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How can one make the most of tax-advantaged accounts (US)?

Curious about make most of your money

How can one make the most of tax-advantaged accounts (US)?

Taxadvantaged accounts are investment or savings accounts that offer specific tax benefits to their holders. Some examples of these accounts include 401(k)s, traditional IRAs, Roth IRAs, Health Savings Accounts (HSAs), and 529 college savings plans. Here are some tips to make the most of these accounts:

1. Take advantage of employer matching: If your employer offers a 401(k) matching contribution, be sure to contribute at least enough to take advantage of the full match. This is essentially free money that can help you grow your retirement savings faster.

2. Consider a Roth account: Roth accounts, such as Roth 401(k)s and Roth IRAs, allow your money to grow taxfree, meaning you won't owe taxes on withdrawals in retirement. If you expect to be in a higher tax bracket in retirement, a Roth account may be a good option for you.

3. Maximize contributions: Try to contribute the maximum amount allowed to your taxadvantaged accounts each year. For example, in 2021, the maximum contribution limit for a 401(k) is $19,500 for those under 50 years of age, and $26,000 for those 50 and older. For IRAs, the limit is $6,000 for those under 50 years of age and $7,000 for those 50 and older.

4. Know the rules: Be sure to understand the rules and regulations surrounding your taxadvantaged accounts. Some accounts, such as HSAs, have specific guidelines around how the money can be used. If you withdraw money from these accounts for nonqualified expenses, you may incur penalties and taxes.

5. Rebalance regularly: If you have a diversified portfolio across multiple taxadvantaged accounts, it's important to rebalance your portfolio periodically to ensure you're still on track to meet your goals.

6. Seek professional advice: If you're not sure which taxadvantaged accounts are right for you, or how to invest the money within these accounts, consider seeking advice from a financial advisor or tax professional. They can help you determine the best strategy to maximize your tax benefits and achieve your financial goals.

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