3 retirement savings tools we should all be thankful for
At Thanksgiving, we’re often encouraged to take a break between bites of turkey and express our gratitude for the things that matter most to us: family, health, and, ideally, financial stability. But it also wouldn’t hurt to take a moment and recognize the retirement savings tools that have the potential to help millions of people build wealth and secure their futures. Here are three particularly important ones.
The beauty of IRAs is that anyone with earned income can contribute. Currently, IRAs reach a maximum of $ 6,000 per year for workers under 50 and $ 7,000 per year for those 50 and over. They also come in two main varieties – Traditional and Roth – each of which offers their own distinct benefits.
Traditional IRAs give you tax relief on the money you pay. Put in $ 6,000 this year, and that’s $ 6,000 in income that the IRS won’t tax you on. Plus, unlike investing in a traditional brokerage account, you won’t be subject to capital gains tax every year in your IRA. Rather, your investments grow tax-deferred until you start making withdrawals.
Roth IRAs, on the other hand, offer the benefit of tax-exempt growth. Withdrawals are also completely tax exempt upon retirement.
2.401 (k) s
The advantage of 401 (k) plans is that they come with generous contribution limits. This year, the 401 (k) is a maximum of $ 19,500 for those under 50 and $ 26,000 for those 50 and over. Next year, these limits will increase by $ 1,000 respectively.
Additionally, many companies that sponsor 401 (k) also match employee contributions to some extent. By putting $ 3,000 in your own salary, your employer may put an additional $ 3,000 into your account. And, saving in a 401 (k) is easy. You can change your contribution level at any time and your payroll department will see this amount automatically deducted from your income.
3. Health savings accounts
HSAs are not a retirement savings account per se, but they can certainly work as one. With an HSA, you pay money to cover short-term or long-term health expenses. The funds in your account never expire, so if you don’t use them during your working years, you can access them during your retirement years.
In fact, it is better intentionally not tap into your HSA while you work and let that money grow, as unused HSA funds can be invested. And from a tax standpoint, HSAs offer more benefits than IRAs or 401 (k) s. That’s because they’re tax-efficient three times: contributions are tax-exempt, investment gains are tax-free, and withdrawals used for medical expenses are tax-free.
Another great thing about HSAs is that once you are 65 you can withdraw funds from your HSA for any reason and not be penalized. You’ll pay taxes on your withdrawals in this case, but it’s really no different than paying taxes to withdraw money from a traditional or 401 (k) IRA.
Eligibility for the HSA is dependent on a high deductible health insurance plan. This year, HSAs peak at $ 3,600 for individuals and $ 7,200 for families. Next year’s limits will increase to $ 3,650 and $ 7,300, respectively. However, workers 55 and over can pay an additional $ 1,000 on top of the limit that applies to them.
Give thanks for a variety of savings options
Whether you choose to save for your retirement years in an IRA, 401 (k), HSA, or a combination of these plans, it helps to express some gratitude for the fact that they exist and are loaded. different tax breaks. If it weren’t for these plans, many of us could have a much harder time creating wealth for the future.