Thanksgiving is a time to express gratitude – for good food, good health, and the important people in our lives. But this Thanksgiving, it certainly wouldn’t hurt to take a little time to recognize the many great financial products that make saving for the future easier.
Of course, you can choose to put your retirement savings in a regular old bank or brokerage account. But none of these accounts will give you tax relief along the way. The following accounts will be. And they are all worth taking advantage of if you can.
1. Roth IRA
With a Roth IRA, you don’t need an employer to provide you with a retirement savings plan. As long as you have earned income, you can open a Roth IRA on your own and manage it independently.
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Now, Roth IRAs have much lower annual contribution limits than 401(k) plans. But they’re still a downright awesome retirement savings tool.
For one thing, Roth IRAs offer tax-free retirement withdrawals. At a time in your life when money might get tight, it will be nice not to have to pay the IRS a portion of your withdrawals in the form of tax.
Additionally, Roth IRAs do not impose required minimum distributions (RMDs). This means you’ll have the flexibility to let your money rest and grow tax-free for years. And if you want to gift some of your nest egg to your heirs, a Roth IRA will make that possible.
2. Roth 401(k)s
What makes 401(k) plans so great is that they come with generous annual contribution limits and are often eligible for employer matching funds that don’t even count against those limits. . So all told, you could really amass a fortune if you consistently max out a 401(k).
Meanwhile, a growing number of 401(k) plans offer a Roth savings feature. And with that, you get tax-free retirement withdrawals, just like you would with a Roth IRA.
Now, one thing you should know is that unlike Roth IRAs, Roth 401(k)s do require you to take RMDs from the age of 72. But because Roth 401(k) withdrawals aren’t taxable, those RMDs won’t add to your IRS liability — they’ll just leave you with less money in your savings plan.
Health Savings Accounts, or HSAs, are not retirement savings plans if you want to get technical. On the contrary, as the name so aptly suggests, they are tax-advantaged accounts that you can use to save money for healthcare expenses.
But here’s the thing – your HSA funds never expire, and you can invest money you don’t use, so it grows over time. Since health care is a huge expense for many seniors, maintaining a large HSA balance in retirement could significantly reduce financial stress in your later years.
Also, you are not necessarily limited to using your HSA for medical expense purposes. Once you turn 65, you are allowed to make an HSA withdrawal for any reason without penalty (whereas non-medical withdrawals before age 65 will generally incur a penalty). This means that if you don’t need all of your funds for healthcare spending purposes, you can treat the rest of that money as a general savings account to draw from. It’s a win-win.
Putting money aside in a Roth IRA, Roth 401(k), or HSA could really pave the way to a financially secure retirement. It pays to take advantage of these plans to build wealth for your future – and be grateful along the way.
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