951 through 1959, and at 75 for those born in 1960 or later. Roth IRAs are excluded while the owner is alive.
Missing an RMD
25% excise taxApplied to the shortfall, reduced to 10% if corrected within the correction window. A workplace 401(k) can be deferred while you are still employed at that employer.

Sources: IRS Publication 590-B, Publication 969, and Notice 2024-80. Figures apply to the 2025 tax year. Deferral amounts behind these rules sit in 2025 contribution limits.

Penalty check: what an early withdrawal would cost

Enter an amount to see the additional tax.

Next Step

Turn the comparison into a number for your own paycheck

You have the tax treatment, the 2025 contribution limits, and the penalty rules laid out side by side. What remains is arithmetic: what does capturing the full employer match actually do to your take-home pay?

  • Confirm your plan's match formula and vesting schedule.
  • Choose a deferral percentage you can hold for a full year.
  • Run the numbers before you change your election.