Wherever you live in the US, there are tax-free and tax-advantaged savings options that help you boost your wealth, pay for your healthcare expenses, and pay for your children’s college tuition or daycare expenses. These include:
Roth IRAs for Retirement Savings That Grow Tax-Free
When you work with us, we help you come up with a retirement savings plan that can help you build a solid nest egg for after your working years. If you have a 401(k) or 403(b) at work that offers a match, I always recommend you contribute up to the match. If you don’t, you’re giving away free money.
However, since a 401(k) or 403(b) is funded with pre-tax money, you’ll end up paying taxes on your withdrawals during your golden years. For this reason, I work with all my suitable clients to contribute to a Roth IRA every year (you can contribute up to $6,000 every year, or $7,000 if you are age 50 or older). Because Roth IRAs are funded with post-tax money, they grow tax-free. This means when it’s time to make regular qualified withdrawals from your Roth IRA when you’re living in retirement you won’t pay any taxes on those funds.
Use a Flexible Spending Account or Health Savings Account to Pay for Your Medical Expenses
There are two tax-advantaged options for paying for yours and your family’s medical expenses. A Flexible Spending Account (FSA), which may be offered through your employer, allows you to earmark up to $2,750 of your income, pre-tax, for healthcare expenses to be used during the current calendar year.
A Health Savings Account (HSA), lets you invest money to be used for your healthcare expenses indefinitely. In 2021 individuals can contribute $3,600 a year with after-tax money, or a maximum of $7,200 a year for an individual with a family health insurance plan. The money in your HSA can grow tax-free, and can be used any time during your life. In order to qualify, you must have a high deductible health insurance plan
College Savings Accounts with Tax-Free Growth
All parents want to give their children the best future possible. For many, this means helping to pay for college expenses so their young adult children don’t need to take out excessive student loans.
The Federal government wants to help you meet this goal. For this reason, they’ve created two different college savings programs that grow tax-free: The Educational Savings Account (ESA), for which you can contribute up to $2,000 depending on your modified adjusted gross income (MAGI), and the 529 plan, which allows $15,000 per donor, per beneficiary qualifies for the annual gift tax exclusion. Both accounts can be invested in mutual funds and bonds, allowing for the potential growth of exponential growth over the years.
ABLE Accounts for Minor of Adult Children with Special Needs
If you have a disabled child with a qualifying disability who also receives SSI, you know that there are net worth limits for your child that, if exceeded, reduce or eliminate their monthly SSI payments. An ABLE account, which stands for Achieving a Better Life Experience, allows you to invest up to $100,000 total for your disabled child - regardless of his or her age - without affecting your child’s SSI eligibility. You can contribute up to $15,000 a year into an ABLE account.
Use a Dependent Care Flexible Spending Account to Pay for Your Childcare Expenses
Childcare is expensive. If your employer offers a dependent care flexible spending account (DCFSA) and your child attends a qualifying daycare, preschool, or summer camp, we recommend you contribute to it. Individuals and married couples can contribute up to $5,000 of their pre-tax income to these plans, which must be used in the calendar year exclusively for qualifying child care expenses.
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Any opinion are those of Paul Snow’s and not necessarily those of Raymond James.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.
Investing involves risk and investors may incur a profit or loss