The right account type determines whether you pay taxes now, later, or never on your investment growth. Choosing correctly can add $50,000–$200,000 in lifetime wealth on the same underlying investments.
The account menu
| Account | Tax on contributions | Tax on growth | Tax on withdrawal | Annual limit |
|---|---|---|---|---|
| Taxable brokerage | After-tax | Dividends/gains taxed annually | Capital gains at withdrawal | None |
| Traditional 401(k) | Pre-tax | Tax-deferred | Ordinary income | $23,500 |
| Roth 401(k) | After-tax | Tax-free | Tax-free (qualified) | $23,500 |
| Traditional IRA | May be pre-tax | Tax-deferred | Ordinary income | $7,000 |
| Roth IRA | After-tax | Tax-free | Tax-free (qualified) | $7,000 |
| HSA | Pre-tax | Tax-free | Tax-free (medical) | $4,300 |
| 529 Plan | After-tax (state deduction) | Tax-free | Tax-free (education) | $18,000/yr |
The order of operations
- HSA: triple tax advantage, contribute max first if eligible
- 401(k) to employer match: guaranteed return
- Roth IRA: tax-free growth, flexible access to contributions
- 401(k) to maximum: high limit, strong tax deferral
- Taxable brokerage: no limit, most flexible, least tax-efficient
Asset location: which investments go where
Tax-inefficient assets (bonds, REITs, dividend stocks): hold in 401(k) or IRA to defer taxes on ordinary income distributions. Tax-efficient assets (growth stocks, index funds with low turnover): hold in taxable brokerage — qualify for lower long-term capital gains rates. This asset location adds 0.2–0.6% annually in after-tax returns on the same portfolio.
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About the author
Enrique 'Kike' Faúndez is an Information Systems and Management Control Engineer from Universidad de Chile, with master’s degrees in Finance from Universidad de Chile and Industrial Engineering from Pontificia Universidad Católica de Chile. He has 15+ years of experience in regulated financial services across finance, operations, and digital product development. He founded CashControlly in Santiago, Chile, with the conviction that personal financial control should not be a privilege, but an accessible and well-designed tool.
- Master's in Finance, Universidad de Chile
- Master's in Industrial Engineering, Pontificia Universidad Católica de Chile
- Information Systems and Management Control Engineer, Universidad de Chile
- AI and ITIL certifications
- 15+ years in regulated financial services
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