Saving for retirement is hard enough. Having those hard-earned funds taxed in retirement can feel emotionally frustrating and financially exhausting. No matter how much money you have saved for retirement, the further that money can go, the better. Here is how to use two retirement tax vehicles to save the most money today, and have 100% tax-free retirement income.
Two Accounts You Need for 100% Tax-Free Retirement Income
- 401k – 401ks are the gold standard for modern retirement savings. Tax-free contributions (up to $18,000 in 2017), combined with employer matching (in many cases) propelled through investing, can create a sizeable chunk of retirement savings. Add the value of compound interest over a 25 or 30-year period and the 401k is a force for savings and growth. The growth impact created when combining tax-free income contributions, investment growth, and compound interests are substantial. This can be slightly diminished with required mandatory distributions and income taxes on distributions, but at that point, the tax-free savings have already taken hold.
- HSA – an HSA helps you save for healthcare expenses tax-free for today and well into retirement. HSAs carries a triple-tax advantage (tax-free contributions, tax-free interest and investing growth, and tax-free payments when used for qualified out-of-pocket medical expenses). As you will note, there are no taxes required in this process. HSAs are the only way to use totally tax-free money for healthcare costs. Please consider this long-term value when making healthcare insurance decisions during open enrollment this year and years to come. On top of that, no mandatory distributions enhance their savings value into retirement so your account can grow well into your 70s, 80s and 90s.
To make this even simpler, see the image below that details the tax implication of the 401k and the HSA. (Spoiler Alert – by reading you are only more likely to sign up for an HSA-eligible health plan, like a high deductible health plan and add an HSA today).
The 401k & HSA
Saving for retirement can be a difficult process, but taking a longer-term view in healthcare, retirement, and health savings will help you get ahead. Make sure you speak to a tax expert or financial planner so you can get the advice you need to get ready for retirement. Either way, outlining a strategy and understating the impact of these key retirement accounts (401k and HSA) will help your plan for retirement today.
If you need more help with open enrollment decisions, check out our blog. We will make you a healthcare benefits expert in no time, without any extra work or effort on your end.