Best Tax-Advantaged Accounts You're Not Using

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Unlock Hidden Savings: Tax-Advantaged Accounts You're Missing

Many Americans leave money on the table by not fully utilizing available tax-advantaged accounts. These accounts offer significant benefits, reducing your tax burden and accelerating your wealth accumulation. Ignoring them can cost you thousands of dollars over your lifetime. Let's explore some often-overlooked options.

Health Savings Account (HSA): Beyond Healthcare Expenses

An HSA is a triple-tax-advantaged account available to individuals enrolled in a high-deductible health plan (HDHP). Contributions are tax-deductible (or pre-tax if through payroll), earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free. In 2024, the contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution for those aged 55 and older. * Actionable Step: If you have an HDHP, explore opening an HSA. Even if you don't need the funds immediately for healthcare, you can invest the balance and use it for future medical expenses, including in retirement. Unlike a Flexible Spending Account (FSA), HSA funds roll over year after year. * Investment Opportunity: Many HSA providers offer investment options similar to 401(k)s, allowing you to grow your healthcare savings through stocks, bonds, and mutual funds. * Retirement Planning: After age 65, you can withdraw funds for non-medical expenses, although these withdrawals will be taxed as ordinary income. In essence, it functions like a traditional IRA.

529 Plans: Not Just for College

While primarily known for college savings, 529 plans offer tax advantages for educational expenses. Contributions are not federally tax-deductible, but earnings grow tax-free, and withdrawals are tax-free when used for qualified education expenses. Many states offer a state income tax deduction for contributions, further enhancing the benefit. * Beyond College: The SECURE Act 2.0 expanded the allowable uses of 529 plans. Up to $35,000 can be rolled over into a Roth IRA for the beneficiary, subject to certain conditions. * K-12 Education: Many states allow 529 plan funds to be used for K-12 tuition expenses at private schools, up to $10,000 per year. * Actionable Step: Even if your children are grown, consider a 529 plan for yourself or other family members for potential future education needs. Review your state's specific rules and tax benefits.

Tax-Loss Harvesting: Minimizing Capital Gains

Tax-loss harvesting is a strategy to offset capital gains with capital losses. By selling investments that have lost value, you can generate a capital loss, which can be used to offset capital gains taxes. * How It Works: If you have investments that have declined in value, selling them generates a capital loss. You can use this loss to offset capital gains from other investments you've sold at a profit. If your capital losses exceed your capital gains, you can deduct up to $3,000 per year against your ordinary income. * Wash Sale Rule: Be mindful of the wash sale rule, which prevents you from immediately repurchasing the same or substantially similar security within 30 days of selling it for a loss. * Actionable Step: Review your investment portfolio regularly and identify any opportunities for tax-loss harvesting. Consult with a financial advisor or tax professional to ensure you are implementing this strategy correctly. * Example: If you have $5,000 in capital gains and $8,000 in capital losses, you can offset the entire $5,000 in gains and deduct $3,000 from your ordinary income, carrying forward the remaining $0 in losses to future years. By understanding and utilizing these tax-advantaged accounts, you can significantly reduce your tax burden and build a more secure financial future. ```