Which accounts should I invest in to optimize my future wealth?

“Which accounts should I invest in to optimize my future wealth?”

It’s a great question, and I hear it all the time.

Get it right, and you can significantly decrease the amount of lifetime taxes you will pay.

Get it wrong, and you will either pay taxes you never needed to, or find your money is not accessible when you really need it.

The answer is rarely, “just max out your 401(k)”, and forget the rest.

There are trade-offs with each account, and I want to walk through when, and why, you’d want to pick one over another.

At the end of the day, they are differentiated by two key things:

1. When are you taxed on the money?
2. How can the money be used?

What are the options?

Whether you work a salary job with benefits or own your own business, there are three types of accounts you can invest in to grow your money.

• Pre-tax accounts: think 401(k), IRA
• Roth accounts: think Roth 401(k), Roth IRA
• Taxable brokerage accounts: think individual, joint

Let’s break it down first to understand what the heck these accounts are, and why they are good.

Traditional 401(k) & Traditional IRA

These give you a tax break today.

Before any taxes get taken out of your paycheck, you can put money into this account. This reduces the total amount of money you tell the IRS you make, which lowers your tax bill in the year you contribute.

However, when you withdraw the money in retirement, you will be taxed on it. Not if, when. Any money put into an IRA or 401(k) will be required to be taken out. It is literally called a Required Minimum Distribution (RMD), starting at age 73.

For 2026, you can put up to $24,500 into a 401(k) and $7,500 into an IRA.

Reasons why you’d want to invest in:

• You’re in a high tax bracket today, and expect to be in a lower one when you withdraw the money
• You want to save money in taxes this year
• Your goal with the money is long-term retirement savings

Reasons why you may not want to use this account:

• If you want to use this money before 59 and a half, you’ll generally owe income taxes plus a 10% penalty if you withdraw before then
• You expect to be in a higher tax bracket when you withdraw the funds, which is exactly when the Roth wins. Speaking of which…

Roth 401(k) & Roth IRA

These flip the timing of when taxes are paid.

You pay taxes today on any amount contributed, but your money grows and comes out tax-free later.

These are great if:

• You expect to earn more in the future and be in a higher tax bracket in retirement
• You are in a lower tax bracket for the specific year
• You want tax-free income in retirement and won’t need the money until after 59 and a half.
• If you’re already maxing out contributions, a maxed Roth holds more after-tax wealth than a maxed pre-tax account, since the IRS’s share isn’t in it.

The logic that generally decides between the two is the following:

Pay taxes when your rate is the lowest.

With a Roth IRA, you can also withdraw your contributions tax and penalty free at anytime. You still need to wait until 59 and a half to withdraw earnings penalty and tax free. This gives these accounts a little more flexibility than pre-tax ones. They also never have lifetime RMDs.

Both types of accounts share one more advantage over a taxable account: Any capital gains, dividends, or interest aren’t taxed while the money is inside.

Stop waiting around for Congress

For many years, the argument for Roths over IRAs was: “Tax rates will likely have to go up to fund our deficit.”

However, in 2025 the tax law (One Big Beautiful Bill Act) made today’s brackets permanent, no scheduled increase to wait for.

It is difficult to predict what Congress will do, but lately, tax laws have tried to expand the base of who pays taxes, not so much raise the rates.

It’s no longer a bet on Congress to raise rates. It’s about your personal tax rates, and a bet on yourself. Do you think you’ll make more money in the future? Do you plan on retiring early and having low-income years where you can potentially move money from your IRA to a Roth IRA?

Each year can be different as well. Contributing to an IRA one year doesn’t lock you in. You can switch to a Roth the next. For example, if your income is lower since you started a business, or are in between jobs.

If you want to get it right, it’s about paying attention to your income in the current year, and making the decision based on that. Not on what Congress is doing.

Taxable Brokerage Accounts

Ok, so why would we want to invest in anything else after I got done talking about all the benefits of the above retirement accounts? Well, one word. Flexibility.

Taxable brokerage accounts have no tax break. You invest with after-tax dollars, and you pay taxes along the way on dividends and gains.

The main benefit with these accounts is that you get flexibility & access.

You can take the money out penalty free anytime. However, you are subject to taxes on capital gains and dividends in the account. With tax smart planning though, these can potentially be reduced and planned for.

This account is ideal for goals such as:

• Money needed before retirement
• Starting a business
• Buying a home
• Taking a sabbatical
• Or anything where you may need access to your money

These accounts are even more powerful, when you leverage them in unique ways. For example, you can take loans from them to fund short term cash needs.

I call this a liquidity engine.

For example, you have $500,000 saved up in a brokerage account and need $100,000 for a down-payment on a home.

Instead of selling investments and potentially incurring taxes from gains, you can take a loan from this account to fund the down payment. Then you just pay it back plus interest.

Another reason you’d want to do this is to optimize your money and keep it in the market, rather than sitting in cash earning lower rates of return over the long term.

There are certainly risks with this strategy worth noting. If the market falls, you may be forced to sell your holdings. It is always prudent to borrow conservatively. This is definitely a more sophisticated technique and I would certainly recommend speaking with a financial professional before doing doing it.

There is no “best account”

The big take away is there is no “best” account. There is only the right account for the specific goal of the money invested.

Ultimately the optimal strategy generally combines a mix of all types of accounts. It’s generally not best practice to have all of your money in any one of these accounts.

Once you understand when you’re taxed and what your goals are for your money, the decision of which ones to invest in becomes easier.

📚 Sources & References

1. IRS — 401(k) limit increases to $24,500 for 2026; IRA limit increases to $7,500
2. Kitces — Breaking Down the "One Big Beautiful Bill Act" (OBBBA) (2025)
3. Kitces — Tax Diversification & Roth Optimization