April is Financial Literacy Month, so I’m writing about some general financial literacy topics. Today’s topic: Pre-Tax and Roth retirement savings, Health Savings Accounts, and how to decide which to use.

Saving can be hard. Not just because you have to come up with money to save, but because once you do, you have a bewildering range of choices. So many that a lot of people throw up their hands in despair and leave the money in their bank account where it will effectively rot over time, losing purchasing power to inflation. For today’s purposes, I’ll assume you’ve already read about the savings hierarchy and you’ve got your emergency savings, so we’ll talk about retirement and health savings accounts.

Pre-Tax vs. Roth: The Basics

Retirement savings accounts — employer accounts like 401(k)s and 403(b)s, and Individual Retirement Accounts, or IRAs — can come in two tax “flavors”: pre-tax and Roth, or after-tax. Which one is best? It depends on a lot of factors.

In a pre-tax retirement savings account, you don’t pay income taxes on the money you deposit. That money grows tax-free until you retire and start withdrawing it, at which time you’ll pay taxes on it. Roth accounts work the opposite way: you pay income taxes on the money you deposit, it grows tax-free, and withdrawals in retirement are also tax-free. With pre-tax savings, you are deferring taxes until retirement. With Roth savings, you’re prepaying taxes during your working years.

Which Is Better?

The first consideration is your current tax bracket versus your expected tax bracket in retirement. For highly-compensated individuals in high tax brackets, saving current taxes can be very beneficial. If your income puts you in the 35% federal tax bracket, then maxing out your 401(k) with pre-tax dollars — $24,500 in 2026 if you’re under 50 — will save you $8,575 in federal taxes, and more in state taxes. If you think you’ll be in the 24% tax bracket in retirement, your withdrawals will be taxed 11% less than the money would have been during your working years. On the other hand, a person in the 12% tax bracket gets much less of a tax benefit for pre-tax contributions. That same $24,500 would only save $2,940 in federal taxes. If that person is young and anticipates their salary will grow and their future tax rates will be higher, a Roth contribution might make more sense.

The quick summary: the higher your current tax rate, the greater your tax benefit from pre-tax savings; the lower your current tax rate, the greater your tax benefit from Roth savings.

Other Factors to Consider

Taxes aren’t the only factor; other considerations can come into play:

How long does your account have to grow and compound? The longer the timeline until you withdraw, the more you benefit from tax-free growth in a Roth account. For example, a 25-year-old who contributed the maximum to a Roth IRA this year — $7,500 in 2026 — and earned a 7% annual return until age 65 would have about $113,000 in tax-free dollars.

A new wrinkle for high earners and catch-up contributions: Starting in 2026, if you earned more than $150,000 in FICA wages the prior year, any age-based catch-up contributions to your 401(k) must be made as Roth contributions — you no longer have a choice. This is worth factoring in if you’re 50 or older and in that income range.

Would a pre-tax contribution reduce your AGI enough to qualify for the American Opportunity Tax Credit? If so, add up to $2,500 per student to the effective savings from a pre-tax contribution.

Is this an income year for the FAFSA or CSS Profile? This one cuts both ways depending on which aid form applies. Roth IRA contributions increase your tax liability, which is subtracted from income in the FAFSA formula and could result in larger financial aid awards. Pre-tax 401(k) contributions, on the other hand, reduce your Adjusted Gross Income — which does help on the FAFSA, since the FAFSA is based on AGI. However, the CSS Profile, used by many private colleges, adds back pre-tax retirement contributions when calculating aid eligibility, so that strategy won’t help you there.

What does your total retirement savings picture look like? People who have aggressively saved in pre-tax accounts are sometimes surprised to find themselves in a higher tax bracket in retirement, subject to income-related Medicare premium surcharges, or without spending flexibility for occasional large one-off expenses. Adding some Roth assets to the savings mix can help in such a situation.

At what age do you intend to retire? Pre-tax retirement savings accounts can’t be tapped until age 59½ without incurring penalties. Roth accounts allow for penalty-free withdrawals of contributions, subject to some conditions. People intending to retire young need to have assets that can be tapped at that age.

Don’t Overlook the HSA: A Triple Tax Advantage

If you’re enrolled in a qualifying High-Deductible Health Plan (HDHP), a Health Savings Account (HSA) deserves a place in your savings picture — and for many people, it should be funded before other accounts. Why? Because it offers something no other account does: a triple tax advantage.

Contributions are pre-tax (or tax-deductible). The money grows tax-free. And withdrawals for qualified medical expenses are also tax-free. That’s better than either a traditional pre-tax retirement account (taxable on withdrawal) or a Roth account (taxable on contribution).

The HSA contribution limits for 2026 are $4,400 for self-only coverage and $8,750 for family coverage. Those 55 and older who are not enrolled in Medicare can contribute an additional $1,000 as a catch-up contribution.

A few things that make HSAs especially powerful:

  • The money never expires. Unlike a Flexible Spending Account (FSA), HSA funds roll over indefinitely. There’s no “use it or lose it” pressure.
  • It can double as a retirement account. At 65, you can use HSA funds for any expense penalty-free, paying only ordinary income tax — the same treatment as a traditional IRA. For qualified medical expenses, withdrawals remain tax-free at any age.
  • You can invest it. Most HSA providers allow you to invest your balance in mutual funds once it reaches a certain threshold, letting it grow over time just like a retirement account.
  • Supercharge it by “receipts stacking.” One advanced strategy: pay out-of-pocket for medical expenses now, keep the receipts, and let your HSA balance grow invested for years (or decades). Then reimburse yourself later — there’s no time limit on reimbursements for past qualified expenses. This lets your HSA grow tax-free and you can pull the money out tax-free whenever you want.

The main catch: you must be enrolled in a qualifying HDHP to contribute. For 2026, an HDHP must have an annual deductible of at least $1,700 for self-only coverage or $3,400 for family coverage. HDHPs aren’t right for everyone — people with significant ongoing medical costs may find a lower-deductible plan pencils out better overall, even with the lost HSA benefit.

Putting It All Together

For many people, a reasonable order of priority looks something like this: contribute enough to your 401(k) to capture any employer match (that’s free money), then fund your HSA if you’re eligible, then consider maxing out a Roth IRA, and then return to maxing out your 401(k). The right balance of pre-tax vs. Roth contributions within those accounts depends on your current and expected future tax rates, your timeline, and your overall financial picture.

Of course, your situation may have nuances beyond what I’ve outlined here, so it’s always a good idea to check with your tax or financial advisor for specific guidance.