Investing on a consistent basis throughout your life is the surest way to build wealth and ensure financial freedom after retirement. Investing in certain types of accounts can not only help you build wealth, but can save you money on taxes right now.
Here are two of these types of accounts that millions of Americans can use to invest thousands of dollars and get a bigger tax refund in 2024 and beyond.
IRAs can save you money now or later
Individual Retirement Accounts, or IRAs, are designed to help Americans save money for retirement in a tax-advantaged way.
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IRAs come in two main varieties: traditional and Roth. The main difference between the two is the tax treatment. Traditional IRA contributions are tax-deductible, but any withdrawals in retirement are considered taxable income. Roth IRA contributions are not tax-deductible, but qualified withdrawals are 100% tax-free. In either case, your money is free to grow and compound on a tax-deferred basis while it’s in the account, meaning you won’t pay capital gains or dividend taxes along the way.
everyone you can contribute to a traditional IRA, although to take a deduction you must not have an employer-sponsored retirement plan or your income must be below certain limits. And Roth IRA contributions are income dependent, regardless of whether you have an employer pension plan.
For 2024, the IRA contribution limit is $7,000 per person, with an additional $1,000 contribution allowed for people 50 and older. And it’s worth noting that you can still make IRA contributions for the 2023 tax year (and potentially save on your 2023 taxes) until the April 15, 2024 tax deadline.
CONNECTED: The Ascent’s complete guide to taxes
HSAs can be an excellent option—if you qualify
Health savings accounts, or HSAs, are one of the most underrated types of investment accounts because many people simply think of them as ways to budget for health care costs. But there are a few facts you should know that might change your mind:
- Money deposited into an HSA can be rolled over from year to year. They are not use-it-or-lose-it accounts like Flexible Spending Accounts (FSAs).
- HSA money can be invested in mutual funds, exchange-traded funds (ETFs), or even stocks.
- HSAs have a triple tax relief that has no other account. Contributions are tax-deductible, investments grow tax-deferred, and all withdrawals for qualified health care expenses are tax-free.
- After you turn 65, HSA funds can be withdrawn for any reason, not just for health care, so they can also be used as a general retirement account.
There’s a good chance that health care will make up a significant portion of your expenses in retirement. According to Fidelity, the average 65-year-old couple in 2023 can expect to spend $315,000 on health care over the course of their retirement years. And an HSA can help you do that in a highly effective way.
To be eligible for an HSA, you must be enrolled in a qualified high-deductible health insurance plan. But if you qualify, the 2024 HSA contribution limit is $4,150 for those with single health coverage and $8,300 for those with family coverage.
Not an exhaustive list
To be comprehensive, there are other types of tax-advantaged investment accounts that you can use. For example, if you have self-employment income, there are specialized types of retirement accounts available, such as the SIMPLE IRA, SEP-IRA, and solo 401(k). Your employer may offer a 401(k) or other type of retirement plan. But the point is, there are some excellent ways to invest money for your future and save money on your 2024 taxes at the same time.
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