Lowering your tax burden (for those who pay taxes) should mean more savings. You get to keep more of your money from the IRS. How you use this newly saved money is up to you.
Finding the IRS compliant tax-savings vehicles that allow you to save the most, is what we will explore today.
Max Out Your 401(k)
Retirement saving starts with a 401(k). The value of dedicated savings means that money will be there for retirement. The tax-free contributions and growth mean you can use the 401(k) IRS guidelines to lower your tax burden. The more you save, the more of your money you keep (up until the yearly federal 401(k) maximum contribution).
Max Out Your HSA
An HSA-eligible health insurance plan, like an HDHP, allows you to open an HSA. This single health decision enables you to save pre-tax dollars. 2019 HSA contribution limits are $3,500 for individuals and $7,000 for families.
On top of the tax-free contributions, HSAs are the only account that allows for tax-free growth and tax-free distributions. Nothing else comes close. Your tax-free HSA distributions must be used for qualified out-of-pocket medical expenses. If you don’t use those HSA expenses before the age of 65, you can spend them on anything, like a 401(k) or IRA.
The Power of Two: HSA & 401(k)
Want to double down? Combining contributions of a 401(k) and an HSA will create the most tax savings available on the market. There is no way to save more tax-free income than a 401(k) combined with an HSA.
Use the combined tax-savings of a 401(k) and HSA to save for health costs, save for retirement, and keep the most of your money from the IRS. Maximized tax-savings isn’t a magic trick, although it seems like it. The more you contribute, the more you can save, and grow for years to come.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.