Many people look for ways to reduce how much they pay in taxes each year. Health Savings Accounts provide a triple-tax advantage for qualified medical expenses. Contributions reduce taxable income, earnings grow tax-free, and withdrawals for eligible expenses are not taxed.
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Smart financial planning starts with tax-advantaged accounts. Traditional IRAs may offer tax deductions, with taxes paid later in retirement. Regular contributions and monitoring investments can strengthen long-term savings. This can be beneficial when income decreases during retirement years.
StatePoint Media - If you’re looking for a smarter way to hold on to more of your earnings, the answer may already exist in the tax code. Certain accounts are designed to reward disciplined savers with meaningful tax breaks. When used correctly, they can serve both short-term and long-term goals. The key is knowing where to start. One way to ensure that more of your money benefits you and your future is by making strategic contributions to tax-advantaged savings accounts.
By opening and contributing to a Health Savings Account (HSA) and Individual Retirement Account (IRA), you can substantially reduce your taxable income. Not sure if these accounts are right for you? Consider these insights from Fidelity:
HSAs
An HSA is an account that can be used to pay for qualified medical expenses, including copays, prescriptions, dental care, contacts and eyeglasses, bandages, X-rays, and a lot more. It’s “tax-advantaged” because your contributions reduce your taxable income; the money isn’t taxed while it’s in the account, even if it earns interest or investment returns; and as long as you use your HSA funds for qualified medical expenses, you won’t owe taxes when you take money out of the account. This triple-tax advantage is powerful, but it’s not the only reason why HSAs are so popular. Unlike a flexible spending account, an HSA is not “use-it-or-lose-it,” meaning it doesn’t need to be spent within a certain timeframe. If you don’t need the money in your HSA for current medical expenses, you can save and invest it until you do, and even take the account with you when you leave an employer. Just keep in mind that to open and contribute to an HSA, you’ll need to be enrolled in an HSA-eligible health plan.
IRAs
An IRA refers to a tax-advantaged account designed to help you save for retirement on your own, independent of an employer. There are several types of IRAs, but when people say “IRA” alone, they often mean a traditional IRA. That’s a type anyone with earned income can open and contribute to. Traditional IRAs allow you to save on income taxes now and pay them later in retirement, when you could be in a lower tax bracket and therefore owe less in taxes. Fidelity estimates that you may need 55% to 80% of your pre-retirement income in retirement. Because an employer-sponsored savings plan might not be enough to accumulate the savings you need due to annual contribution limits, investing through an IRA could help you save more for the future.
Before opening an IRA, check out a few different firms that offer them. Find out whether they offer helpful support and a user-friendly experience, plus whether they charge any fees or minimums. Then, once the account is open, decide how much you want to contribute and how often.
“Setting up automated contributions can make saving for retirement into a habit that requires very little effort,” said Rita Assaf, vice president, Retirement at Fidelity. “It’s also a good idea to regularly check your asset mix to see if it is still a good fit for your goals, risk tolerance and time horizon.”
For additional financial resources and insights, visit
https://www.fidelity.com/learning-center.
With a smart strategy that involves directing your income into tax-advantaged accounts, you can build more wealth for future needs and wants.
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