🎯 In 30 seconds: Two separate questions. First, which account gets your next dollar: usually the employer match, then accounts with the best tax breaks. Second, once you have several accounts, which investments sit in which one. Putting tax-heavy investments in sheltered accounts can lower your yearly tax bill without changing your overall mix.
Which account gets the next dollar
A sequence many planners use, once high-interest debt is gone and an emergency fund is in place:
- 401(k) up to the full employer match. The match is part of your pay.
- HSA, if you have an eligible health plan. Tax-free in, tax-free growth, tax-free out for medical costs. See the HSA page in this section.
- Roth or traditional IRA. More fund choice and often lower costs than a 401(k). For 2026 the limit is $7,500, plus $1,100 if you are 50 or older.
- Back to the 401(k) up to the limit. $24,500 for 2026, more with catch-up contributions.
- Taxable brokerage account. No limits, no withdrawal rules, but you pay tax on dividends and on gains when you sell.
If your 401(k) has very high fees, some people swap steps 3 and 4. If you need the money before retirement, a taxable account is more flexible.
Which investments go where
The idea is to put investments that create a lot of yearly taxable income inside sheltered accounts, and investments that are already tax-efficient in the taxable account.
| Account | Often holds | Why |
|---|---|---|
| Traditional 401(k) or IRA | Taxable bonds, REITs, high-turnover funds | Their interest and dividends are taxed as ordinary income in a taxable account |
| Roth IRA or Roth 401(k) | Investments with the highest expected growth, such as stock funds | Growth comes out tax-free |
| Taxable account | Broad stock index funds and ETFs; municipal bonds | Mostly qualified dividends and long-term gains; muni interest is generally free of federal tax |
| HSA | Long-term growth money if you are saving receipts | Tax-free if used for medical costs |
Worked example
Chris wants $100,000 at 70% stocks and 30% bonds. The money sits in three places: $40,000 in a 401(k), $30,000 in a Roth IRA, $30,000 in a taxable account.
| 401(k), $40,000 | $30,000 bond fund + $10,000 stock index fund |
| Roth IRA, $30,000 | $30,000 stock index fund |
| Taxable, $30,000 | $30,000 total-market stock index ETF |
| Overall | $70,000 stocks, $30,000 bonds: 70/30 |
Each account looks lopsided on its own, but together they hit the target. All of the bond interest is sheltered. One trade-off: when stocks crash, the taxable account and Roth fall the most, so rebalancing happens mostly inside the 401(k).
Backdoor Roth basics
You can contribute directly to a Roth IRA only if your income is below a limit. For 2026 the phase-out range is $153,000 to $168,000 of modified AGI for single filers and $242,000 to $252,000 for married couples filing jointly.
Above that, some people make a nondeductible contribution to a traditional IRA and then convert it to a Roth. This is the “backdoor Roth.” The catch is the pro-rata rule: if you already have pre-tax money in any traditional, SEP or SIMPLE IRA, the conversion is taxed in proportion to your pre-tax and after-tax balances, figured on Form 8606. With a large pre-tax IRA, most of the conversion can end up taxable. This is a good point to ask a tax professional.
Not sure where to start? The investing guide’s decide helper walks through the first steps.