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Utilize taxadvantaged accounts for long-term savings from "summary" of The Tax and Legal Playbook by Mark J. Kohler
When it comes to saving for the long term, utilizing tax-advantaged accounts can be a game-changer. These accounts offer significant tax benefits that can help you grow your savings more quickly and efficiently. One of the most popular tax-advantaged accounts is the traditional IRA, which allows you to contribute pre-tax dollars that can grow tax-deferred until you start making withdrawals in retirement. This means that you can invest more money upfront since you won't have to pay taxes on your contributions until later. Another popular option is the Roth IRA, which works in the opposite way. With a Roth IRA, you contribute after-tax dollars, but your withdrawals in retirement are tax-free. This can be a great option if you expect your tax rate to be higher in retirement than it is now. In addition to IRAs, 401(k) plans offered by employers are also excellent tax-advantaged savings vehicles. These plans allow you to contribute a portion of your salary on a pre-tax basis, reducing your taxable income for the year. Employer contributions to 401(k) plans can also add up quickly, helping you save even more for retirement. Health savings accounts (HSAs) are another tax-advantaged account worth considering, especially if you have a high-deductible health insurance plan. HSAs allow you to contribute pre-tax dollars to cover qualified medical expenses both now and in retirement. The money in an HSA can also be invested, potentially growing tax-free over time. In addition to these accounts, there are other tax-advantaged options to explore, such as 529 plans for education savings and ABLE accounts for individuals with disabilities. By taking advantage of these accounts, you can maximize your savings potential and keep more of your hard-earned money in your pocket. So, if you're looking to save for the long term, be sure to explore the various tax-advantaged accounts available to you and start growing your wealth more efficiently today.
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